05/06/11 St. Louis, Missouri – Two weeks ago, I wrote about two consecutive days of currency rallies “for the ages”… Well, yesterday we had currency and metals sell-offs “for the ages”… It was a real bloodletting, and after all my talk about “tub thumping” yesterday morning, the only things to get “thumped” were the risk assets… Stocks, currencies, commodities and metals (I know they’re a commodity, but I like to separate them)… The commodity and metals sell-off was nasty, as was the sell-off in the euro (EUR)…
It was the perfect storm for the euro… We had European Central Bank President, Trichet, talk a bit softer than he has recently, but still the outlook for rate hikes remains on the table. We had stocks selling off, and we had the selling of gold and silver…
Personally, I believe that the sell-offs were overdone… Very overdone… Very, very, very overdone! Hopefully you know where I stand on this now!
Yes, Trichet was a bit softer with his words… But, I’ll betcha a dollar to a Krispy Kreme that he did that on purpose… Yes, Mr. Conspiracy (that’s me!) believes that this was all a coordinated effort to weaken the euro, and prop up the dollar which just a few days ago, looked as if it was about to fall off the cliff… I’ll also make you a bet that the ECB hikes rates in July… Trichet just threw the markets off the scent of rate hikes yesterday, and did his manufacturers of the Eurozone a big favor by leading the markets to a euro sell-off…
The BIG move yesterday was in gold and silver, with silver taking the brunt of the selling… Yesterday, I told you about the after-hours selling that had been going on in silver… And a long-time friend and former colleague of mine, sent me a note that said, “I bet you wouldn’t be bitching and moaning if silver was going UP in the after-hours trading”… I replied… But silver never goes UP in the after-hours trading! You see…
The after-hours trading is a time when the “manipulators” are able to enter their HUGE trades to move prices… Take that, and add in the fact that the margin requirements on silver were raised five times in the past week… And all the cards were stacked against silver. Now… Did silver become too frothy, and need a correction… Probably… But not like this!
When I came in this morning, silver was trading higher, but has now turned negative… So, it looks like the tourniquet needs additional wrapping… I have a friend, Dr. Dave Janda, who has done a great job at his “second job” doing a radio show on WAAM in Ann Arbor… I’ve been on the radio program a couple of times, and will be a guest once again later this month. Dr. Janda has brought many guests on his radio show that talk about everything that could improve one’s mind, health, and wealth…
One of his guests was Bart Chilton, of the CFTC… Dr. Janda continues to push Bart Chilton to investigate further the HUGE short positions in silver, and the after hours trading… His note to Bart Chilton yesterday pulled no punches, and called out the perpetrators of this mess by name… It’s now up to you Bart Chilton… What say you?
OK… The Aussie dollar (AUD), which had fallen from $1.0975 earlier this week, to a $1.05 handle, is back on the rally tracks this morning, moving up one full cent to $1.0675… Again, did the Aussie dollar need a correction to knock the froth off of it? Probably… But not like the one we saw! I have to tell you that the bloodletting of the currencies is way overdone… And leads me to believe that there were “other forces” involved… You don’t see moves like we saw yesterday without a government or two helping the selling along… So, once again, I’m going to throw this out there… That I believe it was a coordinated effort to stop the bleeding in the dollar, and save it from going off the cliff.
Oh… And here’s one more piece of the puzzle… Today is a Jobs Jamboree Friday! And I think you’ll see what I’m talking about, once the report prints at 7:30 CT this morning… The consensus calls for a gain in payrolls of 185,000… But, I’ve got to tell you that I think that number is optimistic… The recent employment sector of the ISM (manufacturing index) was quite weak… The ADP employment change report this week was weaker… The weekly initial jobless claims have been rising again, last week’s was 474,000, which was up from a revised number of 431,000 the week before… So… In the end, I think the US knew the jobs report was going to stink this week, and “made the call” to intervene…
Keep in mind, though, that McDonald’s hired 60,000 people from 1 million applicants last month… But I don’t think that will be enough to offset the automaker plant shutdowns that resulted from the Japanese Tsunami… (Remember I told you that US automakers needed Japanese parts, and couldn’t get them.)
I know, I know… There are some of you out there who will send me notes saying, “Chuck, stick to the facts, and leave your conspiracy theories out of the Pfennig”… And I’ll say right now, don’t bother sending them. I’ll tell you this… People want to know “how something like this could happen”… And this is my explanation… Is it a fact? NO… But, I think eventually, we’ll find that it is!
