* US data sends the dollar higher...
* Could the Fed begin the end of bond their bond buying???
* Chinese home prices rise.
* Gold continues to see selling.

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

Both Consumer Confidence and Leading Indicators surprise on the upside.

Good day.  Storms knocked the power out at my house last night, so I woke a bit later than I wanted to and had to scramble to get ready by the light of my phone (yes, I have finally caught up with the rest of my family and have become dependent on my phone for more than just phone calls).  I saw a number of branches littering the roads on the drive in, so the wind must have been pretty strong.  The weather man said we will be getting more storms this morning, I hope Chuck was able to sneak out of here down to Houston for his 'regularly scheduled maintenance' with his docs down there.

The dollar continued to power its way higher on Friday as both the confidence report and Leading Indicators showed the US economy will continue to improve.  As both Mike and Chuck suggested last week, the markets have been all about the growth story here in the US and that has boosted the dollar.  Friday's data supported the recent 'love fest' for the US$ as the U of Michigan Confidence reading came in at 83.7 compared to expectations of 77.9 and substantially higher than last month's reading of 76.4.  This was the best reading since the summer of 2007 and shows the resiliency of Americans as they have faced down a combination of higher taxes and federal spending cuts.  Many believe the increase in confidence is a direct result of the record levels of the US equity markets and the beginning of a housing recovery.  I guess all the work the Fed has been doing in keeping the printing presses in overdrive is beginning to show up in the attitudes of US consumers.  But I still worry about the labor market here in the US, and while confidence can certainly be pushed higher along with the stock market, you can't 'spend' confidence at the store, so we continue to need to see more improvement in the labor markets.

The leading indicators were also released on Friday and painted a fairly rosy picture for the near term future of the US economy.  The Conference Board's gauge of the economic outlook for the next 3 to  6 months climbed .6% in April, a big turn-around from  a .2% drop in March.  Economists had predicted the leading indicators to come in at a .2% increase so the markets were surprised by the strength of Friday's data.  This strong reading supports the thought that the US economy will start to pick up steam in the second half of this year which could mean an early end to the quantitative easing efforts of our Federal Reserve.

This thought is what has been rallying the dollar over the past few weeks, as more Fed heads have been talking about beginning an exit from the $85 billion monthly bond buying program which began in September of last year.  Fed Bank of San Francisco President John Williams made the speaking circuit rounds at the end of last week suggesting the central bank may begin to taper the bond buying sooner rather than later.  This is a big change for Williams who is generally seen as a dove when it comes to monetary policy.  Williams joins three other Federal Reserve regional bank presidents who have been calling for phasing out the month purchase of mortgage backed securities.  Dallas President Richard Fisher, Philadelphia President Charles Plosser, and Richmond President Jeffery Lacker have all been calling for an end to the bond buying.  "It's not good for the bank to be holding lots of mortgage paper" Plosser said on Friday.  Fisher warned that if the bond buying continues at the current levels, the Fed could eventually be buying up to 100 percent of the MBS issuance which is "not only excessive, but also potentially disruptive to the proper functioning of the MBS market."  The FOMC will release minutes of its April 30th meeting on Wednesday, and traders and economists will be looking for indications that an end of QE is starting to come into focus. 

We won't have any big data releases here in the US today, nor any tomorrow so the markets will have to look overseas for any news on the global economy. Fed Chairman Ben Bernanke will testify before the Joint Economic Committee this Wednesday which could produce some good 'Pfennig pfodder' as our congressional leaders push him for more information on when he plans on ending QE.  Chuck should have plenty to write about as the end of the week will be chock-full-o data.  We get the existing homes data on Wednesday followed by the weekly jobs claims and some more housing data on Thursday.  These housing numbers have taken on an even greater importance with the positive data we saw on Friday.  If the housing data comes in strong, it would support the thought that the US economy will be able to withstand the reduction of federal spending which will accompany the end of QE.  And Friday we will close out the week with April's reading of durable goods orders which are predicted to show a positive 1.5% increase after a fairly large drop in March. 

In Europe, car sales rose in April for the first time since September of 2011 adding to signs that the latest recession in Europe may be short-lived.  Another report showed consumer confidence in Europe increased in April to the highest level since July of last year.  Last weeks trade data showed European exports expanded 3.4% from a month earlier as the EU trade surplus widened to 8.1 billion euros from just 1.6 billion euros in February.  German auto sales finally showed an increase, jumping 3.8% in April ending five consecutive months of falling sales.  The largest increases were in the UK where registrations increased 15% and in Spain where they were up over 11%.  Both France and Italy showed drops in the number of cars sold.  Interest rate reductions by the ECB were given some credit in turning around the auto data, and ECB President Mario Draghi said he is still considering further cuts if the economic outlook deteriorates.  But with rates near zero, any additional cuts could move rates some rates below zero, and the overall impact of negative interest rates is still largely unknown for an economy the size of Europe.

The Japanese yen finally strengthened a bit after Japan's economic minister Akira Amari warned that further losses in the currency could negatively affect Japanese citizens.  Amari suggested that the dramatic drop in the value of the Japanese yen has already corrected a lot of the imbalances in the Japanese economy.  This was the first indication from a Japanese leader to suggest the Japanese yen is getting close to where they would like to see it.  I guess the 20% move of the yen over the past six months is just about what the Japanese leaders were wanting, and they apparently would like to see the yen take a breather while the markets digest this huge move.

Staying in Asia, China's housing inflation accelerated to its fastest pace in two years.  Average new home prices rose almost 5% from a year ago after a 3.6% increase last month.   The rising prices add complexity to the job of Chinese leaders who would like to be able to spur a stronger overall economic recovery.  These leaders have been trying to cool the housing market with measures aimed directly at this sector, but many thought these moves weren't broad enough to have a  meaningful impact.  Home prices continue to move higher in the large Chinese cities, with prices in Beijing rising 10.3% and Shanghai prices up 8.5% both of which were the fastest YOY gains since January of 2011.  With property inflation edging higher, Chinese leaders will have less room to enact measures to try and stimulate their economy.

Closer to home, Mexico's peso fell again on Friday heading for its worst week since last June after data showed GDP rose at the slowest pace since 2009.  GDP rose just .8% in the first quarter from a year earlier, much slower than Mexico's leaders would like to see.  The data may force Mexico's central bank to cut rates which would definitely be a negative for the Mexican peso.  Holders of the peso have enjoyed a nice 12% increase in the currency over the past year, partially due to the higher rates available to  investors.  A cut in rates, which could be seen to be necessary to stimulate the Mexican economy, would definitely be a negative for the Mexican peso.

And the Canadian dollar continued to get beat up on Friday as inflation data bolstered recent calls for relaxing monetary policy.  Consumer prices in Canada rose just .4% in April down from a 1% increase the month before.  This was the slowest pace of price increases in Canada since October of 2009.  As Chuck suggested on Friday, the new Prime Minister Stephen Poloz has supported trade policies in the past which would seem to indicate he may reverse outgoing BOC Governor Mark Carney's bias toward higher interest rates.  While most investors felt the BOC's next move would be higher, the change in leadership along with softer inflation data has many thinking rates could be headed lower.

Commodity currencies were softer across the board, as the Australian dollar, New Zealand dollar, and South African rand all followed the Canadian dollar down over the weekend.  The slower global inflation is what seemed to be weighing on all of these currencies.  A consumer confidence measure in New Zealand helped put a floor under the kiwi, showing confidence 'down under' climbed to a three year high.  And another report showed producer prices in New Zealand rose .8% in the first quarter, the most since June of 2011.

Gold had another off day, dropping nearly $30 on Friday and another $10 over the weekend.  With the dollar rising to nearly a 3 year high (according to the dollar index) there continues to be increased selling pressure on the precious metals, which have had an inverse relationship with the greenback.  Talk of an exit from QE programs here in the US has added to the selling in gold, as inflation expectations seem to be softening.   I still think these levels represent a great place to add or better yet start the accumulation of a position in the precious metals.

To recap. Data released on Friday sent the dollar higher as both the consumer confidence and leading indicators surprised on the upside.  Fed heads are starting to discuss the exit from QE, and some believe we could now see a reduction in bond buying in the next few months.  No data here in the US today or tomorrow, but the end of the week will bring Chuck plenty to write about.  European car sales increased, perhaps the recession will be short lived?  Chinese home prices shot higher, but Chinese leaders still want to stimulate their economy.  And the commodity currencies all fell over the weekend as global inflation expectations caused a sell-off in precious metals and raw materials. 

Currencies today 5/20/13. American Style: A$ $.97746, kiwi .8140, C$ .9723, euro 1.2859, sterling 1.5192, Swiss $1.0327. European Style: rand 9.4649, krone 5.8355, SEK 6.6724, forint 225.95, zloty 3.2522, koruna 20.3023, RUB 31.2895, yen 102.56, sing 1.2554, HKD 7.7622, INR 55.1062, China 6.1998, pesos 12.3216, BRL 2.0352, Dollar Index 84.042, Oil $95.53, 10-year 1.95%, Silver $21.685, Gold. $1,354.16, and Platinum $1,445.55.

That's it for today.  Congratulations to all of the new graduates!  I attended the high school graduation of my niece (and goddaughter) Meaghan yesterday evening.  The event was held outdoors under the massive oak trees in front of her high school, and the weather cooperated to make it a wonderful event.  Unfortunately the weather prediction isn't so good for the second phase of her graduation, the beautiful 'Maypole' dance which all of the senior girls are scheduled to perform this evening.  They have been practicing for months now, and there is no 'indoor option' so I really hope the storms move through quickly and leave them a window of opportunity this evening.  Meaghan graduated with honors, and is now on her way to Rhodes College where she will play field hockey and study psychology and art.  Next week her twin brother will graduate and then head off to Georgetown University.  I am extremely proud of both of them, as they have worked hard in high school and have set themselves up to be a success in life.  Time really flies, it seems like I was holding the twins in my arms just a few years ago! I'll get this out the door now, and call home to check and see if the power is back on.  Thanks for reading the Pfennig, and I hope everyone has a Marvelous Monday!

