Another “IF” The Economy Evolves.

* Yellen’s speech deep sixes the currencies.
* Bank of Canada cuts rates! .
* Greek Parliament approves Debt Aid..
* What’s Eating Gilbert Grape? ..

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

Good day. And a Tub Thumpin’ Thursday to you! What a crazy, mixed up world this is folks. I wish I could tell you what I’m having to deal with this week, but I can’t. But it’s not productive, it’s not physical, or health-wise related, and it’s something that I thought was dealt with, taken care of, and put to bed 4 years ago! So, I was tied up (the ropes left no marks thank goodness! HA!) all morning yesterday, and that will go on again today, and tomorrow! UGH! One of these days it will all come out in the wash, and then you’ll say, “Now I see what he was talking about”, but until then, we carry on despite the crazy, mixed up world we live in. Elton John greets me this morning with his song: Mona Lisas and Mad Hatters. A good morning song, I must say!

Well. She said exactly what I thought and said she would say. And the markets reacted as I said they would. Maybe I should apply these analysis of what a woman might say to use in my private life. HA! As if! Nah, this analysis was a layup, folks. Fed Chair, Janet Yellen, basically gave a speech last week in Cleveland that was a precursor to what she would tell the lawmakers yesterday, and that is that the economy has healed, and it’s time to return to normal monetary policy. In fact, this is what she actually said that caught my attention, let’s see if you can pick out what caught my attention. “If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy.”

That’s right. it’s the “IF the economy evolves as we expect” part of the statement. Hmmm. Do I need to make a point of showing how many times in the past 7 years that the Fed members have seen the economy growing, when it wasn’t and never did? Remember “Green Shoots?” How about, “the economy is gaining momentum?” Or “bad weather is to blame?” and there are more, but I think you get my drift here. I showed you all a month or so ago, about how Final Sales which, in my opinion, is a better way to gauge the economy’s strength, rather than GDP, which we know can be “adjusted” anytime the Gov’t doesn’t see it printing the way they want it to, and Final Sales since 2007 have averaged just 1%…

I also saw a tweet (no, I’m not on Twitter) from James Rickards, on the Five Minute Forecast yesterday that plays well here. “#Yellen is re-reading her Cleveland speech from Friday, as if the Retail Sales report and #Iran deal never happened. Janet, call your writers” – James Rickards

That’s basically what I was talking about yesterday when I said that I wondered if she had seen the awful Retail Sales report before giving her testimony. But the real meat here is how the markets reacted to her statement about returning to normal monetary policy, which is Fedspeak for “interest rates will be hiked”, was also just as I said it would be. Stocks lost ground, the dollar gained ground. the one asset market that reacted strangely was the bond market. Here, U.S. Treasuries yields fell? Really? Did the bond boys think that Yellen was just kidding us yesterday? That would be the only conclusion that I could come up with to explain why bonds rallied when the Fed Chair said interest rates were going to go up this year.

So, the dollar, because of the Yellen speech yesterday is kicking some tail and taking names later this morning, except against the Aussie dollar (A$), Norwegian krone, and Russian ruble. And none of those not succumbing to the dollar strength this morning, are really pushing the currency appreciation envelope too far. Gold is down $4 again this morning, and the price of Oil is pretty much flat to yesterday’s price.

I also called what the Bank of Canada (BOC) was going to do yesterday bang on. The BOC cut their benchmark rate by 25 Basis Points or ¼%, which brings their benchmark rate to 50 Basis Points or ½%… Getting near zero for Canada.. And the Canadian dollar / loonie got whacked badly.. In fact, the loonie hasn’t been this weak since 2009, as it trades with a 77-cent handle. What did you expect? When a country debases their currency, what are the markets supposed to do? Slap the currency on the back and give it a cold beer to celebrate?

The euro is really getting sold again overnight, and has fallen through the $1.09 handle.. the Greek Parliament approved the debt aid agreement. I liked following the goings on in the Greek Parliament that saw the Syriza Party members act like babies that didn’t get their sucker, but then eventually acquiesce and the vote was 229 of 300 voting yes. I had wondered how PM Tsipras was going to present the agreement that’s full of austerity measures that Tsipras and his Syriza Party said they would never agree to again.

I had to laugh, a dear reader sent me a note yesterday, and said, “Chuck, I know you’re sick of talking about Greece, but I had to send you this.” And it was a spreadsheet of the Greek debt picture. Man is that an ugly spreadsheet!

So, the European Central Bank (ECB) meets today, and I don’t expect anything from the meeting, as the ECB members are still attempting to figure out the effects of the negative rates, and all the collateral damage from the Greek negotiations. Before Greece became an international news item this last time that is, The Eurozone economy was pulling itself up by the bootstraps and beginning to come out of the recession. But this Greece stuff, really knocked the Eurozone economy for a loop, and now it has to begin the process of pulling itself up by the bootstraps again. But I don’t believe the Eurozone economy needs any additional stimulus at this point, so therefore, I sent a memo to ECB President Draghi, and told him that. I’m sure he’ll listen to me! HAHAHAHAHAHAHA!

