Wheeler Pulls Out His "Diss The Currency Stick"
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In This Issue.

* Eurozone Retail Sales beat expectations! ...

* Palladium nears 3 year high!.

* Canada prints Trade Surplus.

* U.S. prints Trade Deficit.

And Now. Today's A Pfennig For Your Thoughts.

Wheeler Pulls Out His "Diss The Currency Stick"

Good Day! . And a Wonderful Wednesday to you! Pink Floyd's Shine on you crazy diamond greeted me this morning, yes, all 7 parts, and 17+ minutes of music to start my day. I have a few 17+ minute songs on my IPod, including a couple by Neil Young and Crazy Horse. Now those will get you going in the morning! There are some mornings I need the extra push to get going, and then are mornings that I don't. I prefer the mornings that I don't need an extra push to get going. Not only for me, but for the currencies and metals!

So, yesterday, was all about the currencies. Gold went nowhere, stocks took one for the team, but the currencies rallied VS the dollar. The U.S. stocks are down -1 to -2% depending on which exchange you follow, and the euro is up 1.28%, year to date, so it appears that the independent pricing mechanism of currencies from stocks, is back! Like Jack Bauer! Long time readers know that I disliked very much, every single day of that smartless Risk On, Risk Off dookie that the markets showed in our face since 2009, when the Fed embarked on their "signature bond buying program" and the risk assets were all thrown in a barrel to trade together.

This morning, the currencies are a mixed bag of performance VS the dollar. The euro is down a few shekels this morning, while the Chinese renminbi saw a nice appreciation overnight. The New Zealand dollar / kiwi is getting taken to the woodshed this morning, while the Canadian dollar / loonie inches higher. So, like I said it's a mixed bag of performance, and not the all-out currency rally like we saw yesterday.

Gold is up a couple of bucks this morning, but the shining star of precious metals this morning is Palladium, which is trading near its highest price since 2011! So, guess who is the largest producer of Palladium? OK, no going to Google, to find out! Either you know it or don't! The answer will be found at the bottom of the letter. Nah! Just kidding, Russia is the answer, so now you know why Palladium has a bee in its bonnet this morning. Once again, the traders appear to have been living under a rock, and just now came out to find that there's a problem between Russia and Ukraine, for they are pointing to the Russia / Ukraine conflict as the reason their marking Palladium higher this morning.

Well, yesterday, I talked glowingly about the Canadian Trade Surplus that was booked in Feb, and said that the experts were looking for that surplus to be added to in March. Unfortunately, that didn't happen, and the March Trade Balance for Canada narrowed to just C$100 Million.. But, a surplus is a surplus, right? And the Canadian dollar / loonie has eked out a gain overnight on the surplus news.

Speaking of narrowing but only on the deficit side of the ledger. The U.S. Trade Deficit narrowed March to $40.4 Billion down from the Feb deficit of $41.9 Billion. This narrowing was good, but didn't even scratch the surface of retracing the deterioration of the Deficit in February. and should be about a .8% drag on 1st QTR GDP. UGH! And what was the first print of 1st QTR GDP? Well, it was a mere .1%, a rounding error from being negative folks. And. don't forget, we're adding up to 3% a year in "new found items for GDP".. So, without this latest hedonic adjustment, GDP would have been negative in the 1st QTR. In addition to this drag on 1st QTR GDP isn't enough. the reports from construction spending, and business inventories haven't been what the experts on Wall Street were expecting, so the drag will be even greater.. So, the next revision of 1st QTR GDP will be negative, you can bet your sweet bippie! Well, that is, unless the Gov't can find a few more "items to add to GDP" before the revision prints next month.

OK. Long time readers know my feeling towards a country maintaining price stability through the strength of their currency. Many people through the years would like to argue with me about how having a strong currency had no effect on a country's inflation. They are wrong of course, but to illustrate this, I always used Singapore as the model country that used currency strength to combat inflation rather than arbitrary central bank rate moves. Yesterday, though , I came across some research that really spelled it out for us. Russia, as you know, has been tied up in the problems involving Ukraine, and as a result their currency, the ruble, has lost about 11% since last October. And guess what? Russian inflation is accelerating too, posting a 7.3% level VS a year ago, and up from 6.9% in March! The main factor? The ruble weakness.

