Bank Of Canada Hikes Rates!

Chuck Butler’s: A Pfennig For Your Thoughts

 September 11, 2017

* Draghi’s hints push euro higher…

* Fischer announces resignation from Fed

* 353,000 paper contracts in Gold! 


Good day… And a Marvelous Monday to you! Today marks the observance of our second day of infamy, when terrorists, oh I don’t want to talk about it because it gets me all riled up!  I don’t want to make such a Big deal out of the gorgeous weather we had here this past weekend, with Florida getting hammered by Hurricane Irma… I do believe, though I haven’t really heard for sure, but I do believe that the shift west of the hurricane, saved my little place from some major problems, and for that I am thankful. I don’t wish it on anyone else though, so it’s kind of not so good too… So, how many of you forgot about me not writing on days following an infusion last Friday?  I bet it was a lot of you! Blackfoot greets me this morning their song: Highway Song… It’s a 7:30 minute song, so I’ll well into the Pfennig when the song is over!

Speaking of getting hammered… That’s what happened last week to the dollar, and when I went to bed last night, the currencies were hanging on to their gains…And the overnight markets saw some slippage in the euro and some other currencies, but for the most part, the currencies held their ground gained. The metals on the other hand… Well, let’s just say that 353,000 Gold contracts, were enough to keep Gold and Silver from gaining any ground on Friday, and in the early morning trading today, the metals are taking on more water… 

The euro continued its rally that had begun on Wednesday overnight, and into Thursday morning, and ended the day on Thursday above 1.20! I’m going back to Thursday, because that’s when the European Central Bank (ECB) met, and propelled the euro higher. ECB President, Mario Draghi, left rates unchanged and stressed the need to keep them in check while they begin the unwind of their balance sheet. Yes, their balance sheet, is going to begin to be unwound probably by year-end. He said that the very early discussions have begun, and that more information would be available at the Rocktober meeting. Now, you may be scratching your head right now, and saying, “what in that statement would propel the euro higher?” Ahhh, grasshopper, you have to go back to my explanation on the unwinding of the U.S. Balance Sheet… For every $500 Billion of bonds unwound from the balance sheet, it equals 1/4% rate hike… So, now take that same explanation over to the Eurozone, and now you can see why the euro was propelled higher!

Now, speaking of the U.S. and the Fed’s next meeting that will occur this month on Sept. 19&20… The old two day meeting, when all the board games are removed from the shelves and put on the table for use! HA! For new readers, that’s just an old thought I had years ago, when someone asked me what the Fed did for two days? By Joe, you’ve sunk my battleship! HA! OK, back to reality now… I’ve said for several months now that the Fed will not hike rates in September… But, what they will do in the press conference following the meeting, is have a real adult discussion about the unwinding of their balance sheet… And that might give the dollar some wiggle room, but in reality, I doubt that the true unwinding of their balance sheet ever really gets going down the tracks.

You see, I told you last week that Vice Chairman Stanley Fischer, had resigned, and now President Trump has 4 Fed members that he needs to nominate. He has one in the process, but that’s a lot of Fed members that will change, and then in Feb 2018, Janet Yellen’s term expires, and I would be shocked if she was kept as Fed Chair… James Rickards thinks that the next Fed Chair will be Kevin Warsh, who was a Fed member a few years ago. And if that’s the direction of the Fed, then I doubt seriously, that the “great balance sheet unwind” gets going strong… So, there you have it all in a nutshell… And for free! HA!  

 The Bank of Canada (BOC) surprised the markets last week with a second rate hike this year! After hiking rates in July, the BOC came back this month with another 1/4% rate increase, to bring their internal rate to 1%! And the loonie soared on the hearing the news! The loonie did reach 82-cents briefly on Thursday, but settled back under the 82-cent figure to end the day… The move higher was swift, and strong, proving that fundamentals still do play some part in currency valuation! I’ve long said that I like the loonie, but was very concerned with the housing bubbles in Toronto and Vancouver, but with these two rate hikes, the BOC is addressing those housing bubbles, and that gives me a warm a fuzzy about the loonie, which by the way is at its highest level since 2015, and then it was going down! 

