A New Recruit For The Currency Wars.
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In This Issue.

* Wheeler sells kiwi and promises to sell more!..

* Sweden's FM doesn't like strong krona.

* China posts a Trade Surplus.

* When will the corn get planted?..

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

A New Recruit For The Currency Wars.

Good day. And Wonderful Wednesday to you! We finally saw the sun again yesterday, YAHOO! Not that I want to play weatherman, but it appears that the rain will return this week just in time for the start of the weekend. UGH! I have a side story that's related to the soggy conditions here in the Midwest, a little later in the letter today. The RBNZ is selling kiwi, the Norges bank is meeting while I write, and Germany sees another strong economic report this morning. These stories and more right after this commercial break!

OK. Well, we have a new soldier in the currency war, and one that's contemplating joining the fight against strong currencies. The new soldier is the New Zealand dollar / kiwi. Last night Reserve Bank of New Zealand (RBNZ) Gov. Wheeler, confirmed that he sold kiwi to protect economic growth, and said that "he can do so again." The RBNZ had already issued a report earlier in the session that repeated the RBNZ's concern with the housing situation in the country, and actually said that they thought it "threatened financial stability for New Zealand". Needless to say, this news deep sixed kiwi, and it doesn't appear that it's going to recover quickly, for the words of Wheeler are still echoing throughout the markets, that he was ready and willing to intervene again.

The other country that's contemplating joining the war on strong currencies, is one of my faves. Sweden. Yesterday, Sweden's Finance Minister, Anders Borg, said that the krona's strength, "warranted Central Bank consideration." That's Finance Minister parlance for, " The Riksbank had better deal with the strong krona." I find this curious, given the statement earlier this year, by the Riksbank that they would not interfere with the exchange rate. So, maybe this is a rogue voice that was speaking out of class. I would hope so.

So. with all this selling and wishful selling to weaken currencies, I'll tell you about a currency that cares nothing for the currency wars. The Chinese renminbi / yuan saw the Gov't allow a huge appreciation last night. I think the Chinese Gov't was giddy about the news that China posted a Trade Surplus (in dollar terms) of $18.16 Billion in April, after seeing a Trade Deficit in March of $884 Million. (not much in terms of comparison with the overall size of trade in China, but a deficit nonetheless). The overnight fixing in renminbi marks the biggest two-day gain in 15 months. The day before saw China post a 14.7% increase in overseas sales.

The Norges Bank, Norway's Central Bank, is meeting while I talk, and will announce their decision on rates around 7 (my time), so after I've sent the letter to the legal beagles for review, but if it's a surprise like a rate cut, then I'll pull the letter back and put a blurb on the cut at the end of the letter. If the Norges Bank keeps rates unchanged, as I suspect they will, then I'll not set up the roadblock for the letter. As I said, though, I don't expect the Norges Bank of move rates at this meeting. However, if the economic reports continue to show a soft side like they have recently, then the June Norges Bank meeting could be very different.

OK. I was in a meeting yesterday, talking currencies, and someone wondered if we should be considering the New Zealand dollar for its recent gains had been impressive. I responded, "yes, kiwi has been on a roll, not only against the U.S. dollar, but also against the Aussie dollar (A$), and normally when we see the spread between kiwi and the A$ narrow like this, that we see the narrowing fizzle out, and the A$ responds favorably, as the kiwi trades are unwound, so I would be very careful with kiwi, New Zealand's debt levels are just too high for my liking."

And guess what happened overnight? Wheeler sold kiwi, and the currency lost ground against the U.S. dollar and the A$, and the A$ rallied as the selling in reaction to the rate cut was overdone, thus widening the spread with kiwi once again.

OK. Yesterday, I told you about the strong printing of Factory Orders in Germany. (up 2.2%), well, today we saw the color of the German March Industrial Output, and once again it beat the estimates for a drop, but posting a 1.2% increase! And the Feb .5% increase was revised upward! So. maybe the dark clouds are getting pushed out in Germany, which is the Eurozone's largest economy, and plays well with what happens to the euro.

As I said on Monday, the data cupboard here in the U.S. is void of any market moving data this week. So that means I had to go on a search to find something that would / could be meaningful with data. And all this rain and snow this spring got me thinking about times in the past when this would happen in the weather patterns. So. While going through the Dennis Gartman letter yesterday, I came across a chart on Corn Planting Progress. In percentage terms of corn planted. In 2012, at this time, we had 80% of the corn crops already planted. The 5-year avg is around 45%... And the total so far this year is.. Drum roll please. 12%... Aye, Aye, Aye. I do believe that to be within the window of when corn needs to be planted, we are within 2 weeks of when we are normally about finished with the planting!

So, all my complaining about the rain, has deeper roots, so to speak. it has prevented the farmers from getting into their fields to plant. If that continues, then we could see corn prices, and all things associated with corn also see their prices go higher. That's not something we as a recovering economy can handle right now.

Think you've heard of all the "adjustments" the Gov't has instituted over the years to inflation calculations, GDP calculations, labor calculations, etc. etc. right? Well, remember a couple of weeks ago when I told you about how the Gov't is going to "adjust" GDP calculations going forward by adding in "stuff"? That announcement got a lot of flak from people, but this one takes the cake! Here's the skinny:

The Gov't, which now, adds in the amount of money that Corporations put into pensions as wages, to GDP calcs, will now add in the amount that Corporations promise they are going to pay, whether they actually ever make the payment or not! How can that be? Count the "promised payment" as GDP now. and in a few years find out the Corporation went belly up, and the payments to pensions were never made? Oh brother! This is surely a case of "if you can't succeed, try again". The Gov't will keep trying to find ways to bump up GDP, or else die trying!

See what happens when there isn't real data to review? Chuck goes searching for "stuff". But can you believe these latest shenanigans by the Gov't? It's as if the Gov't is saying: "If it takes us making up numbers, we'll get GDP higher come hell or high water". You just have to shake your head in disgust, for there's not much else we can do, other than not be fooled when the Gov't starts printing +4 & 5% GDP numbers.

Well, Gold got smacked good yesterday. The $5 loss I talked about in the early morning, turned into a $22 loss by the time I left for the day, and ending up down $17 on the day. It's all about the sentiment in the market right now, that the U.S. economy has turned the corner and is about to take off for the moon. I'm not buying that thought or sentiment, but understand that it's there, and it will dominate trading until proven wrong. I guess the markets have had enough of the "bad sentiment" and have moved on to the "good sentiment".

What will it take to prove the sentiment wrong? I guess more than the real facts that the labor report last week was not good, and that 65% of the data prints since Feb have missed the consensus forecasts to the bad side. See, that's me being the realist again, sorry. I don't mean to be the bottleneck for the good sentiment. Just making certain that nobody gets hurt when everyone realizes that the economy doesn't have legs without stimulus.

Then There Was This. Speaking of me being a realist, and seeing the writing on the wall before the markets. One of my fave economists, David Rosenberg, of Gluskin Sheff, gave an intense presentation at the John Mauldin conference last week on the "real data". I wish I had been there to see it, as it was titled: "Bernanke: The Wizard Of Potemkin" and apparently gave a sobering look at the anemic U.S. economy, labor market mess, and the Fed's plans to get this all under control.

For those of you who don't know: "Potemkin villages were fake and built to make people think things weren't as bad as they really were". I truly like reading what David Rosenberg has to say, even if I don't agree with it, which I rarely do. Ed Steer's letter this morning has a link to the actual presentation that David Rosenberg gave. But, it certainly can't be the same without David speaking to you in reference to the slide. But. if you want to go through it, here's the link to Ed's letter, and then follow along. http://www.caseyresearch.com/gsd

Chuck again. actually, I guess I never left! But, I did have to stop for a minute and sing along with the Cyrkle's great song: Red Rubber Ball..

To recap. The RBNZ's Gov. Wheeler threw a cat among the pigeons last night by announcing that he was selling kiwi and will continue to do so to protect the economy in New Zealand. So, another soldier joins the currency wars against strong currencies. German Industrial Production in March increased 1.2% VS the forecast for a drop, and add to the previous report of a 2.2% increase in Factory Orders, we could be seeing the dark clouds move away from Germany, the Eurozone's largest economy.

Currencies today 5/8/13. American Style: A$ $1.02, kiwi .84, C$ .9955, euro 1.3130, sterling 1.5515, Swiss $1.0645, . European Style: rand 9.0725, krone 5.8370, SEK 6.5115, forint 223.70, zloty 3.1550, koruna 19.6655, RUB 31.10, yen 99.05, sing 1.2285, HKD 7.7605, INR 54.12, China 6.1980, pesos 12.02, BRL 2.0072, Dollar Index 82.08, Oil $95.39, 10-year 1.78%, Silver $23.91, and Gold. $1,459.93

That's it for today. Another lefty handcuffs the Cardinals' bats last night. This has gone on for over 40 years now. Throw a lefty out there, get him off the scrapheap, he'll still turn the Cardinals' bats into starter wood. UGH! Yesterday, I mentioned Mike Meyer, and his dislike for my 60's music. Mike is growing a hockey playoff beard. I always wished I could grow a beard, but instead just have enough of a beard that I have to shave everyday! UGH! Besides when I used to go camping I would go without shaving, and the last time I did that, everything that came in was grey! UGH! Oh well. Heard some very sad news yesterday, a long time friend of mine, and colleague here at EverBank is leaving to move home to Michigan, where she came from many years ago. (I won't say how many, for that would give away her age!). Kathy's last day will be June 11. sadness for sure. Ok. until then, let's be happy, and have a Wonderful Wednesday!

Chuck Butler
EverBank World Markets

Posted 05-08-2013 11:20 AM by Chuck Butler
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