Swedish Krona Is Most Undervalued Currency?

March 8, 2018  

* Trade War talk cools for a day…

* The dollar fights back in the overnight markets… 


Good Day… And A Tub Thumpin’ Thursday to you! The early morning rain came and went yesterday, and didn’t interfere with the baseball game, and the day turned out to be another beautiful day at the ballpark! I’m having an iffy morning with my stomach so far, I think it’s due to the anticipation of the new drug I’ll be taking. It’s going to be delivered to me today…  I just don’t know what to expect, so I guess it’s a good thing that this is the last Pfennig for two weeks. Hopefully, no problems occur, and I’ll be back in two weeks full of you know what an vinegar! Buddy Miles greets me this morning with his band’s song: Them Changes   Which is pretty apropos considering my “changes”…   

Well the dollar fought back in the overnight markets last night and this morning, but not by much, the Dollar Index traded at 89.49 yesterday morning and is trading today at 89.72… So, some slippage but not much… The European Central Bank (ECB) is meeting as my fat fingers fly across the keyboard. As I told you earlier this week, most of what the ECB is going to say and not do, has been leaked, and so the actual meeting should be very anticlimactic…  No surprises, here, move along now, for these aren’t the droids you’re looking for!   

Did you see that HUGE Trade Surplus that Australia booked yesterday? WOW! Australian trade  rebounded from a surprisingly large deficit at the end of last year, to record an unexpectedly large surplus in January.

Australia recorded a $1.05 billion surplus, a more than $2 billion turnaround on the $1.1 billion deficit the month before.
While total exports on goods and services jumped 4 per cent, a 2 per cent drop in the big import bill from December also helped. The surplus as underscored by the fact that around three-quarters of the surplus was made up by a $770 million contribution by gold, with exports jumping 54 per cent over the month. Hmmm…   This report not only shows that the Aussie economy has turned the corner and is headed for growth, but also shows the recovery of physical Gold demand…   

On the other side of the world, the U.S. printed a Trade Deficit for January that was the  highest level since October 2008. The Commerce Department said Wednesday that the trade deficit rose to $56.6 billion in January, up 5 percent from $53.9 billion in December and the highest since October 2008’s $60.2 billion trade gap. The trade deficit has risen for five straight months. 

And this Trade Deficit is not going to sit well with President Trump, and I think he’ll use it as an example of how unfair the trade practices are around the world. I would look for a wide range of new tariffs to be announced soon… Think of it like a poker game… The U.S. raises the bet with an announcement of Tariffs, The Eurozone matches that bet and raises the pot with their own Tariffs, back to you U.S. what are you going to do? 

And all the while, China has not said what they intend to do about the Tariffs on their exports of Steel and Aluminum. Remember a few Pfennigs ago, I wrote about a thought I had as to how China could retaliate by stepping away from the Treasury bond auction window? Well, apparently someone at Bloomberg is a Pfennig reader and they did their own version of “Chuck’s Thought”  by talking about how China’s relative share of the market for Treasury notes and bonds is near its lowest since 2005, at 9.4 percent.

And I know they aren’t being dragged into the Trade War yet, but Japan, which owns $1.06 trillion, its 8.4 percent share is the smallest in at least 18 years! Which begs the question once again… Who’s buying the ever increasing number of Treasuries that are issued to finance our ever increasing deficit spending?  Unless the Fed has some “secret account in the Caymans” it’s not the Fed bellying up to the Auction window, for their balance sheet is shrinking due to them not participating in QE any longer.

Inquiring minds need to know who’s buying Treasuries?  China has already begun to show their true colors and Japan’s not buying really surprises me, but then The Bank of Japan  (BOJ) has been busy buying their own bonds, and stocks for years now. Shoot Rudy, Japan started QE / bond buying before it was cool to do!  Of course I kid, because it was never cool to do, in my opinion…  I

was looking over an article that longtime reader Bob sent me and in the article it talked about overvalued and undervalued currencies, based on a formula that included purchasing power parity PPP, and the behavioral equilibrium exchange rate (BEER)  (I like that one! HA!) and came to the conclusion that the Swedish krona was the most undervalued currency, and the Swiss franc was the move overvalued currency… The euro was in the middle.  The Canadian dollar/ loonie was considered undervalued, while the Aussie dollar (A$) and kiwi were both considered to be overvalued…   Hmmm… I’ll have to think about this a little more before I comment further…   

The U.S. Data Cupboard had a ton of data for us yesterday, so let’s take a look at what was shown…    Leading off and playing second base… The ADP Employment Report, which showed 235,000 jobs created in February, which was off from the forecast of 245,000… then batting second, was the Consumer Credit (read debt) for January… Yesterday, I told you that given the negativity of the data reports for January so far, I would have been surprised to see this debt figure fall in January… And it did, falling from an upward revised $19 Billion in December to $14 Billion in January… 

The savings rate in the U.S. is down, Personal Spending last week was weak, and Retail Sales for January were negative, now does that look like an economy where the consumer is geared up to spend and make the economy grow? Or does it look like an economy where 4 rate hikes are needed this year?    

