Are Things Just Peachy In The U.S.?

* U.S. ISM surprises with a gain!
* And sends dollar to the top of the heap.
* Aussie 4th QTR GDP prints strong.
* Canadian 4th QTR GDP does too!

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

Good Day. And a Wonderful Wednesday to you! Let the Spring Training Games Begin! At least for my beloved Cardinals that will happen today, with a tune-up VS FAU, before actually taking on their Training location mates, the Marlins tomorrow. I’ll end up seeing about 14 games in March, and that still won’t be enough for me! David Crosby & Graham Nash greet me this morning with their song: Wind on the Water, which is a song about the poaching of whales. Chuck & Kathy, Monty and Della, saw these two perform at the Mississippi River Festival (MRF) back in the 70’s. We were up close under the big tent. Did I ever tell you that the band I played with in the early 70’s auditioned to be an opening act at the MRF? We got to be the stage and play, it was incredible! And that was just the audition! So, there you go, more history this morning.

I know that not all of the Pfennig readers enjoy my little opening each day talking about music, but by now they know to skip to the 2nd paragraph, either that or suffer through my attempt to be a reporter for Rolling Stone magazine! HA! Alrighty then. There isn’t a whole heck of a lot going on this morning, so let’s start with a recap of yesterday’s actions and goings on, and see where that takes us. Got your cup of coffee? Settled into your chair? Alright let’s go!

Once again yesterday, the U.S. Data Cupboard was the catalyst for currencies and metals trading. So, let’s check that out first. And first out of the starters blocks yesterday was the ISM Manufacturing Index, which finally wrapped a tourniquet around the bleeding of the Index, as the index number rose in February. From a 48.2 index number in January, to a 49.5 in February was a very nice increase. But it still remained below 50, and we all know that means Manufacturing is still contracting. And I wouldn’t be surprised to see that this was a one and done when the March data prints next month. But, that didn’t stop the rate hike campers from coming out of the wall boards again and running all over the place shouting from the rooftops that this report suggests that the rate hike is back on the March agenda for the Fed. And that got the dollar all lathered up. Look, I’m a realist, and see things for what they are not what they are perceived to be. and that’s why I just don’t see this as the end-all to what ails Manufacturing. Sure, during February, the dollar was getting pushed down, until this past week., and that helped Manufacturing, as exports would have been better, but that didn’t last long, and I really don’t think that this improvement in the ISM will last long either!

So, that was yesterday. The dollar recovered its early morning losses, and is still holding the handle on the locomotive heading down the tracks this morning. That line reminds me of the great song by Jethro Tull, Locomotive Breath. “Old Charlie stole the handle, and the train it won’t stop going” So, anyway, getting back to the dollar. Gold ticked up in early trading to within spittin’ distance of $1.250 at $1,249.30, oh so close, eh? But then got taken back down to $1,227, leaving Gold with a $6 loss on the day. Palladium was the best performing precious metal on the day and night. But I’m still scratching my bald head over what happened when Gold got close to $1,250 yesterday.

You know, I haven’t talked about it much lately, but that doesn’t mean it hasn’t been on my mind. I’m talking about the Chinese Gold fixing in renminbi that will begin the first week of April. That’s just a month away folks. A dear reader sent me a note yesterday, that reminded me that I hadn’t talked about this lately, and what I think it will do to the price of Gold going out on the horizon. You see, the goal of the Chinese here is to take the monopoly of the Gold fixing in dollars away from the West, and improve China’s influence in global finance. And on the side, reduce the importance of the paper trades in the U.S. This is going to be HUGE folks, but don’t expect miracles to happen right away, this will take time.

Remember me telling you that China warned foreign banks that they had to join their new Gold fixing or lose their Chinese Gold import rights. That’s right, China is basically saying to the foreign banks that the Chinese could cut them out of the world’s biggest bullion market, if they refuse to participate in the renminbi denominated Gold fixing. Shoot Rudy, the Shanghai Gold Exchange (SGE) just started a couple of years ago, and its already the world’s largest physical Gold trading platform in the world, with an estimated 52 times more physical Gold withdrawals VS the paper trades exchange of the COMEX.

Well, I certainly went down that rabbit hole didn’t I? Let’s move on to something else. There are basically just a few currencies carving out gains VS the dollar this morning… The Aussie dollar (A$), the Indian rupee (INR), and the Mexican pesos (MXN). Let’s start with the Indian rupee since it began its rally yesterday on news that the new Indian Budget was accepted by economists and traders who were looking for a continuing reduction of the debt that India had previously built up to unsustainable levels. It’s a very aggressive budget folks, and one that I believe India, which has a propensity to disappoint when it comes to the economy, will struggle to meet the parameters set by the Finance Minister. If they do meet their Budget goals, then the rupee should be well positioned to enjoy the fruits of the hard work put in to meet those goals.

