In This Issue.

*  Currencies drop after rallying Monday.
*  Sweden inflation stays above negative.
*  Indian rupees a star performer.
*  Who misled the public?

And Now. Today's A Pfennig For Your Thoughts.

The Bundesbank Deep Sixes The Euro.

Good Day! . And a Tom Terrific Tuesday to you! This past weekend, our local paper, had article that featured a picture of Tom Terrific and Mighty Manfred the Wonder Dog! That picture got me thinking of Tom Terrific's arch enemy, Crabby Appleton, who used to say, “I'm rotten to the core”. HAHAHAHAHA! Even as a kid, I found the humor in that! Of course, I've always been able to find humor in most things, and at times, probably not appropriate. But to me, when you lose the ability to find humor in things, you might as well, ride off into the sunset.

Well, I'm not finding any humor in the currencies this morning. Although none of the price action is really good or bad, the overall feel for me is one of a bias to buy dollars today. One reason for that bias is the markets are anticipating a strong Retail Sales figure from the U.S. this morning. I'm not sure why they feel that way, they should have checked with the BHI! The Butler Household Index indicates that April's Retail Sales will be much softer than March's +1.2% increase. And any strength the April report shows will be a direct result of Easter being so late in April, for car sales have disappeared, and big box sales are very disappointing. At least that's what the research I've been doing on this tells me. Of course, we are dealing with the Gov't here, and you never know what kind of book cooking they decide to do.

So, that's the Big Kahuna data that's due this morning in the U.S.  Overnight, China printed some interesting data, let's go to the tape for the results.. Chinese April Industrial Production printed at +8.7%, down from March's +8.8%, and down from expectations of +8.9%…  April Retail Sales were strong at +10.9% VS last year, for the third straight month. So, Retail Sales show strong domestic activity, but the overall feel in China is that the economic slowdown continues. I know that I said a few months ago that I thought we would see that the last quarter represented a trough for the Chinese economy, and that might still be the case, but now I see brokers like Barclays are marking down their forecasts for 2nd QTR growth to 7.2% (from 7.4%).

The Chinese were in no mood to appreciate the renminbi / yuan overnight, so that currency led the way for dollar strength in Asia, and that spread to the S. Pacific, and then into Europe. But there are some shining stars in all the dollar strength this morning, so let's talk about them, for that will be like painting happy trees!  On a sidebar, do you remember the artist that the kids all loved that used to say he was painting happy trees? Great memories.

The Chinese renminbi / yuan is close to “fair value” according to SAFE (state administration of foreign exchange). the Peoples Bank of China (PBOC) Gov. Zhou, was reported this past weekend as saying that no large scale measures will be used to stimulate or boost growth, and then Chinese President Xi, said that the nation needs to adapt to a “new normal” pace of growth.  Do you think we need to take all these things together, and come to the realization that the Chinese economy has slowed from its boom days, which could mean a big slowdown of renminbi /yuan appreciation?

Well, not if you're the U.S. Sec. of State, who said that the recent moves by the Chinese to weaken the renminbi / yuan are “unacceptable”.  

First we have the New Zealand dollar, which is up marginally this morning, but up nonetheless, saw house sales drop in recent data, which is a direct result of the higher interest rates in New Zealand. That's a good thing folks, as the housing bubble was getting too big in New Zealand, and this kind of data will only serve as fuel for additional rate hikes in New Zealand. So the rate differential game should continue to widen in New Zealand's favor as we go along this year.

The other bright spot in the currencies overnight is the Swedish krona, marking two consecutive nights of gains for the krona. In Sweden, inflation data was marginally better, printing flat instead of negative, which was expected, and that was taken as positive data for Sweden, and the krona.

The euro is getting clobbered overnight and this morning on news that the German Central Bank, the well-respected, Bundesbank, announced that they are willing to back some of stimulus measures the European Central Bank (ECB) announces next month, including negative interest rates on bank deposits, to keep inflation from staying too low.  The Bundesbank is not on board with large bond purchases like the U.S.& Japan have undertaken.

