Blame It All On BREXIT?

* WSJ article revs up dollar bugs.
* But Morgan Stanley says no rate hikes! .
* ZEW prints awful, deep sixes the euro.
* CALPERS has problems.

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

Good Day. And a Wonderful Wednesday to you! Well, here I am, sitting here in the office, all by myself, I’ve already walked through the office to get a glass of cold water, singing Love Potion #9, and now Peter Gabriel greets me this morning with his song: Sledgehammer. And so, today begins. I had some time for reflection last night, as I was home alone, and the Cardinals were being rained out. I won’t get into my reflections, but I think I’m onto something in my life, so more on that as time goes on.

Well, the dollar has taken the conn back from the currencies and metals after an article in the WSJ from John Hilsenrath, the self-appointed, “Fed Watcher”, who wrote that “Fed Officials Gain Confidence They Can Raise Rates This Year”, and a Fed rate hike could come as early as September now that financial markets have stabilized after the BREXIT vote to leave the EU. The markets get all giddy when Hilsenrath writes, because they think he has knowledge of what the Fed will or won’t do that no one else has. I think the markets are full of malarkey on this one. And yes, Ed, don’t remind me that you taught me many years ago, that the markets are never wrong. So, I’m beating around the bush here by saying they are full of malarkey, I didn’t say they were wrong!

I guess the strategists over at Morgan Stanley didn’t read the Hilsenrath article before they published their latest outlook for rates in the U.S. “Don’t look for a rise in U.S. interest rates until 2018. The Federal Reserve won’t be able to hike rates this year or next year because U.S. economic growth will let down the bulls. We think global growth really disappoints over the next 12 months – particularly in developed markets, particularly in the U.S.” Here’s the link to that report:

In addition, they issued their outlook for GDP in the U.S. saying it would only expand 1.7% in 2017, when the consensus right now is for GDP to reach 2.3% in 2017.

I would have to say that I agree with the strategists at Morgan Stanley on this one, before I would agree with Hilsenrath’ s view. but I don’t count. I’m just a newsletter writer, and not a very good one, at that, but one that doesn’t have a say in the markets, can’t move the markets, and wouldn’t want that pressure if I could!

The euro, which I told you on Monday was in jeopardy of having a negative week, is doing just that, and the bad part is that the ECB won’t meet until tomorrow! That’s when I think the ECB will introduce some additional measures, like reducing the criteria of the bonds that they buy. They would do this because, basically with the criteria they have now they’ve run out of bonds to buy! And that would be euro negative, so this morning, the euro is teetering on falling below 1.10 (1.1005). The short term trading direction doesn’t look good for the single unit.

Yesterday, the euro got raked over the hot coals by an awful print of the latest German Investors’ Confidence as measured by the think tank ZEW. The report fell close to a 4 year low, which is a real shame, given all this time, it had recovered from the low, and it gets wiped out in one report, because of BREXIT fears. I’ve got some thoughts on BREXIT fears below, you won’t want to miss them! HA!

The price of Oil has slipped again, and that has added pressure on the Petrol Currencies, who already had to deal with the dollar strength from renewed rate hike talk. As usual, the Petrol Currencies are led by the Russian ruble. Speaking of the ruble, I was writing the August edition of the Review & Focus yesterday, you know the monthly letter that used to get mailed to clients, but now is available to everyone and can be found here:

Well, while I was writing the August edition, I was talking about the best performing currency so far this year, and while I won’t give that away, I will tell you that the currency in second place is the Russian ruble with a 16% return so far this year in currency movement that is. That doesn’t even take into consideration the large positive interest rate differential that the Ruble enjoys VS everyone else except the Brazilian real! Just imagine if you will, it’s easy to do, John Lennon told us it was, that the sanctions on Russia were dropped.

Currency traders are just now coming to the realization that they made a HUGE mistake in running the price of the Japanese yen higher a couple of weeks ago. They should have waited until the Japanese elections so they could see if PM Abe got a greater majority so he could implement additional stimulus. But they didn’t. They said yen was a so-called Safe Haven, and needed to get bought. Dolts! Because ever since the Japanese elections, yen has lost ground, and this morning it trades with a 106 handle, while just a couple of weeks ago, it was on its way to 100.

