Chuck Returns To His Soapbox!

* Currencies got whacked yesterday.
* Yellen, Fisher & Brainard talk about rate hikes.
* Norges Bank leaves rates unchanged.
* It’s Rachel’s Birthday!

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

Good day. And a Tub Thumpin’ Thursday to you! America greets me this morning with their song: Sandman. That song brings back great memories of three teenage boys sitting in a basement learning how to play that song by listening to the album. Yes, it was Chuck, and his friends, Frank and Mike. We lost Frank a few years ago, way too young, but talk about guys that could do anything. He was one of “those”. Sports, music, smarts, if Frank decided he was going to be interested in something, he was the best. And then he was gone…. Frank & Mike were like brothers to me. Good thing I still have Mike around, for I love my brothers.

Well, I’ve got a lot to say today. Are you ready? Well, none of it is fun stuff, and it’s mostly me on my soapbox ranting. But before we begin to go down that road this morning, I have to tell you that the currencies and metals got whacked yesterday, and overnight things don’t seem to be getting any better, although the intensity of the whackings has backed off a bit, and there are a couple currencies trading flat, while one, and just one currency is carving out a gain VS the dollar this morning. So, what got the dollar bugs all lathered up? Well, I told you yesterday that it was not going to be good with Fed Chair Janet Yellen speaking to Congress, I just didn’t think things would get this bad for the currencies and metals. So. let’s go see what Yellen and her fellow Fed members had to say. (I’m sure you can guess at this point!)

Before I step to the soapbox, I don’t want to forget that there is one currency carving out a gain VS the dollar this morning, so by default that makes it the best performing currency today! The Norwegian krone is that best performer today! The Norges Bank left rates unchanged, when everyone thought they would join their neighboring countries and cut rates so low that they could have set up the next move into negative territory. Shoot Rudy, Sweden has negative rates, the Eurozone has negative rates, that means Finland, Ireland, Denmark all have negative rates, but then there’s Norway, and yes their internal rate is below 1%, but, at this point that’s what used to be considered a wide interest rate differential to Sweden and the Eurozone. When I was a foreign bond trader, I would see things like this, and tell everyone on the desk that we should be looking at this as a trade opportunity.

Norges Bank Gov. Olsen said, “that our most likely forecast that we will have weaker growth this year and next year, but then growth will pick up, given all the buffers and strengths we still have in the economy.” Interesting don’t you think, for it sounds like a Central Banker rationalizing a rate cut, but instead, he left rates unchanged. Good for you Mr. Olsen. Good for you!

OK, I’m ready now. testing, testing, thump, thump, is this microphone on? Can you hear me in the back? OK, let’s get started. I’ll start with a song. Hey! I’ve got to start soft, and finish with a flurry.

Long ago, and oh so far away, I said no rate hikes this year, before anyone else.
But the Fed keeps up the rhetoric, and it all sounds so sweet and clear
But the rate hikes aren’t really there, it’s just words.

Don’t you remember you told me you believed the Fed?
You said they would be hiking rates in March, June, September and December?
Baby, baby, baby, baby, oh baby, how could you believe?

OK, enough of that! And I’m sure even those of you who figured out what song I was using there, will be scratching your heads trying to reconcile me using a Carpenters’ song! HA! But, I was doing some thinking yesterday, and my mind keeps going back to trying to figure out the Fed’s motive for announcing these rates hikes and then passing them up. I do realize that given the idea that the Fed would be hiking rates, consumers would then think that the economy is strong enough to deal with a rate hike, and give them more confidence to go out and spend, which is what the Gov’t, the Fed, the Treasury and everyone else in the Gov’t that has an dog in this hunt wants.

But think about this latest call by the Fed that they will be looking to hike rates in December. It just doesn’t play on my turntable very well. You see, December is historically a slow, low volume, skeleton desk month, where not much goes on, because no one is around. The markets will already be on high alert, and have a lot of concern about what happens when the Fed hikes rates, and the markets are thin, as Boston Blackie’s pencil thin mustache. In my opinion, it would be far easier for the Fed to pass up a December rate hike, and move it to next year, than to sit and watch the potential horrors unfold before them when they hike rates.

