Good Bye 2015, Hello 2016.

* Currencies are mixed and in tight ranges.
* Dollar has mini-rally after data yesterday.
* Riksbank isn’t happy about krona strength VS euro
* Currency Trends.

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

Good day. And a Wonderful Wednesday to you! Well, it’s not so wonderful for the residents of my little river town. The Meramec River is supposed to now crest sometime between later today and early tomorrow, at an all-time record level, more than 3 feet above the old record set in 1982. For those of you who have to deal with this stuff before, you know all the preparations that have to be made before the river crests. My problem comes from the rising river, that backs up the creek that normally has no more than a foot of water in it, that borders my back yard. We had to remove all our pool equipment yesterday, what an undertaking! And plug all the openings in the basement in case the sewers back up. The Local Wastewater Treatment plant is under water right now, and that’s not a good thing. It was too dark, this morning, for me to see how much the creek had risen overnight so, I’m sure Kathy will call me and give me an update once the daylight is upon us. Not a great way to end a year, or start a New One! The Main Ingredient greets me this morning with their great song: Everybody Plays The Fool.

WOW, that song could be applied to a lot of thing that people play the fool for. But I won’t get into that today. In fact, there’s not much to get into today other than Flood updates! The Biggest news of the overnight markets is that Sweden’s Riksbank Gov. Ingves, issued a statement that said that the Riksbank was not happy with the strength of the krona VS the euro, and that if it continued that the Riksbank would look to intervene to stop the rise. Hmmm. I look at this situation like this. Ingves should be writing the President of the European Central Bank (ECB), Mario Draghi, and telling him to get off his duff, and work to push the euro higher, so Ingves doesn’t have to manipulate his currency. But that’s not going to happen, but it’s what would happen if I were King of the Riksbank!

So. There you have it. Thank you for coming, it’s been my pleasure in informing you, please tip the waiters and waitresses and drive home safely, for I hope to see you again next time. HA! As if! Well, let’s see what else is out there today.

Well, I see that nothing has changed for the Russian ruble, as it is getting taken to the buzz saw again today. And the Chinese renminbi continues to go down the path of devaluation. The renminbi reached a 54 month low VS the dollar yesterday. So. 4 ½ years ago, what were we doing? I know that I was missing something that I should have seen easily, but was drinking the Kool-Aid, and being blinded by the light from the renminbi, Aussie and New Zealand dollars, strength. But 54 months ago, we were already looking at an end of the weak dollar trend. Here’s what I’m talking about. The euro was trading around 1.45. Today it’s 1.09. And the Dollar Index was 74.63, and today it’s 98.25. So, since we’re heading into the 5th year of this dollar strength, the question is simply how much longer will it last?

Ahhh grasshopper, that’s the $64 question isn’t it? Well, if you read anything I’ve written lately, you would probably put two and two together and come up with a time frame wouldn’t you? Of course you could! I wear my thoughts out on my sleeve folks, and I put them down here, not always in black and white, because that would get me in trouble, but always there, you just have to put two and two together. So, for new readers, if there are any, or for any of you not paying attention in class, or had to miss class several times to get your braces tightened, I see a recession on the horizon. Junk Bonds are telling us, the economic data is telling us, and the rest of the world is telling us. But the Fed doesn’t see it right now, but by the time they do see it, they will be so far behind the 8-ball, and the dollar will see the end of its strong trend.

Currency trends since 1971, when The Gold system met its match in Richard Nixon, and currencies began to float, have averaged between 5 and 7 years. Now the last weak dollar trend lasted 9 years, pretty long for a currency trend, but there were times during the weak dollar trend, that we saw dollar strength, like in 2005, and 2008.

I know some of really smart, and astute readers are saying right now. “But Chuck, you’ve always taught us that a trend begins for a fundamental reason, and doesn’t end until that fundamental reason is corrected, or is well on the way to a correction, or there’s some sea-change event in the world” So, the dollar went into the weak trend in 2002 because of debt, and that sure didn’t get corrected did it? But, what have I always told you. The euro is the offset currency to the dollar, it dominates the Dollar Index, and so, how the dollar goes, the euro does the opposite. Well, take a trip back to 2011. Remember the PIGS? Talk about a sea-change event in the world! Suddenly, we had countries of the Eurozone with astronomical debts, and about to default, and leave the euro. So, the euro began getting battered, and that changed the look of the dollar.

So, where was I when I went off on that tangent? Oh! The Chinese renminbi! Remember that? I don’t like it when a country uses their currency as a tool for punishment to another country, and I believe that’s exactly what the Chinese are doing here with the renminbi. I’ve explained their reasons for doing so a few times already so I won’t go there again, but it’s just not right.

So. I mentioned junk bonds above, and a few times in the past, and how they seem to be in real trouble right now. Well, my guitar playing buddy, and investment analyst extraordinaire, Steve Sjuggerud, was thinking out loud yesterday about the Fed’s call that by the end of 2016, their Fed Funds rate will be 1.375%… Steve, like Chuck, doubts that the Fed will get anywhere close to that figure because of problems here in the U.S. Steve focused on the problem with raising rates in an environment where junk bond rate spreads are quickly rising, which normally is a sign of trouble ahead, and also a sign that the Fed would be looking to cut rates, not raise them. So, will the Fed continue on with their search for credibility with the markets, or fall back on what they’ve always used as an indicator of trouble ahead?

Oh and for those of you keeping score at home. Chuck’s GDP Tracker shows 4th QTR GDP at 1.5%, and adding to the flavor of that Tracker. The Atlanta Fed tracks GDP too, and they show that 4th QTR GDP will print at 1.3%… Don’t forget that 3rd QTR GDP miraculously printed at 2.1%… So, GDP is going the wrong way. Hmmm. plays nicely in the sandbox with what I just talked about above, eh?

Yesterday, the currencies, while trading in tight ranges, lost some ground to the dollar, after the data printed from the Data Cupboard, so I guess we need to go there to find out why the dollar had a mini-rally yesterday.

Well, the U.S. Data Cupboard may be searching for items this week, it didn’t have to search for long yesterday. First up was the Trade Deficit for November. The Trade Deficit was $60.5 Billion, pretty close to the expectation. But here was the real difference maker yesterday, and it was the previous month’s revision. So, originally, the Rocktober Trade Deficit was printed at $58.4 Billion, but was revised to.. $61.27 Billion! WOW! Makes you wonder what the November revision will look like, eh? Well, I continue to blame this on two things. 1. The dollar is too strong for its fundamentals. 2. Apparently our exports are not high quality, otherwise the quality would offset the strong dollar, (see Germany / euro for illustration). I would say that the dollar didn’t get any love from this data. So, moving on.

In addition to the Trade Deficit, we had the S&P/CaseShiller Home Price Index for Rocktober, which showed a more than 5% increase in home prices during that month, on a year on year basis. Ahhh, here we go. Remember this was before the rate hike, when people / buyers were scrambling to get “in” before mortgage rates went higher, and it was definitely a “sellers’ market”. And then finally, as I suspected the Consumer Confidence soared higher in December from 92.6 to 96.5! Way to go USA! USA! USA! That’s what this data seems to be saying, right? The Fed hiked rates this month, that means everything in the U.S. is just peachy, so why wouldn’t consumers be confident? Well, hopefully that all works out OK for them, but I doubt it. But for now, that was enough to push the dollar higher on the day. UGH!

The U.S. Data Cupboard today only has the Pending Home Sales Data for November. Nothing to move the markets, so, another day of drifting in the currencies and metals is in store today.

Well, guess which currency is having its best month in a very long time? Give up? Well, it’s none other than the Japanese yen. I have to say that this all surprises me quite a bit. I really thought that yen would trading much weaker by year-end. But it’s not! One could point to “safe haven flows” for year-end as the reason for yen’s surprising strength (I say surprising strength with tongue in cheek, as 120 yen is not truly yen strength), but I think it’s more than that. There’s something here, and I can’t put my finger on it right now, but at this point I’m looking at this “yen strength” like a star that’s burning out. It burns the brightest right before the burn out.

Yesterday, I talked about the how the Canadian dollar/ loonie had been resilient in the face of the plunging commodity prices and a Fed Rate Hike. But it was still weakening, just not as quickly as one would think given these pot holes on the road to currency appreciation. But yesterday, the loonie put in the best performer for the day in trading, and with the dollar mini-rally going on VS most of the other currencies, the loonie strength stood out front and center, chest protruding, the wind blowing its cape, and the loonie once again stood against evil for truth, justice and the Canadian Way! HA!

Sure the Russian ruble also has the sanctions to deal with, but look at the rot on the ruble’s vine from the weak price of Oil, compared to how the loonie is standing up to it. Pretty impressive, don’t you agree?

