ECB Disappoints Markets With Dovish Tapering Details…

Rocktober 27, 2017

* ECB sounds dovish, and euro gets whacked!
* Strange bedfellow gain on dollar.. francs & renminbi!
* John Mauldin sounding like Chuck?

Good day… And a Happy Friday to one and all! this darn cough is driving me batty! It even wakes me up! UGH! It’s just a cough, nothing else. I don’t feel bad, etc. Oh well.. So be it! No baseball last night, no Blues hockey, so I sat down and started reading, James Rickards new book: The Big Drop.. If you buy it, you’ll want to secure all the sharp objects around you before you begin reading… Steely Dan greets me this morning with their song off the Aja album: Black Cow…

Well, I told you yesterday that if the European Central Bank (ECB) satisfied the markets desire to see monetary stimulus end in the Eurozone, the euro would rally, and if the ECB disappointed the markets, the euro would suffer… So, it was the latter of the two that took place yesterday with the European Central Bank announcing that they have halved its asset purchase stimulus program, to €30bn per month, for another nine months. But the ECB also left little doubt that it intends to keep buying bonds for even longer than announced today, in an attempt to get inflation…
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I’m questioning whether the ECB wants to see the euro stronger at this point.. I’m guessing they don’t, otherwise they wouldn’t be throwing it under the bus every time the bus makes stops at the Frankfurt stop. I’m not a fan of this Central Bank stimulus stuff, never have been, and never will be, and now the ECB is holding back rate hikes in Norway and Sweden… Whatever happened to Draghi’s “I’ll do whatever it takes to defend the euro” status? Central Bankers… I shake my head in disgust at them, I truly do! In fact, they tick me off so much, that I go yell at the walls whenever I read something they’ve done that equates to utter madness!

Well, there was no need for the Bank of England (BOE) to throw pound sterling under the bus yesterday… A very weak Retail Sales print did that for them! Yesterday, I told you about how the 3rd QTR GDP beat the estimates, and sterling traders were dancing in the streets, but then along came reality… And this time reality bites! This is just another nail in Mark Carney’s (BOE Gov.) rate hike coffin.. Rate hike in the U.K… My, ask me no more questions, I’ll tell you no more lies…

So, with the euro getting sold like funnel cakes at a state fair yesterday, the rest of the currencies were being sprinkled with powdered sugar too, and Gold got whacked again. All-in-all it was an ugly day for the non-dollar assets. And the overnight markets haven’t been any different with regards to the selling of the currencies and metals.

There were two currencies that booked gains in the last 24 hours, and the two are strange bedfellows… Swiss francs and Chinese renminbi… I’ve explained this franc / euro cross thing before so I won’t get into it again, but that’s what is pushing francs this morning, and I have no idea what’s on the Peoples Bank of China (PBOC) with this appreciation of the fixing overnight, after weeks of marking the renminbi down every night, they pick the night where every other currency is getting sold, and decide to reverse their course…

I was beginning to think that the Chinese wouldn’t have to go through with a huge devaluation if they kept up the mark downs every night!

The poor euro, every time it appears that the currency is getting ready for prime time again, it gets pulled back into the green room. Now it has to contend with traders who aren’t so happy with the ECB’s tapering, and let’s not forget that the Catalonia things is hanging over the euro like the Sword of Damocles. I sure hope that the Catalonia and Spain diplomats can salvage a working relationship, and this doesn’t turn into a civil war…

Considering the fact that it wasn’t that long ago that sentiment toward the dollar was sinking faster than the NFL’s TV ratings, and all things looked like the dollar was heading for a permanent stay in the woodshed… One would have to think that this dollar buying is a temporary thing, and soon we’ll return to the underlying trend that was established earlier this year. And if that’s so… then these are some real bargain basement prices to enter or add to currency positions…

I was going through my emails yesterday (boy, do they sure mount up when I step away from them for a few hours!) and I came across the Outside The Box email from longtime friend, John Mauldin.. I’ve always laughed out loud when readers send me a link to a Mauldin article.. He’s a friend, I read his stuff! But they tend to forget and send me them any way…

But I read something in the intro that John wrote that caught m eye… You see, John is an optimist, and you have to get up pretty early to sneak the sun past the rooster, and you don’t always see John writing like Chuck! So, I’ll share this little piece with you from his letter yesterday, and then tell me if he’s not turning Chuck, yes, I really think so! Here’s John! (I bet he doesn’t like Johnny!)

“I know that Trump is going to be appointing a new Fed chair and Fed governors, but I have to tell you, there is simply not enough money to make me want to sit around that table and be responsible for cleaning up the mess that the present denizens have created. I think the FOMC is going to find itself in a situation where they have no good choices, and probably not even merely difficult ones. But they will be forced, or at least feel like they are forced, to “do something”; and that something is going to once again take the form of lower rates and more quantitative easing –and maybe even a few little innovations like negative rates and asking Trump and Congress for permission to shift out of their normal “We can only buy government-backed assets” mode. Much as the Bank of Japan, the ECB, and the Swiss National Bank have done.” –John Mauldin

See? I told you! That sounds like what I’ve been saying for months now, and I would bet a Krispy Kreme to a dollar that he’s been thinking it too for months now, but he just didn’t want to say it.. Well, he did! And Oh! I can’t let you go here without giving you his website link in case you want to sign up for one of his letters… you can find John, here: www.mauldineconomics.com

On a side bar… I found my thrill… On Blueberry Hill.. Ain’t that a shame… and more great songs from long ago are left behind with the passing of the great Fats Domino on Wednesday… All of our early rock-n-rollers are getting up there in age, and while some seem to be quite fit and still performing, the age and health factors have seem to crept on to the others…

I think about this quite a bit… What if I had been successful in my efforts to be a rock star in the early 70’s? Would I still be performing today? I would have to think I would be, given my drive to do something each day. My pal, Preston, who was the drummer with the traveling band I played in, just recently retired, after a stellar career with various local bands, and tour with Uriah Heep! OK, sorry for that detour off the road of investments, economies, and dolts.. back to our regularly scheduled programming now.

Gold got whacked and knocked down by $11 yesterday, as 362,000 contracts were traded.. In those 362,000 contracts traded yesterday do you think there were a few short Gold paper trades? Just a few, right? I shake my head in disgust over this shorting that continues to be a thorn in my side.

Ed Steer had an article in his letter this morning (www.edsteergoldandsilver.com) that highlighted an article in the Wall Street Journal (WSJ) on August 10, where 4 GATA members were interviewed about the Gold price suppression… And in the article the writer wants to know why the WSJ didn’t follow up with any investigation into the claims by the GATA members… Well, I know, but, oh well, I’ll say it… There are no such things as investigative journalists any longer. They take the short cut and get their story out there.. Oh well, the story is out there on his website if you don’t get his letter…

The U.S. Trade Balance (Deficit) printed for September yesterday. I told you yesterday morning that I expected the deficit to be around $64 Billion, which was greater than the expectations ($63.5 Billion) because the dollar had gotten stronger in the month of September. Well, that’s exactly what happened with the data printing at a deficit of $64.1 Billion…

Traders and such just don’t seem to care about the Trade Deficit any longer, and that’s a shame. It really is, folks..

Today’s Data Cupboard has a reading on 3rd QTR GDP here in the U.S. and it’s expected to have fallen from the 2nd QTR’s print of 3.1%, to 2.7% in the 3rd QTR.. I don’t see how the accountants shimmied the numbers to get 2.7%, but they’ll print it and the markets will swallow it, hook, line and sinker.. We’ll also see a report on Consumer Sentiment, which should be stronger than steel given the stock market’s Energizer Bunny act.

For What It’s Worth… I had a lot of candidates for the FWIW story of the day today, but chose this one, because it reminds me of my call many years ago, regarding the popping of the Bond Bubble… I found this on zerohedge.com and can be found here:http://www.zerohedge.com/news/2017-10-26/ray-dalio-warns-significant-bond-market-risk

Or, here’s your snippet: “Casting his vote in the ongoing debate of which is a bigger bubble, bonds or stocks, Bridgewater’s billionaire founder Ray Dalio, who has continued his whirlwind of media appearances in recent years, said that he sees a “significant amount of risk in the bond market” envisioning a growing risk to stability as the U.S. moves toward a bigger deficit and the Federal Reserve unwinds its balance sheet. He is, of course, referring to this projection by the CBO of the U.S. debt over the next 30 years which, sadly, remains quite unsustainable especially in a rising rate environment and in which central banks no longer monetize deficits (which is precisely why the Fed will promptly resume QE after a brief cool off period).

Addressing this, Dalio that “tightenings become progressively more concerning because as you move along they’re more and more difficult to get perfect.” Speaking to Bloomberg radio, Dalio also warned that “as we’re progressing, we’re entering a period of greater risk in the nature of the market.”

Meanwhile, confirming what anyone who has seen the fund’s 13F knows, Dalio said that Bridgewater has been long equities, but didn’t provide more details on how the world’s biggest hedge fund is trading the market. He also said he doesn’t think the Fed can continue the pace at which it has begun to unwind its $4.5 trillion balance sheet. Dalio also said he expects the U.S. budget deficit to increase to 1.5% of GDP, growing the supply of debt at the same time the central bank is offloading bonds.”

Chuck again… Oh, the calls we make… I still have this image in my head of a slide I used to use in my presentations to show that I too can be a dolt, and featured a guy sitting at his desk banging his head on the desktop… I would say, this is me, as I ask myself why did I make that call on bonds?

Currencies today: 10/27/17… American Style: A$ .7640, kiwi .6642, C$ .7770, euro 1.1625, sterling 1.3087, Swiss $1.00, … European Style: rand 14.1961, krone 8.1729, SEK 8.3684, forint 267.58, zloty 3.6638, koruna 22.0562, RUB 57.71, yen 114, sing 1.3686, HKD 7.8035, INR 65.10, China 6.6365, peso 19.17, BRL 3.2507, Dollar Index 94.86, Oil $52.63, 10-year 2.45%, Silver $16.74, Platinum $919.06, Palladium $968.28, and Gold… $1,268.60

That’s it for today… What long week! UGH! And I’m semi-retired! This should be a good sports weekend, with the World Series, and college football. I have to say that I’ve circled the Penn St / Ohio St game as a must watch game of the weekend. My beloved Mizzou Tigers will be in Connecticut on Saturday. And next week is Halloween! And then my most hated month, November… UGH! I hope to see some former work friends this afternoon, and I’m sure there are soccer games the grandkids will be playing in. So a busy weekend, which is a good thing for me.. And I hear we might get a dusting of snow! Crazy, eh? OK.. Charlie Daniels Band takes us to the finish line today, with a song that’s always a big sing-along with at parties… Long Haired Country Boy… Well, let’s try to make this a Fantastico Friday, and Be Good To Yourself.. And one more thing… it looks like a Great Day, to have a Great Day! Bye~

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts

Chuck Butler recently joined the Aden Research Group, a research center led by writers and market analysts Pamela and Mary Anne Aden. The Aden Research Group publishes three newsletters:EC
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