Draghi Throws The Euro Under The Bus. Again!

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

Good Day. And a Happy Friday to one and all! For the life of me, I can’t believe that it’s taken this long to get to Friday, but it’s finally here, so let’s do what we can to make it a Fantastico Friday! The Doobie Brothers w/ Michael McDonald greet me this morning with their song: What a Fool Believes.. . Which is apropos for the Gov’t officials all over the world that believe that the road to prosperity is lined with deficit spending, and the Central Bankers that believe inflation is a good thing to have. I just had to stop writing and check Kathy in for her flight home tomorrow. Yes, Chuck will be all by myself for a couple of weeks, I just don’t know how I’ll get along!

Front and Center this morning, the price of Oil is surging higher. What the heck is going on here? OK. no animals were hurt here, but in the markets there’s a saying, it’s called a “dead cat bounce”, and it’s applied when some asset that otherwise has looked dead, bounces higher and surprises the markets. Well, Oil sure exhibited the attributes of a dead cat bounce yesterday. As I left you, I had told you how the price of Oil had dropped to $26.75, but as I said at the time, the price of Oil had bounced to $28.11, but it didn’t stop there, and by the end of the day, the price of Oil had jumped 4.25% to $29.53! I have to admit that I spent a better part of the morning watching this rise, and then looking at the Petrol Currencies, especially the Russian ruble, for their positive reaction to this dead cat bounce in the price of Oil. And brother, did they have a positive reaction!

But the price of Oil didn’t stop at $29.53, and the rally continued throughout the overnight sessions, to bring the price of Oil to a $31 handle. The supply numbers being weaker started all this yesterday, and then we just had to have a short squeeze to fuel this kind of rally. Yesterday, the Russian ruble was teetering and ready to fall off a cliff, but this morning the ruble is back in the saddle, still weak, but back in the saddle and away from the cliff.

Yesterday, Mario Draghi threw the euro under the bus again. What ever happened to “Mr. I’ll do anything and everything to protect the euro”? This has to be at least 6 of one or 1/2-dozen of another times that Draghi has done this to the euro. You know, I just can’t seem to get these Central Bankers right these days. I used to be in tune with them, knew what they were thinking, and going to do, probably before they did! But lately, I just keep thinking they will go right and they go left, thinking they’ll stop and they go, and thinking they will act responsibly, and they don’t! I think I’ll blame it on the chemo brain. That’s what this generation does, right? Blame someone else, for they, themselves couldn’t be responsible for the mess up!

It all started with the Fed decision to hike rates last month. That really knocked me for a loop and I haven’t recovered. Yesterday, I said that I didn’t think the European Central Bank (ECB) would do anything radical to upset the applecart. Well, I missed the boat on that one too. ECB president, Mario Draghi, decided that the 0.2% inflation report wasn’t good enough for him, and he opted to begin to grease the tracks for more stimulation. Crazy, eh? Well, I guess we could use that word to describe most Central Bankers, but in Draghi’s case, I think he’s just disillusioned!

Furthermore. Draghi decided to tell the markets that the ECB “may” revisit its policy stance when the ECB meets again in March. Geez Louise. Was that necessary, Mario? Really? Was it necessary? I don’t think so! The euro wasn’t getting stronger, to fight your wish for higher inflation. The Eurozone economy is in the middle of a really nascent recovery, but still a recovery nonetheless. I just don’t get these Central Bankers any longer. Oh, and notice Draghi didn’t say the ECB “WILL” revisit their monetary stance, he said they “may”!!!!! But. the markets just don’t get it either any longer, folks!

So that was yesterday. Today, is starting out much like yesterday with the currencies, for the most part on the rally tracks VS the dollar. There’s only a handful of currencies not participating in the rally, and they include: euros, which I just told what happened, New Zealand dollars/ kiwi, which saw 4th QTR CPI (consumer inflation) inch higher from 1.5% to 1.6%, but the markets saw this as weak, and the calls for a rate cut came out of the walls., the Danish Kroner, which is pegged to the euro, so that explains that, and the Swiss franc, which for no other reason but it just is, can’t find a bid this morning. And the Czech Koruna seems to have run into a buzz saw this morning. And Japanese yen has lost that lovin’ feeling. That’s it! All the other currencies are rallying, led by the Russian ruble.

Even the Chinese renminbi, and the Indian rupee, which have been beaten and left for dead on the side of the road lately, are rallying this morning. I want to point out that once again, the markets just don’t make sense any longer, now that they aren’t “fundamentals driven”. Take for instance these goings on in New Zealand with kiwi getting sold this morning. So, what is it that every country (save for Brazil and Russia who have more than they need) is looking for? Inflation. So, Inflation ticks higher in New Zealand but “it’s not enough” and kiwi gets smacked. What on earth do these guys want? Well, the calls for a rate cut from the Reserve Bank of New Zealand (RBNZ) might be coming out of the walls this morning, but I’m here to tell you that I just don’t see it happening that way! Hopefully by Monday, calmer heads will prevail, and kiwi will be allowed to rally alongside its kissin’ cousin across the Tasman, the Aussie dollar (A$), as is usually the case.

In the U.K. inflation was weaker, and Bank of England (BOE) Gov. Mark Carney, delayed his rate hike once again. But that didn’t cause pound traders to run for the hills, instead they dug in and rallied the pound. See what I mean that they don’t use “fundamentals” any longer? Why would the pound rally, when the promised rate hike doesn’t materialize and probably won’t for some time? Craziness rules! Sanity Now!

Gold is down $3 as I write, after spending the day yesterday above $1,100. For a brief time yesterday I had thoughts of sugar plums dancing in my head, no wait! I had thoughts of Gold using $1,100 as a new base and moving higher from there, finally! But the road blocks were put up by the price manipulators and Gold was not allowed to move higher. The GATA folks were busy yesterday putting out one article about Gold after another. That was an indication to me that people, pundits, analysts, etc. are starting to talk about Gold more, the way they used to, when Gold shined and every other asset bowed down in Gold’s presence. Is this a sign? Well if it is, it’s not a very reliable one, so let’s keep an eye out for any additional ones.

Speaking of keeping an eye out for something. My left eye was itching, and I instinctively went to rub it, and rubbed it the wrong way and out popped my shell. So this is kind of creepy, but until I get finished with the letter and get up, the shell is sitting on my laptop, staring at me, while I write! Creepy, crawly. Hey Jen! If you read this, I know that you’ll wish you were here so you could see it! Jen loves stuff like that!

I would have to say that 5 months in a row is what they call a “run rate”. So the “run rate” for the Philly Fed Index is “negative”! Yesterday’s print for the month of January was a negative -3.5. That was not as bad as the expectations of -5.9, but.. December’s number was revised downward by a HUGE margin, going from -5.9 to -10.2! And. don’t look know but the jobless claims shot higher to 293,000 last week. Hmmm. Things to be really adding up for the train to pull from the station and head to Recessionville!

The U.S. Data Cupboard could give us more fuel for the train to Recessionville this morning, as the Leading Index for December prints. Remember this is one of the few “forward looking” pieces of data that we see, even though it’s a month behind. I expect this data to fall in line with the other disappointing and negative prints we’ve had this week. We’ll also see Existing Home Sales for December. Recall that November’s data here showed a drop of 10.5% for the month. Maybe Existing Home Sales rebounded in December, you have to recall that mortgage rates were falling in the month, and continued through into this month.

Speaking of Mortgage Rates. The yield on the 10-year Treasury has moved back above 2% after spending two days this week below that figure. If you were lucky enough to lock in this week while the 10-year was below 2%, I’m sure you came away with a very low Mortgage Rate.

To recap. The price of Oil saw a “dead cat bounce” and even moved higher overnight, taking the Petrol Currencies for a ride on the rally tracks, something they haven’t been able to do for some time now, and were led by the Russian ruble, which really saw a HUGE recovery yesterday and overnight. The currencies are mixed with only a handful on the wrong side of the ledger VS the dollar. The New Zealand kiwi is one of those, and it makes no sense given their inflation ticked higher in the 4th QTR. Draghi threw the euro under the bus again, and Gold couldn’t hold $1,100 for more than 24 hours.

For What it’s Worth. I found this in couple of places so it must be worth the read, eh? You can find it here: http://www.bloomberg.com/news/articles/2016-01-20/bernanke-says-dollar-s-two-year-rally-is-running-out-of-steam

I found it first on Ed Steer’s letter, and then that led me to the article on Bloomberg, of which here are the snippets.

“Ben S. Bernanke says the greenback may have peaked.

“Much of the appreciation in the dollar may have already happened – we may not see much more,” the former Federal Reserve Chairman said Tuesday at the Asian Financial Forum in Hong Kong. Further gains depend on the pace of the Fed’s tightening cycle, he said.

The dollar has rallied against all 16 of its major peers during the past two years on speculation that the Fed would boost borrowing costs in contrast to other major central banks that were easing policy, including the European Central Bank and Bank of Japan. Greenback strength became one of the Fed’s main preoccupations in the run-up to its December rate increase, the first in almost a decade.”

Chuck again. Looks like Big Ben has been reading the Pfennig! HA! Wouldn’t you know it. Just like his predecessor Big Al Greenspan, who came out talking about the merits of owning Gold after leaving the Fed, and now Big Ben comes out talking about how the dollar may have peaked, after he leaves the Fed. Go Figure!

Currencies today 1/22/16. American Style: A$ .7030, kiwi .6515, C$ .7060, euro 1.0820, sterling 1.4325, Swiss $ .9880, . European Style: rand 16.4275, krone 8.7365, SEK 8.5755, forint 288.50, zloty 4.1210, koruna 24.9810, RUB 78.86, yen 118.15, sing 1.4266, HKD 7.7920, INR 67.62, China 6.5572, pesos 18.43, BRL 4.1140, Dollar Index 99.34, OIL $31.12, 10-year 2.07%, Silver $14.15, Platinum $831.88, Palladium $507.30, and the shiny metal of Gold. $1,097.35

That’s it for today. Pink Floyd is playing their song: Wish You Were Here, on the iPod right now, and I have that thought in my head all the time that I’m here and not in the cold and snow at home. My eye shell is still staring at me. I need to get this out the door so I can put that back in where it belongs! I due for a new one when I get back into town, as this one has gotten worn down and dull, even though I got it polished up once a year! The newspaper articles about the Cardinals are starting to get ramped up again. that means it won’t be long now for Pitchers and Catchers to report. Feb 17 is the date, and I’ll be like a kid in a candy store that day! Yesterday, Chris Gaffney sent me an email (nice that he remembered my email address) with 5 stories highlighted, and he said, that, “1/2 of the articles today are talking about what you’ve been saying for the past year”. I was excited to see that, and told him thanks for sending along, because I was really beginning to doubt myself. And with that, Harry Nilsson takes to the finish line today with his song: Without You. which again is apropos given that this wouldn’t be worth doing without you, dear reader, so Thank You for reading the Pfennig. Now, I’m going to attempt to make this a Fantastico Friday, I hope I meet you there!

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