RBA Leaves Rates Unchanged.

* Mixed Bag-o-results of data.
* RBI cuts rates 25 Basis Points.
* Tsipras say (again) that a deal is done!
* China makes a scary announcement.

But First, A Word From Our Sponsor..

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

Good day.. And a Tom Terrific Tuesday to you! Well, I had a difficult time yesterday and last night, but not as difficult as my beloved Cardinals found hitting the baseball to be last night! Things seem to be more stable this morning, so I saddled up and rode into the office. After walking across the bridge and getting into an elevator to take me to the 7th floor, I said to myself, “Why do you do this? Does anyone really care? I shook my head, and felt defeated, as if I had just faced a batting practice pitch, and missed it for strike 3. Then the elevator door opened, and I walked to the office, forgetting about my questions. for now.

Well. Two down, a few more to go. I bet you’re wondering what it is I’m talking about this morning out of the starters blocks. Sorry. I’m talking about two Central Bank meetings have taken place, one last night, the other this morning. The Reserve Bank of Australia, (RBA) did as I suspected they would, left rates unchanged last night, and what was really strange, was that the RBA didn’t provide any reason for doing so, no forward guidance, and no deep sixing of the Aussie dollar (A$). It was as if they wanted to just get past the event, and tell the markets to move along for these are not the droids they are looking for. The A$ took this non-deep sixing attitude as a green light to rally, and ended up the best performer overnight.

The Reserve Bank of India (RBI) (the best short name for a Central Bank! RBI!) did, as I suspected they would, cut rates by 25 Basis Points (1/4%) to bring their internal rate to 7.25%… But afterward, RBI Gov. Rajan, stated that he could have waited but decided to go ahead and front load the rate cut in June. He then mentioned how the monsoon season hasn’t, so far, been that damaging to the food crops, which could drive inflation higher in the near future, and that crude prices were stabilized, and that the rupee had weakened thus inviting inflation into the Indian economy. He sounded like someone that had cut rates, and then wanted to make certain that everyone knew he was not going to cut them again. The rupee got sold on the rate cut news, but in reality, I believe traders should have listened to Rajan, for he was quite convincing to me that no further rate cuts are coming, at least for some time, I must say.

There I was doing my Ed Grimley impersonation, and no one caught on. OK, I’m mental, but Pat Sajak is quite the actor if I must say so myself! HAHAHAHA! I loved that character on SNL, years ago!

Well. I know everyone is on the edge of their respective seats waiting for news from the Eurozone / Greek talks. I saw a blurb on the Bloomberg as I turned it on this morning, that said that Greek PM Tsipras told reporters that he had an agreement that would be agreeable with 95% of the Greek population.. and the euro is in rally mode this morning. But that could all be short-lived if Tsipras fails to produce this “agreement”. And to my knowledge no one from the Eurozone side of the meetings is clanging champagne filled glasses together in celebration of the “agreement”.

There was some other friendly news for the euro this morning. The “Flash” reports for CPI (consumer inflation) in the Eurozone came in higher beating the estimates. On a month to month basis CPI grew .3%, the core CPI grew .9%… This is good news for the Eurozone, nascent inflation. But, I think the European Central Bank (ECB) is going to have to wait a long, long time to see CPI at their target rate of 2%… Shoot Rudy, I would be super-surprised to see Eurozone inflation reach 1% by the end of the year! But the idea here is that this bump up in inflation is a result of stronger economic growth in the Eurozone. To me, it appears that the Eurozone economy has troughed. If that proves to be true, the euro could avoid all the nastiness that a ton of economists and currency observers are still calling for.

The Japanese yen traded past 125 last night, but has recovered a bit as the overnight and morning sessions have gone on. I would have thought that a breach of 125 would have sent the yen stumbling, bumbling, fumbling even lower. I’m still of the thought that yen will eventually slip to 130. But that’s yet to be seen, right? You know me, I tend to see things happening long before they actually do, which then gets me in trouble with people because in today’s world, it’s all about what you did for me lately. No patience.. Well. so be it. I can live with that.

The Brazilian real actually carved out a gain VS the dollar yesterday, as the Brazilian Oil Company, Petrobras, was able to sell 100-year bonds with no problem, thus showing that the recent scandals with the company are being shrugged off by investors. I had a dear reader send me a note yesterday, asking me if I thought the real would rally once Brazilian President Rousseff left office. Hmmm. Well, the only thing I can point to, is the last election process where it was thought that the Challenger to Rousseff would win, and the real rallied strongly all during the election process, but then by some miracle that only happens in Chicago elections, Rousseff won, and the real go deep sixed. So, it would appear that currency traders are not keen about Rousseff, and why would they, considering what she did to the real in her first term as president. So, maybe there’s your answer.

