A Changing Of The Guard?
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In This Issue.

* Focus is on good data not bad.

* Becoming comfortably numb with the numbers..

* Inflows into yen are getting reversed.

* Potential good or bad news for kiwi.

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

A Changing Of The Guard?

Good day. And a Happy Friday to one and all! I'm going to be treated to a special treat this morning, as I'm writing from home, and when I finish, I'm going down the street to the Fenton Forum, to watch the Big Boss, Frank Trotter, play hockey. His normal rink is being worked on, so their games have been switched to my little river town's ice rink. They'll be "slumming it" here in my little river town, but. I get to go watch some of the game before heading into the office!

Well. Big Ben spoke again yesterday, and the dollar continued to add to its gains, but this time, the dollar's move wasn't exactly tied to yesterday's comments. You see, he basically reiterated what he had said on Wednesday. But yesterday, the markets saw some better than the average bear economic reports, and decided to not pay attention to the 9.9% drop in Housing Starts, or the fact that Leading Indicators, one of the few forward looking pieces of data that we get, was flat. And they focused instead on the reversal of the big drop in the Weekly Initial Jobless Claims, and the strong Philly Fed Index (regional manufacturing).

You can always tell for sure that an asset is in a rally when it moves higher on positive news, and doesn't move lower on negative news. This describes the dollar's status these days as it trades with a bias to buy, no matter what the economic data or other negative news prints. But to me, we've seen this so many times in the past 11 years, that I almost have become comfortably numb toward the moves. But since so many economists, and analysts believe that "this time it's different" for the economy, and dollar, I must pay attention, so I can remind everyone of my belief that this time won't be different for the economy and the dollar.

OK, so there I was, sitting at my desk minding my own business, when Artur from our Business FX group, rudely interrupted me. HA! Just kidding! Actually, Artur brought me the WSJ and asked me if I has read a story he was pointing to regarding China. I hadn't seen it, so he was kind enough to leave it with me for my reading enjoyment. And I did enjoy reading about how China is taking strides to allow capital to flow more freely into and out of China, and the problems that could exist should this process not be handled properly.

You know, I think that China is well aware of the problems that could exist, but the IMF was standing ready to inform them. (Isn't that just like the IMF? They remind me of a consultant that asks to borrow your watch and then tell you what time it is, all the while charging you for their participation in the search for the time!)

Right above that particular story though, was another story regarding China, and this one had more interest to me. The story was about a PEW Research survey of 38,000 people in 39 countries that asked questions about how China and the U.S. are perceived. And guess what? The majorities in 23 countries other than China, believe that China has already replaced or eventually will oust the U.S. as the world's top super-power. The Chinese don't doubt that, while here in the U.S. we are split on the question. The number of Americans that believe the U.S. will remain the world's top super-power is shrinking. It was 47% this time, VS 54% in 2008.

While the U.S. is still viewed more as a "partner" than China, China continues to improve and hold advantages over the U.S. in Africa and Asia. Look I take no "see I told you so" attitude with this report. Instead I feel badly for my grandkids that will live in a world that the U.S. is no longer the world's top super-power or have the world's reserve currency. And it all comes back to our unwillingness to deal with a nearly $17 Trillion Debt, or $124 Trillion Unfunded Liabilities Deficit.

But you can't say that I didn't warn you about this. Back in 2001, when I wrote the white paper titled, "the Decline of the Dollar" I talked about our exploding Budget Deficits that back then were around $700 Billion and our national debt was $5.7 Trillion. I have featured in my monthly newsletter to clients of EverBank World Markets a section I called "An Inconvenient Debt" and the dear Pfennig Readers who have been with me all these years, get bombarded with warnings about what all this debt was going to do to their purchasing power, all the while having me go out on the road several times a year, to talk to people about these things.

Speaking of becoming Comfortably Numb. I think investors and people in general have become just that, when I talk about the sheer size of these debts and deficits. And they figure that they can't do anything about them, so why worry? The U.S. as Alfred E. Newman, "what, me worry?"

I gave a brief interview with a reporter from MarketWatch yesterday and I told her that the Fed Reserve was being overly optimistic. I said, "how many times in the past 5 years have we heard the Fed Heads talk optimistically about the economy. remember green shoots?" I made that comment on the desk yesterday too, and Aaron Stevenson said, "those green shoots should be tall trees by now!" HA!

