Bullard Throws A Cat Among The Pigeons!
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In This Issue.

* Rate Differentials to narrow? .

* Gold sees attempt to recover fade.

* Chuck's kiss o 'death is still alive .

* ECB meeting to disappoint once again?.

Bullard Throws A Cat Among The Pigeons!

Good Day! . And a Tub Thumpin' Thursday to you! The skies are a Tub Thumpin' this morning, as we get pelted with more rain. The temperature is supposed to rise to 77 today, which puts us smack dab in the middle of the high chances of a tornado that would come out of the storms today. So, for all the local folks, if you here the warning sirens, head to the basement. Tornadoes are nothing to mess with!

When I look out at the currencies and metals this morning they appear to have been scattered about by the bad storms too! Yesterday, after signing off, Gold took off for higher ground, and before you could say, "look at Gold", it was up $15, and looking like it was ready to head back to $1,300. But that euphoria didn't last, as Fed Head James Bullard decided to throw his two-cents into the discussion on interest rates.

Well, St. Louis Fed President, James Bullard, really lathered up the markets a bit yesterday, and caused some slippage in the currencies & metals VS the dollar by saying that he expects a rate hike in the first quarter of next year. This is 3 months ahead of the most aggressive interpretation of Fed Chair Janet Yellen's "considerable time after QE has ended".. It's important to note that Bullard is a non-voting member this year, but if that's how he feels now, imagine when he is a voting member next year!

But once again, I think the Fed Heads are being overly optimistic. And I address this later today, with a quote from Richard Duncan on the Fed's Tapering. I still believe that strong economic growth is far from given. and in fact I think it's a pipedream. But in either case, this comment by Bullard sure acts as a wakeup call for the markets.

So, at first, when the markets got all loosey Goosey about Yellen saying that rates would rise after some considerable time after QE ends, that was fine. Let them be wrong! But now they are carrying this rate hike talk into the rate differential discussions, and that would be funny if it weren't true! But now the markets are saying, "that with interest rates in the U.S. going higher (as if that were written in stone) the rate differential to the Antipodean currencies will narrow. And therefore they see that as a reason to sell the Antipodean currencies! UGH! For those of you new to class, the Antipodean currencies are those of Australia and New Zealand. And now you know that I'm a lazy writer, in that I would rather refer to the two currencies with one word, instead of 5 words! HA!

So, I hope you see what I'm saying here. the markets are already thinking that interest rates are going higher in the U.S. sooner than later (Chuck thinks later, and when they do they'll soar higher, but let's not let that get in the way of our discussion!) and therefore the U.S. dollar should be bought. Hmmm. Oh well, I think this too will pass, but for now, we have to let the kids play outside!

And before we go on, it's important to tell you about another non-voting Fed Head who differs in opinion with Bullard. Fed Head Williams who I'm told is a non-voting member this year, but. and that's a big but and no I'm not going there again! I'm also told that he used to work for Yellen at the SF Fed. So the thought here is that maybe he has an inside to Yellen. Anyway, Williams said that "it makes no sense to start raising rates in the 2nd Half of 2015, and that the Fed needs to keep rates well below the historic norm of 4% even into 2017." WOW! Now. in my best Andy Rooney voice. Ever Wonder why Bullard got all the press, and Williams not a mention? I think you know what I'm saying here, so I'll just move along, for these are not the droids we're looking for!

The euro lost about ¼-cent yesterday, and is flat this morning ahead of the European Central Bank (ECB) meeting, that's taking place as I write. Remember last month when the markets were convinced that ECB President Draghi, would announce additional stimulus, and I said "hogwash"? Well, who was right then? That's correct it was little old me! HA! Well, this month, there are still some naysayers to the Chuck way of thinking and they are standing still with their thoughts that additional stimulus is coming from the ECB. Again, I say hogwash! Not now, anyway! Things are not dire in the Eurozone, Germany, the Eurozone's largest economy, is seeing their economy grow, unemployment drop, and exports remain high, so you have to take a flyer on the additional stimulus in my opinion. So, the weakness in the euro the past two days, will most likely be a thing of the past once we get through today's ECB meeting.

