Chuck Butler’s: A Pfennig For Your Thoughts
August 22, 2017
* Euro rises, then falls with in 24 hours!
*A$, kiwi, krone and krona are quite active
* Munchin visits Fort Knox!
Good Day… And a Tom Terrific Tuesday to you! Well, that was quite the experience yesterday, witnessing the Great American Solar Eclipse (GASE)… Everything got still, the crickets were chirping, because they thought it was night time, and in two minutes, it was over… Pretty cool, but I have to say, that’s one thing off my bucket list! It’s been a strange trading session in the past 24 hours, folks, and hopefully I can straighten it all out for you… Emerson, Lake and Palmer (ELP) greet me this morning with their iconic rock song: Lucky Man…
Well, here goes… Yesterday, the euro shot up past 1.18 and nearly hit its 2.5 year high on comments in the Wall Street Journal (WSJ) “Draghi is likely to layout the end of Europe’s QE”. This article helped the euro after we saw some anonymous European Central Bank (ECB) sources that were throwing ice water on the notion just last week. But the euro’s rise was short-lived, and in the overnight markets, it was put back below 1.18… But if you just looked at yesterday morning’s price of 1.1749, and today’s price of 1.1769, you would think that the euro had a good day…
Well, “good day” in the whole scheme of things, to me 20 ticks in price is like removing a bucket of sand off the beach… nobody notices… But all the other currencies have basically followed the euro’s lead, as they rose in price yesterday, and fell in price in the overnight trading. The Aussie dollar (A$) and kiwi have been two of the most active currencies in recent weeks, as traders position themselves for rate hikes from the countries of these two currencies, that should be coming sometime in the next 6 months… And yes, traders do look that far out at times..
In kiwi’s case… This is the scenario I tried to tell you about months ago, when I told you that now would be the time to buy kiwi when traders and other big market participants weren’t pricing in a rate hike yet, and therefore you could get cheap kiwi prices before the Big Boys began to price a rate hike in…
In both currencies, A$’s and kiwi, their respective Central Bank Governors will fight the markets tooth and nail every step forward either of these currencies take, so keep that in mind, there’s no one-way street in currencies, sorry…
Another pair of currencies that have been quite active these past couple of months is the Norwegian krone and Swedish krona… I told you yesterday that both these countries have some important economic data reports printing this week, and the reports could underpin these two more… I would really love to see Sweden get out of the bond buying and negative rates monetary policy, as it would go a long way toward helping the krona continue its move VS the dollar.
And then there’s the Chinese renminbi, of which, I talked about last week, and reminisced about 2003 and how back then you could almost bet and win that the renminbi would be appreciated overnight… Well, the renminbi is seeing appreciations in the overnight fixings on a frequent basis in the past couple of months, which coincides with better economic conditions in China…
The Capital Flows out of China have subsided, and the Chinese Gov’t no longer has to spend their reserves to defend the currency, from these Capital outflows, and the reserves are in recovery mode, increasing the past few months. China is not out of the woods in any sense of the imagination, but at least they’ve moved closer to the edge of the forest..
“I assume the Gold is still there”… Those were the words from U.S. Treasury Sec. Steve Mnuchin when he visited Fort Knox on Monday, marking only the 3rd official visit there by the Gov’t since it was built to house the Gov’t’s Gold in 1936 after FDR had confiscated the citizen’s Gold for $25 an ounce and then repriced it to $35… But that’s another story, this is about the Treasury Secretary’s visit to Fort Knox, where he quipped, “It would really be quite a movie if we walked in and there was no Gold” Funny guy, eh? He then assured his audience after taking the tour that the Gold was there… $200 Billion worth… However, he did also say seriously, that the Gold hasn’t actually been counted since 1953…
Gold rallied a few bucks yesterday to $1,295… And I couldn’t get that Bob Dylan song out of my head all day… Knock, knock, knocking on heaven’s door, but replacing the lyrics with knocking on $1,300’s door… but before we book flights to watch Gold surpass $1,300, I have to tell you that the shiny metal has lost $6 in the early morning trading today, and is back to $1,290 and change…
I have to say that my attention has been grabbed by the industrial metals of Platinum and Palladium, and the narrowing of the spread between the two… Last week it was around $75, this week Palladium has closed the gap to just $40. That’s less frustrating to talk about than the goings on with the short Gold paper trading, for sure!