Chris Gaffney, CFA
Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Like the United States, the European Union relies heavily on Russia and the Commonwealth of Independent States (CIS) for its uranium, as shown in the chart below:

Russia is projected to produce 64 million pounds per year by 2020. The majority – 40 million pounds – will come from Russia itself, and the remainder from its foreign projects in Kazakhstan, Ukraine, Uzbekistan, and Mongolia.

But there's an often forgotten subsector of uranium production: the processes necessary to convert U₃O₈ into something that power plants can use.

For that purpose, yellowcake is first converted into uranium hexafluoride (UF₆) at a conversion facility, then enriched, or concentrated, at an enrichment plant. Russia's main conversion facility is at Angarsk, with a capacity of 42 million pounds of uranium per year. A small facility near Moscow, rated at 1.54 million pounds per year, primarily converts recycled uranium.

Russia can claim about one-third of the uranium-conversion capacity worldwide. Rosatom, the regulatory body of the Russian nuclear program, is also looking to set up an additional conversion plant by 2015, with the planned capacity currently unknown.

The United States normally owns 20% of the world's conversion capacity; however, its plant, Metropolis, is currently shut down for maintenance and upgrades. Though the plant is scheduled to reopen in June 2013, the current shutdown just adds to the growing scarcity of UF₆.

You may have noticed that the United States isn't listed in the chart above. As of January 2013, the US has no conversion capacity and isn't expected to be back online till mid– to late 2013.

Almost half of the world's capacity to enrich uranium will lie in Russia once the country completes the planned expansion of its current enrichment facilities. Accordingly, the life source of reactors and power generation is not obtaining the uranium but having access to facilities that turn them into nuclear fuel.

Russian President Vladimir Putin is attempting to corner the uranium sector and the UF₆ and enrichment markets alike. Russia's squeeze will be felt around the world – not only in regard to uranium supply but to enrichment as well.

It's difficult to say how Putin's squeeze on uranium will play out, but it's pretty certain to contribute to what is shaping up to be a spectacular bull run in this energy subsector. Investors who choose the right companies and get in early could see life-changing gains. To help with that process, the Casey Research Energy Team has put together an informative webinar with several nuclear-power and speculative investing experts. The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? is free, and will premier on May 21 at 2 p.m. EDT. Get more information and sign up today.

Dear Reader,

By the time you read this, I will be in Asunción, Paraguay, on my way back to the United States for summer.

As we are finalizing the preparations for our departure, I suspect – but can never know for sure – today's missive will be brief.

In today's missive, I plan on providing a book-end to the journey that started about seven months ago when our family moved to the remote Northwest of Argentina.

Argentines have a phrase, "mi lugar," for when you find your special place in this world – the perfect combination of place and people that entirely suits your nature. The phrase translates simply as "my place."

As I have related in past missives, I was very fortunate in my early thirties to be able to spend three years on a quest for paradise on earth, visiting pretty much every country I thought might be a suitable candidate. It turns out, in hindsight, what I was really looking for was not paradise, but mi lugar.

Much like "love at first sight," mi lugar has almost mystical connotations – it is the place in this world where, should you be fortunate enough to find it, you belong more than anywhere else.

When we arrived in Cafayate, it was with some entirely natural trepidation. After all, not only were we going to be living in a remote corner of Argentina, we were bringing along our teenage kids with all that that implies.

It is entirely human to worry about the unforeseeable, and so we pondered all manner of questions and concerns. Would our stumbling knowledge of the local lingo prove a hamper? Would the highly dysfunctional government hereabouts be an impediment at every turn, the bureaucracy frustrating? Would the kids adapt to the new environment and be able to get a good education?

Yet, never ones to worry ourselves into inaction, we plowed ahead and on October 22 set down our bags in Cafayate.

So, how's it gone? Were our fears – any of our fears – realized?

To the extent that it may be of interest to those of you currently contemplating seeking solace on the other side of the wall, I would like to tick down some of the good and the not-so-good we have discovered as a result of our move.

Mi Lugar

The first, and possibly most surprising, thing about life in Cafayate has been how social it is. The Argentines are very warm and welcoming people, and we have made a surprising number of local friends. In addition, there are the generally like-minded and almost entirely agreeable owners at La Estancia de Cafayate, complemented by a steady stream of visitors.

Interacting with only one of those groups would be more than enough social life for me, by temperament something of a recluse (my wife always laughs when I say that, but it's true). When taking all three groups into consideration, however, the amount of socializing gets positively over the top.

Case in point, here is a partial list of what we have done in the past week.

• Rode champion Paso Peruano horses on a five-hour ride with the head of one of the best local wine bodegas, followed by an al fresco lunch at his estancia with his extended family. The ride was one of the best in my life, riding spirited horses on beautiful trails, through sand dunes and for several kilometers up an empty river bed.
• Played golf with my local coca-chewing, cigar-smoking cardiologist friend and a new golf buddy, a New Zealander who is renting at La Estancia for six months.
• Watched the last couple of hours of the PGA Players Cup down at the clubhouse on Sunday night. The Clubhouse is normally closed at 6:00 pm on Sunday, but because we asked, they stayed open. That's how it works around here.
• Joined in for an evening of beer pong with some of the younger residents. While I joined in a couple of games, such games are best left to the young and the foolish, so we mainly just observed.
• Had a send-off dinner for my golf partner and his wife, one of our children's tutors (and a wonderful one at that), in the company of a great group of people.
• Played "Mad Max" Volleyball on the sand court at La Estancia. It's called Mad Max Volleyball as a nod to the conditions the first time we played, in a roaring wind, with a rock-hard ball (I still have two swollen knuckles) that had a tendency to pick up nasty little thorns when rolling on the ground outside of the sand court. In our version of the game, hitting the ball back over the net with your head or feet was allowed.
• Worked out at the Athletic Club pretty much every other day.
• Had an al fresco dinner on the plaza at El Terruno, one of my favorite restaurants, with a group of friends.
• Ate parrilla (bar-be-cue) for lunch with another group of friends at El Rancho.
• Participated in a demonstration with the local volunteer firemen (the Bombaros) of the Jaws of Life that a group of us got together to buy. And by demonstration, I mean cutting the roof off an old car… serious fun!

Last week it was a charity poker match, then my wife's big birthday bash with forty friends at the Club… I don't even know forty people in the town in Vermont where we lived the last 25 years.

It just never stops.

In fact, after seeing our friends and enjoying the beauty of a Vermont summer, the next-biggest reason for returning to the States for four months is to get some rest!

Other aspects of life here that represented a significant change from life back on the other side of the wall:

Education of the Kids

Our children are now 14 and 16, ages considered very important in terms of personal development.

Before getting into what they got from living down here, a quick word on what they didn't get. For example…

1. They didn't get a state-mandated cookie-cutter curriculum replete with dogma and indoctrination about completely unimportant topics.
2. They didn't get an education by teachers whose sole purpose in life is to ultimately get a pension. In fairness, our children had had a couple of good teachers in their public schooling back in the States, but most seemed to have majored in sapping the creative juices out of students with minors in spirit crushing and teaching utter nonsense with a straight face.
3. They didn't pick up bad habits from fellow students. They didn't learn how to drink, smoke, do drugs, or have sex at an age when they are not mentally prepared to keep things in perspective. In fact, it became something of a running joke how many times we went to restaurants hereabouts and the kids were offered wine, which they turned down of their own accord. When it's not the forbidden fruit, it's not nearly so desirable.
4. They didn't live in fear. When I see an article such as this, on the US government's zero tolerance for, well, anything – including stupid kid pranks, I am shocked. Here's a link to the article.
   
   For the time-stressed, a couple of relevant quotes…

The Methuen, Mass., high school student was arrested last week after posting online videos that show him rapping an original song that police say contained "disturbing verbiage" and reportedly mentioned the White House and the Boston Marathon bombing. He is charged with communicating terrorist threats, a state felony, and faces a potential 20 years in prison. Bail is set at $1 million.

And it continues…

Using a zero tolerance approach to track domestic terrorists online is the only reasonable way to analyze online threats these days, especially after the Boston Marathon bombing and news that the suspects had subsequently planned to target Times Square in Manhattan, Mullins says. The way law enforcement agencies approach online activity that appears sinister is this: "If you're not a terrorist, if you're not a threat, prove it," he says.

"This is the price you pay to live in a free society right now. It's just the way it is," Mullins adds.

That method can result in arrests of teenagers whose online activity may be more aptly characterized as stupid pranks.

In February, Jessica Winslow and Ti'jeanae Harris, two high school girls in Rapids Parish, La., were arrested and charged with 10 counts of terrorism each after they allegedly e-mailed threats to students and faculty "to see if they could get away with it," detectives told a local television news station. "We take every threat in our schools as a credible threat, and I am happy to say we have made these arrests," Sheriff William Earl Hilton told reporters.

What they did get, however, was…

• Personalized instruction and coaching for their self-studies. In the beginning, there were another three children in the educational program, but the parents pulled up stakes fairly early on, leaving our two kids with a teacher ratio of 1:1 (except for a number of weeks when children of visiting owners and guests sat in on classes). My daughter, never before confident in math, became passionate about the topic and is now ahead of her grade back in the States. She is also now writing a book. My son is determined to learn computer programming. "Dad," he said to me confidently the other day, "you'll never have to worry about me needing money."
• For much of the time we were here, there weren't a lot of other kids their age around. In hindsight, that worked out just fine. In addition to not picking up the bad habits mentioned above, they quickly adapted to interacting on the level of adults with the residents of La Estancia and those from town (many of whom act like kids anyway). Participating in craft groups, dining out in good company, and joining in on various activities gave them both a great deal of confidence in their interactions with adults. On a number of occasions, they sat in on classes in local schools, and my daughter participated in folkloric dance classes.
• A shared family adventure. We've always been a close family, but living together as foreigners in a foreign land has made us only closer. No small feat given they are both in the challenging mid-teens. While there was, naturally, a certain amount of the teen drama, it always passed quickly and we moved forward in concert. Personally, I have learned to accept that they are no longer children but young adults who need to be able to make their own decisions and reap the rewards or suffer the consequences as a result. All in all, the family dynamic has changed, and only for the better.
• Fresh air and a more active lifestyle. While my son is showing the classic characteristics of being something of a geek (by no means a detriment in this day and age), every day he walked to and from school wearing his heavy backpack and, sporadically, joined in on hikes and long walks around the sizable estancia on school projects (for instance, mapping all of the many fruit and nut trees on the property). In addition to the school walkabouts, our more active daughter also took advantage of the Athletic Club, horseback riding, dancing, hiking, and so forth.
  
