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4th QTR GDP Is Revised Upward.
* Dollar get boost from revised GDP.
* Rubles, rupees and Palladium rally!
* Gold sells off by nearly $11!.
* Oil rebounds to $50!
And now. Today’s A Pfennig For Your Thoughts.
Good Day. And a Happy Friday to one and all! If you’ve been paying attention recently, you won’t be surprised when I say this is my last Pfennig until 4/12, as I was finally given the thumbs up to travel yesterday, and so I’m finally going on vacation! Come on Chuck, you say that like the doctors made you wait months, when in reality it was only a week! But it was a week of rain here, and sun filled days where I’m going! Well. other than that, we’ll some important data print today, before we head off for the weekend, which will bring in April! I’ve told you about this person a few times before, but this is our IRA guru’s month! April Mosely, or as I call her: April Showers! So, welcome to April Showers’ month! The great band, Chicago, greets me this morning with their song from the days when they were called the Chicago Transit Authority (CTA). Seems the actual CTA had a problem with the band using that name, so the shortened it to Chicago. and their song is: Beginnings, which is one of my fave Chicago songs!
I do this little silly joke each year, so this year will be no different. If April Showers bring May Flowers, what do May Flowers bring? .. Pilgrims! HA! And so today begins. Do you have your cup of coffee? Are you sitting down? Good. Then it’s time to get to work here! It was another day of dollar strength yesterday, this time it came from the upward revision of 4th QTR GDP, which was revised upward to 2.1%, from the previous two revisions of 1.9%… I told you yesterday that “with the boiling brew that the spin doctors will mix up, using things like: eye of newt, bat eyelashes, and other things that even Madame Rue would turn her nose up at, the 4th QTR GDP will be revised upward from 1.9% to 2%” So, apparently, the spin doctors brew was so strong, they got 4th QTR GDP up to 2.1% YAHOO! Zippity-do-da, Zippity- day, my oh my what a wonderful day! It was like the little engine that could. I think I can, I think I can, get to 2.1%, Oh My! I did it!
Come on currency traders, just what is the big deal of an economy the size of the U.S. with all its accommodations, propeller heads, and other geniuses, only growing at a 2.1% clip? It’s been 10 years since we grew at a 3% annually. But that’s what we have here folks. Another failure to communicate! So, the dollar rallied again yesterday.
This time the dollar took no prisoners, with the euro falling through the 1.07 handle, yen is back to 112, and even the Commodity Currencies of Australia, New Zealand and S. Africa all finally succumbed to the dollar’s pull yesterday and through the night. The only currencies carving out gains this morning include the Russian ruble (Oil climbed to $50), the Indian rupee (what else is new?), and Palladium, which added $7 to its value, with the leader of the pack, Gold losing nearly $11 on the day. So, it sure looks like our metals guru, Tim Smith, nailed it when he wrote about Palladium in a Sunday Pfennig recently!
So, supply concerns, and getting more recruits to cut their Oil Production, really boosted the price of Oil the past couple of days. Just when the price of Oil appeared to be teetering on the downside, and it was all gloom and doom in the papers about the Oil’s future, along came Jones, Tall, thin Jones, Slow-walkin’ Jones, Slow-talkin’ Jones, Along came long, lean, lanky Jones. And for the Oil producers and Oil contract holders, and the Russian ruble, thank goodness Jones came along! Seriously though, supply concerns and the word going around that more countries are joining the OPEC Nations in their effort to cut Oil production, to cause even more supply concerns, and a higher Oil price..
The Indian rupee carved out another small gain VS the dollar yesterday, through the night, reaching a 17-month high VS the dollar. Strong capital inflows into India continue to help the rupee get stronger. The Capital inflows have been so strong that they are covering the Current Account Deficit of India, with some left over to play with. I’m starting to get the feeling here with the rupee, that the Central Bank, the Reserve Bank of India (RBI) is going to do something to stem the appreciation of the rupee, so that it doesn’t get overheated. Like I said earlier this week, I didn’t see the overvaluation, but the overheating could become a problem.
