Bernanke Points A Finger.

* Currencies are drifting this morning.
* So are the metals .
* We need structural changes.
* Oil price recovers on OPEC hopes.

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

Good Day. And a Tom Terrific Tuesday to you! Boy, getting yesterday’s letter out became a real chore, that I hope to never have to go through again. I basically threw up my hands in the air, and said, “I might as well rewrite the whole letter!” Of course I was exaggerating, and frustrated, which isn’t a good combination for me. When I was a young man, my temper was so bad, and so easily set off, but somewhere along the way, I grew up. I think having kids did that! The Main Ingredient greets me today with their song: Everybody Plays The Fool. I’ve played the fool many a times in my life, but we don’t have to get into that today. HA!

I received an email from my friend, the great Mogambo Guru the other day. Classic Mogambo speak, as he just lit into just about every Gov’t, their agencies, and the zombies that follow them. Thanks Mogambo, I needed that! I’ve gotten too soft on these people that make these drastic decisions that end up causing us to have to pay higher taxes, earn lower wages, and say we’re glad to do that! Of course I can’t come right out and point a finger at someone in the Gov’t or Gov’t agency, like the Great Mogambo can, but, I can make generalizations, and believe me that’s what I’m going to be doing, for this direction we are headed doesn’t look kosher to me, I don’t know about you, but to me, things just aren’t right, and we’re not dealing with them.

Oh, and the currencies are basically trading in the same clothes as yesterday, but down a tiny bit this morning, so nothing to speak of going on in currency land, and Gold recovered that $6 loss in early morning trading to end the day basically flat, or for those of you who are sticklers about it, Gold ended up down 40-cents! And Silver ended up a whopping 2-cents! So, like I said not much happening. I will remind you that I warned you there would be days like this in August, for they aren’t called the dog days of summer for nothing!

So, I have to stop here and go through this, because I can’t believe that Big Ben Bernanke, the former Fed Chairman, and the architect of Quantitative Easing/ QE, is wrote a piece for the Brookings Institute, ( ) and in it he basically called the current Fed out for their failure to kick start the economy, saying, ” while market commentary on FOMC decisions typically focuses on short-run factors, such as the uncertainty created by the U.K. referendum, such factors affect only the timing of decisions. There is a deeper shift going on within the FOMC, as demonstrated by the Committee’s failing estimates of “y” (potential output growth), “u” (the natural employment rate), and “I” ( (terminal Fed Funds Rate). He argues that the two changes “most important in pushing the FOMC in a dovish direction” are downward revisions in estimates of r* and u*. As a result, “rate hikes are seen as less urgent even by those participants included to be hawkish.” The market is already well ahead of the FOMC on this (only half-priced for a hike this year-it would mean barely one hike every 18 months). ”

I about had to go and check my pulse when I read this piece by Bernanke. But he’s right. And I’ve said this over and over again, it was far better when we didn’t know who the Fed members were, because we never heard from them. And this is important to so make sure you get our your #2 pencil, sharpened, and paper and write this down. According to James Rickards, the Fed regional presidents basically have no say in the FOMC voting. That all decisions are made prior to the FOMC, by Yellen, Dudley, and Brainard, and then they then get the votes they need from the other Governors, that outnumber the regional presidents that rotate on the board every year.

Wanna know what else is on my mind this morning? That all the QE, ZIRP, NIRP, TARP, and helicopter money in the world isn’t going to kick start this economy or any economy in the world unless they make structural changes. We all know what they are here in the U.S. they are the elephant in the room but no politician wants to talk about them, because they won’t get elected! We need to redo the entitlements. With 10,000 Baby Boomers retiring for the next 15 years or so, something has to give there, otherwise the debt problem weighing on the economy now, will become an even larger burden to bear. There are other structural changes that need to be made, like changing the tax code, getting the Gov’t out of small businesses’ business, and allow them to fire employees again. And I did like the one politician yesterday who said they would put a moratorium on any new regulation. We have far too many regulations to ever allow creativeness, which is what we need right now!

None of that will happen in my lifetime, but then I’m living on borrowed time right now, so that’s not talking about 25 years. We could also look at Japan, they need structural changes too. They need to implement an immigration plan, to bring new blood into the Japanese economy and get it excited again. But Japan won’t do that, they’ll go down with the ship loaded with demographics that get worse all the time, before they implement an immigration plan! I got stopped by the immigration man, says he doesn’t know if he can, let me in. -Crosby & Nash.

Alrighty then, let’s talk about something else. The Canadian dollar / loonie has been floundering lately, not looking as resilient as it previously had. Thanks to our trading contact at RBC he alerted me to the Non-energy export growth in Canada, which has plummeted since early spring. The Non-energy export growth is now at the weakest level since December 2012. I Would have to think that this will not be good for the growth assumptions as the year goes on, and that would put pressure on the loonie VS the green/peachback. UGH! I guess, when you live by the sword (oil in this case), you can die by the sword.

The Reserve Bank of New Zealand (RBNZ) will meet tomorrow night (Thursday morning for them) and most likely follow the Reserve Bank of Australia’s (RBA) move to cut rates last week. I really don’t think the RBNZ needs to cut rates what with the housing bubble going on in their biggest city, Auckland. But everybody’s doing it, right? Oh stop it! This ain’t Chubby Checker getting everyone to do the twist! These are Central Banks who are supposed to be providing price stability, which doesn’t measure up to debasing the currency with rate cuts! So, here’s my memo to the RBNZ, not that it means a hill of beans, but I try. “Mr. Wheeler, and the grand RBNZ members, I will tell you something that you should take as your mantra. My kids used to come to me and say, “Dad, can we do “x” I would say “no”. They would counter, “but all the other kids are doing “x””, and I would say, and write this down Mr. Wheeler, it could do you some good. ” But don’t you want to be better than the other kids, don’t you want to be different from the other kids?” Don’t you want to be better than the other Central Banks Mr. Wheeler? Probably not, but I tried.

