1st QTR GDP Prints At Just 0.7%!!!!

In This Issue.

* Currency rally Friday.
* Is erased in the overnight markets.
* CBR cuts rates 50 Basis Points!.
* Lots of Data in the U.S. This week.


And now. Today’s A Pfennig For Your Thoughts.

Good day. And a Marvelous Monday to you! And welcome to May! It’s May Day! Well, he did it! Our friend, and colleague, and metals guru, Tim Smith, tied the knot on Saturday. I know, because I was there! He looked great, and his bride, was beautiful. It was not a good day for St. Louis sports yesterday, but it was a good day on Friday, so a washout basically. Speaking of washout, that was our weather this weekend, and unfortunately, it appears we’re about to experience the same flooding that devastated our neighborhood just 15 months ago. UGH! I really never thought that we would be going through this again, ever, much less 15 months later. The river’s crest will come on Wednesday, so between today and the end of the day tomorrow, there’s lots of work to do, along with worrying about river levels, more rain, if we’ve done enough to protect our homes. Ambrosia greets me this morning with their song: You’re The Only Woman.

We start the week with the news that Congress has found a way to deliver a bill that would keep funding the Gov’t until next September that includes increases for military spending and border security, the latter of which seemed to be the major hang up, along with several other small items. So. here we go! I’m so excited about this development, I’ve got chills running down my spine! NOT! This is so disappointing, but then what else have I come to expect from these elected officials? The details haven’t really been dispersed yet, so we’ll have to wait-n-see the devil in the details.

The dollar was sold on Friday after the 1st QTR GDP data printed. But, with the news of this spending bill, the dollar has rebounded this morning. Friday was all about the GDP report, so we might as well start there, eh?

I told you, I told you, I told you that GDP would be below 1%, I wrote a letter to my love and on the way I lost it, I lost it. No seriously. I told you that 1st QTR GDP would have a print of less than 1%, and it printed at a whopping (I say in jest) 0.7%! And guess what dragged it down? Consumption weakness. Ahhh, the U.S. citizen, running on empty, running on, running blind, running on, running into the sun, but I’m running behind. (thanks Jackson Browne!) Of course he was singing about his travels on the road during his hay days of rock. And I’m talking about the U.S. Consumer, running on empty. They’ve maxed out their credit cards, they’re up to their eyeballs in debt, thanks to that quarter of a million cost of that new Bentley SUV, and now, when they need the help of lower interest rates, guess what the Fed is going to do to make their lives brighter? Yes, that’s right they’re going to add to their misery, by hiking rates! But hey! The Fed didn’t tell them to go out and make sure they have that 80 inch Ultra HD TV, and put it on their credit card! No. Wait! The Fed might not have told them in so many words to go out and spend, but they sure put the words between the lines, with ultra-low interest rates that they are now taking away.

So, annually, the U.S. GDP is just 0.7%… Could it have been that interest rate hike December that put the kyboshes on economic growth here in the U.S. ? Well, it could have been, but I really attribute this weakness to the consumer here in the U.S. running on empty. And I think the markets are beginning to see this too, and that’s why they sold dollars after the GDP print. But that selling didn’t last too long, as news of the new spending package to keep the Gov’t operating turned things around for the dollar overnight.

The moves aren’t HUGE folks, just your plain old run of the mill dollar move, that doesn’t have legs, or any real conviction to buy. Traders are just buying because that’s what they’ve always done. But why? Congress just came out with a deficit spending bill, which means more debt. Think about that for a minute, and then tell me why traders would think was a good thing for the dollar? Well, like I said, their buying isn’t hand over fist, and really has no real conviction at this point. So, if that’s the case, then why do it to begin with? (for some reason I hear my mother saying that to me!)

On Friday afternoon the euro has rallied back over the 1.09 figure to 1.0940, but that didn’t last too long, and in the overnight trading, the single unit has dropped back to just below the 1.09 figure. Pound sterling has added to its rise to 1.29 on Friday, and as there’s been no selling here, which doesn’t make much sense to me, given that on Friday the U.K. printed a weaker than expected 1st QTR GDP report.. UGH! But pound sterling is stronger this morning despite that awful report.

