Good day…  And a Wonderful Wednesday to you! I’m going to start out today with a funny. Conan said that “U.S. employers added 157,000 jobs to the economy. Of course, most of those were for backup dancers for Beyonce’!” HAHAHAHA! I heard that and laughed out loud! I realized last week during one of my presentations, that I have been speaking at the Orlando Money Show for 13 years. And that maybe, I probably should retire from the presentations, given that I come back and basically talk about the same stuff every year. So, I told the audience that in two years, when I turn 60, I wouldn’t be there any longer.  Thought I would break it in to them slowly.

In 2000, Frank and me were the only speakers there talking about debt, deficits, and currencies. Nowadays you have more speakers talking about currencies than you can shake a stick at. I made sure the audience knew that, so that they would forget all those other imposters, and only listen to the original! HAHAHAHA!

OK… Well, the currencies are softer this morning. German Factory Orders were up .8%, VS the previous month’s -1.8%, so. has Germany turned the corner? It’ll take more than one data print to answer that question, but .8% is better than kick in the shins! But, this data isn’t pushing the euro higher this morning, instead the data appears to be helping the euro hang on to the 1.35 handle. The euro has seen slippage overnight on more political fears from Spain. Current Prime Minister, Mariano Rajoy, is getting slammed by calls to resign, because of alleged corruption in his party.

Add to the political fears in Spain, the news that an Italian bank is about to come clean on the size of their losses from derivatives used in 2008 & 2009.  The markets are going bonkers over this news, as if it’s new or something that’s happened recently!  I think the main thing that these two items (Spanish political fears, and Italian banking scandal) really, truly, do, is shine the light on the fact that there is still a ton of risk in the Eurozone, and maybe, the gains that the euro has booked so far this year ( +2.54%) are enough.

The Aussie dollar (A$) is weaker this morning on the news that Aussie Retail Sales for December fell -.2%, pushing the quarterly rise to just +.1%…  There are some thoughts that domestic demand isn’t ready to take over the economy just yet, but instead we’re seeing an ongoing household balance sheet repair.  The Reserve Bank of Australia (RBA) would have hoped that the lower interest rates that they provided the economy last year, would have taken hold by now, and invite more spending. So. this was not good news for the Aussie economy or the A$…

In China, the Chinese Gov’t and the People’s Bank of China (PBOC) continue to allow the renminbi / yuan to weaken to offset the weakening of the Japanese yen. As I’ve told you for many years now. It’s all about competition for exports. But it will only go so far, folks. The Chinese are not going to follow the yen down the slippery slope… This reminds me of a Gin Blossoms song. I’ll follow you down, but not that far down.

We had a good discussion about China on the desk yesterday, and of course I talked over everyone with my opinion. HA!  Seriously. I talked about how in 2003, we first offered Chinese renminbi deposit accounts, the IMF was saying that the renminbi was 40% undervalued.  Well, since the peg to the dollar was dropped in July of 2005, the renminbi has gained about 30%… So, the currency is probably getting near its equilibrium. I talked about how the forward market is finally getting more like the rest of the forward markets, in that it is based on the interest rate differential between the two countries (China & U.S.), and not so much what speculators are pricing in for appreciation. This makes for a smoother market, folks, and something, I wish, would have happened long ago!  I truly believe that a lot of my blood pressure and lack of hair was caused by the forward market gyrations of renminbi!

But.. me saying that it could be nearing its equilibrium doesn’t mean that we bail on China. China is still taking steps to remove the dollar standard, and while you won’t see all their moves, you can see some. like: Remember how I told you about the CNH market, and the dim sum bond markets?  Well. The offshore CNH bond market (also known as the dim sum market) has grown from RMB56bn in 2010 to RMB237bn in 2012, as measured by outstanding bonds and Certificates of Deposit (CDs).

All this is doing, folks, is gaining a wider distribution for their currency either the renminbi (RMB) or the CNH, for when the Chinese decide to float their currency they will fold one of these into the other to form one floating currency…  (remember CNH is the deliverable, in Hong Kong, version of the renminbi / yuan)  With a wider distribution, the Chinese achieve one of the steps it takes to become the reserve currency of the world. We’ve been all through this before, so, I’ll stop here.

