Markets Take What Big Ben Said Hawkishly?
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In This Issue.

* Nikkei plunges 7.3%..

* Chinese manufacturing contracts.

* Two handed economists.

* Gold rebounds.

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

Markets Take What Big Ben Said Hawkishly?

Good day. And a Tub Thumpin' Thursday to you! What the heck was I thinking, was running through my mind when the alarm went off this morning. In an attempt to relieve Chris from having to write the Pfennig this morning, I told him not to worry about it, I would write it.. All the time knowing that my flight from Houston wasn't getting in until very, very late.. And that was before all the cancellations! What the heck is going on with the aviation sector? It's a very long story, so I won't bore you with the details, but just know that I was ready to raise the white flag and say "you win, you've beaten my will". Darn airlines!

OK. The Big news overnight came from China, where the Chinese Purchasing Managers Index (manufacturing) fell to a seven month low of 49.6, which is obviously below the line in the sand demarcation of 50. Any number below 50 represents contraction in the sector. This comes as a bit of a surprise to me. Sure I saw the tea leaves on China's economic slowdown, but didn't think it would show such a cooling off of domestic demand. I did think that the external headwinds that face China every day, like Europe and the U.S. would play badly with this data, but the slowdown of domestic demand was a surprise..

This news sent the Japanese Nikkei to the woodshed. The Japanese stock market plunged 7.3% overnight. The Nikkei had been the darling of stock markets ever since the new PM Abe, made his announcement about promoting growth and inflation. Since China is Japan's biggest trading partner, the Chinese slowdown in manufacturing, really sunk the Nikkei's battleship. The Nikkei's plunge is weighing heavily in Europe this morning, and will probably hang like a dark storm cloud over the U.S. stock market too.

The other Big news overnight, has been the decision by the Eurozone leaders to cut austerity. the leaders apparently are receiving too much complaining and such, and see their ability to get reelected diminishing. I say that in complete disgust, because the austerity was working. and now when things get tough, the though roll over and look for their bellies to be scratched! Sure the Eurozone economy had contracted since the 3rd QTR of 2011, did these "leaders" really think it wouldn't, given the massive cuts to spending that they implemented? Well, at least the leaders didn't say, "we raise the white flag on austerity, and pin our colors to the "stimulus" mast." At least that's for now.

So. With the weak manufacturing report in China, the plunge of the Nikkei in Japan, and the Eurozone leaders rolling over to get their bellies scratched, the currencies are not having a good day. However, as I write, Gold is up $21 this morning. Of course that's before the NY boys and girls arrive at their desks and decide whether to play their shell game with Gold again or not. The bias to buy dollars is back on the table after a couple of days of not much movement either way.

Yesterday, we had Big Ben Bernanke giving his testimony to the lawmakers on the state of the economy. For us "old timers" this trek to the "hill" by the Fed Chairman used to be called the Humphrey-Hawkins testimony. But that bill requiring the Fed Chairman to make this trip expired many years ago, and since it made so much sense for this to happen twice a year, it has continued. We usually get some real interesting quotes from Big Ben, and yesterday was no exception.

Speaking from both sides of his mouth, Big Ben threw a cat among the pigeons by saying, "The Fed could take a step down in our pace of purchases in the next few meetings." But then threw cold water on that by saying, "A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further."

So. What do you think? Sounds like he was waffling to me. Trying to please everyone with a little bit of this, and little bit of that. it started with a kiss, now we're up to bat. and so on. These guys like to speak out of both sides of their mouths for sure. My dad used to say they were "two handed economists". They would say, "on one hand, we could see. , but on the other hand we could see this." Never really saying what they thought for sure!

And the markets' reaction to the statement by Big Ben? Well, now there you've got another pot to stir. You never know how the markets will take something like this, and yesterday was no different, as the markets decided to forget Big Ben's waffling, and go with a "hawkish" view of his testimony. That was good for the dollar in the immediate reaction to the statement, but has since dissipated a bit.

The euro is attempting to eke out some small gains this morning, after getting walloped yesterday. The Eurozone saw some better readings of their latest manufacturing with the index ticking up to 47.8 from 47. Still contraction territory, but an upside surprise should be enough to kick start a currency, as it has this morning with the euro.

I told you above about the Nikkei's plunge, and in the never ending attempt by the Japanese to move in opposite directions than other markets. The Japanese yen is rallying on the Nikkei news. Strange eh? But remember, all the time the Nikkei was rallying the past 3 months, yen was getting passed around like a pack of cigarettes at a prison, and now that the Nikkei has plunged overnight, yen recovered. I really don't expect much more to come of this scenario, so don't get all lathered up and go out and back up the truck with yen. But then, that's just my opinion, and I could be wrong!

The Aussie dollar (A$) is getting sold again this morning. This time, the selling, is tied to the announcement by Ford Motor Co. that they will close down their Australian local car production, along with two manufacturing plants. That's not a good sign folks.