The folks over at the ratings agency, Moody's, decided that they had seen enough deficit reduction in the U.S. to upgrade the U.S.'s outlook from negative to stable. I found it interesting and almost laughable that on the same day that Moody's says the outlook for the U.S. has improved, the city of Detroit filed for bankruptcy. Hmmm. no wonder the currency markets didn't react to this ratings news.

Gold heads for its longest stretch of weekly rallies in a month of Sundays this week. It's a daily struggle for Gold and the rest of the precious metals to bang out what small gains they can bang out. But, over time, a slow gathering of weekly gains is a very good thing. So, don't get impatient. For maybe the bottom in Gold has taken place and this is the beginning of a long term rebound in Gold and other precious metals. I say maybe, because, the price manipulators are still out there, folks, and can strike at any time, they are now brazen, they don't care what clues they leave behind, for they know that they can't be touched. So, beware.

I saw some research last night that got me thinking about the Aussie dollar (A$). The research centered around how Japanese investors bought, for the second consecutive week, large sums of foreign bonds. This reverses the inflows we saw earlier this year. Well, not completely in two weeks, but you get the picture. These inflows that were taking place earlier this year, was something that I associated with the A$ weakness.

My thought was that the A$ was getting sold by Japanese investors and yen was being repatriated thus causing the A$ to get weaker, and the yen to get stronger. (recall, yen was heading for the cliff when all this began to happen) This data got me thinking that IF the inflows into yen continue being reversed, it could very well signal a bottom in the A$ weakness. Sure the A$ would still have to contend with proposed rate cuts, but eventually, those rate cuts will have all been priced into the currency ahead of the rate cut, so it will be a case of sell the rumor and buy the fact.

Just some food for thought on this Friday morning. There's not much going on in the currencies and metals this morning, so let's skip ahead to this weekend, where the G-20 will take place.. I've been reading quite a few stories about this upcoming G-20 meeting, and most observers believe that the finance ministers of the G-20 nations will issue a communiqué' that chastises Japan for their plans to get the yen weaker. Of course these say observers thought the same would happen at the last G-20 meeting, and it didn't.

I told you the other day about the move the Reserve Bank of India (RBI) had made in attempt to stabilize the rupee. The RBI has made it known to the markets, who have pushed the rupee to recent record lows, that the RBI will fight them on this rupee weakening. I read some research the other day about how the RBI's moves are similar to the ones they implemented soon after the Asian crisis of 1998. But more has to be done. Memo to RBI from Chuck: You've only taken a baby step toward stabilizing the rupee, more has to be done, or these measures will fail miserably.

I think the RBI will follow up these measures with more so stay tuned, same bat time, same bat channel!

Did you hear the news that could potentially be great news for New Zealand and the New Zealand dollar / kiwi? Well, apparently, New Zealand has until January 2014 to meet the market size criterion to be included in the Citi World Gov Bond Index (WGBI). Well, it could also potentially be bad news too, if New Zealand fails to meet the market size criterion.. I would say the possibility of New Zealand meeting this criterion right now is at 75%... This inclusion in the WGBI would be HUGE for kiwi. So, let's hope the New Zealand Gov't gets their ducks in a row here.

After 4 days of the U.S. data cupboard spilling out data print after data print, it appears that the cupboard is empty today. I wonder who worked that schedule? Jam in data for 4 days and then take a day off? Strange, eh? Oh well, that means the currencies and metals will be on their own today to end the week. With the bias to buy dollars firmly in place, we could see the currencies and metals drift lower today. The dollar bias has a firm grip on the currencies right now, and will continue to have, until it doesn't.

The dollar bias doesn't hold any ground over the price of Oil though. the WTI Oil price climbed above $107 overnight. The petrol-currencies like: Canada, Norway and Russia are all being underpinned by this price of Oil, but not to the degree that they would if Oil's rise wasn't purely based on the goings on in Egypt. The Russian ruble seems to be garnering the most attention from the rise in the price of Oil, which helps the Emerging Markets calm a bit after seeing the rug pulled out from under them, collectively, in June from Big Ben's talk about tapering.