  What they didn't get was organized sports of the sort so treasured in the state school system but which, when you get right down to it, doesn't really have anything to do with education or with determining who you will be as an adult. In fact, the argument could be made that if you were a star on the school sports team, you might just be receiving indoctrination for a future stint in the military (for time immemorial, sports has a been a gateway for the military). Likewise, if you were bad at team sports and chosen last, or spent your time on the bench, who's to say that the psychological damage might not last long into adulthood?

In the final analysis, hiring our own tutors and having a hand in a curriculum that focused on the core subjects of reading, writing, and arithmetic – with a side course of Spanish, and all of it structured to inculcate the love of learning – turned out to be a big win. So much so that the kids volunteered to continue studying over the summer with the remote guidance of their lead tutor.

Personal Well-Being

In a phrase, I haven't felt this healthy, this fit, this alive, or this happy in decades. The active lifestyle, the high-quality food, the multitude of good-humored friends, the fun activities… the overall quality of life… have completely reenergized me.

Whereas before a dumb email from a colleague might have sent my blood pressure spiking, now it's all water off this duck's back. Hardly a day passes without me opening my arms to the beautiful skies, a happy grin on my face. Reflexively, I start singing, "Oh, what a beautiful morning" when walking outside first thing each day.

Call me goofy, but it sure feels like stark raving happiness to me.

Speaking of beauty, I have always been one of those people who, lost in thought, took almost no notice of my surroundings, no matter how striking (and Vermont can be pretty striking).

Down here, however, the beauty of the place grabs you by the collar and demands you view it in awe. It is like living in an ever-changing art display with the red rocks of the surrounding mountains the canvas.

Connection to a Community

I've written about this before, so won't dwell. But before moving here, I was only tenuously connected to the community I had lived in for 25 years. While it is not all fun and games – because every community, no matter how like-minded, has its small cadre of serial malcontents – the overwhelming majority of the people at La Estancia and in Cafayate are positive and constructive.

In short, they are people you want to spend time with… and so we do.

Additionally, there is a sense of wanting to help support and enhance the community. One day after lunch at the beautiful new Piattelli Bodega, a friend asked if we'd be interested in adopting a baby burro whose mother had been hit by a car. I didn't have to ponder the matter for more than a minute before agreeing.

And so it was that La Estancia gained a new resident, a three-month-old burro who picked up the name Princess Grace as we walked her into the property and passed by the sign for the five-star Grace Hotel scheduled to open here within the next few months.

And the community is not just physical, but virtual as well. There is constant email correspondence between the owners, and several of us have been involved in a writers' group going on a year now.

There is also a local photography group that a number of us have joined.

Here's my wife's entry for this month, a great shot (in my biased opinion) of the sort of transportation hijinks that are a common sight around here, but which would have you face down on the pavement, your arms handcuffed behind your back, were you to attempt the same in the Land of the Free.

In case you can't tell it from the dog's expression, it is having a great time (think sticking your head out the window, but better). Note his paw on the driver's shoulder… too funny.

The Concept of Time

Despite the active schedule, there is always time to linger over lunch or dinner, to have a siesta, to play a little golf with friends (even if it means getting up before dawn to get my work out of the way).

Today I ducked into town on an errand and ended up stopping for an hour and a half at Baco's café to have coffee with Mauricio the Chilean and Bausti, the son of the owner who is in the final phase of a three-week-long motorcycle ride from Cafayate to Northern Brazil and back.

Once the coffee was finished, the old David would have made his apologies and hit the road. Not anymore, as I settled into my chair at the table on the sidewalk, enjoying the perfect weather and sharing stories, music, and photos with my friends. Mauricio, despite having work to attend to at his lighting and paint store, stuck around as well. There are things far more important than money down here, especially time spent with friends.

The Nature of Reality

In the US and other media-saturated countries, reality is defined by deviants with degrees in manipulating minds. The old standard "If it bleeds it leads" has been bolstered with "If it's green, it's good" and "If it scares, it blares."

I can't stress the point enough… down here none of that counts. Reality is what you have for lunch, it's not some imagined threat lurking around every corner. Terrorists, cyber-surveillance, school lockdowns… none of it matters in the slightest.

As for the stories trumpeted over and over in the global press about the Mad Queen Cristina who is tenuously holding power over these lands, no one really cares. And the inflation has again made Argentina one of the least expensive countries in the world for those of us who are not peso-based.

Last night I had an excellent dinner at the best restaurant on the plaza – and it's a very good restaurant – and the cost of my entree was all of US$7.00.

Adventure Around Every Corner

One of the best things about climbing over the wall is that so many things you will experience are new and, at least to me, interesting and exciting. While here, we have been on stunning hikes, amazing horse treks, wonderful drives deep into the Andes – on one memorable occasion spending a few days at fellow Argentine aficionado Bill Bonner's massive estancia, a place so remote that, to reach it, you have to drive for many kilometers on a dried-up river bed.

A deep-thinking friend of mine once explained how important it is to the maintenance of mental acuity to challenge yourself, even – or maybe especially – when it comes to the mundane. For example, if you are right handed, try brushing your teeth with your left as it forces you to use new connections in your brain.

Moving here from a completely different culture, with a completely different language, forces you out of your comfort zone every single day. For instance, when the patron of the well-known local bodega offered to let me ride his powerful champion stallion – he had heard I was a polo player and so assumed I could handle it – my initial reaction was to think, "Are you crazy?!" Fortunately, that thought was quickly supplanted by one akin to, "When will I ever have an opportunity like this again?" So I took him up on his offer, and what an amazing ride it was.

Parting Thoughts

As our time here is growing short, I will sign off for the day with a few final thoughts.

First and foremost, as you may be able to tell from the above, despite the trepidations we felt before heading down here, my wife and I have not had a single regret… not for a second.

The house we built, which is fully paid for (as is the case with virtually all the houses in Argentina), was beautifully constructed. And, thanks to the competence of the architect who oversaw the construction, and the builder, the building went up with less hassle than was the case with our house back in Vermont.

We have fallen in love with the area, most ardently with Cafayate but also the province of Salta and the surrounding countries that, together, form what is called the Southern Cone. While life here, like everywhere, has its challenges, the challenges are nothing that a reasonably intelligent and patient person can't handle. In fact, with a little help from our local lawyer and knowledgeable friends, our interactions with the government amount to next to nothing… and, in most months, literally nothing.

Meanwhile, as noted above, the much-noted inflation here in Argentina has put the place on sale… and at a steep discount. Yet, even the locals in this tight-knit community don't appear to be overly disadvantaged. I suspect that's because, unlike the big city, this is an agricultural area where the cost of input is low, and so is the price of the output… thus the basic stuff of life is extremely cheap.

It is worth mentioning the cost of labor, as well. We have an exceptionally agreeable and hard-working maid who comes in for five or six hours a day, five days a week, at a cost equivalent to $40 a week. Simply put, that means that the drudgery of washing dishes and clothes, dusting, making beds, and so forth simply vanishes from your life, freeing you for far more agreeable pursuits. This is, in my view, almost the very definition of luxury – yet at a price many Americans push over the counter at Starbucks each week.

Now, this is not to say that other places in the world don't have their strengths as well as their weaknesses. If you love to snow ski or sail the big blue sea, this is probably not the place for you… at least not full time.

I also think, despite the low cost of living here, that it's probably not terribly well suited for people without at least some decent amount of money in the bank, or a source of revenue from outside the country. For example, from a job you can do over the Internet. That's because while there is 100% employment here, the local pay scale is low and the challenges of actually starting and running a business here are considerable.

While I have often said that "anyone who can live here and doesn't is a fool," in truth your own special lugar may have a completely different set of characteristics. I understand that some people even like big cities.

Whatever you do, if the place you are living doesn't make you feel alive, then do seriously consider setting out in the quest for a place that does.

This will be the end of what has turned into something of a series on life of an expat family in the Argentine outback. I hope you have found it of some interest and maybe even somewhat inspiring.

If you have any interest in visiting here, drop a note to VIPconnect@LaEst.com and they can help set you up with a customized itinerary. As the North American summer is the South American winter, the weather here will be growing somewhat less than perfect – though the skies are almost always blue with about 320 days of sunshine to chase away the night chills. If you live in the US deep south, I suspect you'd find the weather a refreshing alternative.

For those of you who might enjoy visiting as part of a small VIP group, this November – spring hereabouts – La Estancia will be hosting week-long visits for small groups in three successive weeks. The five-star Grace Resort and Villas will be in full operation, ensuring your stay at La Estancia is truly special. Again, if you are interested in participating, please contact  VIPconnect@LaEst.com.

We will again be in residence here and will look forward to a bit of socializing.

Friday Funnies

The World's Worst Hotel Painting?

Earlier I mentioned a recent game of beer pong with some of the younger set here in Cafayate. The site of the game was a hotel with the odd name of Paris Texas where one of the participants acts as a manager on those rare occasions that a guest darkens the door.

