ZIRP Forever?
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In This Issue.

* Bernanke talks ZIRP.

* Evans sees more QE.

* Turning Japanese.

* RBA Asst. Gov. disses A$'s .

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

ZIRP Forever?

Good Day! And a Wonderful Wednesday to you! I'm back in the saddle this morning. Yes, back to cold St. Louis. I heard that it warmed up nicely over the past weekend, but whenever it warms up in places it shouldn't, at times of the year that it shouldn't, we get devastating storms and tornados. The unintended consequences of having a warm day when it should not be warm! I don't know if you've seen the pictures from nearby Washington, Ill, but talk about sad.

Well, the bias to sell dollars that was prevalent late last week and early this week, was reversed in the overnight trading. I guess, the traders in the overnight sessions are feeling as though the Retail Sales report for October is going to be quite strong when it prints this morning. I told you last week when I first alerted you to the fact that Retail Sales was the Big Kahuna data print this week, and that the BHI (Butler Household Index) suggested that the report would be disappointing. Well, the "markets" apparently don't use the BHI! Should I start a petition? HA!

The thing to think about here, is that it's as though the "markets" have gone "all in" on Retail Sales being strong today, which means. should the BHI be correct, as it usually is, then the risk in the markets this morning is that things have gone too far with dollar buying, and it could all be reversed in a NY Minute. But wait Chuck! You told everybody a couple of weeks ago, that you weren't going to pay attention to U.S. data prints due to the cooking and massaging they go through. Yes, I did say that, so. I guess I have to put my best middle school teenager attitude to it, and say. Whatever. (yes, I rolled my eye, and looked disgusted when I said that too, just for added enjoyment)

Big Ben Bernanke spoke last night in Asia, and while one might believe the dollar strength that began soon after the speech was over, had a lot to do with Bernanke's speech, that's not the case. Big Ben was pretty balanced in his talk, but then said something that I would have thought would set the markets off in the direction of dollar selling. Bernanke decided to explain to anyone that was listening that 6.5% Unemployment Rate is not a "trigger" for rate hikes. In other words. ZIRP will remain with us for a long time! (ZIRP = zero interest rate policy) Now, do you see what I mean about the markets selling dollars instead of buying them?

As long as we're on "Fed-Speak", we might as well get to what voting Fed member, Evans had to say yesterday about Quantitative Easing / QE. "I am not in a hurry myself to reduce the flow of bond purchases. I'd rather wait just a little bit longer and have more confidence." Then Evans went on to say that Fed bond purchases (QE) may have to be increased by 50% in 2014! So, now we've had Evans and Yellen in the past week talk dovish about QE, and tapering. But still, we see days when the dollar is favored. Why? Remember what I always tell you, folks. The U.S. Gov't can't have the dollar on the slippery slope with no stops along the way, for then everyone will believe it's a One-Way Street with no stoplights! Circuit breakers. think circuit breakers, and you'll understand how the dollar finds days of happiness.

So. I turned on the currency screens this morning to find dollar strength. Even with Evans talking about more QE, and Bernanke talking about ZIRP forever. The euro is down from yesterday's level, along with the Aussie dollar (A$), kiwi, and Gold. The euphoria that was in the currency markets from the Chinese reforms announcement, has worn off. Man, that was quick! You see, in the "old days" news like the Chinese reforms, first, would have taken a few days to trickle through the markets, and then they would have given the markets direction for weeks! But not any longer! Look at when a country announces a rate move. the good or bad direction of the respective currency lasts about as long as it takes to read the book on "What men know about women".

I guess they need something new every other day! Well, China tried to achieve that goal, when the People's Bank of China (PBOC) Gov. Zhou, who has been a great quote one after another for a number of years now, said that "We will increase the role of the market exchange rates, and the central bank will basically exit from normal foreign exchange rate intervention." Alright folks, that's central bank parlance for, "we're going to float the renminbi." The problem is he didn't say "when".

Gold, continues to find it difficult to get some long lasting wind in its sails. I read yesterday where the U.S. Mint has decided to stop production of Silver Eagles on Dec 9. Thus shutting down 3 weeks of minting! WOW! I think that as long as the Bernanke Asset Bubble (BAB), as my friend, and well respected analyst, Dr. Steve Sjuggerud, calls it, remains in the economy, and judging from what Evans and Yellen have told us in the past week, it sure looks as though there shouldn't be any questions regarding that, we'll see the stock market continue on its merry way. And that won't be good for Gold.

