A Walk On The Quiet Side...
Daily Pfennig

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In This Issue.

* Chuck gives some parting words

* A quiet week for US data

* Most currencies edged higher

* Is this the beginning for gold

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

A Walk On The Quiet Side...

Good day.and welcome to Monday morning. As Chuck had mentioned, it's going to be a steady mix of Chris and I over the next several weeks since he'll be out west speaking at a conference and then heading back east for a little summer fun. Chris also has some speaking engagements to attend as well, so that's the reason for the split squad approach. I'll start today's Pfennig with some parting words from Chuck that he wanted me to share before he takes to the air, so here you go.

"Ok, right after I signed off and headed to the ice rink to watch Big Boss, Frank Trotter, play hockey on Friday morning, I received an email alert from the WSJ with some news that we can file alongside the other stories we've accumulated over the years, that is quickly becoming the playbook that China will have used to get their currency to replace the dollar as the reserve currency of the world.

The WSJ reported that "China took a key step in its drive to liberalize its financial system on Friday, announcing it would scrap its curbs on lending interest rates. China's central bank said Friday that it would abandon the existing floor on lending interest rates, allowing banks to set loan rates by themselves. The next step will be for China to remove the ceiling they have on deposit rates that banks can offer. So, look for that news somewhere down the line.Hey! It may not seem like much, but baby steps turn to toddler running, which turns to jumping, and then taking over the currency regime!

I was really confused on Friday as to why the markets just let the fact that the largest municipal bankruptcy in U.S. History.Let me repeat that Detroit filed for the largest municipality bankruptcy in U.S. History, just slide right off its back, like water on a duck's back.What was long thought (journalists 50 years ago predicted Detroit would go bust) to be in the making, finally reached the bankruptcy court. And yet, the markets didn't care! DID NOT CARE! That's right! There was more dollar selling when the city of Stockton, CA filed for bankruptcy.So what gives?

There have been 36 municipal bankruptcies since 2010, folks.but Detroit is the biggest, and the one that should have raised a few eyebrows, and caused some slippage in the dollar.

And then finally before I head out the door, for real this time (see you thought you got rid of me last week!) I just had a brief phone call with a dear reader, a fellow Roosevelt High here in St. Louis fellow to boot, and we talked about Gold.I told him that I hoped that the manipulators had gotten what they wanted, by getting all the "Johnny-come-latelys" and the "short-term holders" out of Gold, and in doing so, had gotten the price of Gold to fall so much, that they were able to cover short positions.And now maybe, the manipulators will go away for awhile and leave us alone!

Now. back to Mike!"

Thanks again Chuck. I'm just as confused with the market's reaction, or should I say lack thereof, to the whole Detroit thing. I would have to think if something like this happened with one of the European nations, the markets would be treating it like the end of the world as we know it, but for some reason, nobody gives a hoot about this one. Anyway, it doesn't look like its getting resolved one way or the other anytime soon since the state court judge ordered Michigan's governor to withdraw the bankruptcy petition saying the Chapter 9 filing violated the state's constitution.

Just for reference, it took one year for a bankruptcy judge to rule that Stockton, CA was eligible for bankruptcy. Why are we not talking about a contagion like effect with the other states that are in big trouble. If Detroit is able to successfully proceed with filing, what's to stop others from following suit since precedent has already been set. I guess everyone knows the government will just step in and bail out so why get all worked up. As sad as that sounds, I think it's the unfortunate truth.

Well, it was fairly quiet when Chuck left us on Friday morning and that trend continued right on through the rest of the day since we didn't have any data here in the US to talk about and the weekend was staring us in the face. Speaking of data, it's going to be a quiet week. In fact, all of the reports for this week fit on one page and that doesn't happen very often. It's going to be a week dominated by housing numbers so I don't expect to see much in the way of surprises. All of the housing data is from June, which the 10 year didn't really start taking off until late in the month, so I would have to agree with most economists who are calling for a slight improvement. I'll be more interested to see how the July numbers were impacted by the higher rate environment.

Other than the existing and new home sales out today and Wednesday respectively, Thursday will be the only other day to hold any weight with not only the weekly jobs numbers but we'll also see June's durable goods report. There are a few other second tier reports sprinkled throughout, but that's about all we have for US data. That means the markets will most likely be hanging on every word spoken by any of the Fed heads this week, so the potential for a couple wild rides would be there if any of them would decide to steal the mic.. Otherwise, we'll be relying on data abroad to give us direction in the market.

The dollar did end Friday slightly on the lower side with everything, including metals, remaining in a tight range all day long. The dust is still settling after Bernanke's comments last week regarding the Fed's role going forward. Even though he didn't really say anything meaningful, he didn't indicate a specific timetable as to tapering efforts, if any, and still left the door open for additional stimulus if needed. As a result, some of the dollar bulls were taken out of the game and sent back to the bench for a breather.