I told you earlier that I was interviewed by MarketWatch yesterday, and that got me thinking to the first time I was ever interviewed by what it was called then CBS MarketWatch, the interviewer was the guy that started MarketWatch, Thom Calandra. Then over the years following that first interview, a young lady by the name of Rachel Koenig used to call me regularly, but I guess she left and then I didn't hear from anyone at MarketWatch for years. Glad to talk to them again!

For What It's Worth. I have a snippet of a piece that my friend, Jeff Opdyke of the Sovereign Society wrote yesterday. Jeff used to write for the WSJ, and was the writer that did the second piece on me for the WSJ, with the first one coming in 2005, written by Craig Karmin. Jeff travels the world in search of investment ideas, and so he's very well aware of what's going on around the world. So, let's listen to what he has to say about the Emerging Markets..

"Conventional wisdom holds that the West is the be all and end all of the global economy. Economic fright in the West, this warped theory holds, means an economic nightmare everywhere else.

While there is a modicum of truth in that . it's overblown and an excessively Western view of what's really happening in the rest of the world.

Money's most-selfish trait is that it typically flows to its highest and best use. The U.S. is, structurally, a slow-growth economy. That's not a knock; it's just a fact. We're large, our consumers already have whatever they want and many of our biggest industries are stable, slow-growth industries. Because of our size, we still help pull the global economy along, but it is a wrong assumption to believe we're the only engine at the head of the train.

Emerging markets have billions of people who are on the ascent financially. They are the true engines of growth that will power the next stage of the global economy . and that stage will stretch across decades. The smart money is already flowing into economies where you find the greatest profit opportunities . the opportunities I follow for my Profit Seeker subscribers.

And those opportunities are tied to one reality: Non-Western economies are increasingly distancing themselves from the West as their own economies become more reliant on domestic demand rather than exports to the West.

While emerging markets did take a hit following Bernanke's comments, it doesn't change the story of the growth and rising prosperity that's happening all across the globe. And many companies within those markets are still doing well. " - Jeff Opdyke

Chuck again. Long time readers know my thoughts on the Emerging Markets, and they are in tune with what Jeff is saying here. the world is changing as witnessed by the story I told you about regarding China above, and the Emerging Markets don't have the debt problems that the Western Nations do.

To recap.. Yes, I've gone on quite long today, but the Pfennig was chock-full-o-stuff to fill your minds with this morning, and besides, this is the last Pfennig from me, that you'll get for 3 weeks! So, enjoy! HA! The dollar has a bias to buy and is not giving it up it appears any time soon. Big Ben spoke again yesterday, no great shakes, and G-20 begins this weekend. Whoopdeedo!

Currencies today 7/19/13. American Style: A$ .9165, kiwi .7940, C$ .9630, euro 1.3105, sterling 1.5245, Swiss $1.06, . European Style: rand 9.8775, krone 5.9930, SEK 6.5550, forint 225.55, zloty 3.2380, koruna 19.7885, RUB 32.44, yen 100.40, sing 1.2670, HKD 7.7575, INR 59.69, China 6.1751, pesos 12.50, BRL 2.2275, Dollar Index 82.77, Oil $108.13 (just jumped up another $1) 10-year 2.52%, Silver $19.34, Platinum $1,420.20, Palladium $743.77, and Gold. $1,287.40

That's it for today. and for me for 3 weeks. This Vancouver trip has butted up against my summer vacation for the past few years, making this time away extended. I need this upcoming vacation folks, it's been nothing but work since I got back from spring training. I know, I'm whining a bit, so I'll stop. Well, one of my fave "females in the world" is getting married, and my beautiful bride and darling daughter are having a shower for her at the house tomorrow. Kat Kaluzny, was Dawn's sorority sister and used to come home with Dawn all the time, as her home was in Chicago, a long trip with short time, so she stayed with us. Kat remained in Columbia, Mo after graduating, and is a teacher like Dawn, they were two peas in a pod in college. So, congrats to Kat. she's a darling lady, and I'm so happy that she's happy! And with that, I'll get out of your hair for today. The conn on the Pfennig will be split up between Chris and Mike while I'm gone and I thank them for picking up the ball here. I thank you very much for reading the Pfennig, and hope you have a Fantastico Friday! bye..

Chuck Butler
EverBank World Markets

Posted 07-19-2013 12:15 PM by Chuck Butler
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