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Fed Speakers Sing From The Same Song Sheet!

* Dollar swings a mighty hammer again..
* Beware the Ides of March.
* Bank of Canada meets today!
* Trump makes big deal out of Trade Deficit!.. ..

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

Good Day. And a Wonderful Wednesday to you! It’s March! Welcome to March! In two weeks we’ll move our clocks ahead an hour, in less than 3 weeks it will be St. Patrick’s Day!, and in 4 weeks my spring training buddies will arrive for our annual spring training voyage.. We have a friend, long lost now, but still considered a friend, Jay, who said the second year we did Spring Training, “There’s no excuse to not come to Spring Training.” And then he’s never shown up again! HA! Linda Ronstadt greets me this morning with her song, which I think is one of the saddest songs ever: Long, Long Time..

Well, the Fed speakers that were out on the road yesterday, were singing from the same song sheet, and that song was a little melody about how it’s time to hike rates.. In a matter of minutes late in the day yesterday, after everyone was finished talking, except the President, the odds of a rate hike went from 52% to about 80%.. here are some of the excerpts from the speeches by the Fed members..

Kaplan said, “One needs to take advantage of windows of opportunity when it comes to policy moves”..
Williams said, “March was under serious consideration for a hike.”
And Dudley said, “the case for a move has become a lot more compelling.”

So, we don’t always see multiple Fed Speakers on the same day, singing from the same song sheet.. But they did, and it worked, as far as the dollar bugs are concerned, because the dollar took off for higher ground to swing its might hammer at any of the currencies that tried to climb the hill.. The Chinese renminbi was the only currency to take a stab at the dollar, as it was allowed to appreciate again last night. I find this scenario very interesting, in that we have the dollar and the renminbi as the only two currencies ready to fight it out.. I still believe that this will be the case in a more drastic scenario before the end of this decade..

Yes, in 2010, I said that the Chinese renminbi would become a reserve currency (and it has!0, and that it would take over the dollar’s reserve currency status by the end of the decade.. Back in 2010, it sure looked like a layup to me, not to everyone else, because China was off their radar. In 2010, the U.S. was buying bonds by the bushel full, after cutting rates to the zero rate area, and the dollar looked like it was ready for a Thelma & Louise trip over the cliff, but then came the PIIGS, and the revelation that they had all run debt up to their eyeballs, and in no way were able to repay it. That’s when the major sea change came about for the dollar, and it entered a strong dollar policy.. But I’m still holding to my call that by the end of the decade, the renminbi will have taken over the dollar’s reserve status. The renminbi has already taken the first step, by being added to the IMF’s allocation of reserve currencies in the SDR’s (Special Drawing Rights). So, I got that first part nailed, eh? Now for the second part..

Gold didn’t fare any better than the other currencies yesterday, as it lost $4.30 to close at $1,247.80, and is down another $8 and change in the early morning trading today. That’s around $13 in losses since yesterday morning, that tells you how much strength the dollar has after the Fed speakers yesterday. And, Janet Yellen speaks on Friday, and if the Fed members were this brave in talking about a rate hike, that would mean the Janet Yellen will have had the tracks greased for her, and she’ll slide right in with rate hike talk. At least that’s how I see it, so it could end up being a really good week for the dollar..

But does that mean you go and sell your currencies and metals? Well, it does if you’re a trader, but if you are someone, which most of you are, who own currencies and metals as a diversification tool, to protect your investment portfolio against dollar declines, inflation, and overall risk that’s proven to be reduced when using currencies and metals to diversify your dollar denominated portfolio! No, in my opinion, which could be wrong, but has always been, that when the currencies are cheap, is when you look to add or make initial forays into the currencies and metals.. I call it “backing up the truck”.. But, that’s just me, saying that, I’m sure 10 investment advisors would tell you differently..

