Good Day! …  And a Happy Friday to one and all! Well, I hit every stoplight on green on my way to work today, which is what I refer to as “smooth sailing”, and then my elevator was waiting for me here in the building, so right out of the starters’ blocks this morning, I’m going to proclaim this to be a Fantastico Friday! Radiohead is playing Karma Police on the IPod to start my day, not exactly 60’s or early 70’s but still “Chuck’s IPod worthy”…

There are words in the Karma Police that goes: This is what you get…  Which rings so true, when we think about it referring to debt and the dollar… The dollar has lost so much purchasing power the past 12 years, and really ever since President Richard Nixon closed the Gold window on August 15, 1971… Yes, there have been strong dollar multi-year trends, but each strong dollar trend never really recovered what was lost in the previous weak dollar multi-year trend, so the purchasing power losses have pile up, and since Feb 2002, these purchasing power losses have multiplied, and the root cause, yes there have been other reasons like ZIRP, and QE, but the root cause was the building debt… So, the purchasing power losses for dollar holders is what you get, when the associated debt gets out of control…

Well, that certainly was a different path to starting the Pfennig this morning! But, as I’ve explained many times over the years, this letter is a stream of consciencenous at an hour in the morning, that’s long before the farmers get up! So… now that I’m awake, and looking at what’s going on in the currencies, I might as well, start talking about that, eh? ( I know, you’re saying, “Come on Chuck, get to the meat, or else I’m hitting delete”)  Oh, don’t hit delete just yet, I’ve got some good stuff to talk about today, that I doubt you’ll want to miss!

Well, the dollar looks like it will end the week, back to drifting, with a slight bias to sell it. The Fed’s FOMC Meeting Minutes gave it a respite for a day or so, but we’re back to watching the green/peachback drift lower… Yesterday, the U.S. stock market was sinking like the Titanic, and then something happened, and stocks recovered… Hmmm.. You don’t think? … Nah… That’s just the same old stuff that’s gone on for years now… Yes, since 1987, when the Plunge Protection Team, as they are called (they have an official name, but who cares, right?) was created to keep stocks from ever having a day like October 19th, 1987 again… The only reason I mention the stocks, is that when they were getting sold yesterday, like funnel cakes at a state fair, the dollar saw some love… And when stocks began to recover, the dollar was left at the altar…

The euro is stuck in the mud around 1.3610… The single unit seems to be shrugging off the news from Portuguese Banco Espirito Santo, that they will miss payments on bonds… Uh-Oh! But it was quickly assessed that there would be no contagion risk, and things got back to normal with the euro… Now, I’m not saying that this is nothing to worry about, and that all is right on the night here… Hey! I’m no U.S. Gov’t official!  So, be careful around the euro and the euro alternatives for a few days, until we see exactly what becomes of this mess…

Well, yesterday, I ran out of time to spend on the drop in U.S. Treasury yields this week… We began the week with the 10-year Treasury (The Bellwether bond) yield at 2.64%, and then watched it drop every day 2.59% on Tuesday, 2.57% on Wednesday, 2.52% on Thursday… And this morning at: 2.52%…

I told you all a couple of weeks ago, that Treasury bonds are a trap… And with the yield falling even more  since that time, the trap has simply opened up larger, so it can take in even more poor suckers willing to fall into this trap! Think about it… Unemployment, even though we all know it’s as trumped up as it can be, is at or below where most Fed Members said they would consider it to be “full employment” and that interest rates could be raised once this level was achieved…  Did they lie to us? I doubt it… Interest rates are going higher, if I owned a farm I would bet the farm on that!  And when those interest rates begin to rise, so will the yields on bonds, and when yields on bonds rise, the prices of existing bonds go down, thus causing holders to take losses…

Now I know that the holder doesn’t actually have to take a loss on the bond as long as he holds it until maturity… But what holder would do that, when they would have to be stuck with 2.5% interest, instead of the new better than the average bear higher yield?  So, the bond holder either holds on to the bond, and loses the differential of the rates he gets VS what he could be getting, or… he sells and takes a loss that way… There’s the TRAP! And it’s setting at a bond dealer near you folks…

I was having lunch with one of my fave people in the world, Ellie Williams, the other day, and she asked me, “who is buying Treasuries? Is it institutions that have to buy them?”  I said, that’s a good question, and I’m sure there is some of that institutional buying going on, but can you see the looks on the faces of the buyers as they ring up their bond salesman and he tells them he can sell them the 10-year at less than 2.50% (the bond salesman has to make a shekel or two on the trade!)?   I also said that I think that the Fed is still buying Treasuries, not just the remaining monthly purchases in QE, but buying them through the back door… You can’t tell me that Treasuries keep rallying and yields dropping, which means prices are going up, when the Fed Members keep telling us how great things are, without some sort of back door buying… Ellie is an accomplished financial guru herself, and has written a couple of books on investing, you should probably check that out!

The Aussie dollar (A$) is attempting to get back to 94-cents this morning, as it sniffs around the figure.. The A$ had the trap door sprung on it last week, and then this week again, as if it’s going to become a weekly occurrence! I certainly hope not, and don’t think it will, but… I keep receiving emails from dear readers downunder and they are not painting a pretty picture on the mining industry in Australia… Remember that the previous Gov’t in Australia, killed the Golden Goose (mining) and with the Golden Goose gone, there obviously are no more Golden eggs… The previous Gov’t will go down in history was the worst on Aussie records, I do believe… So, watch out for these periodic downward slides in the A$, and use the appropriately… But remember, the A$ has been quite resilient in the face of central bank that keeps dissing it…

The Belle of anyone’s Ball this year has been the New Zealand dollar / kiwi… The chartists are now saying that kiwi is the most overstretched currency and has reached an overstretched level that it hasn’t seen in 3 years…  Well, long time readers know that I don’t put too much weight into what the chartists say.. I think they can be useful, but that’s it… Kiwi is up 7.5% VS the U.S. dollar this year, and since Feb 2002, it’s up more than 102%!!!!!  Yes, it would have been scary to hold at times in the past 12 years, but if you had the intestinal fortitude to buy 10-12 years ago, and hold, you’re probably smiling like the Cheshire Cat, right now!

The Canadian dollar / loonie, is back to 94-cents this morning, after getting whacked earlier this week. Canada will print their latest labor report this morning. June Employment is expected to have created 20,000 jobs, which would bring the Unemployment Rate to 6.9% from 7%… No hedonic adjustments here folks, just job creation…  if the number of jobs created  is greater than 20,000, then the loonie could be in for a day in the sunshine, and maybe kick away this tight trading range!

Speaking of kicking away… On a sidebar, did you see or hear what Jimmy Fallon said last night about kicking?  This is funny… He said that the Netherlands / Argentina soccer game had been decided by penalty kicks, to which people in the U.S. hadn’t seen that many kicks since Beyoncé’s sister was in an elevator with Jay Z…  HAHAHAHAHAHAHA!

Hey! A little humor on a Friday, to go along with all this stuff… I hope you don’t have a problem with that! We all need a little humor especially when I begin talking about stuff going on in the world, eh?

OK… The U.S. Data Cupboard is still looking for real data to print, with just the Monthly Budget Statement to print today… But as I told you yesterday, next week we get back to real data, with stuff like Retail Sales, Industrial Production and Capacity Utilization… So, close up shop, head to the pubs, and get ready for next week!

Gold, according to the Bloomberg this morning, is heading for its longest weekly rally since March on haven demand… Yesterday, Gold traded through the line of resistance, I told you about that was $1,335.00…  But as the day went on, Gold began to give back some of its gains, and headed back to that line of resistance… It all looked fishy to me folks… And I told you to watch what was going to happen now that it had passed that line of resistance… Well, now we all know, the price manipulators brought it back …

‘This morning, Gold is trading just above $1,335, so we’ve got Gold Traders and Hedge Funds getting bullish on Gold, but the price manipulators keeping the price of the shiny metal from going higher…  The “other metals” of Platinum and Palladium are not on the rally tracks today, which seems strange, given that Gold and Silver are either flat or up a bit… But se la vie…

Before I head to the Big Finish today, I wanted to tell you about this latest development in the Eurozone… This is HUGE folks… and will help keep the relative calm over the Eurozone going…

“The E.U.’s bailout fund has moved closer to being able to directly pump money into troubled banks after the German government introduced a bill allowing direct bank recapitalization.