Look at that loonie go! The loonie got right back in the saddle of the rally horse overnight and is up to .8250 this morning! Boy there must have been some pent up frustrations let loose when the BOC hike rates on Thursday, last week! 

The tensions over N. Korea have calmed a bit since late last week, and that probably has a lot to do with the selling of Gold & Silver. But 353,000 contracts? One of these days, we’ll get to see the makeup of the contracts, i.e. how many where long buys, how many were short sales, etc. Since Gold was on a roll earlier last week, I would have to think that “the boys in the band” were ordering boat drinks, along with their large number of short Gold paper trades.

Darn it! I hate when this happens! I was rubbing my eye, and inadvertently popped my eye shell out, and now it sit here on my desk looking at me.. Kind of creepy, but also pretty cool when you think about the science and medicine that went into replacing my cancer stricken left eye 7 years ago!

OK… enough of that! the price of Oil slipped from nearly reaching $50 last week, to a $47 handle this morning. That means the rallies in the Petrol Currencies were put on hold, except the Canadian loonie, which is on a rocket headed for planet Mars! I can’t stop looking at the loonie and smiling!  Kiwi also had a great day on Friday, and in the overnight markets, pushing the currency appreciation envelope to the doorstep of 73-cents!  

The Aussie dollar is no slouch at the currency appreciation table, and has crossed 82-cents…  So, on Friday, when I woke up from my fogged brain nap, to find my head cleared, and ready to read stuff, I decided to start my DTL letter for this week, and in it I wanted to focus on the thought that a new weak dollar trend had begun… I asked my former colleague and good friend, Jen McClain, to look something up for me, and my suspicions were correct… Here’s the role call of the major currencies YTD VS the dollar…  

The Swedish krona, euro and Danish Krone (which is pegged to the euro) lead the pack with 14% gains, the loonie is next with an 11% gain, Norway’s krone and the A$ with 8% gains, and kiwi with a 5% gain…  The lead currency with gains VS the dollar is the Mexican peso, but in reality that all game in one fell swoop, after the peso dropped in value after the Trump election. And ever since that evening out of the peso, it’s been stuck around the 18 figure, or just below it.  So, if you were brave enough to buy pesos when they fell to 25, then you have a nice gain, otherwise, it’s not moved…   

Well, President Trump  signed into law a bill that extends the debt ceiling and that provides emergency funding for hurricane relief. The measure will give the U.S. government  enough money to remain in operation for three months. There! Now, doesn’t that give you a warm and fuzzy feeling know that we have enough money to last another 3 months? I don’t want to go down that road again where I get all upset with the lawmakers in this country for their inability to stop spending money that we don’t have, won’t have, and will never have! I was a little rough on the Beaver last week, and don’t want to get to that point again, at least not today!   

You put your left foot in, you put your left foot out, you shake it all about, and you do the hokey pokey and turn yourself around!  Well, that’s what Greek PM Tsipras must be thinking the IMF is doing these days, when it comes time to be serious about the Greek bailout… Tsipras was quoted as saying tha the International Monetary Fund needed to decide whether it will continue to participate in the country’s bailout. “What we cannot do is live with the IMF setting one foot in and leaving one foot out,” Tsipras said, commenting on the IMF’s stance that it will support the ongoing effort in principle.   I can’t believe that Tsipras hasn’t caught on to the IMF’s operendi modus, which is to come in, be a hero to the nation, and when it comes time for more heroism, the step back and make the nation beg, until the agree to certain measures that turn the nation into a, well, a Greece! 

So, I talked about Gold above and how there were 353,000 contracts traded last Friday… I read in Ed Steer’s letter ( on Saturday, that it appears that China will be importing 2,000 tonnes of Gold this year… that would equal a 4.5% increase from their imports a year ago…  That’s HUGE folks, and will keep “the boys in the band” very busy, trying to keep a lid on Gold, when the physical demand is so strong!  

