More Mixed Messages.
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In This Issue.

* Big Ben soothes stock & bond jockeys.

* The uncertainty hedge rallies on uncertainty for once!.

* BOC leaves rates unchanged, Poloz shows his true colors.

* Housing Starts fall 9.9% in June.

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

More Mixed Messages .

Good day. And a Tub Thumpin' Thursday to you! Well. Another day of Benspeak and another day of volatility in the markets. We've seen directions switched and changed so many times since June 19th, the first day Big Ben said "that the Fed Heads "may" start dialing down the bond buying".

Yes, that was just the start. Big Ben then followed up that salvo fired at the markets on July 10, when he saw the damage to the markets that his comments had caused, and tried to spin the comments a new way by saying, "that the Fed Heads "would" maintain a highly accommodative monetary policy for the foreseeable future." And then yesterday, in his testimony to lawmakers about the economy, he decided to calm the fears of Treasury holders by telling the lawmakers that even after the bond purchases end, the "Fed plans to maintain a high degree of monetary accommodation."

And then this little ditty that I think the markets, who normally hang on every word, of Benspeak, missed. Bernanke said that "the central bank's asset purchases are not on a preset course, and that MAY BE INCREASED or Decreased depending on the strength of the economy." Notice how he put his foot in the doorway, thus allowing him to keep the door open to continue bond purchases and even increase them IF the economy isn't strong.

Well, if you ask me, and I know you didn't, but you're going to get my thought anyway.. You can go ahead and book 'em Danno! You can book more bond purchases, because this economy is going nowhere in a hurry! But, that again is my opinion and I could be wrong!

I think that Big Ben and the Fed Heads (sounds like a 50's band) got as worried as the hens when a fox is in the house, when they saw the 10-year Treasury yield soar to 2.65% when just a month earlier it was 1.48%... And that's why Big Ben made certain to say that that tapering is not a preset course, and that if the economy isn't strong enough, bond buying could be increased!

I have an interview scheduled today with MarketWatch regarding Big Ben's visit to "the Hill". I will point out to them, as I did to you yesterday, dear reader, that if I were able to ask Big Ben about his plans, I would ask him to explain to everyone in clear English how the economy is going to be strong enough to end bond purchases but not strong enough to end ZIRP? (zero interest rate policy)

So. What movement did he get out of his words yesterday? Well, the stock jockeys loved what he had to say. The bond boys liked it too, and the dollar bugs had to pull up their tent spikes and stop their campout. But that was yesterday. today, the markets are just confused again. These mixed messages from the Fed, namely Big Ben, are just too much for the markets to handle. Uncertainty is in the air, and for once in blue moon, the uncertainty hedge, Gold, is seeing some upward movement from the uncertainty.

We get to relive all these mixed messages again today, as Big Ben takes his traveling show to the Senate. I doubt we'll hear what I want to hear from him, as there are probably not Senators that would think to ask him that! Not picking on lawmakers, but let's face it, when they have the opportunity to really grill someone, they throw softballs instead.

The dollar is a bit stronger this morning, with the euro down a smidgen while the Aussie dollar (A$) is down ½-cent this morning. As I told you yesterday would happen, the Greek Parliament passed their latest austerity bill. The Greeks are between a rock and the proverbial hard place, and if they decide to turn away from austerity, they will have the loans / bail out money turn away from them. And if that happens, the only thing left for them is to leave the euro, and then default. So, even with the a party withdrawing of the present coalition, there were enough votes left to pass the measure. The euro wasn't moved by the outcome, but, had it gone the other way, the arrows would be getting shot at the euro this morning.

In Australia, S&P (ratings agency) affirmed Australia's AAA rating, with a stable outlook. So, not all things are bad in Australia these days! Apparently S&P wasn't too concerned that Australia didn't meet their pledge to return to a Budget Surplus last year. New Aussie Treasurer Chris Bowen, was pointing out Australia's ability to transition from the mining & resources investment phase to the production & service phase, and believes that economic growth can return to a level that exceeds that of advanced economies as a whole.

