In This Issue.
* A$'s and euro reverse places.
* IMF lowers Chinas economic growth outlook.
* No love for the A$.
* Gold rallies close to $1,400 again.
And, Now, Today's Pfennig For Your Thoughts!
China To Add Another Country To Its Roster.
Good day. And a Wonderful Wednesday to you! My beloved Cardinals come home and start a home stand after a 6-2 road trip out west. That's a great trip! This team reminds me of the 2004 team that won 105 games. I know all too well that we're still in May, with 4 months to go, but I do like what I'm seeing night-in and out.
I don't like what I'm seeing night-in and out in Gold & Silver. Every time Gold gets to within spittin' distance of $1,400, it gets slapped back down. It's all a game being played by the price manipulators, and every day that it goes by without regulatory enforcement, I grow more disenchanted with our Gov't. (Some might say that they didn't think that to be possible!) Hey, think about it for a minute. If the Big Banks can manipulate interest rates (LIBOR) and then have a judge absolve them from any wrongdoing, the price manipulators have nothing to worry about!
This morning, Gold is up $6, after spending most of yesterday going back and forth from a small rally to a huge loss and then rinse and repeating.
Yesterday, the euro was down while I wrote, and the Aussie dollar (A$) was up. That's reversed this morning. The A$ just can't seem to find any love lately. In fact the overnight level of .9536 was the lowest level for the A$ since October 2011. (it has since come back a bit) Now, we've seen the A$ fall below parity a few times in the past couple of years only to rebound and push past the parity once again. But this time walks, talks, and smells different to me.
Remember what I told you yesterday that the First QTR CAPEX (capital expenditures) will print tonight, and will hold a few aces in the hand that will determine if the Reserve Bank of Australia (RBA) comes right back to the rate cut table after last month's rate cut.
And the IMF cutting China's growth outlook doesn't help the A$ one bit! The IMF issued a statement about China saying that China's economic growth will “slip to” 7.75% from 8.2% this year and next. Here's what the first deputy managing director of the IMF, David Lipton, had to say. ” While China still has significant policy space and financial capacity to maintain stability even in the face of adverse shocks, the margins of safety are narrowing.” In addition, he said that, “Chinas current monetary and fiscal policies are appropriate and the IMF isn't suggesting they change anything now”..
Whew! I bet the Chinese are breathing a sigh of relief (NOT!) Do you really think the Chinese leaders give two hoots about what the IMF has to say? I don't. So, it's a good thing the IMF didn't waste their breath talking about what they think China should do! I think that Mr. Lipton, has it right with the first part of his statement.. That China has significant policy space and financial capacity to maintain stability even in the face of adverse shocks.
I know I spent an unordinary amount of time talking about China yesterday, but they are in the news a lot recently, so I always believe that stuff going on in China is important for us to consider. And today is no different. Yesterday, I saw a report from Barclays that highlighted the news that China and New Zealand are ready to agree to exchange each other's currency in the terms of trade. OK. This agreement won't have the rebar behind it like the one with Australia, but still New Zealand's dairy exports to China are very strong. And, this just adds another country to the roster of countries that have signed currency swap agreements with China. Here's my wink and nod folks. China is removing the dollar's relevancy in the terms of trade around the world. Uh-Oh.
In the Eurozone this morning, there was a survey by Commerzbank that found the percentage of companies in Germany are expecting the euro to advance against the dollar . The survey showed that 26% of companies in Germany are bullish on the euro, VS just 18% in March. Take with this survey the fact that the German Business Confidence as reported by the think tank IFO, was positive this month (I told you about it last Friday), and I think that the outlook for the euro is looking brighter all the time. I mean, when was the last time you heard someone talking about the breakup of the euro? Sure it takes more than surveys and good reports for a currency to get wind in its sails, the main thing is that the market sentiment has to change in its favor. And right now it's all about the dollar and U.S. stocks.
