Draghi Throws The Euro Under A Bus Again!

* Currencies have strong rally yesterday.
* But the euro spoils the party on the rally tracks!
* Dec 3 and 4 should be doozies!
* China sets new record for Gold accumulation!

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

Good day. And a Happy Friday to one and all! This has been a very long week for yours truly, so to finally get here makes it all the better. So, I’m going to say right from the start today, that this will be a Fantastico Friday! It’s a good friend of mine’s birthday today. You know who you are, don’t be shy. I’ll tell you in the Big Finish. Crosby & Nash greet me this morning with their song: Wind on the Water. It was a song about the plight of the whale. I got to see this duo up close and personal at the old Mississippi River Festival, as I had seats in the 2nd row, center! I think back to those times, when I was young, a lot, and how fit and strong I was, I really didn’t think about much except the 3 softball teams I played on, my Mizzou Tigers, the Cardinals, and Kathy.

Boy the times change, eh? Yesterday, I felt like Big Lee Smith used to look as he dragged his way into a baseball game to close it out. You could see it on his face, “I’m so tired”. I kept trying to read stuff, and my eyes would close, and I chin would drop to my chest, and I would say, “OK, I need to take a nap”, but then I would take a drink of cold water, and keep reading and researching. Until, well, it’s quite embarrassing, I did something my dad, later in his life used to do. I fell asleep sitting up at my desk. It wasn’t until someone was knocking loudly on the door upstairs that I woke up, realized what had happened, and tried to get my bearings. What a strange feeling. But then a thought occurred to me. I was becoming my dad, which in my mind would be a great thing to do!

And what a strange feeling it must have been for the currencies yesterday, who from the looks of my screen late in the day, were all booking gains VS the dollar. Yes, I had told you that was the way it was in the early morning, but not often in recent times have we seen the currencies hold their gains, and most cases add to them as the day went along. And the currency that had the most life to it was the euro. Oh, I bet euro traders would love to revisit 2003, the Year of the euro, when there was nothing that would stop the momentum the euro had built up each day. But like our youths, those days are gone. Those days of soda, and pretzels and beer. (see even I can pull a Nat King Cole out of my hat when I need to!)

Speaking of the euro. It occurred to me yesterday that the European Central Bank (ECB) goes first in December. By that I mean the ECB will meet on December 3rd, while the Fed’s meeting isn’t until December 16. But. and that’s a big but, and not the kind your wife asks you if her dress makes look too big! HA! No, it’s the kind you interject when it looks like you’re going in one direction, so that you can go another. And this but, is that on December 3rd, the day the ECB meets. Fed Chair, Janet Yellen, will be speaking to the Joint Economic Committee of the U.S. Congress, and then the next day, the Jobs Jamboree takes place. So, it’s going to be a hectic couple of days, folks. I would suggest you batten down the hatches tightly, and don’t take a peek outside until the dust settles.

As dear Pfennig Readers, you know where I stand or sit more appropriately, on the Fed’s thinking that December will be the month for lift off of interest rates. I’m of the opinion that the Fed won’t hike rates, but if they do. Oh brother, if they do, they’ll rue the day they did! For if an economy isn’t ready for a rate hike, making a rate hike, is like shooting oneself in the foot! And I’ve proclaimed for over a year now that this economy is NOT ready for a rate hike, even with the gains in labor. So. December 3&4. I sure wish I could just go hide under a rock those two days, because I for one don’t want to see the ECB do any more stupid monetary pet tricks, and I sure don’t want to hear Yellen talk about green shoots or whatever else she has up her sleeve, and I certainly don’t care to see the BLS’s jobs report.. I’ve said it before and I’ll say it again, it’s all a bunch of hogwash!

Well, I really didn’t mean to go down this long road, and bore you to death. I really wanted to talk about the euro and what’s in its future, and I did, but, with a lot of collateral attached. Sorry.

And besides, this morning, is a different story for the euro! While the currencies, for the most part, are still on the positive side of the ledger VS the dollar in the overnight and morning sessions, the euro is not. And we can attribute this selling of the euro directly to ECB president, Mario Draghi, who, when speaking in Frankfurt, decided to throw the euro under the bus again, which recently has been a favorite game of his. Draghi, had this to say, “If we decide that the current trajectory of our policy is not sufficient to achieve that objective, we will do what we must to raise inflation as quickly as possible. In making our assessment of the risks to price stability, we will not ignore the fact that inflation has already been low for some time.”

