Let's hurry up and wait some more...
Daily Pfennig

Blog Subscription Form

  • Email Notifications
    Go

Archives

.........But First, A Word From Our Sponsor..........

WHY RUSH INTO METALS WHEN YOU CAN WALTZ?

The rarity of precious metals helps drive their value and potential significance to your portfolio. But for those not interested in making a mad rush to metals, EverBank has unearthed an exciting and equally rare investment alternative.

With our automatic purchase plan, you can start mining metals at your pace.

?Fund for as little as $100 a month

?Choose from gold, silver and platinum

?Pay no ongoing fees

Available only with the NON-FDIC INSURED Metals Select Unallocated Account1, this is a rare opportunity to strategically utilize dollar cost averaging to grow your metals ownership from one month to the next.

Start mining at your pace today. Learn more and view IMPORTANT DISCLOSURES at https://www.everbank.com/investing/metals/unallocated?referid=11808. Or call 800.926.4922.

EverBank is an Equal Housing Lender

© 2013 EverBank. All rights reserved. 13AGM0003.

......................................................

In This Issue.

* No taper talk

* Second quarter growth

* ADP on the rise

* Third time is a charm

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

Let's hurry up and wait some more...

Good day.and welcome to the month of August as well as another Thursday morning. The month of July ended up with more twists than a good thriller novel, but at the end of it all, the Fed was the main character and it looks like this will continue to be the case. It's all about the Fed. What will the Fed think about this or that? How will the Fed react to this or that? Every bit of data is scrutinized as to how it would impact the Fed's view on tapering. As data exceeds or falls short of expectations, the markets will continue their erratic behavior until the Fed is not so mysterious in their ways.

Unfortunately, the Fed meeting did nothing to address any of the question marks that have been present in the markets for the better part of a month and a half. The statement following the meeting contained no new language on the conditions for maintaining the current pace of asset purchases. These statements are so open ended and can be interpreted in several different ways, but I think most economists would still consider this a dovish environment. The Fed did refer to the pace of growth as modest instead of moderate as it had in the past while they also acknowledged that housing has been strengthening but mortgage rates have been on the rise.

The biggest change came by way of saying the committee recognizes that inflation persistently below its 2% objective could pose risks to economic performance, but it does anticipate that inflation will move back toward its objective over the medium term. This was apparently a nod to St. Louis Fed president Bullard who was banging the drum on the dangers of inflation running too low. Both you and I know that real world inflation is much, much higher than the government's calculation, but they feel this low inflation could hamper growth.

At the end of the day, all of the pomp and circumstance for tapering got pushed once again, so don't expect any slowdown in market volatility for at least another month. Actually, at this point it's actually closer to another six weeks since the next meeting will take place on September 17 and 18. If the Fed is concerned about higher interest rates via bonds and if they do decide to taper in Sept, who is going to be lining up at the door to buy such a low yielding asset. Will the Fed heads now shift focus toward doing what's necessary to keep mortgage rates down? I guess we'll need to stay tuned.

Moving on to GDP, we had the initial reading of second quarter results come in much higher than expected. It's still nothing that would light any fires, but the 1.7% annual pace beat the expected result of 1.0% as well as the first quarter's revision down to 1.1% from 1.8%. So, let me get this right. First quarter GDP is at 1.1% and second quarter GDP is at 1.7%, so where is this progress that economists are pounding their chests about and justifying an imminent taper. From a realist standpoint, why would the Fed decide to taper in September when GDP yielded a sub-2% rate for a third straight quarter unless they are trying to cut deficit spending. As nice as it would be to say, I don't think the latter is the case.

When the bar is set low, its easy to get excited. Consumer spending slowed in the second quarter when compared to the first quarter, but I didn't see any headlines bringing light to that bit. I saw where the revisions made to the way GDP is calculated added 0.6% to the 2012 bottom line, so now the economy grew 2.8% last year. In the end, we still have two more revisions before the third quarter results arrive, but if history is a guide, revisions haven't exactly been friendly. Then again, the calculation is now different so we shall see.

In the precursor to jobs jamboree Friday, payrolls as reported by ADP came in much higher than expected by rising to 200k. We also saw the June report get revised upward by 10k to 198k. The report indicated that manufacturers, construction companies, and other goods producing industries increased by 22k while payrolls at service providers climbed 177k.Thats great news to see employers added 200k workers in the month of July, but we need to know what kind of jobs we're talking. There's a big difference between part-time, lower wage positions compared to full time jobs that would contribute to self sufficiency and a money spending lifestyle the country needs to survive.

