Chuck Butler

Friday’s price action in the currencies was all about tight ranges, but if there was any bias, it was to sell dollars, especially after it was announced that the first print (they’ll be revisions coming) of first-quarter US GDP was 2.2%, down from the fourth-quarter’s 3% clip.

We edge ever so slightly to the other side of the storm from the “eye” and data print after data print show that. Shoot, Rudy, the “experts” had forecast slippage, so they see what’s happening too. Unfortunately for their reputations, they forecast first-quarter GDP at 2.5%, but it printed at 2.2%, even worse slippage than the “experts” saw happening.

So with the bias to sell dollars hanging over the markets, it was not shaken to the core when the much-slower GDP printed. This is how things used to be before the financial meltdown, when fundamentals ruled the roost! If the US printed weak data, the dollar got sold. But it hasn’t been that way in some time, at least not on a consistent basis!

One component of the GDP data, consumer spending, showed an increase. Great, the rest of the economy is slowing down, but Joe Consumer is chasing goods around like a kid in the henhouse trying to catch a hen. The weather in the first quarter for most of the country was pretty warm compared with a regular winter. So a lot of economic activity was put into motion in the first quarter. But 2.2% was all it could muster?

So the grease on the economy’s tracks, put there by the two rounds of quantitative easing, one round of Operation Twist and money supply that would choke a Clydesdale, is now wearing thin, folks. Soon the train will stop, because there is no grease. And that’s when the Fed will feel once again that they need to “do something.”

As I look at the currencies this morning, there’s been a bit of slippage in the overnight markets as the markets look at consumer spending for March that will print today. Since the one component of the weaker GDP report was consumer spending, the markets believe this will be a really large number. And if it is, that would be dollar-positive today.

Now, to me, consumer spending is fine, as long as there is income to provide that spending with cash, and not credit. But that’s just me. I’m funny that way!

The currencies are also having to deal with the calls that have now turned to shouting for not only a rate cut in Australia, but more as the year goes on. But the funny thing going on here — not funny ha-ha — is that the Australian dollar (AUD) has pushed higher. Until last night, that is. The Reserve Bank of Australia (RBA) meets tonight (May 1 for them), and a 25 basis point rate cut will take place. It’s a done deal, folks. So we’ll just have to see if the RBA is in the mood to discuss what comes next.

The A$ pushing higher last week in spite of the calls for rate cuts tells me that bond buying in Australia was HUGE. Lock in the higher yields and book profits as the yields go down from the rate cuts — a very good move by the bond guys.

The euro has felt some heat this morning from the news that Spain had entered a recession for the second time since 2009. Yes, recessions are a part of tightening the belt, right? That’s why we’ll never tighten the belt here in the US. Heaven forbid we slow down and everyone has to hunker down here in the US!

That’s why I continue to say that while the euro is on tenterhooks now, in three-five years, after the eurozone has suffered through belt tightening, things will be better there, and they’ll have made the necessary cuts to insure survival, while here in the US, our GPS navigation system will still be broken, thus keeping us from getting on the road to correction.

The euro may not have as many members in three-five years, or may look completely different. Who knows? All I’m saying is that at least they are attempting to right the ship. And in doing so, there will be recessions to deal with.

And this message is just as much pointed at us here, but also to those calling for “anti-austerity” in the eurozone right now.

In Canada, things are getting pretty screwy. Here’s the skinny. The Bank of Canada’s (BOC) Gov. Mark Carney has made no bones about the need to raise interest rates. But the markets are not rewarding the Canadian dollar/loonie (CAD). First, because they don’t believe he’ll actually be the only central bank that is raising rates. Second, because the Canadian economy has a large component of domestic demand. And domestic demand is led by consumer spending..

The markets are fearful that a rate increase will damage the domestic demand, thus putting the economic growth in the country in harm’s way. The markets only have to look back to 2010, when the BOC hiked rates three times, from 0.25% to 1%, and the loonie lost 7.4%.

You know me, though — if a rate hike is needed, make it!

Today, the markets will get to sniff around Canada’s first-quarter GDP report.

In Japan, the yen (JPY) is rallying again. This has got to be driving the Japanese Finance Ministry crazy! I know it has done a number on me! Just what investors see in the Japanese yen given the known fact that the Japanese government wants a weaker currency, is what I would like to know!

Not much else going on here, datawise, today. Fed head Richard Fisher will be speaking. That’s always interesting, for he’s one of the few Fed heads that “get it.”

Then, from Barron’s, “Beware: Silver Can Bite”:

“Infamously volatile, the metal is out of favor — with investors, industrialists and even coin collectors — and may stay that way for the foreseeable future.

“Silver’s charms are fading — and so are chances of a quick silver comeback.

“The metal has had a manic-depressive 12 months. On April 29, 2011, futures vaulted to a record settlement high of $48.599 a troy ounce, then plunged 27% over the next five sessions. The metal never recovered after exchange owner CME Group raised trading margins to quell the extreme volatility.

“However, with prices now around $31, don’t be seduced into thinking that silver is about to shine again anytime soon. ‘Silver is the one that doesn’t get invited to the birthday party because it bites people; it’s nasty,’ says Sterling Smith, an analyst with Country Hedging in St. Paul, Minn.”

I guess everyone is entitled to their own opinion, right? I don’t agree with the article, but just because I don’t agree with it doesn’t mean I should keep it from you, dear reader. It’s just another person’s opinion. Of course, mine would be different, in that I would say if the price manipulators would keep their hands out of the cookie jar, silver would be near $75! But we all know that the price manipulators have us over a barrel right now.

To recap: The currencies have remained in a tight range with a slight bias toward selling dollars on Friday, but that has been reversed overnight as Spain entered its second recession in the past three years. The RBA will meet tonight to cut rates. The loonie is weaker on thoughts that the BOC will hike rates. I know, a really perverted way of thinking… but it is what it is.

Chuck Butler
for The Daily Reckoning

Chuck Butler

Chuck Butler is President of EverBank

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