Deficit Spending Bill Is Reached.
Daily Pfennig

Blog Subscription Form

  • Email Notifications


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


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 Or call 800.926.4922.

EverBank is an Equal Housing Lender

© 2013 EverBank. All rights reserved. 13AGM0003.


In This Issue.

* Currencies are mixed today .

* Gold loses ground though.

* Eurozone Industrial Prod beats estimates! .

* Japanese Current Account Deficit widens! .

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

Deficit Spending Bill Is Reached.

Good Day! And a Tom Terrific Tuesday to you! Boy did I have a rotten day yesterday, that concluded with two previously scheduled visits to doctors. But that was yesterday, and today is a new day! YAHOO! Just a quick update for those that follow this stuff, there has been no change in the size of the lesions in my jaw and chest, but. no new stuff, so. life goes on!

OK. Well, the Big News overnight is that U.S. lawmakers have agreed on a funding bill for the next year, without all the drama of last fall. Of course we could all get giddy about the fact that the lawmakers did this without the drama, and ahead of schedule, although it will take an extension to the Jan. 15 deadline to get the bill all gussied up and passed. But then we would be doing what the Gov't wants us to do, and that's to forget that the total appropriations for this fiscal year, including the war in Afghanistan is $1.1 Trillion. And don't forget, if you give a country like the U.S. an allowance of $1.1 Trillion, that's what they are going to spend!

The interesting thing I saw in a quick overview of the spending bill was that the Defense Budget, while we are in a war, was cut, but the budget to fund the IRS was kept unchanged. Really?

The currencies have basically shrugged off the announcement of a spending bill. The dollar is still soft, but not against all currencies like it was yesterday. The euro is up a tiny bit this morning, the New Zealand dollar / kiwi has reached 84-cents, but the Aussie dollar (A$) has given back 1/2-cent in the overnight trading. Before I go on, I want to let everyone know that I made a major faux pas yesterday, when I was talking about the Reserve Bank of New Zealand (RBNZ) Gov. I mistakenly said his name was Bollard, but that was the old RBNZ Gov. the real RBNZ Gov. is Wheeler. I knew that, but for some reason, Bollard was the name that I thought of when typing, and you know me when I start typing! So, my apologies.

The Big Winner VS the dollar overnight though is the Chinese renminbi / yuan. Every move high VS the dollar for the renminbi represents a new 20 -year record level. So going forward, I won't have to say a "new 20-year record level" anymore, you'll just know that the renminbi hit another record! I've said this for at least 6 years now, going back to 2008, that the renminbi is THE most important currency in one's investment portfolio, as it represents the anti-dollar currency, and as long as the U.S. wants to deficit spend itself into oblivion and then monetize the debt, thus ruining the dollar's purchasing power, an anti-dollar currency is good to have!

Coming in a close second place overnight is the Swedish krona. Swedish December CPI (consumer inflation) printed much stronger than expected at +.1% VS -.1%... And suddenly the markets think that the rate cut that they had previously priced into the krona is no longer needed by the Riksbank (Sweden's Central Bank). Recall that I had told you a month or so ago, that while I still saw a rate hike from the Riksbank in 2014, that the markets were pushing for one more rate cut, before the rate hike cycle began. Well, I guess they've changed their minds! So, now the rate cut has been called off, and we only have an eventual rate hike in 2014 to look forward to! And that's all seashells and balloons for the krona!

In the Eurozone this morning, November Industrial Production printed much stronger than expected and reversed October's negative -.8% print. Nov. IP printed at +1.8% So, that's a good sign for an aggregate economy like the Eurozone. And that has allowed the euro to retain its gains yesterday, and add a shekel or two this morning. This is a strong reading for the Eurozone, folks, given the soft economies of the South, or Club Med if you will. And will go a long way toward pushing the Eurozone economy out of its recession.

Speaking of data. Today is a Big data day in the U.S. as the December Retail Sales data is set to print. I have to say that you used to be able to bet the farm that December Retail Sales would be strong, given the Christmas shopping season. But, this could be the year that you would lose that farm on the bet! The Butler Household Index (BHI) indicates that the result will be OK, but nothing to get all lathered up about. And given the slowdown that was evident in jobs created in December, all the hub-bub about a strong economy might be starting to show some frailty.

