Vinnie Barbarino. "I'm So Confused".
Daily Pfennig

Blog Subscription Form

  • Email Notifications


.........But First, A Word From Our Sponsor..........

There's no smarter way to buy gold or silver

Ready to buy some gold? Or maybe even silver? You'd be wise to consider the NON FDIC-INSURED1 Metals Select SM Account from EverBank. It delivers everything you've been searching for-lower costs, ultimate convenience, and flexible options.

-Choose from coins, bars or unallocated metal -No storage or annual fees on Unallocated Accounts -Low account minimums of $5,000 for Unallocated Accounts and $7,500 for Allocated Accounts

To learn more and view important disclosures go to:


In This Issue.

* Fed Heads leave markets scratching heads.

* Currencies fall on their face.

* Soft data from Australia, Eurozone & Sweden.

* ECB cuts rates..

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

Vinnie Barbarino. "I'm So Confused".

Good day. And a Tub Thumpin' Thursday to you! You know, when I greet you each morning, with a silly rhyme for the day, it's all about life. It's not about the markets, profits, losses, or anything else. It's about life, and we need to separate life from all the other things that get confused with life. When you've had the experiences I've had, you look forward to each day, with hopes of having a Tub Thumpin' Thursday, or Tom Terrific Tuesday.

I have no idea why I just said all that. I guess because I started the day with a greeting of a Tub Thumpin' Thursday, but have to tell you that the currency rally yesterday fell on its face, and Gold lost nearly $20 yesterday. You see the two don't mix, but if you separate them, then you understand that one is life, and the other is markets stuff. Leading up to the Fed statement yesterday afternoon, the currencies were taking liberties with the dollar. I told you yesterday that it was all about the Fed, and asked the question, but. what if the Fed disappoints the markets? I told you the currency rally would fall on its face. and fall on its face it did. but not all at first. Y

You see, it took some soft data around the world, to get this currency selling going in the right direction. The euro has lost 1/2-cent, but the BIG losers this morning are the high yield (relative) currencies, like the Aussie dollar (A$), kiwi, and real. So. let's talk about what the Fed said that triggered this face plant by the currencies and Gold.

Well. I guess the Fed Heads really backed up the comments of some of the members calling for an end to Quantitative Easing (QE). On a side bar here before we go on. My friend, Doug Casey, says that we need to quit focusing on what the Fed's doing here, and stop calling it Quantitative Easing, but instead, we need to call it was it really is. "currency debasement". OK. with that thought, here goes my attempt to change. So, did the Fed Heads really back up their fellow member's call for an end to currency debasement?

Ahem.. no they didn't. So, why then did their comments trigger the currencies face plant? Ahhh, grasshopper. Well, what the Fed Heads said, was confusing to the markets, and when they are confused they buy dollars. Tells you a lot about their ability to decipher things to make an informed decision, eh? Anyway, the Fed Heads said that will continue their program to debase the currency to the tune of $85 Billion of bond purchases each month, as long as the economy needs it, and then they determined that they would be able to gauge this "need" by the color of the jobs market and inflation.

Now. If I were king. I would have pointed out to the markets that this new statement was different from the previous one, in which the Fed Heads said that they had discussed gradually winding down the program to debase the currency. And that should have sent the markets to the dollar selling window. But. Like I said, they were confused, and therefore bought dollars.

I just don't get it. The Fed Heads talk about continuing their program as long as the economy plays along. And we all know that the economic data from March has been rotten to the core, so therefore, we must conclude that the program to debase the currency will continue. But NOOOOOOOOO! The markets did their best impression of Vinnie Barbarino. I'm so confused.

I found it very interesting that the actual statement that I'm talking about went like this: "The Committee is prepared to INCREASE or REDUCE the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes."

The interesting part is that if you want to really slice and dice this statement, you could make the point that the Fed put the word INCREASE before the word REDUCE. and that could have meaning to it, right? OK, so maybe I understand why the markets were confused a little bit, but not to rush out and buy dollars! Make no mistake about this folks. If unemployment continues to not gain traction, and inflation stays low (according to the Fed), then the currency debasement program will continue, and may even increase in size! What so darn confusing about that!?

I guess we'll get our first taste of what the Fed Heads are looking at with the April jobs report that will come tomorrow at the Jobs Jamboree. Right now, the "experts" believe the U.S. created a net positive 145,000 new jobs in April. I doubt that 145,000 jobs is what the Fed Heads are looking for, so if the number is that low, the dollar should get back on the selling blocks tomorrow.

Today. Or actually, right now, the European Central Bank (ECB) is meeting, as is the Bank of England (BOE). Of the two, the ECB is actually thought to be considering a rate cut, as the Eurozone economy sinks further into a recession. So, by the time I get this ready for the legal beagles to review, the ECB will be making their announcement. I would think that a rate cut for the ECB is a 50/50 chance today. I would like to think that the ECB led by ECB President, Mario Draghi, would realize that when your interest rates are already at .75%, cutting them further doesn't really do anything for your economy. Just ask the Japanese, and the U.S. for they have already gone done that road, without any success.

OK. at the top I mentioned some soft data around the world helped push the currencies to the floor, and so here it is the data I mentioned. First, the Eurozone printed a manufacturing index number that remained below 50 at 46.7. And Sweden also printed their latest manufacturing index for April, and it dipped below 50 from 52.1 to 49.6. And then in Australia, Building Approvals fell -5.5% in March and the terms of trade were poor given the 2.8% increase in export price index for the 1st QTR.

