Do You Know What The U.S.’s #1 Asset Is?

In This Issue.

* Currencies, still drifting away.
* RBNZ deep sixes kiwi ..
* Banxico to hike rates today?
* Gold rises and Oil rebounds!

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

Good Day. And a Tub Thumpin’ Thursday to you! I’m really draggin’ the line this morning, so I’ll have to wait to do any Tub Thumpin’ today, but I’ll get there eventually! I’m having differences with insurance again, UGH! Sometimes I think these people make things difficult to see if they can get under your skin! Oh well, I guess it’s better than me not having it! I’m reminded of when my dad was alive, and he was battling cancer, and the doctor or hospital would make things difficult for him, (he was confined to a wheelchair) He would say to me, “Chuck, they know I’m already in pain, and suffering, why do they have to make things difficult for me too?” OK, no worries it will all work out. Elton John greets me this morning with his song: Mona Lisas and Mad Hatters.

The Currencies, for the most part, are still drifting, with a bias to buy them, as evidenced by the Dollar Index which yesterday was 100.61 and this morning is 100.21, no big shakes, just an overall bias to sell dollars and buy currencies. Like I said last week, the bias to buy currencies is there, the conviction to actually buy them isn’t.. I think that for most part, everyone is in this “wait-n-see” frame of mind. Just what they’re waiting to see is the $64 question. In my opinion, I think that no one wants to go out on limb with a call on a currency, only to find current political volatility.. That’s just my opinion and I could be wrong.. of course!

The Big Mover overnight was kiwi. And not a good move either! The Reserve Bank of New Zealand (RBNZ) left rates unchanged, when the markets (not Chuck!) were thinking a rate hike might be in the cards. They also left their easing bias in place, which really rocked the markets. I mean when you’re thinking that there could be a rate hike, and then you find out that there’s a wide distance between what you’re thinking and what the Central Bank is thinking, you take your disappointment out on the currency, and that’s what happened to kiwi last night, and when the dust settled this morning, kiwi had lost 3/4’s of a cent! UGH! But, hey, let’s look at this as an opportunity, eh? Yesterday morning you would have had to pay more than 73-cents for kiwi, and this morning you would have to pay less than 73-cents..

The euro is back to knocking on the door of 1.07 this morning. There’s some IMF discussions with Greece going on, and a lot of posturing by both parties, but in the end, the IMF will fold like a lawn chair, and give in to the Greeks with more loan money. I met an bit older couple down here, that are originally from Greece. Their life in Greece saw them dirt poor. According to the guy, he ate rocks. And at 16 he got on a job working on a cruise ship and came to America. But he describes life in Greece at that time (early 60’s) as “everybody was poor, no one had anything, we didn’t even have a refrigerator” But when he went back 15 years later, everything had changed, suddenly there was money everywhere. What had happened? Socialism. And guess what happened 30 something years later? They ran out of other people’s money! That’s what Margaret Thatcher was quoted as saying, “the problem with Socialism is that eventually you run out of other people’s money” A very interesting conversation with this couple for sure!

In keeping with the “drifting away” thought for the currencies, there’s not much in the way of data around the world being printed this week.. We will see the color of China’s latest trade data (exports and imports) but will it skewered by the Holiday? Probably, so we’ll have to dig through the numbers a bit to come to a “real number” and not one that the media takes as face value.

Yesterday, I told you that I was on board with a surprise rate cut by the Reserve Bank of India (RBI). But the RBI held back and didn’t cut rates, and basically just kicked the rate cut can to their next meeting, but for now, the Indian rupee traders were happy to see no rate cut, and pushed rupees to stronger levels. Today’s Central Bank docket is very light, with only the Bank of Mexico/ Banxico scheduled to meet.. And from the recent data in Mexico, I would say that it isn’t that much of a stretch to see Banxico hike rates today, and not just a measly 25 Basis Points.. If they hike rates, look for them to go 50 Basis Points, thus driving their internal rate from 5.75% to 6.25%..

Longtime readers know that I’ve always been a bit leery of Mexico, based on their past indiscretions with foreign investment in their country.. And that’s why I’ve always maintained that Mexico needs to offer an interest rate that is above others around the world, and contains a “risk premium” to attract foreign investment, which is what a country needs to really drive up the value of their currency. Well, in the past year, the Mexican internal rate has gone from 3% to 5.75% and could be above 6% at the end of the day.. So, the Central Bank is moving in the rate direction, but until they can boast an interest rate with a wide enough margin to other interest rates offered around the world, that you could drive a Mack Truck through, the peso will not be looked at favorably.. Of course it could get a sugar induced rush/ rally today, but that would be short-lived, in my opinion, which could be wrong.