Well, at some time, this morning, we’ll see the color of the Eurozone’s March Flash CPI (consumer inflation) reports. Inflation has risen 6 consecutive months in the Eurozone, but I from what I read and research, it appears that the run of 6 consecutive months of rising inflation will end with this month’s report. And that will put the Cheshire Cat’s smile on the face of European Central Bank (ECB) President, Mario Draghi, for while he wants to see higher inflation, he wasn’t sold on this recent run up of CPI in the Eurozone, saying that he would wait to see how inflation continued to print before adjusting monetary policy. He will be strutting around like a 20-game winner today, should those Flash CPI reports come in as forecast. And that won’t help the euro to regain 1.07 in any way, should the reports meet expectations.
And this is not only month-end, and Quarter-end in Japan, it’s also their fiscal year-end! So, there was a ton of hedging and unwinding positions for year-end reports and yen, which on Monday this week was 110.25, has fallen back to a 112 handle. Not that 112 is that weak of a yen, it is weaker, and the trend this week, in my humble opinion, is going in the right direction.
And while the renminbi continues to weaken, China has a new jewel for its crown of achievements. Total Market Cap. I read this morning that China’s stock market, is now the 2nd largest in the world when you consider Total Market Cap. Here’s the growth in the Chinese stock market. In 2004 Total Market Cap was about $500 Billion, and today it is $7 Trillion! I told someone the other day, that China had become more capitalistic than we were here, and this news just confirms that. Of course the U.S. stock market is the largest, but so was its economy before China came calling.
I’m still shaking my head in disbelief that the markets got so enamored over 2.1% GDP. I’m going to go yell at the wall. SERENITY NOW! But, it is what it is, and there’s nothing I can do about it, other than get my blood pressure boiling!
Gold took one on the chin yesterday, losing nearly $11 ($10.90) to close the day at $1,242.50. Paper Trades, and the euphoria over the upward revision of 4th QTR GDP in the U.S. put Gold in a tailspin, and it only got worse as the day went along. And, well, I misstated something above, saying that our Metals Guru Tim Smith had recently written a piece on Palladium, but when I went to the Pfennig archives, that can be found at www.dailypfennig.com , I paged back to the beginning of February, and couldn’t find it, so either I imagined he wrote it, or it was much longer ago than I thought! Either way, it doesn’t stop what I’m about to say about Palladium. the recovery and rally that Palladium has seen since the start of the year, is pretty amazing to me, given that it is the metal that is used in catalytic converters in new autos, and that new auto sales have been dropping like a rock. So, there has to be something else going on here, and I think it has more to do with the Emerging Markets seeing a nice run also, since the start of the year. I’ll ask Tim to give me some thoughts on this, and I’ll follow up next week, no wait! I’m on vacation next week! Chris. Mike. I hope you can follow up on this with Tim.
The U.S. Data Cupboard today has some data for us to view, so, let’s get to viewing, eh? Right out of the starter’s blocks this morning we have Personal Income and Spending for February. This report probably isn’t going to help the dollar rally, as Spending will lag once again, and with the U.S. economy built on spending, that’s not a good thing. We’ll also see the color of the Fed’s preferred method of tracking consumer inflation, the Personal Consumption Expenditures (PCE) index will print for February also.. I’m so disillusioned about inflation calculators used here in the U.S. John Williams over at ShadowStats.com continues to calculate inflation the way it was done, prior to the hedonic adjustments were added around 1990.. And his inflation calculator has U.S. Inflation around 7%.. Now, that sounds more like it doesn’t it?
To recap. The dollar still has the conn, and it got a boost yesterday when U.S. 4th QTR GDP was revised upward to 2.1%.. Chuck doesn’t get why the markets think 2.1% is so good, but it is what it is. The Eurozone will print their March Flash CPI reports today, and Chuck thinks that it will be the end of a 6 month consecutive run of higher inflation each month. The price of Oil rebounded on supply concerns and new recruits, to trade above $50 again. That kept the Russian ruble from getting caught up in the dollar strength.. And we will see some real economic data today.
