Central Bank Meetings Dominate.
Daily Pfennig

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In This Issue.

* Weak inflation & Retail Sales in Germany.

* Currencies & metals rally fades away

* China gains a wider distribution for renminbi.

* U.S. spending collapses in March..

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

Central Bank Meetings Dominate.

Good day. And a Tom Terrific Tuesday to you! The sun actually appeared in the sky yesterday, YAHOO I said! I know they've done studies on the sun's affect on our moods, but if they ever wanted to do a new one, I volunteer to be a subject of the study, because I would show just how much me seeing the sun each day improves my mood! I always figured that's why "grunge music" was started in the Northwest! HA!

The Fed Heads begin a 2-day FOMC meeting today, with the final announcement on rates due tomorrow afternoon. Long time readers know that I have long questioned the need for a two-day meeting, saying that the Fed Heads probably get so bored that they have to get the board games out, and play some Battleship or Candyland. Better yet, since they've watched the value of the dollar sink since they took over the stewardship of the currency, maybe they're more comfortable playing Monopoly! Anyway, the Fed Heads will begin their 2-day meeting today, so if you hear cries of "By Joe, You've Sunk My Battleship" coming from the Fed meeting room, you'll know what's going on!

I for one, would like to see the actual notes from the meeting right away, for I believe the "doves" AKA Big Ben Bernanke and a few others, will actually win back their share of lost ground, especially given the weaker than expected 1st QTR GDP report that we talked about yesterday. Instead of hearing calls for ending Quantitative Easing (QE), we'll probably begin to hear calls to extend QE!

Of course I told you all that last week, way before the GDP report printed! But then, that's just one of the perks you get from being a dear Pfennig Reader! HA!

The Currencies and Metals rally I talked about yesterday morning, has dissipated this morning, with most currencies trading flat to yesterday morning's figures. We did see the euro bump up to 1.31 yesterday, but it had no push and therefore failed to add to 1.31, eventually falling back below the figure. Gold is being spent this morning too by $4.

Boy, I sure needed a boost this morning, and it just came on the IPod! The late, I miss him already, Alvin Lee, playing Choo Choo Mamma. Now that was just what the doctor ordered! Who needs caffeine when you have Alvin Lee's guitar playing to get you going each day!

OK. I was gone for awhile, but I'm back now. OK, back to the currencies and metals. The Big thing that deep sixed the euro's run at 1.31 yesterday, was the printing of CPI (consumer inflation) data from Germany. Year-on-year CPI harmonized (including all the states) was 1.1%, down from 1.8% in the previous reading for year-on-year. With the European Central Bank (ECB) meeting this week, and already having tons of pressure on them to cut rates, this inflation report was NOT what those not wanting a rate cut wanted to see!

Sprinkle in a weak Retail Sales report for March, and a the Unemployment rate at 6.9%, from Germany, the Eurozone's largest economy, and you've got the ingredients for a surprise rate cut from the ECB on Thursday.. I know, they are much like the other Big 2 (U.S. and Japan) economies that have cut their interest rates to the bone, but the ECB does still have room to cut 25 basis points from the repo rate (1/4%) while leaving the deposit rate at near 0%...

I don't like it when a country cut rates for it debases the currency. But. When a country is forced to cut rates because of economic fundamentals, it's somewhat palatable. What's not palatable is when a country's fundamentals, like inflation already at high rates, doesn't warrant the rate cut, and they cut rates just to promote growth. Sure sometimes it had a reverse effect on the currency and the currency rallies, but for the most part, a rate cut is what it is. a Debasement of the currency.

So. We have the Fed, the Bank of England (BOE) and ECB all meeting this week. At this point, I'm thinking that only the ECB will move rates, see above, with the Fed renewing its pledge to extend Quantitative Easing (QE) and The BOE still trying to come to grips that its economy still needs stimulus. No wonder the markets are confused this week.

These Central Bank meetings this week, and the fear that surrounds what they might do, really has boosted the high yield (relatively speaking) currencies, like the Aussie dollar (A$) and New Zealand dollar / kiwi. We could even throw in the S. African rand, Brazilian real, and Mexican peso if we wanted to expand the list! These currencies are all seeing some slippage this morning, but yesterday they were the cat's meow, and they will soon be again, given the positive rate differentials that they enjoy over the U.S., Japan, Eurozone, and U.K. My friend, Steve Sjuggerud always says.. "Money will go where it's treated best".. And that applies here, folks. not only has the A$ and kiwi been two of the very best performing currencies for the past 11 years, they also pay interest rates that beat the band. (again relatively speaking) I would say that money has been treated the best here for the past 11 years!

