Fed Week Begins!

* Currencies are mixed this morning.
* Yen leads some currencies higher.
* Bond craziness continues.
* Get Board Games out, it’s a two-day meeting!

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

Good Day. And a Marvelous Monday to you! What a great weekend, weather wise, and Cardinals baseball-wise! It’s hot, the summer heat has arrived early, but not really that early, as most people use Memorial Day as their “start to summer”. No need to wait for official calendar dates! Journey greets me this morning with their song: Girl Can’t Help It. I played an “early Journey” song for my good friend, Rick on Saturday, as he’s good at remembering what bands played what, and even he couldn’t figure out who did the song. Recall that in the early days of Journey, after they split from Carlos Santana’s band, they didn’t have Steve Perry yet, and their sound was completely different..

Well the BREXIT stuff is really playing havoc with pound sterling / pound, as I said it would, and that the direction would gyrate with the results of each poll. Well the latest poll over the weekend had the “leave the EU vote” at 55% and the “don’t leave vote” at 45%.. And the pound is getting whacked. The currencies are mixed this morning, with the pound leading the pack for the currencies under water to the dollar, and Japanese yen is leading the currencies with their heads above water. Every time I see yen on the move to stronger value VS the dollar, I have to laugh/ chuckle/ snicker thinking about Bank of Japan (BOJ)’s Kuroda, and PM Abe, just going banana’s because yen is not weaker, and gaining instead. I guess that the James Rickards’ call that there was a Shanghai Accord is holding water with yen. not so much with euros, but with yen it looks real.

Well, the Central Bank of Russia (CBR) did cut rates on Friday. I had thought they would skip this meeting, and wait to see what the Europeans did with their vote on whether to extend the economic sanctions against Russia. But they didn’t. (Maybe they know something? ) And they cut rates by 50 Basis Points (1/2%) leaving their internal rate at 10.5%… I guess the CBR figured that they had better get this party started, since they forecast that inflation is going to fall to 4% by the end of 2017. That could mean lots more rate cuts folks. And put additional pressure on the ruble.. That is, IF the Europeans don’t drop the sanctions.

Another thing weighing on the ruble right now is the slippage we’ve seen the past few trading days with the price of Oil.. Oil’s price this morning is trading with a $48 handle, that’s $3 dollars less than its price last week. The lofty levels of all the Petrol Currencies on that day that Oil traded at $51, have taken a few hits in recent trading. The ruble, Norwegian krone, Canadian dollar and Brazilian real (and we can even throw in the Mexican peso) have all backed off their stronger looking levels from last week.

Well, the craziness in bonds continues. On Friday morning, the 10-year yield had fallen to 1.65%, and from what I could gather from bond guys is that the liquidity couldn’t keep up with the pace of the yield drop. That’s a disaster just waiting to happen folks.. Liquidity is no big deal, until there isn’t any liquidity! And today’s level in the 10-year Treasury’s yield is 1.62%, so the fun times keep rolling for the bond boys. Just remember this, the lower that yield goes, the more pain it will cause when it reverses. Of course when it reverses is the big question that’s on everyone’s minds (that follow bonds), and has caused Chuck many a headache over the years.

Remember what I just said there folks.. .Liquidity is no big deal, until there isn’t any liquidity! That’s when you’ll wake up one morning, and turn the TV on, and hear and see chaos going on with rising yields. I’ve awakened quite a few days in the past 7 years thinking that’s what I’ll see, and so far, nothing even close! UGH!

The Aussie (A$) and New Zealand (kiwi) dollars respectively are both attempting to recover lost ground from Friday. I’m still not accepting the idea that the A$ could fall to record lows, which would be below 47-cents, as stated by a fund manager in Sydney, that I told you about on Friday last week.. UGH! That’s the kind of thinking that gets a currency in trouble! Sure, the A$’s direction can be heavily influenced by the Chinese economy, and that would mean that this fund manager is joining the ranks of analysts that believe China won’t be able to pull itself out of its recession. I just don’t get these people who don’t believe that China can’t work itself out of the recession. It’s just a recession! Countries used to have them all the time! Booms and Busts!

And get this, now this is another novel idea by the Chinese, Oh the Humanity! There are reports that China is ready to accept the volatility that would likely follow should they allow troubled banks to go bankrupt! Are you kidding me? No bailouts? How can they get away with that? I’m shocked that the rest of the countries that no longer believe in booms and busts aren’t just going bananas and calling the Chinese officials names! I can hear these countries saying, ” Where do the Chinese get off thinking that just letting failed banks go bankrupt?”

I read a piece in the CFA bulletin on Friday that made me want to scream, “Who are you trying to kid?” First of all I’ve had readers tell me not to listen to or read the Economist before, they had their reasons, but now I have mine. The Economist ran an article titled: U.S. Economy Might Not Be As Shaky As Jobs Data Suggest.. Well, that might be true, but at the same time I was looking at 10 charts on the U.S. right now. The charts range from Student Loans , to Food Stamps, to Federal Debt, and so on.. Well, Student loans, Food Stamps, Federal Debt, money printing, and Healthcare Costs all show nearly straight lines going up the chart, while Labor Force Participation, Median Family Income, and Home Ownership all have charts with the arrows pointing downward.. These are not good things for the U.S. economy, so don’t let the Economist steer you in the wrong direction folks. They base their findings on a report by the Federal Reserve. you know those renowned authors that al
so found green shoots, and the Fed said that 69% of the Americans they surveyed think they are doing OK or living comfortably. What a Crock! I’m ashamed of the Economist for taking this Fed report Carte Blanche. Where did they do this survey, and who did they talk to, etc., etc. And were there any hedonic adjustments made to the data?