Yes, we used to have the Risk On / Risk Off days, where all the risk assets, of stocks, currencies and commodities, would get traded together, but those days are gone, and thank goodness for that! But. This is what you get when that happens, unintended consequences, right? Are you really going to use your cash to buy into a hot market like stocks right now, or Gold? Well, me personally, I would buy the Gold. I've told you long ago that I'm not even your last choice as a stock guy, but that's just me. (especially at the cheaper prices of metals these days!) Lots of people know a lot about stocks. Or do they? Do they really know the company? Do they believe the balance sheet of the company? How about the leadership? Oh well, I'll stick to what I know. currencies, metals and bonds.

5 years ago, when I was writing for the Currency Capitalist over at the Sovereign Society, I wrote one of the monthly letters about the difference between how the Scandinavian countries of Sweden and Finland, dealt with their economic crisis of the early 90's VS the way the U.S. was handling our economic crisis of 2008. I think it's worth mentioning again, since the Scandinavian countries of Sweden, Norway and Finland are model countries that other countries should have used as a template to dealing with a Housing Bubble crash, and economic meltdown. Jim Rogers highlights this in his new book, Street Smarts. And he uses a quote from the former Chairman of Eastern Airlines (remember them?) Frank Borman used to say. "Capitalism without bankruptcy is like Christianity without hell"

Oh, I guess you saying, but Chuck, what you wrote 5 years ago, can't still be relevant today. Ahhh grasshopper, we as a country are still dealing with Quantitative Easing, ZIRP, and bailouts aren't we? The sad part about it being 5 years later, is that by now, if we had let the failures go bankrupt, and started over, we would probably be in the middle of a boom cycle! Sure the following years (probably 3) after 2008, would have been nasty. But it would be in our rear view mirror now. And these are all the things I wrote about 5 years ago. It's so sad that we didn't just let things go their natural course, but instead chose to turn Japanese. Remember, when I used to use the lyrics to the song by the vapors, "we're turning Japanese, yes, I really think so"?

I'm sure a lot of people then didn't think that I was the sharpest tool in the shed back then. But look at us now. And what do you think now? Japan is in its 25th year of funk, and we're starting our 6th year.

Boy! Did I ever go off on a tangent there! I was just going to talk about how Sweden and Norway have currencies that are bucking the euro's pull downward this morning. And then I began having flashbacks of the Currency Capitalist, etc. Man, did I ever put a lot of work into that publication. Weekly videos, and stuff that I would have to come up with to talk about, that people were paying for. And then one gray night it happened, Jackie Paper came no more. And Puff that mighty dragon, he ceased his fearless roar.

But I still have this letter, that I began writing in 1992. And the Review & Focus that I began writing monthly for EverBank World Markets clients in July of 2000. I get asked to contribute every now and then to the World Money Analyst letter. I have people write me notes all the time and thank me for all the work I put into the Pfennig. But, I never really think about it as work, until somebody mentions it that way.

OK. again, I'm sorry that I went off on all that! No wait! I'm not THAT sorry! HA!

Japan printed another Trade Deficit (remember when they used to ALWAYS print Trade Surpluses?) for October, and it was larger than expected! UGH! The Japanese committee that was to find a way to overhaul the Japanese Pension Fund, came up with the same idea that every and their brother had come up with. and that is, to diversify their nearly 100% holdings of JGB's (Japanese Gov't Bonds) . This could be good news for countries like Australia & New Zealand, given the yield pickup the Japanese can get in buying those Gov't bonds, VS JGB's.

Yen is a basket case folks. The currency should be trading around 110 or even weaker, but remains around 100. It's not a case of Bank of Japan (BOJ) intervening to maintain 100, the BOJ and the Japanese Gov't have made it clear that they want a weaker yen. How clear? Crystal.

And the A$, which spiked higher on the Bernanke comments overnight in Asia, has backed off those higher levels as the Reserve Bank of Australia (RBA) Asst. Gov. decided to put the kyboshes on an A$ rally, by saying that the "RBA has a preference for a lower A$." Oh great! now RBA Gov. Stevens has a "backup" to diss the A$ when Stevens gets tired of jawboning the currency!

