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A Coming Change Of Direction For The Dollar?

* PE’s words still hang on the dollar.
* Chuck talks about Trump’s plans for the dollar .
* Bank of Canada meets today.
* Chuck finds his theme song! .

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

Good Day.And a Wonderful Wednesday to you! Well, for the first time between Blue Moons, I actually woke up with the alarm, turned it off and went back to sleep! WOW! Of course that’s after I was up at 3 am for a while. But still, that was good! The late Great, Alvin Lee and his band, Ten Years After greet me this morning with their song: I’d Love to Change The World. That should be my theme song, eh? I can see it now, when I used to give presentations, before things changed, I could have had that song playing while I walked up to the stage! Now that would have been an entrance! Rock Star entrance! And that’s what I was always looking for too! HA! Oh, well, that’s water under the bridge, from days long passed, no sense in making a big deal out of it now!

Well, the currencies continued to push the appreciation envelope across the desk all day yesterday, but in the overnight markets, things have calmed down. No, the dollar isn’t recovering from the comments by the President- Elect (PE), Trump, on Monday, that we talked about yesterday, instead it appears that traders are taking a breather, and waiting for any further signs from the PE that he wants a weaker dollar. Traders probably aren’t going to see any further signs ahead of the inauguration, that takes place on Friday this week.

I was working on the February Review & Focus yesterday, and I spent a lot of time talking about what to expect in the new President’s first 100 days. This new development that Trump will use a weaker dollar to help him achieve his goal of reducing the Trade Deficit, if not eliminating it all together, is something that I touched on, but in the meantime I’ve thought some more about it, and I just can’t seem to get past that he’ll have the first administration to promote a weaker dollar since the middle of the Clinton administration, when Lloyd Bentson, the U.S. Treasury Sec. , who had called for a stronger yen, was replaced by Robert Rubin, who started the “the strong dollar is in the best interests of the U.S.”

I recall reading that line from Rubin the first time, and If I had the time and gumption, I would go back and pull the Pfennig from that day in 1995, and tell you what I said at that time, but since that’s not going to happen, I can tell you from what I recall, that I was astonished that Rubin said such a thing! I love it when things in the past come up and I lived and worked through them. I can say, “I was there” “I remember how this went down” and other things. So, what I recall saying is something I repeated for many years, as the following administrations kept repeating the Rubin line. I believe I would have said, “for all these years of promoting a weak dollar to keep the trade flowing, this administration is going to change horses in the middle of the stream? I don’t’ see how this works out for them.”

In later years, I would say, “How can they say that they believe in a strong dollar, when all they ever do is cry and whine about how they need the Chinese renminbi to get stronger? Do they really believe we’re all morons that can’t figure out that if the renminbi is stronger, the dollar is weaker?”

So. as long as I’ve gone down this rabbit hole, I might as well keep going. Hey! All this stuff is important or else I wouldn’t be talking about it! OK, Chuck that was a little out of line there, you’re not that important that what you talk about is also important all the time! OK, I’m sorry. So, let’s get back to what’s important! HAHAHAHA! Told my inner self, didn’t I? HA! So, what are Trump’s options to get the dollar weaker? Well, he can continue to jawbone the currency weaker, it worked this time, and it will work again and again, until the markets grow tired of the jawboning without actual action. Japan has been the poster child for jawboning, and the Reserve Bank of New Zealand is not far behind Japan with the number of times that they’ve thrown their currency under a bus.

Trump could also gather the G-7 nations and persuade them to go with a coordinated intervention effort. When I say “persuade” I’m talking about explaining to the G-7 nations that trade with them will “change” should they balk at the coordinated intervention effort..

Trump could start implementing tariffs on everyone’s exports to the U.S. This is historically an arrow in the heart of a country’s currency.. I won’t get into what this will do to global growth, for that’s too long of a discussion. So, let’s just say that Global Growth will get smashed like a bug on a windshield of a car going 90!

Or, he could just go at the intervention game alone. But these one-time intervention efforts normally have the lasting power of a two-year old’s attention span.

So, what’s it going to be? I think he laid the groundwork for his preferred method, and that’s jawboning. So, get ready for that. But all in all, folks, and this IS IMPORTANT! The dollar is most likely going to get weaker during this administration, and the current strong dollar trend will come to an end, staring a new weak dollar trend. Now, longtime readers, and currency investors will be able to recall that the biggest moves in the weak dollar trend that began in Feb 2002, and ended in 2011, are in the first few years, as all the long dollar trades are unwound, and the short positions in currencies are closed out. Are you ready? Yes, I’m ready.

Alrighty then, let’s talk about the markets today. I told you above that the currencies had continued to gain VS the dollar throughout the day yesterday, but in the overnight markets the rally stalled. There really hasn’t been much data out around the world to give anything any direction, so the Trump Tweet on the dollar remains the focus of the markets now two days later. We will see a Bank of Canada (BOC) meeting today. I doubt that anything will change at this meeting, so it will just be another case of meeting, exchanging pleasantries, and then announcing that rates are unchanged, and the outlook hasn’t changed.