Speaking of Japanese yen… The yen fell through the 94 figure overnight, but has seen some relief in the meantime, trading just below 94. The relief came from a Bank of Japan (BOJ) member who questioned the policy of pushing the yen weaker.  Now that takes some intestinal  fortitude. I wouldn’t be surprised to hear that this guy fell on a sword.   Yen is set to go lower based on calls from Japan’s leader, Abe, so this questioning the policy is all for naught.

Chris asked me yesterday if a foresaw any countries raising interest rates in 2013. I was hard pressed to come up with any. Brazil, might, I said, and some emerging markets that fly under the radar. Russia might. And China. could.   But nothing concrete. it all depends on the global growth, if it sputters then there will be no rate hikes to be found in 2013.

Speaking of global growth prospects. I saw this yesterday and about fell out of my chair.. I’ve talked about the Baltic Dry Index (BDI) before. it’s a good way to get the pulse of the demand for shipping capacity.  it goes like this. if the BDI is strong that’s good for global growth prospects and vice versa.  Well, unfortunately, the chart I saw on the BDI shows it currently is in a free-fall. Uh-Oh!  Now. I said this was a way to get the pulse, which gives us an indication of what could happen, it’s not a “given” that the indication will happen. just something to think about.

The price of Gold started the day up, but soon lost ground once the NY traders arrived at their desks. Gold’s price is flat this morning, with silver down just a smidgen..,  I saw that Hong Kong’s net flow of gold to mainland China jumped 47% in 2012 to a record high of 557.478 tonnes.  This should tell everyone and their brother that demand for Gold in China is very robust!  I have no idea why news like this doesn’t send Gold to the moon. No wait, I do know why, but I’m sure you’re getting very tired of me talking about price manipulation.

The U.S. data cupboard is basically empty today, so the currencies and metals will have to find direction from some other source.

Then There Was This. from U.S. News & World Report. “For the first time in 5 years, the government is projected to have a deficit below $1 Trillion in 2013, according to the Congressional Budget Office (CBO).  The report estimates that under current law the fiscal year 2013 deficit will come in at $845 Billion, or 5.3% of GDP.  The CBO adds that debt as a share of economic output would remain at historically high levels, 76% of GDP. That’s the highest share of GDP that the national debt will have been since 1950.”

Chuck again.  well, that’s all good in that it is below $1 Trillion, but still, long time readers will recall me banging on the previous administration for their $500 Billion deficits. So, while better, still not close to balanced..  And now I hear that the President is urging Congress to pass a package of stop-gap tax increases and spending cuts quickly to avert a deep across the board reductions in military and domestic spending that will automatically take effect March 1st.  So, if that happens, the goal posts get moved, and. that $845 Billion deficit will quickly become $1 Trillion yet again.

To recap. The currencies and metals are weaker this morning. The euro is getting sold on more Spanish political fears, and an Italian banking scandal, outweighing the good of stronger German factory orders provided. Aussie Retail Sales were weak for December, and China continues to mark down the renminbi alongside the Japanese yen.

Currencies today 2/6/13. American Style: A$ $1.0315, kiwi .8420, C$ $1.0020, euro 1.3530, sterling 1.5670, Swiss $1.0955, . European Style: rand 8.9050, krone 5.48765, SEK 6.3465, forint 217.15, zloty 3.0920, koruna 19.0070, RUB 30, yen 93.65, sing 1.2375, HKD 7.7540, INR 53.17, China 6.2313, pesos 12.65, BRL 1.9880, Dollar Index 79.82, Oil $96.02, 10-year 1.99%, Silver $31.80, and Gold. $1,676.90

That’s it for today. Running a bit late this morning, but no worries, I wouldn’t short-change you! HA! Listening to the Black Keys and their song, Gold on the Ceiling. it’s got me bopping in my chair.  It was nice getting back into the office yesterday and seeing everyone again. The people in our office are great, and always say they miss me while I’m gone. Yeah, right. they miss like the plague! HA!  The doctors have me on a new routine in the morning, and that takes me longer at home, which is why I’m running a bit late this morning. I’ll have to adjust my waking up time! The Orlando Money Show always gives me an opportunity to see and have lunch with my good friend, Dennis Miller. Dennis is a writer too, and has penned a great book called: Retirement Reboot” it’s directed at older people either already retired or getting ready to retire, and should be read by all! You can find it at Amazon, I’m sure.  And with that, I hope you have a Wonderful Wednesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

---

Click here for important disclosures.