I see on the Bloomberg this morning that they have a story titled:" Yuan Three-Month Forwards Rise to Record as PBOC Pledges Changes". OK.what that means is simply that the speculators are going crazy on the forward prices for renminbi / yuan with the reforms announcement. Remember, I've explained before, but for the newbies to the letter, the renminbi / yuan is traded on what's called "a non-deliverable forward", which means the speculators get to dictate the forward rates, which they use as their guess as to where the currency will be trading in the future. This won't be available to them once the Chinese allow the renminbi / yuan to float. These speculators give me a rash, folks. but if you own renminbi, then you have to like that these speculators think the currency is going to be much stronger in a year from now.

OK. Besides the October Retail Sales report that will print today, the U.S. data cupboard also has Existing Home Sales for October, and the stupid CPI (consumer inflation), but the markets will want to see what the FOMC meeting minutes have in them when they print this afternoon. I doubt we see anything in the minutes that we don't already know, but you never know!

For What It's Worth. A reporter for Bloomberg News who worked on an unpublished article about China, which employees for the company said had been killed for political reasons by top Bloomberg editors, was suspended last week by managers.

The reporter, Michael Forsythe, was based in Hong Kong and has written award-winning investigative articles on China. He met with supervisors and was placed on leave, said two Bloomberg employees with knowledge of the situation, which was supposed to be private. The move came days after several news outlets, including The New York Times, published reports quoting unnamed Bloomberg employees saying that top editors, led by Matthew Winkler, the editor in chief, decided in late October not to publish an investigative article because of fears that Bloomberg would be expelled from China.

The article, about a Chinese tycoon and his ties to families of Communist Party leaders, was written by Mr. Forsythe and Shai Oster. Mr. Winkler has denied that the article was killed."

Chuck again. OK. I bet you're wondering why I chose this story to include instead of choosing something relevant like Bitcoin? Well. I think this plays well with my Puff the Magic Dragon tangent earlier today. put one and one together, and you'll see. Besides Bitcoin is a virtual currency, what can I say about it that hasn't already been said?

To recap. The bias to sell dollars faded overnight, but not at first, as Big Ben decided to make sure everyone understands that ZIRP is here to stay! The currencies rallied briefly, but are mixed on the day since. Gold continues to try and gather wind in its sails, but as long as the Bernanke asset bubble is in place, it will be difficult now that the RISK ON/ RISK OFF days of trading are over. And Chuck goes off on a tangent about things that only he knows why he decided to write about them!

Currencies today 11/20/13. American style: A$ .94, kiwi .8325, C$ .9575, euro 1.3530, sterling 1.6150, Swiss $1.0980, . European Style: rand 10.1360, krone 6.0790, SEK 6.6020, forint 219.45, zloty 3.0940, koruna 20.1890, RUB 32.84, yen 99.95, sing 1.2440, HKD 7.7515, INR 62.56, China 6.1305, pesos 12.96, BRL 2.2670, Dollar Index 80.61, Oil $93.22, 10-year 2.71%, Silver $20.34, Platinum $1,411.45, Palladium $717.07, and Gold. $1,265.53

That's it for today. Edwin Star is singing his hit song, Twenty-Five Miles on the IPod right now, that takes me back to Teen Town on Friday nights at St. Pius Church! I visited a friend the other day and got to see his new house and property that has an amazing view! WOW! Can you believe that November is going by so fast? That's great in my book! Thanksgiving is next week! What's your fave thing about Thanksgiving? I have to say that it's a time for family. I remember when Kathy and I were young and living in Des Moines, Iowa, and we both had to plead to our bosses you let us have the Friday after Thanksgiving off so we could go home to St. Louis for Thanksgiving, and then arriving home. And I can't forget the Pumpkin Pie! OK. What day is it? Mike, Mike, Mike. what day is it? It's Hump Day! And Thanks to Mike for taking the conn on the Pfennig yesterday! Now go out and make it a Wonderful Wednesday!

Chuck Butler
EverBank World Markets

Posted 11-20-2013 4:08 PM by Chuck Butler
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