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In This Issue.

* Bias to buy dollars is strong.

* Germany gives reasons to sell euros.

* Japanese investors heading toward exits.

* Gold inches higher .

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

Jobs Everywhere!.

Good day. And a Marvelous Monday to you! What a marvelous and glorious Holiday weekend I just enjoyed! The weather was fabulous, the bar-be-que was fantastic, and the friends and family were great! And. my beloved Cardinals swept their series with the Marlins! I had one bad day with my stomach, but other than that, it was seashells and balloons! I had a long time dear reader ask me to fill him in on my adventures with my Big Green Egg smoker, and I did, but good thing for you, I won't bore you all with the details!

The two 7.5lb pork butts I had on the smoker Saturday, reminded me of what the markets are doing right now. They are smoking something, as they truly believe that the Fed is going to begin to taper Quantitative Easing (QE) soon, and that it will make all the difference in the world. Well, I have to say that while I believe that I believe it will make all the difference in the world, I believe the "difference" to be somewhat. well. different than what the markets believe right now, and when the truth hits them between the eyes, they will have that look on their collective faces like Tom Cruise did when Jack Nicholson told him that he couldn't handle the truth!

The reason I went into all that, was to explain why the dollar is still trading with a bias to buy, a strong bias I might add. We've seen this all before, folks. In fact the dollar index is trading at a level it last saw in 2010, the last time all the hootin' and hollerin' was about how the dollar was going to enter a long term multi-year strong trend. Currency analysts around the world are getting giddy about the dollar, saying things like "the dollar is the sweet spot" and other stuff. I find this all to be interesting, in that, just a few months ago, these same analysts were talking gloom and doom for the dollar. That's why I just try to drown out all the stuff these guys say, they are just too fickle and change their minds too quickly for my taste.

But, right now, the dollar IS trading with a bias to buy, so we have to deal with these guys pounding their chests, and stomping their feet to the music the dollar is making these days. All I can say is that I don't see how this all ends up in the dollar's favor. But then that's just me. the head of our IT and the CEO-Chairman of EverBank were in an elevator with me last week, and the Head of IT asked me what I thought about the dollar these days, and I began to give him a list of reasons why I didn't think much of it, when the CEO-Chairman said, "you're never going to hear him say that he likes the dollar". Well, I do love dollars in my pocket or bank account, but I don't like the purchasing power they have lost over the years!

This latest round of dollar strength came from last Friday's Jobs Jamboree, where the BLS said that 195,000 jobs were created in June. The forecasters had the number at 160,000, so the BLS outdid themselves this month with their "estimate" that included 132,000 jobs created out of thin air for the report. The thing I did find impressive about the report was that 70,000 jobs were added to previous month's numbers. The Unemployment rate remained at 7.6%, which surprised me, given the size of this reduction in unemployed people. So. the employment data, which is always suspicious to me, given the BLS's method of gathering the data, had the dollar bugs crawling out of the walls and having a hoedown.

I just have to wonder how this is all going to come crashing down, will it be all at once, or gradually? Sure, jobs are being added, I'm not talking about that. I'm talking about when the stimulus is pulled from the economy. I think the bond buys have an idea about what they see, as the 10-year Treasury continues to get rattled. And I think the Japanese have an aide about what they will see, as it was reported that Japanese investors sold a record amount of U.S. Treasuries in May, marking the 5th consecutive month of net sales of Treasuries by Japanese investors.

A bear market is about to hit the Treasuries, if it hasn't already begun, and when it does, everyone is going to be heading to the exit door at the same time, but not the Japanese, they have left the game early to beat the crowd. And don't look for the Japanese Gov't to help make up the slack here, they are too busy buying their own Gov't bonds, to be worried about U.S. Treasuries.

I read this morning that the forward curve for interest rates still shows the first rate hike by the Fed to not come until Feb 2015. Of course that's nothing that's carved in stone, but tells you what the markets are thinking. And while the Treasury yields may rise, the short term could remain near zero during this yield rise.. And that wouldn't be good. mortgage rates will rise, loan rates will rise, and the consumer will still be stuck earning paltry yields on their cash.