Well, Gold had “fair day” on Friday closing up $3, but this morning Gold is up nearly $11 (10.80) as I write.. I know I keep telling you that one of my fave writers is Grant Williams, he of the Things That Go Hmmm, letter, and one of the people responsible for the successful “Real Vision” . Well, he made a comment about the Gold manipulation, that got me really going the other day, while he was being interviewed in Switzerland. Let’s listen to what Grant Williams says. “”The stories of rigging in the gold and silver markets are legendary. There are so many of them. Some of them are wackier than others, but if the last three or four years have taught us anything, it’s that all financial markets are rigged and I truly believe they are. I’ve been involved in financial markets for 30 years, and so if you want to tell me that they can rig Libor, one of the key rates in the entire world, but no one wants to rig the gold and silver market, I think you’re out of your mind.”

The U.S. Data Cupboard is empty today.. It’s been 3 straight days with only a couple of 2nd and 3rd tier reports in the hopper. But tomorrow that all changes, with the May Retail Sales. I’ll tell you right here, right now, that the BHI tells us that May Retail Sales will be quite a bit slower than the blowout number of April. What will the Fed do with that? Probably the same they would have done with a strong number.. Nothing, absolutely nothing, say it again!

This is the week that the Fed will be meeting tomorrow and Wednesday… Longtime readers know that when the Fed has one of these two-day meetings that the Fed members get the board games out, and you can hear them shouting “You’ve sunk my battleship” and other things. I just don’t get what takes two-days to do.. You meet, exchange pleasantries, grab some coffee, and a donut, and then take a vote.. Aye, or nay for a rate hike. then formulate a statement to explain what you did. a couple of hours, max! But, they won’t be letting us in on their vote until Wednesday afternoon. Boy, don’t they know that everyone is waiting?

Just to bring you up to date. There’s little chance the Fed will hike rates in June now, thus wiping out weeks of talks by Fed members that led the markets into believing that a rate hike was coming at this meeting. Credibility? It’s fading away.

For What It’s Worth. I’ve been keeping tabs on the Puerto Rico debt problem for months now, and it looks like it’s going to be kicked down the road, just like everything else, right? The House passed a bill to rescue Puerto Rico, and the article can be found here: https://www.washingtonpost.com/news/powerpost/wp/2016/06/09/puerto-rico-fiscal-rescue-is-poised-to-pass-house-as-july-deadline-looms/?wpisrc=nl_rainbow&wpmm=1

Or here’s your Snippet: “The House voted overwhelmingly Thursday to approve a long-awaited rescue package for Puerto Rico that could allow the fiscally troubled U.S. territory to restructure the $72 billion it owes bondholders in exchange for new federal oversight over its locally elected government.
The bipartisan 297-to-127 vote followed months of intense negotiations between House Republican leaders, Democratic lawmakers and the Obama administration. Those talks were punctuated by a high-dollar public relations campaign aimed at derailing any deal that could force bondholders to swallow significant losses.
Thursday’s House vote came ahead of a crucial July 1 deadline, when the territory is poised to default on $2 billion in bond payments. The Senate, however, has yet to act.  Lead sponsor Rep. Sean Duffy (R-Wis.) said that unless the rescue bill becomes law, “the Puerto Rican government is likely to collapse, participants in public pension plans will be terribly damaged, and almost all bondholders could lose their investments.”

Chuck again. What a fiasco. A fluster cuck. I have to think that while no one would benefit from a collapse of the bond market in Puerto Rico, I also think that kicking the can down the road is not the answer! Take your licks now, and then start to rebuild, that’s the answer I think should have been on the minds of lawmakers.. But that wouldn’t get them reelected, so we kick the can down the road..

Currencies today 6/13/16. American Style: A$ .7395, kiwi 7065, C$ .7827, euro 1.12660, sterling 1.4135, Swiss $1.0355, . European Style: rand 15.2115, krone 8.2705, SEK 8.2785, forint 277, zloty 3.8940, koruna 23.9860, RUB 65.81, yen 106.40, sing 1.3560, HKD 7.7629, INR 67.14, China 6.5865, peso 18.75, BRL 3.4195, Dollar Index 94.54, Oil $48.57, 10-year 1.62%, Silver $17.33, Platinum $995.14, Palladium $549.65, and Gold. $1,286.70

That’s it for today.. Well, that was awful news from Orlando Saturday night. Lots of questions, that probably won’t get answers as far as I’m concerned. Thanks to all who sent along well wishes and congrats on the 40th anniversary of Chuck & Kathy. Cardinals sweep the Pirates this past weekend! WOW! The daily improvement of little Braden in the swimming pool is amazing, pretty soon he’ll be challenging Michael Phelps! HAHAHAHAHA! All the kids, their spouses and even Alex’s girlfriend, Molly, and the grandkids joined us for dinner last night, it was a great night, and the kids were very good! Little Delaney Grace was as darling as could be. Loggins and Messina take us to the finish line today with their song: Back To Georgia.. That’s from their great double live album from many years ago! And with that I’m going back to sleep! I hope you have a Marvelous Monday, and Be Good To Yourself!

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