Banxico Implements Fancy Pants Intervention!

* The dollar is softer this morning..
* Aussie wage data is soft, but A$ rallies!
* Brazil to cut a chunk from their Selic Rate tonight?
* Chuck gets on the soapbox regarding the euro..

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

Good Day. And a Wonderful Wednesday to you! The week of little or no data, continues today, and unlike yesterday, when the dollar had the conn, today, the dollar is softer.. Come on Traders, make up your collective minds! I’m tired of this up one day, down the next day junk. Can an analyst get a direction here? I feel like the Godfather of Soul, James Brown, when he would say, “Can I count it off here?” “Can I count it off here?” or “Can we take to the top?” Great stuff from James Brown. I told you about the guy that caught the woman’s eye yesterday, and then I was just rubbing my eye, and I popped my eye out! I guess that’s what they call karma, eh? Pink Floyd greets me this morning with my fave song by them, Comfortably Numb, which is what I’ve said for years that investors, traders, and what have you, have become regarding the U.S. Debt..

Well, the dollar’s softness this morning sure isn’t being shown in the euro’s value, which is dangerously playing with falling below the 1.05 figure.. I was being interviewed by a newsletter yesterday, and they asked me about the euro. I went into “Chuck speak” got on my soapbox and really put forward a very long answer.. . But to make a long story , short.. I can tell you that I’m still a believer that the Eurozone will not break up, due to the problems of breaking up (you should see the working paper on what it would take for a country to leave the euro). And that we might see the euro fall to parity or even below, but to me that would signal a buying opportunity. I still believe in austerity programs, and if the countries that are required to implement austerity programs would be honest about them, and stick to them, they would find what a country like Ireland found out, that there is life after austerity, and it feels good to come out of it, with a better looking balance sheet.

The Aussie dollar (A$) is knocking on the door of 77-cents again this morning, and that’s after soft wage data printed in Australia last night.. Now that’s the sign of a currency that’s on a roll, and no soft data is going to stop it! We’ve seen that with the U.S. dollar in recent years, when data like Factory Orders, and Durable & Capital Goods Orders would print negative, but the dollar would shrug those data prints off and rally. Yesterday, I told you about a currency dealer’s research sheet that talked about how they see the A$ dropping quickly. Well, moves like last night have just got to kick them in the knees, right? For if you’re saying those things, you probably went short the A$, and then the A$ rallies, that can’t look good on paper..

Reminds me of when I ran the margin dept. at a regional brokerage house in St. Louis, and we would have to get on the phones and call customers with margin calls. “Hello, is this Mr. Smith? Good, this is your dentist, and you have a large cavity in your account, and you need to get it filled immediately. The cost of the filling is $5,000 (or whatever). thank you and have a great day”.. Nah, we never did stuff like that, But there were times that customers were so defiant about having to make a margin call , you wanted to just hang up and sell their stock to cover the call!

Yes, I got my start in a brokerage house.. my first job there? Helping in the mail room! It was just going to be a temporary job, until the next semester of college began, but before you knew it I was promoted to an important job in the back office, and well, I didn’t leave for 5 years! Those were the days my friend, we thought they’d never end, we’d sing and dance forever and a day, we’d live the life we choose, we’d fight and never lose, those were the day, oh yes, those were the days.. (now try to get that song out of your head today! HA!)

The best performer overnight was. drum roll please. Believe it or don’t, but it was the Mexican peso! Banxico, Mexico’s Central Bank, announced another round of intervention, this time being pretty fancy pants about the intervention. Banxico announced a plan to auction $2 Billion in FX hedges to support the peso without draining their reserves.. I don’t see where this fixes anything in Mexico, except the weak peso, and even then the peso is still trading with a 20 handle this morning.. When will they ever learn that the peso needs a “risk premium” to attract foreign investment.. So, Banxico get to hiking rates aggressively, and you won’t need to pull of these fancy pants intervention programs!

The Brazilian Central Bank (BCB) will meet tonight, and I fully expect them to take a huge chunk out of their Selic Rate (internal interest rate) . Say, 75-Basis Points? I knew you could! Inflation is falling in Brazil, at least that’s what the latest reports indicate. So, if the BCB cuts their Selic Rate 75 Basis Points (3/4%) their Selic Rate would then be 12.25%.. Still the highest rate you can find without going to a 3rd world country.. There’s no BCB meeting scheduled for March, and that’s one of the reasons I believe this rate cut will remove a huge chunk from the Selic Rate..

