In This Issue.
* A$ drops and kiwi follows!
* Krone rallies 3 straight days!
* RBI leaves rates unchanged.
* China gets foot in the door of OPEC!
And Now. Today's A Pfennig For Your Thoughts.
RBA Cuts Their Interest Rate!
Good Day!… And a Tom Terrific Tuesday to you! Crazy wireless connection here. I've started this letter a couple of times now, only to have to stop, reboot, and try again. Drives me crazy! It only seems to be like this in the early morning, but then that's when I need it the most! Reminds me of that soft rock song, “You left me, just when I needed you most”. I'll sing it for you. no wait! Come on Chuck, these people read this letter for info and things that make them think, not to hear you sing a stupid sappy song!
Well, the Aussie dollar (A$) is singing, you left me just when I needed you most, to its interest rate, which got cut last night by the Reserve Bank of Australia (RBA). The A$ has reacted very negatively to the rate cut, losing over 1-cent since the announcement. I told you last week that there was a “risk” that the RBA would go ahead and cut rates now, and that “risk” became a reality last night. And RBA Gov. Glen Stevens, was not shy about the whole thing, saying that the rate cut “was overdue” and that the A$ is still “overvalued, given the prices of commodities”. Stevens would prefer seeing the A$ at 75-cents, and he may just get what he prefers, and more, given the way everyone has reacted to this rate cut.
So, we start today on slippery stones. When the A$ gets whacked like it has overnight and this morning, the New Zealand dollar / kiwi, goes along for the ride in sympathy, but in this case probably more of the feeling that if the RBA had to cut rates, what's ahead for the Reserve Bank of New Zealand (RBNZ)? Recall, the RBNZ spent the last year, hiking rates. Are they ready to unwind those rate hikes already? Well, that's what the market participants are thinking this morning, and kiwi is down almost 1 full cent.. RBNZ Gov. Wheeler, the man that never misses an opportunity to diss kiwi, didn't even have to say anything last night.. Imagine if he had come out and said something!
Well, that was the BIG News overnight. I can't say that the rate cut in Australia surprised me like it apparently did the markets, for I told you a week ago, that there was a risk the RBA might do this, and lo and behold they did! But it's time to move along here, we've beaten this horse (no worries no animals were hurt!) to near death.
The euro is flat to up just a tiny bit, so let's call it flat today, which is probably a pretty good performance, given the rot on the A$ and kiwi's vines. Well, I made one person very happy with my comments yesterday about Greece and their tour of the Eurozone, and one person very unhappy with my comments. So.. fair and balanced, eh? HA! I really don't understand why someone would be unhappy with my comments, unless they are Greek, and didn't vote for the “leave the euro” party. But I did, and for that I apologize. The person I made happy, told me that yesterday's Pfennig was the all-time best Pfennig ever! Now, that's a comment I'll take to heart every time, every day! You know, I kind of felt like it was a good one while I was writing it, but I never know if I'm going to hit a nerve somewhere. But. at least I don't just “call them in”.
The Peoples Bank of China (PBOC) allowed the renminbi /yuan to appreciate in the fixing last night. That's the first appreciation the currency has seen in over a week! I was beginning to wonder what was up with the PBOC. But, it's just a case of “normal operating procedure” at the PBOC. You know one thing that slipped past me, and I can't believe it did, for I watch what goes on in China like a hawk, but China recently signed a currency swap agreement with Qatar. Really? Yes, sirree Bob! Yes, China has stuck a foot in the door of the Middle East OPEC countries. Uh-oh! I've always said at conferences and here in the Pfennig, that IF China ever signed currency swap agreements with the OPEC countries, it would signal an end for the dollar's petrol currency hegemony. Well, this is just a “foot in the door” here folks. But I have to think that once the other Middle East OPEC countries see that they don't have to deal their Oil for dollars, and therefore import the dollar's inflation, they might, just might, opt to sign currency swap agreements with China of their own!
The “De-Dollarization” by China and Russia continues to move along. but we as Pfennig readers are prepared aren't we!
Well, there was another Central Bank meeting last night, and it was held in India. Recall that the Reserve Bank of India (RBI) made a surprise out of meeting, rate cut recently, so chances were that they would want to follow that up with another rate cut, in meeting. But the RBI opted to skip a rate cut at this meeting, but said that they would look to cut again in the 1st half of this year. So, by June. The rupee gained ground on the non-cut by the RBI, so at least for now, all's right on the night, with the rupee.
