IMF Says Yen Is Undervalued
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In This Issue.

* Euro's two day rally ends.

* Record renminbi deposits in Hong Kong.

* U.S. GDP revised downward.

* Gold's $23 rally is halted overnight.

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

IMF Says Yen Is Undervalued.

Good day. And a Happy Friday to one and all! Using your best Rocky the Flying Squirrel voice. And now a word from Mr. Know-it-all! HA! As if! Right? I say that in jest, because I called one thing right yesterday, that led to another thing I've been saying to be right. Want the skinny on all this? Ahhh grasshopper, you need to be patient, for good things come to those who wait! Ok. that's enough waiting, let's get to the skinny of all this!

So. Did you see the rally in Gold yesterday? At one point of the day Gold was up $23. Why? Well, it's sort of like the thigh bone is connected to the knee bone, the knee bone is connected to the shin bone, etc. etc. First, as I said yesterday would happen, 1st QTR U.S. GDP was revised downward from 2.5% to 2.4%... you may also remember that I went out on the fat limb and said when it's all said and done 1st QTR GDP will be below 2%... OK, so with the downward revision, traders and investors quickly came to the realization that the U.S. economy ISN'T on a strong recovery path, and that will lead the Fed to back off their mentioning that they might be removing stimulus. And Gold soared! So. I'm on a roll here. what should I talk about that I believe is going to happen next now? Oh, be serious Chuck, a blind squirrel can find an acorn! So, quietly go back to your Mogambo Guru style bunker and be quiet!

That run up in the price of Gold was fun to watch yesterday, for it hasn't happened very often lately! Gold is being spent by $3 this morning, so no big shakes. I guess the overnight markets were of the opinion that the move during U.S. trading hours was enough for one day. But nothing changes folks. Just because the markets have short attention spans, you and I know that the U.S. economic recovery is all smoke and mirrors, and eventually, the Fed Heads will acknowledge that. Of course they can't go all-in on acknowledging that, for if they did, they would be admitting that their 3 rounds of Quantitative Easing (QE), zero interest rate policy (ZIRP), and everything else they have thrown at this stuck in the mud economy, hasn't worked.

You and I know it hasn't worked to the degree the Fed Heads billed it, but that's being picky right? As I gathered up my stuff to go home yesterday, I said to anyone that was listening to me on the trading desk, (which is something they all used to do like the old E.F. Hutton commercials, but nowadays they try not to make eye contact with me in fears that they'll have to hear me go on and on about debts, deficits, dolts, and sex, lies and videotape), that the euro had put in two consecutive days of nice performance, gaining 2-cents the past two days.

But that was yesterday. Oh here I go with the Foreigner song again, I can feel it coming. Whew! I'm glad that passed! Yes, yesterday afternoon the euro was the cat's meow, but this morning, it's yesterday's newspaper, which is used to wrap fish! The euro has given back ¾'s of a cent this morning on the back of a weak German Retail Sales report and an edging up of Eurozone unemployment. But more than the weaker than expected reports, the markets are little skittish on the news that European Central Bank (ECB) President, Draghi, has been invited to attend the constitutional court hearing on the ECB's intervention. But why would that make the markets a little skittish toward the euro, Chuck? (I hear you asking!)

Well. The markets are afraid that Draghi has been invited to attend, because the German Constitution Court is going to drag him through the mud, or even say what he did was unconstitutional, which would really put the euro into a tailspin. I doubt that this is what's going take place, but you can see now why the markets are a bit skittish toward the euro this morning.

After a day of good performances for most currencies VS the dollar, the day after is giving us reversals of those good performances. Take the Aussie dollar (A$), which saw some love finally yesterday, but has been left at the doorstep by its lover once again in the overnight markets. And so, it is with the remainder of the currencies this morning, except, Japanese yen, and Chinese renminbi / yuan. These two currencies are pushing the rally envelope against the dollar this morning, so let's talk about both of these Asian currencies.