I find this announcement by the Bundesbank very interesting, as the Bundesbank has always been held in high regard as a Central Bank that provided price stability, and fought inflation around every corner. I'm very concerned as a long time Bundesbank admirer that they have gone down this road. I mean, come on, low inflation isn't the end of the world! So, what if consumers put off purchases in hopes that prices will fall further!  I shake my head in disgust at this, folks, and understand why the euro is getting clobbered this morning.

A currency that I seldom talk about, the Mexican peso, has been rallying lately, but we've seen these moves below the 13 handle before (remember peso is a European Priced currency, so as the price drops, the greater the value VS dollars), and I think we'll it move back over 13 again, especially with reports like we saw yesterday from Mexico. Mexican Industrial Production contracted -.1% in March.  I still think that in the long run, the reforms of President Nieto, will help the Mexican economy, and the peso to be stronger. But not yet.  This move below 13 could prove to be a false dawn. So be careful here, don't get too lathered up about pesos just yet.

Yesterday, I told you about how the Indian rupee had slipped below 60 on the exit polls results showing that the old ruling party would be thrown out. Well, as the day went along, the rupee couldn't hold below 60, but that's OK, I'm sure there were plenty of “profit taking orders” once it slipped below 60.  But, that was the only weak news from India yesterday, as India's trade Deficit narrowed in April from March $10.1 Billion VS $10.5 Billion, as exports rebounded by 5.3% in April VS a year ago. The hope here is that IF a new Gov't is installed, that we could see an easing of the restrictions on Gold imports, as the Trade Deficit certainly seems to be manageable at this point.  And the rupee has gone back below 60 overnight, so all's right on the night with rupees today.

After I hit “send” yesterday, Gold began to move up the ladder to $1,300.00 once again, and soon it was over that level, and looking pretty perky. Increased tensions and conflicts in Ukraine, was the reason the media hung on Gold's rise. But by the end of the day, the shiny metal was back below $1,300, and there were no Ukraine tensions or conflicts to help it.  But get this. I've talked about Koos Jansen before, and all his work researching the Gold in China. Well, I read on Google+ that Koos reported that Chinese Gold demand for the year through the last week of April, has reached nearly 700 Tonnes, which annualized would be more than 2,000 tonnes, or as he puts it, “The bulk of world Gold production”.

He goes further to say that, “Chinese Gold demand remains robust, and that the Chinese Silver markets is in serious backwardation, indicating a shortage of metal.”

Recall, that in yesterday's letter, I talked at length about the coming shortage in Silver. if you don't subscribe to Google+, you can usually find Koos Jansen's contributions on the website: ingoldwetrust.ch

I had a couple of dear readers send me a link to a story regarding Norway yesterday, so thank you for that. The story's headline reads: End of Oil Boom Threatens Norway's Welfare Model. And then goes on to explain that despite Norway having the foresight to put aside a massive $860 Billion rainy day cash pile, or $170,000 per man, woman and child, that the energy boom is tailing off years ahead of expectations, thus exposing an economy unprepared for life without oil revenue.

On the outside, this story would scare the bejeebers out of anyone looking to own Norwegian krone. But one of the great things about reading a letter from someone that has been writing and researching since 1992, is that the writer can draw on years of experience. And that's what I'm doing here when I tell you that this isn't the first time that these stories of the demise of the great fundamentals of Norway have gone around the fire. The last one was about 6 years ago, and soon after everyone got the bejeebers scared out of them, and ran for the hills, selling their krones, a new discovery of Oil was made, and soon all was right as rain in Norway again. So be careful jumping to conclusions here folks.

So. Like I said above, Retail Sales is the Big Kahuna data print from the U.S. Data Cupboard today. Not much else will print. In the Eurozone, ECB member Weidmann will speak today. remember I said yesterday that I thought given Weidmann's hawkish nature that he could give the euro some help this week. Well, he's going to have to be Superman now, that the Bundesbank has deep sixed the euro.

Before I head to the Big Finish. I want to point out something that's near and dear to my heart. Yesterday, the head of Agora Publishing and editor of a newsletter called: Diary of a Rogue Economist, talked about doing his best. I suggest you all go to: http://www.bonnerandpartners.com/category/dre/   and read it. titled: True Confessions of a Newsletter writer..