The recent data from the U.K. has really been disappointing, especially given the strength of the data leading up to recent reports. I kept telling you all that the U.K. was not that strong! The recent report that confirms weakness is back is the services data which was very disappointing. And then good old Mark Carney, you know the new Bank of England Gov. and former Gov. of the Bank of Canada, he of the bag of promises that never get out of the bag, is seeing what I was seeing. Carney told a newspaper that "There's slack in the labor market that needs to be used up before policy makers raise interest rates." So, the pound sterling backs off its previous lofty levels, that were falsely pumped higher by shaky data.

And as usual, Chuck puts his kiss of death on a currency by talking glowingly about it. Yesterday morning, I told you all about the 6 month moves in the Indian rupee, only to see it get whacked overnight, on what Bloomberg calls "technicals". You know, when a currency reaches a certain point on a chart that tells traders that they need to sell. Long time readers know me, and I'm not a chartist, but I believe that in conjunction with fundamentals they can be useful at times. This is one of those times that I don't think they are useful. So, maybe this whacking is a good opportunity to buy at cheaper levels than prior to the whacking!

Man! I just felt the building move! The light standards overhead are swaying back and forth, it must be a real doozy of a storm outside! Talk about scary! You know when you're sitting in a chair in a building and you feel like you need to reach for the Dramamine that things are getting weird. OK. my phone just said there's a tornado in the area and that I need to take shelter, I'm going to step away for a minute. In my best Arnold voice. I'll be back!

China tried to address the economic slowdown in the country by announcing that they will introduce a package of measures to support the economy. The package includes: railway spending and tax relief. And in concert with that announcement, the Chinese also pushed their currency, the renminbi / yuan, down this morning. With the first couple of days this week showing the Chinese allowing appreciation of the renminbi / yuan once again, I thought maybe their "teaching the markets a lesson" was over, and we could get back to the task at hand, which is an appreciating renminbi / yuan. But I guess not! I guess the lesson is not over!

Another BRIC currency, the Brazilian real, saw some love yesterday after the Brazilian Central Bank (BCB) hiked rates again, this time 25 Basis Points (1/4%) to an internal Selic rate of 11%... Of course that's nowhere near where deposits get paid interest, but the point is that rates moved higher again in Brazil, as inflation continues to be a real problem in the country. I would have to think that the BCB is getting pretty close to tying the rate hikes into a bow. So, the real might be left to its own devices. and left to my own devices I probably would. No wait! Didn't mean to go all Pet Shop Boys on you this morning!

Well, yesterday the U.S. Data Cupboard was good to the economy by printing a stronger than expected Feb Factory Orders report. Factory Orders for Feb grew 1.6% VS a -.7% in January. I guess the "bad weather" that affected everything else in February wasn't at play here, eh? So, good for Factory Orders. Unfortunately, the New York regional manufacturing index fell from 57 to 52 in March. The ADP Employment Change for March printed at 191,000 jobs created, missing the target of 195,000 but the miss was small, so for the folks at home keeping score, this was a good report. not great, but good.

Today, we'll see the Data Cupboard yield the Feb Trade Balance (read deficit!) The Usual Thursday Weekly Jobless Claims, and the Challenger Job Cuts year on year for March. And then tomorrow is the day the markets have been waiting for. the Jobs Jamboree that will show once and for all that the previous months bad reports were damaged by bad weather! Well, that's what the markets think so far.

Well, before I head to the Big Finish, I wanted to comment on a story that hit my email box yesterday from the WSJ, stating that, "for the FIRST TIME within General Motors, executives will be told of vehicle safety problems when they are first reported." In the words of a local car dealer, Are you kidding me? I just cringe when I hear stuff like this, don't you? I mean going back to the tech scandals, Enron, and so on, until now, you have to question why, foreigners would look to buy U.S. assets given all these things that continue to be revealed. Investors here in the U.S. have grown comfortably numb to the scandals and just keep buying. Need I say more?