Remember when I told you about Japanese PM Abe and his comment about how the Japanese needed to not look down, and fly above the economy so as not to get dragged down by all the gloom and doom in Japan? A dear reader sent me an email yesterday, that reminded me of Abe’s comments. It was a cartoon of Wiley Coyote just having run past the edge of a cliff, and is now suspended in air with this thought. “you don’t have to worry about gravity or reality or any of that stuff if you just don’t look down”.

Now that’s funny, I don’t care who you are! (Larry the Cable Guy). On a sidebar. skip ahead if you don’t’ have time for this. But years ago, I responded to a funny line that a guy that was far more important than me sent out. I used the Larry the Cable Guy line, and said, “Now that’s funny, I don’t care who you are!” Well, apparently the guy hadn’t heard of Larry the Cable Guy, or the line, and responded to me.. “What do you mean you don’t care who I am? I am a Senior VP and a founder, don’t ever disrespect me like that again!” Uh-Oh! So, now I had to explain to him what it all meant. I never used that line again, until now.

Blame it all on BREXIT! I told you a couple of weeks ago, after the BREXIT vote that while things will take some time to come around, that the BREXIT vote will get blamed for everything, whether it is the cause or isn’t the cause! It will be a front and center as the cause. And already, we are seeing this. the U. of Michigan’s Consumer Sentiment Index for the first two weeks of July, printed, and saw a huge drop from the previous month’s final figure. And what was the cause of this drop? “The economic turmoil that will result in the U.S. as a result of BREXIT”. Now how ridiculous is that? First of all, I doubt seriously if 1/4- of Americans even know what BREXIT is, was, and what the outcome was! And those that do and did know, probably are just like me, there are just too many unknowns to know for sure, but it appears that things will get worse before they get better there, but come on, how worse no one knows!

So, from now on, going forward, I’ll bet you a dollar to a Krispy Kreme that every time a bad data report prints here in the U.S. that someone is going to blame BREXIT for it.

Did you all see the movie: The Big Short? I did, and loved it! Well, let me say that I thought they did a very good job of explaining how the whole thing came tumbling down. Of course they would have to go back to President Carter to find the root of all evil on that whole thing, and I don’t have time nor space to get into that, but for those of you aware of what I’m referring to, this is an “ah-ha moment”. Well, I get going down the wrong road all the time and that was one of them! I’m trying to get to the road that talks about things they talked about in the movie, which was how the ratings agencies were as much to blame for the whole mess as everyone else. And so there I was reading my latest Things That Make You Go Hmmm. yesterday, when I saw something that made me stop and have visions of The Big Short, all over again. This was taken from the U.K. Telegraph, so I’m not making this stuff up folks. Recently, the ratings agency Standard & Poor’s had this to say.

“Britain will scrape by without a full-blown recession over the next two years as a weaker pound cushions the BREXIT shock and panic subsides.” “We’re not in the Armageddon camp, said Jean-Michel Six, the rating agency’s chief economist for Europe. Devaluation acts a shock absorber. It stimulates exports and makes the London Stock Exchange more attractive to foreign investors.”

Of course, he also is basing this outlook on the assumption that the Bank of England will cut interest rates to zero and relaunch QE, buying 100 Billion pounds of bonds in each of the next two years. Hmmm. What happens if the BOE doesn’t do these things? Well, I guess we’ll have to wait-n-see what the BOE brings us, but either way, the pound sterling should not be looked to rally any time in the next couple of years. Of course that’s my opinion and I could be wrong!

The IMF issued their Global Growth Outlook report last night, and lowered their outlook for Global GDP this year from 3.2% to 3.1%, which would be unchanged from 2015. And the 2017 forecast was lowered from 3.5% to 3.4%… But here we go with the “this all depends on..” The forecasts are based the assumption that the U.K. and EU will reach new trade agreements that keep the barriers down for trade. Now, again, that’s a Big assumption by the IMF, don’t you think? What happens if talks break down? Well, Global Growth would probably drop to 2.8%…

I guess that’s the thing to go with these days. simply make a call, and then say, “This all depends on. (fill in the blank)” That gives you an out, a get out of jail free card to play when appropriate. You know, I’m not supposed to talk about conspiracy stuff any longer here, but these guys making these calls, are basically spewing conspiracy stuff!

