China Sneezes, The Rest Of The World Catches A Cold!
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In This Issue.

* Currency rally, Friday has no oomph.

* China slow down again.

* Yen returns to underlying weak trend.

* Gold is spent by $14 this morning.

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

China Sneezes, The Rest Of The World Catches A Cold!

Good day. And a Tom Terrific Tuesday to you! Geez Louise, what a wet and stormy Holiday weekend for us here in the St. Louis area. And in keeping with the theme for this spring, it was a little chilly on Saturday to boot! But, I didn't let the rain and cooler temps, ruin my 3-day weekend! Thanks to all that sent me good notes on my report of my visit to Houston last week. That's a great way to start the week!

Friday, saw a currency rally that really had nothing behind it, as the markets were quite thin after the boys and girls in London headed to the pubs. So, there just wasn't enough oomph to sustain the currency rally on Friday. This morning, the currencies are a mixed bag of nuts, with the euro down by a shade, and the Aussie up by bigger shade. Gold is being spent to the tune of $14 this morning, so that's not direction I would think it would be going, given all the uncertainty about how all this Quantitative Easing (QE), ZIRP, stimulus, and what have you, is going to play out. The markets at this point are taking the bait, hook, line and sinker from the Fed Heads who believe they can elegantly step away from all this stimulus. I think not, but then that's just me, looking at things from the logical point of view, that has served me well in the markets for a long time!

OK. stop right there! Before you go any further, Chuck, you might want to slow down, for this is a marathon not a sprint, and going for the jugular so early on a Terrific Tuesday could put you in a tailspin that you are not able to get out of!

On Friday, before the NY traders headed to the Hamptons for the Holiday weekend, we saw the color of the April Durable Goods Orders. Recall on Friday, I told you that the "experts" were expecting growth in April VS the awful negative number that printed in March, and lo and behold, that's what we saw! April Durable Goods Orders increased 3.3% VS March's negative -5.9%... But, there was something about this report that smelled like three day old fish, and it didn't take me or anyone else very long to discover the origin of the smell. There it was right before my eye. The Capital Goods shipments in April fell -1.5% VS March. Now, you may be saying, "so what, Chuck, who cares about this stuff?" Well, grasshopper. go ahead and think that way, but without shipments what good is it to make stuff?

Today, we'll get the S&P/ CaseShiller Home Price Index for March, which is expected to continue the recent trend of seeing the home price index increase. We'll also see Consumer Confidence for May, which is really expected to jump higher, which makes sense given the stock market performance of the past month, but still gives me the willies given what has primed the pump for the stock market rally. This is a case, in my opinion, of a gap that is widening between financial hope and economic reality.

So. we could see the markets drift today, given the lack of real-meat data, and the feeling that the boys and girls in NY haven't made their way back from the Hamptons yet.

Remember last week when I told you about the People's Bank of China (PBOC) allowing the renminbi / yuan to appreciate to a 19-year high. I had a dear reader ask me why the link in trading performance between the renminbi and Singapore dollar (S$) had broken down. I told him that I believed that the renminbi's recent run has been driven by speculation and excitement about the possibilities of a floating renminbi, but that should soon wear off, and the two currencies will once again be in lock-step with each other, trading performance-wise.

The reason I believe that the speculation will soon wear off is that China is experiencing another economic slowdown. Remember when the saying in the markets was, "When the U.S. sneezes the rest of the world catches a cold"? That was simply saying that the U.S. economy was the straw that stirred the world's economic growth drink. Well, in an another baby step, guess who has taken that position away from the U.S.? If you guessed China, you would be correct.

Think about that for a minute. Sure, the U.S. still holds a strong-hold on the reserve currency, but China continues to take baby steps toward taking that away from the U.S. And here's one item that proves they have moved past the U.S. when it comes to affecting the rest of the world's economy. Just last week, I reported to you that China's manufacturing was lackluster in terms of performance, and that sent a message of slowdown in China around the world, and thus sparking nervous sell-offs in countries around the world. (recall Japan's Nikkei fell -7.3%?)

So. I think a slowdown in China is going to send ripples around the world (remember China is the third largest destination for U.S. exports). I don't get all lathered up about a Chinese slowdown, and neither should you. As economies mature, they all experience booms and busts, and if they don't, like here in the U.S. because the Fed "knows how to keep that from happening" (NOT!) then they'll have even bigger fish to fry down the road.

Oh. and the renminbi / yuan did back off the appreciation tracks last night. And I think we'll see more back and forth from the PBOC with the currency going forward, for a couple of reasons. 1. To keep the markets from thinking this is a one-way street of appreciation, and 2. To signal to the rest of the world that things are not all seashells and balloons in China right now.

The news from Sweden this morning is good, which is about time, after a run of weak data, the Swedish Trade Surplus for April was stronger than expected at SEK 8.8 Billion (SEK 6 Billion was expected) This is the first positive bit of data news that Sweden has received in a couple of weeks, and has pushed the krona into gains VS the dollar this morning.

I had a young man ask me about Japan's stock market the other day. I said, "WOW! What a move this stock market has made. But here's the kicker. For everyone else outside of Japan that buys into the Japanese stock market, they have to convert their base currency for yen, and then buy the stocks with their yen. And the yen has lost 25% in value in the past 6 months, so, the stock market has to gain more than 25% to offset the loss of the yen." The young man looked at me, and said, "my broker didn't tell me that".

