In This Issue…

* Late to the Party once again!
* A$ looks oversold on two measures…
* Brazilian Gov’t / Central Bank wins…
* Olympic Host bump for sterling?

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

Fitch Downgrades Japan…

Good day… And a Tom Terrific Tuesday to you! My beloved Cardinals are having a rough go of it lately… The injuries are piling up, and some sloppy play, which drives me crazy, has contributed… They finally got back to Busch Stadium last night, after an awful road trip, and found a way to win… So, get that ship back on the right course!

Maybe the currency traders can also find their ways back on to the right course… But I doubt it… I told quite a few people last week that I truly believe that this dollar strength that we’re seeing could last for most of the summer… But you know what happens at the end of summer don’t you? Ahhh grasshopper… With the way we’re spending money that we don’t have, the U.S. Gov’t will be bumping up against the debt ceiling by the end of summer… And with this being an election year, don’t you think that the raising the debt ceiling negotiations are going to get even uglier than last year? I do… and if you recall last year… the dollar was teetering on the cliff during those negotiations…

For now… the dollar still holds the mighty hammer… Of course, I also told quite a few people last year, that while the Aussie dollar (A$) has fallen from the lofty levels above $1.00, it’s still strong… Yes, that’s right, the A$ is still strong compared to where it was 10 years ago! 55-cents… do you recall that?

Anyway… Last week I sent Chris a note to include in the Pfennig that talked about the A$ falling through oversold levels on the RSI charts… and how it had done that 4 times since 2010, and each time previously, the A$ bounced higher… Well… now there’s some more data that leads us to that same conclusion…

The IMM positioning last week, showed A$ longs at their lowest level since the crisis. The last two times that the A$ saw positioning like this (oversold) in July 2010, and September 2011, the A$ experienced pretty significant moves higher in a relatively short period of time.

Now, after I’ve said all that… The A$ is down about 1/2-cent this morning!

When I came in this morning… the currencies were holding their own, but have slipped while I was preparing to write the letter… And Gold is off $16 this morning… So, I’ve got to find out what happened while I was preparing to write… Inquiring Minds Want To Know!

Well, being late to the party doesn’t seem to mind the ratings agencies, and Fitch is the latest to be late to the party in Japan… Fitch downgraded Japan’s credit rating and placed the country on negative outlook… Really? So, what you’re saying, is that you believe Japan has a problem? HAHAHAHAHAHAHA! I can’t stop laughing! Japan has had a problem for over two decades! But, here’s my serious thought on this… The yen might have weakened by 1/2% on the announcement, but I don’t think the selling of the yen has any legs, and it will stop soon enough… There’s just too much going on in the world right now, and as perverse as it might seem, Japanese yen is a safe haven…

Yesterday, I told you about how Chinese Premier, Wen, announced that China’s economy would receive stimulus… This news helped the Emerging Markets get their heads above water yesterday, along with the fact that Oil gained back a buck on the day, which really helped the Russian ruble gain back some lost ground.

The Chinese announcement also helped the Aussie and kiwi dollars… I think though, that today is going to be a tough row to hoe for the currencies, as the European Union Summit begins tomorrow, and everyone believes that there is going to be a showdown (like the great song by ELO) between Germany and France… and this has got the markets scared right now, which is leading to the selling I’m seeing this morning.

France’s new socialist leader, wants to promote growth with spending… Germany had just about gotten every EU member to sign on to the “austerity is the best program” until France threw a spanner in the works by electing Hollande… And now we’re going to have to be witness to all this drama… But, as I’ve said before, history tells us that eventually, the German leaders can persuade the French leaders to see things the German way… But Hollande has to grandstand now, as he was just elected… although, in my opinion, it’s better to let your constituents down early in your term, so they have time to forget that you dumped on them! HA!

Yesterday, I told you about how I felt regarding Norway and Sweden, getting tarred with the same brush as the euro, and that one day traders would get it through their thick skulls that Norway & Sweden are not Greece! Well, Norway tried to pound that thought in traders’ heads this morning by printing a stronger than expected GDP for the 1st QTR… 1.1% 1st QTR growth is very good for Norway, given how the rest of the world has slowed… oh, by the way the consensus forecast was .9%...