Here in the U.S. the weak dollar has gone a long way toward causing inflation, but mostly in commodities, food, energy, houses, etc. Not wage inflation. That's why I always tell people that a weak dollar causes a reduction in purchasing power, which is the same as losing price stability or high inflation. You can offset this loss of purchasing power by diversifying your investment portfolio with currencies and metals.

My friends Dave and Addison over at the 5 Minute Forecast, touched on the inflation thing yesterday, with a quote from James Rickards. let's go to the tape of the 5-Minute Forecast. "In a tug of war between evenly matched teams, not much happens at first," said author Jim Rickards last summer at a symposium we held in Vancouver. The evenly matched teams are inflation and deflation.

The Federal Reserve blows up its balance sheet north of $4 trillion. Inflation.

But on the other side of the rope, too many people are still too scared to part with their money. Consumers don't run up their credit cards, businesses don't buy new plant and equipment. Deflation.

While not much happens at first in a tug of war, eventually something starts to give way. And so it will go with inflation versus deflation. We get, say, $5,000 gold and $9-a-gallon gas... or $800 gold and gas below $2, the way it was in early 2009."

Someone sent me a note yesterday chastising me for talking inflation when deflation is all around us, according to him. I told him to go buy some beef, baseball tickets, a child's tuition, some insurance, health and other, and then report back to me.

Yesterday, I talked about the peripheral countries of the Eurozone, Spain & Italy, and how their PMI's (manufacturing indexes) had beaten expectations. But that was somewhat wrong. the PMI's were for Services non-manufacturing. They still beat the expectations, but I had them doing something they didn't! UGH! So, I apologize for the faux pas.

While I'm talking about the Eurozone, the region chalked up a good Retail Sales figure for March yesterday. Eurozone Retail Sales for March rose .3% VS Feb, and VS the expectations for a decline of -.2%! Apparently, the sales of" food, drink and tobacco" drove sales higher. I have no use for tobacco, but. I'm sure the sales of food and drink at the Butler house are sky high these days! But, Chuck, you don't live in the Eurozone! Oh! You're right, the BHI, won't work here! HA!

The Aussie dollar (A$) is down a bit this morning, after crossing .93-cents yesterday, and headed toward 93-cents. Australian Retail Sales for March didn't rise as much as was expected by the so-called experts. March Aussie Retail Sales rose just .1% VS Feb, and 1st QTR Retail Sales hit +1.2%... Not shabby, but not as strong as I would have liked to see them. The last thing the A$ needs is for the calls to return calling for a rate cut. And reports like this will do that! But the Central Bank (RBA) meeting earlier this week is still too fresh in the minds of those that would make the calls for a rate cut. So, the A$ gets sold a bit. but not as badly as kiwi!

The New Zealand dollar / kiwi is the worst performing currency overnight, and once again, it was verbal jawboning kiwi lower that led to this mess this morning. Reserve Bank of New Zealand (BNZ) Gov. Wheeler, brought back the "diss the currency stick" to swing at the lofty levels kiwi had reached in recent trading. Wheeler gave notice that the RBNZ is not happy with the current strength of kiwi, and if the strength of kiwi begins to hurt exports, it would raise the chances of intervention by the RBNZ.

Let's listen in to Wheeler. "It would become more opportune for the Reserve Bank to intervene in the currency market to sell New Zealand dollars if the kiwi fails to respond to worsening fundamentals."

So, kiwi got whacked! And Wheeler didn't have to do anything, especially intervene, except let his inner desire to diss the currency come out in words.

Do you know the music of Al Stewart? I've always been a fan. The lyrics to his songs are so magical and tell great stories. And his music weaves in and out of soft rock, jazz, and other stuff.. I'm listening to his song: Time Passages right now, let's visit some of his magical lyrics. "Well I'm not the kind to live in the past. The years run too short and the days too fast. The things you lean on are the things that don't last. Well it's just now and then my line gets cast into these Time Passages".

Well. did you see that China's internet giant, Alibaba, is coming to the U.S. in the form of an IPO? I find this to be interesting in the long line of things that China has been doing to wrestle the reserve currency status from the U.S. I'm not sure how it all fits in, but I'm sure when we look back on this in a few years, it will all come to us. Like the Blind man said who spit into the wind. It's all coming back to me now.

I had several people send me the link to a story in the NY Times yesterday that talked about the court case involving people / investors suing the bullion banks (JP Morgan, HSBC, and more) over Gold price suppression. I told the boys and girls on the desk that nothing will come of this, for the architects of the Gold price suppression are above the Bullion Banks. Former Treasury Executive, Paul Craig Roberts, told us a few months ago, what's and who is behind the 8-ball here. But, I have to give these investors some credit for getting it to court!