The absentee owner of the hotel apparently fancies himself a painter, and likewise appears to have something of an affinity for the macabre. The result is that the hotel rooms proudly display large canvases of his work. A photograph of one appears here with compliments of Pete Chandler. Now, the really funny thing is that this particular canvas, which is about four feet high from bottom to top, is planted squarely in front of the beds in a room set aside for families with small kids (by virtue that it has a third bed). If you can zoom in, you'll see the blood dripping from the fangs.

Though I suspect you'll be hard pressed to find a worse example of the genre, if you can find a worse hotel painting, feel free to send it along to me at David@caseyresearch.com...

Mark the Dates!

The only Casey Research Summit of the year is being held October 4 – 6 at the beautiful Loews Ventana Canyon Resort in Tucson, Arizona.

Being the only Summit this year, we are pulling out all the stops for the faculty, most of whom are arranging their schedules to participate side by side with the attendees throughout the entire three-day event.

Among the faculty now confirmed is keynote speaker Dr. Ron Paul (who will be attending all three days). For the entire list of faculty, the schedule, and a secure registration form, click here.

I think you'll be most impressed. As always, registration at our events is strictly limited, and we expect a quick sell-out. Hope to see you there!

A Short Note from Doug Casey

A few years ago, Porter Stansberry started what may be the most unusual club in the world, The Atlas 400. He asked me to join, and I did, simply because I both liked the idea and like and trust Porter.

The concept is, in some ways, similar to something I put together years ago called The Eris Society. The idea was to provide a forum for accomplished people who should know each other, but didn't, to hang out together. Everyone enjoyed it and benefitted from it – where else could you expect to be in the same room, as an equal, with the world's leading aircraft designer, the leader of the world's largest outlaw motorcycle club, several billionaires, the most decorated living US soldier, several of the world's leading life-extension scientists, and lots of best-selling authors? Among many others.

Porter has done an excellent variation on that theme. And now that it's been around, and vital, for several years, I feel confident in recommending it.

Atlas is quite expensive, like most proper men's clubs. That's a good idea; it excludes those who aren't successful. And it turns away two out of three applicants. That's also a good idea; it does a pretty good job of excluding the annoying, the pushy, the dull, and those of bad character. And instead of having just one meeting a year, as Eris did, it sponsors a number of adventures, where you can get to know your fellow members while doing something memorable.

I don't know about you, but I'm always up for both making new friends and having fun. The Atlas 400 makes both of those things better and easier. That's a huge plus. It's why I don't go to most cocktail parties; it's like dealing with the public is usually a frustrating waste of time.

Atlas isn't for everybody, but if you can qualify, I think I can assure you that you'll be very pleased with your membership. Feel free to check out this interesting video of club highlights and apply to join The Atlas 400 here.

David again. One other housekeeping item: There's a new Casey phyle starting in downtown Chicago – so if you're interested in getting together with like-minded investors, shoot us an email at phyles@caseyresearch.com and we connect you.

And with that, I will sign off for now and return to packing for the trip back to the States. Until next time, thanks for reading and thanks for being a Casey Research subscriber!

David Galland
Managing Director
Casey Research

By Adam J. Crawford, Junior Analyst

In August 1956, the Calder Hall Power Plant in Seascale, England began generating electricity and earned the distinction of being the world's first commercial nuclear power plant. It was a humble beginning for nuclear power; the plant only had a 50-megawatt (MW) output capacity, whereas the smallest US plant today has a 478 MW capacity. Nonetheless, Calder Hall represented the launch of a new era in energy that promised to bring electricity too cheap to meter.

But early on, the promising power source had its detractors. They objected to the high initial cost of constructing nuclear plants, the problems of radioactive waste disposal, and the risks of nuclear accidents and nuclear proliferation.

The detractors had an impact. The heavy regulation they pushed for and the litigation they initiated extended construction times and drove up construction costs. But despite their efforts, over 100 reactors had been placed in service in the United States by 1974.

Then came 1979 and a landmark event – the nuclear accident at Three Mile Island. In the aftermath, public opinion turned solidly in favor of the anti-nuclear movement, several construction projects were canceled, and no new US building permits for nuclear power plants were issued for the next 33 years.

Though the US abandoned nuclear expansion in the 1980s, other countries forged ahead. Worldwide startups peaked in 1984 and 1985, as over 30 plants were brought online in each of those years. However, escalating regulatory and litigation costs and pressure groups were not unique to the US. By the 1980s, it was becoming difficult to cost-justify new projects. On top of all that, the Chernobyl accident occurred in 1986, and the world had its own Three Mile Island moment.

In the 1990s, global startups fell to an annual average of less than six per year; in the first decade of the new century, average annual startups were just over three per year. In fact, since 1990 there have barely been enough startups to offset shutdowns.

The recent flurry of closures was caused to a great extent by yet another accident. After the earthquake and tsunami in Japan on March 11, 2011 and the ensuing catastrophe at the Fukushima Nuclear Power Plant, several countries began to rethink their nuclear energy policies. In May 2011, Germany announced that it would abandon nuclear energy entirely, shutting down all 17 of its plants by 2022. In June 2011, Italian citizens voted overwhelmingly in favor of a referendum to cancel plans for new reactors. The Japanese Cabinet, though unclear about a specific plan, has issued a white paper calling for less reliance on nuclear power.

So is nuclear on its last legs? It would appear so... but before we make the funeral arrangements, let's take a closer look.

A Nuclear Renaissance

In the wake of the Fukushima disaster, much of the attention in the Western world has been on the nuclear power debate, plant shutdowns, and project cancelations. Meanwhile, those in developing countries recognize the harsh reality that something has to be done to produce more power. Driven by population growth and increasing standards of living, future demand for energy in those countries will be strong, if not overwhelming.

The International Energy Agency forecasts that global demand for electricity will grow by a staggering 70% between 2012 and 2035. The increase will come predominantly from developing countries – over half is expected from China and India alone.

Serious pollution problems mean that those developing countries cannot produce all that electricity by burning coal. Amir Adnani, Uranium Energy Corporation's CEO, says, "The plans to develop nuclear power in China and other countries are very much driven by a set of realities that is very different and very acute. People are dying every year in China, literally choking to death, because of all the toxins that are being put into the environment by burning coal."

This explains why China, India, and the Russian Federation are quietly forging ahead with nuclear energy expansion while the West and Japan fret over it. As you can see in the table below, those developing countries are dominant leaders in the construction of nuclear facilities.

Source: European Nuclear Society

It typically takes about six years to complete a plant once it is under construction, so the 67 facilities shown above should be producing electricity soon. In addition, over 100 reactors are at various stages of planning and permitting.

So it looks like the needs of developing countries will be more than enough to revitalize and sustain the nuclear-power industry. As for the developed countries, many still heavily rely on nuclear energy, and that won't change anytime soon. In fact, the reliance may only increase in the coming years.

Though many developed countries have been cool at best and hostile at worst toward nuclear energy expansion, a more conciliatory approach may be required in the future. That's because many of the same people who are concerned about the risks and costs of nuclear power are even more concerned about global warming. That means fossil fuels and the carbon dioxide they emit must be limited.

But what will be used other than fossil fuels? The hope was wind and solar, but the inefficiencies, high costs, and intermittent nature of these two energy sources make them unlikely candidates for widespread use. What's left is nuclear.

On February 9, 2012, the US Nuclear Regulatory Commission approved a license for two new nuclear reactors in Georgia, the first in over 30 years. This could be a sign of more approvals to come. But what could eventually really ignite a nuclear expansion are the promising technology advancements that are being developed.

Nuclear Technological Developments

Small Modular Reactors:

You've heard of the mini-brewery and the mini-steel mill; now meet the mini-nuclear reactor. Commonly known as "small modular reactors" or SMRs, these reactors are tiny compared to conventional ones. However, with capacities reaching up to 300 MW (power sufficient to supply 45,000 homes) they pack plenty of punch to have practical commercial application. Here are some advantages that SMRs offer:

• They are cheaper to construct and operate than conventional reactors.
• They can be standardized and factory built, a much more efficient process than on-site construction.
• They can be set up in groups to provide however much power an area needs. Grouping would allow for a unit to be taken offline for repairs, maintenance, or replacement without an interruption of service. On the flip side, more units can be easily added if an area's power needs increase.
• They can basically run themselves with little on-site supervision.
• They can be stored underground, which enhances security.

Most important, because they are small and use less fuel, they are easier to cool, which greatly reduces the risk of a meltdown.

Small Modular Reactor

Some SMRs can even run on what was once considered nuclear waste. For example, a Bill Gates-backed company, TerraPower, is developing a reactor that burns depleted uranium. Depleted uranium burns very slowly, so TerraPower's reactor could theoretically run for decades without the need for a fill-up. This is an exciting development. Unfortunately, the TerraPower reactor only exists as a prototype on a PC. This means that it will take several years before it could possibly make its debut on the power grid.

In fact, most SMRs are still in the very early stages of development, with many challenges to be met and many questions to be answered. However, the concept has enough promise to induce the US government to invest in its pursuit. If it proves to be viable, this technology could really shake up the energy scene.

Thorium Reactors:

Imagine a cheap, plentiful atomic fuel that could provide safe, emissions-free power for hundreds of years without refueling and without any risk of nuclear proliferation. That fuel is thorium, and proponents claim it eludes many of the pitfalls of today's nuclear energy.

Robert Rapier, chief technology officer and executive vice president at Merica International, says:

"Longer term, commercialization of thorium reactors would dramatically reduce (although not totally eliminate) the risk of nuclear-weapon proliferation. Thorium is abundant relative to uranium, and thorium does not have to undergo the enrichment process that uranium requires. Further, thorium reactors have little risk of melting down because climbing temperatures will decrease the power output, eliminating the runaway reaction possibility present in a uranium-fueled reactor. Thus, these reactors would naturally tend toward the fail-safe state. The primary disadvantage is that thorium reactors are still mainly at the experimental stage, and therefore commercial viability has not yet been clearly demonstrated."

