Brainard’s Speech Holds The Key.

* Markets still believe Brainard to.
* Give wink and nod for a rate hike .
* Chuck still can’t get his arms around the idea!
* Who’s going to pay for that?

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

Good Day. And a Marvelous Monday to you! It’s another one of “those” mornings for me, so here I am at the kitchen table with my laptop. I don’t even go to my writing desk anymore, for that involves climbing stairs! And at this hour of the morning, it’s not on the agenda! HA! It was another wonderful weekend weather-wise here in St. Louis, that is after the rain ended on Saturday morning. Chicago greets me this morning with my second fave Chicago song: Beginnings. The trumpet &Trombone play in this song is awesome! And with that, it’s time to get going today!

Well, It’s also another one of “those days” for the currencies and metals. I told you last Friday, that Fed Gov. and the dove of all doves, and the person that had Janet Yellen’s right ear, Lael Brainard, had been a late entry to the schedule of Fed speakers and this late addition had riled the markets. Seems that the markets are on board with the thought that if Brainard was added late to the speakers list, that she must have something important to say, and even though she is a dove, the markets think she’s going to give the wink and nod for a rate hike in two weeks.

And that thought drove the currencies and metals down, stocks down, bond yield up, and overnight, the global stocks got hammered. Well, if that was the thought on Friday, it still remains because today at 10 am Brainard will speak and the markets will be waiting for her signal. So, the moves in the overnight markets in Asia and now the European markets have been walking on eggshells, their stock markets are a shambles, but the currencies not so much. Yes, the currencies are weaker this morning, but not with the same conviction as on Friday.

As I said on Friday, I can’t get my arms around this idea that the markets have that Brainard will give the wink and nod for a rate hike in two weeks. I would get the idea that she greases the tracks for a December rate hike, but now? In two weeks? No way! I just don’t see it. And if the Fed members were sitting in my seats for the view of the economy right now, they would see the same thing I’m seeing.. .rot on the economy’s vine. And they stop all this gibberish about seeing an improving economy, and the need for a rate hike. I just saw 9 charts from the Fed Reserve St. Louis, and while I can’t put them in the Pfennig here, they can be put in the Review & Focus, so the next edition of that letter will contain those charts, with everything from Federal Debt, to Health Insurance Costs, to Labor Force Participation, and more. So, I would suggest you check out the R&F now, and bookmark it so you can come back easily and check out these charts/ graphs, at www.everbank.com/reviewfocus

I was minding my own business when an email popped up on the screen from one of our research people in Jacksonville. Lauren, told me that the Millennials will soon bypass the Baby Boomers in terms of numbers of people that belong to the respective groups. I’m a Baby Boomer, and I’m proud of that! I tell my kids all the time that just because something has greater numbers doesn’t mean it doesn’t have problems. In fact, I always say, because there are so many more people in the world today, we have to deal with more idiots! HA!

Well, a dear reader, sent me a note on Friday, because of something I said. 10,000 Baby Boomers retire each day for the next 15 or so years. (I started saying it when it was for the next 17 years!) And he put some numbers on retirees. he said, if 10,000 baby boomers retire every day so, times x 7 it equals = 3,650,000 per year. If all 3,650,000 get Social Security payments, then the total spent each year in addition to what is already spent would be $5,824,000,000. In 2015, the U.S. payed, just retired workers, $53 Billion. So then you start adding $5 Billion plus each year, and pretty soon, we’re talking some serious and unsustainable numbers!

There’s also $10.5 Billion paid out to disabled workers. At the rate that this number is expanding, it won’t be long until this is also unsustainable!

That got me thinking. and I went to the Social Security site, and looked at the history tables, and in 2009 (the last year the tables were updated) the total paid out to retired workers only, was $33,514,013,000. So let’s call it $33 Billion. And I’m saying that with the 10,000 Baby Boomers retiring every day the total added each year will be $5 Billion. And the total in 2015 was $53 Billion, you can see how quickly we got there in 6 years. For the Baby Boomers didn’t start drawing on their entitlements until 2008, when the first Baby Boomer received a check, and then 3.2 million Baby Boomers followed her in that year. That’s 365 per hour for those of you keeping score at home! And from there the numbers grew at enormous clips! 3.8 million in 1947, and so on.. By the year 2030, about one in five Americans will be older than 65. Can you imagine the size of the Unfunded Liabilities at that point? OMG! Who’s going to pay for that?

