China Lowers GDP Target.
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In This Issue.

* Currencies & metals lick their wounds.

* Canadian dollar still at the party.

* Central Banks to meet this week.

* China continues to gain distribution.

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

China Lowers GDP Target.

Good day. And a Marvelous Monday to you! Yes, my first day back now that it's March, so Welcome to March! I made a quick trip to south Florida last week, and as Chris said, it was a tease, as I will return for my annual trek to Spring Training next Wednesday! I came back to cold rain. UGH! But, it's March, the weather will change from day to day like the colors of a Chameleon.

Speaking of changing colors. From what I saw happening in the currencies and metals late last week, now that was a true change of colors! Traders, investors, hedge jockeys, and the rest, all switched horses in the middle of the stream, by bailing out of the risk assets of currencies and metals, that they had bought and pushed the prices higher earlier in the week. Gold got slammed, Big Time, so , I guess there's no reason to fear the uncertainty in the world today. Israel & Iran are saber rattling, Countries all over the world are shifting out of their long standing agreement to price Oil trade in dollars, China continues to take baby steps toward removing the dollar as the reserve currency in the world, and the beat goes on. So, I guess there's nothing to fear about the uncertainty in the world today. Alfred E. Newman, where are you?

Well. as far as I'm concerned, all this does is give all of those wanting to buy at cheaper levels the opportunity to do so! In the past, when we see these huge drops in the price of Gold, it quickly turns around. Of course we don't know that will happen here, but, given my years of watching these things, there's a good possibility, but then I could be wrong.

So. I left last Wednesday to the news that the European Central Bank (ECB) LTRO was greater in size than was expected, which meant more Eurozone banks needed cash, which I thought would hurt the euro, but at first glance, it didn't, and the markets were thinking the "more was better". But that all changed by later that day. And then the rout was on. So, my initial call that any amount over 500 Billion in loans that were needed would cause problems for the euro, eventually won out.

But the selling didn't stop on Wednesday afternoon, or all-day Thursday, or all-day Friday. The euro has shown some ability to rally overnight to 1.32, but then quickly falls below the figure. So, there are no legs for the Big Dog, and if there are no legs for the Big Dog, well. all the other currencies are stuck in the mud too.

Overnight, China issued a communiqué outlining their desire to lower their target for economic growth. China had dropped their target GDP level to 7.5% down from 8%. This 7.5% level is the lowest goal that the Chinese have targeted since 2004. And, just like in 2003, and 2010, the Chicken Littles are out in force calling for a "weak Chinese economy", because they dropped their target from 8% to 7.5%... Shoot Rudy, the U.S., would be doing back flips if they could have GDP ½ of China's lower target!

So. I think you probably see the audacity of this. But, hey! The markets are never wrong, right? China also announced that they will seek an inflation rate of 4% this year, which is pretty aggressive but most of all highlights the "moderation" of the Chinese economy, as Chinese officials work toward shifting the focus of the GDP makeup to a more domestic driven economy.

I think that we'll continue to see the Asian economies move more to a regional economy, and not be so concerned with having the weakest currency to win the exports race. By having a regional economy, they could insulate themselves from the slowing down of the U.S. and Europe. But, this regional economy has long been something I thought the Asian countries would do, it's just taking them longer to get around to doing this than I originally thought! UGH!

With the Chicken Littles all running about in China, you probably know how the Aussie dollar (A$) responded to this craziness. Yes, it got sold. Remember a week or so ago, I told you how I believed the Japanese Housewives were back, selling yen and buying Aussie dollars? Well, with the bleeding in the yen stopped right now, and the A$ weaker, one would have to think that this round of Japanese Housewives putting on carry trades, has come to an end.

The Reserve Bank of Australia (RBA) will meet tonight (tomorrow for them), and I don't think RBA Gov. Stevens will opt to move rates lower at this meeting. If the Global economy continues to take hits like the Chinese announcement, I would think that the RBA will change their current view and cut rates. But that would happen later this year. not now. at least that's how I see it!

When I left last week, the Canadian dollar / loonie was playing catch-up to the other petrol currencies, that had rallied alongside the rise in the price of Oil. The price of Oil has dropped from its lofty levels of last week, but the loonie continues to remain above parity to the U.S. dollar. For now at least. remember it was late to the party held by the petrol currencies, and is probably going to be leaving late. The Bank of Canada (BOC) meets this week, but don't expect anything here. BOC Gov. Carney has a what I've referred to right now as a "bunker mentality". And even though economic data suggests he should raise rates, he has bunkered down to escape the shrapnel flying around from the U.S. and the Eurozone.

The price of Oil is still high though. nearly $106 this morning. So, all "drops" are not really "drops". As I refer back to the Chinese announcement, and the "drop" of the price of Oil from $108 last week to $106 this week. And. on a sidebar. they certainly are in love with the price of their Oil in Florida! I paid over $4 a gallon this past weekend. These higher prices of gas are not going to help the nascent recovery in the U.S. that's for sure!

