Dollar Rally Fizzles Out!

* Dollar gets whacked in Asia again!..
* China prints surprise PPI
* Norway has the inflation everyone wants!.
* Gold gets back on the rally tracks!

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

Good Day. And a Tom Terrific Tuesday to you! WOW! What a National Championship Game last night, won by Clemson over Alabama with 1-second left in the game! Of course I had first nodded off and then gone to bed by the time the 4th QTR came around, but I’ve seen it all on the replays this morning. Congrats to my good friend Rick Baur, who did his masters work at Clemson and bleeds orange. He showed up at our neighborhood progressive dinner with a bright orange suit jacket! He told us he had the pants too, but didn’t want to blow everyone away. Rick was lucky enough to attend the game last night in Tampa, I’m sure he’s still out partying as I write! Van Morrison greets me this morning with his great song: Moondance

The wind here is S. Florida is still howling outside, sounding like me when I groan in a low voice when something is going on that I don’t approve of! And Gold is still howling. Well, Gold rose $8.60 yesterday. That marks a 5% rise in the Gold price since December the 15th. Last year, we started off with a soaring Gold price too, and if anyone was paying attention to what I was saying at the end of December, you’ll recall me telling you that I thought we would see a repeat of last year with Gold. WOWIE! ZOWIE! It’s tru, it’s tru, I did see a putty tat! Yesterday, I teased you bit with a comment about how I truly enjoyed the late, great Richard Russell’s thoughts on Gold, and no one called me out on that! You all are too nice to me! HA! Well, I have a snippet that I’ve gotten approval to print, later in the letter from Richard Russell, so stay with me today.

The dollar was back on top yesterday morning, but as the day went along, and then in the overnight markets, it has given back yesterday morning’s gains. Starts and stops, I explain in the January Review & Focus that this is how trends begin, with starts and stops and can go on like that for some time, until somebody gets the memo that it’s really a trend, and a clear direction is needed. I know I’ve really hyped the Jan Review & Focus a lot lately, and that’s because it’s a very important piece that everyone needs to read. So, if you’ve procrastinated, and not done so yet, click here: www.everbank.com/reviewfocus

There’s not a whole lot going on this morning here in the U.S. with real economic data, or overseas. In Norway this morning, their latest CPI (consumer inflation) will print. I’ve said this before, but I don’t care. Norway has the inflation that most every other country thinks they need. Look for Norway’s CPI to print around 2.8%.. You know, that 2.8% compounded every year becomes a real burden on consumers and an economy. Which is why I cringe every time I hear a Fed member talk about the need to get inflation to 2%.. But getting back to Norway. One would think that 2.8% CPI would generate rate hike talk, if not an actual rate hike. But Noooooooo! Norway isn’t going to hike rates while the Eurozone is still dealing with negative deposit rates and Bond Buying. But the krone is sitting tall in the saddle this morning, and that’s a good thing for this currency that has been dragged through thousand miles of broken glass in the past few years, first by the euro, and then by the plunge in the price of Oil.

We did see a data print from China overnight and Producer Prices showed they were on the rebound in China. The PPI (producer price index) advanced at the fastest pace in 5 years last month, and immediately, the global growth currencies rallied, led by what I call the proxy for Global Growth, the Aussie dollar (A$).. The A$ is firmly on the rally tracks this morning, and with the price of iron ore, one of Australia’s main exports, rising 5.5% on the strong Chinese PPI, the A$ is looking perky..

I think there’s a lot of caution though in traders’ minds right now, as they think the U.S. economy is building steam, but know in their heart of hearts that right now the U.S. economy’s steam is all based on projections and promises. So it’s like the cartoon where the devil is on one shoulder and the angel is on the other shoulder, and both are telling the trader what he should be doing.

The euro is knocking on the door to 1.06 again this morning. As I’ve explained numerous times before, the euro is the offset currency to the dollar, so dollar weakness shows up in euro strength, even if there are dark clouds forming over the Eurozone. Those dark clouds represent the elections that will take place in France, Germany, Spain, the Netherlands, and Italy in 2017. But those don’t take place for a while. Right now, the euro has the European Central Bank (ECB) meeting on Thursday this week. I suspect that ECB president, Draghi, will resort to throwing the euro under a bus, once again on Thursday. That’s been his M.O. ever since he did the “The ECB will do anything and everything to defend the euro” speech.

I do expect the ECB to give more verbiage to the thought that bond buying will begin to be tapered starting in March, and while one would think that this would be welcome news to the euro, traders are a strange crew of thinkers, and if they think that the Eurozone economy isn’t ready for a taper, then the euro will get whacked. If they think that a taper is due and needed, then the euro will benefit. It’s all about sentiment these days, and not fundamentals, as I shake my head in disgust!

The price of Oil got whacked yesterday, but is fighting its way back this morning. And the Petrol Currencies, led by the Russian ruble, bounce around. I have a trader friend that sent me a graph yesterday, that I wish I could show you, but will attempt to explain it here, and said, “you know you always talk about how the ruble is an “oil play” ” well here’s a graph to illustrate what you say, and it was a graph tracking the price of Oil and the ruble. remember the song, “Me and my shadow”? Well, that’s what this graph looks like.

He also sent me one that graphs the prices of the renminbi and Singapore dollar, and once again my statements that these two move in tandem, holds true based on the graph..

Speaking of the renminbi. So, do you think it’s important that the new administration names China as a currency manipulator when they take office? I don’t know what it achieves, other than calling out our biggest trading partner. I go through all this below. Besides, I don’t believe that China is a currency manipulator any longer. In fact they’ve spent nearly a trillion dollars of their reserves defending the currency.. They haven’t purposely weakened the currency to help their exporters for years now. But I will say that they could put all this behind them if they just allowed the renminbi to float.