When I first began talking about the Treasury Bubble I was still writing for the Sov. Society's Currency Capitalist newsletter. I did about a 5 minute video on the subject , and thought it was all ready to come to fruition. But then the Fed began their bond buying, and in 2011, they bought 71% of the Treasuries auctioned. In 2012, I've seen the figure to be around 78% of the auction, although the numbers get a little fuzzy, due to the Fed's Twist and Shout Operation (Operation Twist). So, this was a classic case of: What may appear to be evident, may not be imminent. And so it will be with the Fed's tapering. It will be evident to me that besides what's going on now that the dollar will go back to the underlying weak trend, once the true rot on the economy's vine is exposed without the cover of stimulus. it just may not be imminent right away.

OK. this morning, the dollar is back to taking liberties with the currencies (not Gold) and the data from abroad isn't helping their plight against the dollar any at all. German Industrial Production, fell 1% in May. April's 1.8% increase was revised upward to 2%, but as I've said all along, it's a "what have you done for me lately" mentality in the markets. Germany's Trade Surplus narrowed in May too, which is cause for concern, but not all that much, given their Surplus is still 13.1 Billion euros. But the Trade Surplus was going to be in trouble when exports from Germany slipped 2.4% in May. I think that if you go back and check, you'll see that the euro was really pushing the envelope of currency strength in May. Wait till you see what happens to the U.S. Trade Deficit when June & July's data is printed, with all this dollar strength.

It appears that the next payment to Greece has had the tracks greased, and should come about before all the sawdust is left on the floor. For those of you keeping score at home, this will be a euro 8.1 Billion loan to Greece. In addition to the awaiting news from Greece today, European Central Bank (ECB) president, Draghi, will speak. It has come to the markets' attention that at the ECB meeting last week, that Draghi presented a 25 Basis Points rate cut, but was voted down by other members of the ECB. Apparently, Draghi doesn't have the same absolute power that Big Ben Bernanke of the Fed enjoys.

The rate cut talk, the slower Industrial Production in Germany, and the fact that once again we're talking about loaning money to Greece, as weighed down heavily on the euro. And with the euro in a tailspin, the rest of the currencies are getting sand kicked in their collective faces. The Aussie dollar (A$) and kiwi are eking out some small gains VS the dollar this morning, but that's about it. Even the Chinese renminbi has backed off against the dollar per the wishes of the Chinese Gov't.

Speaking of China. I had a nice discussion about China with Chris Gaffney last Wednesday. I told him that China was growing up, and trying to let the Chinese economy deal with their problems without the huge injections of stimulus that the Chinese are known for. It will be interesting to see just how long the Chinese Gov't can go with this idea, before they decide to scratch their itch, and inject some stimulus into the economy. None of this is slowing the Chinese efforts to remove the dollar as the reserve currency of the world though, so that's all still on the docket, or in the hopper as one of my old bosses used to say.

The U.S. data cupboard has plenty to print this week, but not much of it is market moving, or even worthy of mention. I guess the biggest thing that will print are the Fed releasing the minutes of their June FOMC meeting on Wednesday this week. Maybe we'll see the true colors of the Fed Heads and then probably not.

Gold is up $9 this morning. Friday afternoon when I was feeling pretty rotten, I was doing some reading, and the more I read the more I got this feeling that something had changed in the markets regarding Gold pricing. I thought back to all the times I wrote about the demand for physical Gold being strong, and all the data that I had presented that reflected that thought, but the price of Gold continued to be under pressure. What was it? And then, Saturday morning, the answer came to me. Right there in Ed Steer's letter, was a thought by Silver Guru, Ted Butler who said, "Simply put, the new law of supply and demand has the price determining supply and demand and not vice-versa as it should be. This may sound like a game of words at first blush, but it goes to the heart of the matter. When price determines how much is produced and consumed, instead of supply and demand being the determinant of price, that's just another way of describing price manipulation."

And while we're talking about metals. Remember what I told you a few weeks ago about the price of Gold falling to the Production costs of Gold, and what that would do to miners, etc. Well, news this weekend of several mining strikes in S. Africa reminded me that supply disruptions could still happen.

