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Happy Valentine’s Day!

* Slight bias to sell turns to slight bias to buy!.
* German GDP shows domestic demand!
* Gold gets sold for 2nd consecutive day.
* Japanese fundamentals. What a mess!

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

Good Day. And a Tom Terrific Tuesday to you! And for the lovers out there.. Happy Valentine’s Day! Yes, I know this is a “made up holiday”, but shoot, when Cupid’s arrow hits you, you don’t care! When this day arrives, my mind always goes back to when I was in elementary school, and we would have a Valentine’s Day Party, and exchange valentines, cards and homemade stuff, and I would always search for the one valentine card in box that would have the exact wording of what I wanted to say to my special girl. I had a different special girl each grade year, so there was a lot of anxiety every year for sure. There was also the anxiety of whether my special girl would reciprocate with a special valentine card for me! Oh, so many years ago now.. Seems like in another life.. But Happy Valentine’s Day to you! Oh! And Al Green greets me this morning with a Valentine’s song: Love and Happiness..

Yesterday morning, I told you that there was a slight bias to sell dollars, but that didn’t last long, as the NY Traders arrived at their desks, and decided that Janet Yellen’s two speeches this week to lawmakers that begin today, would contain enough hints about a March rate hike that they would unwind the slight bias to sell dollars, and reverse the trade to a slight bias to buy dollars.. The Dollar Index traded yesterday morning at 100.79 and this morning it trades at 100.86.. So, as you can see the trading range is tight, like Tupperware!

The euro dropped below 1.06 yesterday, but has popped back up above the figure, on the German 4th QTR GDP print this morning. German 4th QTR GDP rose to 0.4%, not earth shattering, but it was an increase from the 3rd QTR, and more importantly, the German statistical office tells us that there were positive contributions from domestic demand, and net exports were a negative.. Hmmm.. didn’t we just see that Germany posted a strong Trade Surplus number for 2016, last week? So, how could, oh never mind, this stuff all drives me absolutely crazy, so let’s just move along here.

Recall a couple of a month or so ago, I talked to you about the upcoming elections in the Eurozone, and how they would weigh heavily on the euro as we went through the year? Well, the French election is up first, and so the polls will begin to affect the euro, and we all know what the polls meant for BREXIT and the U.S. Election, right? Well, in France, the polls show that the Le Pen Party, (anti-euro) is in the lead. But I’m so jaded toward these polls now that if everyone else was selling euros on this poll’s results, I would be the buyer.. But then I’ve always been sort of a contrarian.

I’ve been watching the Indian rupee in recent weeks to see how it performs with all the chaos going on in that country. It has been chaotic to say the least since PM Modi decided (Not on his own accord either!) to take out the two most popular denominations of rupees.. yes, he rinsed and repeated the reasons why he was doing this, you know terrorists, mafia, crooks, drug dealers all use cash, and this supposedly will make their businesses more difficult to operate. But the unintended consequences went deep in India and put many an Indian citizen without cash, without a bank account and in deep dookie. But.. through all of this, the rupee has weathered the storm, and has actually been on a stealth-like rally. Well, that might not be able to continue though.. Yesterday, India posted their January CPI (consumer inflation) and while it looks good to me, it won’t look so good for interest rates in India.

Here’s the skinny.. Indian January CPI dropped to 3.17% annually, a new low for this cycle. This print beat expectations of 3.24%. That’s good for the Indian economy, and the consumers, but I’m certain that the Reserve Bank of India (RBI), which was thought to be ready to cut rates at their last meeting, but didn’t, will now feel free to cut rates at their next meeting, and maybe even go with a larger cut.. Now, fundamentally, a rate cut used to be called “debasing a currency”.. And currencies that saw their respective countries cut rates, usually would get whacked, taken to the woodshed, and sold like funnel cakes at a State Fair. In recent times, since 2008, things have been backwards and currencies get rewarded for stuff they used to didn’t get rewarded for and vice versa.. That’s why I say that the rupee “might not be able to continue its recent rally” after a rate cut. the RBI next meets in a week, as they have bi-monthly meetings.

And on the other end of the spectrum in currencies is the Japanese yen. And Japan as a country. I’ve long said two things here.. 1. That Japan’s economy is a basket case, and 2. The U.S. is following Japan down this rabbit hole, and the only thing keeping the U.S. from going “all-in” with “turning Japanese, yes, I really think so”, is the U.S. consumer is a spender, and the Japanese consumer is a saver.

Well, the number one question I’m asked, other than if I am available” (HA!), if Japan is in as much trouble as you say they are, how does yen keep from falling off a cliff? Well, I usually say stuff like, yen is still considered to be a Safe Haven currency, because of the size of the Japanese economy, which is #4, in the world behind the U.S. China, and Eurozone.. But when I read stuff like I did yesterday that tells me that 40% of the outstanding Japanese Gov’t. Bonds (JGB’s) have been bought by the Bank of Japan (BOJ) I cringe on yen even more! Keep in mind that the BOJ’s budget for bond buying is 80 Trillion yen per year.. my little calculator won’t go to Trillions, but when I eyeball that number it looks approximately to be around $71 Billion.. That’s huge folks, but then we must also keep in mind that Japan’s debt is more than double their GDP, at 224% So, I guess what I’m saying here is that “Safe Haven status” or not, I wouldn’t touch yen with your ten foot pole! I’ve got more for you on Japan in the FWIW section today, so you won’t want to miss that!

Man, talk about holding a grudge. That’s what kiwi traders have been doing for almost a week now.. Going back to last week, we saw the Reserve Bank of New Zealand (RBNZ) leave their monetary policy holding an easing bias, when the markets were looking for at least an indication that the rate cut cycle was over and the next move in rates would be up, with some even thinking a rate hike could occur at that meeting last week.. That whole scenario for a currency trader was like being left alone at the altar. And if that were you, being left that altar, you would hold a grudge against the person that failed to show up, right? But for how long? And we are talking about kiwi here, I would think that this holding a grudge by kiwi traders would have passed under the bridge by now. But that’s not so, and kiwi continues to slip.. But here I go with my contrarian thoughts again.. I said this last week, so this is nothing new, but kiwi gives us a unique opportunity to buy a currency that has the potential to see rate hikes in the near future, and traders aren’t trying to jump ahead of the curve, which means as buyers we get to have an opportunity to buy while the currency is cheaper, and then wait for the potential rate hike.. I’m just saying..

The Russian ruble continues to inch stronger VS the dollar, but as I said in my Sunday Pfennig from two weeks ago that highlighted the ruble, this currency has come a long way from its depths of a couple of years ago, but also still has a long way to go, to return to the 35 area it traded at before the conflict in Ukraine. I know there’s all this hype going on right now with Michael Flynn, the National Security Advisor, over his contacts with Russian officials before President Donald Trump took office, but all this stuff isn’t hurting the ruble..

The price of Oil remains well bid above the $53 handle this morning. I read a report yesterday, that talked about how the 3 major Oil companies here in the U.S. are having profitability problems and that Oil production here in the U.S. is going to suffer greatly, because of the problems these 3 major Oil companies are having. Of course you won’t hear anyone from the 3 major Oil Companies agree with that article. I’m surprised that the price of Oil didn’t bump up more from this article.. But then, there’s been no sign of problems up to now, so , maybe there won’t be any, and the price of Oil won’t be able to rise on lack of supply scenarios!

Well, Gold got sold for a second consecutive day yesterday, closing at $1,224.70, down $8.20 from the previous day.. Have you seen some of the stories going around regarding the return of Germany’s Gold from the U.S.? Crazy scenarios, that if true, would be quite telling.. But right now there’s no definitive truth to the scenarios, so we’ll just move along here, but if that’s your bag, baby, read all you want about them!

I ran across this article though that makes more sense to me. It’s a Chinese Gold strategist talking, let’s listen in. “This year, the Year of the Rooster in the Chinese lunar calendar, will also be the year of gold, said Haywood Cheung, president of the Chinese Gold & Silver Exchange Society an umbrella organization of gold trading firms in Hong Kong which are participants of the Chinese Gold and Silver Exchange.

In an interview with the China Daily, Cheung said he drew his confidence from the turbulent global economic environment, which he said would create a bull market for bullion.”

You can read the whole article here:

The BRICS (Brazil, Russia, India, China & S. Africa) have been moving in the right direction, in stealth-like moves. And I think it has a lot to do with the Tent Revival I’ve been talking about that’s all about Global Growth.. yes, Global Growth is nascent at best right now, but there are signs, indications, and spider senses tingling, that this is for real, and if that’s the case, the “Proxy for Global Growth” , the Aussie dollar (A$) will benefit, and Oh, looky there, the A$ has also been stealth-like in its move higher in recent weeks. Could this all be coming together? Could be, and then it might now, we’ve seen false dawns before, right? This is where “speculation” comes into play. All good investment portfolio diversifiers allocate a portion of their portfolio to “speculation”.. Which is where any of the BRICS currencies should be purchased. And in this case, the A$ would be too, because you’re speculating that Global Growth is going to continue to rally..