For What It's Worth. I need to do some building of this story first, so here we go. Long ago I read a book by Richard Duncan called "The Dollar Crisis" It sealed my beliefs of the dollar's future, and when many people over the years would ask me what book should they read to get them started, I would tell them about this book. Since then I've read "The New Depression" and "The Corruption of Capitalism" by Richard Duncan. All well worth someone's time to read. So, seeing that my friend, Bill Bonner, quoted Richard Duncan yesterday certainly caught my eye and led me to relaying that quote to you this morning, dear reader!

First of all I need to tell you about Bill Bonner's new letter titled: Diary of a Rogue Economist. And can be found by clicking: http://www.bonnerandpartners.com/category/dre/

And then Richard Duncan talking about QE. "Duncan expects the coming quarter to produce a record of excess liquidity. The Fed is still pumping liquidity into the market at the rate of $65 billion every month. Meanwhile, it is tax time, so the government's needs for borrowing will be relatively low. And according to Duncan, the difference between the available liquidity and the need for it in the regular economy has to go somewhere.

But after this quarter, the outlook changes. The Fed is scheduled to wind down QE by the end of the year. And the federal government's rosy budget scenario will begin to fade - meaning more government borrowing. That means the third quarter is expected to produce only a slightly positive excess of liquidity. And in the fourth quarter, says Duncan, the excess turns into a shortage.

If the Fed persists in its plans to taper QE, in other words, the third quarter will likely see a selloff in the US stock market. This will give the Fed's forward guidance a kick in the rearward quarters.

Instead of continuing to taper, the Fed will panic. Its entire theory of life... its philosophy... and its sacred religion will be challenged. In its view, credit, prices and stocks must ALWAYS go up. "

Chuck again.. I see that Richard Duncan is in line with my call that the tapering of QE will be stopped this year.

To recap. Fed Head James Bullard threw a cat among the pigeons yesterday by pushing the envelope on the timing of the first Fed rate hike. The markets are now taking this newfound feeling that interest rates in the U.S. are going up, to the currency and metals markets, and talking about narrowing rate differentials to the Antipodean currencies, and so on. Chuck believes this is all gobbledygook, but you have to let the kids play outside.

Currencies today 4/3/14. American Style: A$ .9240, kiwi .8545, C$ .9080, euro 1.3765, sterling 1.6590, Swiss $1.1275, . European Style: rand 10.6455, krone 5.9835, SEK 6.5110, forint 223.15, zloty 3.0315, koruna 19.9510, RUB 35.55, yen 103.90, sing 1.2625, HKD 7.7575, INR 60.20, China 6.1520, pesos 13.12, BRL 2.2682, Dollar Index 80.25, Oil $99.20, 10-year 2.80%, Silver $19.79, Platinum $1,434.25, Palladium $785.25, and Gold. $1,282.80

That's it for today. Well, yesterday was our Antione Lawrence's birthday, and while I knew it before I started writing, I had a brain drain while writing. So, Happy Birthday Antione! I want to thank Cheryl Harper and Jessica Witt, for baking me birthday cakes that were brought in yesterday. I'm always gone on my birthday, so these two got together and decided to bake me my fave cakes for when I returned. A Pineapple upside down cake, and German chocolate cake were so delicious! Then the desk sang Happy Birthday to me, even though it was Antione's Birthday! I truly appreciate the attention for my birthday, that for the past 6 years I've looked forward to so much. Well, it appears that my beloved Cardinals left their bats with hits in them, in Florida, for they've only scratched out 8 hits in two games. UGH! And thoughts and prayers are needed for the folks at Ft. Hood, where a 2nd shooting in past 5 years took place yesterday. So sad. And with that, I'll get out of your hair for today. I hope you have a Tub Thumpin' Thursday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837





Posted 04-03-2014 12:00 PM by Chuck Butler
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