Political Fears Push Euro Lower.
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In This Issue.

* Spanish & Italian bond yields rise.

* RBA meets tonight.

* China competes with weak yen.

* Metals have limited supply.

And, Now, Today's Pfennig For Your Thoughts!

Political Fears Push Euro Lower.

Good day. And a Marvelous Monday to you! Congrats to our friends at Agora Publishing, who live around Baltimore. Their Ravens are Super Bowl Champions for this year. And to any Ravens fan for that matter! It was a pretty good game, eh? I was at home, and watched the game alone. all by myself, don't want to be all by myself any more. HA! Probably the first time in many years, that we did not attend a Super Bowl Party. But, watching it at home was great, because once the game was over, I was able to go to bed! Darn power surge, made the game even longer than it should have been! And the commercials were a real dud. except a couple.

Ok. The Super Bowl Game has become such a HUGE event, that it deserves that much attention. But in my mind, it's over now, so let's move on to the next big event! And apparently, a political shuffle in Spain might be in the cards. See? I told you that the euro's gains were not on terra firma, and that the Eurozone or the euro was not out of the woods. One little thing could upset the applecart, and apparently, that's what's happening in Spain this morning.

Here's the skinny. Spain's Premier, Mariano Rajoy, is facing calls to resign as he faces questions about illegal payments.. These dark clouds could prove to be nothing more than a tempest in a teacup, but right now, they are dark clouds, and that didn't play well with Spain's bond auction this morning. The auction of 10-year Spanish Gov't bonds, did not go well, and in the end, the yield on the bonds had to rise 11 basis points to 5.32% to attract enough investors.

In Italy. the political scene got muddy, with that old rascal, Silvio Berlusconi, back on the election scene. The markets don't like the look of a Berlusconi led Italy, and the markets took their frustration out on the Italian Gov't Bond auction this morning. The yield on the Italian 10-year was pushed up 7 basis points to 4.4%... Remember last year when Italian yields were over 7%? There's been a lot of healing here, and I hope that this election fiasco doesn't ruin all the hard work that's been done to calm the markets down.

So. the euro, which on Friday, after the somewhat shaky look of the U.S. Jobs data, climbed to surpass 1.36, has lost those gains this morning. But, even with the euro trading below 1.36, it's still much stronger than most economists, and analysts believed it would be last year at this time. Remember that? I was asked by many attendees of the Orlando Money Show, why the euro has performed so well given all the negativity toward the Eurozone last year. Long time readers know what I'll say here, so if you want, skip ahead. go ahead, it's OK! HA! Basically, I put the euro under the heading that says, "What does that say about what the markets think about the U.S. dollar? " It's an ugly contest. and right now, the markets believe the dollar to be more ugly than the euro.

The European Central Bank (ECB) will meet this week on Thursday, and I don't foresee any change in policy from the ECB. What I do expect to hear from ECB President, Mario Draghi, is some talk about the euro's recent gains. I expect him to say that the gains are unwelcome, which could lead to the markets reacting with selling the euro. So, be careful going into the Thursday meeting. But then, maybe Draghi won't say anything about the strength of the euro..

The Reserve Bank of Australia (RBA) meets tonight (for us) and the question is whether the RBA decides to cut rates now or later. the markets truly believe that there is one more rate cut coming from the RBA, that will arrive sometime before the end of June. You know my opinion on this is that the Aussie economy doesn't need more rate cuts. So, I'm going to go out on a limb and say that the RBA will not use this meeting to cut rates.

The Aussie dollar (A$) remains well above parity around $1.04, which I've told you for months now, looks to me to be a fair value for the A$... Today, we'll also see some data that may be the final tool that the RBA uses this afternoon. 4th QTR Retail Sales and January employment data will print today. if these don't print with weak numbers , then the A$ should remain well-bid today.

Did you see that U.S. Manufacturing as recorded by the ISM Manufacturing Index accelerated very sharply in January? The Index number jumped from 50.2 in December to 53.1 in January! WOW! All the components of the index, like new orders, and employment, were all strong. I find this to be curious, don't you? Haven't all the regional manufacturing reports indicated that this National Index would be better by just a hair? And just when the Index was about to fall below 50, it turns around and soars? OK. I guess it can happen. I've just become so jaded when it comes to the reports that the U.S. Gov't issues. But maybe, manufacturing is on a tear, and it will lead us out of this mess.

And while I'm on U.S. data.. what about the Jobs Jamboree last Friday? 157,000 jobs were created according to the Gov't, and the unemployment rate ticked up to 7.9%.. Hey! Isn't that unemployment rate going in the wrong direction? You bet your sweet bippie it is! I liked the Washington Post's reporting of the data. They said, "U.S. employers added 157,000 jobs in January and hiring was stronger over the past two years than previously thought, providing reassurance that the job market held steady while economic growth sputtered." OK. but then in the next sentence they said, "The unemployment rate rose to 7.9% from 7.8% in December."

They talk all glowingly about the job market, and then try to slip it past you that the unemployment rate rose! HA!

OK.. back to the task at hand. I'm writing from home this morning, as I have to deal with doctors today. And then next Monday I head to Houston again for a few days. I kept having all the people that hadn't seen me in a while, come up to me in Orlando and tell me how great I looked. I kept thinking, geez Louise, I wish I felt as good as they say I look!