Alright, that might sound like a bunch of gobbledygook, but it’s Central Bank parlance for. I’m here to grease the tracks for more stimulus, because inflation hasn’t responded like we thought it would by now. Now wouldn’t it have been easier for everyone if he just said that way? Everyone wants to channel their inner Greenspeak. Remember that? Big Al Greenspan would talk and everyone would be scratching their heads, and the markets began calling his talks, “Greenspeak”.. And now all these Central Bankers think that if it was good enough for “the maestro” then they should incorporate it. I shake my head in disgust, but realize that maybe that we could see what happens with young kids, and it’s just a “phase” and soon it will be over.

So, the currencies, for the most part, like the Aussie dollar (A$), Norwegian krone, Japanese yen, Mexican peso, S. African rand, Chinese renminbi, and Gold & Silver are still booking gains VS the dollar this morning. The euro brings down the party on the rally tracks, but the important thing is that the gains or losses aren’t that huge and we have a handful of currencies that are flat this morning too. I really don’t think we’ll see much more movement today, I mean we’re going to be heading into the holidays season next week, and I heard that this year travelers for Thanksgiving will be a record number, so we could very well begin to see the traders start to close their books early today and head out the door to grandma’s house. Over the river and through the woods to grandmother’s house we go, the horse knows the way to carry the sleigh through the white and drifted snow!

So, as I said above, I was doing a lot of reading and research yesterday, and came across this article on the Bloomberg. Here’s the title: “Goldman Says the Years of Emerging Markets Doldrums Are Over” I didn’t have to read the article, although I did, but just reading the title told me all I needed to know. The writer of the article had me at “Goldman Says”. Because like I told you earlier this week, Goldman is Lola. And what Lola wants, Lola gets. When Goldman talks, the markets listen. It was interesting that they singled out a couple Emerging Markets that they feel are better positioned to gain. Russia, India, and Poland Goldman says are among nations that have improved enough for their assets to rally.

Pretty interesting given that everyone else is talking about how the rate hike in the U.S. would hurt the Emerging Markets that have sold dollar denominated bonds. I’ve told you about Jared Dillian before, the analyst/ trader that writes for Mauldin Economics (www.mauldineconomics.com) and how I enjoy reading his letters each week. Well, yesterday, he explained this dollar bond expense for the Emerging Markets, singling out the bonds that Zambia issued a couple of years ago. You should take a couple of minutes and check it out!

Well, yesterday’s U.S. Data Cupboard had some interesting data prints. What was interesting about them is the “spin” that was put on the results. For Instance, the Philly Fed Index finally climbed out of the negative hole to a 1.9 figure. And the pundits decided that this was cause to celebrate the strong economy! Are you kidding me? 1.9, that’s a rounding error from remaining negative! And the Leading Index printed 0.1 better than expected, and you would have thought that the confetti was about to rain down on us! It really must be a strong trend for the dollar, because this is what happens when an asset is in a good trend, bad or weak data, gets the “spin doctors” treatment, and I don’t mean the Spin Doctors that sang Two Princes!

Today’s Data Cupboard is basically empty, with only the K.C. manufacturing data. And then next week they data folks will jam as much data as they can get in the Data Cupboard ahead of the Thanksgiving Holiday, which turns into a 4-day event for a lot of people, including yours truly! I don’t recall the last time I went to work on the day after Thanksgiving. Besides, Chris Gaffney always loves to write the Pfennig on that day, and talk about the shoppers that have been camped outside our office building, which resides in the same parking lot as a Best Buy, A Sports Authority, and so on.

And Gold, is up a couple of bucks this morning. I have to point out that while Gold hasn’t really set the price gains on fire lately, it has slowed the negativity toward the shiny metal. I found this data and it just blow my mind away. The Chinese withdrawals of physical Gold from the Shanghai Gold Exchange (SGE), which I’ve given you the research by Koos Jansen, where he proves that the withdrawals from the SGE are pretty much equal to the accumulation of Gold reserves by the Chinese Gov’t. Well, these withdrawals year to date have reached 2,259.3 Tonnes! This is not just a one trick pony, or a one and done for the Chinese. In 2013, the previous record of 2,197 Tonnes were added, and in 2014 2,102 Tonnes were added. And that’s just the last three years! Just remember this folks. When Humpty Dumpty comes crashing off the wall, and the countries of the World get together to determine what kind of monetary system we’ll have, China will come to the table with the most Gold. And he who has the Gold, makes the rules! And that’s all I’m going to say about that!