First, the Japanese yen, is back below 101 this morning, on the IMF's latest assessment of the currency, saying that yen is "undervalued". ARE YOU KIDDING ME? What in the world are these IMF people smoking these days? Yen is undervalued like I am a studly young man with a full head of hair, and six-pack abs! HA! Well, the Japanese leaders had to scramble after the IMF report, and I'm sure that soon they'll get this yen rally straightened out.

In China, the People's Bank of China (PBOC) pushed the appreciation of the renminbi / yuan below 6.18 (remember renminbi is a European priced currency, so as the price number goes down, the greater the value VS dollars of the renminbi). The move was in reaction to the flows that continue to come to China on speculation that the trading band for the renminbi is soon to be widened. In addition, there was a report overnight that renminbi / yuan deposits in Hong Kong reached a record level in April. In April, renminbi / yuan deposits in U.S. dollar terms rose $1.5 Billion to nearly $110 Billion.

Switching gears out of Asia. Canada posted a narrowing of their 1st QTR Current Account Deficit yesterday. The narrowing was a modest $500 million to $14.1 Billion. And this follows the downward revision of the 4th QTR Current Account Deficit to $14.6 Billion from the previously reported $17.3 Billion deficit. You've gotta give some love to a country that works at narrowing their Current Account Deficit!

I had a dear reader ask me yesterday when the changes to the calculation of GDP were going to begin. That was a great question, because I had forgotten that I had talked to everyone about that change. Recall that I told you a couple of months ago that the U.S. was changing the way it calculated GDP and the changes would add up to 3% to the growth figures. Let's go back to the archives and find where I talked about this. "In March 2013, the U.S. government invented a new way of calculating GDP. The Financial Times reported that starting from July 2013, U.S. GDP would become 3% bigger due to a change in statistics. [GDP] now includes R&D spending, art, music, film royalties, books, theatre. This change in GDP statistics has not been implemented elsewhere in the world. So the U.S. is the first to accomplish this rewriting of the GDP number."

You may recall that I said that this was just another trick that the Gov't would use, since they couldn't get the real GDP number higher, they just move the goal posts, and voila! So, there you go. Starting in July, we'll have to back out 3% every time the Gov't prints GDP, just so we can see real growth.

OK. I haven't made a Big Deal out of our debt for a couple of weeks, as I thought I would give you all a break from all the debt stuff I talk about on a regular basis. But yesterday, I was looking for something in all my old presentations, and I came across a slide that I used in Vancouver in 2009. That's right, this July will mark 4 years ago. The slide simply had in large numbers: $37,000 . I explained then that according to the Debt Clock, that number represented each person's share of the debt. And of course asked the crowd there if they were ready to write the check for their share.

4 short high school years later, that number is now $53,306. Is that not incredible to you or what? But here's the number that really makes more sense, for using every person in the country really dilutes the number. Instead let's only use tax-paying citizens. in that case, each tax-paying citizen's share of the debt is currently $148,149.

Add another 4 years, and we'll be talking about $68,000 per citizen, and $181,700 per tax payer. It just keeps growing and growing. And no one, at the helm of this ship, wants to do anything about this . They figure that they can raise taxes, and devalue the dollar until it all goes away. I say, yes, that's what they'll attempt to do, but in the end, the U.S. will be forced to default, and the dollar system will possibly crash. Oh, that's too whacky a scenario for you? And you think I finally need to be fitted for a white suit? Well. I'm sure you've heard of James Rickards, right? I've quoted him several times in the past couple of years. Well, James Rickards also believes this scenario is possible. So, it's not just Chuck, crying wolf here folks.

OK. Geez Louise, Chuck, couldn't you wait until a Monday to start talking about that stuff? It IS Friday. Don't you always try to end the week on a Happy note? OK. sorry, but I just got on a roll there. See, how it would be out on the patio?

My darling daughter Dawn's husband, Jerry, asked me last night if I thought mortgage rates were going to continue to go higher. (remember, they are looking for a house to buy) I said, "Well, not right now, I don't think so, but eventually they will so don't dawdle, find that house and buy it!" I said that the mortgage rates were bumping higher because of the run up of Treasury yields, but that the Fed would see to it that those yields came back down, and so too will mortgage rates. But one day, Alice.. To the Moon! Yes, one day low mortgage rates won't be low any longer. But that day isn't today. And oh. remember earlier in the week when the 10-year Treasury yield bumped up to 2.19%, well as of this morning, it's back down to 2.07%...

