Previous Guests

Gwen Preston
Eric Coffin
Michael Hudson

Click here to listen to previous episodes.

About Chen Lin

Author "What is Chen Buying? What is Chen Selling?" Chen grew $5,400 to $2.3 million in 10 years. Learn More

Dollar stays in a fairly tight range.

In This Issue.

* Efficiencies in finance.
* Dollar remains in a tight range.
* South African Rand rebounds.
* Gold slips but remains above $1,250…

And Now, Today’s A Pfennig For Your Thoughts.

Good morning. Frank kicks things off for us again this morning:

New York City – Over the years I have had many conversations with clients who have started businesses. I guess they would be considered successful businesses since they are still in operation and there is a story to tell. For me the entrepreneurial journey is one of the most fascinating conversation topics one could hope for. The stories range. From a narration of the process as the enterprise grew – always with a few significant roadblocks along the way. Others begin something like – I was able to walk and sometime run ahead of the advancing Russian army as it approached. Those of course are way out of my experience set but often the most fascinating. It is interesting and I think important to note that just outside of my lifetime people in the first world had to escape conflicts – and that it can happen again. In the Second and Third world this happens with regularity.

In a much less dangerous but still disruptive sense Chris Gaffney and I are at a financial industry conference. It’s unique in that it covers topics across all of financial services instead of the traditional silo events where just one industry segment spends a few days congratulating itself on how well they are doing without any external context. I won’t disclose the name of the conference since in order to generate free flowing discussions there’s a gag-policy in effect on the participants. There are a number of very entrepreneurial startups here (now that I am getting to the point) that intend to make dealing with your financial affairs more efficient or effective. Some of them will actually deliver. To me every new company in this sector is a result of clients crying out for someone make things easier for them to manage. For those of us who over the years have downloaded many transaction lists or position reports to spreadsheets for further analysis there are people out there trying to help. Others are making the back office more efficient. Still others creating new ways to package products to better meet your needs.

Both in startups and in ongoing enterprise there is so much effort to create efficiencies. We have all seen it over the years – process costs reduced or made better. Usually with some elimination of human jobs. This march towards efficiency has become more pronounced as technology has intervened. Some might say we are less efficient today with all the distractions but I think that some much more can actually be accomplished and we can handle the distractions on top of that. This trend has created much of today’s political discourse as humans are often not the first input to a manufacturing or other business. This is unlikely to be something that ends soon. Wonder where we’ll be in twenty-years?

That is a great question posed by Frank – but with the speed of the changes I don’t know we need to ask where we will be in 20 years but maybe where we will be in 10! Artificial Intelligence and block chain technology are two things which could absolutely change the way financial firms operate. Take the announcement by Blackrock the other day that they will be replacing some of their portfolio managers with computers. We will definitely see some big changes and the hope of course is that the changes will make our lives better and not more complicated.

Now Dane Moody will share his thoughts on what moved the markets yesterday.

Tuesday’s trading day felt similar to Monday’s, as most of the currencies remained fairly range-bound. The big mover of the day was once again the South African rand, but it was moving in a positive direction on Tuesday. The rand gained over half a percent of the ground it lost on Monday. Other than the rand, all of the other currencies are still within 1% of where they started the week, month and quarter. The other big mover on the positive side of the ledger on Tuesday was the Brazilian real, up over 0.5% on rising oil prices. The real built on its small gain on Monday to lead the pack as April’s best performing currency (2 whole trading days!).

The British pound sold off in thin markets after a second consecutive day of soft data. Newly-released construction data for March showed continued growth but at a slower pace than expected. Traders are certainly on the lookout for any indication that Brexit is going to negatively impact the economy in the United Kingdom, and these first few data prints since the formal announcement seem to be carrying more weight than they would in more “normal” market conditions.

The Mexican peso also had a rough day on Tuesday with President Trump’s meeting with Chinese President Xi looming this week. Traders are concerned that any trade negotiations between the United States and China could come at the expense of the current trade deals with Mexico, and the markets have renewed their concerns about renegotiated trade deals hurting Mexican imports to the United States. Much of the peso’s performance since the election (it is the best performing currency in the last 3 months) could be best described as a relief rally, and these conversations between Trump and Xi are putting that relief on hold, at least temporarily.