But I take exception to the thought that by hiking rates, the Fed believes that we would think that meant the economy was good to go, and we would rush out and spend money on “stuff”. I’m not the sharpest tool in the toolbox, but I see through this so easily. And I do believe that most Americans will too! Well, at least I can have hope, right?

The Fed NY Gov., Fisher, told his audience that “inflation is not as low as you think”. That’s to grease the tracks for a rate hike, when the PCE is only 1.3% and not 2% as previously stated to be a requirement for hiking rates. And, now I have a bone to pick with Mr. Fisher. All this time, the past 6 years, when we had zero interest rates, and Quantitative Easing, the Fed, and you Mr. Fisher, kept telling us that inflation was too low and that’s why those programs were in place. And I argued vehemently, that “personal inflation” could range anywhere from 4 to 8%… But now, suddenly, inflation isn’t as low as we think? Really?

I got a kick out of the fact that Fed member Brainard, spoke yesterday, along with Fed Chair Yellen, and NY Fed Gov. Fisher. and Brainard, who last spoke before the September Fed meeting where they left rates unchanged, was quite dovish. no wait! Not just quite dovish, very much dovish! But that was then, and this is now, and yesterday, she didn’t sound so dovish any longer. Hmmm. While still sounding somewhat dovish, she backed off the strong dovish talk, and preferred to keep it watered down, by saying that she still have concerns about wage growth, and how inflation still wasn’t responding to stimulus.

OK. Ms. Brainard, expect a memo today from NY Fed Gov. Fisher, telling you that he just told his audience that inflation isn’t as low as we think, and then you go out and say that inflation still isn’t responding to stimulus. One of us has to change our stance, and that someone isn’t going to be me. Have a nice day.

So, it wasn’t just the currencies and metals that got whacked yesterday. U.S. Treasuries have really lost a lot of ground lately. The 10-year Treasury yield which had touched below 2% just a couple of weeks ago, rose to 2.22% yesterday. So, even the bond guys are getting on board that there’s going to be a rate hike in December. Or. is this rise in yields associated with the fact that foreigners are pulling back from the Treasury auctions? Hmmm. I had better get on the horn with my friend that’s still a bond trader to see what’s on his mind.

And then the collateral damage carried over to the price of Oil, which had the previous day, jumped up to $48, lost that ground and fell back to $46 and change.

Well, looky there. I knew if I ranted long enough, that one of the currencies that were flat on the morning would pop higher, and that appears to be the New Zealand dollar/ kiwi, which took a hit to the midsection yesterday, when their latest Employment report dropped -0.4%, and then got caught up in the dollar bug champagne party, has popped to a gain this morning, but the move is not much at this point, and still leaves the krone as the best performer today.

The U.S. Data Cupboard doesn’t have much for us today, except the Challenger Job Cuts and the Weekly Initial Jobless Claims, that we get every Tub Thumpin’ Thursday. I’m sure all the focus will shift quickly today, to tomorrow’s Jobs Jamboree. Right now, the forecast for job creation in Rocktober, will be 182,000, and an Unemployment Rate falling to 5% from 5.1%…

Yesterday’s data cupboard, had the ADP Employment Change report printed at 182,000 new jobs in Rocktober. September’s previously recorded 200,000 gain was revised downward to 190,000. no biggie.. But that’s an interesting coinkeedink that the ADP report and the forecast are bang on each other at 182,000. 182,000 is better than the previous month’s 142,000, but is it enough to sway the Fed members to vote for a rate hike?

