Gold As Collateral?
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In This Issue.

* Unfounded Greek election rumors sink euro.

* C$/ loonie a buying opportunity?

* A$ gets pushed down by Eurozone and U.S.

* U.S. data continues to weaken.

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

Gold As Collateral?

Good day. And a Wonderful Wednesday to you! Another day in May, and that brings us another day of rain. The storm that came through here the other day, while not like the devastating storm that hit Joplin, Mo this past weekend, shook our building, the hanging lights were swaying back and forth, and the windows were pulsating. a little scary, up here on the 7th floor. Hopefully, we get through this "tornado season" without any further damaging storms.

Well, one day's rally doesn't make a trend, and so it was for the euro, and the rest of the currencies. Yesterday, we saw the euro trade to 1.4125, but overnight the euro's rally was undone by the rumors that the Greek Gov't was calling for a snap general election, which, if traders would have just looked "under the hood" on this rumor, would have found it to be completely unfounded. The only way the Greek Gov't is going to call for an election is if they are assured that their platform will pass. and since nothing in Greece is "assured" right now. traders should have seen this for what it was. an unfounded rumor.

But they didn't. they took the bait hook, line and sinker. And the euro fell to 1.4011, in the overnight markets. the single unit has rallied back after some traders looked "under the hood", but is still struggling to get past those unfounded rumors.

I was looking over the currencies this morning, and noticed that the Canadian dollar / loonie, has backed off to March levels of $1.0220. I find this to be strange in that the price of Oil remains around $100 (currently at $99.25). I think what has pushed the loonie lower is the whispering campaign going on about the next interest rate hike. I've said that I thought the rate hike would come in July. But the whispering campaign is pushing the next rate hike in Canada to September, with rate hikes following at the final two meetings of the year, pushing the internal rate to 1.75%... This would be far and above what the U.S. dollar has to offer. And unless the ECB gets some religion, their interest rate won't be 1.75%!

So. that's why I'm thinking that the loonie is getting to a level that represents a buying opportunity. The data in Canada has been mixed, but. for the most part, has been good with rate hike implications. I don't like it that the Bank of Canada (BOC) is pushing off their rate hike until September, but, if that means they push hard to the finish line this year, then that's OK.

Another currency that has seen better times is the Aussie dollar (A$). The A$ has pulled back to levels last seen 6 weeks ago. Here's what's happening to the A$, in my opinion that is. First of all, as I've told you all for years now, Australia is the proxy for Global growth. When Australia's economy is hitting on all 8, global growth is either hitting on all 8 too, or is about ready to. Well, the goings on in the Eurozone, and U.S. is really putting a damper on global growth prospects. And that's what I think is dragging the A$ lower.

I would have to think that these goings on in the Eurozone and U.S. are going to hang around for some time, so. maybe, just maybe the A$ has seen the highs for this year already. But then, you never know, and with an interest rate that's higher than any other industrialized nation in the world, it should underpin the A$... So, no need to panic here.

The Swiss franc is taking advantage of the goings on in the Eurozone and U.S., which makes sense, in a way. It makes sense, if you buy into the thought that the Swiss franc is a "safe haven" currency. I've said this for years now. The Swiss franc is "perceived to be" a safe haven currency, and we all learned years ago, that something is what it is perceived to be. I don't agree that the franc "should be" a safe haven. but it is, and that's, that!

Speaking of the goings on here in the U.S. in a recent poll by the Washington Post, nearly 1/2 of the respondents said they "are alarmed by the prospect that the U.S. debt could raise above the current debt ceiling of $14.3 Trillion.".. Ok... I've got two things to say when I read that... 1. Apparently they didn't ask Pfennig readers, and 2. Where have these people been?

In addition... if these people are "alarmed by the prospect that the U.S. debt could raise above $14.3 Trillion, imagine what they'll be when the baby boomers (like me) really begin to stress out the debt by drawing on entitlements...

And then we've also got to deal with the Unemployment problem here in the U.S. , which apparently just won't go away... Now there are reports that The 2012 budgets of U.S. state, county and city governments will eliminate 450,000 jobs. (most budgets begin July 1st). That's another nearly 1/2 million jobs lost that's coming to a theatre near you! I don't mean to make light of that, but seriously. Two rounds of QE and we have nothing, absolutely nothing, say it again, to show for it!

