In This Issue.
* Pfennig problems.
* China is not a currency manipulator.
* India imports Gold!
* China's reserves fall, no worries.
And Now. Today's A Pfennig For Your Thoughts.
After A Down Day, The Dollar Rebounds.
Good Day! And a Tub Thumpin' Thursday to you! What an awful day, and I didn't have to deal with most of it, poor Chris, who was in Miami for a conference did. So, front and center this morning, I apologize for the tardiness of the Pfennig delivery yesterday. Remember, in the letter yesterday, when I said, if I can get through the letter without breaking my laptop it would be a good thing? Well, I done broke it! And there I was in a remote location, and my backup was traveling to Missouri, and his back up is out this week, and I thought. OH NO! So, it eventually got out, thanks to Chris, and the people in Jacksonville, that had to figure out what it is a I do every day.
So, our IT Guru, Jeremy, met me this morning, yes, that early, and got me going with a new laptop, and now he's attempting to salvage what he can from my old one. So, all my funny words that I use, will have to be told to accept them with the new laptop, and so on. The Temptations are singing: The way you do the things you do, on the IPod, which is always a happy song, and a good one to get me going this morning, as I bumming from the Cardinals loss last night.
Now that you're all up to date with the goings on in my life, we can get to business. At the top of the agenda this morning, is the performance of the dollar VS the currencies. For the most part, the dollar has the conn this morning, pretty much like most mornings lately, eh? The dollar doesn't have the conn over the Chinese renminbi, or Gold, but the rally in Gold is not much and could be turned around in a heartbeat. It's not like we haven't seen that happen even in the face of huge rallies. right? But yesterday was a different story, as the currencies, led by the euro once again like in the “old days”, pushed the dollar down. U.S. stocks got whacked, and the Treasury market rallied. Get this. 10-year Treasury yields are now below 2%!!!! BELOW 2%!!!! Let me tell you something about this HUGE rally we've seen in Treasury yields this past month.
The bond guys (& girls) have their fingers on the pulse of the U.S. economy. They always have, and didn't like having the conn in bonds taken away from them by the Fed, during their 5 years of Quantitative Easing / QE. For instance, for more years than I care to mention, it was a given that an inverted yield curve for Treasuries, indicated that a recession in the U.S. was on the way. And when Bond traders rally bongs, which means bond prices go up, and yields go down, it simply means they don't see good things for the economy. So, what are the bond traders telling us now? Well, unless there's outside interference from the Fed, which I don't believe there is, except for their remaining tid-bits of QE that will be wiped clean at the end of this month, according to the Fed, what we have here in the U.S. is an economy that's going nowhere, despite what the Fed members, the economists, and flag wavers for the Gov't, tell us, the bond traders are not buying it. Of course I never did buy it. The bond guys could have just checked with me and I could have saved them the losses they incurred when Treasury yields rose from 1.80% to 3%… Because look at them now? They're back below 2%…
And that all plays nicely in the sandbox with my call last year that the Fed will not be away from the QE table very long, before they come back to administer more QE to this going nowhere economy. And when they do that, I feel that the markets will come unglued. They will feel as though the Fed mislead them, and will take away credibility the Fed had built up. That won't be a good thing for the dollar in my eye.
But for now, we deal with the Clingons. You know those clinging on to the idea that this is going to be a multi-year rally for the dollar. That's OK, we've had to deal with these Clingons in 2005, 2008, 2011, and again now. And they pack a powerful punch when they have the conn, like they do now. And will continue to have until the rest of the markets catch up with what the bond guys are telling us. And what Chuck has told you for some time now.
Well, the price of Oil is another indicator to me that the economy is in dire need of a blood transfusion. The price of Oil has dropped $10 in the past week and now appears to be ready to slide below $80. This drop has been swift and deep, and has my head spinning. Yesterday, I told you about my old Navigator, and how much I love driving that car, well, if the price of Oil keeps falling, thus the price of gas keeps falling, I'll have to seriously consider getting rid of what I have, and going back to a Navigator! Go Big or Go Home! HA! And please don't send me nasty emails about me wanting to drive a gas guzzling SUV. I don't put 7,000 miles on a car in a year!
So, I didn't see it, because I was in airplanes and airports yesterday, but the currencies and metals rallied, with the euro about 3/4's of a cent, but that's all be wiped out this morning. strange happenings, eh? The U.S. Retail Sales data for September, was, as I told you to expect it would be, disappointing. With the headline Sales falling -.3%… And when you back out car sales, Sales fell-.2%, and when you back out car sales and gas Sales fell -.1%… And when you back out. no, I'm just kidding, but you get the picture I'm painting here, right? The data collectors just keep making adjustments until they get a number they like. Pretty soon, we'll see something like this: Retail Sales, minus cars, gas, TV's, stereos, cell phones, and fast food restaurants, were.. And no one will complain, and point out the ridiculousness of this. no one but me!
