Yellen Says ZIRP Is Warranted!
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In This Issue.

* Currencies back to assaulting the dollar.

* China prints very strong Trade Surplus!.

* ECB balance sheet shrinking.

* ECB & Norges Bank meet.

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

Yellen Says ZIRP Is Warranted!

Good Day! . And a Tub Thumpin' Thursday to you! I'm not in the Tub Thumpin' mood this morning, but I sure hope you are! I'll be fighting this awful feeling I have this morning, throughout the letter, until as REO Speedwagon sang, "I can't fight this feeling any longer."

When I turned on the currency screens this morning, I saw a lot of green. Which reminded me of many years ago, when trading systems first came out, and there was a guy at a booth next to ours, at a trade show, that was selling these trading systems, and I kept hearing him say over and over again for 3 days, "when it lights up green you buy, when it lights up red, you sell, it's that simple!" Of course if it were that simple all that bought that system would have been multi-millionaires!

So, it's all about the currencies again today, after taking a brief pause for the cause yesterday. Yesterday's Big Event, was Janet Yellen's first trip to "the Hill" to make the semi-annual testimony to lawmakers on the pulse of the economy. Today, she'll head to the other side of "the Hill" to repeat her talk. What I found interesting in her talk yesterday, was that it didn't stray from the script that was prepared ahead of time for her. She didn't stray, nor did she drop any bombs like Ben Bernanke did last year, when he first mentioned tapering. What Yellen did say, which was not a change, was that, ". Given the "considerable degree of slack" in labor markets and with inflation still well below the Fed's 2.0% target, a high degree of monetary accommodation continues to be warranted."

So, in other words. Interest rates aren't going anywhere for what she once again said, "a considerable amount of time after the bond buying ends", but would NOT be pinned down on describing "considerable time" this time. And so the markets came away from the meeting feeling as though the ZIRP (zero interest rate policy) was set in stone. And what that thought prompted the markets to do? Sell dollars!

And so we have another all-out assault on the dollar this morning, except from one main participant, the Chinese renminbi/ yuan. But the euro is at an 8-week high VS the dollar this morning, and the Norwegian krone has dropped below 5.90 for the first time since last October. (krone is a European priced currency, so the lower the number the greater return is VS dollars)

It's about time the krone got moving, I can hear you saying to yourself. And yes, I would agree! There have been many mornings that I've sat here beating myself up over the krone's inability to rally. But that's here nor there, this morning. The Norges Bank (Norway's Central Bank) is also meeting this morning, and there's not any reason to believe the Norges Bank will change horses in the middle of the stream today.

The European Central Bank (ECB) is meeting as my fat fingers type away here, and as I said earlier this week, the drama that has surrounded previous ECB meetings is missing at this meeting. The recent strength of the Eurozone economy has ECB President, Draghi, on hold for implementing any new stimulus measures. And with that, the Eurozone balance sheet gets reduced as countries that have taken out loans, pay them back. This is an important piece of the puzzle folks. I've talked about this before, so this is for all the new readers or for those that missed class that day. But, the euro is receiving love again from all over the world, because of a lot of things, but none so important than the shrinking of the ECB's balance sheet, while in the U.S. the dollar has to live with the Fed still pumping more air in their balance sheet, although not at the same pace as before, but still pumping.

The best performing currency overnight has been the Brazilian real. The real has the best interest rate differential of what's considered to be the industrialized world. And when the Fed Chairwoman says ZIRP is not changing, real investors see this as an opportunity to make some hay while the sun shines. I would just caution real investors to keep an exit strategy close at hand, for the Brazilian Gov't has bitten investors once before, which makes me, Once Bitten, Twice Shy, babe.

The real has gained 6.5% VS the dollar this year, mostly because of this rate differential thing. But some of the gains are tied to the hopes that there will be a change in Gov't at the elections later this year.

From first to worst. ( I like it better reversed!) the Chinese renminbi, as described above, was the only currency to book losses overnight VS the dollar, and you have to question the Peoples Bank of China (PBOC) as to why that was the case, given the good data from China overnight that saw the Trade Surplus beat expectations! The Chinese Trade Surplus came in at $18.5 Billion in April, beating the expectations of $13.9 Billion! Both import and export growth were stronger in April than in March. The one I look to is the import growth, which is an indication of how the domestic demand is doing. And in this case, domestic demand must be doing just fine!

With the euro at an 8-week high this morning, the Swiss franc also gets to jump up and click its heels together over its move VS the dollar. And the Commodity Currencies of: Australia, New Zealand, Canada and S. Africa, are all stronger VS the dollar this morning, on not only current rate differential trades, but future rate differentials. (remember, Chuck expects 2 more rate hikes in New Zealand, and maybe 1 before year-end in Australia)

Judging from the emails received yesterday, there are quite a few Al Stewart fans out there! I'm listening to On the Border right now, and that's what reminded me that I talked about his music yesterday morning, and I received some notes. Always great to know that others are out there humming, whistling, or even singing songs that I reminded them of!

Gold is basically flat this morning, although up a buck, after falling below $1,300 again yesterday. This back and forth around $1,300 is beginning to give me a rash! . Yesterday, I talked about the price performance of Palladium, and earlier this week I talked a lot about Silver. But today, I'll stick to Gold. on a sidebar, did you hear that China has demanded Gold as collateral from Zimbabwe should they loan them any money? I tell you that, because I think we'll see more and more of this, using Gold as a money tool. It's already being used to pay for Oil (see India), and countries like China and Russia are going to attempt to bring Gold back as the true currency it is!

