And Now She’s Concerned About Our Debt Path?

Chuck Butler’s: A Pfennig For Your Thoughts

July 13, 2017

  • Yellen speaks & the markets move!
  • Dollar index on the slippery slope…
  • Terry Duffy talks about Gold & Silver…
  • A$ & Kiwi kick some tails!


Good day… And a Tub Thumpin’ Thursday to you! And I’m ready to do some Tub Thumpin’! I’ve got quite a few things to get to this morning and I don’t want to go on as long as I have lately, so I’ll get right to the meat of the market moving stuff, have some opinions, and more… Loggins & Messina greet me this morning with their song: Nobody But You.. This was from their live double album, that I wore out, years ago… 

Monday, I highlighted the “Mom, he’s doing it again” commercial in reference to the BLS, and their hedonic adjustments…. And today, I have to change a word, to say, “Mom, she’s doing it again!” And of course the “she” is Fed Chair Janet Yellen, who did the first of her two stops on Capitol Hill yesterday, with the second coming today. In her first production of: “things that I’ll tell the lawmakers to get them on my side.” She bobbed and weaved, did a little rope-a-dope, and said her piece and left without any major incidences… I’ll let Yahoo Finance take it from here with their description of her testimony…

“In what may be one of her last appearances before Congress, Yellen depicted an economy that, while growing slowly, continued to add jobs, benefited from steady household consumption and a recent jump in business investment, and was now being supported by stronger economic conditions abroad.

The Fed “continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time,” Yellen said in her prepared testimony. Reductions in the Fed’s portfolio of more than $4 trillion in securities are likely to begin “this year,” she said.
But she also noted that given current stoestimates, the federal funds rate “would not have to rise all that much further” to reach a neutral level that neither encourages nor discourages economic activity. The Fed still feels the economy needs loose, or accommodative, monetary policy, so a lower neutral rate means the Fed may feel compelled to slow the pace of rate hikes down the road.”

See what I mean?  But… she did have this grenade to toss at the lawmakers…. “Let me state in the strongest possible terms that I agree” the U.S. federal debt trend is unsustainable, may hurt productivity, and living standards of Americans.”   Hello? Testing, one, two, is this microphone on? Can you hear me in the back? Good, because I want to make a point here… Where has all this concern about our debt path been for the past 8 years when the debt was doubled?  Come on, inquiring minds want to know!

Well, the Fed Chair did turn a little dovish when she talked about how the Fed Funds rate “would not have to rise all that much further”… And that set the dollar down the slippery slope…  Stocks rallied, currencies rallied, Gold rallied, bonds rallied, and all because she slipped up and sounded a bit dovish.  The Dollar Index feel through the 96 handle and is trading with a 95 handle this morning, with the big mover being Japanese yen, Swedish kroner, and a little help from the euro.  Last fall (Sept.) we saw this type of move in the Dollar Index and it proved to be a false dawn. I thought then that the strong dollar trend was ending, but had to cool my jets for 3 months and wait for the next round of dollar weakness to make that call…

Well, it wasn’t all about Janet yesterday, The Bank of Canada (BOC) did raise their internal rate 25 basis points (1/4%) just like I told you they would do yesterday. The thing I didn’t like about the statement following the rate hike was that the BOC seemed to be content that this hike would tamp the housing bubbles… Hmmm…  seems like a strange comment to make, given this is the first rate hike since 2010!  But then it BOC Gov. Poloz, who as I pointed out the day he was named BOC Gov. and I’ve pointed out several times since, and that is, that he’s from the Trade side of the Gov. the people always whining about how they need a weaker currency to help exports.  And that’s why he’s dragged his feet through a mile of broken glass to keep from hiking rates, but given the recent strong data prints in Canada, this rate hike had to be made… Knowing that a rate hike could push the loonie higher, he had to do/ say something…  And that’s why I think the questionable statement was in the statement.. 

So, yesterday, I talked about Lola, aka Goldman Sachs, sending out a note that they preferred Japanese yen as a safe haven currency over Swiss francs…  Personally, I don’t care for either one of them, the only safe haven currency I know of is Gold (&Silver of course!) , but I digress there… I wanted to point out that Lola says something, and then voila! Things happen! And Japanese yen rallied like the Bank of Japan (BOJ) had just hiked rates 200 Basis Points (2%)!  As recent as Tuesday this week, yen was trading 114.35, and this morning it is trading 112.96. I told my good friends, Kevin and Duane yesterday, while we cooled off at our local watering hole, that apparently, Lola was long yen, and needed to get investors to buy to run up the price so they could unload their long position at a profit… Now, I don’t know if that’s reality or not, but in my years of following currencies, it sure seems like that’s the scenario that exists any time a large Investment House comes out with a statement on a currency out of the blue! 