Well, I told you above that the Chinese renminbi / yuan is the only folding currency with a gain VS the dollar this morning. I guess the Chinese breathed a sigh of relief, when the U.S. Treasury announced that China was a “currency manipulator”, and therefore allowed the renminbi / yuan to appreciate. The U.S. Treasury folks were feeling their oats a bit when making this announcement, and decided to go further and say that “China has shown renewed willingness to let their currency strengthen.” They also decided to say that they “believe the currency remains significantly undervalued.” Well, I have to say that I agree with the second part of the comment, but the first part. Hmmm. Well, if the Chinese told the U.S. Treasury that they are willing to let the currency strengthen then so be it. But I doubt the Chinese told them that. The Chinese are in no mood to share their thoughts on what the renminbi / yuan will do, as they have no idea what the global economy is going to do. If the Global economy is going great guns, then the Chinese will have no problem allowing the renminbi to appreciate along with the global growth. And vice versa, should the global economy slowdown, which, by the way, I believe is going to be the case for 2015.
Why did I say that? Well. you know how I explained the bond markets above and its relationship with the economy? Well, the Aussie dollar (A$), to me, has always been the proxy for global growth. As the A$ goes, so goes global growth. And I've been very disappointed in the A$'s downward move in the past few months. And we can blame the Central Bank influence around the world. I talked at end about this Central Bank influence yesterday, so won't spend a lot of time going through it again, but the CFA just printed their latest survey, which asked, “Over the next few years, will Central Banks succeed in reducing their involvement in markets while enabling economies to flourish on their own?” And 64% of the respondents said “NO”, while 18% said “yes” and 18% weren't sure.
These CFA guys are smart cookies folks. Our Chris Gaffney is a CFA, and that's how I get to see these notes from the CFA. I tell you about the CFA guys just so you get the picture that these guys think like me, that this Central Bank influence is not going away.
Speaking of Central Bank influence, I would have to think that the risk of intervention to sell the N.Z. dollar/ kiwi by the Reserve Bank of New Zealand (RBNZ), is still high. and that's why kiwi just can't seem to catch a bid these days, even though we all know, well, at least I think we all know, that the RBNZ is still looking at 2 to 3 more rate hikes next years. Usually knowing that would get market participants all lathered up, and buying on any dips. But having this RBNZ threat of intervention hanging over kiwi like the Sword of Damocles is too much for the currency buyers to handle right now.
And the Queens of Central Bank influence (The U.S. Fed is King) the Bank of Japan (BOJ) and its Gov., Kuroda, was out last night letting the markets know that he's not happy with yen strength. Of course he camouflaged that by saying that “volatility in either direction is FX markets is not welcome.” He doesn't fool me, and I know what he's talking about. yen has rallied from 110 just 10 days ago to a 105 handle, that's a cool 4.5% increase. And that's not what the BOJ, or the Japanese Gov't want to see the yen doing. Remember, they want a weak yen to introduce inflation into their economy. Same B.S. that most Central Banks are pulling so they can run away from deflation.
Japan remains a basket case to me folks, and therefore this rally to 105, is just window dressing, or curb appeal, or even better yet, rearranging the deck chairs on the Titanic!
There was some other news out of China overnight. China's currency reserves were reported to have fallen below $4 Trillion, to $3.89 Trillion This is the biggest QTR to QTR drop on record. But before you go acting like Chicken Little, let me tell you how this is all calculated. You see, when you hold currencies in reserves or in your account, the value of the account will fluctuate with the value of the currencies you hold, you may or may not add or subtract any money but your value will go up or down, and that's what probably is the bulk of the move down in Chinese currency reserves, that the currencies they hold have lost value. And so their balance slips downward. So, move along, these are not the droids you're looking for.
Germany's Central Bank, The Bundesbank, and its President. Weidmann, will speak today on something that is quite up to date and of mind. “The Changing International Monetary System”. Remember Weidmann has been European Central Bank (ECB) President Mario Draghi's biggest nemesis. So, look for Weidmann to take this opportunity to take a shot at all-out QE, which Draghi wants to implement in the Eurozone..
The A$ has lost a full cent this morning. The move is huge and crazy.. It was reported overnight that the Reserve Bank of Australia (RBA) sold 910 Million A$'s last month, but the RBA says it was a part of their normal Gov't dealings to iron out trade flows. Hmmm. I think the markets don't believe them and believe that this was nothing more than FX intervention, and therefore decided that if the RBA is selling A$'s then they should too!
There's another story this morning on the A$'s weakness that is interesting. The Bloomberg has a story on how Japanese household investors are losing their appetite for A$ bonds. And looking elsewhere for yield differential, and guess where they have been going? You'll never guess, so I'll just tell you. According to the Bloomberg story this morning, “investors are rotating out of A$ bond into the Turkish lira. That's right. Turkey!
