Markets Turn Irrational With Dollar Buying.
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In This Issue.

* Jobless claims fall 3,000..

* Plosser remains hawkish.

* It's far easier to buy than sell - Warren Buffett.

* James Grant on a Friday!

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

Markets Turn Irrational With Dollar Buying.

Good day. And a Happy Friday to one and all! The Currencies and metals took a shot to the mid-section yesterday, as the momentum seems to be gathering for a dollar buy bias. Japanese yen sailed past 100 to 101 and more overnight, and the euro and A$ are having a rough go of it even still this morning. Things have really swung in favor of the dollar this week, folks. I guess that's what happens when there is basically very little data to prove that to be a bad idea.

The one piece of data that printed yesterday, like it does nearly every Thursday, was the Weekly Initial Jobless Claims, and even though they remain well above 300,000 each and every week, the markets proved just how data starved they were, by going all gaga over a fall of 3,000 claims last week (327,000 VS 324,000) from the previous week. Geez Louise, somebody save me, this is madness I tell you, madness!

Everywhere I looked the drop in claims, just 3,000 let me remind you, was being claimed as the end-all to indicators that the U.S. economy is on its way to strong growth. And with that thought, U.S. dollars were bought by the bushel full. But they weren't buying Treasuries, as the yield in the 10-year Treasury has risen from 1.74% to start the week to 1.85% this morning. (remember in bonds, as the yield rises, the price of the bond goes down) No, like I told you yesterday, even the guy down the street that cuts the grass with his shirt off to show all the ladies in the neighborhood his (imagined) 6-pack, are lining up to buy equities right now. Wait! I didn't tell you that exact thing yesterday, but I said it a different way, just thought I would throw you a circle-changeup.

So. the euphoria that the A$ and New Zealand dollar / kiwi were feeling yesterday after both printing strong labor reports, disappeared quickly in the face of the headwinds coming from the U.S. dollar. One day, everything is hunky-dory, the next it's not. Look, someone once said that the markets may be irrational, but they can remain irrational longer than you can remain solvent. So. it's that time again, to either batten down the hatches on our diversification positions, and look to buy at cheaper levels, or just bail. Now, if you are a true diversification investor, then bailing never enters your mind. But if you just bought, currencies and metals because that neighbor that annoys you, and thinks he's better than everyone else was spouting off at the Christmas party that he owned currencies and metals, then you're probably going to be like the people that bailed on Gold a couple weeks ago. Not that there's anything wrong with bailing. If that's what you feel you should do, then go right ahead and bail. But, I would bet a dollar to a Krispy Kreme that you'll be back, when the markets discontinue to be irrational. In my opinion of course, which could be wrong!

The U.S. dollar also got some wind for its sails from Fed Head Plosser's comments. I told you earlier in the week that the "hawkish" Fed Heads were going to be speaking later this week, and Plosser was the first to hit the podium. Plosser is known as a "hawk" and really didn't say anything new or surprising to the markets, but the fact that he reiterated his position, was enough to give the dollar a boost.

Remember, the hawks on the Fed want to end the bond buying sooner than anticipated. But, as I've told you before, and the markets should know this too, but I guess refuse to believe it, that Big Ben Bernanke calls the shots in the Fed, so unless the "hawks" take Big Ben hostage, and put him in a closet where his voice can't be heard, their opinion doesn't carry much weight, and the bond buying will continue, as long as Big Ben says it should.

The U.S. Monthly Budget Statement for April is supposed to print today, but usually when it's a bad number on the print, they release it under the cover of darkness. The Budget Deficit for April, is expected to be $110 Billion surplus, which reflects the increased tax receipts by the Gov't, and reverses March $106 Billion deficit. And is much better than last year in April when, in spite of the Tax Returns, we printed a $82 Billion Deficit! Just shows to go you just how much in tax increases along with some better tax receipts from corporations, have made a difference. But I guess this will be the rogue print in this series, as I'm sure we'll go right back to a Budget Deficit come May's print.