So, last week I went through a long dissertation on some of the things that former Fed Chairman, Big Ben Bernanke go wrong, but then said that maybe he’s “due”, when he said that he thought that China would not experience a hard landing for their economic slowdown. Well, he’s back, and giving us more thoughts on China. Bernanke was in Hong Kong for a conference, so what better time to talk about the Chinese renminbi / yuan. Let’s listen in. “The Chinese currency (notice he didn’t take a stab at saying renminbi? HA!) is much better aligned, it is certainly moving in the direction of being fairly valued.”

I wonder if Big Ben knew that he was in direct contrast with the thoughts of U.S. Treasury Sec. Lew, who still believes the renminbi to be undervalued? Wouldn’t you like to see a debate between these two? No, you wouldn’t? OK, I can understand that. But guys like me, that love to see people like this sweat and stumble around for answers, that would be worth the price of admission.

Yesterday’s U.S. Data Cupboard was another mixed bag-o-results, with the ISM Manufacturing Index rising in May from April, but Personal Spending showing no growth in April. If you put these two on scales, the Spending data would outweigh the manufacturing data. So, let’s talk about the Personal Spending. I think that this report shows that the economy is still struggling to gain momentum, folks. So, let’s see. last week was saw muted Consumer Inflation (CPI) and this week we see flat Personal Spending. If that doesn’t spell a sluggish economy, I don’t know what else does? Consumer Spending accounts for more than 2/3rds of U.S. economic activity. So what does all this tell us about the possibility of a rate hike by the Fed this year? Well, you have to go month to month. but right now, after this month’s data, one would think that if any rate hike is coming, it’s coming late this year. And in my opinion, that’s a BIG IF!

The good news from the Data Cupboard yesterday, was the Manufacturing Index, which actually saw an increase in the index number from 51.5 to 52.8. This is the first increase for this index since November, last year, as each month printed a lower number, until May. so, now we have to wait to see if this as simply a one-and-done increase in manufacturing or the start of a new trend.

I was doing some reading yesterday, in between my naps.. I just couldn’t stay awake very long before the eyes got heavy. But in the reading I was really taken back by some data that was being thrown around. I made little notes, and hopefully I can make sense of them now. but basically the economist was trying to show how the economic growth is dragged down by debt, just like I always tell you. Here are the numbers. In post WWII for every $ spent by the Gov, they received $2.40 worth of economic growth. In the 70’s and 80’s that slipped to 41-cents for every dollar spent, and in today’s world, the Gov’t only receives 3-cents of economic growth for every dollar they spend. I think that sums things up from what I’ve been trying to tell you for years now, in a nice tidy bow.

When I arrived here this morning full of questions, I noticed that Gold was down $3. But now that I’m ready to talk about the shiny metal, it is up $2. Tiny moves, I know. and nothing really to talk about here, except. This quite unbelievable story that’s going on in Texas with Gold. First it was Texas demanding that NYC banks repatriate the state’s Gold to Texas. Then yesterday the Texas legislature was asked to create a Texas Bullion Depository. Are you kidding me? I am not, you, Chuck are my favorite kid! HA! But seriously, folks, this is HUGE! Texas is already receiving calls from around the world asking them to store the caller’s Gold!

Now, you don’t think that Texas is going to start allowing consumers to pay for things with Gold do you? Nah. That would be interesting, now wouldn’t it? And as this all lays out for us right before our eyes, I wouldn’t put it past Texas to make that available. Big Bad Texas. Who wouldn’t want their Gold held there?

To recap. There are a handful of currencies rallying VS the dollar this morning, led by the A$, who saw the RBA leave rates unchanged and provide no forward guidance. The RBI cut rates by 25 Basis Points this morning, but RBI Gov. Rajan sounded like a man who didn’t want to cut rates again. Greek PM Tsipras says he has an agreement (again!) that 95% of Greeks will like. The U.S. Data Cupboard was a mixed bag-o-results yesterday, but Personal Spending was flat, and taken with the slowing CPI last week, Chuck thinks that a rate hike IF there is to be one, won’t come until later this year.