Tonight we’ll see the color of the latest Aussie Employment Report. In 2016, this report continually surprised the markets and economists with its strength each month. So, it will be interesting to see if this job creation can continue. The Unemployment Rate in Australia is a very respectable 5.7%, and should remain steady Eddie for this report. These steady Eddie employment reports are important to the Reserve Bank of Australia (RBA) and their outlook for the economy, which then goes further with their outlook for rate movements.

Gold had a good day yesterday gaining $14.10, at $1,216.70 spot, and is down a couple of bucks in the early morning trading today. Weaker dollar, means stronger Gold price. The late great Richard Russell used to say, “if the dollar is stronger, who needs Gold?”. And since I spend a large portion of the letter today talking about how the new President’s administration will work toward achieving a weaker dollar, what does that say about the potential future of Gold?

The price of Oil slipped again in the past 24 hours. We saw this same slippage last week and then the Oil price spent the rest of the week recovering. Looks like we’re going to go down that road again this week, or better said, that it looks like we could go down that road again this week! I’ve told you that I usually begin checking the currencies by looking first at the euro, the offset currency to the dollar, then the Russian ruble, for I usually can tell if the price of Oil has gained or lost by the performance of the ruble. This morning threw me a curve ball when I was expecting the express. The ruble was stronger in price this morning, and I expected to see the price of Oil stronger too. But Noooooooo!

The U.S. Data Cupboard finally gets back into business today. First we’ll see the stupid CPI report which should show that consumer inflation grew by 0.2% in December. Then a real piece of economic data will print in Capacity Utilization, which will most likely show that Utilization remains a problem here in the U.S. And then another real piece of data, in Industrial Production (IP) for December. IP is expected to soar in December by 0.9%, that tells me that there must be some aircraft being built in those numbers, which can make the month that’s done look fantabulous, but in reality, it’s just a one-off month, and we need to come back next month for the adjustment..

But that’s not all! If you order today, we’ll send you not one, but two more piece of data, you only have to pay separate shipping and handling! You’ll get the January Home Builders Index, and finally the Fed’s Beige Book will print this afternoon. Call Now! Operators are waiting!

To recap. the currency rally went on throughout the day yesterday, but stalled in the overnight markets. The dollar isn’t rebounding at this point, things are just calming down after a strong performance yesterday by not only the currencies but also Gold which gained $14 and change on the day. Chuck spends an inordinate amount of time on the President-Elect and his plan to narrow the Trade Deficit using a weaker dollar to do the heavy lifting. The Bank of Canada meets today, but nothing, absolutely nothing, say it again!, is expected from this meeting.

For What it’s Worth. Yesterday, I highlighted an article about how Central Bankers could begin to see bashing from politicians and so on. Well today, I have for you some Central Banker talk that sounds like they don’t really care what people think. This was a forum at the Davos conference, and can be found here:

Or, here’s your snippet: “Central banks globally may not be pumping in quite so much monetary stimulus as inflation picks up, but they’re a long way from returning to normality.

That’s the view of commentators including Swiss National Bank President Thomas Jordan, UBS AG Chairman Axel Weber and Anthony Scaramucci, an aide to President-elect Donald Trump, at the World Economic Forum in Davos, Switzerland.

“If anybody in this room thinks that we are in an interest-rate normalization, we are frankly not,” Scaramucci, the founder of hedge fund Skybridge Capital, said in the panel discussion on Tuesday. Jordan said that while it is a “very positive sign” that the U.S. Federal Reserve has started to raise interest rates, “I would expect that at all central banks, and especially in the U.S., the movement will be gradual.”

Chuck again. Well, they said it. so I think they could very well begin to see the backlash I think they deserve.

Currencies today 1/18/17. American Style: A$ .7552, kiwi .72, C$ .7640, euro 1.0688, sterling 1.2307, Swiss $ .9975, . European Style: rand 13.5890, krone 8.46, SEK 8.9152, forint 288.25, zloty 4.0960, koruna 25.2842, RUB 59.27, yen 113.34, sing 1.4218, HKD 7.7562, INR 67.98, China 6.8705, peso 21.65, BRL 3.2258, Dollar Index 100.69, Oil $51.68, 10-year 2.35%, Silver $17.06, Platinum $993.55, Palladium $753.70, Gold $1,214.50, and SGE Gold $1,230.74

That’s it for today. What a day yesterday! The wind, while still blowing, died down quite a bit, and warm sun was a welcome addition to my day. After putting the final touches on the Review & Focus I was able to get outside in the afternoon, and let the Vitamin D soak in! Well, so much for our Blues having turned the corner, as they allowed 6 goals by the visitors on Blues’ home ice! That’s unspeakable in the Old days of hockey. Shoot it wasn’t normal for the visiting team to score on the home team’s ice! But those days are gone, and now a days teams score at will while on the road. Oh, and the Blues lost the game. UGH! ? We’re down to 26 days before pitchers and catchers report to Spring Training. That also means there’s 26 days until Valentine’s Day.. I’m just saying. Alrighty then Hall & Oates takes us to the finish line today with their song: She’s Gone and with that, I bid you goodbye. and hope you have a Wonderful Wednesday. and remember to Be Good To Yourself!

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

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