It's All About The Fed Today.
Daily Pfennig

Blog Subscription Form

  • Email Notifications


.........But First, A Word From Our Sponsor..........

There's no smarter way to buy gold or silver

Ready to buy some gold? Or maybe even silver? You'd be wise to consider the NON FDIC-INSURED1 Metals Select SM Account from EverBank. It delivers everything you've been searching for-lower costs, ultimate convenience, and flexible options.

-Choose from coins, bars or unallocated metal -No storage or annual fees on Unallocated Accounts -Low account minimums of $5,000 for Unallocated Accounts and $7,500 for Allocated Accounts

To learn more and view important disclosures go to:


In This Issue.

* More analysts come around to Chuck's thoughts.

* Currencies rally, but Gold doesn't.

* Canada posts strong GDP.

* Market manipulation explained..

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

It's All About The Fed Today.

Good day. And a Wonderful Wednesday to you! It was a grand night for St. Louis last night, as both the Cardinals and Blues won their games by a score of 2-1, with the Blues needing overtime to gain their victory. Well. I just had to stop, and allow my computer to reboot, as the propeller heads must have loaded some new software, that gets loaded the next time I sign on, and then the computer has to reboot. Oh well, better now than when I'm on stage in two weeks at the Las Vegas Money Show!

Well, the currencies had a reboot too overnight, that actually began with baby steps yesterday, and then turned into a full-on rout of the dollar in the overnight markets. Remember a week ago, I told you how I believed the Fed Heads were going to back off the calls to end Quantitative Easing (QE) and instead begin to make calls to extend QE? And then the next day, a story ran on the Bloomberg giving us the same idea, but with more details of course! Well, that thought has spread through the markets, as we draw closer to the rate announcement this afternoon from Big Bernanke and his fellow Fed Heads.

In overnight trading, the dollar index has dropped to an 8-week low, and even downtrodden currencies like the pound sterling are taking liberties with the dollar. It's all about the thought that the Fed Heads will confirm that they are "all-in" on continuing QE. I looked up at the TV in the trading room that has the Bloomberg TV channel on it. And the question on the screen was, "Is the Fed Creating Another Asset Bubble?" What? Are you kidding me? They have to ask that question? It should be stated as a fact and not a question! Greenspan's Bubbles have continued on, but are now called Bernanke's Bubbles.

I talked to a stock analyst the other day, and the first thing she mentioned to me was that she didn't understand why investors didn't see that the stock market rally was nothing more than an asset bubble created by stimulus. I told her, to get ready to deal with this for a long time, that the Fed is in a rut, and so is the economy, unable to get out unless the stimulus is applied, which should keep the economy going with a pulse, and interest rates low, so housing continues to improve, and stocks reach price levels that are not supported by earnings. It's Joe VS the Volcano stuff for us folks. Do you recall that movie? If you do, think of the beginning of the movie where Joe goes to work each day. Yes, I think the economy and everything else is going to be that dreary going forward.

And don't for a minute be confused with the jump in GDP that will occur in future quarters, as the GDP calculation gets changed. Recall, I told you about this last week, and then featured economist Michael Pento's thoughts on the change yesterday. I have to say though, that the people that follow this stuff closely are really ripping the new calculation on the internet. Maybe someone will sit up and listen. They would do that, right? Nah. They don't care what we think. They found that out back in the 90's when CPI went under the knife, and no one grabbed their rake or pitchfork and headed to Capitol Hill. Yes, sir, may I have another? Well, of course you can, Mr. Sheeple, here, now you'll see that the U.S. economy is out of the woods, because GPD is now calculated to show that!

OK. see how I am? Just spin me around and point me in a direction that gets me going on this stuff, and you get a dissertation. This is why my good friends that come over to sit outside and listen to the baseball games on the radio with me, DON'T EVER bring up any subject that might get me going, they don't want to hear it, they just want to hear the radio!