The New Zealand dollar / kiwi, is getting sold alongside the A$ this morning. Sentiment toward these two is really plunging. And it started with a kiss. no wait.. it started with a rate cut in Australia and news of the Reserve Bank of New Zealand (RBNZ) announcing that they were sellers of kiwi.

The Swiss franc is having a couple of good days of trading, a couple of days that it hadn't seen in some time. No worries, the franc is very weak VS the euro, compared to a year ago, when it was bumping up against the 1.20 floor that the Swiss National Bank (SNB) put into place in September of 2011. Today, the cross to euros is trading around 1.2470. So, the franc could use a little strength, eh?

I had a reader send me a note and say that he noticed that Japan had booked a Trade Deficit for 11 months now, and since I always say that "We're turning Japanese" what did that mean for the U.S.? Well. In the case of Trade Deficits. The Japanese are actually turning American, for the U.S. has long dominated the Trade Deficits. But, to the Japanese, this booking of Trade Deficits is a real psychological problem, for they were the captains of trade surplus, long before the Chinese awoke from their slumber.

I told you above that Gold was up $21 as I was writing. Gold and other metals were also pushing higher yesterday before the Big Ben statement. And then they weren't. So, this recovery this morning is warranted, in my opinion. For in my opinion, Big Ben didn't' tell us anything that we didn't already know. Sure we all know that he could decide to end stimulus any ole time he wants to, but when is he going to want to? That's the question, and as long as there are questions, the markets should take the dollar to the woodshed.

I've told you before, and I tell crowds whenever they come to listen to me talk, that I wouldn't be surprised to see QEnterity. You know, 10 years from now, someone from EverBank will be up on the stage talking about QE 22, or 23, or 24.

As Chris told you earlier this week, I get the honor of talking about a boat load of economic data the next two days. First, we have Fed St. Louis President, James Bullard speaking today. then we'll see the usual Thursday fare of Weekly Initial Jobless Claims. In addition, New Home Sales, and the latest PMI Manufacturing Index, and Bloomberg Consumer Confidence.

Then There Was This.Since the markets were so moved by Big Ben's talk yesterday, I thought that this comment by Fed Head William Dudley that I found on Moneynews.com played well with my thought that Big Ben is not ready to scale back his bond buying stimulus.. Let's listen in to what Mr. Dudley had to say..

"Federal Reserve Bank of New York President William C. Dudley said policy makers will know in three to four months whether the economy is healthy enough to overcome federal budget cuts and allow the central bank to begin reducing record stimulus.

"I don't really understand very well how the tug-of-war between the fiscal drag and the improving economy are going to sort of work their way out," Dudley said in an interview with Michael McKee airing on Bloomberg Television. "Three or four months from now I think you're going to have a much better sense of, is the economy healthy enough to overcome the fiscal drag or not."

Dudley's remarks underscore that Fed officials have yet to reach consensus on when or how to dial back their $85 billion monthly bond-purchase program designed to spur growth and lower unemployment. Philadelphia Fed President Charles Plosser has called for reducing stimulus at the Fed's next meeting in June, while St. Louis's James Bullard said Tuesday the purchases should continue.

Chuck again. OK. these guys are all over the place with their forecasts, pretty soon, they'll talk and no one will pay attention. Of course I wish that were the way it was now! Anyway, the markets react and we have to shuffle through the mess they leave each and every time they think the Fed Heads are ready to pull the plug on stimulus. I tell them each time, but they just don't listen that it's print or suffer the consequences of a deeper depression than the one we're in.

To recap. Big Ben speaks out of both sides of his mouth, and the markets think he means he really is ready to remove stimulus. Chuck says hogwash to that! The bias to buy dollars that entered the markets after the Bernanke speech, reversed a couple of days of healing in the currencies. The Nikkei plunges 7.3% overnight, and China posts a manufacturing index that showed contraction, sending the Asian markets reeling.

Currencies today 5/23/13. American Style: A$ .9695, kiwi .8095, C$ .9675, euro 1.2880, sterling 1.5080, Swiss $1.0320, . European Style: rand 9.590, krone 5.8395, SEK 6.6675, forint 226.35, zloty 3.2625, koruna 20.2390, RUB 31.40, yen 101.70, sing 1.2645, HKD 7.7625, INR 55.58, China 6.1947, pesos 12.47, BRL 2.05, Dollar Index 83.95, Oil $93.36, 10-year 2%, Silver $22.40, and Gold. $1,390.20

That's it for today. A great Big Happy Birthday today to my grandson, Braden Charles Butler.. Braden turns 2 today. It's great having two grandsons that are close in age, watching them learn to interact with each other is a treat! Kathy says when they turn 5 she's taking them to Disneyworld. I tell her, I bet she changes her mind in 3 years! Well, this weekend will be Memorial Day Weekend. The Backyard grills will get fired up, the public pools will open, and the old brickyard gets a workout in Indianapolis. But let's not forget what the holiday is really about. And with that. here we go! Let's make this a Tub Thumpin' Thursday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 05-23-2013 10:11 PM by Chuck Butler
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