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A Pfennig For Your Thoughts

April 19, 2013

In This Issue.

* Gold continues to heal.

* Currencies rebound.

* Yen back on slippery slope.

* Playing shell games with debt.

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

Back On Terra Firma.

Good day. And a Happy Friday to one and all! The FBI say that they have killed one of the Boston bombing suspects and that the other suspect is on the run, armed and dangerous. Let's hope no one else gets hurt in this chase. I was pleasantly surprised at how quickly the authorities came to find the two men they believe responsible for the bombing. Kudos to the authorities, for sure! But scary times for the people of that area with an armed and dangerous suspect on the run. Be careful!

Well, ever since the selloff of the risk assets on Wednesday, they've come back with vengeance on their agenda, kicking tail and taking names later. Yesterday, I called it "some healing". today, I'm calling it an all-out rally! That's always nice when things move the way I believe they should be moving and especially when it ends a week, for Traders and Investors will have to think about it all weekend long. Notice I said, "the way I believe they should be moving". I'm talking fundamentals. not emotion, not wishing and hoping and thinking and praying. strictly fundamentals!

Front and Center this morning, the price of Gold is up $23, as I write, and has climbed back above $1,400. All the talk of physical demand has sure played out that way, as Gold has recovered nicely since Friday and Monday's ambush. But I'm scared of how quickly Gold has gotten back on its feet. The move could be too swift, and it would bring the paper naked shorts back to the market. These guys are not happy causing losses to everyone that owned Gold, they won't be happy until everyone has packed up their bats and balls and gone home. I don't see that happening, do you? I see panic from time to time, but the folks that bought Gold for the right reasons, diversification, inflation & uncertainty hedge, and insurance, are not panicking and instead, looking to add to their holdings, bringing their dollar cost average down in most cases. It's only the folks that bought Gold for a quick profit that have bailed. OK. so long, see ya, wouldn't want to be ya! HA!

I'm currently reading a compilation of articles that my friend, the Mogambo Guru, has written. And with every article I read, I'm reminded how the Mogambo stood in front of a HUGE crowd in Vancouver years ago, and told them, "We're all freakin' doomed". The Big Boss, Frank Trotter, and the Mogambo shared a cab to the airport at the end of that conference. Now that was a meeting of two great minds! Anyway, the thing I was getting at here is that the Mogambo has always told people that they should own physical Gold. And Silver, and Oil, just for good measure!

So. the currencies added to their healing yesterday, and overnight, really took off with the New Zealand dollar / kiwi leading the pack in value added. Oh, and remember earlier this week, when I told you that the Japanese yen had rallied but I believed it would be short-lived? Well the yen rally appears now to have been what's called a dead cat bounce. (don't worry no cats were harmed here!) as yen is back on the slippery slope heading to 100. Seems the boys and girls at the G-20 boondoggle, didn't' have one word to say about Japan's announcement to nearly equal the U.S.'s Quantitative Easing size, with an economy that's about 1/3rd the size of the U.S.

I mentioned that fact the other day, and I wonder if it hit a chord with all of you the way it did with me? If not, then you heard me then so listen to me now. Japan is going all in on this attempt to raise inflation from the dead. The Japanese economy is going to be flush with liquidity. easy credit was already there, along with zero interest rates. If they can't raise inflation from the dead, then they are going to be up the creek with no paddle. But all this QE/ bond buying/ money printing is going to deep six yen. I don't doubt that one iota!

The euro got up and brushed off the selling that was caused by comments from the Bundesbank on Wednesday evening. From my view in the cheap seats, it appears that the euro bulls would love to take the euro higher. Remember, before the comments from the Bundesbank, the euro was pushing 1.32. Now, it would think it had won 20 games if it could climb back to 1.31. A euro trader told me that 1.3134 would have to be met, before the real euro bulls came back to push it higher again. The single unit is trading around 1.3090 right now, so, it has its work cut out for it, for sure!