So.. March is here, welcome to one of my fave months of the year. Longtime readers know all too well, that March is the return of baseball (it got started early this year!) And the license plate colors sure will change down here, as fans from Mo, Ok, Ill, AR, KS, and other states up north, come down to take in the warm sun, and baseball.. But beyond baseball, we have something else in March that’s going to cause a lot of saw dust to be left on the floor.. You’ve hear of the saying: “Beware the Ides of March” right? Well, this saying is “Beware March 15th!” Recall, or I will remind you here, that the former President and Congress put in a HARD stop for the deficit at $20 Trillion.. A quick check of the Debt Clock tells me that we are currently just below $20 Trillion at $19.980 Trillion.. So, March 15th looks to be the day that no more debt can be added.. Wait? What? Haven’t the lawmakers always just broken the debt ceiling
and kicked the can down the road before? Ahhh grasshopper this time, there will be no kicking the can down the road.. There has to be some changes made, that was the agreement between the lawmakers and the former President to keep the U.S. from defaulting a couple of year ago.. I’m sure I told you then, that this would end up being a fiasco in 2017. Well, here we go.

My longtime colleague and good friend, Chris Gaffney (hey! Chris, remember me?) gave you all a fair warning of this coming date in a Sunday Pfennig that was posted online and in your email box on January 15th! (I had to search backwards to find it, and you can too should you want to read it again!) No, wait, here’s a URL link to it that will take you right to the article, how sweet is that? here’s a snippet of what Chris had to say about this debt ceiling showdown.

“One possible scenario is another government shutdown and threats of government default. Under that scenario, we could see a crisis of confidence in the U.S. dollar-at least in the short term. Considering the current sentiment toward stocks is very positive, we could also see a correction in the stock market. And, let’s not forget the Fed. If this debt ceiling debate ends up leading to market uncertainties, the Fed may have to delay its planned rate hikes for 2017
These could all be positive factors for gold. Remember, in 2011 and 2013, the last two times we had a heated debt ceiling debate, gold tended to perform well. On both of those occasions, it prospered during the turmoil because of its “safe-haven” status. So, pay close attention to this upcoming debt ceiling debate. It could be the trigger that pushes gold higher in 2017.”

Alrighty then, that’s two warnings Jan 15, and March 1, in the books.. I remember a few years ago, I wrote several warnings about something in both the Pfennig and the Review & Focus, and when it all blew up, there were people that said they had received no warning.. Hmmm.. OK, that’s water under the bridge, but this is a second warning..

The Bank of Canada (BOC) meets today, and I would be shocked to the bone if they moved rates today.. So, I’m expecting nothing, and the BOC will leave everything Steady Eddie..

The price of Oil climbed back above $54 in the past 24 hours.. But with the dollar so strong from the Fed speakers’ rate hike talk, dollar strength is too much to overcome for the Petrol Currencies, and they are getting whacked just like their brothers in arms..

Well, there was an omission when I ran through the U.S. Data Cupboard yesterday. I completely ran right past the U.S. Trade Balance report for January, which printed and caused me to call myself a dolt once again. ( I could blame it on the rain, right Milli or Vanilli? HAHAHA) So, the Trade Balance printed and it widened once again, this time to $69.2 Billion in January! WOW! It was $64.4 Billion in December, so it is definitely going in the wrong direction, and I say that’s a direct result of a too strong dollar. Exports are nascent at best, and therein lies the problem.. We can’t sell what we do make or mine or frack.. We’ll never be able to compete with the low cost producers of the world, unless.. the dollar is allowed to weaken to levels not seen before in the weak dollar trends

The President sure made a big deal out of the Trade Deficit last night didn’t he? And Yes, I watched it, as the only other thing I could find on the TV that would interest me was my beloved Missouri Tigers playing basketball, or attempting to play basketball I should probably say, and since they were getting beat by 16 when I turned it on, it couldn’t hold my attention. bad basketball if you ask me! But getting back to the Trade Deficit.. I’m sure President Trump’s economic advisors have told him to read the Pfennig each day, no, wait, I’m sure they have told him that the U.S. must have a weaker dollar to be competitive around the world.

The U.S. Data Cupboard yesterday had the first revision of 4th QTR GDP, and while it was expected to jump higher from 1.9% to 2.2%, it didn’t.. Instead it remains bang on the first print number of 1.9%, so no sign of strong economic growth found here, but that’s not going to stop the Fed from hiking rates in a couple of weeks.. We also saw the S&P/ CaseShiller Home Price Index, tick higher for December posting a gain of 5.8%.. What this data doesn’t tell you is the shortage of homes to buy, is driving the prices higher..

Today’s Data Cupboard has two of my fave economic data reports: Personal Income & Spending, which will print for January. The Feb ISM Manufacturing (PMI) Index will print, and January Core Inflation will print.. This afternoon, the Fed’s Beige Book will print, but this event has become so. How should I say this. Hmmm.. OK, got it.. it has become so out of touch with the markets because it’s so stale.. And Feb. Motor vehicle sales will also print.. These car sales and loans are just completely out of control , if you ask me!

To recap.. the Fed speakers were all singing from the same song sheet yesterday in their talks and when they all talked about or hinted about a rate hike for March, the odds for a rate hike went higher, along with the dollar. The dollar bugs had to love it, and the currencies all got sold, except the Chinese renminbi, along with Gold. Chuck points out that 3/15 will be like the Ides of March, as our debt situation gets put under the gun.the U.S. Trade Deficit widens again, this time near $70 Billion for a month! And Chuck thinks that the President would be wise to read the Pfennig!

For What it’s Worth. Mohamed A. El-Erian, is a well-respected analyst and he wrote an op-ed that showed up on Bloomberg, and it’s about The Fed rate hike that now has fed fund futures odds at 52%… You can read the whole article here

Or here’s your snippet: “Judging from the insights of Fed Chair Janet Yellen and some of her colleagues, the FOMC would need stronger wage-growth data to feel comfortable raising rates for what would be only the third time in 10 years. As a result, the jobs report for February, which will released March 10, will have an important, if not deterministic, influence on what the Fed does when its top policy-making committee next meets on March 14-15.

A green light from the wage data would do more than significantly increase the probability of a March rate hike. It also would allow the Fed to slowly evolve away from its tactical posture and toward one that involves more strategic consideration.”

Chuck again.. I agree with Mr. El-Erian, the employment cost index (ECI) has been lagging the wage increases that the BLS claims are there, so in the end though, I just don’t see the Fed bypassing March as an opportunity to hike rates!

Currencies today 3/1/17. American Style: A$ .7656, kiwi .7115, C$ .7568, euro 1.0527, sterling $1.2329, Swiss $ .9901, .. European Style: rand 13.0690, krone 8.4138, SEK 9.0460, forint 292.24, zloty 4.0808, koruna 25.6373, RUB 58.12, yen 113.76, sing 1.4070, HKD 7.7631, INR 66.75, China 6.8682, peso 20.02, BRL 3.1075, Dollar Index 101.60, Oil $54.15, 10yr 2.43%, Silver $18.40, Platinum $1,025.39, Palladium $778.62, Gold $1,245. 50, and SGE Gold $1,267.76

That’s it for today.. Well are you ready for spring? Because it’s just around the corner Crazy day yesterday, as we had “errands” to run, and before you knew it the afternoon was about over, so I sat down in my chair and fell asleep! I actually didn’t want to wake up this morning, but.. I couldn’t leave you out in the cold like that! HA! Game today at 1:05, I left all my tickets with office people yesterday, and they are going to attempt to swap two of my tickets in the shade to two in the handicapped area. Yes, it’s come to that for me. The steps are just too much for me, especially with this new Stay Puff Marshmallow Man body I have from the steroids.. So, hopefully they were able to do the swaps for me.. R.E.M. takes us to the finish line today with their song: Man on the Moon. the first time we went to Spring Training as a family was 1993, and we drove to St. Pete, FL, where the Cardinals were at that time. Well, during the drive, we had an R.E.M. tape I had made of the
ir best hits, and Dawn was convinced that Michael Stipe wasn’t saying, “Andy have you heard about this one” Because she had a brother named Andy, and she didn’t want his name being said in a song.. the kids were young then, so those sibling problems were present, and I just ignored them. The two of them are very close now. Ok, I’ve rattled on too long, got to get out of your hair today, so go out and make this a Wonderful Wednesday, and Be Good To Yourself!

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

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