Of course, and this will make the legal beagles happier than a body builder directing traffic, past performance is no indication of future performance. But it's a good example of the phrase that my friend Steve, made famous. "money will go where it's treated best".

Did I ever tell you about the impromptu guitar playing jam that Steve Sjuggerud and Chuck had on Amelia Island about 5 years ago? He showed up at a bank dinner with two guitars (acoustic) in hand, and the EverBankers demanded that I play for them. So Steve and Chuck did just that! And then I ended up buying the guitar he brought for me to play. a 1935 fully refurbished Martin. sounds like a symphony to me. I know it's a guitar.

OK. sorry for going off on that tangent. But good memories when I mention Steve's name. Well, not only do we have Central Bank meetings this week, but also national holidays all around the globe. Tomorrow is a holiday for me. And not because it's May Day (May 1st), and celebrate that like they do in the Eurozone, it's because my beloved Cardinals who have forgotten how to hit a baseball, are playing a day game! China will take some holidays, and Japan was off yesterday. Makes for a choppy week, folks. so, like I said yesterday, buckle yourself in for what will feel like Mr. Toad's Wild Ride.

Speaking of China. There are some good indicators that China's plan for a wider distribution of their currency (renminbi / yuan) is gaining a lot of traction. One of those is the announcement that the largest pool of renminbi / yuan deposits outside of China, which is held in Hong Kong, climbed to a record for a 6th consecutive month in March to 668 Billion CNY. For those of you keeping score at home that's $108 Billion worth of renminbi.

In addition, the Chinese also announced that global renminbi / yuan payments rose 32.7% last year. The focus is back on renminbi / yuan appreciation in the markets, as the forward points, which I've explained many times in the past, have really rallied over 1% in the recent trading. For the past year, traders haven't pushed the envelope with the forward points, which in a non-deliverable forward like the renminbi trades, represent what the traders feel the future price will be. And I saw where Morgan Stanley raised their forecast for renminbi / yuan to 6.1 from 6.3.

I guess the boys and girls at Morgan Stanley saw the Pfennig had written about how the trading band in renminbi / yuan was going to be widened, and they raised their forecast. HAHAHAHAHA! Yeah, Chuck, like those researchers wait on pins and needles each morning to read the Pfennig so they can make their forecasts! NOT!

OK. Back to reality. Like I said above, Gold is being spent by $4 this morning, which is basically flat for the day. Yesterday, Gold was up, today it's down. I think it's time for Gold to jump off this swing and start running. I don't know if you've been to a coin dealer or even called around to metals desks, like ours. But if you have you know this already, and if you haven't, you would be shocked to hear about the premiums that are being charged these days by the dealers. Gold premiums are higher, but not like they are in Silver. In some places you have to pay a premium of over $28 on an ounce of Silver.

What does that tell you? Well, it tells me a couple of things. One, that the dealers are finding it difficult to fulfill the demand for Silver, and 2. When demand is like this, and supply is down, guess what happens. I worry about investors that are paying these huge premiums for Gold & Silver coins and bars right now. You do know, that when you go to sell those coins and bars that you don't get that premium back, right? So, be careful out there! And of course I could go on to say that the EverBank Metals Select Pooled Account is; IN MY OPINION the best cost efficient and convenient way to hold metals. (there are no fabrication fees or premiums as they are also called, or safekeeping charges!) And. have you heard about our newest product for Metals?

I made the announcement on the stage at the Global Currency Expo earlier this month. It's a Metals savings plan. Where you can allocate as little as $100 a month to buy the metal and it will happen automatically from your EverBank deposit account! This is what's called a "soft launch" but now hundreds of thousands of people know!

Well, I told you yesterday that the so-called "experts" had forecast that Personal Spending would be flat and Personal Income would rise .4%, thus making March one of those rare months when we made more than we spent. However, a funny thing happened on the way to the forum. Personal Spending was up .2% and Income was also up .2%... so that allowed the savings rate to remain unchanged at 2.7%... Besides the fact that the so-called "experts" got it all wrong. I think we should focus on the fact that in February Personal Spending was up 1.1%... And now in March it has fallen to .2%... That's a HUGE fall folks, and worrisome for the economy in my humble opinion!