The U.S. Data Cupboard will also have the November Business Inventories for us to see today. These inventories were a big reason why the 3rd QTR GDP was stronger, and guess what? The forecasts for the Nov BI has it printing at .3%, falling from the Oct. .7% print. So, if this plays out as forecast, it will give us another data print that has weakened going into the year-end.

OK. Enough on U.S. data! The poster child for countries in debt, and the implementation of Quantitative Easing, Budget stimulus bills, zero interest rates, and no cares whatsoever about all of it. Japan (Bet you thought I was going to say the U.S.!) printed their Current Account Balance last night, and it wasn't good. Japan's Current Account Deficit widened to a record level in November. Remember when Japan's Current Account, led by its Trade Balance was a surplus? But over a year ago, Japan started printing negative Trade Balance reports, and now their balance of payments is negative. There's just not one thing going on in Japan that points to a strong yen, folks.

The currencies that belong to the two countries that border the U.S., Mexico and Canada, have run into some problems lately, which is strange, given the trade that these two countries have with the U.S. and the optimism that presides in the U.S. right now. But, it's not to be right now. I've been telling you about the Canadian dollar / loonie weakness for a month or so now, and how the traders appear to be taking the loonie to 1.10 or 91-cents in dollar terms. Well, now the Mexican peso has joined in the weakness of the border currencies. Mexico seems to have a lot going for it last year, given the reforms of the new President, but there's been no follow-through from the Gov't, and the peso gets tarred with the same brush that was used on it, when previous regime's plans would fall through.. I still hold out hope that the new Mexican President, Nieto, can make some lemonade from these lemons, and that would be a good thing for the peso.

I told you above that the A$ had lost about 1/2-cent overnight. The selling in the A$ came as a surprise to me, given the news that Japanese investors had become net buyers of Aussie bonds in November, for the first time since October 2012. The A$ lost the 90-cent figure early this morning and most of the talk is about how traders are fearful of bad news from China today, as China will announce data on new loans. I think this selling in the A$ is a bit overdone given this reason for the selling. But since that's the mast traders have pinned their colors to, then we have to play that game too. So, look for the news on Chinese loans data later today for short-term direction in the A$...

The weakness in the A$ overnight hasn't dragged down the New Zealand dollar / kiwi for once! Usually you see these two trade in sympathy with each other, but not last night! New Zealand Business Confidence was mostly responsible for this kiwi strength, as the survey surged to a 20-year high. In another report from New Zealand, Home Prices rose 10% in December, which is the fastest rise in 6 years! The New Zealand economy is really gathering strength folks, and it's time to remove those Emergency rate cuts that the RBNZ made a couple of years ago, after the devastating earthquakes. I've been talking about a rate hike in New Zealand for 6 months, and it's now time to begin to seriously think about it, and IF the RBNZ is as prudent as they have been in the past, they'll waste no time. And that has kiwi trading with a smile.

Today, we'll get some Fed-speak from two Fed Heads, Plosser and Fisher, which should be pretty interesting how they spin last week's weak jobs data don't you think? I don't think they'll say anything that would lead the markets into believing that their Tapering is on hold going forward, not so soon that is. So, let's take what they have to say with a grain of salt, and move along for these are not the droids we're looking for.

Gold is off by $5 this morning. The nice gain it made last week after the Jobs Jamboree stands out right now, as the selling, albeit small, has taken over since. I've been following the news from the mints, and it's interesting how in the first couple weeks of January, the U.S. Mint and the Royal Mint have announced lack of supply in coins. Silver coins in the U.S. have really been in demand folks. and again it makes one scratch their heads as to why the physical demand doesn't drive up the price, but lack of supply and strong demand should drive up the price, eh?

I see where Goldman Sachs has said that precious metals will lose about 15% this year, with Silver dropping to $17.50 by year-end. To that I say HOGWASH! But then, I'm just a lonely fellow down here in the Midwest seeing things as they really are, I don't have a multi-million research dept to help me! HA!

Before I go to the Big Finish. I see where Silver guru, Eric Sprott, is saying that "Western Central Banks Can't Have Much Gold Left" This is a thought that's going through the markets right now, folks, and is scary to me.