The Australian 4th QTR GDP printed a strong 0.6% print following the 3rd QTR’s 1.1% gain. As the 3rd QTR GDP report revealed, the 4th QTR too was driven by strong consumption and residential investment, and dragged down by CAPEX in mining. With the drop in Commodities that continues to be a real problem, for the Commodity producing countries, one would expect the CAPEX in mining to be a problem, for why should mining companies be buying new equipment, when they aren’t using what they have? Well, anyway, the A$ was treated well, with this 4th QTR GDP print, and should help keep the Reserve Bank of Australia’s (RBA) powder dry for now.

And the Mexican peso. The peso is a good illustration of what happens to a currency that sees major buying of the currency by the Central Bank to support the currency, without the markets giving two hoots about the whole process. I know, I totally missed this news a couple of weeks ago, that the Mexican Central Bank, surprised the markets with a 50 Basis Points (1/2%) hike, which helped the pesos quite a bit, but with an internal rate of 3.75%, there still isn’t a “risk premium” there for foreign investors, and that’s where the Central Bank (Banxico) came in with both barrels blazing, buying pesos by the bushel full..

The euro appears to be trading in the same clothes from Monday, and then again Tuesday, as the trading range for the single unit, has really tightened. As the euro just hasn’t had anything going on to move it and the dollar’s strength is mixed, so the euro just keeps wearing the same clothes. UGH! The European Central Bank (ECB) member Coeure, will be speaking in a few minutes, and he could lend some movement.

Speaking of Central Bank speakers. We’ll have a few hitting the speaking circuits today. Along with Coeure, ECB member Knott, will also speak. In Norway, the Norges Bank Gov. Olsen will speak, and the Bank of England (BOE) members, Broadbent, and Cunliffe, will look for someone to talk to, and finally here in the U.S., Fed member Williams will speak. So, lots of talk, no action, is my opinion of all this. My dad used to tell me. “Money talks, B.S. walks”.

The Brazilian Central Bank (BCB) will meet this afternoon, and I don’t see them making any changes to their internal Selic Rate, which currently sits at 14.25%, and inflation in Brazil still lingers on.

Well, looky there! I was wrong with my thought that the Canadian 4th QTR GDP would be flat on the year to year comparison! Well, I wasn’t the only one. The rest of the markets had pretty much said the same thing, so it was a good thing for the loonie, to see that everyone was wrong, and 4th QTR GDP unexpectedly grew 0.8% YOY, and the 3rd QTR GDP was revised upward from 2.3% to 2.4%, so not a biggie but upward revision nonetheless! And like I said, it was all good for the loonie, which rose another 1/4-cent on the news yesterday, but this morning, the loonie is giving back some of those gains, as the price of Oil has slipped back below $34.

Here in the U.S. I read on the Bloomberg this morning that “analysts just reduced income statements for the first quarter at a rate that more than doubled by 9.6 percentage points in the last 3 months, with profits now seen dropping the most since the global financial crisis.” Uh-oh. Maybe things here in the U.S. aren’t so peachy?

Well, we have the Manufacturing Index remaining below 50 for the 3rd consecutive month, although it did improve in Feb from Jan, it still remained below 50. We’ve had Factory Orders negative more than positive, in recent months, along with Durable Goods and Capex Goods. What else do we need to know that the U.S. economy is failing fast? Well, ask and you may receive.This came courtesy of the Stansberry Digest yesterday, “The Thomson Reuters/PayNet Small Business Lending Index plunged 13% in January to its lowest level since November 2014. The index measures how much money small businesses are borrowing. According to Bill Phelan, president of loan-information firm PayNet, this level of borrowing isn’t even enough to replace old equipment, let alone buy more. “This is a dramatic form, an extreme form of hunkering down,” he said.

Thomson Reuters notes the index is a strong leading indicator for U.S. economic growth one or two quarters down the road. This makes sense, since small businesses account for a huge portion of U.S. economic activity. If they’re struggling, the broad economy is likely to follow.”

Well, bust my buttons! And I thought everything was just peachy dandy in the U.S. economy, didn’t you? NOT!

Well. The U.S. Data Cupboard has the first look at jobs for February today with the ADP Employment Change report, which is forecasting an increase in jobs of 190,000. And then this afternoon, the Fed’s Beige Book prints, but in reality, I don’t believe the markets pay much attention to the Beige Book any longer, given that we have Fed members out speaking all the time, that has pretty much replaced the need to see what the Fed Governors put down on paper a month ago, when we can have the updated version in a speech.