My long-time friend, and former mentor, Ed Bonawitz, asked me, "if precious metals are rigged, why invest in them." Ahhh master, your grasshopper has learned well how to answer the master's fuzzy questions. Because they won't be rigged forever.. And the rigging just gives us all cheap levels to buy!

The U.S. Data Cupboard is still searching for some meat, but in the meantime, we'll see some data on Mortgage applications from last week (was there bad weather last week? HA!), And Consumer Credit, which has really gone berserk in recent months to the upside, showing us once again, that no one ever learns a lesson. And like I told you last week, lessons learned should be like bridges burned, you only need to cross them but once. - Dan Fogelberg.

Speaking of not learning lessons. I saw a story go across the screen yesterday, and I read it out loud to the desk so they could pass judgment too.. Here's the story title from Bloomberg: " Italian Gov't Bond yields fall below 3% for the first time. ever. Sure, Italy has taken steps to improve their balance sheet, but there's a ton more work to do here, and the markets are acting as if all the work has been done already. I don't like this.

For What It's Worth. Ok.. I found this on Bloomberg and it's an article about a dinner conversation between former Fed Chairman, Big Ben Bernanke, and David Einhorn, manager of the $10 Billion Greenlight Capital Inc. It's quite long, so I had to cut snippets from the article to fit it in here. But here are a couple of the things discussed at this dinner meeting.

""I got to ask him all these questions that had been on my mind for a long time," Einhorn said in an interview, it was sort of frightening because the answers were not better than I thought they would be."

Einhorn criticized Bernanke for saying he was 100 percent certain there would be no hyperinflation and that it generally occurs after a war.

"Not that I think there will be hyperinflation, but how do you get to 100 percent certainty about anything?" Einhorn said. "Why can't you be 99 percent certain?"

Bernanke responded "you are wrong" to a question about the diminishing returns of having interest rates at zero, according to the hedge-fund manager. The ex-Fed chief's explanation, Einhorn said, was that raising interest rates to benefit savers wouldn't be the right move for the economy because it would require borrowers to pay more for capital."

Chuck again. Man, would I like to have been at that dinner table! And no I wouldn't be mean, or snarky, I would just like to listen to the answers, and look in his eyes to see if he's giving the company line, or his true answer.

To recap. The currency rally from Tuesday, had no legs left to run on overnight, and this morning. The currencies are a mixed bag of results, but the metals are stronger this morning. The traders for Palladium finally came out from under the rocks they were living under to find that Russia might be tied up in a conflict for some time, thus slowing the production of Palladium, which has led to Palladium nearing a 3-year high this morning. The U.S. Trade Deficit narrowed in March, but failed to retrace the deterioration of the Deficit that occurred in Feb. And Chuck talks forever about Al Stewart.

Currencies today 5/7/14. American Style: A$ .9340, kiwi .8680, C$ .9190, euro 1.3930, sterling 1.6965, Swiss $1.1435, . European Style: rand 10.5190, krone 5.9100, SEK 6.4975, forint 219.75, zloty 3.0165, koruna 19.6815, RUB 35.49, yen 101.65, sing 1.2490, HKD 7.7515, INR 60.09, China 6.1542, pesos 13.03, BRL 2.2285, Dollar Index 79.13, Oil $100.35, 10-year 2.58%, Silver $19.65, Platinum $1,450.94, Palladium $815.75, and Gold. $1.310.62

That's it for today. It was a very nice night at Senior Night at Alex's Water Polo Game last night, and he scored a goal in his last home pool game, as the team won its last regular season game before the playoffs begin this week. Have you been following all the vehicle recalls that get announced on what seems to be every day now? Crazy! Cardinals forget to hit again last night, and waste a great outing by their young pitcher. I got to watch the first two hours of 24 yesterday. WOW! Next week it will begin with, "previously on 24". I love it! The Young Rascals are singing: Groovin' right now. Now that's an expression that doesn't get used any longer. So, unless you were around for the 60's, that probably doesn't make much sense to you! Well, the NFL Draft is tomorrow night.. The Rams get two of the first 13 picks. They had better use them wisely! And now, I will send you off to make this a Wonderful Wednesday! Bye!

Chuck Butler
EverBank World Markets

Posted 05-07-2014 3:46 PM by Chuck Butler
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