A One And Done Rally For The Currencies…

A Pfennig For Your Thoughts

April 16, 2019

* Another economist gets on Chuck’s bandwagon…
* Forbes: Russia is hot, but investors are still cold…

Good Day… And a Tom Terrific Tuesday to you! What is it with my beloved Cardinals who seem to be on a roll, but get siderailed by the Brewers? It happened again last night, darnit! Oh, well the Cardinals play them again tonight, and Our Blues play in game 3 of their best of 7 series. We’ll have both TV’s hooked up for viewing both games, as we did last Wednesday night. I don’t believe I’ll be able to get a Pfennig out tomorrow, as I have a very early heart doctor appt. And then on Thursday, I have a very early oncologist appt. So, this will be the last letter of this week… Sorry, but I haven’t seen a doctor in 4 months, and I’m somewhat leery going into the appointments, therefore I want to be well rested… But maybe… and here’s an idea… when I come home, I could sit down and write a few thoughts! Sounds like a plan… And I love it when a plan comes together! The late Great, Leon Russell, greats me this morning with his bluesy song: Stranger In A Strange Land…

Well, well, well.. It now appears that last Friday, while I was away, and the currencies rallied, is going to be a one and done deal… From the looks of the trading on Friday, and the comments that traders were making at the time, I was getting the feeling that this could have been the beginning of something lasting much longer… But that’s not to be, apparently! Yesterday, didn’t see the currencies lose any additional ground to the dollar, but they didn’t gain any ground either… And since they don’t do a shootout in trading , like they do in hockey and soccer… The tie goes to the dollar…

Last week, I told you about how the IMF had chopped their forecast for Global Growth to a very low level… And then yesterday, I talked about Global Growth and how it was really slowing down, despite some upbeat Chinese data last week. And today, we have well known economist Mohamed A. El-Erian, formerly CEO of PIMCO and now with Allianz, send out a note that said: “With the return of Europe’s economic doldrums and signs of a coming growth slowdown in the United States, advanced economies could be at risk of falling into the same kind of long-term rut that has captured Japan.”

OK, how long have I been singing, Turning Japanese, I really think so? Because the U.S. just keeps following the missteps that Japan made in the mid 90’s… Remember back then? Everything was about Japan and the Japanese, their stock market was soaring, And they kept coming up with new budget ideas to stimulate the economy that was slip sliding away… slip sliding away… You know the nearer your destination, the further you’re slip sliding away…

About 15 years ago, a former colleague and I sat down and started putting together yield curves, and growth curves and so on, and everything we printed out that was Japanese, the U.S. had something that was heading in that direction… And here we are 15 years later, our economic growth has stalled, Yields have been zero, and will be back there real soon… And debt has grown to unsustainable levels… I say unsustainable knowing all too well that Japan and their debt has continued to exist all these years… But the unsustainable I’m talking about is the need to finance the debt, and the interest payments that go along with the debt.. For us, here in the U.S. it’s going to get very ugly, when bond servicing takes up a majority of the tax revenues… And there won’t be enough to pay for other things… What will the Gov’t do then?

Last gasp… they default… but not before they go down the road with more Quantitative Easing, negative deposit rates, buying stocks, and raising taxes… We will NOT grow our way out of this mess folks… Japan hasn’t, and we won’t either!

Another thing that caught my eye the past couple of days, is how the mainstream media are warming up to Russia… As an investment not a buddy, buddy… Longtime reader Bob, sent me this last night from Forbes… Titled: Russia Now Best Stock Market After China. But Investors Still Cold…

I’ll, at this point, stop, and point out that Russia has falling inflation that’s below their key interest rates, which means they have positive interest rates! I’ve pointed this out before, but I guess since Forbes is jumping on my bandwagon, that investors should be looking at Russia, I guess it’s as good a time as any, to go back over these things…

Now, the Russian ruble hasn’t exactly gotten on its horse and rode back to the levels the currency traded before they annexed Crimea, and some Ukrainian land… That’s when the economic sanctions on Russia began, and they’ve only gotten worse since 2014. But that hasn’t stopped the Russian economy from working through the rough spots, with economic growth between 1.2 and 1.7%, inflation in control, and a deposit rate over 5% (their key internal rate is 7.25%, is like our Feg Funds rate)

I’ve always looked at the Russian ruble as a play on Oil… If you believe the price of Oil will be supported at current levels, then the ruble should be stable too. But if you believe the price of Oil is to go higher, then the ruble should be the beneficiary, and vice versa if the price of Oil goes down from current levels. With the OPEC countries all practicing patience with their production cuts, the price of Oil has rebounded a bit, but still is trading within a range, and when you’re dealing with a deposit like a CD denominated in rubles, that’s ideal because the currency isn’t volatile during times like that, and then you’re reaping the rewards of a stronger interest rate VS another other country in the world, much less the U.S.