Speaking of Trump and Xi, there is certainly a LOT of interest on their meeting this week from the markets, as the content and tone of their meeting could shape the relationship between these two countries and, particularly, these two administrations for the next few years. Recall during the campaign and even as recently as last week, President Trump repeatedly called China a currency manipulator, promising to bestow upon them that label on his first day in office. He even awarded a world championship to them in currency manipulation in his recent Financial Times interview. Though that campaign promise did not come to fruition, China’s currency controls are clearly still on his and his administration’s minds, and there will be concern in the markets on how these conversations shape up at Mar-a-Lago this week.

The precious metals continued their incremental climb for the week, with platinum leading the pack. Another flat day for the dollar index after the short rally at the end of last week drove the index back over 100. Crude oil climbed to a 4 week high on news that US inventories are likely to fall from their record highs in March. In early March, record oil inventories in the US drove the price of oil lower even in the face of OPEC production cuts announced in January. OPEC members will be pleased to see the price of oil cooperating with their plans.

Thanks to Dane for all of that great information. Today we will have the ADP Payrolls, ISM Services Index and the big piece of information will be the FOMC meeting minutes. Investors will be looking at the FOMC minutes to try and determine whether or not we will see a pick up in the pace of interest rate increases. Fed members have been pretty consistent in their calls for three interest rate increases in 2017, with one already done and two more to come. If the minutes point to a more aggressive pace the dollar could see more buying, but if the minutes show the members of the FOMC are questioning the impact of a strong dollar, or worries about the elections in Europe we could see the dollar sell off.

For What It’s Worth. Speaking of the Fed, Chuck spotted this article yesterday and figured it would be good for the FWIW section:

And here is your snippet: Federal Reserve Bank of Richmond President Jeffrey Lacker resigned abruptly on Tuesday as he disclosed his role in the leak of confidential information about policy options that the central bank was considering in 2012.

“Lacker said during a phone conversation with an analyst from Medley Global Advisors in October 2012 that she brought up an “important non-public detail” about Fed policy makers’ discussions before a meeting, according to a statement emailed by law firm McGuireWoods in Richmond, Virginia, on Tuesday. Due to the confidential and sensitive nature of the information, Lacker said he should have declined to comment or immediately ended the call.

“Instead, I did not refuse or express my inability to comment and the interview continued,” he said.

Lacker, 61, said he also failed to report to the Federal Open Market Committee that the analyst was in possession of confidential FOMC information. The day after, when the analyst published details of one of the policy options in a report for subscribers, Lacker said he realized his failure to comment on the information was seen as a confirmation of it.

In its September 2012 meeting, the FOMC decided to buy $40 billion a month of mortgage securities in the third round of so-called quantitative easing. The Medley report, titled “Fed: December Bound,” telegraphed the possibility that $45 billion of U.S. Treasury purchases would be added to the program, as well as the possible adoption of guidelines on levels of unemployment and inflation that officials would seek to achieve before raising interest rates from near zero.

Federal law allows for criminal penalties of up to a year in prison, fines and removal from office for U.S. government employees who disclose confidential information. Prosecutors can also bring fraud charges against government officials if there’s evidence that the confidential information was used as part of an insider trading conspiracy.”

Chris again. As I reported yesterday, I sat down with the former Atlanta Fed President yesterday and the subject of confidentiality came up in our discussion. He stated that it was very liberating to add FORMER to his title as it allowed him to speak his mind. When part of the Fed he said all of his presentations and speeches had to be reviewed by his staff and that knowing whatever he said could move the markets was even more constricting. Obviously former Fed President Lacker failed to adhere to the Fed’s policies on speaking to the press.

Currencies today 4/5/17. American Style: A$ .7602, kiwi .6997, C$ .7388, euro 1.0448, sterling 1.2255, Swiss $.9720 European Style: rand 13.9195, krone 8.7136, SEK 9.2395, forint 295.25, zloty 4.2140, koruna 25.840, RUB 60.64 yen 117.47, sing 1.4484, HKD 7.7583, INR 68.00, China 6.9462, pesos 20.6177, BRL 3.2795, Dollar Index 103.06, Oil $53.52, 10-year 2.5688%, Silver $15.81, Platinum $903.00 Palladium $657.40, and Gold $1,139.92.

That is it for today. Frank, David Conover and I had a nice stroll along Wall Street last night. We passed the famous bull and new statue of the little girl on our way to dinner. We also passed by the NYSE and Frank recalled the day he saw the huge EverBank banner draping the columns on the morning of the IPO. We have another day at the conference and then a flight back home tonight. I’ll hit the send button now after thanking all of you for reading the Pfennig.

Chris Gaffney, CFA
EverBank World Markets

Current Guests

Michael Oliver
David Wolfin

Click here for more details on guests.