I received an email from former colleague and friend, Chris Gaffney the other day, and in it was an article from the CFA, the organization that Chris belongs to. And in the article, they pretty much throw cold water on the reports about Consumer Debt hitting an all-time high… They conclude, and I somewhat agree, that the report doesn’t take into consideration the increase in population… So, basically more people can take on more debt… And that’s a valid point, but… Should we be celebrating the fact that debt just keeps rising here in the U.S. no matter how many people there are? I prefer to look at the debt of consumers on a “household basis”… And on a household basis, consumer debt is still out of control, folks…
My dad taught me at an early age, that numbers can be massaged and cooked to tell any story you want to hear… Do you want to hear that everything is hunky-dory, peaches and cream and sunshine, lollipops and rainbows, or do you want to hear that something might cause a problem down the road? And depending on which mantra you take, you’ll go to that source for your data… It’s that simple…
Me? I just tell it like it is, and let you dear reader decide what you want to listen to and what you don’t…
OK, time to move on… The U.S. Data Cupboard is empty today, and I mean empty, not even a third tier data report like the one we saw yesterday when the Chicago region activity index printed negative… Tomorrow we get back in the saddle with data as the Markit PMI (manufacturing index) for this month and July’s New Home Sales will print… So, the dollar is on its own today, and in recent weeks that hasn’t been good for the green/peachback…
To recap… A sharp rise in the euro yesterday was sold off in the overnight markets, but on a morning to morning comparison the euro is up today VS yesterday… All the other currencies are tagging along with the euro, which makes sense since the euro is the offset currency to the dollar. Chuck points out a couple of pairs that have been quite active lately, and the Treasury Sec. visits Fort Knox!
For What it’s Worth…. this is really good folks… It’s a professor of economics at John Jay College, CUNY and a fellow at the Roosevelt Institute, named J.W. Mason, who points out that the economy is not running at full capacity and can be found here: “http://rooseveltinstitute.org/wp-content/uploads/2017/07/Monetary-Policy-Report-Brief.pdf
Or, here’s your snippet: “U.S. GDP has not recovered from the 2008 financial crisis. Unemployment has returned to the level considered to be full employment, and price inflation is close to—if still short of—the Fed’s 2 percent target, seeming to indicate that the economy is using all productive labor, capital, and resources, or “operating at potential”. But participation in the labor force has declined and labor productivity (output per worker) has stagnated. The result: Output (or GDP) remains 15 percent below the pre-2007 trend line, a gap that is getting wider, not narrower, over time.
There is no historical precedent for the GDP slowdown, nor was it predicted by pre-recession forecasts. In the 60 years since World War II, periods of above-average growth have followed periods of below-average growth, and vice versa. But this is not the story since the Great Recession. The apparent recovery—the closing of the gap between potential GDP and actual GDP—is due to downward revisions of the estimated potential output. These estimates have been steadily revised downward since 2007, as economic growth has continued to disappoint. And so while the proverbial GDP ball has gotten closer to its goal, that is because the goalposts have been moving backward, not because the ball has been moving forward.”
Chuck Again… This is a very good dissection of the things the Fed and other economists have been pointing out that is holding back the economy, and if you’re into this stuff, this is definitely worth the read…
Currencies today 8/22/17… American Style: A$ .7915, kiwi .7292, C$ .7788, euro 1.1769, sterling 1.2842, Swiss $.9655, … European Style: rand 13.2208, krone 7.9066, SEK 8.1027, HUF 258.12, zloty 3.6388, koruna 22.1784, RUB 59, yen 109.24, sing 1.3622, HKD 7.8262, INR 64.10, China 6.6681, peso 17.67, BRL 3.1467, Dollar Index 93.41, Oil $47.52, 10yr 2.20%, Silver $16.94, Platinum $974.32, Palladium $933.72, and Gold… $1,290.70
That’s it for today… yesterday’s bright blue sun filled skies have given way to dark angry rain clouds this morning. There’s lots of noise going on outside as I write. Did I hear that the President is going to send more troops to Afghanistan? And Graham Nash’s song: Military Madness is playing as I wrote that! Hey! I don’t make that stuff up folks! Like I said above, I’m a “tell it like it is” kind of guy! And one of my fave songs, and what I think is Jefferson Starship’s best song: Miracles takes us to the finish line today… If only you believed in miracles baby, so would I… I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!