All of these reports did the same thing. They gave a signal to the markets that the weaker data will be used as the straw that stirs the rate cut drink for each respective country. And if a country like Australia sees its positive rate differential narrowed, the A$ gets taken to the woodshed. The Reserve Bank of Australia (RBA) meets next week, and while it could be too soon for them to act, I would bet a dollar to a Krispy Kreme that the RBA will tear a page out of the U.S. and Japan Central Bank's book on how to destroy an economy and currency, and cut rates in June.

Well. as I always say. There's a currency rally somewhere in the world. and today that rally is centered in China. Yes, the Chinese are back from holidays, and on the first day of the markets being open this week, the Chinese gave the renminbi / yuan the biggest one-day positive move, or at least the largest one I believe that I've seen! In China there was no "confusion" about the Fed statement! They see it for what it really is. And with the thought in the markets that China is going to widen the band that the renminbi/ yuan trades in, the markets are pushing the envelope in the secondary market for the CNH. Remember, I told you about the CNH being the "deliverable" side of the renminbi/ yuan, but only deliverable in Hong Kong at the moment. And there are two prices that get quoted for the currency. The deliverable side, and the base currency, that's fixed by the Gov't, the renminbi/ yuan. The markets can't push the value of the fixed currency around, like they can the CNH.

Most of the time. I'm talking about the fixed currency, the renminbi / yuan. And overnight, the renminbi / yuan was fixed at a higher value to the dollar by the People's Bank of China (the Gov't)

The Canadian dollar / loonie didn't see the selling like the A$, kiwi and krona, and remained above 99-cents! Today, Canada will print their latest Trade Balance. I expect for the Balance which is currently a deficit, to narrow. I had a dear reader from Canada send me a note last week, and he wasn't a happy camper with the current Gov't of Canada, telling me all about how the current Gov't squandered away the Trade Surpluses that Canada used to enjoy. But as I pointed out to him. Those surpluses were enjoyed pre-financial meltdown. Nothing in the world has been the same since.

But a narrowing of the Trade Deficit is a good thing for Canada, and the loonie..

And Gold. Geez Louise, Gold just can't catch a break. Of course really didn't think that the retail mania that existed for a week after the price of Gold got hacked, whacked, and sacked, could be maintained forever. but, thought it would last longer than a week! Gold was spent by $20 yesterday, and doesn't look like it wants to rally today either, as it is at least flat on the day, but with no legs at this point.

Then There Was This. Again, from one of my fave websites to visit, an excellent piece from a former Fed Head, Kevin Warsh. Let's listen in. "At the very crux of the financial crisis, former Fed governor Kevin Warsh notes, experimental extreme monetary policy, had the "right risk-reward", but, he warns, in this excellent (and somewhat chilling) discussion at the Milken Institute, "we left a financial crisis more than four years ago." While the politicians may 'prefer' to think of this as a crisis - and indeed "for them it is a crisis as they preside over an economy that refuses to grow, which has tended to lead to loss of office, but, Warsh condemns, "they have run out of excuses." Over the last several years, the Fed] has over-promised and under-delivered, and the bank's most important asset - credibility - is under attack.

The Fed has "enabled" Washington to do nothing, since the politicians expect the same "rabbit out of the hat" rescue that occurred in the darkest days of the financial crisis. This means no growth strategies ("the mix of policies has to be right") will occur. Since the financial crisis, Washington has done its level best to focus on GDP in the next quarter, or perhaps the election, and precious little beyond that short-term horizon. Warsh concludes, "There Is No Plan B."

Chuck again. OMG! I know that I've said all this stuff, but for a former Fed Head to say it, just confirms my thoughts, and that's a dangerous thing folks. If my wife and friends think I'm difficult to live with or be around now, just wait till they get to hear that a former Fed Head has confirmed what I've been saying!

To recap. The Currencies rally yesterday fell on its face as the Fed Heads confused the markets yesterday afternoon with a comment that was neither Yes or No. and when the markets are confused, Chuck says they buy dollars. That triggered the selling but soft data from the Eurozone, Australia and Sweden didn't help and pushed the currencies lower. The Chinese renminbi saw a huge gain in appreciation VS the dollar, and Canada looks for its Trade Deficit to narrow today.

Currencies today 5/2/13. American Style: A$ $1.0255, kiwi .8485, C$ .9935, euro 1.3165, sterling 1.5570, Swiss $1.0765, . European Style: rand 9.0395, krone 5.7575, SEK 6.4850, forint 225.70, zloty 3.1490, koruna 19.4950, RUB 31.27, yen 97.25, sing 1.2335, HKD 7.7595, INR 53.81, China 6.2082, pesos 12.18, BRL 2.001, Dollar Index 81.72, Oil $91.40, 10-year 1.64%, Silver $23.81, and Gold.. $1,459.16

That's it for today. What a beautiful day yesterday! And there's no better way to spend a beautiful day like that than at the ball park! Thanks to my friend Sandra for getting me in the park! Oh, and the Cardinals won! Which given the blue umbrella skies, the green grass, being with good friends, and the ball park as a whole, became secondary! OK. Big news. The ECB just announced that they did cut rates 25 basis points (1/4%) to .50. I guess they were willing to tear that page out of the U.S. and Japan's book on how to ruin an economy for good. the euro though is rallying right now. I guess the mental giants that control the markets, promoting growth is a good thing! OK. I hear that the Big Boss, Frank Trotter, will be doing an interview early this morning, talking about Gold. That should be good! And with that, I'll get out of your hair for today. I hope you have a Tub Thumpin' Thursday!

Chuck Butler
EverBank World Markets

Posted 05-02-2013 10:53 AM by Chuck Butler
Filed under:
Related Articles and Posts