In addition yesterday’s cupboard had the Trade Deficit for September. Well, looky there! The U.S Trade Deficit shrunk in September from $48.3 Billion in August to $40.8 Billion in September, and guess what moved the number so much? Well, the so-called experts would say it was the quality of the goods that we exported that moved exports to gain 1.6% in September. But, I told you earlier this week, what the real skinny is. August’s widening was caused by a 2% drop in exports, and the so-called experts were scratching their heads. But not me. I pointed out that August represented a year-low in the currencies, which meant a year-high in the dollar, thus making our exports so much more expensive, and non-competitive. And then I also pointed out that September saw a rebound in the currencies, thus making the dollar softer, and voila! Exports gain 1.6%… It’s NOT BECAUSE THE QUALITY OF OUR GOODS GOT BETTER IN ONE MONTH! It’s because the terms of the trade in dollars became more competitive!

And we can expect the Trade Deficit to widen back out when we see the Rocktober print, because the dollar has rebounded and gained back all that it lost in September at this point.

Well, I told you earlier that the precious metals got whacked yesterday, there’s not much more I can say about that, other than they seem to have wrapped a tourniquet around their bleeding this morning, and are flat at this point. India’s Gold Monetization program begins today, and first reports are that the response by the citizens is muted at best. for those of you new to class this program put simply is a plan to lure Gold that’s held by individuals to the banks, where a deposit will be recorded and then interest will be paid on that deposit of Gold. It is thought that approximately 20,000 Tonnes of Gold are held privately in India, so this will be interesting to see if this plan takes off, or fails as other plans to do this have done.

Wouldn’t it be great, if you could take your physical Gold into your local bank, deposit it in your account and get paid interest on it? ZOWIE! Tre’ Cool! Unfortunately, that’s not going to happen here, and if it did, there’s no interest to be paid on the deposit! In India the rate structure is much higher than it is here, so an interest rate is available, that makes the decision to deposit one’s physical Gold or not, difficult.

Before I head to the Big Finish today. I’ve told you before that I belong to a group that tracks Government waste, The Citizens Against Gov’t Waste (CAGW). Well, they sent me something this morning that just makes me hotter than a firecracker going off! So, we all pay taxes, right? Well, do you know how your tax dollars are spent by the Gov’t? here’s the breakdown. 31-cents are used to pay interest on the debt. 23-cents are used to pay for services. and guess what nearly ½ of your tax dollar gets spent on. 46-cents are used to pay for waste. The CAGW identified 601 specific examples of deficit-producing waste that if eliminated would save $2.6 Trillion over 5 years!!!!!!

Currencies today 11/5/15.American Style: A$ .7150, kiwi .6630, C$ .7605, euro 1.0885, sterling 1.5280, Swiss $1.0045. European Style: rand 13.8865, krone 8.5585, SEK 8.6245, forint 288.35, zloty 3.8950, koruna 24.8540, RUB 63.17, yen 121.90, sing 1.4060, HKD 7.7510, INR 65.74, China 6.3381, pesos 16.55, BRL 3.8045, Dollar Index 97.97, Oil $46.36, 10-year 2.22%, Silver $15.06, Platinum $953.95, Palladium $606.75 and Gold. $1,110.25

That’s it for today. However, there is something else to talk about.. And that is it is the Birthday of Rachel Butler! Rachel is son Andrew’s lovely wife, and such a sweetheart! So, November isn’t all bad, because Rachel’s birthday is in November! Happy Birthday sunshine! How about that hockey game last night? Blues and Blackhawks, it doesn’t get any better than that in hockey folks. I turned on the game and saw 4 goals in about 6 minutes, and the Blues were down 3-1! But, they came back to win in OT 6-5! Of course I didn’t see the final two periods, but what I did see what some fast, intense, rough & tough, and skillful hockey. Pretty exciting considering how we’re barely into the season that will last until June. My beloved, beaten, and beleaguered Missouri Tigers play on National TV tonight VS Mississippi St. The Tigers are all defense and no offense, so maybe the defense can score a couple of touchdowns for the team, because it’s been a month since the offense found its way to pay dirt! UGH! But I’ll still watch and root for them with my black and gold on! And with that, I’ll get out of your hair for today, because I know I spend a long time on the soapbox today. I hope you have a Tub Thumpin’ Thursday!

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