Last month, when the BCB cut rates 75 Basis Points the real rallied.. Go figure on that one folks.. And the BCB is doing this rate hike cutting while they have a “neutral bias”.. Shoot Rudy, I would hate to see what size rate cuts they would make if they had a “accommodative bias”!

The price of Oil bumped up into the $54 handle in the past 24 hours. So far, so good, on the oil production freeze,/ cuts that began last month.. In fact, I’m impressed with their will power not to cheat.. But as I’ve explained before, it’s a catch 22, for if the production cuts bring about a higher price for Oil, then the producers that were put out of business with a weaker Oil price, can get back into the business and soon we’ll have more supply which will bring back down the price of Oil.

And the proxy for the Oil price, the Russian ruble, lives and breathes alongside the price of Oil much more than the other Petrol Currencies like: The Brazilian real, Norwegian krone, and Canadian dollar/ loonie do. Here’s why I like the Russian ruble.. I see the price of Oil remaining in this $52 to $55 trading range, which means the ruble isn’t going anywhere with huge moves, sounds boring right? But. all the time you’re being bored by the non-movement in the ruble you’re getting paid a better than the average bear interest rate on your deposit. So, you’ve diversified your investment portfolio, the currency bounces around in a tight range, but pays you a good interest rates.. Hmmm.. I’m just saying.

Oh, and don’t forget.. the ruble should only be bought with funds you have allocated to “Speculative investments” of course all that stuff about the ruble is just my opinion and I could be wrong!

Speaking of the Norwegian krone.. Norway’s economy seems to be out in front of the other countries with regards to their economic cycle. Inflation is above 2% and the price of Oil is far better than it was a year ago. But I’m concerned about the Norway’s Sovereign Wealth Fund (SWF). You see the SWF announced a week or so ago that they were going to increase their percentage allocation of stocks. Now, I’m not even your last choice of a stock jockey, but you have to admit that question increasing their allocation of stocks. Sure the stock market could continue to go higher, but I always remember what a trader taught me so many years ago.. That trees don’t grow to the moon. Again, I’m just saying..

Well, first it was Iceland that put the bankers responsible for their financial meltdown in jail.. And now we have Spain looking to do the same thing, as they have taken on the Big Bankers responsible for their financial problems in the country’s highest national court. The have charged the former head of Spain’s Central Bank, a market regulator, and 5 other banking officials over a failed bank leading to the loss of Millions of euros for smaller investors. This sure is a far cry from what happened here in the U.S. ,eh? Here a slap on the wrists, and a bigger bonus, and government bailout money.. Remember TARP? Oh well, at least some country is doing what’s right.

Well, it’s not all sunshine, rainbows and lollipops for those causing problems.. Wells Fargo announced the firing of 4 executives yesterday.. San Francisco, California-based Wells Fargo on Tuesday announced the firing of four managers, in the first terminations stemming from an ongoing board investigation of a sales scandal that erupted last September.

Read more here:

In fact on this website the first 3 articles have headlines that read as follows: ‘
1. Wells Fargo fires 4 executives
2. Lowe’s lays off more than 400 in Mooresville
3. North Hills Boutique seized for failure to pay state sales tax

That’s just a local paper reporting on economic stuff, but if that’s what’s happening in rural America, then it won’t be long before it comes to a town near you!

Gold couldn’t find a bid yesterday, and dropped $1.60 from Monday to close at $1,235.40. The shiny metal can’t find a bid in the early morning trading today either, and has dropped another
$1.70. These moves are basically no moves, but I thought they were a good illustration of what I’m saying about with no data, it’s a boring week.. with bored traders that don’t have anything else to do but sell Gold..

And Fed member Harker, who is normally a dove, had some not so dovish things to say yesterday.. Let’s listen in. this is Patrick Harker of the Philadelphia Fed, speaking yesterday 2.21.2017..
“I see us reaching our 2% target on the Personal Consumption Expenditures (PCE) sometime this year, or next.”

“Overall, I see strong consumer spending driving growth of about 2% over the course of the year”

“Given the state of the economy, more or less back to normal, I continue to see 3 modest rate hikes of 25 Basis Points each as appropriate for 2017, assuming things stay on track.”