Since we’re close to home. The Fed’s Balance sheet as of 2/1/17 was $4,453,881Trillion according to FRED (the Fed St. Louis data base) Longtime readers know that I watch this like a hawk to see if there are “back door” purchases of Treasuries because no one shows up at the auction.. I no longer have access to the information where I can see the weekly additions or subtractions, so I have to go on a scavenger hunt for the info. But wouldn’t the world be better if all journalists (and I use that term loosely for me) worked harder for their stories? The way it used to be. Woodward and Bernstein would probably quit, if all they did was regurgitate AP stories!

OK, there I go down a rabbit hole that I really wasn’t expecting to down! The Fed’s Balance sheet has seen a lot of conversation about it recently.. Mortgage guys are wondering what would happen if the Fed could begin to unwind their mortgage backed bonds, which I would think would add to supply and cause rates to rise rapidly. So.. I just wanted you to know that I’m still watching the Balance Sheet like a hawk..

As long as we’re here, we might as well look around to see what else we can talk about. Oh, this is good.. I was doing some reading yesterday and came across some numbers that were very interesting.. The Government’s Accounting Office (GAO) just issued a report of the balance sheet of the U.S. and if I figure this correctly, Student Loans are or very near to be the largest asset held on the books of the U.S. Student Loans recently exceeded $1.05 Trillion! And the interest the U.S. earned on these loans last year was $1 Billion.. None of that gives you a warm and fuzzy does it? And then put on top of that what the WSJ is reporting and that is that 56% of these loans are delinquent? Check this out (if you have a subscription to the WSJ that is) https://www.wsj.com/articles/joel-best-and-eric-best-student-loan-debta-federal-toxic-asset-1412204612

That’s interesting isn’t it? That the government’s most lucrative asset is Student Loans? YIKES.. And to think there was a discussion last year about wiping out all that debt.. As always I simply ask the question, “Who’s going to pay for that?”

The price of Oil rebounded a bit from the selloff the previous day. And that was in the face of a HUGE increase in the crude inventories last week per the EIA report that printed yesterday. Here’s the skinny. Crude inventories were 6.5 Million barrels last week and this week they were 13.8 Million barrels.. But, that didn’t stop the bubbling crude, Black Gold, Texas Tea, from rebounding.. I thought the selloff the previous 24 hours had been overdone, and this rebound in the face of the expansion of inventories tells us that.

And Gold added $7.60 to its value yesterday, closing at $1,241.00. And there was a massive number of contracts traded yesterday.. 211,000 contracts to be exact.. That’s HUGE folks.. and scary at the same time! Gold is up a buck-r-two in the early morning trading today. I had a currency dealer send me a graph yesterday that was very interesting.. They had charted Gold, yen and the 10-year Treasury yield.. and for the last 9 months, these 3 moved in tandem, I mean the lines almost run together the moves were so coordinated together.. However, the last few weeks has seen gold diverge from the other two, and move higher at a quicker pace (Gold is up to a 3month high right now). So does that tell us that the other two are going to play catch up with Gold, or is Gold going to come back to the other two?

Well, in my opinion, which could be wrong, I think the other two will have to play catch up, for Gold is on a run right now. Last year, the Gold rally got cut off at the knees by all the hoopla and hype over a potential rate hike, that didn’t come until December, but the talk about it started in July! This year, you have to think that the markets are prepared to be disappointed by the Fed in March, (see the Kashkari comments in yesterday’s Pfennig) so Gold is seeing all green lights on its drive downtown!

The U.S. Data Cupboard is cluttered with a bunch of reports that don’t amount to a hill of beans.. So, I’ll just move along to something else, like Fed members on the speaking circuit today. We have a dove, Fed member, Evans, and a hawk, in Fed member Bullard, speaking today, so a give and take on rate hikes will probably take place, with Bullard having the advantage as he speaks first with a morning speech and Evans doesn’t talk until this afternoon.. So, more drifting today in the currencies is on the docket. That is unless some discouraging words are spoken from Washington..