I guess the Brazilian Gov’t and Central Bank wins… The set out two years ago to weaken the real, and after multiple rate cuts, taxes, and intervention, they have finally gotten what they wanted… a weak real… I told you about a month ago that it appeared to me that the traders had left town, and didn’t want to play this game with the Brazilian Central Bank any longer… That took away the support for the real, and the free fall has been quick… This is exactly why I always talked about only buying real with the speculative money that you allocate in your investment portfolio… Crazy wild swings… and now this…
The unintended consequences… they are everywhere and in everything we do… Brazil’s leaders are going to soon find (Yes’ song Soon, just started playing!) that the unintended consequences of their bashing the real into a weakling that gets sand kicked in its face, is soaring inflation… and when the tourists begin to arrive for the World Cup and then the Olympics… Oh my!

Speaking of the Olympics… going back to the 90’s… We have always seen the host country get a bump in the currency as the Olympics draw near and during them… Spain, was the first we tracked, and so on.. So, keeping that in mind, could there be a bump in store for the British pound sterling? That’s going to be a tough row to hoe, given all this dollar strength… but, it will at least be interesting to watch, eh?

Yesterday, I made fun of the G-8 meeting and their silly attempts to make people think they actually accomplished something… I saw that Russian leader Putin, said that the meeting wasn’t worth coming to… Did you know that there was only one truly trained economist among the G-8 leaders? Mario Monti of Italy… Now that alone should tell you something about the meeting… The leaders were all throwing in uneducated ideas of what would work… Oh, boy, sign me up for the next meeting, eh?

I was asked by quite a few people last week about the Swiss franc… you know, the franc is still hovering just above the 1.20 floor that the Swiss National Bank (SNB) put on the currency’s cross to the euro last September, it’s currently at 1.2011… The overtures from the SNB continue to ring out a song about how they want that cross’s level to go to 1.35 or 1.40… That would knock the stuffing out of the franc, folks… And with the euro getting weaker by the day, the SNB’s resolve will be tested soon enough…

I had a chance to talk briefly with James Rickards, author of Currency Wars, while in South Florida a couple of weeks ago… Mr. Rickards is convinced that all countries are in a war to reduce the value of their currency below their neighbor’s or trading partner’s currency…

I told him I hoped that wasn’t true, but at this point, how can you argue with him? But here’s what I took from the conversation and the book… That the U.S. dollar is going to lead the currencies down, which means the dollar will always be weaker than the other currencies… Maybe that’s taking a simplistic view of the whole situation, but I’m just a simple kind of man, something you love and understand… (a little Lynyrd Skynyrd for you!)

Then There Was This… I had a couple of readers send me this story, so it obviously is TTWT worthy! Did you know that the U.S. allows China to bid directly in U.S. debt auctions without going through Wall Street Banks? Yes… it’s true! And China has the only central bank that’s allowed to do this… Reuters broke the story on this… I say… good for both parties! And I would ask why are the other Central Banks of the world not allowed to do this? Why should Wall Street Primary Dealers get to make truck loads of mark-ups on Debt auctions to Central Banks? We should be rolling out the red carpet, and meeting them with an adult beverage with an umbrella in the glass, when these Central Banks show up to buy our debt…

To recap… The currencies held their own yesterday and overnight, but the announcement by Fitch that they were downgrading Japan’s Credit Rating, put the currencies on the selling block again early this morning. Gold is off by $16 this morning. The A$ has reached oversold levels on two different measures now… Chuck is looking for a bump here, along with looking for one in pound sterling, should the “host country bump” for the currency hold true.

Currencies today 5/22/12… American Style: A$ .9885, kiwi .7610, C$ .9820, euro 1.2760, sterling 1.5775, Swiss $1.0625, … European Style : rand 8.2525, krone 5.9325, SEK 7.12, forint 232.75, zloty 3.3915, koruna 19.7660, RUB 31.12, yen 79.75, sing 1.2695, HKD 7.7660, INR 55.40, China 6.3230, pesos 13.71, BRL 2.0415, Dollar Index 81.28, Oil $92.09, 10-year 1.77%, Silver $28.16, and Gold… $1,580.15

That’s it for today… Man, sometimes I have noodles for brains… yesterday, I listed the people that helped me at the Las Vegas Money Show, and left off an important member of the group… to that, I apologize, Dawayne… You did a great job! Well… I saw my dentist, the new mommy, Holly Ellis yesterday, she’s so nice to me… And then I saw my oncologist… I had a really bad incident in Vegas last week, and no I didn’t pull my own tooth, or marry Heather Graham (but that doesn’t sound bad!) … But, I’m fine now… no worries, and I did speak on the same day as the incident, so as always, I carry on, despite my obstacles! HA! I did get to see my siblings last Friday… of the original 7, there are 5 of us still here… and with that, I’ll get out of your hair today, and hope you have a Tom Terrific Tuesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837
www.everbank.com