Brazil Cuts Rates Again!
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In This Issue.

* More blood in the streets yesterday.

* Brazil cuts rates and signals for more cuts!

* Got Debt?

* Calls for more Aussie rate cuts get louder.

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

Brazil Cuts Rates Again!

Good day. And Tub Thumpin' Thursday to you! I'm so mad at myself this morning! I arrived here at my normal time this morning, only to realize that I walked out of the house without my key-card, that allows me to get into the building and office! What a twit! It was sitting right there on the kitchen island where it is every morning, but this morning, I was in such a hurry to get a banana and get out the door, that I left without it. UGH! So. I had to turn around once I got here, and go back home. It's not like I live next door to the office! Double UGH!

So. obviously, this is going to be later than usual. But, as they always tell me on airplanes, "I'll try to make it up in the air". HA!

Well. yesterday's price action left more blood in the streets, with the euro losing the 1.24 handle, and the Aussie dollar (A$) reaching a 2012 low. The Brazilian Gov't and Central Bank continue to do their best to unravel the markets, by cutting interest rates again this morning and crowing that there are more rate cuts to come. Oh, by the way, the internal rate in Brazil was cut by 50 basis points (1/2%) to a record low level of 8.5%... For those of you keeping score at home, that brings the total of rate cuts since August last year to 4%...

And there was nothing in the Central Bank's statement to give anyone the idea that the Central Bank was nearing an end to the rate cut cycle. Central Bank President, Tombini, continues to point to the fact that industrial output has declined in 8 of the last 12 months. So, they try to give the appearance of attempting to stimulate growth, when in reality folks. they are debasing the currency so it can be competitive in the global exports game. Brazil was the first to say it was a currency war, and they have been one of the leaders of this war.

The euro is back above 1.24 this morning, but not by much. it received a boost when the latest polls show that Irish voters will approve measures to ease the Eurozone's debt crisis. I had read recently that the Irish President had appealed to the Irish people to vote yes, because more uncertainty in the Eurozone is not what's needed now.. Good move on his part.

The euro's decline in May alone has been 6% VS the dollar and 7.3% VS the yen. I find it very difficult to reconcile this. Yes, there are problems with debt in the Eurozone, but, have they not, at least addressed it and attempted to implement measures to cut it off at the pass? What have we done here in the U.S. to address our debt problem, which I'll add stands today at : $15,749,000,000,000 (that's $15.7 Trillion, folks), and the real debt called the "unfunded liabilities" is: $119,084,000,000,000 (that's $119 Trillion, folks). or. what has Japan done to address their Gov't debt problem? Nothing, nada, nil, zilch, zero, a big fat goose egg!

But, it's a "euro" problem. according to the traders, and hedge funds. I call it a circuit breaker. What am I talking about now? Ahhh grasshopper. do you see those numbers above? $119 Trillion in unfunded liabilities? Well, bonds will be issued when the time comes to finance this debt. and how will those bonds, that will have higher yields on them, get their debt servicing (interest payments) paid? Well, we've been through this many times, but there are tons of new readers, so here you go.

The U.S. will be able to increase their revenue, which means higher taxes, or they can debase the dollar to a level that allows them to pay the interest on the bonds with cheaper dollars. Or, as I've said many times. we'll have to do both! And that's why I fear what's ahead for my kids and grandkids. OK, so anyway. whenever the dollar goes on one of these bear market rallies (see 2005, 2008, 2010 and now) I call them circuit breakers. you see not that long ago, the dollar was teetering on the cliff, but not now. it has received a circuit breaker. And these are needed, because, even if the U.S. Gov't knows they need a much weaker dollar to pay back their debt servicing with cheaper dollars, they can't have it fall off a cliff now, or any time soon, they need everyone to play this game with them for as long as they can keep it going.

OK. I'm not saying that the Eurozone is devoid of problems. and the euro shouldn't be weaker than it was. What I'm getting to, and hopefully won't make you wait any longer than this. is that this Risk On, and Risk Off stuff is giving me a rash! It's all a bunch of dookie! We need for currencies, and other asset classes like stocks and commodities, to trade on fundamentals, like they did before the financial meltdown of 2008. If we were simply looking at fundamentals, and not all this Risk On, Risk Off bull dookie, currencies like, the Norwegian krone, the Swedish krona, the Canadian dollar, and a host of other good fundamental currencies wouldn't be getting caught up in the Risk Off selling that's going on right now.

It's all about the flight to so-called safety. U.S. Treasury 10-year bonds hit a record low yesterday of 1.63%... and the Japanese yen is trading with a 78 handle again. I bet that ticks the Japanese Gov't off to no end! All the Trillions of yen they've spent to weaken the currency to no avail. poor, poor Japanese Gov't. Don't you feel sorry for them? HA!