The euro is directionless, and has no drive to go anywhere right now. The Fed doesn’t meet this month, and neither does the European Central Bank (ECB). But the pound sterling sure doesn’t have that ability to remain steady. This morning, U.K. Industrial Production for June printed at a measly 0.1% VS May’s also disappointing figure, which is going to really drag down 2nd QTR GDP, which I think will be just 0.5%… And the Bank of England (BOE) will find this as an excuse to cut rate further, and the pound sterling is going to feel like it has the Statesboro Blues. (that’s what is playing right now! HA!)

The price of Oil has rebounded from last week’s visit to below $30. The recovery has been based on the news that the OPEC members will have a meeting in September to once again attempt to coordinate a freeze on production. That’s not going to happen, you know it, I know it, and they should well know it, but you can’t blame them for trying, eh?

The U.S. Data Cupboard had the Fed’s Labor Market Conditions Index for July yesterday, and for the first time in the last 6 months, the index did not print negative, printing instead at 1.0. A big improvement in the index, and one that would suggest that a jobs report that totaled 143,000 would make sense. But NOT one that totaled 255,000, so there’s still questions there. Oh, and by the way I got the 143,000 by taking 255,000 minus the 112,000 jobs that were added by the BLS using their antiquated Birth/Death Model. BTW, John Williams over at still says real unemployment in the U.S. is around 23%… He uses the methods used before all the hedonic adjustments were added in the early 90’s. I’m not going to mention who was the President at the time that demanded these adjustments to the way Unemployment, Inflation, and a number of other things were calculated. But, I sure wish he hadn’t!

Today’s Data Cupboard has the Productivity costs, which I used to think were pretty useless, as all they did is tell us how hard we all worked. But as time goes on, I see it in a different light. As this data can give us an indication of future inflation. This will be the first print of the 2nd QTR Productivity, and is expected to have a growth rate of 1.8%, but that’s far below what’s needed to spur inflation, which would be 4 to 4.5%…

As I told you above, Gold was flat yesterday along with Silver. Silver has outperformed Gold so far this year, and when I saw this on Ed Steer’s letter this morning, I knew those of you who own Silver, or are thinking about owning it, would want to know this info. It is a 29 minute interview, as if I have time for that! So I’ll just give you the highlight of the interview. First Majestic’s Keith Neumeyer, whom I’ve quote before in the Pfennig, said, ” Silver Mines and Silver are way rarer than people actually think” He should know he is the CEO of First Majestic Silver Corp, one of the top Silver mining companies in the world!

Now, longtime readers will recall me telling you a couple of years ago that a shortage in Silver was coming. It has taken a while to get here, but if Keith Neumeyer is correct, one is here now! And that can’t be anything but good for the price of Silver. Should it be correct, I should add.

For What It’s Worth. Back in the saddle today. I actually had this yesterday, but completely forgot about it. Another senior moment for me I guess! This is an article that appeared on the Bloomberg regarding a coming dollar crunch. and can be found here:

Or here’s your Snippet: “I need a dollar, dollar, a dollar is what I need,” Aloe Blacc sang back in 2010.

Japanese banks might now be humming a similar refrain as efforts to insulate big investors known as money market funds from a repeat of the 2008 financial crisis have resulted in a sharp rise in the cost of interbank lending and U.S. dollar funding.

The dollar London Interbank Offered Rate, or Libor, has risen to the highest level in seven years while the cost of converting Japanese yen into greenbacks has surged ahead of U.S. money market reform that will come into effect this October.

Those reform efforts will see prime money market funds – an important source of short-term funding for banks – build up so-called liquidity buffers and install redemption gates among other measures. While the changes are aimed at making the funds safer, they are causing turmoil in money markets as big banks adjust to the new reality of a shrinking pool of financing combined with the need to maintain their own large war chests of liquid assets.”

Chuck again. I can tell you that these reforms in money markets is going to cause some problems, as usual, the regulations makers thought that to prevent what happened in 2007-08 from happening again, they would change the way the money markets price the cash. This could cause the depositors to withdraw their funds and put their money somewhere that’s safe. More on this as we go along, but Rocktober is the month these reforms go into place.

Currencies today 8/9/16. American Style: A$.7660, kiwi .7147, C$.76, euro 1.1090, sterling 1.2970, Swiss $1.0173, . European Style: rand 13.5510, krone 8.4430, 8.5505, forint 280.05, zloty 3.8488, koruna 24.3738, RUB 65.65, yen 102.15, sing 1.3477, HKD 7.7575, INR 66.86, China 6.6617, peso 18.53, BRL 3.1728, Dollar Index 96.38, Oil $42.99, 10-year 1.57%, Silver $19.72, Platinum $1,145.85, Palladium $689.24, and Gold. $1,339.40

That’s it for today. I guess I can blame another senior moment on a faux pas I had yesterday. Yesterday, was my best friend, from second grade, Mike Karvas’s birthday! Happy Birthday, brother! Love Ya! Mike and I grew up together, and we could fill a book with stories. Second grade. that was 1962. Can you believe that one? I actually have another friend from Kindergarten, which was 1960. I guess I believe in long relationships! American takes us to the finish line today with their song: Tin Man. Oz never gave nothing to the Tin Man, that he didn’t already have. Cardinals come back in the bottom of the ninth last night to win. They are the first team to come from behind a 4-0 score with two outs in the bottom of the ninth in 2,807 games! But boys, let’s not make a habit of this! And with that, I’ll send you on your way to having a Tom Terrific Tuesday. Be Good To Yourself!

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