The Aussie dollar (A$) has slowly but steadily, almost stealth-like, returned to the 75-cents handle. But the trading range on this currency is still intact , so nothing to get too excited about, just yet, that is.. I see where James Rickards was talking up the Canadian dollar / loonie in the 5 Minute Forecast (www.agorafinancial.com) on Friday. And not because he sees the price of Oil rallying, but more that he sees the U.S. dollar weakening in the coming months. He laid out his reasoning for this call on the dollar, and it’s very similar to the scenario that I’ve described for you several times in the past couple of months.. For those of you new to class, that scenario is all about how the Fed hikes rates in June, but by the end of summer the economy revolts, and the Fed realizes that they need to begin to reverse their rate hikes, at which point the dollar heads south.. Of course that’s just my opinion and I could be wrong.

So, there I was on Friday morning searching and searching for something that would tell me why the Russian ruble had tumbled so much overnight, and then about 2 hours after I finished writing the letter, I saw it. The Central Bank of Russia (CBR) cut rates on Friday morning ( I guess news travels slowly from Moscow!) and the rate cut wasn’t your run of the mill 25 Basis Points variety. It was a 50 Basis Points or ½% that brought their internal rate to 9.25%… Still pretty darn high, but after all the garbage the ruble had thrown at it and on it, the ruble still pretty much needed the higher rates, in my opinion. the thing though that caught my eye was that the CBR is on a rate cut cycle, which could very well see the internal rate at 7.5% by year end. I’ve said this before, and I’m saying it again, that the CBR Gov. Elvira Nabiullina is the best Central Bank Gov. going right now, and is second all-time to my #1 choice Don Brash, who was Gov. of the Reserve Bank of New Zealand back in the 90’s.

But I digress there. So, I’m a believer, I couldn’t leave her if I tried. No wait! I’m a believer in Nabiullina, and if she believes that things are that good in Russia to warrant a 50 Basis Points rate cut, and more to come, then so be it. The timing of the rate cut just seems to be the question here that concerns me. The price of Oil has slipped from the $55 level to $49 in the past couple of months, which has made things difficult for the ruble, and now this rate cut has made things even more difficult for the ruble. But nothing that a rally in the price of Oil wouldn’t make easier!

This first week of May bring us a truck load of data here in the U.S. that starts today with things like Personal Income & Spending, and ends the week with the Jobs Jamboree for April. This could very well be a make or break week for the dollar, given the awful taste of 0.7% GDP, that’s still on the minds of traders as we begin to print data this week. But before I get to the Data Cupboard I have a special treat for you, that is a snippet from Danielle Di Martino Booth. So, let’s go to that first!

My fave economist, Danielle Di Martino Booth, author of the book, Fed Up, and the person behind her weekly posts, that I was so lucky to come across last year, and signed up for, had an interesting tidbit in her weekly letter last week. And I’m going to bring it to you because. Well, you deserve to hear what she has to say too!

“We know it’s been over two years since the Federal Reserve stopped growing its balance sheet to its current $4.5 trillion size. And yet, investors are anything but alarmed, comforted in their knowledge that Liberty Street stretches round the globe. There are plenty of corners on which moral hazard dealers can ply their wares, luring animal spirits out of their lairs. QE is global, it’s fungible and it feels so good.

As Hartnett reminds us in his latest dispatch, global QE is, “the only flow that matters.” Add up the furious flowage and you arrive at a cool $1 trillion central banks have bought thus far this year (note: it’s April). That works out to a $3.6-trillion annualized rate, the most in the decade that encompasses the years that made the financial crisis “Great.” – Danielle Di Martino Booth

Oh, and here’s another quote from her, that I just couldn’t pass up. “As Bernanke said in a 2010 interview, “if the stock market continues higher it will do more to stimulate the economy than any other measure.” If that was true then, isn’t it even truer today? More has to be more. Why diet when it’s so much more satisfying to indulge to our heart (attack’s) abandon? – Danielle Di Martino Booth If you would like to read more from this great analyst and writer, then click here: http://dimartinobooth.com/latest-weekly-newsletter/

Chuck again. That last quote from Big Ben Bernanke, sure has me puzzled, as of course it does Ms. Booth. The stock market has gone bonkers, and the economy is still, as witnessed by the 1st QTR’s GDP of just 0.7% annualized, muddling along, very slowly and ready to fall off the cliff at any moment! I’m just saying.

Well, Gold gained $4.20 on Friday to close at $1,267.70, but. it has given back that $4 gain from Friday in the early morning trading today.. Same-o, same-o, eh? Up one day, down the next for the shiny metal. India is buying Gold, China is buying Gold, Russia is buying Gold, and a whole host of other countries are buying Gold, so what’s holding Gold back? Oh, that’s right those darn paper trades.. Remember the movie, That Darn Cat? Some producer should make a new movie titled: Those Darn Paper Trades. Now I would go see that movie!

