RBA Cuts Rate To Record Low.
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In This Issue.

* RBA proves Chuck wrong..

* China announces a plan.

* Sweden catches everyone else's eye.

* Canadian loonie defies IMM positions..

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

RBA Cuts Rate To Record Low.

Good day. And a Tom Terrific Tuesday to you! Well, the RBA decided to prove me wrong last night. It's not the first time they've done that! I guess they decided to join the crowd and cut rates and debase their currency. I can hear them saying. "Hey, all the other Central Banks are doing it". To which I would say what I used to tell my kids when they would tell me that all the other kids were doing "x". "But, don't you want to be better than all the other kids?" That would stop them in their tracks! So. RBA. don't you want to be better than the other Central Banks? Apparently NOT!

OK. I guess you get the Front and Center story this morning, eh? The Reserve Bank of Australia (RBA) surprised me, and quite a few others I must say, and cut rates 25 basis points (1/4%) to an internal rate of 2.75%, a record low rate for Australia. And following the rate cut announcement, the RBA didn't give us any indication of whether this was the last of their rate cuts, remember the RBA cut 125 basis points last year, or that there were more to come. I don't know why I would even offer an opinion on that, given how the RBA proved me wrong on the rate cut call, but for those of you that still think I might have an clue to what's on the RBA's mind. I would think it's the former of the two. But then, maybe wishful thinking is clouding my thoughts right now.

And I was also proven wrong when the Aussie dollar (A$) fell further on the rate cut announcement. Recall that I had thought that the rate cut was probably priced in before the actual rate cut was announced. But NOOOOOOOOO! The A$ fell further and is now trading as if the markets believe that 2.75% is not the trough for this rate cut cycle that began last year. For those of you who still believe in the A$ as a viable diversification tool, then you might want to use this downward move in the A$ as an opportunity to buy at cheaper levels.

There was good news from Australia overnight though. And get this. the exporters in Australia were clamoring for a rate cut to help them with their exports. But. and this is an important piece here. In the face of a strong A$, Australia posted their first TRADE SURPLUS since 12/11, in March. What? You mean that even with a strong A$, Australia was able to post a TRADE SURPLUS? Hmmm. I wonder if the RBA would have still cut rates and debased the currency if they had known this before they went off and did their best impression of the Fed Reserve.

OK. There is other stuff to talk about today, other than the Aussie rate cut and the A$... For instance, how about the news from China overnight? Did you hear the stuff about China pledging to come up with a plan for convertibility of the renminbi / yuan by year-end? Oh yes. they did! Here's the skinny. Chinese Premier, Li, pledged to come up with a plan by year end, that would allow investment capital to move more freely in and out of China, which would require the loosening of the shackles that hold the renminbi and yuan back.

You may recall, but since I write every workday, sometimes what I said is forgotten, but you may recall that a few months ago, I told you about how the new Chinese Premier, Li, was going to change things in China and bring about free markets, etc. However, I didn't expect him to move this quickly with the currency. But then, it's important to point out that he said he would develop a "plan". Not implement the plan. That will be the next shoe to fall for the U.S. dollar folks. And remember, I said long ago, that I thought by the end of this decade that the renminbi would be free floating and have achieved a wider distribution, thus making it eligible to take the reins of reserve currency away from the dollar.

I also ran across a story on the Bloomberg yesterday regarding how the markets now give more credibility to the Big Ben Bernanke led Fed, than they did the Big Al Greenspan led Fed. Hmmm. Obviously, they didn't ask me, for I would have told them that I haven't an ounce of faith in either of them, to do anything other than ruin our economy, and dollar. I guess the old saying of "no news is good news" is holding a grip on the markets right now, as they have no idea what's going to happen with the Fed's $3 Trillion balance sheet, or Monetary Base that has pushed the limits to the ozone. I think I know, but that's nothing in concrete, for we are all in unchartered waters. So, for the markets to have faith in unchartered waters is pretty questionable to me. how about you?

In Germany this morning, the euro is rallying on a report that showed German factory orders unexpectedly jumped in March. Yes, a good economic report from the month of March, which seems to be far and few in between for the countries of the world this year. But there it is. German factory orders rose 2.2% from February. The consensus forecast was for a -.5% drop. the euro has gained back the 1.31 handle on the news, and continues to make people scratch their heads, questioning how, with all the negativity in the Eurozone for the past two years, can the euro maintain its strength VS the dollar. I ask people all the time, when they pose this question to me, and I say, "What does that tell you about the dollar?"

The Canadian dollar / loonie has pushed higher again overnight. Commodities are stronger in price, and that's helping the loonie gather strength ahead of their Jobs Jamboree that will be held this Friday. A strong jobs report for April could be the wind the loonie needs in its sails to get back to parity. The IMM futures positions report for last week, didn't help the loonie as we started the week with the long positions in loonies being cut last week by 1.8%... I think that was all in reaction to the appointment of the new Bank of Canada (BOC) Gov. Stephen Poloz. I still think that his appointment will not be good for the loonie in the long run, but for now, he hasn't even said anything, so no damage yet.

Yesterday, I came across a story on the Bloomberg regarding the Sweden, and how the country dealt with their banking crisis back in 1991 through 1993, and was prepared to deal with the global banking crisis of 2008 / 2009. A very good story, that you can read here by clicking this link: http://www.bloomberg.com/news/2013-05-05/sweden-a-crisis-casualty-no-more-shows-how-haven-appeal-is-won.html

But as I was reading this story, I was reminded that in October of 2008, I wrote an article for the now defunct, Currency Capitalist, that went through the same things. Mind you this was back in 2008! So, I've had my eye on Sweden and Norway's banking prowess for some time now, which was gravy to their fiscal fundamentals that we had pointed out to readers 5 years before that!