The U.S. Data Cupboard yesterday, showed that Consumer Credit exploded higher in March from $12.986 Billion to $17.529 Billion! Although I did see that Margin Debt at brokerage houses dropped in March. So, this is confusing data, but if we look under the hood, we see that Margin Debt had reached an all-time high, it really had nowhere to go but to back off, which it did. I doubt this is a trend, given that everyone and their brother is in stocks right now.

Today, we get the usual fare of Weekly Initial Jobless Claims, and that's about it, besides a Bloomberg Consumer Comfort survey. And tomorrow's Data Cupboard is pretty bare too. So, the markets are left to Fed Speak.

Yes, as I said above, Janet Yellen will repeat her talk today, but she's not the only Fed member to be on the speaking docket today. Plosser, Evans, Tarullo, and Bullard will all have something to talk about today. Should be interesting to see if there are any tidbits said outside of the scripts.

People ask me all the time, "Chuck, what's your all-time favorite song?" Hmm. Probably the one that's playing on the IPod right now, from the Captain and Me album, South City Midnight Lady, by the Doobie Bros. So. there you go!

For What It's Worth. Well, believe it or don't, I found this article on a link provided by LinkedIn. It's about the Baby Boomers ( like me!). It's pretty long, so fill up the coffee cup and enjoy.

"For decades, the retirement of the baby boom generation has been a looming economic threat. Now, it's no longer looming - it's here. Every month, more than a quarter-million Americans turn 65. That's a trend with profound economic consequences. Simply put, retirees don't contribute as much to the economy as workers do. They don't produce anything, at least directly. They don't spend as much on average. And they're much more likely to depend on others - the government or their own children, most often - than to support themselves.

The recession may have delayed the inevitable for a time. The financial crisis wiped away billions in retirement savings, forcing many Americans to work longer than planned. But the stock market has since rebounded, and there are signs that more Americans are at last feeling confident enough to leave the workforce. The labor force participation rate for older Americans - the share of those 55 and older who are working or actively looking for work - has fallen over the past year after rising through the recession and early years of the recovery. Roughly 17 percent of baby boomers now report that they are retired, up from 10 percent in 2010.1

Now that the wave has begun, nothing is likely to stop it. The Census Bureau on Tuesday released a pair of reports that show just how dramatic an impact the graying of the population will have in coming decades.

Nearly a quarter of Americans were born between 1946 and 1964, the typical definition of the baby boom generation. That's more than 75 million people. In their heyday, the boomers were an unprecedented economic force, pushing up rates of homeownership, consumer spending and, most important of all, employment. It's no coincidence that the U.S. labor force participation rate - the share of the adult population that has a job or is trying to find one - hit a record high in the late 1990s, when the boomers were at the peak of their working lives.

It's been downhill ever since. The participation rate hit a 36-year low last month, and while there are multiple reasons for the decline, the aging of the baby boom generation is a dominant factor. In 2003, 82 percent of boomers were part of the labor force; a decade later, that number has declined to 66 percent, and it will only continue to fall."

Chuck again. The reason I found this to be interesting, is that, the economy is going to have to find a way to offset all these retiring Baby Boomers. And then there's also the Unfunded Liabilities number that is just going to keep growing like a week. Today it stands at: $129 Trillion!

To recap. The currencies are back to taking liberties with the dollar this morning, except the Chinese renminbi. China posted some very strong Trade Surplus numbers last night, so the overnight depreciation of the renminbi was curious. The ECB and Norges Bank are meeting this morning, but expect no drama. The ECB balance sheet is shrinking while the Fed's is still getting pumped up, like Hans and Franz. The real is the best performing currency overnight, given their rate differential and Janet Yellen's speech yesterday in which she emphatically held tight to the thought that zirp is warranted.

Currencies today 5/8/14. American Style: A$ .9385, kiwi .8660, C$ .9195, euro 1.3945, sterling 1.6970, Swiss $1.1445, . European Style: rand 10.3770, krone 5.8645, SEK 6.4860, forint 218.15, zloty 3.0050, koruna 19.6605, RUB 35.10, yen 101.80, sing 1.2470, HKD 7.7515, INR 60.07, China 6.1557, pesos 12.95, BRL 2.2155, Dollar Index 79.09, Oil $100.40, 10-year 2.63%, Silver $19.33, Platinum $1,441.80, Palladium $807.29, and Gold. $1,293.50

That's it for today. WOW, my beloved Cardinals saw their bats come alive last night in Atlanta, and now hopefully those hot bats get packed away and taken to Pittsburgh this weekend! They are 3-3 on this road trip, so taking the series in Pittsburgh is important! Great news from the Water Polo world. Alex was named 1st team All-Conference! But even better, son, Andrew was named the Water Polo Coach of the Year in the state of Missouri! WOW! Now they just have to finish in the final 4 of the state playoffs, which begins this Saturday for the Lindberg team.. Hey! I know that I've been remiss in reminding you of this, but Sunday is Mother's Day! Don't forget! If your mom is still alive, give her a great big hug and thank her, then tell her you love her. You don't know how many times you'll get to do that, believe me. Well, I fought through what was weighing on me this morning, so now it's time to send this out. I hope you have a Tub Thumpin' Thursday!

Chuck Butler
EverBank World Markets

Posted 05-08-2014 11:33 AM by Chuck Butler
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