Oh, that’s right! It’s never going to be “paid for”. We’ll either inflate the debt down to size, or we’ll just take a haircut on the debt, and leave those holding the Treasuries that finance that debt holding the bag. Do, you hear that China? I think they heard it loud and clear a long time ago, which is one of the reasons they’ve backed up the proverbial truck to the Gold loading dock! I just shake my head at those that think this is all going to come out rainbows and lollipops. But then I had to laugh on Saturday, when I was gathered with a about 10 other buddies and they started asking me questions about debt, and what was going on with Wells Fargo. So, see, after all these years, I finally have these guys, who are from all corners of the education and employment circles, asking the right questions. I just wish they had waited until we weren’t at Fast Eddies!

Well, Gold got hammered again on Friday losing $10.40, and the shiny metal is down another $3.80 in the early morning trading today. I think this rate hike stuff is effecting Gold as a knee jerk reaction, for I don’t think for one minute that the Fed hiking rates, whenever they get around to it, is going to take the shine from Gold. Think about that for a minute, I’ve told you this all before, but it’s good sometimes to rinse and repeat. Basically, sometimes people get all worked up at the term, “rate hike”. They see rates the way they “used to be”, you know, normally around 5%… But in this case now, we’re talking about adding 25 Basis Points to a 50 Basis Points Fed Fund Rate. That means that interest rates will still be VERY LOW at 75 Basis Points or 3/4%… Now, why would Gold traders be fearful of that rate? They finally got over the 25 Basis Points rate hike last December, and for the first 6 months of this year, Gold was firmly on the rally tracks. And It’s my opinion, of which I could be wrong, that the Gold traders will so get over the rate hike this year, and get back to pushing Gold higher.

When people tell me that Gold can’t survive in a rising rate environment, I laugh. Because, it’s obvious that they weren’t around for the rapid rise in Gold in the late 70’s early 80’s, while U.S. interest rates were ratcheting upward to 18%… Sure that was then, and that doesn’t mean it could happen again, but I laugh anyway!

And it’s not just me that thinks this way folks. I read a report on Bloomberg this morning where the researcher (David Mazza) from State Street, Global Advisors thinks the same way I do. That a rate hike isn’t going to stop Gold’s rally. Here’s snippet from that report that can be found here: http://www.bloomberg.com/news/articles/2016-09-11/u-s-rate-hike-won-t-spoil-appetite-for-gold-state-street-says

“The market is unfortunately going to play off every comment and every data point,” Mazza said. “The data still doesn’t really support a Fed rate hike. The market has been pricing, basically since June, one rate hike this year and the question is, when will that happen?”

The price of Oil slipped back below $46 since Friday morning. I read yesterday that the U.S. shale producers are stepping up their production, which is creating a glut of Oil here in the U.S. Hey! As long as the price relationship with refined Oil / gas remains in place that’s fine with me. But when the refineries can’t keep up with the glut, and the price of gas remains high, that gives me a rash!

So, let’s just take a quick trip around the world, and then get to some more data, before heading to the Big Finish today. The early part of this week is very quiet, with just the Brainard speech here in the U.S.. On Thursday in Australia (Wednesday for us) their latest Employment data will print.. The job creation in Australia has been very resilient, and one of the reasons that the Reserve Bank of Australia has drug its feet with rate cuts. Across the Tasman, New Zealand will print their 2nd QTR GDP, which should be around 1%, and unless it bumps higher, I don’t think will be a deterrent for the Reserve Bank of New Zealand from cutting rates further this year.

In the U.K. August CPI (consumer inflation), their July labor report, and a Bank of England (BOE) meeting will take place this week. I still think that the BOE will think it’s too early to react to the BREXIT vote and cut rates. But a rate cut is hanging over the economy and the pound sterling like the Sword of Damocles. We will see the BOE’s meeting minutes from their last meeting to get a gauge on what they’re thinking. I would be surprise to see that they differ from what I’ve said I think they’re thinking.

In Canada, their latest Trade Balance will print, and while in the past this data would print and no one would pay attention to it, there’s a component of the data that is looked at now, and gone through with a fine tooth comb, and that is the debt-to-income ratio. And like the U.S. consumer / household debt continues to rise. In fact in the 2nd QTR household debt rose 1.2% in Canada. I’m concerned about this rise in household debt, as we’ve found out here in the U.S. the consumer/ household can only take on so much debt, before the burden of it becomes unbearable, and no spending takes place, and thus that means the economy goes in the dumpster. UGH!

