In This Issue.

*   Tensions in Yemen worry markets.
*   Higher oil supports commodity currencies.
*   Bullard suggests it is time to start 'normalizing' rates.
*   Gold posts the longest winning streak in over a year.

And Now. Today's A Pfennig For Your Thoughts.

Saudi bombing in Yemen has markets worried.

We will again start todays Pfennig off with some thoughts from the big boss Frank Trotter:

Saint Louis, Missouri – Now that my wandering has turned from physical to virtual I spent some time over in Germany this afternoon courtesy of Der Spiegel's online international edition.  Along with 31 other publications worldwide it's a site I have set up to open each morning as I turn on the computer.  Over the day in dribs and drabs I get to scan each one and either close quickly or dig deep.  It seems that in Europe less fortunate countries are starting to use the politically charged term “Fourth Reich” when describing Germany1.   It is of course crying over spilled milk since Germany has been successful and has money while the others spent theirs in the 2000's without a plan for repayment, but like many false statements by politicians it has the potential to gain traction and become a rallying cry that changes the course of action.  Just think our own government placing 100% of the Great Recession blame on mortgage lending alone.

Clicking  though some links brought me to an interview with Thomas Piketty2.  I haven't found common cause with him yet in any of his writings and today was no different.  Discussing Greece he suggested that a response to the debt troubles of countries like Greece should be collective and was asked: “So others should now pay for the decades of mismanagement by governments in Athens?”  He responded: “It's time for us to think about the young generation of Europeans. For many of them, it is extremely difficult to find work at all. Should we tell them: “Sorry, but your parents and grandparents are the reason you can't find a job?” Do we really want a European model of cross-generational collective punishment?”

Around here in the Pfenning we have railed for years that debts incurred today will be a loadstone for future generations.  Perhaps Thomas has shown me the light – it's really about the youth so there's no real need to pay off the debt you incurred, just get someone else to do so.  Having been inundated with a similar argument from the Argentinian government suggesting that prior debts do not have to be repaid, and of course seeing that play out during the mortgage crisis – they forced me to borrow – I have tired of the populist approach.  The math just doesn't work when the debt gets to some magical and so far undetermined level.  But when the magic line is breached then as firms found in 2008: Liquidity only matters when it's the only thing that matters.

Thanks to Frank for kicking off today's Pfennig.  Bombing runs in Yemen conducted by the Saudi air force overnight are dominating the markets today.   With bombs dropping in Yemen investors pulled away from the global equity markets and sought out traditional safe havens.  The Japanese yen moved higher, US treasuries rallied, and gold continued to climb.  At this point I think this is just a knee-jerk reaction to the increased middle east tensions, and not necessarily a longer term pattern, but the war in Yemen which really looks like a conflict between Saudi Arabia and Iran is certainly pushing oil prices higher.   Two of the top performing currencies are the 'safe havens' of the Swiss franc and Japanese yen.  It is interesting to see the Swiss franc being sought out as a safe haven again now that the SNB dropped its peg to the euro. 

Crude oil surged above $50 yesterday and reached a high of $52.50 in overnight trading before settling in at just above $51 where it sits now.  The increase in oil prices helped boost the commodity currencies of Canada, Norway and the Russia to nice gains this morning.    The top performing currency this morning is the Canadian dollar which is up .78% vs. the US$.  The Norwegian krone is the 4th best performer today, behind the CAD, CHF, and JPY.  It is a bit surprising that the dollar is not seeing any 'safe haven' buying this morning.  Sentiment has truly shifted for the dollar – with the bears finally emerging from their long hibernation.  We continue to see all of the 'long dollar' positions reversing as more and more investors are reversing their bets on a June rate rise by the FOMC.

St. Louis Fed Head Bullard was speaking in Frankfurt today and suggested that now may be a good time for the Fed to start 'normalizing' US monetary policy (fedspeak for interest rate increases).  Bullard said “Now may be a good time to begin normalizing US monetary policy so that it is set appropriately for an improving economy over the next two years.”  Bullard has always been seen as one of the more hawkish Fed Presidents, so it doesn't necessarily surprise me that he is still pushing for the Fed to make their first move sooner rather than later.  But he also pointed out the obvious during his speech in Frankfurt, “Even with some normalization, monetary policy will remain exceptionally accommodative.”

Yesterday's durable goods numbers released here in the US came in much weaker than expected, dropping 1.4% during February vs. an expectation of a .2% increase.  January's durable goods number was also revised lower to 2% vs. the original report of a 2.8% increase.  Today we will see the weekly jobs data which is expected to show another 290k reading of initial jobless claims.  We will also see the Markit US PMI Composite and Services numbers along with the KC Fed Manufacturing activity.  A lot of data but nothing that should be 'market moving' here.  I think the next real focus for investors is still a week away as we will see the monthly labor market report next Friday.  The Fed has said they will be data dependent – with a sharp focus on wages and a recovery in the labor markets.  Investors are going to be using the labor report to determine the timing of the first fed move.  A strong labor report next Friday with good wage growth will cause a dollar rally as investors will pull their rate expectations back toward June.  A weak jobs report will have the opposite effect, and further the recent dollar weakness.

As I suggested yesterday, gold has now completed its best run since January of last year with six straight days of gains.  Gold moved solidly above the big number of $1,200 and continues to move higher in early morning trading.  The precious metals have benefitted from the weaker dollar and also saw their share of 'safe haven' buying overnight with the increased tensions in the middle east.  Gold is also higher due to worries over a possible Greek exit as negotiations continue to drag out in the Eurozone.  Silver has also seen a nice move and is trading above $17 again.

Currencies today 3/26/15. American Style: A$ .7868, kiwi .7636, C$ .8052 euro 1.0997, sterling 1.4924, Swiss $ 1.0495.  European Style: rand 11.869, krone 7.7883, SEK 8.48, forint 272.25, zloty 3.7059, koruna 24.908, RUB 56.565, yen 118.75, sing 1.3644, HKD 7.7539, INR 62.6486, China 6.1375, pesos 14.9816, BRL 3.1919., Dollar Index 96.552, Oil $50.86, 10-year 1.90%, Silver $17.08, Platinum $1,155.48, Palladium $767.38, and Gold. $1,208.50

Cold rain continues here in St. Louis, and after 'shorts-weather' last weekend I hear we could be in for some snow flurries in the next few days.  Welcome to spring in St. Louis!   We had a productive visit from our legal experts the past few days – working toward streamlining some of the required documents we send out to our WM clients.  Hopefully Barry made it home safe last night, I'll know in a few minutes as he is also the one who is responsible for reviewing the Pfennig.  Mike will have the conn on the Pfennig tomorrow, as I have 'swim class'.  I swim down in Chuck's hometown – and pass a plaque which bears Chuck's name on my way into the Fenton RecPlex (Chuck was part of his town's government when this nice recreation complex was built).  Ok, time to get this out the door.  I hope everyone has a good Thursday, and thanks for reading the Pfennig!

Footnotes from Frank's section:

1 – “'The Fourth Reich': What Some Europeans See When They Look at Germany”, Der Spiegel Online, 25-March-2015, .

2 – “Thomas Piketty on the Euro Zone: 'We Have Created a Monster'”, Der Spiegel Online, 10-March-2015,

Chris Gaffney, CFA
EverBank World Markets