Rates To Remain Near Zero Through 2014 .
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    In This Issue.

    * Dudley agrees with Yellen on rates.

    * Which sends Gold higher!

    * Chinese GDP weakens to 8.1%...

    * Buying Gold on the dips.

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

    Rates To Remain Near Zero Through 2014 .

    Good day. And a Happy Friday to one and all! It's Opening Day here in St. Louis as baseball comes back to the town that loves its Cardinals and baseball. The people of the city will be dressed in red today, the ballpark will be a sea of red, and the excitement for the day begins. But, we could be in trouble weather wise. It's already rained in some parts of the city and is expected to rain all day and night here. UGH! The Cardinals are the reigning World Series Champions, and should have opened their season at home. But no. they played a week on the road to start the season. If they had opened at home, last week was sunny and 80 all week.

    OK. Sorry. I guess if the game gets rained out, we can all go see the Opening of the 3 Stooges Movie! HA! Sorry. but guys my age all grew up watching the 3 Stooges, and laughing until it hurt.

    In my old writing style. I would be associating some Gov't leaders with the 3 Stooges right now, but since I don't do that any longer, I should just move along, for these are not the droids I'm looking for.

    Well. the currencies and metals added to their gains yesterday as the day went along. The euro traded briefly at 1.32, and the Aussie dollar (A$) trade through $1.04. There was more Fed Heads speaking, and Fed Head Dudley agreed with Fed Head Yellen who had said the previous day that keeping interest rates near zero through 2014 was needed. Dudley said, "I haven't seen any set of information that should suggest to me we should change that view."

    So, that got the ball rolling with Gold, for as I've explained many times in the past 4 years since interest rates around the world headed to zero. Gold competes with deposit rates. So, if there are no deposit rates, Gold is the chief beneficiary. And now knowing that 2 Fed Heads agree with Fed President, Big Ben Bernanke, that rates need to remain near zero through 2014, really got the ball rolling for Gold, and as I left the office, with my tail dragging, and totally exhausted, Gold was up $17 on the day.

    But. all the euphoria in the risk assets got some cold water thrown on them by the latest GDP data from China overnight. China's 1st QTR GDP grew at the slowest pace in 11 quarters, but was still a robust +8.1%... If you keep with what I told you years ago, that you should believe 1/2 of what the Chinese report, then that puts 1st QTR GDP at +4%, which is still far greater than most countries around the world.

    So, the moderation of the Chinese economy continues. But that really takes a bite out of the Commodity Countries' currencies. Australia, South Africa, New Zealand, all felt the bite of slower Chinese economic growth.

    I think this slower GDP report might spur that reserve requirement reduction we were looking for last weekend, even with inflation bumping higher last month. A move to reduce reserve requirements would be like a rate cut, and even though in the old days, that was viewed as debasing a currency, these days, the markets reward countries that promote growth. And the global growth countries would be jumping up and clicking their heels together!

    I've spent a couple of days this week talking about Singapore and the Sing dollar (S$) well, as I explained the other day, the Monetary Authority of Singapore (MAS) met last night, and I was quite pleased with their decision. The MAS decided to maintain its currency's appreciation and increase the slope of its trading band. Apparently the MAS is very concerned about rising inflation in Singapore, and as I've explained in the past the MAS uses the S$ to combat inflation.

    They do this by adjusting the trade-weighted band of currencies by changing the slope, width and center of the band. A flatter slope allows slower appreciation or even depreciation over time, but. that's not what the MAS has decided it will do going forward. The will increase the slope, which means they will allow additional currency appreciation!

    Heading over the North Pole from China, we land in Canada. and the Canadian dollar /loonie finally got back to parity to the U.S. dollar yesterday, as the price of Oil rebounded from a dip this week. The price of Oil rebounded to $103, and I've told you many times that a higher Oil Price is needed to move the loonie higher, as the Bank of Canada (BOC) refuses to hike rates.

    You know. I like the Canadian dollar / loonie for a number of reasons, but what I don't like is the BOC sitting and watching a housing bubble and doing nothing. Finance Minister, Flaherty, said that he "prefers to allow the Housing Market to correct itself" Vancouver and Toronto are the locations of the biggest housing problems. But to sit there, and do nothing is not prudent in my opinion.

    Speaking of Oil. I read a report last night that made a lot of sense to me. the researcher pointed toward the growth in U.S. M3 Money Supply as a strong reason for the elevated Oil prices. in the report they showed that M3 had grown more than 150% since 1998, while global Oil reserves grew 33%... Which means more dollars in circulation chasing a certain amount of Oil reserves, and you get inflated Oil prices.

    But remember. the price of getting Oil out of the ground continues to rise too. And, don't forget what I told you a month or so ago, about how the Saudi's need to keep the price of Oil high, to keep the money flowing, and prevent riots like those seen all over the Middle East last year.

    And don't forget that there's a strong correlation between Oil prices and the U.S. dollar, that began around 2004, and is now at a 82% historic average. years ago, there was no such correlation, but as time has gone on, and investors learn that they can hedge against dollar weakness with commodities like Oil. the correlation has come about.

