Heading To Davos?

* PE sends dollar down..
* PM May ready to announce BREXIT plans .
* Retail Sales for December disappoint.
* Being a lawmaker for a day.

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

Good Day.And a Tom Terrific Tuesday to you! How was your 3-day Holiday Weekend, that is if you had the opportunity to take a 3-day Holiday Weekend? Mine was good at the front end, and not so good at the back end. I think I “overdid” things on Friday and Saturday, and suffered for it Sunday and Monday. Hopefully, today, things settle down. The wind continues to blow, albeit it has backed off a bit. I hear that things back in St. Louis, where the ice-storm began on Friday, didn’t turn out as bad as feared. That’s a good thing! I’m greeted this morning, by The Squeeze, and their song: Tempted. Paul Carrack was the singer for the Squeeze, and Ace, and Mike and the Mechanics, before going solo.. . There you go some cocktail trivia to start the week!

Well, well, well, what have we here? The President-Elect, Trump, throwing a cat among the pigeons? Well, boys and girls that’s exactly what we have here this morning. Yesterday, in an interview, the President-Elect (PE) said the U.S. currency is already “too strong”, in part because China holds down its currency” (https://www.bloomberg.com/news/articles/2017-01-16/pound-drops-as-asian-stocks-signal-tepid-start-markets-wrap ) WOW! Well, when the incoming President is complaining about the strength of the dollar, doesn’t that bode for 4 years of dollar weakness to come? I mean, that’s what I see, right out of the starters blocks this morning. And traders are thinking the same thing as the Dollar Index is trading with a 100 handle this morning, when just last week it was in the high 102 handle.

In addition, in the same article above, over in the U.K. this past weekend, Prime Minister, May, is expected to announce that Britain is pulling out of European Union’s single market for goods and services. We talked about this last week, and last week this thought caused the pound to drop like a rock, and once again in the overnight markets it get whacked, but it was saved right as it was about to fall below 1.20, by the Trump comments about the dollar, and soon the dollar was getting sold against all currencies. Yen is trading with a 113 handle this morning, but it’s not even close to the best performing currency of the night and morning sessions, that honor belongs to the S. African rand!

So. The currencies are on the rally tracks this morning, how about the precious metals? Well, Gold has finally traded through the $1,200 figure, after a few days of knocking on the door, but not having the umph to walk through the door. So, it’s nice to see that it finally mustered up the intestinal fortitude to do so! Of course the move above $1,200 came yesterday, while U.S. Banks were closed, like JP Morgan/ Chase, but that’s all I’ll say about that! And the price of Oil remains in a holding pattern around $53.

2016 was dominated by the voting of BREXIT, and new British PM, and the U.S. President. And now we have those two things coming to a head, with British PM, May, ready to lay out her plans for leaving the European Union (EU), and PE Trump is ready to be inaugurated, but has already given hints about his plans on a wide array of things, including the comment above about the dollar being too strong already. Before everyone gets all lathered up about this, let me tell you what I think is going on here. I do believe that the PE is laying the groundwork for his negotiations with China. Notice that he didn’t say the EU kept the euro low? Or Japan? No, he went straight for China, the low hanging fruit, right? For everyone knows that China has control over their currency. So, in my opinion, that was the first arrow in his quiver for negotiations with China. I do not believe he was taking a shot at the dollar, per se. I do not believe that this is going to cause any structural change in the dollar, right away that is. That’s my opinion and I could be wrong of course.

Top financial boys and girls around the world are making the trek to Davos, Switzerland for their annual meeting of the minds. Can you imagine what they will be talking about this year when they meet, for last year, they were certain that BREXIT would get voted down, and Trump wouldn’t get close to being elected president? Now, year later, they will have to talk about how to deal with these two things? I have to say that as a fan of the underdog, I really like that BREXIT was voted for, which was against the “great minds” forecasts, and upset the apple cart BIG TIME! And the election of Trump, has got to be a real thorn in the side of the elites attending the Davos conference.

From what I have read about the agenda in Davos, Chinese President Xi Jinping (Xi) is going to be first Chinese President to attend Davos, and speak. I understand that Xi will make a huge speech about China’s plans. You have to wonder if he will use this stage as his setting to announce that timeline for the floating of the renminbi? My spider sense is tingling, and therefore I’m thinking that this timeline could very well be a part of his speech. So, the BIG THREE Things on the Davos agenda are: BREXIT, Trump, and China. And I’m sure these elites will have all the answers for us, and we can all breathe easier and sleep better, right? I mean they certainly nailed their answers on BREXIT and the U.S. election last year, right? (SIC)

Well, I told you last week that this week, we’ll have two Janet Yellen speeches on the Hill. She will visit the House of Representative and the Senate of two / back to back days this week. And the consensus of what she is going to say, is the thought that she will emphasize that the Fed is looking to hike rates 3 times in 2017. Do you know what I would like to hear from the lawmakers? I would like for one of them to stand up and say. “Madame Chair, would you do me the favor of explaining how or why you feel that raising interest rates 3 times this year is the prudent thing to do, when there are still 95 million Americans still out of a job? Or that the economy is so uneven in its recovery, when you see that real economic data reflect a struggling economy? Why just last Friday, December Retail Sales failed to meet expectations, and if you take vehicle sales out of the mix, they really failed to meet expectations. Durable & Capital Goods Orders have printed negative in Novemb
er, and Factory Orders were negative for the 4th time in the last 5 months. Global Growth is nascent at best, China is struggling, Japan is struggling the European Union is struggling, and I would venture to say that we are struggling too. So in light of these things I’ve pointed out, and believe there are more, but I wanted to keep this brief, please explain the 3 rate hikes on your agenda for this year. Thank you. ”