Oh, and Productivity for the 4th QTR was flat, and the Unit Labor Costs increased in the 4th QTR by 2.5%…  Nothing to see here, move along… 

I liked what Ed Steer when he said today, something like this: “what da boyz gave to us on Tuesday was taken away on Wednesday”…  Gold lost $9.30 yesterday after posting a $14 gain the day before. The shiny metal closed at $1,324, with 259,000 contracts traded…  Gold is seeing some buying in the early morning trading, but no real conviction to take it much higher yet…  I think the “boys in the band” or as Ed Steer calls them “da boyz” are going to have to work like the dickens…   You know… I have used that phrase “like the dickens” all my life, and always thought it had something to do with Charles Dickens…  But apparently not!  It has nothing to do with Charles Dickens. Dickens is a euphemism, specifically a minced-oath, for the word devil, possibly via devilkins.    So, I hope I passed something on for you to use at cocktail trivia!    

To recap…  The dollar fought back and gained some lost ground in the overnight markets, as the “Trade War” talk cooled off for a day…  Gold gave back nearly $10 of its $14 gain the day before, yesterday. Chuck wants to know who’s buying our every increasing amount of Treasuries? And according to ANZ’s new currency valuation model, the Swedish krona is the most undervalued currency, and the Swiss franc is the most overvalued currency…  Chuck is going to look into this further…. 

For What It’s Worth…  I sent off this week’s DTL letter to the publisher yesterday, and in it I talk a lot about how protectionism isn’t good for an economy… My friend and publishing guru, Bill Bonner, took it a step further yesterday and you can find his thoughts on this here: https://bonnerandpartners.com/why-trump-will-lose-his-trade-war/   

Or, here’s your snippet: “Protection is among the worst things you can give to a business; you may as well tell your children not to bother with their homework.

Legendary steel executive Ken Iverson explained it as follows:
As soon as prices began to rise so that the steel companies began to be profitable, they stopped modernizing. It’s only under intense competitive pressure – both internally from the mini-mills, and externally from the Japanese and the Koreans – that the big steel companies have been forced to modernize.

Unless you’re under intense competitive pressure, and it becomes a question of the survival of the business to do it, you’re just going to lapse back into your old ways. There’s no other answer.

But Mr. Trump thinks he has another answer. He spelled it out in his books. Hardly a single one of his tweets fails to mention it. He thinks you win by making someone else lose.

But this win-lose programming doesn’t work for business, commerce, trade, marriage, family, or friendships. In these things – and in most of life – you win by letting the other guy win, too.”  

Chuck Again… Well, this Trade War should be going great guns by the time I get back from vacation… I’ll try to tweet any thoughts I have during that time, should things get ugly…   

Currencies today 3/8/18… American Style: A$ .7801, kiwi .7262, C$ .7737, euro 1.2383, sterling 1.3879, Swiss $1.0582, … European Style: rand 11.90, krone 7.8415, SEK 8.2490, forint 251.77, zloty 3.3940, koruna 20.5151, RUB 56.84, yen 106.08, sing 1.3159, HKD 7.8388, INR 65.04, China 6.3213, peso 18.72, BRL 3.2228, Dollar Index 89.72, Oil $61.19, 10-year 2.88%, Silver $16.19, Platinum $949.80, Palladium $970.85, and Gold… $1,326.40

That’s it for today, and for the next two weeks… It’ll take me a few days to get used to not waking up so early, but then I’ll be in the swing of vacation!  Good friend Rick B. arrives today. Prayers and thoughts with good friend Kevin, who had to drop out of the Spring Training trip this year, due to a death in his family…  So, it will just be the original 3 Amigos Chuck, Rick and Duane for Spring Training games the next 5 days…  What will you do for the next two weeks? I’ll miss you more than you miss me, I’m certain of that! It sure looks like a good day, to have a Good Day! The sun is shining, and Robert Plant  takes us to the finish line today with his song: In The Mood…  So, let’s go out and make this a Tub Thumpin’ Thursday today, and remember to always Be Good To Yourself!  

Chuck Butler