Greece To Receive Concessions In Terms.
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In This Issue.

* Bundesbank effect on currencies is short-lived.

* RBA doesn't mention need to weaken A$ .

* Markets breathe a sigh of relief with Greek inspection.

* Spain has successful T-Bill auction.

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

Greece To Receive Concessions In Terms.

Good day. And a Tom Terrific Tuesday to you! So.. how was your Monday? Hopefully, we can make this a Tom Terrific Tuesday, eh? The first day of school for a couple of kindergarten kids that have moms that work here, brought about some tears. not from the kids. from the moms! I remember when we took Andrew to college. He was moving into the fraternity house, which was to be kind, a mess! So, his mom (my beautiful bride) cleaned it all up, and when we left, she cried. I think she was more upset that we had dropped him off in that messy fraternity house!

Front and center this morning, the currencies are on the rally tracks VS the dollar. We had two things move the currencies higher overnight. First came the Reserve Bank of Australia (RBA) meeting minutes. You will recall me telling you yesterday that the markets were looking for signs that the RBA felt the Aussie dollar (A$), was overvalued and they needed to cut rates to weaken it. Well. there were no such words in the minutes. and the A$ took off for higher ground. Right now, the A$ is up 3/4-cent (.75) which is a very strong move!

Then came the news that concessions are possible for Greece so long as Prime Minister, Samaras shows a willingness to meet the main targets set out in his country's bailout program. That news came courtesy of a senior lawmaker with German Chancellor, Angela Merkel's party. The markets like hearing this news, for, it gives Greece a little breathing room, which they didn't have before, and almost guaranteed that Greece would fail the inspection. and maybe they will still fail it, but for now, the markets have breathed a sigh of relief, and that has the euro trading above 1.24.

And I'll see you. In September. See you, when the summer's through. Yesterday, I actually stepped away from the trading desk and worked in my office! A rare thing for me, as I usually like to be around the trading and camaraderie. But I had a ton of writing and reading to do, so I stepped away. the reading I did, made me realize that we are in for a ton of fun in September. OK. maybe not exactly fun, but. it will seem like just about every day has something in store for us.

For instance, we end this month with the annual Fed Head boondoggle called Jackson Hole. of course it was at Jackson Hole that Big Ben Bernanke announced round two of Quantitative Easing a couple of years ago. So, the markets will be quite interested to see what he has to say this time around. Germany's Constitutional Court will make their decision known on the legality of using the ESM to recapitalize the troubled Spanish Banks and go around the Spanish Gov't, and that happens on Sept 12th.

We will also see what the Troika has to say about Greece's plans to cut debt. that happens in September, and then are a ton of other things like central bank meetings including the ECB and Fed, elections, and. drum roll please. most likely the request from the White House to raise the debt ceiling, as we grow closer and closer to the current ceiling of $16.4 Trillion.

But. before we get to the end of the month and Jackson Hole, we'll have two weeks of waiting, and a lot of sawdust being left on the floor from meetings between heads of state. That leaves the currencies and metals with no place to really go. so. I'm taking off the next two weeks, see ya. HA! Just kidding! Although I will be missing some time coming up soon (not sure yet when), as I have to have more surgery on my mouth. (this time it will be major, and not outpatient stuff, UGH!) you know my mother used to tell me that my potty mouth was going to get me into trouble some day. I wonder if this is what she meant!

Remember yesterday I told you about the Bundesbank, and how powerful they once were. and how they had criticized the European Central Bank (ECB) and their plan to buy bonds, in "unlimited amounts" to keep bond yields at "fair levels". I also mentioned that I hoped that the ECB wouldn't announce the details. Well. apparently the Bundesbank still carries a big stick, at least a stick big enough to make the markets sit up and pay attention! You see, after I hit "send" yesterday, the euro dropped like a rock. and all the signs pointed to the Bundesbank's criticism of the ECB as the reason why. Well, that selling didn't last too long, as the euro had gained back lost ground and more by lunch time.

Well. did you see the news on yet another investment scandal here in the U.S. yesterday? This from Bloomberg. "Whitman Capital LLC's Doug Whitman was convicted of insider trading following a trial in which he spent more than two days on the stand telling jurors he was innocent." How many of these have there been since 2000? Remember all the internet stock scandals, the corporate scandals, and then the investment scandals. And people still want to invest in equities here? WOW.

My friends over at the 5-Minute Forecast talked a bit about the scandals yesterday, let's listen in. "I hear more and more people say the market is rigged against them," "writes Chris Mayer. "They say it is a game for insiders to fleece gullible outsiders.

"Wall Street has not helped this image at all. There seems to be no end to lurid scandals or crises of confidence in the system."

We chronicle many of them here in The 5 -- Knight Capital's "trading glitch," or the "disappearance" of customer money from MF Global. "The Facebook IPO may have been the last straw," ventures Big Picture blogger and Vancouver favorite Barry Ritholtz in his latest Washington Post column."

OK. Spain issued some Treasury Bills this morning and the auction was successful, as the full allotment of 4.5 Billion euros of 1-year Bills were sold, and the yield fell by quite a bit. Today's auction saw the average of 3.07%, VS the previous auction of 1-year Bills which came in at 3.92% on July 17. And this news has helped the euro in addition to the news about Greece getting some concessions.

And back to the A$ and the RBA last night. Now that I've let the RBA meeting minutes sink in. I liked what the RBA DID say. The did say that the Australian domestic economy could weather a fragile global economy. and that the expansion rate for the economy will be over the "medium term" at around the economy's trend pace. That's central bank parlance for: our economy will not weaken any time soon. And when a central bank says something like that, you can bet your sweet bippie that they won't be cutting rates any time soon!

On a side bar. I had a chuckle when I typed the word "fragile". made me think of the Christmas Story movie. when the father receives a gift in a huge wooden box, marked "fragile", and he tells his wife. "it must be from France, it says: "fra-gil-e". you have to pronounce it like that to get the gist. That is unless you're like me, and have to watch this movie every year!

OK. Leon Russell is signing about the Tight Rope right now, so I'm going to stop typing and listen in. Leon Russell is like the old EF Hutton commercials. When a Leon Russell song plays, I stop to listen! And that song was followed by my fave Allman Bros. song: Melissa. but I'm back now. and what I have to tell you is important.

For the past two weeks I've told you how the U.S. Dollar long positions in the futures contracts, had been reduced. Well. it happened again last week, with dollar long positions reduced by 27,000 contract. The three currencies that saw the bulk of the buying were: A$, Canadian dollars/ loonies, and believe it or don't, Mexican pesos. So, for the past 3 weeks, U.S. dollar long positions have been greatly reduced. These are indications, folks, that we're about to see the dollar slip back into the underlying weak dollar trend. Of course things can always change on a dime, but the trend is definitely your friend here, as long as you are use foreign currencies to diversify your investment portfolio, so that you don't have 100% of your investments denominated in dollars.

I was talking with Chris Gaffney yesterday, briefly I must add, for Chris is off here, there, and being stretched like inspector gadget these days. But I gave him my power point from my Vancouver presentation, and he wanted to know what the slide was that had a picture of a guy looking very frustrated with his head on his desk. I said, that' s Chuck at the desk each morning writing the Pfennig, and being very frustrated because he called for the Treasury Bubble to pop 2 years ago. Of course back then, I had no idea that the Fed was going to become the largest owner of Treasuries, and taken down 61% of the Treasury auction supply last year!

I still think that the Treasury Bubble will be the worst Bubble that we've ever experienced, but as long as the global community allows the Fed to print money and buy Treasury supply, then the Bubble will avoid the pin in the room. but it won't last forever, and when it finds the pin, we'll experience a Minsky Moment.