Sentiment would be good. and would outweigh the reports like this morning that showed unemployment in Germany rose more than 4 times the estimate by economists (the so-called experts!) . Unemployment climbed 21,000 in May to 2.96 Million people the Unemployment Rate held at 6.9%…
OK. I had to stop to sing out loud, along with Spirit's great song, Nature's Way. Never heard it? Go to the ITunes store. If you're a classic rock lover, this is one for your collection! I personally identify with the song's lyrics. It's nature's way of telling you something's wrong. That was me in 2007.
Yesterday, I got Chris thinking, when I talked about Russia's Gold production. He asked me, “how's Russia doing these days?” Well, I said that Russia was doing OK. But then I realized that it had been a month or so since I last researched what was going on in Russia. After a quick review, I stand by my initial reaction of Russia doing OK. The have a Current Account Surplus in dollars of $81.9 Billion or 4% of GDP. Add to that their Trade Surplus. But, in the end, the ruble is an “oil play”. If Oil can get back above $100, the ruble will reverse its recent weak trend.
When I went to the Treasury screen this morning to get the yield for the 10-year, I was surprised to see how much it rose yesterday, when the yield was 2.04%, and this morning it is 2.19%! WOW! OK… We've seen these moves higher in the 10-year's yield in the past, with the moves only proving to be false dawns. Have you ever attended one of my presentations and I show the cartoon of the guy sitting at his desk with his head banging on the desk top? I always say that's Chuck wishing he had never called for the pop in the Treasury Bubble. Of course I go on to say that little did I know that when I made that call, that the Fed would end up buying 76% of the Auction that year (2011). But with all of the stock buying going on right now, and the green lights for the economy turned on by economists and government shills, the sheeple are selling their Treasuries and buying stocks. The same is happening with Gold & Silver.
Actually, the 10-year yield touched 2.23% overnight. So, is this the beginning of the POP in the Treasury Bubble? It's too early to tell. A year ago, yields reached this level, only to be brought back down by Fed buying. So, to me, I would have to think that the Fed is not ready for yields to begin to rise this quickly, and they will feel that they need to “fix things” again.
The Bank of Canada (BOC) will meet today, and it will be outgoing BOC Gov. Carney's last meeting. I doubt he'll do anything to upset the applecart in his last meeting. In fact I would bet a dollar to a Krispy Kreme that he'll just repeat what he's been saying for a over a year now, just for GP (General Practice) and Old Times. In case you've forgotten his standard line after rate meetings it goes something like this: ” some modest withdrawal of stimulus will be required”
The markets are quite perturbed with Mr. Carney, for he never delivered on that statement, and the markets have long given up on the Canadian dollar / loonie, moving it below parity a couple of months ago and keeping it there. I don't believe the new BOC Gov. is going to deliver on that statement either. My dad used to tell me, Chuck, money talks, and bull.. Walks. I think that applies to the BOC and Mr. Carney.
The Japanese yen has rallied a full figure again overnight. After seeing it lose 1 full figure the night before, the yen rallied back. I don't put too much into these rallies in yen. Seems like it's a case of too much, too little, too late.
And in following up on something I first reported to you about a month ago. The WSJ rand a story on the increase in margin debt that I find interesting in that it reminds me of what was going on the last time the stock market crashed. According to the WSJ, margin debt increased to $384.4 Billion in April, which exceeds the previous record high of $381.4 Billion in June of 2007. The 384.4 Billion in April represents a 29% increase from a year ago. OK. I once ran a margin dept at Stifel Nicolaus and I can tell you while the brokerage houses love margin dept for a number of reasons, like interest rate spread, and the ability to use the stock that has margin on it in stock loans, when things go south in the markets, the customer holding that margin debt isn't so lucky.
Did you see the S&P/ CaseShiller Home Price Index report yesterday? WOW! Home Prices jumped 10% in the 1st QTR VS a year ago. And Consumer Confidence surged higher to 76.2 from 69 the previous month. It's all good in the U.S. right? Oh, there's those picky little regional manufacturing indexes that continue to grow warts. Richmond's was a negative -2, and Dallas' was a negative -10.5 both in May. And rail shipments keep getting softer and softer folks, so it's not all seashells and balloons for the economy just yet.