Oh, and one more thing before the Big Finish. Have you seen the stuff going around about former Treasury Sec. Tim Geithner's new book? He claims that he was told by the administration to mislead the public about the economy. YIKES! I know you want to sell books, but to throw the administration under the bus, and think that this absolves you from the misleading, is the wrong way to go about this. at least in Chuck's mind it's wrong.

For What It's Worth.  Well. China and Russia just keep buddying up more and more. In preparing for Putin's visit to China, there were preparatory talks going on, let's listen in.  I found this on the website: the brickspost.com.

“Chinese Vice Premier Zhang Gaoli held preparatory talks with his Russian counterpart Igor Shuvalov in the Great Hall of the People in Beijing.

Zhang told Shuvalov that China would stress on increasing the already vibrant bilateral investment between the two nations. China is Russia's fourth largest source of foreign direct investment.

“Financial cooperation between China and Russia is growing as local currency settlement in two-way trade increases and consultations on a package of currency swaps are on-going,” said Zhang. This would remove the necessity for transactions to be settled in two foreign exchange trades via the US dollar.

Beijing is keen on substituting the US dollar with the yuan in all of China's trade with other countries. The Chinese currency now trades directly with the Japanese yen, the Australian dollar, the Brazilian real, the EU's euro, the New Zealand dollar and many other currencies.

China will aim to boost investment via the China-Russia Investment Fund, singling out greenfield investment, equity investment, bond issuance and mergers and acquisitions, Zhang said.”

Chuck again. Yes, nothing new here other than the potential size of this agreement. China may be going through growing pains with an economic slowdown, but they're still moving along with their plan to remove the dollar standard, and one of the ways they will do that is to sign as many countries to a currency swap agreement, thus removing dollars from the terms of trade. If countries don't need dollars to effect the terms of trade, then they no longer need to hold so many dollars in their reserves. And thus, not only the amount of dollars in reserves suffers, but so too does the dollar's value.

To recap.  The Bundesbank has deep sixed the euro this morning, by saying they, the all-time  Champions of the World regarding inflation fighters, will back an array of stimulus measures by the ECB next month if inflation forecasts are weak, but won't back bond buying. China's data was mixed but overall, the economy remains slow, and the renminbi was marked down again. Sweden and New Zealand are the shining lights overnight, and that's it. The rest of the currencies and metals are down.

Currencies today 5/13/14. American Style: A$ .9355, kiwi .8645, C$ .9175, euro 1.3705, sterling 1.6835, Swiss $1.1230, . European Style: rand 10.3155, krone 5.9325, SEK 6.5670, forint 221.35, zloty 3.0525, koruna 19.9910, RUB 34.91, yen 102.25, sing 1.2530, HKD 7.7415, INR 59.68, China 6.1636, pesos 12.93, BRL 2.2140, Dollar Index 80.09, Oil $100.73, 10-year 2.65%, Silver $19.42, Platinum $1,440.42, Palladium $808.86, and Gold. $1,290.35

That's it for today. Well, it's our colleague, Aaron Stevenson's birthday today! Happy Birthday Aaron! By the way you're only.  No wait, he didn't tell me I could announce his age, so I had better skip that! Or is just the women here that I can't mention ages? I'm so confused! Cardinals get whacked by the Cubs last night, it was not pretty, and with Jack Bauer on a different channel, I had to switch it off and go to 24. It looks like a Yucky weather day outside.  The rain didn't come in time to save the Cardinals last night! UGH! Uriah Heep's song: Stealin' is playing on the IPod right now. That's a song that I would normally be singing out loud with, but Suzan is here, and I doubt she would appreciate that!  Well. Mike just walked in, so I know this is running late. Had to gas up the car this morning on the way to work, I noticed gas was a bit cheaper, and that's always a good thing!  Ok. I'll get out of your hair for today. I hope you and the Mighty Manfred the Wonder Dog, make this a Tom Terrific Tuesday!

Chuck Butler
President
EverBank World Markets