Speaking of the U.S. The Federal Reserve's FOMC meeting happen next week. You know, it's not like we don't hear from the Fed Heads in between their every 6 weeks meetings. So, we know that a small group of Fed Heads are against the zero interest rates continuing on, and that a small group of Fed Heads would like to see more bond buying (QE). So, with all this difference that's so wide you could drive a Mack Truck through it, things come down to Big Ben Bernanke. It's his car to drive.

The U.S. data cupboard only has the ISM non-manufacturing index (Service) and January Factory Orders to print this morning. One thing I did see last Thursday morning, was that the U.S. ISM Manufacturing Index for February printed lower than expected and last month at 52.4. still above the line in the sand at 50, but weaker. and I didn't see one article about how this indicates that the U.S. economy is going to weaken, like we saw when China's ISM printed weaker late last month.

OK.. before we had to the Big Finish, I wanted to bring to your attention that on Thursday this week, we'll go through another white knuckle event in the Eurozone, this is the day that Private Sector Investors have to accept or reject the Greek debt swap that was proposed last week. Here is the skinny on that debt swap. for every euro100 on nominal bonds, investors have been offered euro 31.5 of new Greek bonds, euro 15 of cash/ EFSF bonds and a GDP warrant. If you were a Greek bond holder, wouldn't you take something rather than nothing? I know I would.

And you know how I'm always telling you that you shouldn't pay any attention to the stupid CPI that reports consumer inflation, but only after a myriad of hedonic adjustments. I tell you to check out John Williams accounting of inflation at but now there's a new sheriff. According to a not-for-profit research group at the American Institute for Economic Research of (AIER) they believe on a year on-year basis, that prices are up 8%..

Now, that's more like what I feel and what the common person feels when they buy food, gasoline, child care, prescription drugs, phone & telephone service, baseball tickets, movie tickets, and the list goes on.

So. why does the Gov't prefer to go through all the fire hoops to give us CPI that's not worth the paper they print it on? Ahhh grasshopper. 1. If CPI were higher, the Fed wouldn't be able to manipulate rates at zero. 2. If CPI were higher, the Gov't would have to pay more to seniors receiving payments. 3. If CPI were higher, the Gov't wouldn't be able to tell us that everything is OK. go out and spend. there are more, but these are the broad strokes.

Then there was this.. More baby steps are being taken by China to gain a wider distribution of the renminbi/ yuan. I saw this on Ed Steer's letter. "Bank of China Ltd, one of China's "big four" State-owned lenders, formed a tie-up with the world's largest futures exchange operator on Wednesday, through which the two parties will explore yuan settlement and clearing opportunities for commodities.

The cooperation agreement provides for trading in contracts related to oil, interest rates, grains and gold.

The pact includes a settlement and clearance membership in the derivatives marketplace CME Inc, and an application from Bank of China (Hong Kong) Ltd to become an offshore yuan settlement bank for CME, which is almost complete, said Si Xinchun, deputy general manager of the bank's corporate banking unit."

Top recap. we start the week with the currencies and metals much lower in value VS the dollar than they were before Mid-week last week. China has announced that they lowered their GDP target to 7.5% from 8%, which has sent the global growth currencies for a ride on the slippery slope. The price of Oil remains high at nearly $106. U.S. manufacturing was weaker in Feb, and there will be a host of Central Bank meetings this week

Currencies today: American Style: A$ $1.0690, kiwi .8230,C$ $1.0060, euro 1.3205, sterling 1.5825, Swiss $1.0950, . European Style: rand 7.5725, krone 5.6285, SEK 6.6925, forint 220.90, zloty 3.1270, koruna 18.7230, RUB 29.29, yen 81.30, sing 1.2570, HKD 7.7635, INR 49.85, China 6.3067, pesos 12.80, BRL 1.7275, (The Brazilian Central Bank dissed the real last week, and will opt for a large rate cut this week), Dollar index 79.40, Oil $105.88, 10-year 1.97%, Silver $34.29, and Gold. $1,698.80

That's it for today. A big Thanks to buddy Duane for helping me last week. Sunny and 80 in South Florida, and cold and rainy here. UGH! Oh well. we carry on, eh? Thanks to Chris for taking the conn on the Pfennig, it's just a warm up for when I'm gone later this month. I have a huge bone to pick with American Airlines that I'll be making today. Chris did a "wink, wink" last week about me not missing a flight home, but I did miss it, not my fault I must add, but thankfully there was a later flight. Seems like I was gone for a long time, so I'm a little slow getting this done today. so with that, I'll get this out the door, and Hope you have a Marvelous Monday!

Chuck Butler


EverBank World Markets



Posted 03-05-2012 11:57 AM by Chuck Butler