What I find to be strange though, is that the euro began its rally yesterday moving through the 1.31 figure again, on the Fed extending QE talk. But, Gold, couldn't catch a bid. Hmmm. Attention Markets! The talk in the markets is about Fed extending QE! That means the dollar should get sold like funnel cakes at a state fair! And the currencies are doing their part. but Gold isn't. Does that bother you just a little? Gold is being spent by $4 again this morning. It makes no sense to me. Other than manipulation. Think about that for a minute. The bullion banks get the wink and nod to hold Gold down because the Fed is going to announce an continuation of QE. It's the only explanation my little brain can think of.

Speaking of QE and the Bernanke's Bubbles. Deposit rates are near non-existent, and so people are looking for greater yields. My friend, Steve Sjuggerud, has a theme that he's been talking about called the Bernanke Asset Bubble, where people grow tired of not earning anything on their deposits and begin to put their money to work in the stock market in dividend earning stocks. He calls this ACT I. Act II has these investors growing tired of the bland stocks, and looking toward other asset classes, and then finally in ACT III going to foreign investments. Well. I say, skip ACT I & II, and go directly to ACT III!

Well. The Canadian dollar / loonie has finally left the 97-cent handle and traded through 98-cents like a hot knife goes through butter. The first boost came yesterday after getting a reading on Feb GDP. Canadian GDP in Feb (I know it seems like long ago!), rose stronger than expected .3% with January's GDP revised upward to .3% too! I know this doesn't quite seem to be the stuff that strong economies are made of. but remember it's a monthly gauge, not a quarterly one, like we use in the U.S. That would put their quarterly gain at nearly 1%, and then annualize it and you've got something to talk about!

But remember that the Bank of Canada, (BOC) has held a tightening bias for over a year now. Will this GDP report be the straw that stirs the rate hike drink? I don't think so. not yet. and probably not this year, But that isn't stopping the loonie! It's been awhile since we've seen the loonie trading with a 99-cent handle, so let's enjoy this!

The euro just jumped above 1.32 this morning. So, the talk in the markets about QE and the Fed are really pushing the currencies higher. The April high on the euro was 1.3202, so May 1st has already brought about a higher level for the euro. And it's not about the Eurozone, folks. It's about the fact that the euro is the offset currency for the dollar. As the dollar goes, the euro goes the other way.

The old offset currency to the dollar. The pound sterling, has really been getting some love lately. And I guess when they post a better than expected manufacturing index (at 49.8 VS consensus of 48.9) , even though it remains below 50, that the currency should see some buying. But I think things here in the U.K. are just rotten to the core, so unless the pound sterling is going to grab onto the euro's coattails and go for a ride as the dollar returns to the slippery slope, I would think that gains in the pound sterling will be short-lived. Of course, that's just my opinion, and I could be wrong!

And, don't forget what I told you yesterday, and that is that the higher yielding currencies are bound to see the sunlight should the Fed announce a continuation of QE this afternoon. That list of currencies include: A$, kiwi, real, and pesos.

And then, it occurs to me, that just because I was the first to say that I thought that the calls for an end to QE were premature, that I could be wrong. So, what if the Fed Heads decide that they need to add to their previous statement that said they saw "moderate growth and a labor market that had shown signs of improvement". What if they do that? And talk about an end of QE? Well, then all these gains by the currencies will be wiped out in a New York Minute. But. I just don't see that happening. And I'm a Fed watcher, I'm a Fed watcher. (got you singing again didn't I?)