For those of you wondering what the criteria is for naming a country a currency manipulator, I’ve got the answer for you. According to the Treasury, a country needs to fail to meet 2 of the 3 criteria listed here:

For those of you wondering what the criteria is for naming a country a currency manipulator, I’ve got the answer for you. According to the Treasury, a country needs to meet the 3 criteria listed here:
“1) An economy has a significant trade surplus with the United States if its bilateral trade surplus is larger than $20 billion (roughly 0.1 percent of U.S. GDP) which captures around 80 percent of the value of all trade surpluses with the United States last year.

2) An economy has a material current account surplus if its surplus is larger than 3.0 percent of that economy’s GDP.

3) An economy has engaged in persistent one-sided intervention in the foreign exchange market if it has conducted repeated net purchases of foreign currency that amount to more than 2 percent of its GDP over the year.”

The Treasury report can be found here: https://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/2016-4-29%20(FX%20Pol%20of%20Major%20Trade%20Partner)_final.pdf .

So, in the end, we could go through all this and find out that it was just a negotiating tool to get China to sit down at the negotiation table.

Sorry for taking up so much time with China and the currency manipulator tag stuff this morning, but it’s on my mind, so therefore it’s in the Pfennig, and now in your mind! HA!

The U.S. Data Cupboard had the Consumer Credit (read debt) data for November, and boy was it ugly. This data didn’t just get hit with the ugly stick, it got hit with the whole forest! November Consumer debt rose from $16 Billion in Rocktober, to $25 Billion in November! With credit card debt surging by $11 Billion to reach a grand total of nearly $1 Trillion, or $992.4 Billion.. OMG! Remember yesterday, when I talked about the increase in wages and how I thought that most of that increase was going to pay down debts? Well, the U.S. consumer is back to spending more than they make, and did so by $25 Billion in November!

Oh, and it’s not just credit card spending going on. Non-revolving credit, which is car and student-loans, reached a total of $2.758 Trillion.. Do you see what I see? A real problem , but don’t that get in the way of rate hikes, and euphoria in an economy that doesn’t have legs to stand on. Oh, and one more thought on all this. What do credit card companies do when the Fed hikes rates? They ratchet their loan rates higher, right? So, paying off all this debt is going to get more difficult going forward..

To recap. The dollar’s rally yesterday morning turned out to be brief, and not have any lasting power. The currencies and metals rallied throughout the late day, in the overnight markets, especially in Asia. Norway’s CPI will print today, Chuck thinks we’ll see 2.8% inflation in Norway, but not talk of rate hikes. The euro is knocking on the door to 1.06 again, ahead of the ECB meeting on Thursday this week. And the A$ is looking perky, as China printed a better than expected PPI and the price of Iron Ore rose. Chuck then gives a dissertation on what it means to name China a currency manipulator.

For What it’s Worth. OK.. As I told you previously, Mary Anne and Pamela Aden have taken over the Dow Theory letters, and from time to time they reprint Richard Russell’s thoughts on things, and I always enjoyed reading his thoughts on Gold. So, when the Aden sisters printed a piece on Gold from Richard Russell, I just had to share it with you.. Now, should you decide you want to subscribe to their letter, go to this website: www.dowtheoryletters.com

Here’s your snippet from the late, great Richard Russell. “Any company can go broke, and any stock can decline to zero. A company can go broke by possessing debt that it can’t finance. A company can go broke if it has overhead that it can’t carry (the reason for all the firing). A company can go broke if its sales collapse. A company can go belly up if its products are uncompetitive.

One major reason why people own gold is that gold can’t go broke. Gold can’t go broke because it has no counterparties or liabilities against it. Gold can’t go broke because gold is pure wealth. Sure gold can go down in price in terms of a currency, but gold CANNOT GO BROKE.

This is the crucial fact that the “dollar-bugs” fail to comprehend. This is the reason why sophisticated wealthy people own large quantities of gold. Gold represents eternal unquestioned wealth.

Wealthy people do NOT hold gold for appreciation. They don’t care about the price of gold today or tomorrow. That is not why they hold gold.”

Chuck again.. I’ll have more from Richard’s thoughts on Gold in future Pfennigs!

Currencies today 1/10/17. American Style: A$ .7350, kiwi .70, C$ .7556, euro 1.0590, sterling 1.2117, Swiss $ .9870, . European Style: rand 13.6620, krone 8.57, SEK 9.0320, forint 291, zloty 4.1249, koruna 25.4915, RUB 59.86, yen 116, sing 1.4262, HKD 7.7547, INR 68.15, China 6.9276, peso 21.45, BRL 3.2168, Dollar Index 101.77, Oil $52.25, 10-year 2.38%, Silver $16.66, Platinum $980.65, Palladium $760.60, Gold $1,185.85, and SGE Gold. $1,191.58

That’s it for today.. I bet you’re wondering what time of the morning did I get up today, to have written so much and get this out on time? Let’s just say that I’m sure my good friend Rick was still out partying the Clemson win when I began to write today. So, that puts an end to the college football season. College basketball is heating up with Conference play beginning, but with the sad state of affairs that’s Missouri and St. Louis U. Basketball this year, I’m just not into it yet, but come March I will be! 33 days till pitcher and catcher report to Spring Training! The late, great, Alvin Lee takes us the finish line today with a song that we always ended our rock shows with. Going Home.. Remember Alvin Lee from Woodstock playing this song? Man he was something to listen to and watch play guitar! Now, let’s go out and make this a Tom Terrific Tuesday! 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