I did the V-8 head slap, and said, "That's it by Joe"! (OK, I really didn't say "by Joe" ) But it sounded good, eh? ) But remember folks, that price manipulation creates an artificial price, and that can be very harmful. Again, I'll refer to Ted Butler on that, "An artificial high price must lead to over-production and under-consumption and an eventual price crash, while an artificial low price must result in an eventual shortage and price explosion."

OK. one piece of data that will print today, is Consumer Credit. And this is a good indicator of what's going on in the economy. And when it prints today, I think we'll see a jump in Consumer Credit. Which would tell me that consumer spending is kicking in again. and once again we're doing it with credit, and not cash. When consumers obtain credit they are feeling pretty good about what's going on. And that's good for the economy. that is, as long as the Fed is adding stimulus and zero interest rates to the mix.

For What It's Worth. I found this article / interview with Dr. Marc Faber on, and he agrees with me that this money printing, bond buying, zirp, and whatever else the Fed Heads may have up their sleeves is going to end up in tears. Let's listen in to Marc Faber.

"It's going to end in disaster. But it's not going to end at the hand of Central Bankers because I know very well how they think. They are not going to tighten monetary policies any time soon. They are in the driver's seat in the sense that they will always find an excuse to print more.

They will say, 'OK we have to increase the purchases of assets because now the yield on Treasury bonds has gone up substantially, from less than 1.5% on the 10-Year note a year ago, to 2.68% as of today.' So they will say, 'That may damage the economy, so we have to buy more assets.'

And if they do that then the inflation rate may pick-up, and real wages may decline even more. Then they will say, 'Well, we didn't do enough because the population isn't doing well.' They will always find an excuse to print more. And as you said, it will end in disaster. There is no doubt about that.

But then the central bankers and the neo-cons like Krugman will say, 'Well, the disaster occurred because we didn't spend enough money. The fiscal deficits were not big enough. We didn't print enough money.' I tell you they will misinform the people of the whole world continuously, and never assume any personal responsibility.

At least if a hedge fund loses money, he stands up and says, 'Yes, I messed up. I lost money.' But the central bankers will always, always find an excuse that they are not guilty of any mistakes in their policies. It's a very vicious and despicable class of people (central bankers)."

Chuck again. Yes.. I have pinned my colors to the mast of this scenario, that this continues. it may end, but will have to be restarted because ending it didn't work.

To recap. The bias to buy dollars is strong, and the dollar index is trading at a level last seen in July 2010. German Industrial Production fell 1% in May, and their Trade surplus narrowed in May, which isn't helping the euro this morning. The U.S. Jobs Jamboree really got the dollar bugs dancing in the streets, as 195,000 jobs were created in June according to the BLS, who decided that there were 132,000 jobs that needed to be added just for good measure! The A$ and kiwi have eked out small gains, and Gold is up $9 this morning, but everything else is falling, including U.S. Treasuries.

Currencies today 7/8/13. American Style: A$ .9080, kiwi .7750, C$ .9470, euro 1.2840, sterling 1.49, Swiss $1.0360, . European Style: rand 10.1880, krone 6.2140, SEK 6.8480, forint 229.40, zloty 3.3510, koruna 20.1760, RUB 33.30, yen 101.25, sing 1.2825, HKD 7.7555, INR 60.61, China 6.1807, pesos 13.02, BRL 2.2525, Dollar Index 84.40, Oil $103.02, 10-year 2.70%, Silver $19.20, Platinum $1,345.75, Palladium $687. 47, and Gold. $1,234.00

That's it for today. Something was wrong with my docking station at my desk out on the trading floor, so I had to hunker down in my office to writ today. When the IT people come in, I'll have them look at it. I don't like working in my office except on occasion, I prefer the trading desk, where the action is! Congratulations to the 5 Cardinals players elected or named to the All-Star Game that will be played next week. Alex and I went to breakfast yesterday, and I got caught up on his thoughts for college, and the Junior Olympics Water Polo Team that he's playing on this summer. It was a week late for our annual birthday breakfast, but better late than never, right? The weather has finally been "summer like" and for that, I'm thankful! There's no reason to live where you get all 4 seasons, if you don't actually get all 4! And with that. I'll say. Thank you for reading the Pfennig, and I hope you have a Marvelous Monday!

Chuck Butler
EverBank World Markets

Posted 07-08-2013 11:16 AM by Chuck Butler
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