The U.S. Data Cupboard today is empty… That’s right empty! But on Friday, the Gov’t tried to sneak a data print by us without anyone noticing, and if the fog hadn’t cleared in my head by noon, I don’t know if I would have caught it…  But the U.S. Consumer ran up their debt by $18 Billion in July…  That was up from $12 Billion in June…  I know, I know the propeller heads will tell me that there are more people in the U.S. so the debt is spread out more..   But did we really add that many people between June and July?

The U.S. Data Cupboard will have some minor data prints and then the stupid CPI print this week, and that will go on until Friday, when Retail Sales, and two of my faves, Industrial Production and Capacity Utilization print… So, the dollar is on its own for most of the week, and in recent trading that hasn’t been a good thing for the dollar…  I’m just saying… 

To recap…  It’s our 16th observance of our 2nd day of infamy, and Chuck still gets ill thinking about it… Hurricane Irma shifted West, but is still hammering Florida. The dollar also got hammered late last week, and while it attempts to fight back early this morning, the currencies for the most part are holding their gains… The Best performer since Thursday is the Canadian loonie, which is on a rocket ship headed for the planet Mars, and the Bank of Canada hiked rates last Thursday.  ECB President Draghi, left rates unchanged, but did talk balance sheet unwinding, and that pushed the euro past 1.20 where it sits this morning!  

For What It’s Worth…  Well, this was one of the featured articles on Ed Steer’s letter Saturday, and I thought it to be very FWIW worthy, ad it talks about an iconic company’s financial woes, and can be found here:

Or, here’s your snippet… Here’s the title of the article: “Greatest Fiscal Crisis In Our City’s History”: Hartford Warns It Will Be Broke In 60 Days”  OK, do I have your attention now?  Here’s the skinny: “

Just two months after Standard & Poor’s downgraded its general obligation debt to junk status, warning that the historic Connecticut capital could soon follow other once-proud cities like Detroit into bankruptcy, Hartford city officials confirmed as much when they warned on Thursday that the city could be forced into insolvency within two months if the state doesn’t provide emergency financial relief, the WSJ reports.

“City officials warned Gov. Dannel Malloy, a Democrat, and state lawmakers that Hartford, which has a deficit approaching $50 million, wouldn’t be able to pay all of its bills within 60 days. Hartford officials said it would file for bankruptcy at that point unless the state legislature passes a budget that gives the city more funding or otherwise provides it with more cash.
‘We face the greatest fiscal crisis in our city’s history,’ officials said in a letter signed by Mayor Luke Bronin, Treasurer Adam Cloud and Thomas Clarke II, president of the court of common council.”  

Chuck again….  I wonder what the Big Buck is thinking right now… 

Currencies today 9/11/17… American Style: A$ .8050, kiwi .7285, C$ .8250, euro 1.2012, sterling 1.3190, Swiss $ .9493, … European Style: rand 12.8825, krone 7.7829, SEK 7.9572, HUF 255.09, zloty 3.5356, koruna 21.6904, RUB 57.30, yen 108.50, sing 1.3428, HKD 7.8141, INR 63.87, China 6.4978, peso 17.68, BRL 3.1047, Dollar Index 91.50, Oil $47.80, 10-year 2.09%, Silver $17.93, Platinum $1,005.25, Palladium $952.50, and Gold… $1,342.50 

That’s it for today… Well, I was all alone all weekend, a probably will be again later in the week.. nobody likes me, everybody hates, me think I’ll eat some worms! HA! My beloved Cardinals are out to prove me wrong about not making the playoffs this year, but I’ll gladly say I was wrong, if that were to happen! What the heck happened to my beloved Mizzou Tigers on Saturday night? I read where the evacuation of Florida was the biggest evacuation ever done… And still I’m sure that a large majority of the people hunkered down to ride the hurricane out… Just be safe, please…  Jackson Browne takes us to the finish line today with his song: For a Dancer… the song has these two lines in it that are pretty powerful…  In the end there may be a reason you were alive, but you’ll never know… And… In the end there one dance you’ll do alone…  Please take a moment to think about, our folks in the military, the awfulness of 9/11, and the devastation left behind by Hurricanes Harvey and Irma, today…  And with that, I’ll sign off for today, and hope you have a Marvelous Monday… Be Good To Yourself!