You know, I've said this before now, but just repeat myself, which is something that I like to do a lot, so I'm told. But I still believe that India will outperform China this year, but this last rate cut, and the rate cuts talk, really bothers me. For, how can India outgrow China if it's cutting rates because it isn't growing! UGH! That's OK, you know me, I hang with a call on something until there is no thread of evidence that is even has a chance to become reality.. so, I'll stick with this call on India.
Last Friday, I told you how the Norwegian krone was rallying, but stopped short of saying this was a reversal of a recent weak trend. But the krone has put together 3 consecutive days of rallies so, this needs to be looked at more closely. And as usual, I'm your “look more closely Man!” Well, the thing that separates Norway from the rest of the world, other than that they have the largest Sovereign Wealth Fund, and a fully paid for pension for every Norwegian, is that they have what every country is looking for these days. inflation. Norwegian consumer inflation is running at 2.4%, and the Norges Bank, Norway's Central Bank, is not panicking about inflation being greater than their 2% target. In fact they are happy that inflation is over their target right now!
So, how in the world is Norway seeing their inflation above target, when the price of Oil is cheap, thus pushing deflationary pressures into the Norwegian economy. Well, I can tell you what Norges Bank Gov. Olsen, thinks is the reason for this success (isn't it strange that we are referring to 2.4% inflation as successful, when in reality the people of Norway have had 2.4% of their wealth taken from them) and that is the fact that after the krone was the star of Europe, during the European meltdown of 2011, and the Swiss National Bank's (SNB) devaluing of the franc, Olsen, targeted the krone, and did things like cut rates, and talked about cutting them more, to weaken the krone. And in 2014, the krone was one of the worst performing currencies. the weak krone invited inflation from other countries, and voila! Inflation was born.
Now, why has that worked in Norway, when it hasn't worked for Japan, the European Central Bank (ECB), Canada, and so on, as these countries and more attempt to weaken their currencies to invite inflation into their economies? Well, they've gone about it half-ass, as the old football coach used to say about shoddy play. And the other thing is that Olsen is focused on the “real economy” of Norway. He understands what makes his economy tick and what doesn't.
So, I would think that the U.S. Fed members would be watching the Norges Bank and seeing its success in gaining inflation above target, and imagining what it would be like for them to have such success. They would erect a statue of Yellen in front of the Fed Building, and the Fed members would have their names on a plaque at the door of the building so that people passing through those doors for years to come would know the Fed member names of those that “figured it out”. OK, I'm laughing hysterically now!
Well, Gold remained traded with losses all day yesterday, but is up $6 this morning, as the shiny metal attempts to recover its losses yesterday. I'm going to take a day and break from the daily banging I've been doing on physical Gold accumulation in the East, and now beginning to filter West in Europe. So, come back tomorrow, same Bat time, same Bat Channel for more info on Gold accumulation in the East!
Palladium was the best performing precious metal overnight. But then Palladium has a lot of catching up to do. This metal has been one with lots of starts and subsequent stops since reaching its high last year of over $900. I was in habit of asking our metals guru, Tim Smith, if he had any Palladium on hand to sell me, every time the metal would drop in price. And now that it perked up I bet he has a ton of it! HA! I like to think that I'm different than the normal investor who buys on strength and sells on weakness. But sometimes I find myself chasing markets just like everyone else! But I won't chase the metals. Cars, are my usual thing I always buy at the “wrong time”.
On side bar this morning. I received an email yesterday and in it was a promo for a live recording of Steve Marriott, of Humble Pie, playing his guitar and singing: I don't need no doctor. Talk about a rock anthem from the early days of hard rock! The Great Peter Frampton was a young lad playing in that band, but at this time, Marriott was the star. This is in the early days of rock, before big productions, and arena rock, when the music was raw, and full of soul, medleys, and awesome guitar work. Marriott didn't live a long life, dying in 1971.. that's a shame, but then many of his fellow musicians took the same route to a short life.
Of all the things I tried to emulate of those guys, when I was playing in a band, doing stuff that would end my life early was not one of them!
The U.S. Data Cupboard today will probably continue what the recent trend in economic reports have done, and that is print some ugly numbers. Today, it will be Factory Orders for December, which I would say we should look for another negative number to follow up November's negative number. For those of you keeping score at home, November's Factory Orders were -.7%, and Decembers should be much worse.