I've told you all about my association with the great economist, Hy Minsky, before, so I won't bore you with those details again, but just mentioning a Minsky Moment, brings back some great memories for me. I was a young man, strong as an ox, and a pretty fair country athlete. I played ball almost every night of the week, and tournaments on weekends. In the winter I would play any pick-up basketball game at any time. And then I got into volleyball. I didn't have two nickels to rub together, but things were good... I thought I was invincible.

Well. now that I've taken that journey down memory lane. let's talk about the data from yesterday here in the U.S. Existing Home Sales were strong in July. Buoyed by cheaper prices for Existing Homes, and record-low mortgage rates, Existing Home Sales increased to 4.89 Million annually from 4.72 million annually in June. Notice I said that the sales were buoyed by "cheaper prices"? well. without these cheaper prices, Existing Home Sales would be floundering. prices in some areas of the country have stabilized, but, in others. they continue to fall.

And then, commodities. specifically agriculture. It's not just corn crops suffering from the drought this year, folks. soybeans too are suffering, and anything else that grows out of the ground and needs water. The S&P GSCI Spot Index of 24 raw materials rose .7% this morning alone, to 673.82, the highest level since May 3. This gauge has jumped 20% since its low on June 21st. But, not to worry, the Fed doesn't count food and energy in their inflation calculations. So, there's no inflation, folks. move along these aren't the droids you're looking for! HA!

Then There Was This. from CNBC. "There's a different sort of drought plaguing California, the nation's largest farm state. It's $38 billion agricultural sector is facing a scarcity of labor.

This year is the worst it's been, ever," said Craig Underwood, who farms everything from strawberries to lemons to peppers, carrots, and turnips in Ventura County.

Some crops aren't get picked this season due to a lack of workers.

"We just left them in the field," he said.

The Western Growers Association told CNBC its members are reporting a 20 percent drop in laborers this year. Stronger border controls are keeping workers from crossing into the U.S. illegally, and the current guest worker program is not providing enough bodies."

Chuck again. if crops are being left in the field, that's going to push prices higher too. but there's no inflation here. Of course I hope you all are with me on this, that I'm being facetious or a smart a.. like my wife calls me all the time. of course this is inflationary!

To recap. The currencies were influenced by the Bundesbank criticism of the ECB plan to buy bonds at first yesterday morning, but soon forgotten, as the currencies got back on the rally tracks by noon. The RBA didn't mention the need to weaken the A$ in their meeting minutes, and instead talked about the strength of the domestic economy being able to weather the fragile global slowdown. And Greece received some concessions and that's good news for the euro, as the markets were pricing in a failure of the Greeks to pass the inspection of their debt cutting programs.. The Greeks may still fail the inspection, but at least for now, the markets are breathing easier.

Currencies today 8/21/12. American Style: A$ $1.0510, kiwi .8135, C$ $1.0140, euro 1.2425, sterling 1.5765, Swiss $1.0340, . European Style: rand 8.2575, krone 5.8940, SEK 6.6470, forint 221.50, zloty 3.2715, koruna 19.9420, RUB 31.83, yen 79.45, sing 1.2490, HKD 7.7570, INR 55.57, China 6.3560, pesos 13.06, BRL 2.0160, Dollar Index 82.10, Oil $96.69, 10-year 1.82%, Silver $28.95, and Gold. $1,625.50

That's it for today. I have something different for you today. When I was in South Florida at the end of April for the Casey Conference, I did a taped interview with Jeff Clark, of Big Gold, at Casey Research. They posted the interview yesterday, so. if you get U-Tube, you can view it here.

They don't let me view U-Tube videos here at work, so I watched it last night at home. I noticed that I need to get my "eye fixed". it's time for an adjustment for sure! I sure hope that works for you. If not, at least you can read the text of the interview right there on that site. Check me out in that suit and tie! WOW! The used to say something like: hey you clean up pretty nicely. HA! I need to get this out the door, as I'm late today. I hope you have a Tom Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 08-21-2012 11:03 AM by Chuck Butler
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