Bundesbank Goes All Dovish On Us!
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A Pfennig For Your Thoughts

April 18, 2013

In This Issue.

* Gold holds steady.

* Currencies get deep sixed.

* Brazil hikes rates !.

* Gold trend not a one-way street.

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

Bundesbank Goes All Dovish On Us!

Good day. And a Tub Thumpin' Thursday to you! Another crazy day in the markets yesterday. The markets were swing dancing all day. The dollar index had its largest 1-day upward move of 1.1%, but, Gold held onto a positive tone most of the day, so all-in-all, not such a bad day for the commodities. Obviously nothing like we saw last Friday and this Monday.

Well. leave it to me to deep six something. All I have to do is put the Chuck talks nice about something spell, and then watch it get the snot knocked out of it. What am I talking about? Well. yesterday, I talked nice about the euro, of course I was saying in 3-5 years, but still nice, right? And then mid-morning I look up and the euro has lost 1 & ½-cents. Seems, that Bundesbank (Germany's Central Bank) President, Jens Weidmann, told an audience that the "European Central Bank (ECB) may cut interest rates if new information warrants the move."

Now. granted Mr. Weidmann didn't say, "The ECB WILL cut interest rates at the next meeting". now that would have meant more to me than his not so committed statement about "may cut".. But that didn't stop the markets from taking the euro to the woodshed. Sort of like the lyrics to that song by Thin Lizzy. If the boys want to fight you'd better let 'em.

Frankly. I'm surprised that a Bundesbank President would say something like that. Back in the days of the Bundesbank being Super-Hawks, they would have never talked about rates "maybe getting cut". But this is the "new" Bundesbank apparently. Now, maybe rates need to be cut in the Eurozone, but that doesn't mean you go around talking about "maybes" The Bundesbank I knew as a foreign bond trader, no longer exists I guess. He should know that "loose lips, sink ships".

After plunging those 1 & ½-cents yesterday, the euro began to rebound, and that rebound carried over to the overnight markets, and this morning the euro is around 1.3060 as I write. The G-20 meeting begins today in Washington D.C. and the G-20 members will be repeating their February statement about their pledge to "move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility." That's all fine and good, but as soon as the G-20 members pack up their dark suits and head home, Japan will get right back to their task at hand, which is to weaken the yen so much that it spurs inflation for the Japanese economy. The Japanese will say G-20 - Schmee 20!

Did you notice that the February statement included a phrase about "more exchange rate flexibility"? OK. we all know that was put in there for the Chinese. Well, look what we have here. Yesterday, less than 100 hours before G-20 assembles, China's deputy Gov. of the People's Bank of China (PBOC), Yi, announced that "the renminbi/ yuan's trading band will be widened in the near future." WOW. Does he really mean that? Or is this just the shell game the Chinese play with G-20? Probably a little of both, don't you think? I do. I think that China has plans to widen the trading band, but will do so on their own clock.

It will interesting to see what the G-20 members have to say about Japan's announcement since the last meeting, that they will implement record monetary easing with 7.5 Trillion yen ($76 Billion) per month, which will double the monetary base of Japan within two years. If G-20 is worth a nickel they will stomp their feet and protest. Did you catch the size of this Quantitative Easing that Japan is implementing? It's about the same size as the bond buying program (QE) that the U.S. has implemented ($85 Billion per month). But, Japan's economy is about 1/3-rd the size of the U.S.'s economy. So, Japan has gone all-in on money printing.

Well. Brazil's Central Bank (the BCB) did actually go ahead and hike rates yesterday for the first time since July 2011. The BCB raised their Selic rate (like our Fed Funds rate) 25 Basis Points (1/4%) from their record low in an attempt to head the soaring inflation off at the pass. March consumer inflation breached the BCB's target range and spooked the BCB into hiking rates. I'm really impressed that the BCB did this rate hike. I told you all yesterday that the BCB might hike rates, and they did! The Selic rate in Brazil now stands at 7.5%...

Man. it must really be storming outside, the satellite TV's just went black, and the Lightening is illuminating the sky, with the thunder shaking the building. Thunder only happens when it's raining, players only love you when they're playing. It was just a week ago, that the devastating storms tore through our area, and left a path of destruction. But we're used to the April storms coming through here each spring.

I saw a blurb in the Bloomberg this morning that Wells Fargo is hiring Lou Hotz to do some commercials to reignite the mortgage refi business. Uh-Oh. When a mortgage giant like that has to resort to hiring someone that will appeal to the "older folks" (like me!) something tells me that the refi business must be drying up. Think about that for a minute folks. Hasn't just about anybody that qualifies for a refi, gotten one by now? I would think so. but then. I had just a bad experience doing my last mortgage, that I'm glad I don't feel the need to refi. I wouldn't want to have to go through that again!

