With the Dow on the Rocks, Rates are Rallying

Holy Moly! The economy is no where near as rosey as we’ve been led to believe. The Troll will be adding the commentary of our friend Chuck Butler from Everbank who is a wealth of information. He is an invaluable resource and specializes in Foreign currencies and all things pertinent to the markets. His articles are called “Daily Pfennings” and he will be assisting the Troll with content on the blog. Here is his offering today,


In This Issue.

* Lockhart words turn Gold around!
* Eurozone GDP disappoints.
* More thoughts on Gold.

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

There’s Smoke.

Yesterday’s “good feeling” in the currencies and metals lasted all day! WOW! That’s pretty amazing, considering the Elvis Presley hips that have dominated the markets recently. Gold turned around yesterday and put in a very strong showing considering it was down $10 at one point in the morning. And I can hear you asking. Hey Chuck, what turned Gold around? I’m glad you asked!

Well. I’ve told you for several months now that there will eventually be a QE3. There are plenty of writers, analysts, economists, that don’t agree with that thought. But, if you believe in the old thought that “where there’s smoke, there’s fire”, then you have the reason for the turnaround in Gold yesterday. You see, Fed Head Lockhart, was speaking yesterday, and when the question to him addressed whether or not the Fed was “out of bullets”, Lockhart replied, ” We’re not out of bullets, we could purchase assets”.

Was that the Fed’s first baby-step in getting us prepared for another round of debt monetization? I truly believe so. And guess what’s just around the corner? The Fed’s Jackson Hole boondoggle, where last year’s QE2 was announced. Could the Fed use Jackson Hole to launch QE3? Maybe that’s too soon, folks. But, it’s not out of the question!

And, so. Metals traders and investors flocked back into Gold. I not only told you what I thought about investors running out of options and turning to Gold, but my friend David Galland followed that up with his version. Then I got a call from Alix Steele from the Street.com. She wanted to know my thoughts on Gold. Here are a couple of snippets from the interview. “Butler argues that the euro was once thought of as a challenger to the dollar’s reserve currency status but with that hope falling by the wayside and no other real contender people are going to gold.”

“Butler thinks gold will get back to recent highs of $1,817 an ounce and eclipse it once momentum buyers jump back into the market. “I still don’t believe that gold is a bubble … you always want to look at the longer term trends.”

The euro is a bit weaker this morning, falling back into the 1.43 handle, off by about 1/2-cent. A report this morning on Eurozone growth, is the culprit behind the 1/2-cent loss so far this morning. Eurozone growth slowed more than forecast in the second quarter. Even Germany’s economy, which is the largest economy of the Eurozone, wasn’t strong enough to pull the weak sisters up. Eurozone GDP for the 2nd QTR rose .2% VS the first QTR. But begin to become Chicken Littles, and go about screaming that the sky is falling. Eurozone GDP rose 1.7% from a year earlier. Hmmm. seems that the sky isn’t falling, just yet, eh?

And just to remind you. Merkel and Sarkozy are meeting again today. I told a reporter yesterday, that this going back to the “meeting room” for Merkel and Sarkozy was beginning to remind me of buying a new car. You know, where the salesman keeps going into the sales manager’s “magic room” to come out with another price for the car that you’ll reject! I told a guy last year, that “this is my price” don’t go back into the room, unless you can come out with “my price”. He didn’t, and I walked.

And soon the markets will walk on the Eurozone and the Merkel and Sarkozy meetings if they don’t come up with a permanent solution. All they’ve done previously is put band-aids on the problems. I’ve said it before and I’ll say it again. They need to issue a Eurobond.

A reader sent me a note yesterday, asking me what good a Eurobond would do? Well, it would reduce the interest that has to be paid, and debt servicing is going to be key in the future (just ask the U.S.!) and it would strengthen the debt rating, and not allow markets to go after a weak sister like they’ve done with Greece, Ireland and Portugal, and, tie all the Gov’t’s together. I know that each country wants to maintain its sovereignty but, hey! Didn’t they give that all up, when they merged their currencies?

To recap. the currencies enjoyed a full day of recovery yesterday with no intra-day gyrations, and Gold turned around Big Time on comments by Fed Head Lockhart regarding what bullets the Fed had left. hint, Quantitative Easing. Eurozone GDP came in weaker than expected, and has pushed the euro down 1/2-cent this morning.

Chuck Butler
EverBank World Markets

The Troll will try to include Chuck’s offerings as much as possible as the blog moves forward into uncharted waters.

The Troll

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