Sounds like Australia is going to be changing the same time China is changing. Hmmm. While I think that in a couple of years that might have been a good thing, between now and then could get dicey.

The Bank of Canada (BOC) left rates unchanged yesterday, and the new BOC Gov. Poloz did break from the old standard line that former BOC Gov. Carney had given the markets for over a year. Poloz said that "over time, as conditions normalize, a gradual normalization of policy interest rates can be expected. But. if significant slack, low inflation and improving household balance sheet conditions remain, current policy support will remain."

OK. That's all Central Bank parlance for: Look people, we have these conditions that require low rates, but should things normalize, we'll look to hike rates. Yesterday, the markets liked it, and rewarded the Canadian dollar / loonie, but today not-so-much.

Why? I hear you asking. Well, you see, the markets figured out what I told you when I first heard that Poloz was being named as the Gov. of the BOC. And that is, that his background is of the Trade sector. And what are the exporters in trade always crying about? That their base currency is too strong. So, guess what the markets finally figured out about what Poloz was saying? That he favors keeping rates low, and thus taking away the tightening bias that underpinned the loonie for a long time. Remember, I told you about how I feared what Poloz would be about long before he took the reins from Carney.

The Chinese renminbi / yuan was pushed lower this morning by the Chinese Gov't in their daily fixing. I try not to get to entrenched in talking about these daily moves in the renminbi/ yuan, given the long term prospects for the currency, but when the Chinese Gov't pushes the currency by this much in one fixing, I have to mention it. Not to worry though, I mean, this is something we've seen many times since China dropped the peg to the dollar in July 2005. WOW it's been 8 years since the peg was dropped. Where did those years go?

I just finished the Review & Focus for August delivery, and highlighted what's going on in Singapore, one of our fave currencies over the years. It seems that in 2013, the Singapore dollar (S$) has broken the trading relationship with the Chinese renminbi / yuan. For 7 years, as long as it is going to take for the U.S. to deliver Germany their Gold, the S$ and renminbi traded side by side. But in 2013, we saw a divergence, and while the renminbi kept getting stronger, the S$ was getting weaker. I put this down to speculation. I thought the speculators were going too hog-wild over renminbi, and that once that ended, these two currencies would get back to their normal trading relationship.

I think we'll still see that, as China's economy slows, and the Chinese Gov't stops the appreciation for a while, renminbi will fall back giving the S$ a chance to catch up. Speaking of Singapore though. their 2nd QTR GDP beat the estimates and is now getting viewed as "unsustainable". I say, Hey! Enjoy it! Don't make a Big Deal out of it, and then you don't have to worry about things being "unsustainable"!

As I said earlier, Gold's price is higher this morning. Take a guess at how much? Well, if you said $5 then you are a winner, winner, Chicken dinner! I have to talk a minute about a silly story I read about Gold. Get this. in the AP (someone sent me, thanks!) Here's a snippet of the story that talks about how "a strange glow in space has provided fresh evidence that all the gold on earth was forged from ancient collisions of dead stars. Apparently, high-powered telescopes can detect collisions of neutron stars that European supercomputers predict could produce Gold, Platinum, etc.

OK. take that AP story with how ever many grains of salt you wish. but just remember the next time you hold a Gold coin in your hand, that it was once dead stars that collided. HA! What? You've never held a gold coin in your hand? OK, a Gold piece of jewelry then.

The U.S. data cupboard has some interesting data for us today. the Philly Fed Index (regional manufacturing) and Leading Indicators for June that will join the usual Tub Thumpin' Thursday fare of Weekly Initial Jobless Claims, which jumped by nearly 20,000 in the holiday shortened week.