Before I head to the Big Finish this morning. I wanted to bring something to your attention, regarding the new “silk road” project that I’ve talked about before, that China is putting together. Well, don’t look now but China just updated a new doctrine that moves offshore defense to “open Seas” defense. Which means to me that they are starting to flex their muscles, and they won’t be stopped. That’s scary to me folks.

For What It’s Worth. Well, I know that I’ve sounded like the boy who cried wolf before when I pointed out that Margin Debt in the stock market had reached an all-time high, and that that the last time this happened we had the tech bubble burst. But not this time, not yet anyway, as stocks just keep going higher. But now Margin Debt is nearly 50% higher than the last bubble peak reached in October 2007. Here’s the link to the whole story on zerohedge.com : http://www.zerohedge.com/news/2015-05-29/margin-debt-breaks-out-hits-new-record-50-higher-last-bubble-peak

“For a few months in mid/late 2014 there was some concern among those who still don’t get that in this New Paranormal market the only real buyers are central banks, that while the stock market kept on rising, and rising, NYSE margin debt was flat, and in fact the total amount of purchases on margin at the end of 2014 was nearly the same to those in January. Meanwhile the S&P 500 had soared to recorder highs.

A few things here: first, as we explained one year ago, in a world in which levered purchases take place via such shadow banking conduits as repo and primary broker arrangements, margin debt has become an anachronism from a bygone generation in which there wasn’t $2.5 trillion in Fed reserves supporting the market, and is now almost entirely meaningless.

But for those who still cling on to margin debt as indicative of anything, the latest NYSE report should provide some comfort: finally the long-awaited breakout in participation has arrived, and after stagnating for over a year, investors – mostly retail – are once again scrambling to buy stocks on margin, i.e., using debt, and as of April 30, the amount of margin debt just hit a new all-time high of $507 billion, $30 billion more than the month before, and nearly 50% higher than the last bubble peak reached in October 2007.”

Chuck again. I know that this sounds like we shouldn’t be concerned with this rise in Margin Debt. But I have to say that once again, I’m going to cry like the boy who cried wolf, here and say this can’t be good and something has to pop. In my younger days, much younger I must add, I ran a margin dept. in a regional brokerage house. This was back in the day when you had to calculate the amount of stock a margin account could be allocated for the house to use. Well, when stocks go South in a margin account, you first get a phone call from the margin dept. telling you that you have a large cavity in your account that needs to be filled with more fully paid for stock, or cash. The next phone call you received will notify you that your account was liquidated because you didn’t meet the requirements. Now you’re left with 1/3 your stock at a loss. oh boy!

So. Maybe it’s not a Big Deal. But to someone who dealt with margin accounts for years, it is a Big Deal. I’ve never claimed to be a “stock jockey”. And I didn’t stay at a Holiday Inn Express last night, nor do I play one on TV! So, when the stock bubble is going to pop, is anyone’s guess, So, let’s move along here, and pretend we never even went down this road.

Currencies today 6/2/15. American Style: A$ .7685, kiwi .7115, C$ .7990, euro 1.1045, sterling 1.5245, Swiss $1.0645, . European Style: rand 12.2620, krone 7.8500, SEK 8.5015, forint 280.10, zloty 3.7450, koruna 24.8355, RUB 53.33, yen 124.80, sing 1.3550, HKD 7.7555, INR 63.83, China 6.1225, pesos 15.44, BRL 3.1675, Dollar Index 96.83, Oil $60.84, 10-year 2.21%, Silver $16.75, Platinum $1,111.37, Palladium $776.81, and Gold. $1,192.40

That’s it for today. Steely Dan was just playing their song: Peg on the iPod, one of my fave groups. And I loved that album, Aja. Cardinals get shut out last night, UGH! I went all out last night for Alex’s dinner, making a Caesar Salad, cheese garlic bread, and an Italian sausage penne pasta. I tried to eat, but quickly realized that was not going to happen. So at least Alex ate good! Let’s see I used 3 pots, a skillet and baking sheet, and cleanup was a real pain, so I made an executive decision that I’m not cooking the rest of the week, we’ll go out or order in! I had an omission yesterday that I felt real bad about. Sunday was the birthday of our Cheryl Harper! Cheryl has been with us here at EverBank for long time. Back when we were a small group of people, Cheryl would always bake birthday cakes for someone’s birthday. But then we grew to a size that she would have had to quit her day job and become an all-time birthday cake baker. Redbone is playing their song: Come and Get Your Love, now. and I’m bopping in my seat. And that’s what music does to me, makes me feel better! Alright! Let’s go make this a Tom Terrific Tuesday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts