Good Day! And a Tub Thumpin’ Thursday to you! It’s snowing again outside, but so far it’s just a dusting, no biggie… What a roller coaster ride this week’s weather has been! Much like the week for the currencies and metals… Our St. Louis U Billikens squeaked out a win last night, and I finished all my writing assignments ahead of time! Do I get a Gold Star?
Well… The dollar is swinging its mighty hammer again this morning The euro, Swiss franc and Danish kroner are the only currencies with any gains VS the dollar this morning, while the Aussie dollar (A$) is bringing up the rear… The A$ loss overnight has been HUGE! And one has to wonder if it’s a little overdone, with the chance of a bounce-back at this point. I’m going to be talking about why now it’s more important than ever to be diversified in currencies and metals at one of my presentations in Orlando in two weeks. And one of the things I’m going to be talking about in that presentation is the fact that everyone, except me and a few others, is on the dollar’s side these days… Doesn’t that worry you? It does me… As I’ve seen this before folks… 2005, 2008, 2011 immediately pop into my mind as years that everyone jumped on the dollar’s bandwagon, but the euphoria didn’t have multi-year staying power, and eventually the dollar went right back to its underlying weak trend… Long time readers know how I don’t like the phrase: This time it’s different… So, I don’t see how this time it will be different for the dollar, do you?
Here’s why I think this dollar strength will all unwind eventually… In 2008, the Fed Heads and Treasury implanted extraordinary financial intervention to save the banking system from collapse… But to me, all they did was push the problems down the road a couple of years… And now that the Fed has decided to begin to unwind those programs, I believe all hell is going to break loose, and it could set the dollar up for its ultimate decline… Now, it all might turn out to be seashells and balloons for the economy, and we’ll never look back on why we worried so much about the extraordinary financial programs, and I would be wrong… But all that remains to be seen, eh? And if I am wrong, then I’ll go back and sue my economics professors! HA!
But here’s something to think about regarding the economy’s strength… From MarketWatch yesterday… “The country’s top three mortgage lenders confirmed this week that new home loans dropped last year as mortgage rates rose, with earnings results Wednesday morning from Bank of America showing a 46% year-over-year drop in the fourth quarter.”
And if the economy is so strong, then why did Macy’s and JC Penney announce store closings and jobs losses? At JC Penney, they’re going to close 33 stores and lay off 2,000 workers…
Going on to other things… The December Labor Report for Australia printed as we suspected… weak! Headline employment fell 23,000 in December… November’s gain of 15,400 was in effect, wiped out… I don’t think the Reserve Bank of Australia (RBA) is going to panic at the disco here, and rush to cut rates… But it won’t take but one or two more of these weak labor reports before they do cut rates… The data sent the Aussie dollar (A$) reeling and I mean reeling badly! As I said above, I don’t get why the A$ was punished this harshly, on a jobs report was not good, but also not horrible… So, to me the selling was overdone… We’ll have to see, eh?
In the Eurozone this morning… Germany, which is the largest economy in the Eurozone, printed their CPI numbers, and they printed bang on with the forecasts of a .4% gain in December, and an annualized increase of 1.2%… This was a good print for Germany and the Eurozone as a whole, for the recent trend in consumer inflation for the region was on a downward path, so the euro was rewarded for this data…
The return of the Carry Trade!
I had just hit the “send” button yesterday when a story shot across the screens pronouncing the return of the Carry Trade… OK… long time readers know all about the Carry Trade of the past… Sell yen, and buy a high yielding currency like Aussie or kiwi…. Well, here we go again… The funding currency now can be one of many given the zero interest rate policies of Japan, U.S., Swiss, Eurozone, and the currency to buy has changed to the Brazilian real… This won’t make the leaders in Brazil too happy… For they still want a real that’s not too weak to invite inflation, and not to strong, to hurt exports, but one that’s just right… Yeah, like the Goldilocks and the 3 Bears story. The problem is that Central Banks very rarely get a Goldilocks currency level… So, if the story is correct, and this is the new Carry Trade, the Brazilian Central Bank and Gov’t are going to have to get used to some currency strength… If they don’t think that will happen to the real when it’s used as the buying currency in the Carry Trade, they should call up the Central Bankers in Australia and New Zealand, for they know the truth!
The Chinese renminbi / yuan was pushed down again the Peoples Bank of China (PBOC) last night… The roller coaster ride in renminbi / yuan just keeps going, but I don’t worry about these downward moves in the currency. They are just speed bumps… I do wonder about the news I saw on the Bloomberg this morning though, that China’s holdings of U.S. Treasuries increased $12.2 Billion in November… I thought the Chinese said they saw no reason to continue to add Treasuries? Well, I had better go back and check when they said that… I’ll be right back!
OK, I’m back, did you miss me? HA! Well, from my archives, I see it was around the end of November that the Chinese said that… So, just like a star that burns its brightest right before it goes dark… Maybe the Chinese made this one last truck load buy of Treasuries and then did a Roberto Duran, and said, “no mas”… For it’s not like the Chinese to say one thing and do another…
Recall the other day when I wrote a quickie about Bitcoin? Well, in that quickie, I talked about a “lot of stuff” that gives me the willies about Bitcoin, and yesterday, my colleague and friend, Jack Stapleton, sent me an article by Louis Basenese on a very scary technical flaw he found with Bitcoin. I’m sure it will take a day or two before he allows his article to be posted on the internet, so look for it… I know Louis, and he’s very good at researching things, so take his words with many grains of salt.
Yesterday, the U.S. Data Cupboard printed a couple of items for us to look at… First, there was the December PPI (wholesale inflation), which came in as expected at +.4%, and +1.2% year on year. But that should remove some of the sweat from the Fed Heads’ foreheads, as they fear deflation Big Time… We also saw the TIC Flows… Remember when the markets would get all lathered up on this data, which shows the net foreign purchases of Treasuries? For if the foreigners didn’t buy enough Treasuries the deficit would not be financed correctly. But then the Fed began buying Treasuries by the boat load, and this data became non-interesting…
But with the unwinding of the Fed buying of Treasuries going on, will this data become important once again? Probably not… For in reality, I don’t see the Fed buying to ever stop… But for those of you keeping score at home, the Net TIC Flows were a negative $16.6 Billion! That means that we didn’t see many foreign buyers…
This Monetizing of the debt (bond buying by the Fed) is really going to end up being a problem for the U.S. economy folks… My spider sense is tingling on this… I’ve talked so much about this monetizing of the debt that a long time reader, Bob, sent me something that made me laugh, and so I thought to share it with you! You know those Direct TV adds, where they say, so you get frustrated with cable, and when you get frustrated you… and so on? Well, Bob did one on Monetizing Debt…
When you print money you monetize your debt.
When you monetize your debt you think you owe less money.
When you think you owe less money you go and spend more money you don’t have.
When you spend money you don’t have you go bankrupt.
When you go bankrupt your creditors seize your house.
When you have no house you are homeless, put your belongings in a shopping cart and sleep in a underpass under newspapers.
While sleeping in an underpass someone steals your shopping cart.
Don’t let anyone steel your shopping cart, stop printing money.
Before I head to the Big Finish we have some filing to do. And Under the Question of Did you know? Lies the information that’s going around right now, that 70% of the time, the first 10 days of the year were indicative of how stocks would do the rest of the year. The statistics date back to 1940… So, a good number of years, eh? I guess given the softness of the stock market the first 10 days, one would be leery of what will happen by year’s end…
For What it’s Worth… I have a rather long one for you today from the Mises Institute… I did only print a snippet of the article that talks about how hyperinflation ruins a currency… Then goes on to talk about how the U.S. wants inflation to rise… Let’s listen in…
“Our monetary leaders do not understand the true nature of money and banking; thus, they advocate monetary expansion as the cure for every economic ill. The multiple quantitative easing programs perfectly illustrate this mindset. Furthermore, our monetary leaders actually advocate a steady increase in the price level, what is popularly known as inflation.
Like previous hyperinflations throughout time, the actions that produce an American hyperinflation will be seen as necessary, proper, patriotic, and ethical; just as they were seen by the monetary authorities in Weimar Germany and modern Zimbabwe. Neither the German nor the Zimbabwean monetary authorities were willing to admit that there was any alternative to their inflationist policies. The same will happen in America.
The most likely trigger to hyperinflation is an increase in prices following a loss of confidence in the dollar overseas and its repatriation to our shores. Committed to a low interest rate policy, our monetary authorities will dismiss the only legitimate option to printing more money — allowing interest rates to rise. Only the noninflationary investment by the public in government bonds would prevent a rise in the price level, but such an action would trigger a recession. This necessary and inevitable event will be vehemently opposed by our government, just as it has been for several years to this date.
Instead, the government will demand and the Fed will acquiesce in even further expansions to the money supply via direct purchases of these government bonds, formerly held by our overseas trading partners. This will produce even higher levels of inflation, of course. Then, in order to prevent the loss of purchasing power by politically connected groups, the government will print even more money to fund special payouts to these groups.”
Chuck again… I love reading stuff form the Ludwig von Mises Institute… The whole article posted on their site is full of information on how the U.S. is moving toward a hyperinflationary economy, and in the end what that will do to the dollar. So, if you like Austrian economics theory, like I do, then you might want to visit this site now and then… http://mises.org/
To recap… The dollar is swinging its mighty hammer again this morning, with only 3 currencies, euro, Swiss francs, and Danish kroner, showing some gains VS the dollar. Gold is down again this morning, as everyone, but Chuck and few others, are jumping on the strong U.S. economy and dollar bandwagon… We saw this in 2005, 2008, and 2011 folks, will we see it all end badly for the dollar again? Aussie jobs report was weak (-23K) and the A$ got whacked! Looks a bit overdone to Chuck…
Currencies today 1/16/14… American Style: A$ .8785, kiwi .8305, C$ .9150, euro 1.3615, sterling 1.6340, Swiss $1.1015, … European Style: rand 10.9125, krone 6.1625, SEK 6.4755, forint 221.00, zloty 3.0635, forint 20.2050, RUB 33.39, yen 104.60, sing 1.2730, HKD 7.7550, INR 61.53, China 6.1065, pesos 13.29, BRL 2.3740, Dollar Index 81, Oil $94.63, 10-year 2.89%, Silver $20.03, Platinum $1,423.56, Palladium $740.79, and Gold… $1,238.92
That’s it for today… I just saw a guy on TV promoting his book that talks about how difficult it is to be a “man” these days… Really? You know, a term that I no longer hear, is that, “he’s man’s man” Oh well… Nice win by the Billikens last night… Tonight our Blues play again, they have to jam in as many games as they can, as the NHL will take a two week break for the Olympics in Feb… Little Braden Charles and Everett Patrick were at the house yesterday, I caught them both jumping on the bed… they were having a blast, laughing, and having fun, but mean old me, made them stop… They were too cute! They will be a handful as they get older… Well, two more days and then I’ll be gone for awhile… I’m so looking forward to next week… and with that, I’ll get out of your hair for today… I hope you have a Tub Thumpin’ Thursday!
EverBank World Markets
Editor of A Pfennig For Your Thoughts