Pebble-Bed Reactors:

The pebble-bed reactor concept was first introduced way back in the 1940s. The US, Germany, and South Africa have experimented with the technology over the years, but it is the Chinese who have persisted in the experiment and plan to implement the technology in two reactors near the Yellow Sea.

Under the pebble-bed design, uranium fuel rods are replaced with tennis-ball-sized graphite spheres that contain tiny beads of uranium, and helium (instead of water) is used as a coolant. A New York Times piece provides a simple explanation of how the technology works:

"Rather than using conventional fuel rod assemblies…(pebble-bed reactors) use hundreds of thousands of billiard-ball-size fuel elements, each cloaked in its own protective layer of graphite.

"The coating moderates the pace of nuclear reactions and is meant to ensure that if the plant had to be shut down in an emergency, the reaction would slowly stop on its own and not lead to a meltdown.

"The reactors (are) cooled by non-explosive helium gas instead of depending on a steady source of water – a critical problem with the damaged reactors at Japan's Fukushima Daiichi power plant. And unlike those reactors, (pebble-bed) reactors are designed to gradually dissipate heat on their own, even if the coolant is lost."

Challenges remain for pebble-bed reactors, and some environmentalists oppose the technology. They point to the fact that the volume of radioactive waste increases under the pebble-bed design, but do concede that pebble-bed waste is far less radioactive per ton than spent uranium fuel rods.

These technological developments in the nuclear-reactor space are promising and certainly worth keeping an eye on... but it's unlikely that anything disruptive will hit the mainstream anytime soon.

So from an investment standpoint, this means that the best and most immediate way to play the nuclear trend is not the companies that make the reactors, but the companies that mine the fuel for the reactors.

The Coming Uranium Bull Market

There are a number of supply and demand circumstances that appear to be forming a perfect storm for bullish uranium prices. From the demand side, the 67 new reactors that we discussed earlier will be coming online in the near future.

On the supply side, there isn't enough uranium being mined to meet current reactor requirements, let alone new facility requirements. According to the World Nuclear Association, there was a 40-million-pound uranium production gap in 2011. It is unlikely that that gap will be closed at current prices; miners claim that their production costs average $85 per pound. With spot prices at about $40 per pound, miners have no incentive to bring new capacity online.

Another factor affecting the supply side is the coming end of the Megatons to Megawatts program. Under this arrangement, the US and Russia agreed to convert high-enriched uranium from Russia's dismantled weapons arsenal into low-enriched uranium for use in power plants. This secondary source provides about 15% of the US's annual supply of uranium. However, the program will expire later this year and when it does, the production gap will widen. Guess what will happen to uranium prices. That's right: they'll skyrocket.

Intrigued yet? Want some more specific investment advice? Help is on the way. Marin Katusa and the Casey Research Energy Team are on top of the emerging opportunity in uranium and have assembled a panel of world-renowned energy experts to discuss it in further depth in an upcoming webinar titled The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? The webinar premiers at 2:00 p.m. Eastern on Tuesday May 21, 2013 and is free of charge. In addition, all attendees will receive a free copy of our new Global Resource Intelligence Report on uranium (a $29 value). I urge you to reserve your seat today.

Bits & Bytes

À La Carte Won't Fix Cable (Slate)

Tech giants such as Google and Apple are working on ways to unbundle the cable package. As it turns out, so is John McCain. Senator McCain recently introduced a bill that would kill the cable bundle, offering consumers the option of purchasing channels à la carte. The intent is to lower consumer cable bills. However, as this article points out, it would likely have the opposite effect.

Amazon Is Developing Smartphone with 3D Screen (Wall Street Journal)

The Amazon smartphone rumors are picking up momentum again. According to the Wall Street Journal, Amazon will soon introduce two smartphone models. One will be a high-end device that will include a screen which will allow for 3D images without the use of glasses. Though the Wall Street Journal did not provide any details on the other device, it will presumably be more traditional and have a mass-market appeal.

Apple Supplier Pegatron Boosts Chinese Workforce by 40 Percent in Second Quarter (Reuters)

Pegatron, a components and devices supplier for Apple, is hiring 40,000 additional workers at its China-based manufacturing facility. There has been widespread speculation that Apple will release an updated iPhone 5 and a lower-end, plastic-bodied iPhone this fall. These hirings would indicate that those releases will indeed take place and that big orders are expected.

Click here to download or listen on your mobile device

Uranium's rise looks like as close to a sure thing as the stock market ever gets... but that does not mean that every company will profit. As Marin explained in the interview, the permitting process is grueling, requiring expertise and tenacity. Investors need to know how best to deploy their resources.

That's why Casey Research brought together some of today's experts in the field of uranium and nuclear power to discuss the issues. The resulting webinar is titled The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment?, and its premier will be Tuesday, May 21 at 2 p.m. EDT. Listen to experts including Spencer Abraham, Barbara Thomas Judge, and Rick Rule discuss what's going on and how to take advantage of the forming trends to position yourself for life-changing gains. Learn more and sign up now.

It's comforting to think that Ms. Sánchez and all Cubans are experiencing the early stages of a more open Cuba, just as the peoples of East Germany, Russia, China, and other countries have experienced in recent decades. This is another reminder that the concept of totalitarian socialism/communism is not a very workable one and cannot last indefinitely.

It can, however, last for half a century or more, and – even if it pleases those of us who believe in maximizing the liberty of every individual to see yet another oppressive government failing to maintain totalitarianism – we must also recognize that half a century or more of such oppression is enough to destroy individual lives entirely, based on the human lifespan.

Therefore, the real importance that the elimination of exit visas in Cuba might have for the reader of this article (who very likely has never needed to apply for one), is to question whether this requirement might be in his future.

A New Consideration

There does not seem to be a lot of discussion out there on this topic, yet I believe that it is a very significant subject that should be a part of regular discussion for anyone who presently holds only one passport – that of the country in which he resides. For people in this category, if one's home country is also experiencing a significant economic decline (as we see in many First World countries), one would be wise to consider whether the country might soon be experiencing a flight by a significant portion of its population. Such flights are common when countries experience a significant economic decline or a decline in freedom.

Many people in the First World, who, until recently, were hoping that "everything will sort itself out," are now becoming increasingly concerned that this will not occur – that instead, the situation is likely to worsen, possibly quite substantially.

For those who now find themselves in that situation, the old method of waiting to see what occurs, then deciding how to deal with the new normal, will no longer work. In today's world, it is becoming essential to project what the future will bring.

Case in point: If the reader lives in a country where laws are being written to limit his ability to expatriate a portion of his wealth, or, worse, to repatriate it if it has already been internationalized, he would do well to examine which of his freedoms will be the next to be lost.

There is little discussion at present over whether it may soon be necessary in some counties that are part of what was once called the "free" world to apply for an exit visa in order to travel outside that country. Yet historically, declining countries commonly impose such restrictions to ensure that their citizens do not seek greener pastures.

There is the tendency in all of us to say, "They couldn't possibly do that. If they did, then, for all practical purposes, we'd be living in the Soviet Union." And yet, in much of the First World, residents are already accepting as "the new normal" governmental edicts that only ten years ago would have been unthinkable.

Rather than look at the present and say, "Well, it's worse than it was, but I can still live with it," perhaps the greater wisdom would be to examine the direction in which one's government is headed and then project the logical conclusion to this direction. Then, assess whether that projected future is one in which one would be content to live.

If the answer is no, we may alter our investment philosophy and even buy a bit of precious metal for a rainy day, but such minor adjustments will not protect those who may find that they are trapped in a country where the oppression is expanding exponentially. In such a condition, the one and only alternative is to "get out of Dodge."

The Comfort of Sameness

The trouble is, it is human nature not to want to face such a decision. We may like to travel, but only as tourists. We become accustomed to the house we live in, we like the selection of food at our local supermarket, and we even take a certain comfort in the fact that we know our neighbors, even if they are not our favorite people. There is an unquestioned comfort in the relative stability of our immediate surroundings.

The prospect of moving to a location outside of an increasingly oppressive country is an enormous step to take. Will I be able to find employment? Will my wife be able to speak English to her hair stylist? Will my children be able to go to soccer practice?

The more the prospect of such a dramatic change is considered, the more unpalatable it becomes. It represents dramatic change, and truth be told, most of us prefer the comfort of sameness.

And, just as has happened over the millennia, the great majority of people will not think any further on the subject, as it causes so much discomfort. It is easier to say, "But I like it here."

Thus, we return once again to the central truth that we would prefer to avoid. If "here" is going to remain as it is, then by all means, it makes sense to retain the comforts that go along with it.

However, if we conclude that, in the future, "here" will no longer exist as it presently is, the fact that our familiar surroundings may remain the same will be of little comfort. Unfortunately, if we attempt at that late date to create an exit strategy, we will discover two things. The first will be that that there are large numbers of our fellow citizens attempting to do the very same thing, and we may find that new travel restrictions have been passed in our own country. The denial of passports may become common, and the requirement to apply for exit visas may be in place. Second, we will discover that, just as has occurred throughout history, the doors that once welcomed new arrivals are now closing, as too many have applied for residency.

In my belief, the world is on the cusp of its greatest period of change – certainly the greatest period of change in our lifetimes, and possibly the greatest period of change in history. In a mere ten years, the country in which the reader lives may be unrecognizable by today's standards. If ever there was a time to assess the future and consider whether, at the very least, to create an escape hatch in another locale, that time is now.

Start learning about internationalizing your investments and yourself now. Learn about how to get a second passport... setting up an offshore LLC... the unparalleled benefit to owning foreign real estate... how a foreign trust can protect your wealth through generations... investing in international stock markets... and much more. A special report from Casey Research, titled Going Global 2013, covers every aspect of freeing your wealth and yourself. Get started on your international adventure today.

*  Disappointing data
*  Housing remains a bright spot
*  What to expect today
*  IMF on New Zealand

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

Finally, I wasn't seeing all red...