The Aussie dollar (A$) is up and the New Zealand dollar / kiwi is down this morning. So, what’s Eating Gilbert Grape (kiwi) this morning? Well, New Zealand printed their latest CPI (consumer inflation) report which was basically bang on with expectations 0.4% in the 2nd QTR VS the 1st QTR and 0.3% year on year. Pretty soft even if it was bang on with expectations, and a look under the hood here saw very weak underlying numbers. Take this report with the weekly dairy auction disasters lately, and kiwi takes the brunt of the damage. 6 months ago, everything looked like seashells and balloons here in N. Zealand. And now the sky is falling. And the Reserve Bank of New Zealand (RBNZ) is watching and waiting for their opportunity to cut rates. And there you have it. What’s Eating kiwi.

Well, the U.S. Data Cupboard doesn’t really have much for us today. The usual Weekly Initial Jobless Claims lead off, followed by the Total Net TIC Flows, which is the net foreign security purchases report, but they had to give it a fancy name a few years ago, and about that time is when the markets decided the data was not useful any longer. The Philly Fed Business Outlook for this month will also print. No great shakes here.

Yesterday’s Data Cupboard has Industrial Production which printed the first positive number in 7 months for June at 0.3%… And PPI (wholesale inflation) continued to show weakness posting a negative -0.9% Year on Year for June. PPI will push to CPI, and CPI will be nowhere near the Fed target of 2%… But the dollar rallied on the Yellen speech folks. Like I said at the top, it’s a crazy, mixed up world.

And as I said above, Gold is down $4 this morning as I write, which is before the NY Traders arrive at their desks, and start running their algorithms.. I read an article that the GATA folks posted yesterday, written by a guy named Bron Suchecki, who questions the thought that when China takes over the pricing of Gold, which is going to happen eventually folks, saying that it might not be that clear. I was disappointed to read this, but then I’ll just file this with the other research that I’ve read pointing to a cleaning up of the Gold pricing when China takes over.

To recap. Yellen’s speech got the dollar rolling even stronger than it was previously yesterday, and Chuck think that she is going to be disappointed once again as we go through the year. The Bank of Canada cut rates as Chuck said they would, and the loonie has reached a 7 year low. The Greek Parliament approved the austerity filled agreement for Debt Aid, and the euro instead of rallying is getting whacked and has fallen below the $1.09 handle. Gold is down again, and the data yesterday was nothing to write home about.

For What It’s Worth. Well.. Janet Yellen wasn’t just in front of lawmakers yesterday to talk about her view on the economy and rate hikes. She was also there to push back on the calls from the lawmakers for a more “watched” Fed. So, here’s her take on that. And this was taken from a Bloomberg story that can be found here:

“She said “effective communication” was “crucial to ensuring that the Federal Reserve remains accountable.” At the same time, she warned against “measures that affect the ability of policy makers to make decisions about monetary policy free of short-term political pressure.”

Chuck again. Well, the exchange got heated at times between Ms. Yellen and Sean Duffy a representative from Wisconsin regarding to a demand by lawmakers to respond to the 2012 leak of sensitive information to a private financial newsletter. (it sure wasn’t to me! HA!) It was an interesting exchange between the two. And showed just how the Fed feels that it is outside the reach of the lawmakers.

Currencies today 7/16/15. American Style: A$ .7405, kiwi .6525, C$ .7725, euro 1.0895, sterling 1.5620, Swiss $1.0450, . European Style: rand 12.4265, krone 8.1170, SEK 8.5265, forint 283.80, zloty 3.7745, koruna 24.8630, RUB 56.95, yen 124.00, sing 1.3670, HKD 7.7510, INR 63.52, China 6.1173, pesos 15.80, BRL 3.1390, Dollar Index 97.53, Oil $52.08, 10-year 2.37%, Silver $14.97, Platinum $1,011.20, Palladium $637.25, and Gold. $1,144.41

That’s it for today.. Well, I want to thank everyone that clicked on the link I gave you yesterday, to pledge money for the ALS fund raiser that son Alex is doing next month. If you missed it, here’s the link again:

The Guess Who is playing: No Sugar Tonight / New Mother Nature on the iPod right now. I have to get going because I have to drive to downtown St. Louis this morning in traffic! UGH! And lather, rinse, repeat tomorrow morning. Cardinals don’t get back from the All-Star Game Break until tomorrow night. Summer nights without baseball are just plain weird. Ok. I bid you good bye for today, and Hope you have a Tub Thumpin’ Thursday!

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