I think that plays nicely in the sandbox with what I printed the other day from my good friend, Dennis Miller, as he talked about how seniors here in the U.S. have had to switch out of safe investments into risky stocks and bonds. Well, isn't that the same thing the Japanese household investors are doing? Why, yes it is!
The U.S. Data Cupboard is chock-full-o-data today, and has two of my fave prints, Capacity Utilization and Industrial Production. These two might recover a bit from the August print which was negative, but the risk here is that they don't. We'll also see the TIC Flows, which is a pulse of how much foreigners are buying U.S. bonds. which the last time this printed it was a negative number! And then there are a bunch of 2nd and 3rd tier reports that will print that the markets will shrug off.
And Gold. Well, I've been on track getting you the import numbers of China and India this past week, and today, I received word that India's Gold imports jumped 450% to $3.75 Billion in September. VS $682 Million a year ago. The thing to think about here is that India's Trade Deficit which had been falling because of the lack of Gold Imports is on the rise again. And that's not a good thing, for India, but that's not what I wanted to highlight here, I wanted to highlight the that India still desires physical Gold. yes, the price has dropped tremendously in the past couple of years, but does that mean we should forget about all the risks in the markets and throw our Gold out? I don't think so, folks.
For What It's Worth. I hate to beat a story to death folks. but this is something I've been harping about for a year now, and if finally appears that others are catching on. Today's it's Ambrose Evans-Pritchard over at the U.K. Telegraph. You can read the whole article here, I have a couple of snippets for you that touch on what I want. you can read it all here: http://www.telegraph.co.uk/finance/economics/11165982/World-economy-so-damaged-it-may-need-permanent-QE.html
“Combined tightening by the United States and China has done its worst. Global liquidity is evaporating.
What looked like a gentle tap on the brakes by the two monetary superpowers has proved too much for a fragile world economy, still locked in “secular stagnation”. The latest investor survey by Bank of America shows that fund managers no longer believe the European Central Bank will step into the breach with quantitative easing of its own, at least on a worthwhile scale.
Markets are suddenly prey to the disturbing thought that the five-and-a-half year expansion since the Lehman crisis may already be over, before Europe has regained its prior level of output. That is the chief reason why the price of Brent crude has crashed by 25pc since June. It is why yields on 10-year US Treasuries have fallen to 1.96pc, and why German Bunds are pricing in perma-slump at historic lows of 0.81pc this week.
We will find out soon whether or not this a replay of 1937 when the authorities drained stimulus too early, and set off the second leg of the Great Depression.”
Chuck again. I hate to be the bearer of bad news. But I love to be the one to tell you there is going to be bad news before it hits, so you can take precautionary measures to heart. Or you can laugh at me, and call me the boy who cried wolf. But this lack of liquidity is coming folks. I can feel it in my bones. even the titanic one that acts as my femur!
To recap. Chuck goes through a long explanation of why the Pfennig was so late yesterday, but thanks to Chris, and others it finally got out. And then the currency rally yesterday, has ended badly overnight and this morning with the dollar back in control. The dollar fell yesterday on the very disappointing U.S. Retail Sales report.. China was not named a currency manipulator, and Chuck thinks they breathed a sigh of relief (NOT!) but allowed the renminbi to appreciate overnight. And India is back to importing, at least for one month, large sums of Gold. The physical metal is still in demand, folks..
Currencies today 10/16/14. American Style: A$ .8705, kiwi .7905, C$ .8825, euro 1.2740, sterling 1.5990, Swiss $ 1.0565, . European Style: rand 11.1635, krone 6.6445, SEK 7.2185, forint 242.37, zloty 3.3175, koruna 21.6045, RUB 41.10, yen 105.85, sing 1.2750, HKD 7.7565, INR 61.83, China 6.1395, pesos 13.63, BRL 2.4865, Dollar Index 85.30, Oil $80.39, 10-year 1.98%, Silver $17.35, Platinum $1,241.50, Palladium $745.75, and Gold. $1,238.59
That's it for today. Well, backs up against the wall for my Cardinals. 2 years ago, we had the Giants at 3 games to 1, and had Game 5 at home and allowed them back in, and they went on to win in 7. Time to reverse the tables, eh? Again I want to thank Chris for all his work getting the Pfennig out yesterday while he was in Miami (but I don't want to go to Miami HA!) and the Jacksonville folks who also made it finally happen. We'll see in a couple of minutes if I can get it out the door. I brought the sunshine from Florida back to St. Louis with me yesterday, a little warmer temps, as the St. Louis area has been weather fit for a duck, they tell me! Glad I missed that! I had a present waiting for me when I came in today. Thank you Jane for the wonderful gift and nice note to me! Always nice to return to gifts! A few of the people, Suzan and April Showers have stopped by to tell me Welcome Back. They didn't say they missed me though, so I guess I wasn't gone long enough! Next time, I'll take care of that! HA! So, let's go out and make this a Tub Thumpin' Thursday, eh? The sun is coming up, it's going to be a glorious day!
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