Ok, I didn’t mean to make this a Russia only letter today, but that’s how things go when you write from a stream of consciencousness! Yes, I’ve always said that about how the letter gets put together each morning… So, now that I’ve realized where that was going, I’m prepared to go off in a different direction!

Gold still is unable to find a bid, I’ve searched high and low, far and near, under rocks, around stars, and everything in between, and still no bid for the shiny metal… Gold was down $2.60 yesterday, but is down another $4 in the early morning trading… UGH!

This morning we’ve already seen the Economic Sentiment for April, as put together by the think tank ZEW… And it printed… And the Economic Sentiment was stronger than expected, but the current expectations wasn’t… A kind of mixed bag-o-results, eh? Maybe that’s why the euro is stuck in the mud once again.

The U.S. Data Cupboard, that I previously mentioned (yesterday) has Industrial Production and Capacity Utilization for March… I told you yesterday, and I’m not about to change my mind! HA that both of these would be weak… So, we’ll see a little later this morning… and then on Thursday this week, we’ll see March Retail Sales… This should be interesting in that, you may recall that February’s Retail Sales were negative -0.6%… I’m here to tell you right now, so you can listen to me later that there’s no way in hell that this data will print negative again this month! No way, it ain’t gonna happen, no way Jose’! the BHI (Butler Household Index) indicates to me that it will be a so-so month… nothing great, but nothing bad… So, we’ll see that print on Thursday this week.

To recap… Friday’s rally in the currencies appears to have been a one and done, as all the euphoria by traders has been thrown to the side of the road. Forbes has come around to Chuck’s way of thinking that the ruble is undervalued. We got a visit from a very famous economist, who believes that the global growth showdown is for real, and Gold still can’t find a bid anywhere… UGH!

For What It’s Worth… For longtime readers this will ring a bell… sometime ago, I spoke about how I believed the IMF would eventually be forcing the use of the Special Drawing Rights (SDRs) as world money instead of dollars… And now, all these years later, I came across an article that’s talking about it! And it can be found here: https://www.project-syndicate.org/commentary/imf-special-drawing-right-global-currency-by-jose-antonio-ocampo-2019-04

Or, here’s your snippet: “This year, the world commemorates the anniversaries of two key events in the development of the global monetary system. The first is the creation of the International Monetary Fund at the Bretton Woods conference 75 years ago. The second is the advent, 50 years ago, of the Special Drawing Right (SDR), the IMF’s global reserve asset.

When it introduced the SDR, the Fund hoped to make it “the principal reserve asset in the international monetary system.” This remains an unfulfilled ambition; indeed, the SDR is one of the most underused instruments of international cooperation. Nonetheless, better late than never: turning the SDR into a true global currency would yield several benefits for the world’s economy and monetary system.

The idea of a global currency is not new. Prior to the Bretton Woods negotiations, John Maynard Keynes suggested the “bancor” as the unit of account of his proposed International Clearing Union. In the 1960s, under the leadership of the Belgian-American economist Robert Triffin, other proposals emerged to address the growing problems created by the dual dollar-gold system that had been established at Bretton Woods. The system finally collapsed in 1971. As a result of those discussions, the IMF approved the SDR in 1967, and included it in its Articles of Agreement two years later. “

Chuck Again… Nothing more to add… just that the IMF had gone silent on this for a few years now, and I had almost forgotten that I talked about this previously…

Currencies today 4/16/19 American Style: A$.7163, kiwi .6761, C$ .7478, euro 1.1305, sterling 1.3090, Swiss $.9942, European Style: rand 14.0470, krone 8.4822, SEK 9.2553, forint 282.92, zloty 3.7806, koruna 22.6955, RUB 64.28, yen 111.93, sing 1.3540, HKD 7.8425, INR 69.60, China 6.7065, peso 18.88, BRL 3.8752, Dollar Index 96.93, Oil $63.53, 10-year 2.57%, Silver $14.95, Platinum $888.02, Palladium $1,369.18, and Gold… $1,284.04

That’s it for today… And quite possibly this week, although I do believe I will attempt to get to writing tomorrow afternoon… We’ll see… I also believe that the warm weather will return today, after a few days of very chilly, if not downright cold days were here. Well, this weekend is Easter Weekend, with Good Friday in a couple of days. The stock market is closed on Good Friday, and everything else will shut down around noon that day… All three grandkids were here on Sunday for egg dying… Grandson Braden stayed with us Saturday night. I hadn’t seen him in 4 months, and he appeared to have grown a foot in that time! Poco takes us to the finish line today with their song: Just For You And Me… I was always a fan of the music from Poco… I hope you have a Tom Terrific Tuesday, and well Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts