Good Day! … And a Wonderful Wednesday to you! The Blue Jays are singing: When you wake up… as I turn the IPod on this morning, which seems appropriate, given it’s as early as it is, and people are waking up! When I woke up this morning, I was not in any mood to sing songs, but that was not to keep me at home again, so here I am, I pull myself up dust myself off, drag myself into work, only to find that my keyboard on the trading desk is kaput… So, I gather up all my things and come into my office to write…  Hey! I have a Big Treat for you today… And no, I’m not going to hand the Pfennig over to someone else… NO! I have the Big Boss, Frank Trotter, in the FWIW section today! YAHOO!

The euro is attempting to put the story yesterday about the Bundesbank being OK with an array of stimulus measures that the European Central Bank (ECB) might want to consider next month, in the rear view mirror. In fact, later in the day, yesterday, there were two “anonymous sources” from the Bundesbank saying that “stimulus won’t be automatic”…  Automatic for the People… a great REM album… I still believe that this is a conspiracy to weaken the euro, for before all this jawboning began, the euro was ready to hit 1.40, and from there, I’m told, that it would gapped higher in a heartbeat… Then who knows where it goes, right? I’ve told you all for many years now, that the ECB and Bundesbank would love for the euro to be around 1.20-1.25… stronger than the dollar, just for GP, and weak enough to allow exports to be competitive…

So, keep in mind that the Bundesbank did hang a “IF” on their statement yesterday… and that was IF inflation forecasts are lowered, they would agree with an array of stimulus measures…  Well, this morning, Germany’s “flash” inflation report was steady Eddie at .7% (same as last month), and with Germany being the largest economy, by far I might add!, their inflation numbers are a good indication of what the Eurozone will be as a whole…  And here’s where I think we’ll see the euro bounce back… Inflation as a whole remains steady Eddie, and the forecasts are not lowered…  That’s how I see it playing out, but then I could be wrong, right?

Well, the Australian budget for 2014-15 printed the other night, and from the looks of it, the budget should be Aussie dollar (A$) supportive, as the budget unveiled some mild tightening of its fiscal policy to set the ball rolling on a long-term goal of returning to a balanced Budget, and maybe one with a slight surplus within a decade…

Of course, the best laid plans of mice and men, don’t account for cyclones, draughts, and other things that can happen that setback a country’s plans to balance their budget..  But for the near term, it’s business as usual for the Gov’t, as most of the savings will not occur until about 4 years out. Again, who knows, right?  So, like the Grassroots sang, Sha, la, la, la, la, la live for today… And don’t worry ‘bout tomorrow…  we should trade for today, with thoughts about what could / might happen tomorrow…  Oh, and the A$ is pushing the envelope of a 94-cent handle this morning…

Well, I see that Bank of England  (BOE) Gov. Mark Carney, is at it again… Reminds me of a 70’s commercial for a local radio station… You see, a man playing air guitar, while the Rolling Stones song Brown Sugar begins, and the daughter complains to her mom… “Mom, he’s doing it again!”…  Yes, Carney is doing it again, getting out his bag of promises…  Long time readers know all too well about how Carney, when he was Gov. of the Bank of Canada (BOC) that he led the markets on about a rate hike for over a year, until the markets got tired of his broken promises, and took out their frustrations on the Canadian dollar / loonie…

So, here he is again, Hey, Rocky want to watch me pull a rabbit out of my hat? Nothing up my sleeve… Oh! Wrong hat!  Carney was telling everyone this morning that he sees the U.K. economy needing a rate hike probably next year… Shoot Rudy, why tell us that now? I guess he hadn’t reached into his bag of promises in a while, and thought… Hey! I can get the markets all riled up this morning by throwing that comment out there!  He ought to be ashamed of himself!

Speaking of the Canadian dollar / loonie… The loonie has been in rally mode for a few days now, but overnight it sort of lost its momentum, for now at least!  The New Zealand dollar / kiwi hasn’t lost its momentum overnight, and is rallying alongside the A$ this morning, with both up more than 1/4-cent this morning…

The Asian currencies of Singapore, , Japan, and Hong Kong were on the losing side of the ledger to the U.S. dollar as we headed into trading overnight, but all have gained a bit, thus wrapping a tourniquet around the problem… China was not a part of the Asian rally though..

In China, yesterday I told you about the recent data then that didn’t show much expansion or contraction… But it might as well have shown contraction in the economy, because if China isn’t growing/ expanding, everyone freaks out, and the Chicken Littles all start screaming about the sky falling in China… As I keep reminding everyone, China’s economy is evolving and will experience slowdowns just like any economy. I did like the Chinese officials saying that there would be no major stimulus for the economy. Of course that all hinges on what the term “major” means to the Chinese… But that’s not the point here, Chuck! Stick with the program, will you please? OK… sorry…  But the good thing about a Chinese economic slowdown, and the Chicken Littles all scampering about… The renminbi / yuan gets marked down, which gives investors an opportunity to buy at cheaper levels!

Here in the U.S. yesterday… Well… Once again, the BHI was bang on in indicating what Retail Sales might look like… Recall, yesterday morning, I told you that the experts thought that April’s Retail Sales would be softer than March’s 1.2%, and that the BHI (Butler Household Index) had indicated that the report would be even more disappointing… Well, the BHI was closer than the experts! April Retail Sales printed at .1%…  Now that took the wind out of the sails of the dollar!

Oh, and where were the “the economy’s recovering” campers when Retail Sales printed yesterday? I think that since they couldn’t blame the awful report on “bad weather”, they decided to just say nothing… Which is a good thing in my book… No reason to open their mouths and have whatever they have to say come back to haunt them!

The U.S. Data Cupboard has some minor prints this morning, and then PPI (wholesale inflation)… No Fed speakers today… nothing, nada, nil…

This week’s email from MarketRatesInsight.com tells me something very interesting… That bank CD’s are at the same level they were 10 years ago, minus inflation…   WOW! Of course, CD’s that have matured in the past few years, were not rolled, due to the change (ZIRP) in interest rates available… And we all know where most of that money all went, right? That’s right, the stock market, as people attempt to recover lost interest with riskier investments. That’s been one of the things that most people believe has happened since interest rates were moved so low, and this report from MarketRatesInsight.com confirms that the money certainly didn’t get rolled back into CD’s!

And one of the things that scare the bejeebers out of me… I’m concerned that retired people or people nearing retirement have extended their risk parameters, and a price shock could really throw a spanner in the works for their retirement plans… Please Be Careful!

Things that allow me to sleep at night, are knowing that I own Gold & Silver… Sure the prices aren’t what they once were, but have they gone to zero? NO… Do they represent a store of wealth? Yes…  And this morning, Gold is up $6 and right at $1,300.. , we sure have had to be patient with Gold trading back and forth around $1,300 in recent weeks, but as I’ve said many times in the past, I truly believe that one day we will look back at these levels and laugh…  Of course I could be wrong, but I doubt it…

Oh, and did you hear that Gold smuggling into India spiked 446% in the last 12 months? Yes, recall that because of the Current Account Deficit problems India was having that they put the kyboshes on Gold imports… But to a country full of Gold fanatics like India, that was not going to work… So, they began smuggling Gold into the country to meet the demands of Gold buyers… I find this to be quite interesting, folks… the demand for Gold remains strong in Asia… why not elsewhere?  I have an answer to that… It’s called stocks… I think the Asians will be smiling when it all comes home to roost…

For What It’s Worth…  Well, I gave you teaser above… But here’s my longtime friend, and the Big Boss, Frank Trotter, on his thoughts from an NPR interview with former Treasury Sec. Tim Geithner… Quick grab that cup of coffee, and get ready for this!

“On NPR Monday night Tim Geithner noted that in his opinion:

“This was not a crisis caused by financial innovation on a massive scale. It wasn’t a crisis caused fundamentally by a set of new fancy things that, in retrospect seem very risky. It was a crisis caused because we had a long period of confidence that it was safe to lend a lot of money, safe to borrow a lot of money relative to income, that your house prices would never fall, that recessions would be short and shallow.

No memory of panic, no memory of depression. And what happened in that environment was that people ended up taking too much risk.”

It’s one of those rare moments in recent times that I’ve substantially agreed with a Treasury / Fed official on this topic, although I do have an extended viewpoint I’ll add a little further along.  Like Chuck, at Mark Twain Bank I was schooled economically (and in person) by the yin and yang of Hy Minsky and Larry  Meyers as participants in the ALCO Committee I ran for a few years, and in refereed lunches I was asked to host and transcribe by our late Chairman, Adam Aronson.  Talk about an early and diverse education.

Geithner’s comments above follow Hy’s “financial instability hypothesis” closely.  Opposed to the rhetoric we still see today, some of which carried through the rest of the interview, it does not suggest that financial structures or sub-prime lending were the “cause” of the crisis but – as in Minsky’s work – accelerators or products of the long term state of false confidence.  The icing on the disaster cake.  I will add that accommodative policy in the early and mid-2000’s were the other primary contributor to the false sense of security, something Geithner doesn’t mention, perhaps since he had a hand in implementation.

So where does this leave us today?  As an observer of policy I would note that each of the five branches of government are working to recreate a feeling of confidence in the market.  That is after all the publicly stated objective of QE.  This appears to be focused again on the housing sector through Fed policy and regulatory guidance, and has also had quite an effect on the equity markets.  The key question then is are we heading back down the path already traveled to another one of Hy’s Moments, or will this result in a burgeoning broad based recovery?   From my hazy view from the bleachers it feels like the recovery isn’t all there, and that there are likely implications for the US dollar that Chuck is far more qualified to speak to than me.” – Frank Trotter…

 

Chuck again… Thanks Frank! It’s a crazy world folks, and through all the smoke and mirrors that investors are given to trade with, it takes guys like Frank to break the mirrors and cut through the smoke, to tell you what’s really going on, and what we should do about it. It puts a smile on my face when Frank says that Chuck is more qualified to speak about the implications for the dollar than he is, because I know he’s being humble. Frank taught me all about currencies many years ago… It also puts a smile on my face when I see an email in my box from Frank titled: Pfennig Pfodder…

To recap… The currencies attempt to put yesterday behind them, led by the euro that was whacked yesterday by comments from the Bundesbank, but as the smoke clears, we find there are qualifiers for the Bundesbank to go along with the ECB on stimulus measures, which weren’t mentioned yesterday… Chuck still believes this is all a conspiracy to weaken the euro, which will blow up in the ECB’s face when inflation forecasts are not lowered… Australia’s budget was good if you like long-term views, but the currency is rallying this morning, along with kiwi, and the Asian currencies. CD balances at banks have not grown in 10 years! And Chuck talks about Gold and Silver…

Currencies today 5/14/14… American Style: A$ .9390, kiwi .8660, C$ .9170, euro 1.3710, sterling 1.6765, Swiss $1.1235, … European Style: rand 10.3260, krone 5.9245, SEK 6.5635, forint 221.95, zloty 3.0520, koruna 20.0115, RUB 34.72, yen 101.85, sing 1.2490, HKD 7.7515, INR 59.67, China 6.1653, pesos 12.92, BRL 2.2150, Dollar Index 80.08, Oil $101.94, 10-year 2.58%, Silver $19.85, Platinum $1,471.75, Palladium $823.75, and Gold.. $1,304.60

That’s it for today… Still pulling myself up this morning.. But hey! Our little Christine brought in donuts yesterday for Aaron’s birthday, so maybe there’s a cake donut cure in the box? HA! Cardinals win in the 12th inning last night… They are really disappointing to me, so far this year… But it’s a long season, I just hope it’s not a long season of .500 baseball…  Journey is playing: Who’s Crying Now? On the IPod right now…Which makes me think of tonight… I’m nervous for tonight’s Water Polo game… Son, Andrew’s team, which son Alex plays on, will play a heated rival tonight to determine who goes to the final 4… They beat this heated rival once this year, but this game will be at a neutral pool, and revenge is always a great motivator… Call me Nervous Ned… Another rainy day, today… The grass will be a foot tall by the time it dries out and we can get it cut! UGH! As long as it rains during the week and not on weekends, I love the rainy days! And with that… I hope you have a Wonderful Wednesday!

 

Chuck Butler

President

EverBank World Markets

Editor of A Pfennig For Your Thoughts

1-800-926-4922

http://www.everbank.com

 

 

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