I had a longtime reader send me a note yesterday, and ask me once again, explain what makes the markets want to buy or sell a currency.. OK, strap yourself in, keep your arms and legs inside at all times, and let’s go! Currencies are the stock of a country.. As company issues its stock, a country issues its currency, which is the stock of the country.. So, if that’s the case, then the currency should be looked at, when placing a value on the currency, the same way you place a value on a company issued stock. You create a criteria that you use to value a stock, right? Well, use that same criteria for valuing a currency. For instance, you look at a stock for its balance sheet, right? Do the same for the country. You look at a stock for its yield, do the same for the currency. You look at the stock for its leadership, do the same for the currency, and so on, and so on. You create the criteria that you use, and stick with it.. And just like stocks, there are a handful of currencies that will meet your criteria, but these currencies will rotate over time in and out of your criteria’s limits. So, there you go, in a nutshell.. I could go on, and on, like Stephen Bishop, but I won’t!

To recap.. Another day of drifting, but with a bias to sell dollars and buy currencies with one exception overnight and that was kiwi, which got whacked when the RBNZ left rates unchanged and hit the markets with a double dose of “we don’t want a stronger currency” by leaving their easing bias in place. The markets were rocked on these two things, and took out their disappointment on kiwi. Chuck talks to a Greek couple, watches the Fed’s Balance sheet like a hawk, and still has time to soak in some vitamin D on the day! Student Loans rise above $1 Trillion here in the U.S. Oil rebounded a bit from the previous day’s selloff, and Gold gained $7 and change, as it positions itself for a potential strong trend.

For What It’s Worth.. Well, I was looking for something else this morning and came across this heading. “We’re Going To Have A Dollar Collapse Like The 1980’s, Strategist says”.. Well, that caught my eye, and I bet it caught yours too! So, here’s the link to the whole article: http://www.cnbc.com/2017/02/06/were-going-to-have-a-dollar-collapse-like-the-1980s-analyst-says.html

Or, here’s your snippet: “History could be set to repeat itself as excessive growth has left the U.S. dollar poised for a collapse in as little as a year, the co-founder of London-based advisory group Official Monetary and Financial Institutions Forum (OMFIF) has told CNBC.

David Marsh, a financial specialist that advises asset management firms, is predicting a dollar crash akin to that seen in the 1980s, as the world’s reserve currency continues to rally off the back of the new U.S. administration following continued gains seen over recent years.

The dollar has been going up by approximately 10 percent per year in real terms over the last three to four years, Marsh explained, adding that it was doing exactly the opposite of what (President Donald) Trump says he wants.

I foresee it will carry on getting stronger for a year or so and then we will have a dollar collapse, just like we did in the early 1980s.”

Chuck again. I differ from the strategist with regards to the timing, for I don’t see the strong dollar trend extending much longer..

Currencies today 2/9/17.. American Style: A$ .7653, kiwi .7217, C$ .7622, euro 1.0696, sterling 1.2567, Swiss $1.0046, .. European Style: rand 13.4112, krone 8.2970, SEK 8.8528, forint 288.50, zloty 4.0320, koruna 25.2574, RUB 59.33, yen 112.26, sing 1.4142, HKD 7.7574, INR 66.88, China 6.8773, peso 20.49, BRL 3.1190, Dollar Index 100.21, Oil $52.90, 10-yr 2.36%, Silver $17.85, Platinum $1,020, Palladium $773.00 ,Gold 1,242.00 and SGE Gold 1.242.58

That’s it for today.. coming back to life at this point of the morning, but still draggin’ the line. Well, Saturday the two major basketball programs in Missouri, the Mizzou Tigers and the SLU Billikens both won and things were looking up, well, until last night when both lost again! UGH! What a lost year for Missouri Basketball! Well, late yesterday afternoon, I actually made it out to the beach, (I hadn’t been going to the beach because of my back pain) it was a really hot day! I heard it was snowing back home. But will be 60 degrees tomorrow.. That’s typical St. Louis weather! So.. do you read the Skimm? I’m probably in the 1% of males that read the daily letter.. I find it interesting and creative.. and the fact that they attempt to sell stuff doesn’t bother me, as I truly understand how you make money in that industry. Well, should you sign up for it, please use me as your referral. I don’t get anything for it, just like to see if I can be #1 in referrals! That’s typical of me, competition, wanting to be the best. the Great Al Stewart takes us to the finish line today with his song: Song On The Radio.. We’ll go collecting the days, putting the moments away. You’re on my mind, like a song on the radio.. Love it! Time to go.. I hope you have a Tub Thumpin’ Thursday. Be Good To Yourself!

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