Yesterday, we saw the color of the June U.S. Housing Starts, and brother did they surprise the markets. U.S. Housing Starts fell 9.9% in June to a 10-month low of 836,000 annualized units, and Building Permits declined too by 7.5%... Could the higher mortgage rates and the threats of even higher mortgage rates already be weighing heavily on the Housing recovery? It certainly appears to be, but then one month's data doesn't make a trend, just as one swallow doesn't make a summer.

For What It's Worth. I borrowed this from Ed Steer's letter this morning. it's a comment on Gold from Eric Sprott, the Silver guru. let's listen in to what Eric has on his mind today.

"Recent dramatic declines in gold prices and strong redemptions from physical ETFs (such as the GLD) have been interpreted by the financial press as indicating the end of the gold bull market. Conversely, our analysis of the supply and demand dynamics underlying the gold market does not support this interpretation. Many major buyers of gold are adding to their stocks, while at the same time supply is flat or even decreasing, compounding an already vast imbalance.

For example, central banks from the rest of the world (i.e. Non-Western Central Banks) have been increasing their holdings of gold at a very rapid pace, going from 6,300 tonnes in Q1 2009 to more than 8,200 tonnes at the end of Q1 2013. At the same time, physical inventories have declined rapidly since the beginning of 2013 (or have been raided, as we argued in the May 2013 Markets at a Glance) and physical demand from large and small scale buyers remains solid.

As we have shown in previous articles, the past decade has seen a large discrepancy between the available gold supply and sales. The conclusion we have reached is that this gold has been supplied by Central Banks, who have replaced their holdings of physical gold with claims on gold (paper gold).

Many recent events suggest that the Central Banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight."

Chuck again. Yes. I keep waiting for that "black swan" event that was supposed to happen this summer to push Gold up to previous highs that James Turk of talked about this past spring.

To recap. More mixed messages from Big Ben Bernanke yesterday.. Now he even has thrown into the mix the idea that if the economy isn't strong enough that he could INCREASE bond buying! The markets reacted accordingly yesterday, but this morning, have turned against the currencies, and back to dollars as they are just uncertain as to what is going to happen. Gold is up $5, imagine that!

Currencies today 7/18/13. American Style: A$ .9170, kiwi .7890, C$ .9605, euro 1.3105, sterling 1.5220, Swiss $1.0595, . European Style: rand 9.8460, krone 5.9845, SEK 6.5740, forint 225.20, zloty 3.2395, koruna 19.7870, RUB 32.43, yen 100.15, sing 1.2665, HKD 7.7575, INR 59.67, China 6.1720, pesos 12.45, BRL 2.2245, Dollar Index 82.77, Oil $106.37, 10-year 2.48%, Silver $19.50, Platinum $1,414.03, Palladium $735.43, and Gold. $1,281.50

That's it for today. Each day when I go home I head to my recliner and nibble on some Ritz crackers and drink Gatorade, which helps settle my stomach. Yesterday, when I got home, little Delaney Grace was leaving, but she told me that he had put some crackers by my chair for me. What a sweetheart! She's been very inquisitive about what's wrong with me, and I tell her flat out so that she understands. I just got my July issue of Grant's newsletter, which is always required reading! Sometimes I highlight things and make the rest of the desk read too! 3 down 2 to go. Next week on a Tub Thumpin' Thursday, I'll be getting ready to talk to the 1,200 attendees at the Agora Investment Symposium, and then the much smaller crowd that comes to my workshop. I love Vancouver, I just don't like traveling to and from Vancouver. Then when I return, I'll be attending the wedding of the daughter of two of our oldest friends. Bill & Lynn Browne who have been friends of ours since high school, will give their daughter, Dianna away, I wouldn't miss that! And then onto summer vacation! OK. Mike Meyer has returned today! And Chris Gaffney just brought in a mocha for me! So. go out and make this a Tub Thumpin' Thursday!

Chuck Butler
EverBank World Markets

Posted 07-18-2013 4:15 PM by Chuck Butler
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