Speaking of not being seashells and balloons. I saw this in the 5 Minute Forecast yesterday, that my friend Addison Wiggin wrote. “A McKinsey & Co. study of 5,000 graduates, mostly from the classes of 2009-12, finds 42% of them holding down jobs that do not require a college degree. Little wonder, then, that a report from the Department of Education says 11% of student loans are at least 90 days past due.”
And then, I wanted to mention that I was doing some reading on Sunday, yes, Sunday. and came across some data that got me thinking, which then now you get to read about! Ok so remember when I explained to you about one of the adjustments that were made in the mid 90s to the way CP I was computed.Well, back then they decided that substitution could take the place of a fixed basket of goods. They said well if steak got too expensive people would substitute hamburger. This where substitutions became the norm for CPI calculations, which is one of the reasons I call CPI stupid. But, getting back to the report I read. According to a report I read beef prices are going to record levels…. And since the T-bond steak that used to be in our constant basket of goods, was already substituted for with hamburger. What will the substitute for hamburger be now?
Alrighty then. Seems like I've written quite a bit this morning, so it's probably time to go to the Big Finish!
Then There Was This. As I usually do whenever I see the great Richard Russell quoted, I use that quote here. Today, Richard Russell is talking about gold manipulation. Let's listen in. “Some of the big hedge fund managers took early, large positions in gold and gold ETFs. They got whacked by the latest smash in gold, and I presume that only the most fervent of the true believers are still in gold. The first sign of a real recovery in gold would be its hitting the 1500 level. And that's going to take some doing.
And gold, or I should say “paper gold,” is manipulated nightly by whoever is dumping those gold futures. So far, the manipulations of paper gold have not completely screwed up the price of actual physical gold. And here's an e-mail from a subscriber in Singapore who is telling the real story of gold, first hand. It seems as though physical gold is being gobbled up by gold-philes all over the world.”
He then talked about a letter he received from a reader in Singapore, talking about his experience in going to a bank in Singapore to buy physical Gold. He waited 45 minutes in a long line to get to the Gold window, only to be told that 100 gram and 50 gram bars of Gold were sold out. Just more proof that physical Gold buying is still going on with heavy volumes.
Chuck again. That was a great story about the guy in Singapore. He said that people brought suit cases with roller wheels to the bank to take their Gold purchases home in, for they bought so much they couldn't carry it by hand. One of these days, Alice.
To recap. The euro and A$ reversed positions overnight, with the A$ taking a hit and the euro rebounding a bit. Chuck talks about how things are looking brighter for the euro these days, but sentiment still resides with dollars and stocks. The IMF lowers China's economic growth outlook, and China is close to adding New Zealand to its roster of countries that have removed dollars from the terms of trade with China.
Currencies today 5/29/13. American Style: A$ .9625, kiwi .8125, C$ .9635, euro 1.2950, sterling 1.5090, Swiss $ 1.0370, . European Style: rand 9.7945, krone 5.8765, SEK 6.6465, forint 223, zloty 3.2680, koruna 20.00, RUB 31.51, yen 101.30, sing 1.2670, HKD 7.7640, INR 56.16, China 6.1856, pesos 12.67, BRL 2.0745, Dollar Index 83.60, Oil $94.60, 10-year 2.19%, Silver $22.37, and Gold.. $1,390.92
That's it for today. Long time readers know how I have a love of cooking outdoors. In the summer I like to smoke meats for multiple hours and then watch them get devoured by family. Well, I bought a new smoker this past weekend, and it was delivered yesterday! I'm as excited as a kid at Christmas! I did some chickens in the new smoker last night, boy did they taste great! Little Everett is coming around, and getting used to living with us, we had a good night last night! And Delaney Grace is ready to move in for good, and kick us out! I reminded her that her mom and dad are looking for a new house! The Godfather of Soul, James Brown was just singing on the iPod. I'm sure Mike was dying over there having to listen to that! So, with that, I hope you have a Wonderful Wednesday!
EverBank World Markets