Not that I'm patting myself on the back here (don't want my bursitis to flare up!) but the point I guess I'm making is that I see these things years ahead of when other people see them. No I'm not clairvoyant. I'm not even your last choice as a soothsayer. but, if you do the reading that I do, and the research, you would see these things too. Now. anyone still think I'm crazier than a loon about China's plans to remove the dollar as the reserve currency of the world?

OK. So yesterday, I was a real Donnie Downer on the Jobs data from Friday. Well, today, I'm not going to be singing with the Up, Up With People group either! A friend of mine (Thanks Bob) sent me some thoughts on the loss of full time employees (remember I mentioned the hours worked had dropped, and that's due to employers figuring out how to skirt by the HealthCare tax). Someone ran some numbers on the loss of .2 hours and came up with this: The loss of work-week hours of just .2 is the SAME ECONOMIC IMPACT as firing 700,000 people!

So, given the thought by me here, that this hours worked will continue to drop as more employers figure out the 40 hour bogey, we as a country will have to post up to +700,000 in job creation to offset each .2 hours of work that's reduced.

The guy that did all this math, and believe me it wasn't me!, came to the 700,000 number like this: "if we look at the "employed" figure of 143,724,000 people, a drop of .2 hours is a full-time equivalent decrease of ½%. Applied to the employed population this amounts to an imputed economic decrease of 718,620 jobs.

OK. now all of you who like to run numbers, and figure things like this out, please. the point isn't really the numbers. It's the idea that employers are figuring out that they need to get their employees below 40 hours a week. We are going to become a nation of part-timers.

Gold is being spent this morning by $7. The shiny metal gave up the $5 gain it held yesterday morning and ended the day pretty much flat from Friday's close, at $1,470. I'm not sure there was anything fishy about yesterday's price action as there was a tiny number of contracts traded during the day. I think that Gold has settled into a trading range of $1,450 to $1,480. Every time, recently, that Gold has tried to move up to $1,500, it gets knocked back down. I think I'll ask Jen to read that last sentence to me, for we all love it when she says the word Knock. HA!

Nevertheless, I still believe in Gold's ability to move higher, but probably not now. We've seen the manipulated fall in price, and the recovery of ½ of that loss all within two weeks, Gold seems to be worn out right now.

And before I head to the Big Finish. Have you ever heard of a guy named Bill Buckler? He's the author of a newsletter called, "The Privateer". It was a paid for newsletter, and I have a Pfennig reader that would come to our booth at the Money Shows and give me the latest letter. This has gone on for years, and I must say that I ALWAYS enjoyed reading the letter. Well, I guess Mr. Buckler decided to retire, for his letter will be like Jackie Paper and come no more.

Then There Was This. I saw this on Reuters. "The U.S. Senate voted 69-27 to pass a bill authorizing states to collect sales tax on online transactions, even if the seller has no physical presence in the state. House Speaker John Boehner plans to refer the measure to the House Judiciary Committee. A spokeswoman for committee Chairman Bob Goodlatte said he has reservations about the measure's potential effect on small businesses and its complexity."

Chuck again. We were discussing this new tax on the trade desk last week, and of course I was full of opinion on it. My wife would say that I was just full of something! HA! But, the Chairman was right to have reservations about the measure's potential effect on small businesses. BECAUSE IT WILL! I mean, come on. who was this tax passed for? Internet sales by companies that had bricks and mortar shops were already taxed. That means only the small businesses will get sacked by this tax on their goods sold. And there's a loophole here. I read this last week, that a small business would just have to have its business in Canada, and their sales wouldn't be taxed. I'm not sure if that's right, but I do believe I read that.

To recap. The RBA went out to prove Chuck wrong last night, and cut their OCR 25 basis points to a record internal low rate of 2.75%... The A$ got smoked on the news given the RBA didn't give any indication of whether this was the last of the rate cuts or there were more on the way. With this lack of information the markets took this as the latter, and pushed the A$ down. China made big news overnight with a pledge to come up with a plan by year end that would deal with the convertibility of the renminbi / yuan.

Currencies today 5/7/13. American Style: A$ $1.0175, kiwi .8460, C$ .9950, euro 1.3120, sterling 1.5540, Swiss $1.0650, . European Style: rand 9.0335, krone 5.8245, SEK 6.50, forint 225.50, zloty 3.1640, koruna 19.6250, RUB 30.98, yen 99.15, sing 1.2320, HKD 7.7615, INR 54.14, China 6.2083, pesos 12.11, BRL 2.0080, Dollar Index 82.09, Oil $95.58, 10-year 1.76%, Silver $23.82, and Gold. $1,464.15

That's it for today. Our Blues come home tied in their best of 7 Series with the L.A. Kings tied 2-2, with each home team winning. A tough series, but nobody said it would be easy! Not a good day for me yesterday, as my stomach was revolting. Seems better this morning, so I've got that going for me! The IPod was just playing, So Happy Together, by the Turtles. Now that's a happy, foot tapping song! Good thing Mike wasn't here yet. He's not a fan of my 60's music that I play randomly. If you remember 60's radio, you would hear rock, pop, R&B, Soul, any mix of music that teenagers wanted to hear. There was no "album rock" stations yet. So, when I started adding music to my IPod I wanted it to sound like 60's radio. much to Mike's chagrin! OK. let's get this out the door! I hope you have a Tom Terrific Tuesday!

Chuck Butler
EverBank World Markets

Posted 05-07-2013 10:43 AM by Chuck Butler
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