Today's data cupboard will show us the color of the Employment Cost Index (NBD) (no big deal), The S&P Case/ Shiller Home Price Index for Feb, the Chicago Purchasing Managers Index (manufacturing) and Consumer Confidence, which is expected to have improved this month. I don't know why, but that's what's expected. Most of these will be somewhat dollar friendly today, so watch for that!

Then There Was This. Last week I told you about how the U.S. Gov't was going to change the way it calculates GDP, which would add 3% to the GDP figures. Well, I saw this reaction to that news by one of the top economists in the country, Michael Pento. Let's listen in on what Mr. Pento thinks about this plan to add 3% to the GDP figures.

"the shenanigans played by government may fool some people into thinking that growth in the U.S. is gaining strength. It may even convince some investors that the debt and deficit to GDP ratio is falling. In addition, it may cause politicians to claim that government spending as a share of the economy is shrinking, so it's OK to ramp up the largess.... However, the BEA and our leaders in Washington have overlooked the most important point, as they so often do, which is that revenue to the government cannot be faked. Even if D.C. desired to include all the sea shells washed up at the beach as part of our gross domestic product, it would not increase the amount of tax receipts to the government. Therefore, it cannot alter the only metric which really counts; and that is our nation's debt and deficits as a percentage of government income. It will not increase by one penny the amount of revenue available to the government to service our debt, and this, in the end, is all our creditors are really concerned about.

Revenue to the government was $2.58 trillion in fiscal 2007. But despite all the government spending and money printing by the Fed, revenue for fiscal 2013 is projected to be just $2.7 trillion. The growth in Federal revenue has been just over $100 billion in 6 years! Nevertheless, our publicly traded debt has grown by $7 trillion during that same time frame. The fact is that the U.S. economy isn't growing fast enough to significantly increase the revenue to the government, but our debt is still soaring.

It all comes down to this, the U.S. government will not be able to service its debt once interest rates normalize, and that will be the sad truth regardless of what voodoo tricks Washington uses to report GDP. It's a shame they won't just implement real measures to grow the economy like reduced regulations, simplifying the tax code and balancing the budget. At least we can still purchase precious metals and mining shares to protect our portfolios when the curtain finally comes down on the government's magic act." - Michael Pento

Chuck again. Yes, this is the same stuff I've been telling people for years now, that our ability to pay the debt service on ALL the Treasuries we've issued to finance out debt will become such a burden that cheapening the dollar to pay the debt servicing with cheaper dollars and raising taxes to beyond recognizable tables, will be all that's left for the U.S. to do. except default.

To recap. The currency and metals rally yesterday faded overnight. The euro did reach 1.31 yesterday but weaker than expected inflation, and Retail Sales in Germany have the rate cut campers all lathered up for the ECB meeting on Thursday, and the threat of a rate cut, deeps sixed the euro's ability to gain past 1.31. The ECB, Fed and BOE all meet this week, and it appears that the high yielders (relative) are getting a lot of air play. And China continues to gain a wider distribution for its currency.

Currencies today 4/30/13. American Style: A$ $1.0335, kiwi .8560, C$ .9885, euro 1.3075, sterling 1.5475, Swiss $1.0680, . European Style: rand 8.9640, krone 5.8225, SEK 6.5310, forint 229.35, zloty 3.1725, koruna 19.7150, RUB 31.05, yen 97.55, sing 1.2340, HKD 7.7615, INR 53.80, China 6.2208, pesos 12.19, BRL 2.005, Dollar Index 82.15, Oil $94.45, 10-year 1.65%, Silver $24.36, and Gold. $1,473.76

That's it for today. I heard Jen say that her son had received a bat from the Cardinals give away this past weekend, that was Allen Craig's bat. I said, "The should have let Craig keep his bat, he could have used it this past weekend" HA! But, it's no joke, the Cardinals' bats are missing! Soon they'll be featured on milk cartons! Just a beautiful day yesterday here, I tried to go outside and rest, but there was grass cutting going on, so I went back inside, unwillingly I must say! Poor Alex hit the wall this weekend, and had to stay home from school. He just didn't look too good to me on Sunday. I got to have lunch with one of my fave people in the world yesterday. Thanks to Ellie for making time to meet me for lunch. OK. I'm running late, so I have to get this out the door. I Hope You Have a Tom Terrific Tuesday!

Chuck Butler
EverBank World Markets


Posted 04-30-2013 1:24 PM by Chuck Butler