For What It's Worth. I found this interview with Michael Pento, a leading economist in the world, and someone that I've quoted here in the Pfennig several times in the past. In the interview Pento gives us his thoughts on why he sees the U.S. economy collapsing in 2014. I've got room for just a few snippets here, if you want to read the entire interview I'll have the link below.

"That aggregate level of debt has now surged to $55.5 trillion at the end of 2013, which is still about 330% of our economy. We have not deleveraged at all. In fact, the nominal level of debt has exploded by over $6 trillion. This onerous level of debt is merely being masked by low interest rates and an unstable economy that is being levitated by producing renewed asset bubbles. An over-leveraged consumer and banking sector-which was the case in 2007-is certainly not a more beneficial condition than having an insolvent government. Once interest rates rise, it will again reveal the fragile state of the economy.

There haven't been any structural reforms made to this economy and no viable solutions have been offered to remedy the cause of the great recession. No tax, educational or entitlement fixes were put into effect; only our ability to sustain consumption through re-inflating equity, bond and real estate bubbles. The government accomplished this by substantially increasing the amount of outstanding debt and having our central bank monetize most of it.

The 10-Year Note has already climbed from 1.5% last year, to 3% today. We are now only 200 basis points away from another complete meltdown in stocks and real estate prices. The Fed will learn a painful lesson this year -- namely, that it does not control the long end of the yield curve. A zero percent Fed Funds Rate does not preclude a 5% 10-Year Note from being realized. Once the Fed's monthly allotment of asset purchases dwindles to around $25 billion per month, I expect the benchmark interest rate to approach that key 5% level.

The Fed can still keep short-term rates low as long as it wants, but that will eventually create runaway inflation, ravage the economy and push the long end of the yield curve higher. Or, it can alternatively stop QE and raise the Fed Funds Rate, which will prick asset bubbles, cause government revenue to plummet, and send debt service payments soaring. In either the case, the two immutable facts are that the U.S. has a historically-unprecedented level of debt and interest rates must soon revert back to the mean. That toxic combination is what Wall Street describes as a 'Goldilocks scenario.'"

Chuck again. this is a very good explanation of things I talk about all the time folks, and the whole interview can be found here:

To recap. The Big News overnight is that U.S. lawmakers came to agreement on the spending for fiscal year 2014, and it's. drum roll please. $1.1 Trillion dollars! YAHOO! NOT! The currencies, which rallied all day Monday, are mixed this morning, with the euro, kiwi, renminbi and krona gaining, and the loonie and peso losing ground. Eurozone Industrial Production beat estimates and printed at 1.8%, a very good number for the aggregate economy. And Japan's Current Account Deficit widened in Nov. Troublesome, eh?

Currencies today 1/14/14. American Style: A$ .90, kiwi .8420, C$ .9180, euro 1.3670, sterling 1.6440, Swiss $1.1090, . European Style: rand 10.8555, krone 6.1015, SEK 6.4505, forint 219.25, zloty 3.0370, koruna 20.04, RUB 33.32, yen 103.60, sing 1.2675, HKD 7.7545, INR 61.51, China 6.0930, pesos 13.11, BRL 2.3535, Dollar Index 80.58, Oil $92.11, 10-year 2.85%, Silver $20.35, Platinum $1,428.65, Palladium $737.48, and Gold. $1,249.30

That's it for today. I saw this morning that it's National dress up your dog day. Really? They have a day for that? I always wonder about dressed up dogs. But I'm not a dog person, so if that's your bag, baby, cool. That's my best Austin Powers for you there! Well, the doctors say I look great! I'm still losing small amounts of weight, which is a good thing for me, given how large I had become. I tell them, I wish I felt as good as you say I look! They laugh, and say, hey! What are you complaining about? This June it will be 7 years since the discovery of cancer, you have nothing to complain about, they say. OK. I get it! I have a ton of writing that's due in a couple of days to different outlets, so I've get to get to work on that, before I head west next week. So, let's go have a Tom Terrific Tuesday!

Chuck Butler
EverBank World Markets

Posted 01-14-2014 12:19 PM by Chuck Butler