Good day...and welcome to Thursday morning. My wires must have been crossed up when I said Chuck was set to return today because it wasn't long after the Pfennig hit the servers yesterday that he responded back to me with a reminder that Friday actually marks his return. So, I guess I was a day ahead of myself. With that said, it's going to be short and sweet today as we had another case of déjà vu. The dollar maintained control once again, but did loosen its grip as the day progressed. We're heavy on economic data to discuss and light on currency news, so let's hit it.

All in all, it was a disappointing day as just about every report came in worse than expected. Starting with mortgage apps, this figure fell for the first time in six weeks to -7.3% as the average 30 year fixed ticked up to 3.67%. Next, we saw manufacturing in the New York area fall to -1.43 after it was expected to come in at 4. The moderation of Chinese growth and the ever present European recession coupled with a restrained appetite within the US has been a thorn in the side of manufacturing for a couple months now.

I usually like to peek at the individual components, so let's take a look. The gauge measuring the outlook going out six months declined as did the factory employment numbers. The measure of new orders fell to a negative number and shipments fell to zero. We know these regional reports can see big short term swings, but it certainly doesn't support those shouting the economy is fine and we don't need continued stimulus. As far as I'm concerned, the industrial production and manufacturing production reports batted in the cleanup spot.

With that said, total industrial production hit an eight month low by falling 0.5% in April following the previous month's downward revision to 0.3%. Specifically looking at manufacturing, we saw the third decline in four months as it came in at -.4% and this represents the first back to back decline since June 2009. These reports displayed weakness in business equipment, consumer goods, and construction materials so there is really no way to spin either report. I did see, however, some economists looking past those reports since inventory building has been flat and attributing the soft numbers accordingly. I say let's deal with the current scenario before looking beyond.

In a related report, capacity utilization, which measures the amount of plant in use, fell to 77.8% from 78.3%. The government inflation reports continue telling us there is no inflation as wholesale prices, via the producer price index, dropped the most in three years. The lower fuel costs in April accounts for the headline figure of -0.7% and was lower than the previous reading of -0.6%. If we look at the core number, which strips out food and energy, it increased 0.1% but was still lower than what we saw in March. Obviously the slower growth, as evidenced by the output numbers, is another reason for subdued input costs.

One of the Fed members, Charles Plosser, said that recent price indicators don't yet require a response. He went on the say should inflation expectations begin to fall, we might need to take action to defend our inflation goal, but at this point, I don't see inflation or deflation as a serious threat in the near term. I understand that he's not supporting one action or the other, but I just wish these guys would somewhat be on the same page with each other. It's great to have your opinions on how things should be, but the markets actually trade according to what they say so I think there is a bigger responsibility involved. Plosser's comments had no market impact yesterday, so I'm just saying in general.

The final reports were somewhat overshadowed, but the tic flows really disappointed as international demand for US stocks, bonds, and other financial assets fell for a second month as risk aversion continued to wane. In fact, the net long term flows yielded the worst result since May 2009 but once again, this report doesn't hold the importance that it once did. The only positive report came in the way of increased confidence among US homebuilders. The head of the NAHB said that builders are noting an increased sense of urgency among potential buyers. As a result, the index rose for the first time in five months.

As I mentioned, it's going to be another full day for economic reports today as we get the final installment of April inflation. This time it's the CPI, or consumer side of inflation, so if the other two are any indication, this is a foregone conclusion. I don't put much stock in the way figures are currently calculated as they seem to have no correlation to the real world. I feel there are just too many incentives for the gov't to understate these inflation reports. Anyway, let's move on. Since its Thursday, we get the usual suspects of weekly jobless and continuing claims, so look for the markets to trade on these numbers.

Another market moving report will be the April housing starts and building permit numbers. The housing related numbers have been about the only area showing improvement, so I'll be interested to see how these fare. We also get the Philly Fed index and if the NY report was any indication, this report could disappoint as well. Lastly, we'll see some second tier consumer confidence numbers, so with the stock market hitting a new high every day, I would tend to think they will have positive results. Tomorrow will only bring us the U of Michigan consumer confidence report and April's leading indicators.

See what I mean. It was a data rich environment. Switching gears to currencies, the dollar ended the day marginally stronger as we had a handful claw their way into positive territory. The big winner was the New Zealand dollar as it appreciated nearly 0.5%. We didn't see any market moving data abroad that would have turned the tide, so I think most of the move came from sentiment that things moved too quickly as well as the weaker US economic data. I'll tell you what hasn't taken a breather, and that's metals.

The metals market took yet another uppercut to the chin as gold was down $32 and silver fell 79 cents as I was packing up my laptop last night. In getting back to currencies, we did see the IMF comment about the New Zealand rate environment as they said the central bank may need to raise the benchmark interest rate from a record low if rising house prices and household borrowing fan inflation. If the housing market does continue rising, I would have to think any rate hike would be an absolute last resort since the central bank has already taken action to halt the kiwi's rise.

The Swiss franc and Japanese yen rounded out the top three and neither currency had anything newsworthy so it was just a matter of moving too far without a break. We did see Moody's come out and say they feel the rand is overvalued amid concern that labor unrest is threatening the credit rating. Even the worst performing currencies were within a fraction of a percent to posting gains. I think the market got ahead of itself and complacency set in a bit, so the weaker US data yesterday served as a reminder that the $85 billion a month QE effort by the Fed may not taper as soon as some were broadcasting.

As I came in this morning, it's somewhat of a mixed bag. The dollar has definitely regained some lost ground, and then some, compared to yesterday but the rand, kiwi, and Aussie have lost at least 1% so far today. Metals are once again getting taken to the woodshed so the commodity currencies are taking the brunt of the storm right now. We also saw inflation in the eurozone fall to a 3 year low, so that coupled with the slower than expected growth numbers would look to keep the door open for the ECB to pursue more easing options. I just took a glance at the month to date currency returns, and it's not pretty. As expected, the commodity currencies are in the cellar so I would expect to see them remain on shaky ground until commodity prices find some type of bottom.

Then there was this...According to the Washington Post, President Obama forced acting IRS Commission Steven Miller to resign in response to the agency's practice of singling out for special scrutiny conservative organizations' applications for US tax exemptions. Obama called the IRS actions as inexcusable and promised to do everything in his power to make sure nothing like this ever happens again.

To recap...The dollar had finally loosened its grip on the currency market as weaker US data was the focus of the day. The NY area manufacturing report yielded a negative number and some of its individual components didn't paint a pretty picture. Total industrial production as well as manufacturing in April gave us more bad news as did capacity utilization. Wholesale inflation continued to fall and foreign investment in US securities took a tumble. The only bright spot was a homebuilder confidence report. It's going to be another busy day as CPI, weekly jobs numbers, and more housing data would look to move the market today. Otherwise, not much to speak of in the currency market but we did see a handful of currencies finish the day in positive territory. If you take a look this morning, the commodity currencies are getting crushed.

Currencies today 5/16/13. American Style: A$ $.9805, kiwi .8143, C$ .9810, euro 1.2864, sterling 1.5209, Swiss $1.0334, . European Style: rand 9.3822, krone 5.8687, SEK 6.6836, forint 226.36, zloty 3.2577, koruna 20.1961, RUB 31.5155, yen 102.60, sing 1.2530, HKD 7.7632, INR 54.8575, China 6.2096, pesos 12.2488, BRL 2.0229, Dollar Index 83.93, Oil $93.34, 10-year 1.94%, Silver $22.23, and Gold. $1,373.00

That's it for today...Sorry for the false alarm yesterday, but I did confirm with Chuck that he's going to be in the office tomorrow and will be writing the Pfennig. I feel like I'm forgetting to do something, but I just can't place it, so I guess it wasn't that important. Oh yeah, I just remembered. It was to check and see if I won Powerball last night. No such luck, so there's no leaving the office early for me today. Well, it's about that time, so I'll let you get after it today. Until next time...Have a Great Day!

Mike Meyer
Assistant Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

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"You'll know gold sentiment is at a high when "Slime" (Time) magazine has a cover showing a golden bull tearing apart the New York Stock Exchange."

–Doug Casey

The Economist, whose editors apparently don't read Doug's work, ran the cover below on May 11.

In this case, the bull, whose smug facial expression appears to be taunting us for ever doubting that Wall Street is the most awesomest place on earth, isn't golden. Rather, his smashing through the wall is a metaphor for stocks smashing through their nominal all-time highs, and an implicit projection that there are more gains to come.

Different magazine, different asset, same idea: by the time the mainstream media adopts a narrative, it's a good bet that whatever trend they're celebrating has just about run its course.

The crowd will likely hail this cover – and those sure to follow soon in more widely distributed publications – as an "all clear" sign to jump back in to stocks if they haven't already. But you're probably better off doing the exact opposite: prepare for tough times by reviewing your stock portfolio and cutting loose all but the best companies.

At the most basic level, Doug's observation is a comment on human psychology. I can think of endless knocks on the mainstream media, but one role it competently fills is to reflect the prevailing psychology of the people. The bull on the cover is no exception.

When making decisions, humans tend to rely on their experiences in the immediate past. Thus, while trying to decide where to invest money today, the majority peer into the rearview mirror and see nothing but gains in stocks for the four preceding years. Our brains are wired to tell us this is a good thing – that stocks are safe once again and represent an exciting opportunity to jump on a rising wave and make some money.

But remember: the bull gracing the cover of The Economist is a reaction to the crowd's bullish attitude, not a precursor to it. The crowd is mostly bullish already.

Such a bullish signal will only serve to draw in the most sluggish and unaware of investors. They're very last to get in. After their money is drawn in from the sidelines, there's no one left to buy. Ignore crowd psychology at your own peril.

Which brings me to this week's feature, courtesy of an organization dedicated to studying the effects of crowd psychology on world events. If you're not familiar with the Elliott Wave Theory (EWT), it's based upon the idea that changes in crowd psychology are the dominant driver of changes in markets – more so than earnings, margins, or other fundamentals. Further, these psychological swings usually occur in measurable patterns. Thus, by studying crowd psychology, one can predict where markets may go next.

