June 11, 2018
* Currencies can’t hold their lofty levels…
* G-7 meeting nets whiney spoiled children…
Good Day… And a Marvelous Monday to you! A pretty fun-filled weekend was just had by your truly… The weather was great, the friends were great, and good times were had by all, I do believe! The Reds finally ended the Cardinals 13-game win streak against them yesterday, but my beloved Cardinals took two of three from the Red Legs… Hall and Oates greet me this morning with their song: She’s Gone…
So, yes, while President Trump didn’t make any new friends at the G-7 summit this past weekend, his real mission is in Singapore to meet with N. Korea’s leader, of whom I’ve not been so nice to in the past calling him a “nut job”… Everyone seems to think that this meeting is going to be all sunshine, lollipops and rainbows after this meeting in Singapore… I tend to be a little more pessimistic about these things, because, well, because I am…
The G-7 meeting saw round one of the trade war between Canada and the U.S. That’s nice that the Canadian PM Trudeau, thinks he can stand up to the U.S. President, and shove stuff in his face without recourse… And that recourse will first come from traders thinking like me on this, selling Canadian dollars/ loonies… Yes, the Mexican peso is also caught up in this, but it has already been beaten around the neck and shoulders enough…
And then President Trump offered up an olive branch to Russia, petitioning the G-7 to add Russia to the mix once again. (Russia had been bounced out after the conflict in Crimea) Wait until you hear about what Russia has done to deal with the U.S. sanctions…
The currencies on Friday couldn’t hold their grip on the higher levels that were seen on Thursday, as traders squared up positions ahead of the 1. Singapore summit, and 2. the Fed’s rate hike announcement on Wednesday this week. The trading in the currencies can be seen as a prime example of what I’m talking about when I say that currency traders are fickle! Last week it was sell the dollar, and yes we know the Fed is meeting next week to hike rates. And that turned to “Oh my God! The Fed is meeting this week to hike rates”! They didn’t just figure that out folks, it’s just a true reflection of how 1. sentiment has its grips on the currencies and 2. traders are fickle!
One of the best things I get to do now that I’m no longer tied to a bank, is to write about my conspiracy theories… And brother do I have a good one for this week’s Dow Theory letters piece! I know that a lot of you dear readers have already signed up for the Dow Theory Letters… And I’m hoping that many more Pfennig Readers will do so too! But that’s all I have to say about that today…
So, did you hear the news that the CFTC (Commodities Futures Trading Commission), the regulatory arm that polices commodities trading, including Gold & Silver, announced that they are going to “probe market manipulations”… of Bitcoin, not Gold & Silver! And did you also hear that there was a major problem with a cryptocurrency late last week? South Korean cryptocurrency exchange Coinrail said there was a “cyber intrusion” in its system. This caused Bitcoin and other cryptos to post losses once again…
I’ve shied away from talking about the cryptocurrencies these past couple of years, because I just didn’t see them lasting that long. I figured if the U.S. Gov’t has a problem with citizen’s losing faith in the dollar and buying Gold, that they surely would have a problem with the same people buying crypto currencies instead of dollars… And it wouldn’t be long before the hammer was brought down on the whole lot of them… But boy they sure had a run didn’t they? An now it appears to be over…
Well, we have three major Central Banks meeting this week… First up is the Fed who will have a two-day meeting beginning tomorrow, and ending with a rate hike announcement on Wednesday. On Thursday the European Central Bank (ECB) will meet, and is expected to begin to explain how they will go about unwinding stimulus… IF that actually happens and the ECB doesn’t decide to chicken out again, it should be a lift for the euro.
And then rounding out the week, we’ll have a Bank of Japan (BOJ) meeting on Friday (for them Thursday night for us)… The BOJ will do nothing, the ECB might talk unwinding stimulus, and the Fed will hike rates… As I said last week, I do believe the rate hike is already priced into everything, so the dollar will get its direction not from the actual rate hike, but from the statement following the rate announcement… Just how hawkish is Jerome Powell?
The Emerging Markets are getting whacked daily now as they have some major problems… A dollar liquidity crisis is brewing for them, and all that dollar denominated debt they’ve issued these past few years while interest rates were near zero, is going to come back to haunt them for years… So, with every Fed rate hike, the Emerging Markets feel a little more heat, and now the selling has spilled over to the more mature Emerging Markets currencies like S. African rand, Mexican pesos, and Brazilian real…
The U.S. Data last week didn’t see any prints that were good for not only 1. the dollar, but 2. the economy… But I doubt seriously the Fed even cares about the teetering economy… They need to bump up rates quickly before the recession hits so they have some rates to cut! I told you last week that in the previous 10 recessions the average Fed Funds interest rate at the start of the 10 recessions was more than 9%… And after the Fed hikes rates on Wednesday, their Fed Funds rate will only be 2%… Brother can you spare a rate hike?