    Buying Gold is another investment that hedges against dollar weakness. but it's also a commodity. it's a currency. it's an uncertainty hedge. No. it's Super Man! Just having some fun. I know a lot of people think that Gold's shiny days are over. But, I'm not one of them! And apparently long time acquaintance, Frank Holmes, the CEO of U.S. Global Investors, isn't one of them either. Frank was interviewed for Forbes.com and he said that, "buying the dips in Gold has been the right move for a decade."

    If you're interested in reading what else Frank had to say about why buying Gold on the dips continues to be the right move, you can click here: http://www.forbes.com/sites/greatspeculations/2012/04/10/buying-the-dips-in-gold-has-been-the-right-move-for-a-decade/

    OK. The pressure on the euro and the ECB coming from Spain continues to be strong. The return of the Spanish Flu? I read a report that called the problems in Spain the return of the Spanish Flu. I'm not sure that associating a debt problem with a pandemic that killed between 50 and 100 million people is a good thing. In fact, I'm sure it isn't!

    Well.. as I said earlier this week, the European Central Bank (ECB) is becoming the Fed of Europe. and with that title, the ECB will look to buy Spanish debt, and not continue the 3-year loans they've been making. We'll have to wait-n-see what the markets think of that. But judging from the performance of the euro this morning, It looks like the markets don't really care, as the euro is up from where it was when I came in and turned on the screens this morning.

    There's a story out this morning that says that Japan's top Pension Fund is going to begin to invest in emerging markets stocks as early as this quarter. The Pension Fund oversees $1.3 Trillion, will begin to focus on markets including Brazil, Russia, India, China, South Korea, Taiwan and South Africa. This is good news for these countries and their stock markets, and vis-à-vis each respective currency. for. the currency of each country has to be bought to buy stock in that country!

    Speaking of South Korea. things are brighter there this morning, after the North Korea rocket launch failed.

    There was another earthquake, this time hitting in Mexico. That's two earthquakes this week around the world.

    The data cupboard told us yesterday that the Trade Deficit for February narrowed to $46 Billion from $52.5 Billion. remember that February has fewer days, before you go out and buy something that was imported to make up for the difference! HA! PPI (wholesale inflation) showed a .3% increase month-on-month, and an annualized figure of 2.8%...

    The Initial Jobless Claims gained 13,000 last week, moving to 380,000 from 367,000. Today, we'll see the stupid CPI (Consumer Inflation) . And the U. of Michigan Consumer Confidence report.

    Then There Was This. I meant to talk about this yesterday, but, completely forgot, until I heard it mentioned again in a TV interview that I saw. (Thanks JMR Doug!) Here's what I'm talking about. There are reports out that say the Big Banks are once again beginning to give loans to bad credit people. OMG! More Sub Prime? Have we not learned anything? I shake my head in disgust here folks, because. This will all end up in the crying pool. I'm not someone that doesn't believe in giving people a chance, but at the same time, I'm someone that believes in the once bitten twice shy, babe. More Sub Prime. again, it's an election year. right?

    To recap. Dudley agrees with Yellen that rates will remain near zero through 2014. That pushes Gold higher on the day. Oil rebounds to $103. Chinese GDP weakens to 8.1%, thus proving that the moderation is in, not the collapse that many economist called for. Sub Prime 2? When do we ever learn? And Frank Holmes tells us about buying Gold on the dips!

    Currencies today 4/13/12. American Style: A$ $1.0405, kiwi .83, C$ $1.0065, euro 1.3165, sterling 1.5935, Swiss $1.0955, . European Style: rand 7.8755, krone 5.7770, SEK 6.7515, forint 225, zloty 3.1730, koruna 18.7760, RUB 29.46, yen 81, sing 1.2455, HKD 7.7610, INR 51.33, China 6.3025, pesos 13.07, BRL 1.8260, Dollar Index 79.45, Oil $103, 10-year 2.01%, Silver $32.37, and Gold. $1,675.05. and getting back to our old Friday practice of taking a peek at the U.S. Debt Clock. click here. http://www.usdebtclock.org/index.html

    That's it for today. A Big Congratulations to our little Christine and hubby Matt, on the birth of a baby boy yesterday. That's 3 boys now for Christine & Matt. 2 more and they'll have a basketball team! I meant to wish our Blues good luck on the start of the Playoffs yesterday and forgot. The Blues forgot how they beat the Sharks 4 times this year, and lost the first game. We've been disappointed for over 40 years, but I was hoping this was going to be "the year". It's best of 7, so they can come back. I made it through today's letter without mentioning it's Friday the 13th! Until now that is. Be careful out there today! So. Opening Day in St. Louis! If you've never been here for this, you should. Since 2007, I get chills every time the players come in, the Clydesdales go around the stadium, and look around at the sea of red. and with that, I'll get out of your hair for today, before I really begin to get sappy! I hope you have a Fantastico Friday!

    Chuck Butler


    EverBank World Markets



    Posted 04-13-2012 11:20 AM by Chuck Butler
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