04/15/11 St. Louis, Missouri – This morning, I’m seeing news that Moody’s has downgraded Ireland’s credit rating two notches, and China’s economy is still kicking tail and taking names, and a year has passed since my left eye was removed… And there’s more! So, let’s get to work, Chuck!

Once again yesterday, the currencies were choppy… When the Pfennig went out yesterday morning, the dollar was swinging the rally hammer… But, by the time lunch arrived at my desk, the currencies had reversed that dollar rally, and mounted a rally of their own… The big winners on the day though, were gold and silver… Gold was up $15 and silver over $1… Silver at one point yesterday actually touched $42.21!

Speaking of silver… There’s a story on the Bloomie this morning that talks about silver and how it looks as though it will trade to $50… Nice to see them come along with that thought, given I had it back in November when I told NewsMax, and they printed it in January! Silver then was $25… Now with silver near $42, people are coming out on the limb with me…and for good reasons… Reasons like the fact that holdings of New York futures by small speculators doubled in the past year!

OK… I’m going to flip a coin here. Heads I talk about China next, tails I talk about Ireland next… I’ll be right back! Alrighty then, heads it is! Well… I’m still waiting for those people that said China’s economy would be collapsed by now, to come forward and admit how wrong they were… But NOOOOOOO! They are nowhere to be found! Oh well… We carry on, despite the people that surround us! HA!

China’s gross domestic product rose 9.7% in the first quarter from a year earlier, also beating consensus forecasts for a 9.5% advance, but down from 9.8% growth in the fourth quarter of last year, China’s National Bureau of Statistics said. OK… Remember what I’ve said for a couple of years now, that I have a customer that lived and owned a business in China for years, and he told me that you can or should only believe half of what China says about their economy… So, if that’s the case here, then China’s GDP for the first quarter was 4.85%, which is still far better than what’s going on in the US, Japan and Europe! And certainly isn’t “collapsed”!

Inflation is still rising in China though, which means interest rates there are probably going to go up again, which will fuel more speculation in the renminbi (CNY), and push the envelope of currency appreciation. That is as much as the Chinese government wants it pushed, which probably isn’t what you’re thinking for currency appreciation… Yes, the renminbi will appreciate, in my opinion… But, the moves will be snail-like…

So… The global growth picture has cleared up a bit, from earlier this week… With China’s economy still booming, the global growth forecasts will shore up, that is, until China’s GDP print is forgotten and something else comes along! Fickle, fickle traders…

Speaking of China… Foreign Ministry spokesman, Hong Lei, told reporters yesterday that China will continue to buy Spanish bonds… This is one of the reasons that the general consensus is that Spain will not follow Greece, Ireland, and Portugal…

And then on the tails flip… Ireland… Above, I told you that midday yesterday the currencies were back to rallying versus the dollar… and that included the euro, which had slipped to 1.4440, but rallied back to 1.45… And just about the time the euro (EUR) was about to take off for a flight to the upper atmosphere of 1.46 and beyond, Moody’s came along… Doesn’t it always seem that way? The dollar begins to get taken to the woodshed, but a ratings agency comes along and rescues the dollar… This time, Moody’s announced that it had downgraded Ireland’s credit rating by two notches! Ireland’s bonds are now just one grade above “junk”… That’s cruel! That’s cold, Willis!

So… Let me take you back to last week… And this is what I told you last Friday, in the April 8th Pfennig… “The dollar appears to be doing the rope-a-dope again, pinned against the ropes, and getting beaten with jabs and strong blows. Long time readers will recognize this, and think “Hey, usually when the dollar begins doing the rope-a-dope, something happens that brings investors back to dollars, and halts the dollar selling.” No wait, that’s what I was going to say! HA! But seriously… That’s exactly what happens… So, look for signs, signs, everywhere a sign, blockin’ out the scenery, breakin’ my mind… Could be the media jumping on the Eurozone peripheral countries again…”

I can hear you saying… How does that Chuck do that? How did he know the media would jump on the Eurozone peripheral countries again? Only The Shadow Knows… HAHAHAHAHAHAHA!

Well… At least the euro has a strong, credible central bank behind them, that believes in their mandate to provide price stability! Speaking of the European Central Bank (ECB), the ECB is maintaining its stance that “upside risks” continue to threaten price stability and that policymakers are monitoring inflation. “It is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term,” the ECB said. I’ll tell you this… When I read things like that, you have to believe that this month’s rate hike by the ECB is going to be the first of a series of rate hikes… I know the ECB, and Trichet (ECB President) tried to throw the markets off the scent of the last rate hike being the first of a series, but, everything I’ve read and seen from the ECB since leads me to believe it was the first of a series…

And that should underpin the euro… Yes, the single unit continues to get dragged through the mud by its peripheral country members… But the core of the euro is strong…

Today, we’ll see the latest stupid CPI report… That’s right I said stupid! It’s stupid because I have no idea why the Fed or the markets pay any attention to an index that has so many hedonic adjustment to it, that the index number is useless! Most likely this worthless CPI will show US inflation is 2.6%, and our friend John Williams over at Shadow Stats , says that it’s really more than double that number!

We’re also scheduled to see the latest (February) of TIC Flows (net foreign security purchases)… And then finally something that makes sense to me… Capacity Utilization and Industrial Production…

More Fed Heads will be out on the speaking circuit today… Thomas Hoenig from the Kansas City Fed, is an über-Hawk… But, he doesn’t get to vote, so there!

I was doing some reading and research last night, and apparently it was very interesting, because I realized by about bedtime that I had not eaten dinner! UGH! But one of the things I noticed was that next week we have a Swedish Riksbank meeting… I do believe that I told you last month, that I thought the Riksbank would hike rates this month… And so it is on tap for next week… I would be very surprised and disappointed if the Riksbank kept their powder dry next week…

Then there was this… Listen to me now and maybe hear me later… I am not trying to be political… I’ve received a few emails lately accusing me of espousing Republican points of view… Hmmm, I say to myself… Probably newer readers, for if they are, they won’t recall me, during the Bush years, banging on that administration for running up $750 billion budget deficits. I banged on them so much, that people that met me the first time, said they thought I was a liberal… I’m neither! I report facts as reported on financial websites, TV channels, and from traders around the world. For instance, yesterday I made mention of the President’s plan falling short of the Commission he hired, and the Republican plan… I wasn’t touting the Republican plan, just stating a fact. COME ON PEOPLE, have some thick skin. Just because your party is in control right now, and I have to bang on them for budget deficits of $1.4 trillion, doesn’t mean I’m being political! In addition, I don’t like taxes, period. Tax for this, tax for that; I want small government. And I want the government out of my personal business! I want fewer taxes. And I especially want fewer taxes in the future for my kids and grandkids! I don’t recall people getting mad at me for banging on the previous administration for their budget deficits… So… The day I become political, you’ll know it! But it won’t be in the Pfennig! Thank you…

Whew! If only a text could register the force that each key was struck! I was really pounding there…

To recap… The dollar rally yesterday morning turned around, and by midday, a currency rally was in place, with gold and silver being the Big Winners on the day. Silver touched $42.21 overnight, but has backed off a bit on profit taking. China’s first quarter GDP printed at +9.7%, with inflation also rising. Moody’s downgraded Ireland’s credit rating two notches to just above “junk” status… And, Chuck pounds on the keys…

THIS JUST IN! Silver’s profit taking has ended, and silver is rallying again, with it rising to $42.55! WOW!

Chuck Butler
for The Daily Reckoning