GDP Takes A Hit As Spending Trends Downward.
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In This Issue.

* Stocks & bonds rally giving bias to dollars.

* Norway & Sweden post strong Retail Sales data.

* Chuck explains labor participation and unemployment.

* John Williams on his soapbox .

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

GDP Takes A Hit As Spending Trends Downward.

Good day. And a Happy Friday to one and all! Front and Center this morning. Today is Alex's birthday! He's 18 today. Can you believe that? I'm having a rough time with it. Long time Pfennig Readers, and I mean long time, will recall the days that he was just a toddler and sat on my lap while I wrote the Pfennig, and would add his two-cents that looked like this: loiue0874lop7u&)&)(#$... Today also marks the 10th wedding anniversary for my darling daughter Dawn, and husband Jerry. That's also difficult for me to come to grips with. 10 years already? I vividly remember Alex in his tuxedo dancing at the wedding reception, and the attendees all singing happy birthday to him. good memories for sure.

Well. U.S. stocks rallied yesterday, along with Treasuries, so I guess I don't have to tell you how that mixed bag of currency gains yesterday turned out. Oh, I do? OK. the dollar rallied, alongside those two asset classes, wiping out most gains made, and then continuing that dollar bias overnight, so that most currencies are posting losses this morning. Gold is basically flat to up $2 so, we know how quickly that can fade away. It appears that the 2nd QTR is going to end up decidedly in the dollar's corner. Shoot Rudy, Gold is going to post its worst quarter in a very long time. 1968 should you have an inquiring mind. 1968 was a one of those turning point years in American history. I was a young man then, and didn't think that much happened outside of our Tower Grove Park neighborhood. But there was.

The Japanese yen has really gone back to booking losses nearly every day this week. So much for the euphoria that the Bank of Japan (BOJ) and new PM Abe caused with their announcement of going "all-in" on bond buyer a few months ago. See, the markets put their faith in a Central Bank and now have to deal with the return to true economic fundamentals, which the last time I looked aren't very good for Japan..

The Scandis-currencies of Norway, and Sweden both are just a shade stronger this morning, as both countries posted strong May Retail Sales data this morning. Sweden's Retail Sales were very strong at +.8%, while the forecast was for an increase of .3%... Recall that last week Sweden posted a stronger than expected Employment report, after which I said that it could have been one of the last nails in the rate hike coffin. This Retail Sales data today, should be the last nail. I saw you running, ahead of the crowd, I chased but never thought I' catch you. No wait! Sorry, that's the first line of lyrics of the song by Dan Fogelberg, The Last Nail. We lost Dan way too young to cancer. it saddens my heart anytime I hear that another life was lost to cancer. I wouldn't wish cancer on my worst enemy.

OK, sorry, I really got los in the crowd there. Norway also printed a strong Retail Sales Report printing at +1.8%, VS the forecast of .5%... So, both currencies should be stronger, based on true economic fundamentals. And both are, albeit minor moves higher.

Speaking of data. Ok. The U.S. Personal Income and Spending data for May was quite interesting folks. One of the few times I can remember in the last 10 years, Personal Income was stronger than Personal Spending. Now, that's a good thing for us, right? Yes it is. But the Spending being weaker isn't. GDP-wise. Here's the skinny. The actual May Spending number was bang on with expectations at .3%, but April's number of -.2% was revised downward to -.3%, which doesn't give me a warm and fuzzy about that May number. And the real kicker here is that what I told you yesterday, that consumption (spending) is a very large portion of GDP. With a downward trajectory in spending, 2nd QTR GDP is not going to be able to make much headway in adding to the awful 1.8% growth number from the 1st QTR.

I know that was a long falootin' explanation of a piece of data, but it's better to get that out of the way, and put to bed, so we can go onto other things. But do keep in mind when the 2nd QTR GDP data starts printing that even if the initial print is stronger than expected, it will probably be revised downward. No wait Chuck! Remember. that the Bureau of Economic Analysis (BEA) is going to be changing the way the calc GDP in the 2nd QTR! July, is when they will begin to add about 3% of "stuff" to GDP. I wrote about this a couple of months ago. Yes, that's the way you do it. if you can't meet the number that everyone wants to see, then just start adding in new stuff until you get there!

That's what happened to CPI back in the mid 90's. I've told you all that story a few times so maybe I shouldn't go through it again, but in broad strokes: The Gov't wanted to make housing affordable to everyone, they had to get interest rates down, so, to get interest rates down, they had to show that inflation was lower. and voila CPI was lower, and the rest, as they say is history.

Today's the day that the IMF will report Central Bank foreign exchange reserves, and it will mark the first time that Aussie dollars (A$) and Canadian dollars / loonies are going to have their own buckets, joining dollars, euros, yen, sterling, and Swiss francs. One would think that this is a Big Deal for these two currencies. Unfortunately, they are not trading as though it's a Big Deal for them, with Aussie down ¼-cent and loonies flat on the day.

Ok, not that this has anything to do with currencies, economies, data, and dolts. well, maybe some of the last but you'll have to be the judge for I am no longer allowed to sling around stuff like that. But get this: The Company that hired Edward Snowden, have told Federal Investigators that they repeatedly misled the government about the thoroughness of its background checks. I'm shocked! NOT! But in the end, is it really anyone else's fault that this happened other than the Government's for doing the wrong thing to begin with? Remember, we must keep our eye on the ball here, for the Gov't will continue to throw out things to get us off the scent of what they did wrong.

OK. The euro is stronger again this morning. It's a tight range, but still stronger, as the single unit continues its attempt to regain lost ground to the dollar last week after the FOMC. Speaking of that meeting. the more I read about what was said and what was not said, I think I have a new understanding of what the Fed is looking for to begin tapering of Quantitative Easing (QE) / bond buying. I think what I get out of what Big Ben said was that the FOMC wishes to conclude the asset purchase program when the unemployment rate reaches 7%, and to start tapering later this year if the unemployment rate remains on a downward trend.

So. I guess we need to figure out, if the unemployment rate, even though it's had "adjustments" each month, can go down to 7%.... Then I read about how the labor participation rate, of which I've really highlighted since it fell to 63.3% a low since 1979, is the key to the unemployment rate falling to 7%. As baby boomers, like me!, reach retirement, the participation rate falls, and since the baby boomers accounts for two-thirds of the decline in the participation rate, you can only imagine what it's going to do to that rate as 10,000 baby boomers retire every day for the next 18 years. Well, a lower participation rate, means that new jobs created every month don't need to be so robust just to maintain the status quo in the unemployment rate.

Basically, some data from the Fed Chicago estimates that the U.S. only needs to created 80,000 jobs each month to maintain the status quo. and that number will only continue to go down, as more baby boomers retire. So, when the U.S. prints, even though it's all jobs pulled out of thin air, a job creation report of 150,000, then you can see a rapid fall in the Unemployment rate.

Brother, I'm really playing teacher here today.. but not to worry, I'm not quitting my day job! Actually, I get my continuing education today, as our fave economic Professor is coming in for her annual "get Chuck back on the right tracks" meeting with us. I have for years loved this meeting, as I get the "real story" and always learn something new. So, see. not only did I got to school years ago to learn this stuff, but I get continuing education!

I've got a real barn-burner for you in the FWIW section today. You had better put away all the sharp object before reading, as it's John Williams on a soapbox.

But first, I want to make certain that everyone has taken the time to look into the Automatic Purchase Plan for metals that I've highlighted at the top of the letter for about two months now. If you haven't, what are you waiting for? This is the coolest product we've ever come up with, and we've come up with some pretty cool products over the years! Basically, you decide what amount of money you want taken from your checking account each month, either on the 1st or 15th, and we'll buy the metal of your choice (Gold, Silver, Platinum, or Palladium) The min. is $100, so the purchases at the minimum are fractional ounces, so it's a great way to add to your metals holdings. and it's also a way to "dollar-cost average".

For What It's Worth. OK. As I already said, today's FWIW is a real barn-burner, soapbox speech from John Williams, of Remember he's the accountant that takes the economic data that the Gov't prints and reads the fine print, and then recalculates the data using pre-90's methodology. Remember put away the sharp objects! Here's John.

"U.S. Dollar Remains (the) Proximal Hyperinflation Trigger. The unfolding fiscal catastrophe, in combination with the Fed's direct monetization of Treasury debt, eventually (more likely sooner rather than later) will savage the U.S. dollar's exchange rate, boosting oil and gasoline prices, and boosting money supply growth and domestic U.S. inflation. Relative market tranquility has given way to mounting instabilities, and severe market turmoil likely looms, despite the tactics of delay by the politicians and ongoing obfuscation by the Federal Reserve.

This should become increasingly evident as the disgruntled global markets begin to move sustainably against the U.S. dollar. As discussed earlier, a dollar-selling panic is likely this year-still of reasonably high risk in the next month or so-with its effects and aftershocks setting hyperinflation into action in 2014. Gold remains the primary and long-range hedge against the upcoming debasement of the U.S. dollar, irrespective of any near-term price gyrations in the gold market.

The rise in the price of gold in recent years was fundamental. The intermittent panicked selling of gold has not been. With the underlying fundamentals of ongoing dollar-debasement in place, the upside potential for gold, in dollar terms, is limited only by its inverse relationship to the purchasing power of the U.S. dollar (eventually headed effectively to zero). Again, physical gold-held for the longer term-remains as a store of wealth, the primary hedge against the loss of U.S. dollar purchasing power."

Chuck again. I want to thank reader Vdamevski for sending along to me. I think that John Williams is a very smart cookie, and I think he was channeling his inner Hy Minsky with his talk about how the "relative market tranquility has given way to mounting instabilities, and severe market turmoil likely looms."

To recap. The Personal Income & Spending was interesting yesterday in that Personal Income was greater than spending for once. But for those looking for a stronger 2nd QTR (taking out the BEA's new "stuff") will probably be disappointing since consumption (spending) is a large portion of GDP, and yesterday's data indicates that spending is on a downward trend. Norway and Sweden both printed strong Retail Sales data this morning, and Gold is basically flat to up $2 this morning.

Currencies today 6/28/13. American Style: A$ .9230, kiwi .7790, C$ .9540, euro 1.3075, sterling 1.5240, Swiss $1.0605, . European Style: rand 9.9950, krone 6.0315, SEK 6.7145, forint 226, zloty 3.3155, koruna 19.8410, RUB 32.73, yen 99.05, sing 1.2650, HKD 7.7570, INR 59.39, China 6.1787, pesos 13.02, BRL 2.1985, Dollar Index 82.90, Oil $97.18, 10-year 2.45%, Silver $18.85, Platinum $1,329.03, Palladium $649.35, and Gold. $1,203.51. And here's the link to the U.S. Debt Clock for anyone that want to take a peek, click here:

That's it for today. Happy Birthday to Alex! And Happy Anniversary Dawn and Jerry. It's used to be a tradition that Alex and me would go have breakfast at McDonald's on his birthday (it was his fave place), but that all changed last year, as he had "other things to do". Next year, he'll be preparing to go off to college. I think his mom will have real problems with that. Can you believe that next week is the 4th of July? Aye, Aye, Aye. I have to return to the Center for Advanced Medicine today to have my eye examined, just a checkup. But this is the place I went to for two years when they attempted to save my left eye that had cancer. I have nothing but bad memories of the place, but. it's where the "expert doctor" is. At least when it's over I can get my weekend started! And with that, I hope you have a Fantastico Friday!

Chuck Butler


EverBank World Markets



Posted 06-28-2013 4:09 PM by Chuck Butler
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