Oh! Forgive me, for I forgot. we do have stronger stock prices. So, you're rich, right? Please keep an eye on your portfolios folks. for when the stimulus stops, the trap door will get sprung on stocks. But, I'm not even your last choice for a stock jockey, so take that with how ever many grains of salt you wish!

And then to finish out, today's list that is, the goings on in the U.S.... Reuters reported that, Bank profits rose substantially in the first quarter and institutions reported their best quarterly results since the second quarter of 2007, the Federal Deposit Insurance Corp. said Tuesday, even as the industry still is experiencing troubles as the number of problem banks in the U.S. continue to rise.

That last sentence was most troubling to me. Good thing EverBank isn't on that list of banks experiencing troubles.

"The data cupboard will yield Durable Goods for April for us today. The forecasts are for a weak number to print. We'll also see the March Home Price Index, which will also print negative. So, the data in the U.S. continues to be weak, with no reprieve.

The price action in Silver and Gold yesterday brought back memories of a couple of weeks ago, before the CME decided to raise margin requirements 3 times in one week. Silver was up over $1 on the day, and Gold reached another new record level VS a currency, this time not dollars! Silver is up another 50-cents this morning, so maybe, the buyers are dipping their toes back in the water.

And then I just had to comment on this. Every morning when I turn on my Bloomberg screens, there's a saying of the day. most days it's not worth reading, but today, caught my eye. for when reading it, I immediately thought of Japan and the U.S. That Japan had implemented QE for years now, with no good results, but the U.S. went ahead and did 2 rounds of it any way. The saying today is: "learn to see in another's calamity the ills which you should avoid." By Publius Syrus.

Pretty apropos, eh?

Then there was this. Did you see the news yesterday that the European Parliament's Committee on Economic and Monetary Affairs (ECON) announced that they would now allow Gold as collateral? WOW!

Talk about "real collateral"! Why not use "real money" as collateral? Why didn't they think of this before? I mean Greece reportedly has about 111 tons of Gold, Portugal has 382 tons, and so on. they could sell the Gold, and pay down their debts. or, better yet, hold onto it, and just allocate it as collateral!

Now. does the Eurozone peripheral countries still have a debt problem? Yes, they do! But do they have a way to deal with it, so that lenders feel like they won't get left holding worthless paper? Yes they do!

To recap. The one-day rally in the euro and other currencies ended last night, as rumors circulated that the Greek Gov't would call for a snap election. Those rumors were unfounded, and the euro has spent the morning attempting to rally back the lost ground. The A$ and loonie have seen a lot of selling pressures lately. They both seem to be in search of a bid. The Eurozone and U.S. goings on, have really weighed on these two.

Currencies today 5/25/11. American Style: A$ $1.05, kiwi .7965, C$ $1.0215, euro 1.4070, sterling 1.6230, Swiss $1.1415, . European Style: rand 7.0405, krone 5.5650, SEK 6.3345, forint 191.80, zloty 2.82, koruna 17.4475, RUB 28.43, yen 82, sing 1.2490, HKD 7.7815, INR 45.32, China 6.4937, pesos 11.71, BRL 1.6240, dollar index 75.95, Oil $99.26, 10-year 3.11%, Silver $37.23, and Gold. $1,527.25

That's it for today. I'm later again this morning with the Pfennig, as I just couldn't get up and at 'em again this morning. It's always something, eh? Cards win in 11 innings last night, in San Diego. Not that I would have been able to stay awake for that! I should would have like to have seen it! Oh well. I'm so late that more than just Suzy Q is here when I'm getting this out the door this morning! UGH! OK, I promised to get this to you yesterday, but forgot. so. here's a link to the interview I did on WAAM radio in Ann Arbor on Sunday. There's nothing new in the interview for you dear readers, but if you wanted to just hear me say these things instead of banging them out on the keyboard, then here you go!

Now... let's go have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 05-25-2011 7:46 AM by Chuck Butler