For What It’s Worth. Well, I told you yesterday, that I was diving deep into the book: Fed Up, by one of my fave economists/ analysts, Danielle Di Martino Booth. And then the GATA folks sent me a link to a Bloomberg article by Ms. Booth, and I just had to check it out! And of course I was not disappointed. Here’s the link to the Bloomberg article, in which she talks about the effects of zero interest rate policies. https://www.bloomberg.com/view/articles/2017-03-30/the-fed-is-bedeviled-by-keynes-s-paradox
Or, here’s your snippet, that is quite long today, because I wanted to get the gist of her comments to you.
“The economist John Maynard Keynes warned that ultra-low interest rates would backfire on central banks seeking to spur borrowing and spending, yet they seemed surprised that the current recovery is the weakest in postwar history after cutting rates to near zero, or even below in some cases.
Keynes is credited with popularizing the “paradox of thrift,” which is the economic theory that posits people tend to save more during recessions as rates fall to offset the income their savings is not generating. Of course it is the case that when you save more, you spend less. Since the U.S. economy is fueled by consumption, it also stands to reason that growth suffers as a result.
It’s been two years since Swiss Re produced a report that calculated U.S. savers had foregone some $470 billion in interest income. The analysis was based on what rates would have been had the Federal Reserve followed the Taylor Rule, which would have put rates, then at zero, at 1.7 percent.
Even as the Fed has begun to raise rates, it is clear that hundreds of billions of dollars have been squirreled away as savers play defense to counteract the Fed’s ultra-loose monetary policy. Some $11.7 trillion is sitting in bank deposits, up from $7.23 trillion at the start of 2009 shortly after the Fed cut rates to near zero, central bank data show.”
Chuck again. I also receive a weekly letter from Danielle Di Martino Booth, that I look forward to each week.. this week’s letter was titled: Retailing in America: Game Theory in Reverse. And once again was an excellent read!
Currencies today 3/31/17. American Style: A$ .7646, kiwi .6986, C$ .7488, euro 1.0680, sterling 1.2436, Swiss $.9990, . European Style: rand 13.3655, krone 8.5943, SEK 8.9310, forint 288.69, zloty 3.9519, koruna 25.33, RUB 56.35, yen 112, sing 1.3974, HKD 7.7704, INR 64.79, China 6.8905, peso 18.68, BRL 3.1248, Dollar Index 100.52, Oil $50.30, 10-year 2.43%, Silver $18.09, Platinum $947.14, Palladium $801, Gold $1,243.60, and SGE Gold. $1,261.56
That’s it today, and for next week for me! But first two of my colleagues have birthdays to start off April! Happy Birthday tomorrow to Tim Smith, and Happy Birthday on Sunday to Antione Lawrence! If you’re a Global Markets client, then you’ve probably talked to either or both of these fine gentlemen and scholars, and if you do today, be sure to tell them Happy Birthday! Our Blues get an opportunity to secure a playoff spot tonight in Colorado. Go Blues! And the Baseball Season Opener is on Sunday night.. Card and Cubs. Son, Andrew, and his Lindbergh Flyers Water Polo team, recently had a nice article about them in the St. Louis Post Dispatch.. For those that would like to read it here you go: http://www.stltoday.com/sports/high-school/water-polo/lindbergh-looks-to-build-on-consecutive-runner-up-finishes/article_948ec69e-1100-11e7-ac10-d7430eb1b1da.html Earth, Wind & Fire take us to the finish line today with their song: Shining Star.. And with that, it’s time to get off this bus today, and head to the corner of good times, and Fantastico Friday, will you join me? I sure hope you have a Fantastico Friday, and Wonderful Weekend. Talk to you again on 4/12. Until then, Be Good To Yourself!
EverBank Global Markets
Editor of A Pfennig For Your Thoughts