The Aussie dollar (A$) is knocking on the door to 73-cents and has been for the last couple of days. It’s as if the A$ traders don’t want to push the A$ past 73-cents only to come back next week when everyone is back at their desks and they decide to take it back down.

The first week of the New Year is always interesting, and in fact, if I remember correctly, (Hey, I do have chemo brain, so things do get hazy for me) the U.S. dollar has been in rally mode the first couple weeks of each New Year in recent years. So, we might as well, get strapped in for that, because we usually hear all about how great everything is going to be in the New Year. And we all know where that goes by March!

Well, Gold is flat to down a buck or two this morning. Gold is set to record its 3rd consecutive annual loss. UGH! When do the price manipulators call off the dogs, and say, “no mas?” That’s if they even think that! I’ve had it with the price action of Gold, and I’ve told you that for months now. None of it makes any sense to me. Now, if Gold were trading over $2,000 an ounce, then that would be a different story, that would have meant that the price manipulators didn’t come in to sell Gold by the truckload when it reached $1,900 a few years ago. All, I’ll say is that if things come to fruition in 2016, as I see them playing out, I won’t be complaining about the price manipulators any longer!

To recap. Another day of drifting today for the currencies and metals, with very little in the way of economic data to give direction to traders. Yesterday, saw a little mini-rally for the dollar, after the Home Price Index rose 5% and Consumer Confidence soared higher in November. But the ranges were tight, and the moves were small. Chuck explains the dollar strength trend that began 4 ½ years ago, in terms of the euro and Dollar Index. And the Riksbank isn’t happy about krona strength VS the euro, and Riksbank Gov. Ingves came out and said that he would intervene should the krona get any stronger VS the euro. UGH!

For What It’s Worth. Remember last year when I explained how they do things in Switzerland when it comes to referendums? I did that when the Swiss were going to vote on the Central Bank Gold. Well, the Swiss are at it again, and this time they garnered enough votes to have a referendum that would decide if the Swiss banks can create money. Here’s the link to the story in the Telegraph:

And of course, I have a couple of snippets for those of you in a rush.

” The Swiss federal government confirmed on Thursday that it would hold the plebiscite, after more than 110,000 people signed a petition calling for the central bank to be given sole power to create money in the financial system.

The campaign – led by the Swiss Sovereign Money movement and known as the Vollgeld initiative – is designed to limit financial speculation by requiring private banks to hold 100pc reserves against their deposits.

“Banks won’t be able to create money for themselves any more, they’ll only be able to lend money that they have from savers or other banks,” said the campaign group.”

Chuck again. Those wild-n-crazy Swiss! HA! Always bringing up a new referendum to vote on. I actually like their process!

Currencies today 12/30/15.American Style: A$ .7295, kiwi .6850, C$ .7205, euro 1.0930, sterling 1.4800, Swiss $1.0105, . European Style: rand 15.4390, krone 8.7650, SEK 8.4075, forint 286.37, zloty 3.8790, koruna 24.7200, RUB 72.91, yen 120.50, sing 1.4139, HKD 7.7505, INR 66.38, China 6.4895, pesos 17.28, BRL 3.8935, Dollar Index 98.24, Oil $36.94, 10-year 2.29%, Silver $13.90, Platinum $889.44, Palladium $558.70, and Gold. $1,069.14

That’s it for today. Well, if you’ve ever been through the St. Louis are and headed Southwest, you were on highway 44. A major interstate highway. Well, just at my little river town, and going west for 10 miles, it’s now closed because it is flooded. It’s still quite dark outside, so no update from Kathy yet. After all the commotion of getting the pool equipment removed and moved to higher ground, and the other things I had to do, was whipped, my hip hurt, and I just plopped into my chair and didn’t want to move! That’s too much for an old man like me! HA! Well, our Blues won in Overtime last night. Remember when hockey games just ended in a tie? I like the overtime format, but not the shootout format. And my Missouri Tigers basketball team ended their 3-game losing streak last night, but I think it was a game VS “bye”. Just kidding, way to go Tigers! I’m really late today. Well, this is the last Pfennig of 2015. It’s been an awful year on a lot of fronts, but, I’m still here. I still get to write every day, I still get to tell stories and sing to my grandkids, I still get to spend time with family and friends, I still get to enjoy spring training baseball, and all the other things that I still get to do, so it wasn’t a wasted year. I hope you have a Happy, Healthy, and Prosperous New Year! Onward and Upward to 2016. See you next year!

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