OK. Then There Was This. a dear reader made a suggestion to me yesterday that I found to be perfect! He said that he love the TTWT section, but thought in keeping with my penchant for intertwining song lyrics, that I should call the section: For What It's Worth: Because there's something happening here, and what it is ain't exactly clear!

So. Here's today's: For What It's Worth. The Wall Street Journal (WSJ) ran a story yesterday about the rising Treasury yields. Let's listen in to what the WSJ had to say on this. "Analysts differ on whether a sharp May rise in long-term interest rates signals a bursting bond bubble, the aftereffect of clumsy Fed communication or a welcome sign the U.S. economy is on the mend.

One camp sees the recent fall in bond prices, which move inversely to yields, as confirmation of a bond-market bubble fueled by the Fed and bound to end badly, retarding an economy whose growth is already painfully slow. In this view, "the Treasury market is a beach ball being held under water, and the second the Fed lets go [interest rates] are going to shoot up," said Dan Greenhaus, chief global strategist at brokerage firm BTIG LLC.

Another camp sees the same trends as a welcome move toward more normal interest rates and a signal of better times ahead. The anomaly isn't the recent rise, but the drop in yields at the end of April to levels lower than those recorded during the Depression."

Chuck again. So, see there are "others" that think the bond bubble could pop at any time, but in fairness I must say that I've been so wrong about when it was going to pop, that I'm almost right! So, much for Mr. Know-it-all! HA!

To recap. A great day put in price-wise for the currencies and Gold yesterday. But most of those gains in the currencies has been wiped out in the overnight markets. Gold on the other hand is holding to most of its $23 gain yesterday . The IMF said that Japanese yen was "undervalued", and Chuck almost went into convulsions. And China acknowledged that renminbi deposits in Hong Kong soared last month. And then Chuck got on his soapbox once again.

Currencies today 5/31/13. American Style: A$ .9602, kiwi .8005, C$ .9675, euro 1.2995, sterling 1.5205, Swiss $1.0485, . European Style: rand 10.1295, krone 5.8680, SEK 6.6085, forint 227.70, zloty 3.2930, koruna 19.7950, RUB 31.88, yen 100.45, sing 1.2620, HKD 7.7640, INR 56.48, China 6.1796, pesos 12.90, BRL 2.1105, (apparently the markets were not impressed with the 50 basis points rate hike in Brazil yesterday), Dollar Index 83.25, Oil $92.87, 10-year 2.07%, Silver $22.55, and Gold.. $1,411.70, and it's Friday, so here's your chance to take a peek at the U.S. Debt Clock, by clicking here: http://www.usdebtclock.org/index.html

That's it for today. OK. I actually put on an EverBank logo shirt today, to do my live interview on the Street.com at 10:30 CDT this morning. I usually don't wear EverBank logo shirts because they don't fit me! But I asked Omar The Tent Maker to make one special for me. HA! Frank Sinatra is singing, The Way You Look Tonight on the IPOD, which reminds me this is the song that my darling daughter, Dawn and I danced to on her wedding, which next month will mark their 10th anniversary. Dawn got married on Alex's birthday, he was only 8 then, which means he'll turn 18 soon. Things were much better in 2003, given I was 4 years away from being diagnosed with cancer, and the debt in this country was only about $7 Trillion! Gotta give the Royals, Missouri's other baseball team, some love, as they won last night, beating my beloved Cardinals 1 of the 4 games the two teams played this year. It's Baseball night at EverBank, St. Louis, as the office gets together for a night at the Cardinals game VS the Giants. We have been bad luck for the Cardinals over the years, as I don't believe we've seen a winner in all the years that we've done this. UGH! Hopefully that changes tonight! I do believe that an original EverBank St. Louis, employee is celebrating her birthday today. Happy Birthday Cheryl Harper! And with that, I thank you for reading the Pfennig, and hope you have a Fantastico Friday!

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





Posted 05-31-2013 11:01 AM by Chuck Butler
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