In Germany, their latest Trade Balance printed a lower than expected Trade Surplus. In fact the Trade Surplus in Germany has been slipping lately, as exports drop. It’s not the euro keeping the exports from selling, folks. it’s the Global Slowdown!

And then finally, here in the U.S. I told you Friday that this week’s Data Cupboard won’t yield anything of importance until Thursday, when August Retail Sales will print, and if the BHI is still relevant, and I think it is, this report will be disappointing. So, we’ll wait all week, to be disappointed. figures. But then with all the hoopla surrounding today’s Brainard speech, I’m sure it won’t be a boring week!

Last Friday, the U.S. Data Cupboard had some interesting data that doesn’t get looked at that often, but I these times when we’re waiting for the recession train to pull into Recessionville, this data becomes important. And I’m talking about Business Inventories. First, June’s Inventories data print was revised downward, and July’s print was “flat” to that downwardly revised June print. After 5 months of stronger sales that outpaced inventories, sales have been capped, and haven’t grown in the past two months, while inventories are dropping like flies. Sales have undershot inventories pretty much every month since 2014, except for that 5 months string earlier this year. Inventories play a big part of the GDP calculation, and judging from this, it won’t be a plus.

To recap. The Brainard speech today is still carrying weight on the markets as traders think she’ll give the wink and nod for a rate hike in two weeks. Stocks, currencies, metals, and bonds all took it on the chin on Friday, and this has continued throughout the Asian overnight markets, although the selling now has slowed as we get closer to the actual speech. Chuck talks about retirees, and the costs involved for the U.S. And data that just doesn’t add up to the idea that rates could be hiked in two weeks. most of the data and other stuff to move the markets is back loaded in this week so the first part will be ruled by the Brainard speech.

For What It’s Worth. I’ve been all over this whispering campaign by people like Lawrence Summers, regarding the end of cash.. And I came across this report courtesy of the GATA folks and is quite long, so if you click on the link be prepared! But it is found here: http://www.telegraph.co.uk/business/2016/09/11/inside-the-bank-of-englands-vaults-can-cash-survive/

Or here’s your snippet: “It’s clear that many people still attach great value to cash.

“If we do 100 exchanges a day, only three or four of them will want the money paid into their bank account. The rest ask for cash immediately,” says Keepax.

Cleland says Brexit hasn’t triggered a surge in demand for banknotes, Bank data show that cash is still king when it comes to spontaneous purchases.

While by value cash accounted for less than half of payments in 2014, by volume, it was still the dominant method of payment.

The use of debit cards has grown significantly since they were introduced in the 1980s.”

Chuck again. It’s all about control . If there’s no cash, then everything will be digital, and can be traced and the Governments around the world can control what people spend and how they spend it. Do we really think that this would be a better world?

Currencies today 9/12/16. American Style: A$.7505, kiwi .7297, C$ .7625, euro 1.1220, sterling 1.3255, Swiss $1.0253, . European Style: rand 14.5575, krone 8.27, SEK 8.53, forint 276.67, zloty 3.8763, koruna 24.0860, RUB 65.26, yen 102.10, sing 1.3655, HKD 7.7578, INR 66.92, China 6.6806, peso 19.10, BRL 3.2740, Dollar Index 95.35, Oil $45.01, 10-year 1.69%, Silver $18.96, Platinum $1,049.55, Palladium $663.20, and Gold. $1,330.75

That’s it for today. Well, today is the Birthday of one of fave people on earth! My longtime, and good friend, Kathy Butcher. (used to b Glowski) I hear it’s your birthday, well happy birthday to you! On Saturday, 10 friends, got together and took our good friend Duane out for the day to celebrate his recent retirement. A good time was had by all, and thanks to Brad for driving us around! So, my good friend, Duane is retired. And he’s younger than me! Kudos to him! My beloved Missouri Tigers got a win Saturday, but will have a real tough game coming this weekend when Georgia visits Columbia Mo. And my Cardinals are still frustrating the heck out of me it’s two steps forward and two steps backward for them! UGH! The Kinks take us the finish line today with their song: Sunny Afternoon. The taxman has taken all I’ve got, and I can’t even sail my yacht. And with that, it’s time to go! I hope you have a Marvelous Monday, and Be Good To Yourself!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com