There's a strong contrarian element to EWT's methods, such as the position that extremes in investor sentiment usually mark stock market inflection points. EWT's sober take is that when euphoria is running high and everyone is bullish, what's really happening is that anyone who could potentially invest has already invested, meaning there are no buyers left – only sellers, which marks a true market top. I suspect EWT proponents would judge the above bull cover in much the same way Doug Casey does – as a warning, rather than a celebration.

You'll find that the excerpt begins with a story of how the author, Robert Prechter, used his study of crowd psychology to predict that the global-warming hysteria of a few years ago was way overblown and that it would die down, just as all of the contrived emergencies before it did. I asked to include this section for readers who are unfamiliar with Elliott Wave Theory, as an example that it can apply across all realms of human action, not just financial markets.

Following that section, you'll find a small taste of Elliott Wave International's forecast for US stocks. If you like what you see, you can download the entire global forecast – which includes big-picture analysis on US, Asian, and European stocks as well as commodities like gold and oil – for free.

Enjoy, and see you next week!

Dan Steinhart
Managing Editor, The Casey Report

Excerpt from The State of the Global Markets, Elliott Wave International's 2013 Global Forecast

Part I: The Global-Warming Panic Is a Distant Memory

By Robert Prechter, editor of The Elliott Wave Theorist

A non-event that recently had the media buzzing was the dearth of discussion of the global-warming issue during the presidential debates, not to mention nearly everywhere else on earth over the past year.

This is another social change predicted in The Elliott Wave Theorist in the face of vicious opposition. This excerpt highlights the key points:

Sometimes scientists herd as much as investors do, and this study [by NASA] appears to be a case of extreme expression following a long-established trend. I am not a climatologist, but I am a student of manias and herding, and that is what the global-warming craze appears to be about.

My purpose here is not primarily to make a case against man-made global warming. My primary intent is to take a look at the question from the point of view of a social psychologist to decide whether it appears to be the result of hysteria. The points above establish that there are two sides to the global-warming question. Yet only one has captured the public's imagination (and I choose that word consciously). The global-warming scare is highly reminiscent of the Alar scare, in which Congress called upon the expertise of movie stars; the ozone-depletion scare and the acid-rain scare, which have all but vanished; the claim that pesticides were making frogs lame (it turned out to be a virus); the rash of reports of devil worshippers, who were never found; the national child-care molestation hysteria, which turned out to be almost entirely contrived; the panic in Europe over poison in Coca-Cola; and any number of like manias. Hysteria often signals the end of a trend.

There is powerful evidence of herding at the social level on the global-warming issue. Commentary on the subject is even selling theater tickets. And like all past social trends that were ending, there is a rush to extrapolate. The temperature data from which modelers at NASA derive their extrapolations are scant, the projection is extreme, and their tone is strident. When any writers, including scientists, extrapolate 29 years' worth of temperature data to predict an imminent apocalypse of biblical proportions in an environment of waxing social focus, rising panic, and calls for government obstruction, one must acknowledge the likelihood of social-psychological forces behind such a report and investigate whether the data support the prediction.

The crowd fearing global warming rejects as heretics professors and scientists who challenge all these methods and conclusions, whether they be at MIT or Stanford. Such rejection is akin to what happens near the end of a financial mania, such as the peak of the real estate mania [in 2005], when bears were dismissed as delusional.

GW advocates told me that doubting man-made global warming is akin to denying evolution, but the GW movement has not a little taste of old-time religion in its accompanying admonition of humanity: Man is evil; he is destroying the earth; he is "fouling his own nest," as one scientist on the Web says. Scientists are usually good at their fields but not necessarily at recognizing their own political, moral, and philosophical biases.

One thoughtful scientist took issue with the term "hysteria." But the term applies here to social activity, not the overt behavior of any particular individual. In 2005, when I was speaking about real estate hysteria and warning people against investing in property, people sporting a rather bemused expression would coolly respond, as if instructing an alien who lacked understanding of the way things worked on Earth, "They are not making any more land" and "It's all about location." They would say this with utmost calm. They had thought about it and sifted through the evidence. They were not hysterical but rational and thoughtful. At least, this was the appearance of behavior at the individual level. At the collective level, something else was going on. The number of people participating in the real estate market was unprecedented, and their borrowing, building, and bidding activities, collectively, were extreme.

Advocates of man-made global warming may appear sober as judges individually, but they are participating in a mass movement, complete with press releases, student rallies, pop concerts, movie documentaries, and an underlying tone of moral crusade.

I think the current frenzy over the subject is probably a symptom of peaking cycles in both climatic temperature and social psychology. But unfortunately 70 years from now most of us won't be around to know the answer. What I expect, based upon observing mass movements, is that this fear, too, will go away.

–The Elliott Wave Theorist, June and July 2007

That was six years ago. Recently it has come to light – from globally collected data reported by some of the very institutions that had passionately promoted the case for man-made global warming in 2007 – that the earth in fact hasn't warmed at all since 1997. One would think the case for man-made global warming would be virtually closed from such contrary evidence and that those who feared global warming would breathe a happy sigh of relief and go home. Some of them have done just that. But proponents remain vocal.

[In November] a professor in a syndicated editorial blamed the recent relative silence on the issue on "a profit-driven economic system that demands and necessitates endless growth, a global US military presence that helps facilitate it, and the ecologically rapacious consumption it entails." Whatever your opinion of these matters, all three of them were in place during the entire period of waxing panic over the global-warming issue, negating the claim to their causing its opposite.

He further charged, "In the wake of extreme drought in much of the United States, widespread wildfires in the western US, and now Hurricane Sandy, Barack Obama's and Mitt Romney's refusal to discuss human-induced climate change will undoubtedly go down as political recklessness of historic proportions." If hurricanes, wildfires, and droughts were evidence of man-made climate change, man must have secretly industrialized the world millions of years ago. Archaeologists are pretty sure that didn't happen. The main thing likely to go down as being of historic proportion is the extent of fear about global warming that held sway in 2007. I doubt it will return in our lifetimes.

Further suggesting that the old trend is dead is that government, always the last institution to join a herd, is taking action. California passed a "cap and trade" law at the height of the panic in 2006 and is now implementing it. Naturally, it involves taxing people:

Under the plan, the California Air Resources Board will auction off pollution permits on Wednesday called "allowances" to more than 350 businesses, including electric companies, food processors, and refineries. The board has estimated that businesses will pay a total of $964 million for allowances in fiscal year 2012-2013. (AP, 11/15)

Extorting a billion dollars annually from industry will ultimately cause more pollution, as it did in communist East Germany, where air became toxic and rivers caught on fire. But California doesn't yet shoot people trying to leave, so the first likely trend here is that businesses will accelerate their exodus out of the state.

Unfortunately, there may be more action at the federal level as well. At a press conference on November 14, President Obama declared, "I am a firm believer that climate change is real, that it is impacted by human behavior and carbon emissions. And as a consequence, I think we've got an obligation to future generations to do something about it." (Reuters)

Republican Mayor of New York Michael Bloomberg likes Obama's position on this issue so much that he endorsed the president for reelection. But Obama's waste of billions of taxpayer dollars propping up so-called "clean energy" companies, along with whatever new taxes and regulations the feds dream up, will ultimately contribute to the trend toward national poverty, which will increase pollution, not reduce it. With any luck, the depression will distract various governments from this destructive path. But, then again, destruction is what depressions are about.

Part II: The Stock Market Is Ripe for a Decline of Historic Magnitude

By Steve Hochberg and Pete Kendall, editors of The Elliott Wave Financial Forecast

Incredibly, the DJIA rallied back to a new all-time high, a move that generated a cornucopia of ever-higher projections.

The wide array of optimistic extremes in sentiment measures includes several readings that exceed the extremes of 2007, when the Dow made its previous high. With a finishing structure that Elliott Wave Principle describes as occurring at "the termination points of larger patterns," the market is ripe for a decline of historic magnitude.

The sudden, loud chorus of market bulls, which has grown to a full-blown crescendo, fits perfectly with the terminal stages of a major advance. This chart shows the stunning breadth of optimism extending to every class of investor.

The first indicator (second graph) on the chart shows the percentage commitment to equities in the portfolios of members in the National Association of Active Investment Managers (NAAIM). The latest reading reveals an all-time high equity exposure of 104%, which means managers are in a leveraged long position for the first time in the seven-year history of the survey. The reading far surpasses the 83% level, which occurred at the October 2007 all-time high in the Dow.

A separate BofA Merrill Lynch survey of 254 fund managers confirms that money managers' "appetite for risk in their portfolio" is at its highest in nine years. "An increasing number judge equities as undervalued – particularly in Europe." They soon will become even more "undervalued," as the Euro STOXX 50 Index has traced out five waves down from its January 30 countertrend rally high, indicating that Europe's bear trend has returned. There's more: Even though Spain, Portugal, Greece, and Italy are de facto bankrupt, confidence is suddenly so high in that region that Europe's junk-bond yields relative to investment-grade debt have collapsed to the lowest premium since the start of the global credit crisis. It is an astonishing and historic display of optimism relative to a collapsing economic reality.

The second indicator shows a major upswing in bullishness among options traders via the Credit Suisse Fear Barometer Index (the name is misleading since a rising index means less fear). This index measures trader sentiment by comparing the cost of three-month out-of-the-money calls on the S&P 500 relative to puts of the same duration. The recent extreme of 33.32 on January 25 is the highest in the history of the indicator, which goes all the way back to November 1994. The CBOE Volatility Index (VIX), which tracks the level of fear and complacency using the premium paid for at-the-money S&P options, declined to a low of 12.29 on January 18, its lowest reading – indicating the most complacency – since April 2007, just prior to the major top in the financials.

The third indicator shows a new optimistic extreme among investment advisors. The 15-day average of Market Vane's Bullish Consensus rose to 68.2% in February, its highest reading since June 2007.