The price of Oil remained pretty steady Eddie around $65 after it was announced that the Rig count here in the U.S. and inclined last week, and that Russia is going to increase production.
OK, I won’t beat around the bush any longer there, regarding Russia’s announcement last week… Basically, the U.S. has placed sanctions on Russia, and that demands that U.S. companies not do business with Russia… So, Russia announced that they were going to make it illegal to NOT do business with Russia, if you had done business with them before, and the penalty could include jail time… Oh, I can hear my mother now, with one of her favorite lines… You made your bed, now go lay in it! In other words… Oh, never mind, I think you get the point here…
Ok, back to the markets… Gold was able to eke out a $2.20 gain on Friday, and is up in the early morning trading a buck or two… Last week, I made a big deal out of my thought that I was seeing a breakout in the price of Gold to the upside, and even drafted Omar Ayales for Gold Charts-R-Us fame to concur with me… But then I received a note from a longtime reader, and fellow St. Louis Cardinals fan, who reminded me that we are entering the slow months of the year (dog days of summer) and that could weigh heavily on my breakout call… As usual there I was banging my head on the desk top because I had forgotten about the dog days of summer trading doldrums… UGH! But I’m going to stick to my guns here, and say there will be “something” this summer that kickstarts Gold and the summer doldrums will disappear!
The U.S. Data Cupboard is filled with tier 2 and 3 data prints this week, nothing to speak of really, except the FOMC meeting that begins tomorrow. And I doubt that much of any data would get precedence over the news from Singapore the early part of this week… So, check your cable news every now and then or the internet feed for news that you depend on, for breaking news about what’s going on in Singapore.
To recap… The currencies couldn’t hold their collective grips on the lofty levels they were trading at on Thursday, and it appears that the markets want to take a breather until they know or hear about what’s going on in Singapore. First the G-7 meeting was full of whiny little children in the form of the G-7 nations, complaining to big brother (the U.S.) that they aren’t being treated fairly… Oh, poo, poo… Don’t you feel sorry for them? NOT! Oil and Gold are also stuck in the mud this morning, and Chuck has some additional thoughts on Gold…
For What It’s Worth… We’re going to do something different with the FWIW section today… it’s going to be all me… Ranting and pounding my fist about something, so here we go!
I was doing some reading on Friday, and came across an article on the Bloomberg that quoted former Fed Chair, Ben Bernanke… He of the two extra rounds of Quantitative Easing that were NOT needed! And he of the near zero interest rate cuts that remained there far too long, but I digress with my description of the man, I wanted to highlight something he said in the article… let’s listen in, to Big Ben Bernanke… “The stimulus “is going to hit the economy in a big way this year and next year, and then in 2020 Wile E. Coyote is going to go off the cliff,” Bernanke said, referring to the hapless character in the Road Runner cartoon series.”
Now, you can tell me there’s no tooth fairy, and you can tell me there’s no bunny that delivers eggs, but you can’t tell me that Fed reserve members aren’t political… Why would he pick 2020? Well, that’s the year the President Trump would be running for reelection.
We’ve not heard very much from Big Ben since he left the Fed Chair, and judging from this quote, I would prefer that to remain that way! But wait a minute Chuck, isn’t this in the same vein that you’ve been using to tell us a recession is coming? Well, it’s close… You see, I’m of the opinion that the Fed Rate hikes are going to send us to recessionville, not the stimulus… Got it? OK!
Currencies today 6/11/18… American Style: A$ .7606, kiwi .7031, C$ .7680, euro 1.1785, sterling 1.3370, Swiss $1.0138, … European Style: rand 13.15, krone 8.0670, SEK 8.7055, forint 272.76, zloty 3.6205, koruna 21.7805, RUB 62.29, yen 109.92, sing 1.3352, HKD 7.8461, INR 67.44, China 6.4028, peso 20.41, BRL 3.7060, Dollar Index 93.65, Oil $65.04, 10-year 2.96%, Silver $16.82, Platinum $906.66, Palladium $1,013.05, and Gold… $1,296.99
That’s it for today… Lots to talk about today, and so little time and space to do it, which is why I truly believe you should look to subscribe to the Dow Theory Letters (www.dowtheoryletters.com) for daily in-depth reports from a different writer every day! (my day is Thursday!) We tried out the new Hofbrau House on Saturday, IT IS HUGE! And a fun place for sure! And I was invited to the baseball game tonight, where I’ll see some former colleagues that too no longer work at the old place of business… Castaways, that’s what we are! Tomorrow is Chuck and Kathy’s 42nd wedding anniversary… When I was a young man, I doubted that I would live to see 42 years old, much less be married for that long! Better living through chemistry, as my good friend, Ty Keough likes to say! Pink Floyd takes us to the finish line today with their song: Wish You Were Here… I used to play that one on my guitar too! Ok… time to go… I hope you have a Marvelous Monday, and remember to Be Good To Yourself!
Chuck Butler