The British pound sterling, as really taken a back seat to the positive moves by the euro so far this year. pound sterling is losing its alternative haven destination with the euro recovering. I have to say that when the pound sterling was rallying last year, I thought it was a false dawn. the British economy and debt situation just doesn't lend itself to be a safe haven destination. But then Japanese yen was a safe haven too. I think the markets need to reassess either what they consider what they believe to be safe havens, or. scrap the whole thing! Because they are barking up the wrong trees!

The Chinese renminbi / yuan has been slipping lately after reaching 19-year highs a couple of weeks ago. With the Japanese yen taking a ride on the slippery slope, and weakening by over 17% in the past year, the Chinese are worried about their export competitiveness. And so. they apply the brakes to the rate of appreciation in the renminbi/ yuan. This is just a "tapping of the brakes" folks. I don't believe the Chinese want to go that far alongside the yen here. For they have finally figured out that a strong currency goes a long way toward keeping inflation in check.

Well. January 2013 saw the biggest commodity rally for a month since 2006! I see where Platinum reached its highest price in 4 months, as S. Africa continues to struggle with production of Platinum. That was another point I was making last week in Orlando. The point being that Gold, Silver and Platinum have a limited supply.. It's not like a miner can just go out and dig a hole and find these metals. Knowing this, should be enough to push these metals to unseen levels.

Having said that. I have to say that Gold is weaker this morning. doesn't make sense to me, but it is what it is, folks. But the main point I was getting to, and then went down this supply road. is that Commodities are really gaining some traction again, and it's not just Oil and Gold. rubber, soybeans, copper, and the list goes on, of commodities reaching near term highs.

Well. I ruffled a few feathers last week with my solutions to the debt problem. Pfennig & Pfriends readers will recall me going through those a couple of months ago. Hey! At least I put my thinking cap on, sat in my thinking chair, and did some thinking! They may not be the end-all, but they're much better than what the Fed has come up with to reenergize the economy. To me, you have to deal with balancing the budget first, then begin to cut away at the debt, before the economy can really take off. Buying $85 Billion of bonds each month, does nothing. and neither does cutting interest rates to zero, and leaving them there for what seems to be an eternity.

The Wall Street Journal isn't too thrilled with the Fed's actions either. Here's what they had to say about it. "The Fed has led a parade of easing around the world, as other central bankers follow to prevent their currencies from rising too much," according to a Journal editorial. "Yet the economic paradox of our time is slow growth and lousy job creation despite these monetary exertions."

Then There Was This. getting back to the limited supply theme that I started in Orlando last week.. I saw this on Ed Steer's letter the other day, and it plays well with that theme. "A global gold 'production cliff' is coming in 2017, according to analysts at Canada's National Financial Bank.

Pierre Lassonde, chairman of Franco-Nevada Corporation - a leading gold royalty and stream company - also drove home this point yesterday at a mining conference in Vancouver, urging participants in the gold mining industry to address the coming production decline.

The gold supply-side story of the past decade is not encouraging. Big new deposits have been elusive. The number of "supergiant" discoveries has dwindled from two in the past five years to zero in the past two years. Comparing this to the impressive deposit discoveries of the 1970s and 1990s, one begins to get a sharper sense of the 'cliff'.

Quality, too, is an issue. Ore grades have tumbled from an average of 12 grams per tonne in 1950 to roughly 3 grams in Australia, Canada and the US. In some cases, cutoff grades have dipped to 1 gram per tonne. "The next cutoff," claimed Lassonde, "is dirt."

Chuck again. This is going to become a problem, and should provide an underpin for the precious metals this year and going further.

To recap. The lofty figures from the currencies and metals from Friday, after the not-so-ready-for prime time Jobs Jamboree figures, gave way to weaker levels in the overnight markets. The Spanish and Italian bond auctions were weaker this morning, and put the drag on the euro, and the Chinese renminbi/ yuan is weaker due to Japanese yen weakness.

Currencies today 2/4/13. American Style: A$ $1.0430, kiwi .8465, C$ $1.0040, euro 1.3565, sterling 1.5715, Swiss $1.0985, . European Style: rand 8.9275, krone 5.4770, SEK 6.3235, forint 215.85, zloty 3.0665, koruna 18.9065, RUB 29.98, yen 92.85, sing 1.2380, HKD 7.7540, INR 53.28, China 6.2327, pesos 12.66, BRL 1.9885, Dollar Index 79.49, Oil $96.78, 10-year 2.05%, Silver $31.52, and Gold. $1,663.87

That's it for today. It was great seeing lots of Pfennig Pfriends at the Money Show last week, and great to see some of the folks from Jacksonville that I don't get to see that often. Lauren, Mike were great! Well. did you team win last night? I didn't really care who won, I just wanted the score to end a quarter with on my square! I almost had the half-time score, until S.F. kicked a darn field goal with time running out! UGH! It snowed a few inches here Saturday night. one of those "pretty snows". I left Orlando without a coat, and arrived here Saturday afternoon, and froze! That'll teach me! Thanks to all who attended my two presentations in Orlando. I hope it wasn't a case of "you get what you pay for"! HAHAHAHAHA! On that. I hope you have a Marvelous Monday!

Chuck Butler
EverBank World Markets

Posted 02-04-2013 11:02 AM by Chuck Butler