OK, move on, here Chuck. The Chinese renminbi was allowed to appreciate a small amount last night, and we could see this repeated the next couple of overnight fixings, as we go into the weekend, where there will be a G20 meeting in China. There are also reports of what would be a very highly suspicious meeting of a 6+1 roundtable talks with head of major international finance and trade organizations in Beijing on Saturday. I say suspicious, because this has never been done before, and I wonder why it’s being done now? Come on, Inquiring minds need to know! HA! Oh, that’s right! The Chinese love window dressing before having company!

Gold finished the day yesterday up $3.20, but is down $8 in early morning trading today. UGH! I read in Ed Steer’s letter this morning, that China imported 5 times more Gold from Hong Kong in May. WOW! Gold imports from Hong Kong represented 25% of all imports of Gold into China in the first half of this year, compared with only 2.8% in the same period last year. Silver lost 18-cents yesterday. and fell back below $20. As I said yesterday, $20 seems to be the line in the sand that the not for profit sellers have drawn for the markets. I sure hope that they get that line shoved . you choose the finish.

The U.S. Data Cupboard had the June Housing Starts for us yesterday, and the report showed that Starts rose 4.8% in June, and Building Permits rose 1.5%. This report ended the 2nd QTR, and the average was 1.160 million starts per year, and 0.8% gain from the 1st QTR. While this report was positive, it sure seems to me to be on a low trajectory, don’t you agree? A modest positive trend, would be my take on Housing Starts, nothing to say, this market is hot.

Today’s Data Cupboard is pretty bare, with only the EIA Petroleum Supplies Weekly Report due. The price of Oil could use some good news to boost its price, that seems to have lost all the momentum that catapulted it above $50 last month.

To recap. The dollar has the conn VS the currencies and metals this morning, as an article in the WSJ talks about how the Fed is ready to hike rates as early as September. Morgan Stanley issued a report saying the opposite that the Fed won’t be able to hike rates this year or next year, but the WSJ article was written by John Hilsenrath, who is the self-appointed, “Fed Watcher”. Everybody is going to blame everything on BREXIT.. And are the ratings agencies making statements about stuff that they shouldn’t? Gold, Silver and Oil are all down this morning. It’s an ugly morning for the non-dollar assets..

For What It’s Worth. Well, first I read about the poor returns report that CALPERS (California Pension) printed from the 5 Minute Forecast yesterday. And then I saw it on , so it must be important! Of course it is Chuck, because, as Dave Gonigam said so succinctly yesterday. “Trends catch fire in California before spreading to the rest of the nation”. So, let’s look into what this is all about, eh?

The largest U.S. public pension posted its lowest annual gain since the last financial crisis due to heavy losses in stocks. – WSJ.. CALPERS which is short for the California Public Employees Retirement System, said it earned just 0.6% on its investments for the fiscal year ended June 30. The last time CALPERS lost money was during the 2009 fiscal crisis when the fund’s holdings fell 24.8%.. Last year marks the 2nd straight year that CALPERS didn’t meet their return target of 7.5%, as they gained 2.5% in 2015.

Currencies today 7/20/16. American Style: A$ .7490, kiwi .7040, C$ .7660, euro 1.1005, sterling 1.3185, Swiss $1.0127, . European Style: rand 14.2943, krone 8.4960, SEK 8.6060, forint 285.82, zloty 3.9760, koruna 24.5475, RUB 63.33, yen 106.60, sing 1.3577, HKD 7.7551, INR 67.19, China 6.6757, peso 18.49, BRL 3.2498, Dollar Index 97.13, Oil $44.65, 10-year 1.57%, Silver 19.83, Platinum $1,085.90, Palladium $654.81, and Gold. $1,325.70

That’s it for today. And for me until August 1. Longtime readers should have this down by now anyway, summer vacation the end of July, first week of August. I no longer go camping with my kids though. So that’s why it’s cut shorter this year! I miss so much time with infusions, and confusions, and days when I can’t answer the bell, that it’s better that I cut vacations short. Besides, I can’t believe that we’re near August already! Our Little Christine, just stopped by and dropped off a breakfast sandwich for me! YAHOO! I’ll probably inhale that, I’m so hungry! Cardinals play a split double header today. I remember twi-night double headers, and going with “the boys” and sitting the bleachers, and getting rowdy! But those days are just memories now. Well, I don’t want to let that sandwich get cold, so I’m going to get this out the door, and get to eating it! I’ll talk to you in August, until then, Be Good To Yourself, and I hope you have a Wonderful Wednesday. bye~

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