Yesterday's Data Cupboard has some more bad prints, as the ISM Manufacturing Index dropped, surprisingly, to a 53.5 in January from a 55.1 in December. You may recall that December's index number had also dropped, but the naysayers said, “don't' worry about it, this was just a one-and done print, next month will be much better”. Well, it wasn't, and so now I'm wondering just what these naysayers to those of us saying that the U.S. economy is a house of cards, will say now, after seeing two consecutive months of drops in the ISM Manufacturing Index.
And yes, the index remains above the 50 level that marks the difference between expansion and contraction, so that's a good thing, I just don't like the direction right now, do you?
In addition, Personal Income increased .3%, which is good. But, Personal Spending was down -.3%… And the Personal Consumption was flat. So, before, I was worried about us spending more than we make, but now, the spending has dropped. Recall that Retail sales in December were negative. and what makes up a very large percentage of our economy? That's ri..ght. yes, I sort of sang that. can you say the economy is sucking air right now? At least that's how I see it. but then I don't have the best eyesight, and I do only have one eye!
For What It's Worth. Well looky there! You may recall that the London Gold Fixing had to be changed after it was found that the participating banks were manipulating the Gold Fixing. Well this is about the replacement fixing that is being organized. I found this on the Bloomberg, and you can read the whole thing here: http://www.bloomberg.com/news/articles/2015-02-02/chinese-banks-in-talks-to-take-part-in-gold-fixing-replacement
“Chinese banks are among those in talks to take part in the replacement for the century-old gold fixing benchmark.
There's a “more diverse pool” of participants, including from China, interested in being part of the LBMA Gold Price, Ruth Crowell, chief executive of the London Bullion Market Association, said in a statement Monday. The LBMA declined to comment on the number and names of those in talks for the new mechanism that will start in March.
No Chinese companies have ever directly participated in the 95-year old price-setting ritual that takes place twice daily by phone between four banks. ICE Benchmark Administration was chosen in November to run the replacement, after silver, platinum and palladium ditched daily fixings last year. Chinese gold demand has more than doubled since 2009.”
Chuck again.. Makes sense to me that China would be a part of this group! But do you get the significance of China being included in the Gold fixing? I do, and that's why I printed this story for you!
To recap. The RBA surprised the markets (not Chuck or Pfennig readers) by cutting rates last night, and the A$ sunk like a rock thrown into a lake! Kiwi traded alongside the A$ in sympathy. The RBI left rates unchanged, and the rupee rallied, and the PBOC allowed the renminbi to appreciate for the first time in a week. U.S. data continues to show that things aren't as great as they were once thought to be (by everyone else, but Chuck) and Chuck relives his days of traveling the country in a VW micro-bus playing his guitar.
Currencies today 2/3/15. American Style: A$ .7670, kiwi .7215, C$ .7955, euro 1.1350, sterling 1.5075, Swiss $1.0790, . European Style: rand 11.4540, krone 7.6205, SEK 8.2875, forint 272.25, zloty 3.6695, koruna 24.4510, RUB 66.69, yen 117.35, sing 1.3515, HKD 7.7545, INR 61.67, China 6.1369, pesos 14.79, BRL 2.7155, Dollar Index 94.43, Oil $51.06, 10-year 1.71%, Silver $17.53, Platinum $1,238.00, Palladium $794.76, and Gold. $1,278.22
That's it for today. Well, I sure missed a lot the other night when I decided to go to bed with 5 minutes left in the Super Bowl! Silly me, for doing that! Just shows to go ya, that I didn't care who won. And that stupid brawl at the end of the game. no class, good thing they don't allow weapons on the field! Some people just don't take losing too well, I guess. Heartsfield is playing their song: The Wonder of it all on the iPod right now. That's a band that still plays concerts, but they really only produced one great album. I went out to the deck that is at the edge of the beach, twice yesterday, and both times it began to sprinkle rain, UGH! But in between it was sunny! I like to go out there to read, so I take my iPad, and a Gatorade and read away! Yesterday was Groundhog day and the groundhog saw its shadow, which means 6 more weeks of winter! Which means I'll be here for 8 more weeks! 6 weeks of winter and 2 to buffer that, for winter in St. Louis can hang on longer than you would think! So. with that, I'll get out of your hair for today, and hope you have a Tom Terrific Tuesday!
EverBank Global Markets