OK. I told you near the top that the A$ dropped quite a bit yesterday. It felt the pull downward from the euro, and their weak data that continues to pile up. Like last night's printing of a report showing home-building approvals unexpectedly dropped in April. This got the rate cut campers all lathered up, and the calls for more rate cuts became shouts! And once again, bond buying in the A$ was strong, pushing yields of 10-year Aussie Gov't Bonds to a record low of 2.856%... It's going to be difficult to reverse this move in the A$, folks. OZ, as we call Australia, has the wicked witch of the west flying overhead right now, and even though Glenda the good witch is there to protect OZ, everyone runs for cover. that's what's happening here.

Well. the Chinese renminbi continues to slide weaker every day. The renminbi has lost nearly 1.5% in May. So, what gives here? Well. the Chinese economy is moderating, and that means the Chinese Gov't's efforts to diversify their economy, and gain more domestic demand, runs into a roadblock. So to keep things going, China needs to ramp up the exports again. Uh-Oh. global growth is slowing, so demand for Chinese goods is weaker. So, the Chinese weaken their currency to make the exports more competitive and appealing in price.

And, with most currencies weaker, at this point, the Chinese are just playing along with the games that countries are playing with their respective currencies. We'll have to see just how weak the Chinese leaders are willing to take the renminbi.

Gold put in a strong performance yesterday, closing up $8, but it was up near $12 at one point in the day. the shiny metal looks strong this morning too, with it trading up $3, as I write. You know, I've gone on record as saying that this drop in the price of Gold has been counterintuitive and just doesn't make sense. Here's something to think about and I mean think about folks. The U.S. (as reported in the Wikileaks cable) fears that buying of Gold & Silver is going to replace the dollar, and they can't handle that because they can't print Gold & Silver. So, when it looks like Gold & Silver is ready to really go mainstream last summer, along comes these afterhours takedowns of the prices of both metals.

So.. you don't think that.. Nah. that can't happen! Or can it? I talked about this a bit above. The U.S. debt problems are astronomical, the Eurozone and Japanese debt problems are nothing to laugh about, so the currencies of these countries should be weak, and investors should be flocking to Gold & Silver. and the demand for these two is still good on a retail basis, but that's not what moves these prices.

So, it's not all seashells and balloons for Gold & Silver owners these days. but, as I've said before. I'm not selling. for I do believe that this will all be in the rear view mirror in a few years, and those that sold will be scrambling to buy again.

The U.S. data cupboard is chock-full-o-data today. Not all of it is 1st tier data, but still the prints today would choke a horse. Some of the major prints include: Challenger Job Cuts, ADP Employment change, 1st QTR final GDP, Weekly Initial Jobless Claims, and the Chicago PMI (manufacturing index). So, we could see quite a few swings today with each economic data print.

Tomorrow is the Jobs Jamboree for May. Can you believe tomorrow we turn the calendar to June? OMG! So. the ADP report today should be an indication of what the Jobs Jamboree will look like tomorrow. Right now, the experts are of the mind that 150,000 jobs were created in May. Hmmm, maybe they need to read the Pfennig, because I'm going to touch on this in the TTWS section of the letter today!

Then There Was This. from "Small businesses hired fewer workers in May and cut hours for those on their payrolls, an independent survey showed on Wednesday, raising prospects of another disappointing employment report.

Businesses added 40,000 new jobs, after increasing payrolls by an upwardly revised 60,000 jobs in April, according to Intuit, a payrolls processing firm. April's job count was previously reported as 40,000.

The survey's findings contradict expectations of a pick-up in job gains in the broader economy this month as the weather-related distortions that held back employment growth in March and April dissipate."

Chuck again. Yes, there are a lot of economists that are making some bold predictions for the Jobs Jamboree tomorrow. I'll wait until tomorrow for my thoughts on the data. although it sure would help to know how many ghost jobs the BLS will add before making any forecast!

To recap. There was more blood in the streets for the currencies and stocks yesterday. Chuck goes ape over how the euro gets bashed because of the debt crisis, when the U.S. and Japan have their hats in the ring for debt problems too! The A$ falls on fears of additional rate cuts after weaker recent data. Brazil cuts rates again. and the Chinese renminbi has lost 1.5% this month, and Chuck gives his thoughts on why that has occurred.

Currencies today 5/31/12. American Style: A$ .9740, kiwi .7550, C$ .9730, euro 1.2410, sterling 1.5510, Swiss $1.0335, . European Style: rand 8.5115, krone 6.0605, SEK 7.23, forint 242.65, zloty 3.53, koruna 20.6925, RUB 33.15, yen 78.80, sing 1.2855, HKD 7.7640, INR 56.10, China 6.3680, pesos 14.13, BRL 2.0150, Dollar Index 82.85, Oil $88.21, 10-year 1.63%, Silver $28.06, and Gold. $1,566.05

That's it for today. Can you believe that tomorrow is June? Remember when you were young, and time seemed to stand still? Now, for me, it seems to fly by. Darling daughter, Dawn, called to make sure I was OK last night. Nice of my kids to do that. Little Delaney Grace will turn 5 in August, and Dawn, who was a good swimmer and then a swim coach, already has her on the swim team! I received my "smokenater" last night. Now I'll really be smoking a lot of meat this summer! And with that. I had better get the process to get this out the door going. I hope you have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 05-31-2012 11:00 AM by Chuck Butler
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