And yen weakness is very real, and in my opinion, which could be wrong, will continue to remain in the underlying weak trend. Especially, when yen has to deal with the comments last night from an advisor to Prime Minister Abe, who said that the Bank of Japan (BOJ) can add to its unprecedented stimulus if necessary to support an economic revival. I think that the advisor made this statement because a BOJ board member made a statement earlier in the day about how the BOJ had taken all necessary steps for now. Soon, the BOJ board member will receive a memo from the Prime Minister, reminding him that the goal is promote inflation and economic growth, not to step on the PM's toes.

The Aussie dollar (A$) continues to get sold, and is now trading at a 1 and 1/2-year low. The Chinese data isn't helping the A$ either. The A$ is up though today, snapping a 4-day slide. Later this week a very important report with regards to rate cut prospects will print. The First QTR CAPEX report, which is Capital Expenditures. So, we need to watch for that on Thursday for them Wednesday night for us!

And, like I said above, Gold is being spent by $14 this morning. Every morning, it's something else with regards to the price of Gold. This morning, it's the markets thinking that the data in the U.S. this week will continue the spark that started last week for better data, and with better data, the markets believe the Fed Heads when they say they can elegantly remove stimulus. And if that's the case, there's no need for Gold, so says the sheeple. But, I already began my rant this morning on not believing this bunk, so if you are so inclined, today, you can buy Gold cheaper by $14 than you could on Friday!

I read an interesting report this weekend on Russia and their Gold producing prowess. The report talked about how Russia, once the number 2 producer in the world of Gold, behind S. Africa, had seen Australia and Canada and the U.S. pass them up.. But no longer! Russia could very well be on their way to passing the U.S. and Australia and the great thing about that is that a country that produces Gold, doesn't have to import it!

Then There Was This. OK. you know how I always say that if everyone and I mean everyone bought physical Gold instead of paper Gold, the price manipulators would be put out of business. I read this report by my friend, Addison Wiggin, and got all lathered up that it almost happened. Let's see what Addison has to say.

"As you'll recall from these pages in March, "Zero Hour" is the name we give to the moment when the price of real, physical gold in your hand starts to break away from the quoted price on the commodities exchanges.

That is, the "physical price" becomes much higher than the "paper price" on CNBC's ticker. The catalyst, we suggested, would be when a major metals exchange defaults on a gold or silver contract - settling in cash, instead of metal.

To be clear, Zero Hour did not take place when gold's paper price plunged $150 in only two trading days - Friday, April 12, and Monday, April 15.

But what happened after that plunge hints at what the aftermath of Zero Hour would look like. Real metal suddenly became very hard to come by. We chronicled the worldwide scramble, in real-time, in The 5 Min. Forecast.

. The Chinese Gold and Silver Exchange nearly ran out of bullion on Friday, April 19

. There were reports of a "massive wave of physical gold buying" in Dubai

. Monthly sales of U.S. Gold Eagles fell just short of a 26-year high during April.

Result: If you wanted real metal, you paid a substantial premium over the paper price. In silver, these premiums were off the charts. On Thursday, April 25, spot silver was $23.94. but a Silver Eagle from a major online dealer would set you back $29.54 - as high as the paper price before the mid-April crash!

The April gold crash," sums up Agora Financial's own Byron King, "was the beginning of emancipating real gold from paper gold. We're about to see a 'real' price for gold, coming from the bottom up, not the top down. I suspect that we'll see a solid price rise for gold over time. The market bullies who deal in paper products have just punched themselves in the nose."

Chuck again. Yes. that's what I would love to see! The market bullies punching themselves in the nose! And to have physical Gold win this battle!

To recap. The currencies rallied on Friday, but had no oomph to the rally as the markets thinned out quickly ahead of the Holiday Weekend. This morning, the currencies are a mixed bag of nuts, with the euro down a shade and the Aussie up a bigger shade. Chuck goes on and on about China and Japan this morning, and how he's not letting the Fed Heads pull the wool over his eye, like they have the markets.

Currencies today 5/28/13. American Style: A$ .9690, kiwi .8120, C$ .9675, euro 1.2940, sterling 1.5120, Swiss $1.0335, . European Style: rand 9.7025, krone 5.8375, SEK 6.6370, forint 220.95, zloty 3.2290, koruna 19.9910, RUB 31.37, yen 102.05, sing 1.2635, HKD 7.7635, INR 55.96, China 6.1818, pesos 12.46, pesos 2.0565, Dollar Index 83.72, Oil $94.78, 10-year 2.04%, Silver $22.35, and Gold. $1,379.87

That's it for today. I hope you had a fun Holiday Weekend, but didn't forget what the holiday was all about. I drove an hour west to put a flag on my dad's grave site. He fought in WWII, and I looked around the cemetery and there were very few flags. It made me sad. Our Memorial Day cookout that I had planned was washed out by rain. Oh well. My beloved Cardinals are on a roll, and will come home after tonight's game in Kansas City, with the best record in baseball! Injuries to the pitching staff, haven't bothered them yet. And if you get Sports Illustrated, the pitchers are on the cover this past week! It's titled: The Cardinals Way. The story had a bit of interesting information in it. they said that no child born since 1902 has gotten to their 25th birthday without witnessing a World Series Championship parade. WOW! Talk about the Cardinals Way! OK. sorry, my good friend, Dennis Miller is probably getting very hot under the collar, so I'll end that there! I hope you have a Tom Terrific Tuesday!

Chuck Butler
EverBank World Markets

Posted 05-28-2013 10:31 AM by Chuck Butler
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