In Australia overnight, the ratings agency, Moodys kept Australia's credit rating at AAA, and said that the rating was "safe". But the real move higher in the Aussie dollar (A$) came from the weakness in the yen. Once, G-20 signaled that they were OK with Japan's bond buying program, yen got sold, and the higher yielding currencies, like A$'s and kiwi were bought. It also didn't hurt the A$ that the Chinese renminbi/ yuan had its strongest week in 6 months this week. If the renminbi / yuan is moving higher, that signals to the markets that China is moving in the right direction.

And don't forget that the People's Bank of China (PBOC) announced this week that the renminbi / yuan's trading band would be widened. That's HUGE news folks. the problem with the announcement though, is that the PBOC didn't say when!

I was surprised yesterday to see the Brazilian real not react favorably to the news that the Brazilian Central Bank (BCB) had hike rates. That's got to be like manna from heaven for the Brazilian Gov't, who doesn't want to see real strength, and probably held their collective breaths after the rate hike was announced. At this point, I would love to see real strength, only to spite the Brazilian Gov't!

In Canada today, March CPI (consumer inflation) will print. Without the games played with this data like they do in the U.S. Canadian CPI will probably show a gain in March that will be added to the February rise in inflation of 1.2%... I doubt it will be that strong again, given the drop in Oil prices, but still a gain, and should put the year-on-year increase in inflation at 1.4%... Still not the stuff that causes Central Bankers to choke on fear and push them to hike rates, but not too far off from that. Still, I don't see the Canadian dollar / loonie gaining any traction from this report today, unless it contains a surprise number like February.

Speaking of the loonie. Last year, I sat on a panel at the Casey Conference in Weston Florida, and I was star-struck.

Little ole me and the well respected, investment giant, James Rickards on the same panel.

I had already read James Rickard's book, Currency Wars, so I already knew a bit about him.

Yesterday, I saw some stuff that Mr. Rickards put together, and a couple of things caught my eye.

1. That he still believes that people should be long physical Gold.

2. That he likes: euros, Singapore dollars, Aussie dollars, Canadian dollars, and S. Korean won

3. And he would be short: dollars, sterling, yen, and real

This is very close to what I told the crowd in San Diego. that Singapore dollars, Aussie dollars, Canadian dollars were all currencies investors should look to own, based on strong fundamentals. I also included Chinese renminbi, and Norwegian krone.

I totally agree with the currencies to be short, although, Brazil in a speculative corner is interesting to me.

And physical Gold. it's how I've always told you to be the way to go over ETF's.

Yesterday, the data cupboard here in the U.S. had some data to show us. The Weekly Initial Jobless Claims, remained around 350,000, and the Bloomberg Consumer Comfort meter and Economic Expectations were both negative. The Philly Fed Index was stronger than expected, so that was good, but Leading Indicators (very important with Chuck) showed more rot on the vine, falling -.1%...

I've told you recently that I believed the U.S. economy was slowing down again, based on the economic data results, and yesterday's Leading Indicators is no different, and doesn't change my thought by any stretch of the imagination. The Fed Heads are talking of removing stimulus, at time when the economy is showing a lot of rot on the vine.

I saw my old nemesis, Big Al Greenspan, on the TV this morning. He's really turned into the new "Mr. Obvious" as he was asked about the labor picture in the U.S. and he said the key was to revive the economy. Oh really? Hmmm. Isn't that what the framers of our economy, the Fed Heads, have been attempting to do for the past 4 years, after implementing their first round of QE in March of 2009? The problem with their attempts to revive the economy is that they followed the Japanese blueprint.

A month or so ago, I talked about the rise of disability claims, and how people on disability and don't work, are not counted as "unemployed". Well, get these numbers.