The draft law will now require approval in the Bundestag, but is planned to enter into force in November.

“This is an important step to stabilize our financial sector … and to increase further the trust in our common European currency,” said finance minister Wolfgang Schaeuble on Wednesday (9 July).

Chuck again… Yes, this would help rule out the risk that the taxpayer would have to accept liability, as in the financial crisis…  Huge I tell you.. HUGE!

 

For What It’s Worth… OK… So for years now I’ve told you about how I watch the CAPEX, which is Capital Expenditures… Without Capital Expenditures you don’t have an economic recovery or strong economy… It’s that simple… The Fed Members, pundits, cable news guys, and Paul Krugmans of the world can look for other signs, and ignore CAPEX, but I’ll be here watching for any sign that Corporations / companies are spending money on new plant equipment…  And so I found this in the Economist this week…

“When companies spend money on new plant equipment (capital expenditure or CAPEX in the jargon), jobs and economic growth are the result. One of the aims of Central Banks’ efforts to suppress interest rates is to encourage more such spending. But the latest survey from S&P indicates that a boom is yet to materialize. In real terms, capital expenditure fell 1% in 2013, and is expected to decline again this year.

Why haven’t companies taken advantage of cheap finance and spent more? An obvious reason is that corporate revenue has not been growing very fast.

It seems like a chicken-and-egg problem. Without a strong global recovery, companies will note spend more. But if they do not spend more, there will not be a strong recovery.”

Chuck again… Yes, that was a great way to describe the problem… A chicken-and-egg problem… Traditionally, the big investors in CAPEX have been mining and energy firms, which accounted for 42% of CAPEX spending in 2013. But spending in both industries has slowed sharply and expected to fall this year…  That can’t be a good thing for the economies of the world, folks… But especially for us, here in the U.S.

To recap… The dollar was set adrift among the currencies and metals again this morning, with a soft bias to sell the green/peachback. The euro seems to have shrugged off the Banco Espirito Santo’s problems, and Chuck says to wait a day or two to see what shakes out of this. Chuck explains the Treasury bond trap that just keeps opening up wider and wider. The A$ and loonie both are trading around 94-cents again, after getting whacked earlier this week after the FOMC minutes… And Gold came back to $1,335 the line of resistance it passed up yesterday… Strange? Well, not if you believe..

Currencies today 7/11/14… American Style: A$ .9400, kiwi .8825, C$ .9400, euro 1.3610, sterling 1.7135, Swiss $1.1200, … European Style: rand 10.7295, krone 6.1590, SEK 6.7750, forint 228.05, zloty 3.0465, koruna 20.1700, RUB 34.13, yen 101.30, sing 1.2405, HKD 7.7500, INR 60.04, China 6.1469, pesos 12.99, BRL 2.2190, Dollar Index 80.11, Oil $102.63, 10-year 2.52%, Silver $21.42, Platinum $1,509.00, Palladium $867.50, and Gold… $1,336.82

That’s it for today… An ugly game for my beloved Cardinals last night, but they still won 3 of 4 from the Pirates, not too shabby! Our All-Star catcher, Yadier Molina, is going to miss the remainder of the season after receiving surgery on a torn ligament in his thumb… He’s the best catcher, bar none, in baseball, so the team will have to rally to compensate for him being missing each day… In 1967, the great Bob Gibson, had his leg broke when it was hit by a line drive, from Roberto Clemente, he pitched to three more batters before his bone snapped… The Cardinals rallied in his absence and won the pennant. Gibson returned to pitch in the last series of the year, and then went on to win 3 complete games in the World Series… So… can the Cardinals rally this time? Lonely Is The Night by Billy Squier is playing on the IPod right now…  His Don’t Say No album is prominent on my IPod!  Well, chances for thunderstorms will be with us here in St. Louis this weekend, so outside activities might get interrupted! But that won’t stop me from being outside! I had a lot of Gold Star winners on the Strawberry Alarm Clock answer yesterday… Good Show!  So.. now it’s time to get off the bus for this week… I’m getting off in Fantastico Friday-Ville… Are you coming?

 

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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