The U.S. Data Cupboard does have a data print today, after having zero prints yesterday! January PPI (wholesale inflation) will print today, along with speech #1 of 2 for Janet Yellen to lawmakers on Capitol Hill. I think the markets will be looking for any definitive words that confirm that a rate hike is coming in March.. I told you yesterday that the Fed Funds Futures only have the odds of rate hike in March at 20%… It’s all just words, but the markets will trade off of how forceful her words are regarding the March timetable for a rate hike. I would also think that in the question and answer period following the speech, that she will be asked about the reinvestment of maturing bonds that the Fed holds in their balance sheet.

So, there’s risk to the dollar today, that Yellen fails to deliver what the markets are looking for. Just like in New Zealand last week.

To recap.. The slight bias to sell dollars yesterday quickly changed to a slight bias to buy dollars, and the dollar spent the day with the conn, but the trading ranges were tight, for sure! Gold got sold for a second consecutive day, but a Chinese Gold Strategist believes that 2017 will be the year of Gold.. Kiwi traders are still holding a grudge from being left at the altar alone last week, the price of Oil remains well bid above the $53 handle, and the Bank of Japan now holds 40% of all JGB’s issued.. YIKES!

For What it’s Worth. I’ve already spent a lot of space on Japan today, but this came across my desk (kitchen table! HA!) and just had to use it for the FWIW today.. It’s about Japan, and their pending bankruptcy, and it can be found here:

Or, here’s your snippet: “Last week, Shinzo Abe won a big victory in Japan’s Upper House elections, which gives him, together with the smaller Komeito party, enough of a majority to rewrite Japan’s constitution.

He has decided, instead, to first attempt to revive the Japanese economy with another “stimulus” program of 10 billion yen ($98 million) in new public spending – a solution that will only worsen Japan’s already-serious debt problem, and ultimately do nothing to revive Japan’s economy.

This “solution” will merely push the country closer to bankruptcy. It’s no longer a question of if, but when.”

Only on two occasions in human history has a country’s public debt risen to 250% of GDP without a debt default – both of which were at the end of major wars by Britain.

On the first occasion, in 1815, the debt was worked down by rigorous government austerity – bringing the budget to full balance in only four years after the war ended – and a pro-growth set of economic policies that brought economic growth rates never seen before. This spawned the Industrial Revolution.

The second such occasion occurred in 1945, when Britain brought its debt down by inflating the currency over a 30-year period, impoverishing its middle classes as it did so.

Neither of these possibilities appears open to Japan.”

Chuck again. See? It’s not just me always banging on Japan and the yen!

Currencies today 2/14/17.. American Style: A$ .7681, kiwi .7180, C$ .7661, euro 1.0610, sterling 1.2453, Swiss $1.0050, .. European Style: rand 13.1690, krone 8.3685, SEK 8.9240, forint 290.69, zloty 4.0525, koruna 25.4565, RUB 58.11, yen 113.39, sing 1.4180, HKD 7.7591, INR 66.90, China 6.8836, peso 20.24, BRL 3.1181, Dollar Index 100.86, Oil $53.38, 10yr 2.44%, Silver $17.88, Platinum $1,000.74, Palladium $780.38, Gold $1,230.00, and SGE Gold. $1,238.23

That’s it for today. Pitchers and catchers report today! YAHOO! From what I’ve read about a half-dozen, Cardinals, position players, who aren’t scheduled to arrive until Friday this week, have already shown up ready to begin spring training.. First game is Feb 25. I’m so ready! Well, did you heed my early warnings and secure your gift for your sweetheart? Guys? She will know if you rushed out today to buy something, trust me on that, it’s that “women’s intuition” thing they’ve got going for them! Well, Kathy, Chuck, Gus and Vivi, went to the Okeechobee Steakhouse last night, which is famous, and been around for 69 years (I think that’s what the waitress told us!) Gus said the first time he had been there was 1976! Well, that was a real treat for me! Better bring a co-signer though! HA! Well, I have to go get the gifts I have for Kathy out of the closet before she wakes up.. the Moody Blues takes us to the finish line today with their song: I Know You’re Out There Som
ewhere. this song reminds me of our first trip to spring training in 1993, B.A. (before Alex) We must have heard this song 100 times in the car if we heard it once on the trip.. Ok.. Happy Valentine’s Day, let’s make this a Tom Terrific Tuesday, and Be Good To Yourself!

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

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