The three of us also had a long conversation about Gold… I was pleasantly surprised to hear friend Duane, explain the store of wealth story. I thought, “Hey, at least someone is listening to me!”  Well, Gold found a way to carve out a tiny gain yesterday of $2.80, to close at $1,220.00. The shiny metal is up $2.50 in early morning trading today… I told you last week that I had a piece on Gold suppression for you this week, and we’re getting pretty late in the week, aren’t we? Well, I’ll have it for you tomorrow, for sure, promise… 

In Ed Steer’s letter this morning ( he has a link to a videoed interview between Neil Cavuto and Terry Duffy who is the CEO of the CME, and instead of having to watch the whole video, he highlighted a comment by Duffy that I think is important for us… Let’s take a listen…  OK, let me set this up… Cavuto asks Duffy why the price of Gold & Silver aren’t higher given all the problems in the world today, and Duffy blurts out, “that with all the problems in the world, people will wake up and precious metals, gold and silver, will be substantially higher — and they will wonder why, and then they will realize that an event does impact the precious metals positively.”

What this a wink, wink that metals prices are about to move “substantially higher”?  I think so, folks… And here’s why I think that… Then Duffy will be able to say, “I warned you!” 

Two HUGE movers overnight, but not part of the Dollar Index, is the A$ and kiwi… I told you previously that these two were not as much in demand given their positive rate differential with the U.S. dollar was narrowing, but when Yellen turned dovish yesterday, these two took off! 

So, the European Central Bank (ECB) will meet next week, and right now, there are so many thoughts going around about how the ECB will announce that they are ready to begin to withdraw accommodation… In other words, dismantle their monetary policy that has them putting negative deposit rates in the banks, and buying so many bonds, that now they have run out of bonds eligible to buy.  These thoughts have helped the euro, but let’s face it, the ECB and president Mario Draghi have disappointed us before, and they could very well do it again next week. 

Either way, I don’t think the sentiment toward the euro will change that much, because by then we’ll have seen more weak U.S. Data, and the Fed’s words about growth picking up in the second half will ring hollow…  The euro wasn’t able to keep above that line in the sand figure of 1.1428, so as I explained yesterday, the euro’s move above the figure didn’t constitute a “complete take out” as it couldn’t hold above the figure for more than a day. The single unit is bouncing back and forth around the 1.14 figure this morning… 

Speaking of data… Here In the U.S. yesterday, the Data Cupboard was dominated by the Janet Yellen show… And she’s scheduled to do an encore today on the other side of the Hill, but it will be a rinse and repeat from yesterday, so unless someone asks her to elaborate further on her thoughts on the debt being “unsustainable”, I doubt we’ll hear much from the speech. 

Today’s Data Cupboard will have the June PPI (wholesale inflation) which won’t do much for the dollar, and the Federal Budget print… And THAT most definitely won’t do much for the dollar, especially given Yellen’s thoughts on debt are fresh on the markets minds right now… 

To recap… It was all about Janet yesterday, well, sort of that is, because the Bank of Canada also made news by hiking rates for the first time since 2010 yesterday. Lola said it liked yen over francs, and yen rallied almost two whole figures! Gold found some scraps at the metals gains table and added $2.80, and CME CEO Terry Duffy gives us a warning about Gold prices… 

For What It’s Worth… I thought this would lighten up the mood a little this morning and it can be found on the Washington Post site here:

Or, here’s your snippet: “Brother, can you spare a gigantic gold coin?

Hundreds of special German police officers executed raids across several buildings across southern Berlin early Wednesday, nabbing four suspects in the hunt for a 220-pound gold coin valued at about $3.9 million. It was stolen from Berlin’s Bode Museum in March, where it had been since 2010.

The police, who conducted the raids wearing masks and strapped with heavy weapons according to the Associated Press, are questioning nine others in connection with the missing coin. The four main suspects are related and between 18 and 20 years old.

The coin was not recovered in the operation.

“We assume that the coin was partially or completely sold,” Carsten Pfohl of the Berlin state criminal office said at a news conference. Police are picking apart clothes and vehicles used by the suspects to find traces of gold left behind.”

Chuck again… A Gold coin the size of a manhole cover? WOW! I have a phrase I use when talking about someone who’s cheap.. I say, he throws around quarters like they’re manhole covers…  HA!  Well, I guess this manhole cover sized Gold coin, would make that phrase not very funny any longer!

Currencies today 7/13/17… American Style: A$ .7738, kiwi .7333, C$ .7741, euro 1.14, sterling 1.2918, Swiss $ .9652, … European Style: rand 13.1777, krone 8.2721, SEK 8.3601, HUF 269.24, zloty 3.7120, koruna 22.8954, RUB 60.34, yen 112.96, sing 1.3788, HKD 7.8104, INR 64.42, China 6.7891, peso 17.72, BRL 3.2347, Dollar Index 95.73, Oil $45.36, 10-year 2.31%, Silver $15.92, Platinum $919.60, Palladium $872.77, and Gold.. $1,221.60

That’s it for today… No baseball last night or tonight, as my beloved Cardinals get ready to start the second half of the season in Pittsburgh on Friday night… Carlos Santana was in town last night, and it reminded me of a few years ago, when he was here, and I tool Alex to the concert, and Alex, being an excellent guitar player, wasn’t that impressed with Carlos Santana… I was shocked! And told him that was blasphemy! All 3 grandkids were here yesterday to swim in the pool, as it reached 102 degrees here yesterday! I love it when they are here! And the great Steely Dan takes us to the finish line today with their song from the album of the same name: Aja…  (Steely Dan’s best album in my opinion too!)  OK… Now let’s go out and do some Tub Thumpin’ Today! And Be Good To Yourself!


Chuck Butler


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