With that being said, the only two currencies that finished in the red on Friday were the Brazilian real and Mexican peso. There weren't any new developments pushing either one downward on the day so it was just the same concerns that we've seen. In Brazil, it's the constant reduction in growth expectations that most are concerned with and the greater possibility that rates will be put back on hold. A stronger real would go a long way in helping the inflation problem, but I think most investors want to see a much higher risk premium, in the way of interest rates, before feeling comfortable enough to pile on.

If we take a look at the opposite end of the spectrum, we had the Swedish krona finish as the best performing currency on Friday. The currency was still riding the wave from last week where the central bank decided to not only keep rates on hold but also indicated rates probably aren't going any lower. Not that it's a positive attribute, but high levels of consumer debt are preventing officials from loosening policy even though inflation is running on the low side.

The South African rand finished the day in second place and up just over 0.5%. Along the same lines, it was no news is good news. While the prospects of additional reductions to growth forecasts are still on the table, the fact that the central bank kept rates on hold last week gave the rand a little pep to its step. The labor situation has also been quiet lately as annual wage talks are taking place, but that whole situation remains extremely volatile. In the end, not much to see here, so let's move on.

All of the other currencies finished up with less than 0.5% gains, so their moves were mostly a function of a weaker dollar on the day. The pound sterling finished in the top five as the results of June's back to back increase in retail sales on Thursday carried the currency to wrap up the week. As a result, we have some investors starting to make calls the British economy will outperform the eurozone, but that's not really saying much. Recent data has shown some improvement but until the BOE moves away from its dovish stance or we see a marked increase in inflation, I don't see the pound outpacing the euro by leaps and bounds.

It's nice to see that gold ended the week in positive territory as well as putting together a back to back weekly performance in the black. Hopefully this trend continues as it almost broke through $1,300 and finished the day around $1,295. Bernanke's comments suggested that stimulus could remain in place a little longer than some of the calls from weeks ago, so that helped to put the wheels in motion. The next couple of Fed meetings should have a significant impact as to the near term direction of metals as any hints of procrastinating plans to taper should act as a springboard but anything to the contrary would tend to keep it suppressed.

As I came in this morning, the dollar is down against most currencies and metals have taken another step forward. As I'm sitting here writing, gold is up $20 and silver is up nearly 50 cents so its smooth sailing so far at least. I couldn't find much to explain gold's jump to a one month high other than technical trading, but I'll take it. I did just see a story that some refiners in Switzerland will close for summer holiday in August so maybe that has also contributed to the move higher. Either way, the prices can move very quickly, as we know all too well, so let's keep our fingers crossed.

For What It's Worth. Group of 20 finance ministers and central bankers who met in Moscow said they plan to put growth ahead of austerity to revive a global economy that "remains too weak." The policymakers said they will back stimulus to ensure market volatility doesn't wreck the economic recovery. Germany toned down its position that governments must reduce borrowing, sources said.

To recap.Chuck gave his thoughts on China's decision to become less involved with lending rates as well as expressing some confusion about the market's reaction to Detroit's decision to file bankruptcy. Friday was a fairly quiet day as all of the currencies, including metals, traded in a very tight range since there was no data released in the US. Speaking of economic data, it's going to be a quiet week here as we're only going to have housing data and durable goods to entertain us with a few second tier reports for added flavor. The dollar did end Friday slightly weaker as most currencies were able to squeeze out some gains. Gold was also able to put together another weekly gain so that marks the second straight month, so hopefully this is the beginning of a trend.

Currencies today 7/22/13. American Style: A$ .9223, kiwi .7929, C$ .9669, euro 1.3179, sterling 1.5334, Swiss $1.0648, . European Style: rand 9.8131, krone 5.9329, SEK 6.4917, forint 223.08, zloty 3.2002, koruna 19.6812, RUB 32.3029, yen 99.95, sing 1.2621, HKD 7.7580, INR 59.7237, China 6.1721, pesos 12.5053, BRL 2.2471, Dollar Index 82.33, Oil $108.52, 10-year 2.47%, Silver $19.94, Platinum $1,440.55, Palladium $750.95, and Gold. $1,316.34

That's it for today.Welcome to a new week and hopefully you were able to get out and enjoy your weekend. As Chuck mentioned, I recently experienced the best thing that's ever happened to me as my wife gave birth to our daughter on July 10. That's right, I feel truly blessed to have my little Giavanna Marie and when I'm home, I never want her to leave my arms. With that said, I do have somewhat of disclaimer as it pertains to the Pfennig. Since the hours of sleep that I get each night right now can be easily counted on one hand and broken up into several segments, my Daily Pfennigs over the next several weeks will most likely be super short. I had all weekend to write this one, but I just want to apologize in advance if my writing is only a few paragraphs and disjointed. Antione brought me an energy drink last week so I'll definitely be putting that to use very soon. With that said, I'll let you go for today. Until tomorrow.Have a Great Day!

Mike Meyer
Assistant Vice President
EverBank World Markets

Posted 07-22-2013 4:17 PM by Chuck Butler
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