OK.. Well, I already talked about the rot on the vine from Friday’s U.S. Data Cupboard, will it continue this week? I suspect so. And it all begins today with March Personal Income and Spending, which I don’t see doing the dollar any good, as Personal Spending, we already talked about in the 1st QTR, was basically in the dumps. This report should confirm that. We’ll also see the April ISM Index (manufacturing index, which every other nation calls the PMI) And Manufacturing is probably going to show a decline in April from March. And then finally, Construction Spending for March which will probably reflect a decline.

Well, Bloomberg tells me that we ended April with a 3-week downward slide for the dollar. I hadn’t really looked at that way, and usually don’t until I write the Review & Focus, which you should check out at (www.everbank.com/reviewfocus ) and Tim supplies the monthly currency roundup which shows if a currency is up or down for the past month. What? You didn’t know that info was a part of the R&F? Well, now you do, so what are you waiting for? Click on the link above and read this unbelievable analyst that you won’t want to stop reading, and you don’t have to, because the archives of previous articles are there too!

This week also brings us a FOMC Meeting.. A Fed meeting that will bring us nothing to speak of, as the cake is in the oven for the June meeting. The cake being the rate hike announcement.

To recap. The dollar got sold on Friday after the awful print of 1st QTR GDP but has rebounded a bit in the overnight trading as it was announced that Congress had agreed on a spending bill to keep the Gov’t open for business until next September. Chuck believes this thinking is backwards, but it what it is. Pound sterling and Aussie dollars are about the only currencies with gains this morning. Gold gained $4 on Friday and has given the $4 back in the early morning trading today. UGH! And the CBR cut rates in Russia by 50 Basis Points and looks to be wanting to bring their internal rate from 9.25% now to 7.25% by year end.

For What It’s Worth. This comes from the Daily Reckoning Australia, where they have a unique viewpoint of what’s going on in China, and can found here: www.dailyreckoning.com.au (but don’t go there yet, it hasn’t been posted yet, as it has a May 1 print date!)

Or, here’s your snippet: “Here’s the stereotype about China: The economy is based on pointless infrastructure spending, riddled with debt.and now needs consumer spending to prop it up.

I’m calling that view bogus.

Here’s the reality: China has markets with high value products and advanced research in the crosshairs now, like those in the US and Germany.

‘Made in China 2025′ is the name, timeline and policy the politicians in Beijing have set up to help meet the goal above.

The government in Beijing is smart enough to get it down on paper and unleash the market to make it happen.

The Chinese economy is moving away from producing cheap goods. You might think everything is made in China already. But the low value stuff is going to Vietnam, Bangladesh and India.

Chuck again. The writer, Callum Newman, does a good job of explaining why he believes (Like I do, and have said over and over again through the years) that the Chinese have adopted Capitalism so much that they appear to be more Capitalists than the U.S.! Interesting read, and I thank dear reader Bob, for sending along to me..

Currencies today 5/1/17. American Style: A$ .7515, kiwi .6868, C$ .7314, euro 1.0898, sterling 1.2926, Swiss $.9951, . European Style: rand 13.3432, krone 8.5826, SEK 8.8331, forint 287.27, zloty 3.8685, koruna 24.6415, RUB 57.91, yen 111.77, sing 1.3970, HKD 7.7782, INR 64.23, China 6.8960, peso 18.82, BRL 3.1742, Dollar Index 99.09, Oil $49.07, 10yr 2.30%, Silver $17.11, Platinum $941.73, Palladium $827.07, Gold $1,264.10, and SGE Gold $1,274.62

That’s it for today. Well, there’s lot to do between now and tomorrow night, so I need to get going here this morning. This is so depressing though, I can’t being to explain this feeling. Well, it was a grand time had by all Saturday night, at Tim & Nicole’s wedding and reception. It was great to see most of the people on the trading desk there. I cooked ½ the day on Saturday for son Andrew’s Water Polo Tournament.. It’s become a tradition that I cook for the officials and people working the tournament, which was won by a team from Ohio. Andrew’s team took 4th place. The Missouri State Tournament starts this week. Good luck to the LHS H2o Team! I have 3 doctors’ appointments this week. UGH! The Reverend Al Green takes us to the finish line today with his song: Love and Happiness.. And with that, I need to get working! I hope you have a Marvelous Monday, and please say a prayer for the people in Fenton, Mo. Be Good To Yourself!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts