Getting Themselves Back Together Again.

* Dollar consolidates its gains.
* Why is that though? .
* BOJ has gone insane!
* A New & Improved Debt Clock! .

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

Good Day. And a Tom Terrific Tuesday to you! I had to get myself back together again this morning. I’ll explain. I was greeted this morning by Jackson Browne and his song: Later For The Sky. I used to play that song on my guitar, and sing along of course. Every single time I would play it, or just hear it played I would choke up, and tear up. Hey! Don’t laugh! It’s a very sad song about a relationship gone bad. So, after the song played, I had to clear my head, get re-seated in the saddle, and sit tall and straight. In other words, get myself back together again.

The currencies seem to be getting themselves back together again too this morning, after a day and a half of whacking by the dollar on not only Yellen comments, but Fed member Fischer also chimed in too, and I left him out of the equation yesterday. My faux pas. not that the currencies are in any kind of rally mode, but more of survival mode. They have hung to levels for a day now, as most of the currencies are trading in yesterday’s clothes, and the Dollar Index has inched higher 95.77 VS 95.63 yesterday. So, the dollar’s gains seem to be consolidating, and that has me thinking.

Oh no! I hear you saying! No worries, I’m not going down a rabbit hole here. I just want to point out something that seems odd to me, and that is that the markets are now thinking that there’s a 40% chance of a rate hike in September, and an 80% chance that there will be a rate hike this year.. And the dollar is not taking off to the moon. Gold has held steady Eddie, and so on. So, then that got me thinking of the question why this is as it is? Well, have the markets come to the conclusion that IF, or When the Fed does hike rates that it’s not an indication of a rate hike cycle? That the rate hike would be independent and tied to economic data only? It sure looks that way to me, folks.

Which means, that should the Fed skip the rate hike in 3 weeks then the dollar would get punished, but the damage would be contained, for then the sights would quickly get set on the rate hike later this year. And if the Fed does hike rates in 3 weeks, the damage to the currencies and metals would be limited and short-lived. Well, that’s how I see it all playing out, and of course I could be wrong. At least I take a position, and stand behind it until it plays out, right or wrong, I was out on the limb early.

And before I stop the discussion on rate hikes here it’s important to hear what Mr. El-Erian has to say about a rate hike. For those of you who have lived under a rock for the last decade, Mr. El-Erian used to be a big shot at PIMCO and now is the Chief Economic advisor at Allianz. So, he knows his stuff. And Ty Keough sent me this quote. “when push comes to shove, Fed officials will refrain from hiking rates and widening their divergence from central bank policy elsewhere around the world.” – Mohamed El-Erian

The data deficit that we’ve experienced here and abroad is about to come to an end, but not today. UGH! Tomorrow we’ll see Canadian 2nd QTR GDP, and July Trade Data on Friday. And we’re expecting the Harmonized Inflation reports from the Eurozone in the next week, but for crying out loud, there’s just not that much to talk about around the world. So, that means I get to concentrate on what’s happening here in the good ole U.S.A.! Where I still stand at attention with my hand over my heart and sing out loud, to the National Anthem. I’m just saying.

Well, they’re talking about it again. What? You may be saying. Well, I’ll tell you! Remember Kenneth Rogoff he used to be with the IMF, and used to be about deficit reduction and stuff I could get my arms around. Now he’s in the private sector and well, he’s writing about getting rid of $100, $50, and $20 bills in the U.S. Oh, he gives us the usual suspects as for the reason why to do this, but what he forgets is that a very large portion of Americans use large bills, not just crooks! I just shake my head in disbelief that people keep talking about this. Because, well, the more people like Lawrence Summers, and Kenneth Rogoff talk about it, the closer we are to the implementation of this, what should be forbidden, policy. First it would be the $100’s, then the $50’s and then the $20’s, and if that works real well, then you had better be ready for the rest to go!

OK. there is something I want to talk about that’s going on in Japan. The Bank of Japan (BOJ) and the Gov’t Pension Investment Fund (GPIF) ran out of bonds to buy, and now they’re buying stocks. And in essence what the Japanese Gov’t has done, has become the largest shareholder of 474 Big Companies in Japan. Wait, What? Yes, that’s correct, and just announced last week, the BOJ said that it would nearly double its annual purchases of equities. Is this not insane or what? Central Bankers have gone mad! What is this going to lead to? Well, think about it for a minute, now that you’ve come back down from chair that you climbed up on to yell at the walls. The BOJ has to print yen to buy these equities, right? You know, just like they had to print yen to buy the Japanese Gov’t Bonds (JGB’s) they’ve been buying for decades now. So, that’s a lot of yen that has been printed, right? And what has always been the key to currency valuation? That Central Banks didn’t debase the
currency, and increase the money supply. Well the BOJ has debased the currency badly, and obviously they have blown money supply out of the water. And yet yen remains well bid. This is all insane folks, and one day, there will be a Minsky Moment here, and well, all will not be good.

Yesterday, I mentioned that the U.S. will print their August Jobs report on Friday, of which al refer to it as the Jobs Jamboree, where the markets all get together and sing songs while waiting on the number. Well, I wanted to mention to you something that I read yesterday. That the BLS version of the jobs #, has been nearly 5 times as volatile as the ADP Employment Report. As I’ve said for a long time now, we should scrap the BLS with their surveys, and hedonic adjustments, and just go with the ADP report, for it will be close enough to the actual numbers as we’re going to get! And right now, ADP has a forecast on their report, which will print on Wednesday, of 175,000.

I know, I know, I told you yesterday, for those of you who were paying attention that is, that there would be no data on Wednesday, but I needed to look again. UGH! Yesterday’s Data Cupboard had two of my fave data prints, Personal Income and Spending. The July print of these two were better than expected. Which is strange, given that July Retail Sales were not very good, remember? I was surprised by the weak July Retail Sales because back-to-school sales were included. So riddle me this Batman. How can Retail Sales be disappointing, but Personal Spending was up. Hmmm. I’ll have to go back to the Bat Cave to think that one through Robin!

Anyway, Personal Income was up 0.4% VS June, and Spending was up 0.3% VS June. And the Personal Consumption Expenditures (PCE) the Fed’s preferred inflation calculator was up only 0.1% on the month and 1.6% year-on-year. Hmmm. Did everyone see that? PCE is only 1.6%, and doesn’t the Fed want 2% inflation before they hike rates? And let’s skip back 6 months or so. Weren’t the Fed members telling us back then that we would be seeing rising inflation by this time? Where’s the Beef?

Today’s Data cupboard has Consumer Confidence for August. I’m trying to figure out what to think about this data print today. The consensus range is wide at 94.5 to 98.3. The Prior print was 97.3, and given that the stock market has only gained 0.3% this month, I would think that Confidence is down. But the people they survey always surprise me.

Well, Gold gained a couple of bucks yesterday, but is giving them back and more in the early morning trading today. I have to show you something that’s pretty cool. Now longtime readers know that I used to refer to the Debt Clock very often, but then the numbers starting become comfortably numb to readers, so I stopped. But a dear reader sent me a note yesterday and said that the “new Debt Clock” has a new feature that give us what the Gold price should be. And the same for Silver. Basically they take the year over year increase in Money Supply and divide that by the yearly production of Gold (or Silver). computed this way, Gold would have a price of $8,188 per oz. and Silver would have a price of $896.59 per oz. You can find the new and improved Debt Clock here:

You’ll also be able to check in on the Unfunded Liabilities that keeps growing every day, due to the 10,000 Baby Boomers that retire every day, and will continue to do so for many years (15 I think ) . According to the Debt Clock, the Unfunded Liabilities are $103.3 Trillion, and even that’s a conservative number. Professor Lawrence Kotlikoff says that when you calculate everything on and off the balance sheet, the total debt number is north of $200 Trillion.

There’s a report out this morning on Bloomberg that says Central Banks have been cutting their purchases by 40% during the 3 months through June, compared with the same period last year. So, they were halting their Gold purchases during the best 1/2 – year that Gold has had in 40 years. I’m telling you that these Central Bankers are insane folks. There’s no other excuse for their actions, for if they were of sound mind, they would stop this buying of bonds and equities and keep buying Gold!

To recap. Not a lot happening again and the currencies have held their ground after the whacking they took Friday and Sunday night. Chuck continues to question the sanity of Central Bankers, and so on. Ken Rogoff is talking about taking 100, 50 & 20 dollar bills in currency out of the system. And Japan has become the largest shareholder of 474 companies in Japan. That’s insane! Gold gains a couple of bucks and gives them back this morning, and there’s more data than Chuck originally thought yesterday!

For What it’s Worth. Good thing Ed Steer’s letter is in my mailbox early each morning. That way I get to see what had interested him, and see if it flies with me! I really think that everyone should read Ed Steer, for he gives you things to think about every day. You can find him by just going to Google and putting in Ed Steer. With that in mind, I found this highlighted on his letter this morning, and it’s about how Germany wants the UK to pay for BREXIT. And can be found here:

Or here’s your snippet: “German economy minister Sigmar Gabriel has said that Britain must not be allowed to “keep the nice things” that come with EU membership without taking responsibility for the fallout from Brexit.

As Theresa May called a cabinet meeting to discuss the UK government’s Brexit strategy on Wednesday, Gabriel warned if the issue was badly handled and other member countries followed Britain’s lead, Europe would go “down the drain”.

“Brexit is bad but it won’t hurt us as much economically as some fear – it’s more of a psychological problem and it’s a huge problem politically,” he told a news conference.

The world now regarded Europe as an unstable continent, said Gabriel, who is the deputy to chancellor Angela Merkel in Germany’s governing coalition.

“If we organize Brexit in the wrong way, then we’ll be in deep trouble, so now we need to make sure that we don’t allow Britain to keep the nice things, so to speak, related to Europe while taking no responsibility,” Gabriel said.”

Chuck again. You know, ever since the BREXIT result came in to leave the European Union, all eyes have been on Germany to give everyone the way out of danger for the 27 members who remain in the EU.

Currencies today 8/30/16. American Style: A$ .7560, kiwi .7240, C$ .7670, euro 1.1170, sterling 1.3090, Swiss $1.0240, European Style: rand 14.4210, krone 8.3105, 8.5057, forint 276.69, zloty 3.8865, koruna 24.1903, RUB 65.89, yen 102.20, sing 1.3605, HKD 7.7568, INR 67.02, China 6.6777, peso 18.59, BRL 3.2307, Dollar Index 95.77, Oil $45.77, 10-year 1.58%, Silver $18.84, Platinum $1,077.73, Palladium $697.17, and Gold. $1,323.20

That’s it for today. Except to wish my old latte’ Buddy, Michelle Boschert, a Big Happy Birthday! Yes, back in the day before Cancer entered my life, it was a Friday ritual for Chuck and Michelle to go to the Bread Co. and get Latte’s (a triple expresso for Frank!) and bagels for the office. Michelle runs our Operations area for Global Markets, which includes World Markets, Brokerage and Wealth Management. So, Happy Birthday Michelle, should we go get a latte’ for old times’ sake? Cards blow a lead then comeback to win. And win in a very strange manner, but, hey! They won! Last night I was going through some boxes that my wife asked me to go through and decide if I wanted to keep stuff in them or not. In them was the turntable I bought in 1979, a dual cassette deck, a VHS player, and all kinds of wires, and I decided. drum roll please. to get rid of it all! I have a new turntable, a Blu-Ray player, and CD deck now. Out with the old, and in with the new. happens in busines
s all the time, so why not with entertainment equipment? I’ve gone on way too long today. I hope you have a Tom Terrific Tuesday! Be Good To Yourself!

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