While the spot light was solely on the US yesterday, we will see it shift across the pond as both the ECB and BOE have policy meetings going on as I write. The dollar finished the day lower, but it was interesting to watch it move throughout the day. After we had the US economic reports, the dollar shot up and gold was, at one point, down $20 as traders were getting juiced up on the better than expected data. Once the Fed statement failed to address any tapering plans, or really anything of any importance for that matter, we had a nice little turning of the tide.

The Norwegian kone and Swedish krona finished the day in positive territory by close to 0.75%. There wasn't any data to push them to the top, so it looks as though the big sell off after Swedish GDP disappointed may have been overdone. The rest of the currencies in positive territory had less than 0.5% gains on the day while the euro was able to retain the 1.33 handle as I walked out the door last night. The paring back of the dollar helped, but the number of people unemployed in the eurozone fell for the first time in two years. Since we're only talking 24k people compared to the 19 million out of work, it didn't impact the unemployment rate.

A currency that has been seeing a lot of red, the Brazilian real, came to the surface for some air and actually appreciated a fraction of a percent. It was a very ugly morning for this currency yesterday as it fell to 2.3016 and marked the weakest point since April 2009. It looks like the Brazilian central bank is trying to defend the 2.30 handle as they intervened in the currency market three times yesterday morning and succeeded in propping the real to about 2.28. Higher inflation remains a problem in Brazil so a weaker currency helps fan the flames of inflation, hence the government action.

As I came in this morning, the dollar is up pretty much across the board as the market is waiting for the ECB to do its thing. It's similar to what we saw yesterday prior to the Fed meeting in that traders want to remain on the cautious side in case policy makers overplay the stimulus card. We did see a eurozone manufacturing report break into the positive side of 50 by rising to 50.3 in July. Other than that, just playing the waiting game.

For What Its Worth."In the end, I abandoned my initial aversion to holding gold," concludes N. Gregory Mankiw in The New York Times.

Mankiw is about as establishment as it gets - a "New Keynesian" who runs the Harvard economics department and was chairman of the White House Council of Economic Advisers under George W. Bush.

A few weeks ago, a friend asked him if gold belongs in his investment portfolio. "My instinct was to say no," but instinct wasn't enough. So Mankiw dug a little deeper and made several shocking discoveries. To wit:

. "All the gold ever mined amounts to 174,100 metric tons. If this supply were divided equally among the world's population, it would work out to less than 1 ounce a person."

. "Its price is largely uncorrelated with stocks and bonds. Despite gold's volatility, adding a little to a standard portfolio can reduce its overall risk."

Yes, we know. Your mouth is agape at such revelations.

Wrote Mankiw, "A small sliver, such as the 2% weight in the world market portfolio, now makes sense to me as part of a long-term investment strategy."

Well, it's a start. We also had Richard Russell, the dean of newsletter men who begain penning his Dow Theory Letters in 1958 which was the same year Mankiw was born say "I like the way [gold is] acting,"

Mr. Russell has noticed the gold stocks - represented by the GDX ETF - are now trading above their 50-day moving average for the first time all year. "Since the miners tend to move before bullion," he concludes," I consider this action bullish for the whole gold universe."

To recap.The question marks prior to the Fed meeting still remain as there was no mention of tapering stimulus measures. The statement following the FOMC meeting is still dovish, while the Fed voiced concern about low inflation (government calculated) and rising mortgage rates. Second quarter GDP came in much higher than expected but remained below 2% for a third straight quarter. Personal consumption also fell while the ADP jobs report says we added 200k workers in July. The BOE and ECB meet today, so we'll see if there are any sound bites. Norway and Sweden topped the list yesterday while the Brazilian central bank had to intervene three times in one day.

Currencies today 8/01/13. American Style: A$ .8983, kiwi .7945, C$ .9706, euro 1.3228, sterling 1.5223, Swiss $1.0739, . European Style: rand 9.8776, krone 5.9266, SEK 6.5691, forint 225.86, zloty 3.1990, koruna 19.6025, RUB 33.0310, yen 98.76, sing 1.2719, HKD 7.7558, INR 60.4437, China 6.1778, pesos 12.7407, BRL 2.2746, Dollar Index 82.05, Oil $106.91, 10-year 2.60%, Silver $19.85, Platinum $1,440.55, Palladium $732.45, and Gold. $1,324.00

That's it for today.I had a very nice surprise at the office yesterday as all of the folks in the St. Louis office threw a baby shower for me as well as the others who either recently had or will soon have a new edition. I am blessed to be surrounded with such a wonderful group and for that, I am thankful. Thanks again to all involved. The MLB trade deadline was yesterday, and much like the Fed meeting, there was a lot of chatter leading up to it but there wasn't much action once the dust settled. That about does it for me today. Until tomorrow, Have a Great Day!

Mike Meyer

Assistant Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 08-01-2013 11:30 AM by Chuck Butler
Filed under: ,