Since the beginning of the last recession in the USA (December 2007), 1.8 million American workers have been approved for federal disability benefits. The number of individuals receiving benefits has increased +25% from 7.1 million to 8.9 million. The 8.9 million disability recipients represent 5.7% of our nation's 155.0 million civilian labor force (i.e., Americans that are either employed or seeking employment). Only 1.7% of our labor force was receiving federal disability benefits in 1970 (source: Social Security, Department of Labor) And this all comes about from the stretching the description of "disabled". High blood pressure is now considered to be "disabling". Oh well. I don't want to spend all day with this, just wanted to point out the size and number of people that are not counted as "unemployed" by our Gov't.

Then There Was This. Oh, the webs we spin. My friend, Dennis Miller, sends me a list of things that a CPA sends out, and calls it "by the numbers". And this week's issue, was just what I was looking for! I told you last week about the President's budget, and how spending was going to increase 6%, but then he claimed that he was cutting the debt by $1.4 Trillion over the next ten years. Those two things didn't match and so I set out to find out where the disconnect was.

And there it was right before my eyes! "When the White House says they are "reducing" our nation's debt by $1.4 Trillion over the next decade, in reality they are projecting our debt to increase $5.27 Trillion by 2023. the $1.4 Trillion in savings comes from the fact that the baseline projection for the budget called for spending to increase $6.68 Trillion. So, the spin doctors tell us they are reducing debt by $1.4 Trillion. ($6.68 T - $5.27 T) Are you kidding me? And the markets, economists, media etc. all took what the spin doctors said about cutting debt, hook, line and sinker! It makes no sense to me, folks. where are the journalists to look under the hood? Why is it only me and a handful of others that see a statement like that and want to dig? Everybody else says, "hey look we're cutting debt". HUH? Where are your brains? Remember the commercial when they showed an egg and said this is your brains, and then cracked egg and dropped into a frying pan of hot grease and said, this is your brains on drugs? I think all these guys and girls in the media that swallow this stuff hook, line and sinker, without thinking they should look under the hood, had their brains dropped in hot grease years ago!

To recap. The "healing" turned to all-out rally overnight, led by the best performer, the New Zealand dollar. Yen is back on the slippery slope, and the commodities are back on terra firma, after a shaky performance earlier in the week. Aussie and New Zealand dollars are back on Japanese investors' minds this morning, as yen slips, they look to buy higher yielding currencies, and James Rickards gives us his picks, which aren't far off those given by Chuck two weeks ago in San Diego!

Currencies today 4/19/13. American Style: A$ $1.0340, kiwi .8470, C$ .9760, euro 1.3090, sterling 1.5345, Swiss $1.0750, . European Style: rand 9.1625, krone 5.7945, SEK 6.4985, forint 228, zloty 3.1345, koruna 19.7420, RUB 31.55, yen 99.30, sing 1.2355, HKD 7.7635, INR 53.96, China 6.2395, pesos 12.23, BRL 2.0185, Dollar Index 82.50, Oil $88.75, 10-year 1.71%, Silver $23.53, and Gold. $1,409.50,

That's it for today. Brother did I drive on some waterlogged roads yesterday! And now it's cold here again! UGH! When is spring going be here to say? OK. this is BIG NEWS. Tomorrow is my long time, good friend's birthday. Happy Birthday Frank Trotter! I hear it's also our Mike Harrell's birthday, so Happy Birthday to both. I've worked with Frank since 1981. Yes, I know, we have some kids in the office that weren't even born when that friendship began. I remember seeing Frank being introduced to us on his first day. He was spiffed out with an olive green khaki suit on. (remember it was the 80's!) So. Frank is one year older than me once again. Hey buddy, we're getting old fast! Andrew & Alex's water polo team won last night, and head to the second game of a tournament tonight. no goals for Alex, but I thought he played a very good game. OK. it's getting late, so I'll get this going. Thank you for reading the Pfennig, and I hope you have a Fantastico Friday!

Chuck Butler
EverBank World Markets

Posted 04-19-2013 12:26 PM by Chuck Butler
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