Chuck again.. Hmmm.. that’s interesting that he doesn’t see more growth than 2% but sees the need to hike rates 3 times this year. So, now I’m confused.. The PCE isn’t at 2% yet, which is the Fed’s target for their preferred inflation data, and the outlook for growth is only 2%, those two things would lead me to believe that he would then say, “the need to remain accommodative weighs heavily on any thought to a rate hike” But, he didn’t, instead he said that he sees “3 modest rate hikes of 25 Basis Points (1/4%) each as appropriate for 2017.”

Oh, well, I’ve said this before and now it really has legs.. That come hell or high water, Janet Yellen is going to hike rates next month.. And I guess we’ll see where that takes us and the economy, eh/ And here’s the link to the text of his speech in case you want to check it out.

The U.S. Data Cupboard will produce the January Existing Home Sales, which should be a bit stronger than last month’s report, given the warmer weather for winter in the U.S.. And then this afternoon, the Fed’s FOMC Meeting Minutes will print.. The markets will be looking for love in all the wrong places, for there won’t be anything here.. this is old news, as Janet Yellen just updated lawmakers on the economy, twice last week.

For What it’s Worth.. Well, 2 years ago in Vancouver (Aug 2014), I told the crowd that the Auto loan business had gone the way of the mortgage business circa pre 2007. Let’s go back to what I said in August 2014 in Vancouver.. The size of the average monthly car payment is now $474!!!! I remember when my first mortgage payment wasn’t much more than that! And I’m sure that quite a few of you, can remember mortgage payments below that amount! “.

Yes, that was then, and now? Well, here the article that was on the Bloomberg and can be found here:

Or, here’s your snippet: “Lured by low interest rates, low gas prices, and a crop of seductive vehicles that are faster, smarter, and more efficient than ever before, American drivers are increasingly riding in style. Don’t be fooled by the curb appeal, though-those swanky machines are heavily leveraged.

The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion. The combination of new car smell and new credit woes stretches from Subarus in Maine to Teslas in San Francisco.

It’s an alarming number, big enough to incite talk of a bubble. In fact, the pile of debt would cover the cost of 43.4 million Ford F-150 pickups, one for every eight or so people in the country.

Another way to look at: Every licensed driver in the U.S., on average, owes about $6,100 in car payments.”

Chuck again.. the article points out that the market for cars is a lot different than mortgages, in that cars are more easily repossessed, and car loans for the most part are smaller than Home prices.. But don’t look now, but the size of a car loan is increasing every day, but, and here’s where the problems creeps up on us.. Subprime lending in cars is at its highest level ever!

Currencies today: 2/22/17… American Style: A$ .7648, kiwi .7170, C$ .76, euro 1.0508, sterling 1.2372, Swiss $ .9877, . European Style: rand 13.0790, krone 8.3756, SEK 8.9996, forint 292.40, zloty 4.0850, koruna 25.7035, RUB 57.75, yen 113.28, sing 1.4184, HKD 7.7607, INR 66.92, China 6.8828, peso 20.04, BRL 3.0890, Dollar Index 101.63, Oil $54.24, 10-year 2.43%, Silver $18.04, Platinum $1,006, Palladium $781.90, Gold $1,233.70, and SGE Gold $1,242.40

That’s it for today.. Well, it’s supposed to be a rainy day here today. That’s OK, we’ve haven’t had a rainy day in month! Man, yesterday was National Margarita Day and I missed it! I received a book in the mail on Saturday that I’m going to start to read today, since I just finished my last Michael Connelly book.. My new book is by one of my fave economists: Danielle DiMartino Booth, and the book’s title is: Fed Up. You see, she used to work at the Fed Dallas, and decided to talk about that experience. I can’t wait to get into it! I’m sure you’ll be hearing about excepts from the book right here in the Pfennig! Happy Birthday to the father of our country! George Washington’s birthday is today, Feb. 22.. The Allman Brothers take us to the finish line today with their song: Dreams.. Man, I’ve been having some very weird dreams, where I’m dreaming and talking and wake and finish the sentence or thought.. I know, I know, very strange.. OK, let’s go out and make this a Wonderful Wednesday! And Be Good To Yourself!

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