I only bring the refi story up, because it plays well with my overall theme lately that the U.S. economy is slipping again. not that it had strong legs to begin with, but the way I see it, with the recent data prints, and the overall feel, is that the Fed Heads have it all wrong, about the economy not needing stimulus too much longer.

Well, yesterday's breather in the data cupboard is over, and today we'll see a couple of things that I look for. First, the Weekly Initial Jobless Claims, which are expected to remain around 350K. How can you have a strong economy when you have 350,000 people filing for NEW jobless claims each and every week? Second, we'll see Leading Indicators, which along with Capacity Utilization are the only forward looking piece of data that we see. I think, that to play along with the other weak recent data that Leading Indicators will be weaker than the .5% gain in Feb. And finally, the Philly Fed, with is the regional manufacturing index.

So. all-in-all, not real market movers. but things that I like to follow.

Gold has added $20 to its value this morning. Remember, what I've told you over and over again, that this dance is gonna be a drag. no wait! I've told you over and over again through the years, that assets enter a trend for a fundamental reason, and don't leave the trend until that fundamental reason changes. I keep hearing the naysayers of Gold say that Gold doesn't pay interest. Well, does your bank CD? Well, I guess it does just a little, but by the time you pay taxes on the interest, what does it leave you? Gold hasn't had to compete with deposit rates for a long time now. And does it look like the Fed Heads are going to change horses in the middle of the stream here? Are they going to begin a tightening cycle that Paul Volcker would be proud of? I doubt it. So, the trend for Gold remains in place.

A few months ago, we had visitors from one of our dealing desk partners, and the guys just wouldn't buy the "manipulation" story for Gold, nor the reason to own Gold. I couldn't budge them, and the Lord knows I tried! Yesterday, I heard Jen talking to one of them, and when she hung up, she said they asked if I was still high on Gold. Of course I am! The trend is your friend, but it is not a One-Way Street. There can be volatile periods within the trend. and brother, have we seen a volatile period lately!

Then There Was This. Yesterday, I looked up to the TV and saw Bart Chilton of the CFTC on the screen. There he was, talking about commodities trading and market regulations. Blah, Blah, Blah. it's all talk and no walk, as far as I'm concerned. Didn't this same Bart Chilton promise us months ago that the CFTC's findings on Silver manipulation would be presented? Yes, sir it was! So. where are they? Instead we get talk, talk, talk, blah, blah, blah. That's all we'll get from the CFTC, folks. they are there supposedly to protect you and your investments. I guess you should contact the CFTC and ask them what happened in the past week alone?

And this. have you ever seen a graph of the monetary base / money supply here in the U.S.? It's quite scary. we're in uncharted waters folks. the text version of this letter won't allow me to plug in a graph of this, but the blog will, so if you want to see the graph I'm talking about, just go to: www.dailypfennig.com to see what I'm talking about. this graph also plays well with the price rise of Gold during the same time period.

To recap. The Bundesbank President sunk the euro's ship yesterday by talking about maybes with regards to rate cuts by the ECB. Gold held onto gains and is up another $20 this morning. As the physical demand comes in and buys to offset the paper selling in the ETF. The Dollar Index had its best one day performance yesterday, but the currencies, led by the euro are bouncing back this morning.

Currencies today 4/18/13. American Style: A$ $1.0325, kiwi .8445, C$ .9765, euro 1.3050, sterling 1.5255, Swiss $1.0725, . European Style: rand 9.1650, krone 5.8015, SEK 6.5150, forint 228.75, zloty 3.1545, koruna 19.8310, RUB 31.61, yen 98.25, sing 1.2350, HKD 7.7630, INR 53.96, China 6.2416, pesos 12.19, BRL 2.00, Dollar Index 82.53, Oil $87.60, 10-year 1.70%, Silver $23.50, and Gold. $1,396.25

That's it for today. Not a good outcome for my sons' water polo team last night. Alex did score a goal, something he's found to be a tough row to hoe this year. He's hit the goal post more times than I can count on both hands. But he buried one last night. They start a tournament tonight out in west county, so lots more driving for me back and forth this weekend.. Cards' bats had already been packed away for their trip to Philadelphia last night, as the Pirates were able to win easily. When I was a kid, my dad used to say to me. "you can't win them all". and I've always said to myself when someone says that. Why not? You probably won't win them all, but who said you "can't win them all"? They were wrong! OK.. it's raining cats and dogs outside, I can hear it now. be safe out there! I hope you have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 04-18-2013 4:32 PM by Chuck Butler
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