I say all the time in my speeches that I have to give credit where credit is due. In this case it's the Housing Market. Well. The S&P Case/Shiller Home Price Index beat the estimates on where it would come in which were up 9%, actually hitting 9.32% year-on-year. OK. let's get serious about this for a minute folks. Home prices are rising, because of a couple of things that quite frankly should make home prices rise. 1. Low mortgage rates 2. Easy credit (the Gov't putting pressure on banks to make home loans to less than stellar credit, and 3. Drum roll please. because this is the big Kahuna of reasons. a lack of inventory. Yes, I said a lack of inventory. I've told you about the shadow inventory, and how banks own truck loads of homes that are still, even after all these increases in home prices, underwater. What happens to that lack of inventory if home prices rise enough to allow this shadow inventory to be released on the market? It goes away. the lack of inventory that is. and with too much inventory, what'll happen to home prices? But then, that might make Big Ben Bernanke work even harder at inflating this potential bubble.

The other data yesterday included a jump in April Consumer Confidence. The Consumer Confidence Index number jumped over 6 points from 61.9 in March to 68.1 in April. WOW! Hey. I've told you all before that this should be renamed "the stock market confidence", as it really reflects how Consumers feel about the stock market. And we've already talked about the stock market being a bubble.

OK. With the Fed's two-day meeting ending this afternoon, the markets' attention will shift quickly to the European Central Bank (ECB), which will meet tomorrow morning. The markets had already priced in a rate cut, which is one of the reasons why the euro dropped below 1.30 last week. So. if the ECB doesn't cut rates, those short euro positions will have to be reversed. But. with the fall in inflation that we talked about yesterday, we are most likely going to see a rate cut tomorrow. Hopefully, it will be a case of sell the rumor, buy the fact. I like this run the euro has been on in the past week, I hate to see it wiped out so soon.

Then There Was This. Well. do you know Matt Taibbi? He's the excellent writer from Rolling Stone, that says what he wants to say, and does it with color. Think of Chuck writing for Rolling Stone. Matt has been at the center of most market stories, and turning conspiracy into fact for a long time now. Well. He's written a piece on market manipulation. And, all this time you thought that Chuck was just off his rocker, right? Well, you should take the 10-15 minutes it will take you to read this article, it explains how it was done with LIBOR and how it getting done in all markets. Here's the link to the Rolling Stone article. great reading!

Chuck again. today we get Vehicle Sales and the ISM Manufacturing Index , the first one for April and the second one for March. Both should be dollar friendly, but then, you have to be careful because the Fed holds all the cards this afternoon.

To recap. The currencies are taking liberties with the dollar this morning in a rally that began with baby steps yesterday, and carried over, picking up steam in the overnight markets. The talk is all about the Fed continuing QE and not talking about ending it, which plays well with the idea that Chuck gave you last week! Canada posts a strong GDP for Feb, and the loonie is heading toward parity again! It's all about the Fed's announcement this afternoon.

Currencies today 5/1/13. American Style: A$ $1.0355, kiwi .8565, C$ .9945, euro 1.3225, sterling 1.5570, Swiss $1.0790, . European Style: rand 8.9560, krone 5.7405, SEK 6.45, forint 226, zloty 3.1455, koruna 19.4325, RUB 31.12, yen 97.45, sing 1.2310, HKD 7.7605, INR 53.80, China 6.2208, pesos 12.13, BRL 2.00, Dollar Index 81.47, Oil $92.54, 10-year 1.67%, Silver $23.92, and Gold. $1,466.28

That's it for today. Thanks to good friend and colleague, Jack Stapleton, for the invite to the hockey game last night. I did a bad thing though, with the Blues leading 1-0 with 4 minutes remaining, I headed out so that I wouldn't get in the middle of thousands of people, that kick my cane out from under me. I got to my car and saw that the Kings had tied the Blues and they were headed to overtime. I should have stayed. But as I told my wife when I got home, I would have been one p.. ed off puppy had I been there to watch them tie the game! A day game at Busch Stadium today.. it's supposed to be sunny and 80. I'll be heading downtown for the game. can't wait! OK.. this is late again. Let's get out there and make this a Wonderful Wednesday!

Chuck Butler
EverBank World Markets

Posted 05-01-2013 10:59 AM by Chuck Butler