U.S. Manufacturing Sinks.
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In This Issue.

* Trading in same clothes as yesterday.

* Except the A$ that continues to get whacked.

* Fed heads talk about tapering QE.

* China's President meets with U.S. President.

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

U.S. Manufacturing Sinks.

Good day. And a Wonderful Wednesday to you! Not much has happened in the currencies and metals since yesterday, and U.S. Treasury yields are holding on by the skin of their teeth, but holding on nonetheless. The Fed Heads all tried to paint a tapering picture yesterday, but, what does Big Ben Bernanke think? The U.S. President will have talks with China's President, Xi in a couple of days, and I'll start the day with a funny line from Jay Leno, who said: "President Obama says he is renewing his efforts to close Guantanamo Bay. How about closing the IRS? Why don't we do that? How about shipping the IRS to Guantanamo Bay?"

OK. I turned on the currency screens this morning to find that the currencies are trading in the same clothes they wore yesterday. There really hasn't been any market moving data or news the past 24 hours, so it makes sense that we're here this morning. Yesterday, however, was a different story. Recall that I told you yesterday morning, that the dollar was reversing its losses from Monday.

Our Tom Terrific Tuesday turned out to be a Turn-around Tuesday for the dollar, and at the end of the day, the dollar had indeed reversed those previous day's losses. It's a good thing too! What are you talking about now, Chuck? Ahhh grasshopper, think about what was going on during Monday's trading. We had U.S. Treasury prices dropping (yields rising) and the dollar getting taken to the woodshed. At one point on Monday, one could really begin to have the bejeebers scared out of them, for a fleeting time, the confidence in the U.S. and the dollar was getting deep sixed.

But the Spin Doctors, and not the ones that sang, Little Miss Can't Be Wrong. But the ones that make us all feel better every time things begin to unravel here in the U.S. Yes, those Spin Doctors! Well, those Spin Doctors went to work to correct the sinking confidence in the U.S. and the dollar, and they did great work!

Speaking of Spin Doctors. The Fed Heads were out on the road yesterday, giving command performances to audiences full of believers. One particular Fed Head, Mr. Fisher, called for a reduction in Quantitative Easing (QE) by focusing on mortgage backed bonds (remember the Fed now buys $85 Billion per month in mortgage backed and Treasury bonds). Mr. Fisher said that he believed that the housing market is in a good state, with construction on the rise. He went on to say that he also believed that he's seeing the end of the 30 year rally in bonds.

In Japan overnight, (recall I told you that PM Abe would be announcing plans to promote growth) PM Abe, announced plans to deregulate business in Japan. WOW! Now that's what the doctor ordered! You've got to get all lathered up when you hear something like that, eh? Ahem. I doubt he really hit on the real meat of deregulation, but hey! The markets liked what Abe had to say, and the yen has rallied back below 100! (remember, yen is a European priced currency, so as the price falls in number, the value increases VS the dollar)

Hey! Isn't this going the wrong way? Well, yes. But, you can't stand in front of a run-a-way bus, folks. As I said, the markets liked the message, so there you go! Yen rallies. Is it a new trend? I doubt it. But for now, it is what it is. A yen rally, so if you missed your chance to unload yen before it climbed over 100, this could be an opportunity.

I see the Chinese renminbi / yuan was marked down last night by the Gov't. But overall, the recent trend has been good for the currency, as it has been allowed to appreciate VS the dollar. The U.S. President and Chinese President, Xi, will meet this week. And you know what I always tell you about these meetings. History will prove that the Chinese allow appreciation ahead of the scheduled meetings, so when the U.S. representative begins to bang on them, the Chinese can easily point to their currency's appreciation, and smile.

But after the meetings, history again will show us that the pace of appreciation stalls. So, get prepared for that, especially given the recent general direction of the world's currencies. The one thing that could buck this historical pattern, is the thing I talked about yesterday (I think), and that is the continuing Capital inflows to China, that the People's Bank of China (PBOC) have to deal with. These inflows have been a BIG reason the renminbi / yuan has appreciated at the rapid pace is has shown in recent months.

Gold also gave back a large piece of the gains it booked VS the dollar on Monday, and continues to be spent this morning. So, Monday, all was looking bleak for the dollar, and suddenly not so bleak. Does that make any sense, given there was no data, other than a widening of the Trade Deficit, or news from the Eurozone? No, it doesn't, folks.

Speaking of Gold. Ok. Remember a couple of weeks ago when I talked about what I told the audience in Las Vegas regarding Gold being viewed as a commodity in the West and as a store of wealth across the rest of the world, especially in Asia? Well, a dear reader pointed me to this story that pretty much says the same thing. This is Alasdair Macleod who runs Finance and Economics.org, which is dedicated to sound money and demystifying finance and economics.

"It is clear that Western capital markets no longer generally regard gold as money. It has been relegated to the status of a risk asset, useful collateral, or simply a commodity with a history of being used as money. This is a mistake."