We had some visitors from Jacksonville (the home office) yesterday, and they had asked me about gold and silver… I told them the silver stuff, and then said that gold was holding steady at $1,500, which was true at the time… It was not long after that conversation that gold joined silver on the slippery slope down… Gold has gained back $11 this morning, but remains below $1,500… Remember when gold climbed to $1,000 and bounced back and forth for weeks, and I kept saying, buy on the dips below $1,000… And then we moved to $1,100, and $1,200, and each time I would say to buy on the dips below each figure… So, will $1,500 be just like $1,000, $1,100, and so on?
Not if the “manipulators” have their way… But the markets have been able to push the envelope with the price of gold, and I suspect that once the stale longs have been scared away, gold will form a new base from which to build on once again. So… Do you wait for that to happen? Well, I guess if you are good at picking bottoms… I personally have never met anyone good at picking bottoms consistently… So, pick a level that looks good to you, that feels right, and nail it!
I see where the Japanese yen (JPY), has backed off from its lofty level of 79 and change yesterday… I got to thinking about this, and just began chuckling… For didn’t the G-7 members all come to the aid of Japan a couple of months ago, with coordinated intervention to weaken the currency? Yes, they did! That’s a fact! In fact, they spent billions trying to weaken the yen… And now? They might have well thrown the money down the toilet, for yen is within spittin’ distance of the level it traded when G-7 began their coordinated intervention… Dolts… All of them!
Well… US Treasuries have seen a revival with all this going on with the risk assets… I saw that the 3-month T-Bill rate was at an all-time low of 0.10%, folks… After your broker takes his pound of flesh for doing the trade, you are in the negative! One thing all this has done – and again, I come back to the conspiracy thoughts – is it has brought the 10-year yield back down, which will play well with keeping mortgage rates low… See the connection?
And all this stuff – Bin Laden, the risk sell-off, and everything else – has taken our eye off the ball, folks… Our eye that was affixed to the deficit problem in the US. The budget deficit that adds to our national debt year-in and year-out… Even the media, which was fixated on the deficit a week ago, has moved on… And this can’t happen! We’ve got to stick to harping about the deficit, and how the National Debt can be reduced! For our kids and grandkids’ sake!
So… Just to redirect some of this misdirected focus, click here.
Then there was this… Next week, I’ll be giving a presentation on The Coming Regime Change in Currencies… I’ll be talking about the dollar losing its title of Reserve Currency, and how I believe the Chinese are preparing the renminbi (CNY) to be the next reserve currency. Well… A lot of people believe that can’t happen because the renminbi is “non-deliverable” with no exchange or transfer of the currency… Hmmm, well, the Chinese have thought of that too, and are now issuing a deliverable currency: the “CNH” in Hong Kong… The CNH trades similar to the CNY, but is more market driven, and speculators can’t push the envelope of the forward value of the currency… I can’t see why China would do this if they didn’t have plans to switch to the deliverable currency at some point in the future… So… Just another step toward the reserve currency of the world…
To recap… Oh my! The risk assets were cut off at the knees yesterday, with silver taking the brunt of the selling once again. Euros were also on the chopping block after ECB President Trichet, sounded less hawkish. I still believe that the ECB will hike rates in July though. Today is a Jobs Jamboree, which always adds excitement to the morning! And Chuck goes way out on a limb to talk about conspiracy thoughts…
Chuck Butler
for The Daily Reckoning
Chuck Butler
Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter, which is reposted here at The Daily Reckoning. With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News and World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune. Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.
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If the chinese renmimbi is the up and coming global reserve does it mean we have more faith on the “faith and credit of the chinese people”? Also why should any thinking people believe another fiat currency should replace another? I do believe however, that once the US dollar is removed as global reserve there will less buyer of chinese goods and manufacturing could back to the good old US of A.
Chuck,
Anyone who has collected or invested in silver for any length of time knows the unwritten and sometimes written rule “silver is fickle.” Silver can go up or down just because the wind blew from the right or wrong direction. This down-trend will seperate the men from the boys. I look foward to buying silver from some of the boys (at a discount) who thought they were cool and over bought to late into the upswing. This is just one more correction in the great incorrection.The market will always have its’ way. The big question is what will the lapse of QE2 do to silver and other PM?
Keep up the good work Chuck!
I am an expert in choosing bottoms and they always turn out great ! … Maybe we are discussing different bottoms ?
End of April cut 1/2 of gold and Silver positions.
Will be a time to add again !
Thanks Chuck.Appreciate your realistic views.