The bottom graph plots the total assets in the government money-market funds at Guggenheim (formerly Rydex), showing that the public is likewise complacent about the potential for a market decline. We've inverted the totals to align them with the trend in stocks. When people are highly confident that stock and bond prices will continue to rise, they see little need to hold money aside in money-market funds and instead load up on financial assets. The total holdings in Guggenheim's money-market funds just dropped to their lowest level ever, reflecting a supreme confidence by investors and a full embrace of stocks and bonds.

At the opposite extreme, corporate insiders – investors who are presumably privy to the future potential of their companies – are dumping shares into the market at a furious pace. According to Vickers Weekly Insider Report, among NYSE stocks there were 9.2 insider shares sold for every share bought over the previous week. The last time the ratio of sales-to-buys was higher was in July 2011, just before the Dow declined 18% over the following four months. As we've said previously, there may be many reasons why an insider sells shares, but one of them is not because they think their price is going higher.

Taken together, the breadth of extremes shown on the chart indicates that stocks are not making a short-term top: these measures are all greater than at any time since at least 2007. This is a rare alignment that confirms this is an even more important, and more bearish, juncture than 2007.

You have just read an excerpt from State of the Global Markets – 2013 Edition, a report from Robert Prechter's Elliott Wave International. The full report, including big-picture analysis on US, Asian, and European stocks as well as gold, silver, oil, and more, is available for free for the next week. Follow this link to download the full 39-page report now – it's free.

*  Dollar rises again
*  Today's data
*  Swedish inflation slows
*  The 10 year

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

Stop me if you've heard this one before...

Good day...and welcome not only to Wednesday morning but also the half way point for the month of May. It was a different day but the results were the same as the dollar took liberties with the other currencies once again and most traded within a fairly tight range. It's been the same old story for the past several days, so I'm starting to feel like a broken record, but it's what we have to deal with right now.

I guess we'll come right out of the gates with US economic data. Well, the first of the three inflation reports showed that imported prices were down in April as lower fuel costs lead the charge. The monthly figure matched expectations as it came in at -0.5% and was lower than the upward revised March figure of -0.2%. With the way inflation is accounted for, there wasn't much hoopla surrounding the report, but lower oil and commodity prices were influenced by slower demand globally. The annual figure came in higher than expected at -2.6% but lower than the previous month. Again, this report didn't get much air time.

As I mentioned yesterday, it was a sparse day for US data, so let's take a look at the only other report to examine. Our friends over at the 5 Min Forecast had this to say about the April Small Business gauge..."The monthly optimism index put out by the National Federation of Independent Business ticked up to 92.1 in April. That's slightly better than the average since the economic recovery began in June 2009, but still well below the index's long term average.

"Nothing in the NFIB data" says the group's chief economist Bill Dunkelberg, "suggests that the small business half of the economy is expanding other than by an amount driven by population growth and associated new business starts now in excess of terminations." But an interesting trend is emerging in the responses to the survey question, "What's your single most important problem?". A year ago, there was essentially a three way tie between poor sales, taxes, and government regulations. Taxes are now the clear leader, with 23% of respondents saying that's their biggest problem. Regulation clocks in at 21%, while poor sales are down to 16%.

If you haven't had a chance to take a look at the 5, check it out.

If take a look at what's on the docket for today, we'll see that it's pretty loaded down. We start off with a couple second tier data reports with last week's mortgage apps and the Empire manufacturing report. Of the two, the New York manufacturing results actually holds some weight as will the Philly Fed report due tomorrow and represents May data thus far. Both of them are expected to show some improvement and will help to give us some kind of indication where the national figure may end up in a couple of weeks. With that said, there have been plenty of times when the regional reports don't exactly correlate to the national ISM number.

Anyway, let's move on to another inflation report and talk about the April Producer Price Index, also known as wholesale inflation. The experts are calling for these figures to match up with what we saw in March, which doesn't come as a surprise. The wholesale cost of energy last month saw the biggest decline since Feb 2010, so the continued pressure on commodities would suggest this trend continues into April. Next, we'll see the March tic flows. As we've mentioned a few times in the past, this was an important report in the pre-QE days but lost relevance since the Fed has become the largest buyer of Treasuries.

In other words, we did need foreign demand to finance our debt habit but that has since become an obsolete scenario. Regardless, the net long term tic flows are expected to rebound from the last printing of -$17.8 billion and to come in around $35 billion, which is well below what is needed to finance our deficits. Next, we get April's factory production, which is expected to show a slight gain of 0.1%, but the measure of total industrial production, which includes manufacturing, mining, and utilities are forecast to fall to -0.2%. The experts are saying capacity utilization should fall a bit and then homebuilder confidence in May should improve slightly.

Looking at the schedule for tomorrow morning, it's going to be another busy day in the data department and then cool off as we head into Friday. I think I've gone on long enough about data, so let's take a look at the currency market. As I mentioned at the beginning, there really wasn't much to talk about other than the dollar holding the title king of the hill for yet another day. The only currencies that began the day in a hole were the Swedish krona and the South African rand, but as we closed up shop at the end of the day, all of the major currencies saw negative returns with the Swiss franc and SEK bringing up the rear.

The nail in the coffin for the Swedish krona yesterday came in the way of slower than expected April consumer prices. With low inflation pressures and a currency that has been and continues to be on the strong side, inflation is expected to remain below target well into next year. As a result, traders are starting to price in a rate cut during their next meeting in July even though last month the central bank signaled that its likely to keep thing on hold at 1% through mid 2014. I'm thinking Riksbank will want to see more results like this before making its final decision since a good part of the lower number came from the import side instead of domestic economy.

The rand was again troubled by a mining strike since this industry accounts for about half of the nation's export market. As a result, the currency fell to a 3 week low as investors grow concerned this could lead to the same type of violence and unrest that we saw last year. The strike is centered around a Lonmin Plc mine, which is the 3rd largest platinum producer. A direct by product of this strike was seen in the price of platinum as the metal pulled away from other commodities and gained just under 1.5% on the day.

The euro actually finished near the top, albeit at a loss, but it was in positive territory until German investor confidence rose less in May than originally forecast. The index, as reported by the ZEW Center for European Economic Research, slightly increased to 36.4 from 36.3 in April, but the experts were looking for a number closer to 40. The German economy is still hanging on, but it's not getting much help from the rest of Europe. We also saw Spanish core inflation in April drop to an 8 month low, so outperformance by the US economy was again brought to the forefront.

Speaking of getting some print, have you noticed where the 10 year has been trading. I took a glance before I went home last night and I had to take a discount double check as the yield shot up to 1.97%. Just to give some perspective, it was 1.63% on May 2nd, so that's over a 20% rise in just 8 days. Speculation that the Fed may soon indicate a tapering back of QE measures have been becoming more and more. If this type of move is based merely on a maybe, what's going to happen when/if they do actually set the stage. We've seen this type of move before so I'm sure policy makers are hoping this becomes old news and forgotten about since a sharp rise in yields is not what they want to see.

Anyway, there wasn't much else to talk about as those crowing about how well things are going for the US economy has gotten louder with each rise in the stock market. Our neighbor to the north, Canada, wasn't able to hold on as the fall in oil prices yesterday pulled it from the US coattails. According to most economists, economic growth in Canada is expected to end the year at 1.6%, compared to the US estimate of 2%.

As I came in this morning, the euro is under some pressure as the German economy grew less than expected. First quarter GDP came in at 0.1% instead of the initial forecast of 0.3%, while eurozone GDP contracted 0.2% and was lower than the estimates of -0.1%. The pound sterling is hanging on to an ever so slight gain this morning after the Bank of England increased its growth forecast and lowered their inflation expectation. BOE governor King said that of most significance today is that there is a welcome change in the economic outlook as this hasn't been a typical recession so it won't be a typical recovery.

Then there was this...According to Reuters, Fitch Ratings upgraded Greece's sovereign credit rating by citing its progress in reining in its budget deficit and the diminishing risk of leaving the eurozone. "The price has been high in terms of lost output and rising unemployment and the capacity for recovery is still in doubt," Fitch said. "Nonetheless, sovereign debt relief and an easing of fiscal targets have lifted central bank measures of economic sentiment to a three year high and the risk of eurozone exit has receded."     

To recap...We didn't really see much in the way of a surprise from US economic data yesterday as imported inflation remained low and small business confidence moved upward. It's going to be a busy couple of days for US data, but today, we get New York area manufacturing, wholesale inflation, the tic flows, capacity utilization, and April factory output. The dollar turned in another day on top as speculation mounts that the Fed could soon indicate a tapering of QE. Swedish inflation slowed, which potentially opens the door for a rate cut, and South African mining strikes weigh on the rand. German investor confidence and GDP increased, but not as much as expected, and the US 10 year yields have shot upward.

Currencies today 5/15/13. American Style: A$ $.9863, kiwi .8195, C$ .9798, euro 1.2863, sterling 1.5214, Swiss $1.0275, . European Style: rand 9.2840, krone 5.8593, SEK 6.6790, forint 226.75, zloty 3.2464, koruna 20.2025, RUB 31.5155, yen 102.72, sing 1.2472, HKD 7.7618, INR 54.8675, China 6.2070, pesos 12.1890, BRL 2.0208, Dollar Index 83.88, Oil $93.53, 10-year 1.97%, Silver $22.90, and Gold. $1,409.50

That's it for today...Chris should be back in the office today and Chuck is going to be back in the Pfennig saddle tomorrow morning, so this will do it for me until the next call to the bullpen is made. I woke up this morning feeling like and hoping that it was Friday, but I still have a couple more days before I can make that claim. As I was driving in this morning and in between this mortgage guy and that mortgage guy telling me that I need to refinance, I heard on the radio the Cards beat up on the Mets again and the LA Kings won their first game in the second round of the playoffs. Well, I got behind on a lot of stuff yesterday, so it's time to play catch up. So, until next time...Have Great Day!

Mike Meyer
Assistant Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837