I was reading one of my new fave letters to read, that I don't get to read every day, but when I do, I usually find something that interests me. The Gartman Letter. Dennis Gartman is an excellent writer, and an intelligent mind. Today he was talking about the decision by the Reserve Bank of India (RBI) to take tough measures to curtail Gold imports here. Let's listen in to what Dennis Gartman has to say this morning on this.

"Indians, as everyone should already know, are the world's biggest buyers of bullion and in May they bought 162 tonnes of Gold. This is twice the normal pace of Gold buying there and the RBI is not happy and is making its unhappiness well known. India is, on average, importing about 104 tonnes of Gold each month, outpacing even the record levels of 2011. To combat this, the Bank increased the import duty on Gold, and that has had little if any effect." - Dennis Gartman

Let's hope this "little if any effect" continues!

OK. Yesterday, I mentioned that the Reserve Bank of Australia (RBA) had left rates unchanged and had basically left future rate moves tied to data. Well, while that was true, it didn't really mention that RBA Gov. Stevens had torn a page out of the Reserve Bank of New Zealand (RBNZ) Gov. Wheeler's book on dissing the home currency. While Stevens didn't outright diss the A$, he did say that "the inflation outlook gives him scope for further easing and the exchange rate remains high" See there, he just casually mentions that the A$ is too high, in his opinion..

This statement has really deep sixed the A$ even further. I hope Stevens is happy. He has taken a currency that investors have relied on as a steady force and a key diversification holding, and trashed it. All for a pickup in growth. I hope he has to pay for this like Mr. Tombini over in Brazil is paying for his rate cuts and currency trashing the last two years.

We're seeing quite a few investors bailing out of A$'s here on our trading desk, and I have to think that unless they are recent purchases, there should be some nice returns in those sales, considering the long rally that the A$ has had.

The U.S. data cupboard begins to unload a plethora of data today. The ADP Employment Change report for May prints today. And while once we used to just shrug off this report for it was not a good indicator of the Jobs Jamboree, we can no longer do that. The ADP report is a good indicator now, so the report will be looked at closely by me and the markets this morning. We'll also see Factory Orders, which if you recall, in March were down nearly 5%... And then the non-manufacturing piece of the ISM that contains some good employment data. The Fed also releases their Beige Book this afternoon. no biggie.

For What It's Worth. I found this in the Wall Street Journal (WSJ) this morning. and once again, something has ticked me off with regards to what our Gov't / Fed has done. Let's listen in to what the WSJ has to say. "The Federal Housing Administration's projected losses over 30 years could reach as high as $115 billion under a previously undisclosed "stress test" conducted last year to determine how the agency would fare under an extremely severe economic scenario, according to documents reviewed by a congressional committee.

The forecast was significantly worse than the most severe estimate included in the government mortgage-insurance agency's independent actuarial review released last November. The FHA's outside actuaries modeled the analysis along the lines of the annual stress test employed by the Federal Reserve Board, which gauges how the nation's largest financial institutions would fare in the event of a significant economic shock. The FHA isn't required to use the Fed test."

Chuck again. Remember, the FHA doesn't make loans, but insures lenders against losses on mortgages that meet its standards. And if you want to see a graph that will send chills up your spine. I've got a corresponding graph on the default rate on FHA backed mortgages. You can see the graph by going to the Pfennig Blog at: www.dailypfennig.com

To recap. No news is good news I guess. The currencies and metals are basically trading in their same clothes as yesterday, except the A$ which continues to get whacked from comments made by RBA Gov. Stevens. The Fed Heads all spoke about tapering QE, but again, what does Big Ben Bernanke think? And Our President, and China's President, Xi, will meet this week, China makes sure that currency performance isn't on the agenda!

Currencies today 6/5/13. American Style: A$ .9560, kiwi .7995, C$ .9665, euro 1.3065, sterling 1.5360, Swiss $1.0465, . European Style: rand 9.9240, krone 5.8170, SEK 6.5915, forint 225.75, koruna 19.7950, RUB 32.09, yen 99.55, sing 1.2490, HKD 7.7610, INR 56.73, China 6.1757, pesos 12.73, BRL 2.1235, Dollar Index 82.76, Oil $93.80, 10-year 2.13%, Silver $22.45, and Gold. $1,398.44

That's it for today. I almost just nixed coming in today. I didn't want to wake up, and my energy level is very low. But then I thought to myself, Chuck, your dad would have gotten up and gone to work, and. so then too, did I! In a couple of weeks it will be Father's Day, I'm just saying. My beloved Cardinals lose in 14 innings last night, as their young pitching prodigy proved to be human. Dusty Springfield is singing to me this morning. Now that will make me feel better! Chris came in the other day, and was making fun of the music that was playing on the IPod. I reminded him that it was the Cyrkle. He was not impressed. Youngsters. what are you going to do with them? They grew up on disco. enough said! OK. time to go. I hope you make this a Wonderful Wednesday!

Chuck Butler
EverBank World Markets

Posted 06-05-2013 10:53 AM by Chuck Butler
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