I already told you that Gold gave back $6 yesterday, from the previous close, but in reality it gave back nearly $25 in intra-day trading. A real bummer to me. I thought Gold was ready to move past $1,250 and not look back, but I guess I was wrong! Gold didn’t get taken down because of the demand for physical Gold. Reuters tells us that American Eagle Coins sales in February more than quadrupled year-on-year! In February, the U.S. Mint sold 83.500 oz. of American Eagle Gold Coins, more than 4 times the 18,500 ounces sold in Feb 2015. And American Eagle Silver coin sales were up 58% from a year ago.

To recap. The U.S. ISM Manufacturing Index gained in February for the first time in a long time, and got the rate hike campers to come out of the wall boards once again, thus pushing the dollar to higher levels on the day and that has carried over in the overnight sessions. Only, A$, rupees, and pesos have carved out gains VS the dollar this morning. Aussie GDP printed a strong 4th QTR number, The Indian Finance Minister came out with a very aggressive budget that narrows the debt in India, and the peso is still basking in the sun from a rate hike and aggressive Central Bank buying. Canada’s 4th QTR GDP surprised with a strong print. The price of Oil slipped back below $34, and Gold gave back $6 on the day, but nearly $25 in intra-day trading. UGH!

For What it’s Worth. I’m going to take the FWIW section today on a visit to Baltimore, to visit my friends at the 5 Minute Forecast, because they had some very good stuff to say yesterday, and in the case that you don’t see the 5 Minute Forecast, I’m going to bring you some of it here! I really do believe that the “5” is a daily must read for me. So, today, they were talking about the “black hole” that is Government accounting. brother, get yourself another cup of coffee before reading this.

“Another year, another failed audit for Uncle Sam. Funny, you haven’t heard any of the presidential candidates talk about it, either.

Since 1997, the Government Accountability Office has audited the federal government. Or tried to, anyway. It never works out: Try as the auditors might to come up with an opinion on the government’s consolidated financial statements, the numbers are just too murky.

This year, there were “issues with the Department of Defense’s finances, the government’s inability to account for some transactions and the government’s ineffective report-preparing process,” as described by the Beltway-insider publication The Hill.

“In simple terms, more than a third of your government is a black hole,” sum up Pam and Russ Martens at their Wall Street on Parade website.

The GAO said it was unable to effectively audit “34% of the federal government’s reported assets as of Sept. 30, 2015, and approximately 19% of the federal government’s reported net cost for fiscal year 2015.”
In fact, the number of agencies whose bookkeeping is backsliding is growing. Nearly every Cabinet department got a “clean” opinion in 2014. but in 2015, Defense, Agriculture and Housing and Urban Development couldn’t pass muster.”

Chuck again. Are you kidding me? We as a country can’t account for stuff? Well, let me restate that it’s not that we “can’t” it’s more of a we don’t want to, because we don’t want to know the truth about the numbers. And the “we” isn’t you and me folks, it’s the Gov’t. and the folks we vote into office. think about that for a minute.

Currencies today 3/2/16. American Style: A$ .7220, kiwi .6610, C$ .7430, euro 1.0865, sterling 1.3995, Swiss $1.011, . European Style: rand 15.70, krone 8.5760, SEK 8.6110, forint 285.62, zloty 3.9883, koruna 24.9160, RUB 73.91, yen 114.35, sing 1.4025, HKD 7.7740, INR 67.54, China 6.5490, pesos 17.93, BRL 3.9355, Dollar Index 98.45, Oil $33.65, 10-year 1.84%, Silver $14.83, Platinum $937.23, Palladium $518.89, and Gold. $1,230.92

That’s it for today. Well, a BIG (because everything is Big in Texas) Happy Birthday to Texas, who on this day in 1836 formally declared their independence from Mexico! Bet you didn’t know that! HA! The sun is up, it’s going to sunny and 85 today, great baseball weather, and my seats are in the shade! Most times in March that’s a good thing down here, but sometimes it’s not so good, and jackets must be worn, which really is not my thing! Shorts, a Cardinals red shirt, and a cold one, are my staples for baseball games. There’s nothing like the first time, each year, into the stadium. I always get the chills, and it hits me all at once, as I walk out of the entryway to see the field, smell the freshly cut grass. I don’t know if I can wait until 1 o’clock today! Grand Funk Railroad (GFR) takes us to the finish line today, with their song: Footstompin’ Music.. When I was a teenager, I loved the raw, garage band-like sound of GFR, and played some of their music, but as they got popular, they became so mainstream, I lost my faith in them. So, when I get to listen to a song they made before going mainstream, it makes my day! And with that! I hope you have a Wonderful Weekend, and remember. Be Good To Yourself!

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