Yesterday, I was carrying on about how no one knows where all this bond buying, stimulus, and ZIRP (zero interest rate policy) was going to take us, but I had an educated idea as to where.. Then I saw my friend, Bill Bonner's letter and he had a quote in there from Forbes from Warren Buffett that talks about this very thing. Let's listen in.

"Warren Buffett has a piece of advice for Ben Bernanke: It's easier to buy than it is to sell.

Buffett, speaking on Saturday at Berkshire Hathaway's annual meeting in Omaha, said he is worried about what will happen when the Federal Reserve tries to wind down its recent efforts to stimulate the economy. Via a program nicknamed "QE," short for "quantitative easing," the Fed in recent years has bought up over $2 trillion in bonds in order to lower interest rates and promote borrowing and investment.

Some have warned that when the Fed decides to sell its trove of bonds, or even just stops adding to it, stock markets could tank. Rising interest rates could cause banks to lose billions, perhaps igniting another financial crisis. Buffett says we don't know what will happen, but he is concerned.

"QE is like watching a good movie, because I don't know how it will end," says Buffett. "Anyone who owns stocks will reevaluate his hand when it happens, and that will happen very quickly"...

"People make different decisions when they can borrow for practically nothing... It's a huge experiment."

Charlie Munger, Buffett's long-term chief lieutenant, who was also talking at the meeting, says he worries about more than just inflation.

"What has happened in macroeconomics has surprised pretty much everyone," says Munger. "Given that history, economists should be more cautious when they print money in massive amounts."

OK. Chuck here. I just think that we should all ask whomever it is that you pray to, to help us, because I don't see how this works out on the night for us.

But the markets are throwing caution to the wind and buying dollars by the bushel full. So, don't stand in front of this bus. OK, I've got to quit talking about this stuff, and move along to the other droids we're looking for!

Well, the U.S. had their day last Friday, Australia, and New Zealand had their day on Wednesday, and Canada gets to have their day today. I'm talking about printing a jobs report. And if the results in the U.S. (even though cooked) Australia, and New Zealand carry over to Canada, we should expect to see a nice rebound in the April employment numbers today. I think the markets have let the Canadian dollar / loonie slide through this week, as the selling that the euro, A$ and kiwi have seen hasn't really carried over to the loonie. So, the loonie is outperforming the other non-U.S. dollar currencies this morning, and remains well above 99-cents.

Well, as I mentioned above the Japanese yen finally succumbed to 100 and went through that handle like Congress spends money they don't have, and didn't stop until it reached 101 and change. The fall was swift. I guess those Elliott Wave charts that called for yen to stop its weakness and rally to 91, will have to go back and chart some more, eh?

And In Norway this morning, the rate cut campers got sent home without their ball and bat. Norwegian inflation increased more than expected at an annual 1.5% in April from .9% in March, thus reducing the calls for a rate cut. And when the rate cut campers go home, that gives the currency a chance to rally. And while the krone's rally is being limited to VS the euro right now, and not the dollar, it's still important, for what have I been telling you for a couple of years now about the krone's inability to shake being tarred with the same brush as the euro? That one day, traders would do the V-8 forehead slap, and figure out that Norway is NOT the Eurozone, and that Norway's fundamentals are far superior that the Eurozone's, and thus the krone should be traded separately than the euro.

The krone's fiscal fundamentals are far superior than just about everyone else's. About 5 years ago, Forbes magazine called the krone the safest currency in the world. And I think the markets agree, given that the costs to insure against a Norwegian default are the cheapest of any country.

Gold reversed the previous day's $17 gain, and lost $15.90 yesterday. The shiny metal traded flat most of the morning, but by noon, the pressure to buy dollars and sell everything else was too much for Gold to fight off. All the stock buying got me thinking yesterday about "parabolic moves". Remember when Silver, according to the chartists, went parabolic a few years ago, and then went about losing a huge chunk that it has never been able to recover? Well, I wonder when stocks will go parabolic? I'm sure the chartists friends I have will let me know!

But, getting back to the metals. I came across this quote from Silver guru, Eric Sprott. "So we see all of these paper (trading) volumes going through that bear absolutely no relationship to what's going on in the physical markets. As you know I have always been a proponent of the fact that supply in the gold market was way less than demand, and by a very large factor. I think demand exceeds supply by at least 60%. The central banks are surreptitiously supplying that gold, and ultimately they will be running on fumes.

When we hear about the LBMA not willing to deliver gold, and JP Morgan's inventories at the COMEX have gone from 2.4 million (ounces) down to 160,000 ounces, it just makes you realize that all of this paper trading means nothing. It's the real physical market that you have to rely on."

Man. I'm on a writing roll this morning. I had a long time reader send me a note yesterday, saying that yesterday's Pfennig was "one of the all-time best" Pfennigs. WOW! I Hope today's is put up there right with yesterday's! So. with that in mind, let's go to the Big Finish!

Then There Was This. I was looking through one of the websites I always tell you is one of my faves to visit, Zerohedge.com, and came across an interview with James Grant. I've always been a fan of James / Jim Grant, reading his newsletter over the years has given me some great insight into the markets. Here's Jim Grant on Gold:

"Gold has been in a bull market for 12 years. Gold is this rare thing in which you can be bullish and yet contrary and also with the trend. There is I think a general fatigue animus towards gold. The gold prices are reciprocal of the world's view of the competence of central banks. The greater the world's confidence in the Ben Bernanke's of the world, the weaker the gold market. The less the world holds confidence in the institution of managed currencies, the stronger the gold market. And to me the confidence is utterly misplaced."

Jim Grant also discusses inflation, equities and more on the Fed. if you have some time, you can see the entire interview video by clicking here: http://www.zerohedge.com/news/2013-05-09/jim-grant-golds-recent-drop-confidence-bernanke-utterly-misplaced

Chuck again. Whew! I'm tired from the typing this morning! But. This is the stuff that I feel is important for you to know, and make informed decisions!

To recap. The currency rally failed again yesterday, as the bias to buy dollars became stronger and stronger as the day went on. First it was the Weekly Initial Jobless Claims, that fell by the huge amount (according to market sentiment) of 3,000 last week. note the sarcasm. And the rout was on, as Gold, and even the currencies that were so strong yesterday morning, the A$ and kiwi got sold, and lost plenty of ground to the U.S. dollar.

Currencies today 5/10/13. American Style: A$ $1.0010, kiwi .8310, C$ .9920, euro 1.3005, sterling 1.5390, Swiss $1.0445, . European Style: rand 9.0905, krone 5.7930, SEK 6.5825, forint 225.35, zloty 3.1865, koruna 19.8620, RUB 31.35, yen 101.65, sing 1.2375, HKD 7.7605, INR 54.79, China 6.2016, pesos 12.08, BRL 2.0125, Dollar Index 83.06, Oil $95.72, 10-year 1.85%, Silver $23.43, and Gold. $1,436.16

That's it for today. Rain go away, Chuck wants to go outside today! And tomorrow and of course on Sunday, which is Mother's Day! I would like to say Happy Mother's Day to all the Moms out there. Here on the desk, Jen and Christine are moms. Antione's wife is a new mom, and Mike Meyer's wife is a new mom to be! And there are more moms and I don't mean to leave any out! All the guys on the desk have moms that are still alive, except me. So, make sure to give your mom a hug! And keeping with tradition, I have a Mother's Day poem. So, let's go out there and have a Fantastico Friday! And DON'T FORGET TO HUG YOUR MOM!

A Mother.

When you're a child she walks before you, To set an example.

When you're a teenager she walks behind you To be there should you need her.

When you're an adult she walks beside you So that as two friends you can enjoy life together..

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837





Posted 05-10-2013 11:37 AM by Chuck Butler