To recap. Yesterday was a very strong day for the currencies, as all of them, and I mean all of them booked gains VS the dollar, including Gold & Silver. But ECB president, Draghi, decided to throw the euro under the bus again today, with comments about having to do everything they need to do to ramp up inflation as quickly as possible. Chuck points out the two days in December that could carry a lot of weight, 12/3 and 12/4. It’s just two weeks away! Goldman says that the Emerging Markets doldrums are over. So, they have become the Good Witch Glenda, telling the munchkins to come out, come out, it’s safe. And Gold is up a couple of bucks today, as it seems to have slowed down all the negativity toward the shiny metal.

For What it’s Worth.. The 3rd one this week! This one is very interesting folks. pull up a chair, if you haven’t already. Here we go! I found this on Reuters, and you can read the whole article here:   http://www.reuters.com/article/2015/11/19/us-usa-fed-house-idUSKCN0T82HD20151119#IgIwo57bMK64K1xO.97

And here are the snippets: “The U.S. House of Representatives on Thursday approved a bill that would make the Federal Reserve set interest rate policy using a mathematical rule, a proposal that has little chance of becoming law given a White House veto threat.

The bill is a sign of the deep suspicion many Republican lawmakers hold against the U.S. central bank, which played a major role in America’s policy response to fight the 2007-09 recession.

Conservative lawmakers worry the Fed’s policies, which included pumping trillions of dollars into the banking system and slashing its benchmark interest rate to near zero, could inflate bubbles in the economy and lead to high inflation.

The proposal now passes to the Senate where Obama’s Democrats have the ability to stop most legislation despite being in the minority. It has nonetheless prompted a host of Fed policymakers to air their concerns.

Fed Chair Janet Yellen said this week the bill would severely damage the U.S. economy and curtail Fed independence. The Obama administration opposes the proposal because it believes it would hinder the Fed’s ability to fight recessions.”

Chuck again. I laugh, and laugh out loud! Hinder their ability to fight recessions? Really? Isn’t what this is all about? The way they fought recessions, instead of just letting them play out, clean out the excesses and then begin to grow again? Whoosh! What was that? It was the real reason soaring right over the heads of those that oppose this.

Currencies today 11/20/15.American Style: A$ .7205, kiwi .6560, C$ .7510, euro 1.0680, sterling 1.5250, Swiss $.9835, . European Style: rand 13.9470, krone 8.6240, SEK 8.6930, forint 289.75, zloty 3.9700, koruna 25.3065, RUB 64.94, yen 122.90, sing 1.4130, HKD 7.7500, INR 66.19, China 6.3780, pesos 16.60, BRL 3.7100, Dollar Index 99.33, Oil $40.41, 10-year 2.25%, Silver $14.31, Platinum $866.90, Palladium $550.98, and Gold. $1,085.14

That’s it for today. Well a great big Happy Birthday today to Jack Stapleton! Jack is a colleague at EverBank, but is also what I would consider to be a very good friend. He’s one of the few in the office that’s near my age. So, we have a lot of memories that are in common, even though he grew up in NY, and I grew up in S. St. Louis! Jack and I have seen some great baseball games in the past, and we are forever on tape! In the playoff game when Cardinals young pitcher Rick Ankiel melted down, and he kept pitching balls to the screen, the camera would follow the flight of the pitch, and sitting right there behind Home Plate was Jack and Chuck! So, Happy Birthday buddy! Our Blues tied the Sabres last night but won the shootout, which to me is a really dumb way to decide a game. Well, my beloved Tigers take on Tennessee tomorrow, it will be Senior Night, as 21 Seniors play their last game at home. It will also be the last home game for retiring head coach Gary Pinkel, so there certainly will be a lot of emotion before the game. Let’s hope they can put that aside or channel it to good use in beating the Volunteers! Well, it’s time to get off this bus today, and drop me off at the corner where they are having a Fantastico Friday! I hope you can get here too!

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