Well, let’s see now. It’s 2017. So that means that not only is this the 50 year anniversary of the Summer of Love. But also that this is the year that the oldest of the Baby Boomers will reach the age that the law requires them to begin to withdraw funds from their retirement accounts and pay taxes on them. What will these distributions be used for is? That’s the $64 question.. Not exactly a good time to put those funds back into the markets if you asked me. Given that bond yields will be rising with the Fed rate hikes, and I read an article on MarketWatch this morning (http://www.marketwatch.com/story/investors-are-bracing-for-a-massive-stock-market-selloff-2017-01-13?link=MW_popular ) that talks about how Investors are bracing for a Massive stock-market selloff. Apparently demand for one-month call options on the Volatility index (VIX) have spike the last couple of days, and traders say this is a sign that a sharp downturn could be coming.. YIKES!

So. what will these Baby Boomers do with their distributions?

Well, I talked above about the S. African rand being the best overnight performer. Take the downtrodden, the beaten and left for dead, currencies and when the opportunity arises to give them some life-light, they grab hold, and become the best performing currencies for a day! But there’s more to this rand rally than just that. If I look across the currency landscape, I see that the Commodity Currencies of Australia (A$) New Zealand (kiwi), Canada (C$ or loonie) , Brazil (real), and of course the rand from S. Africa, are all firmly on the rally tracks today. Is Global Growth picking up? Is that what these currencies are signaling? Maybe, but in my opinion, I see this rally by these currencies as strictly a rate differential move (except Canada).

In Singapore overnight, they printed a follow-up November’s 11.5% increase in NODX, with a better than expectations December increase in NODX of 9.4%! NODX stands for Non-Oil, domestic exports.. We’ve talked about this data set from Singapore for years now, but we do have new readers all the time, so let me say quickly that this data set is very important to Singapore, for they are no different from the Asian countries when it comes to the need to export to keep their economy strong. And the Sing $ is following the Chinese renminbi this morning, but for once in a blue moon, it’s more about the Sing $ than it is about the renminbi.

Speaking of the renminbi.. So, the PE blasts China for keeping their currency so weak, and what does the currency do overnight? It posts a strong appreciation! I have to think that this was the Chinese saying, here’s your, “we keep the currency weak” and chew on that appreciation for a day! HA!

The U.S. Data Cupboard today only has the NY Region PMI. So, nothing here to look at, move along. which means the dollar weakness today won’t find any support in data. Last Friday’s Data Cupboard had the December Retail Sales and I did mention above that they didn’t meet expectations. And when you take out car sales, the “control retail sales” were only up 0.2% FOR DECEMBER! Makes you wonder if.. Well, let me restart that. Remember when November credit cards saw an spending of $11 Billion? So, doesn’t that make you wonder what the consumers were putting on those credit cards, because apparently it wasn’t Christmas gifts. Did they buy their cars with credit cards? I shake my head in disbelief.

To recap. Well, the currencies and metals are all on the rally tracks today, from the cat that the PE threw among the pigeons yesterday in an interview, where he talked about how the dollar was already too strong. Uh-Oh. But Chuck doesn’t think this will bring about a structural change in the dollar, just yet, as this comment by Trump was merely greasing the tracks for his negotiations with China on trade. And the pound got the stuffing knocked out of it by hints by PM May that she will announce this week that Britain is dropping out of the EU’s single market for goods and services. The pound did rebound after the Trump comment about the dollar though. December Retail Sales failed to meet expectations, and Chuck has a thought on that.

For What it’s Worth. I found this in Ed Steer’s letter on Saturday, and have been champing at the bit to get this to you. It’s about how the writer believes that 2017 will be the year of Central Bank bashing by Politicians and that Gold will be the main beneficiary of that bashing. It can be found here: https://www.bloomberg.com/news/articles/2017-01-13/central-bank-bashing-makes-gold-only-asset-safe-from-meddling

Or, here’s your snippet: “Baring Asset Management’s Christopher Mahon has one major conviction about 2017: it will be the year in which central-bank bashing by politicians becomes the new normal, so he’s seeking shelter in gold.

“This year is the turning point,” Mahon said in an interview on Monday. “For seven years or so, central banks have largely escaped critique even though one could argue that their policies have been pretty inadequate in many senses. It’s very plausible now that politicians stand up and throw stones at central bankers.”

For the first time in more than two decades, politicians are encroaching on the autonomy central bankers expect to manage growth efficiently. Donald Trump has criticized the Federal Reserve for creating a “big, fat, ugly bubble” in the market by holding interest rates near zero. U.K. Prime Minister Theresa May said in October that a change has to come to Bank of England monetary policy. German Finance Minister Wolfgang Schäuble has suggested that the European Central Bank share the blame for the rise of populism in Europe.”

Chuck again. Well, I’m from Missouri, so I’ll have to be shown that this is going to come to fruition, but. As the snippet points out, there are signs that it’s already beginning. This will be interesting to sit on the sidelines and watch this unfold, don’t you think?

Currencies today 1/17/17. American Style: A$ .7540, kiwi .7175, C$ .7665, euro 1.0675, sterling 1.2167, Swiss $.9963,. European Style: rand 13.4743, krone 8.4708, SEK 8.8945, forint 288.12, zloty 4.0889, koruna 25.2795, RUB 59.67, yen 113.04, sing 1.4184, HKD 7.7552, INR 67.88, China 6.8992, peso 21.54, BRL 3.2248, Dollar Index 100.84, Oil $52.99, 10-year 2.33% Silver $16.88, Platinum $987.35, Palladium $783.35, Gold $1,203.15, and SGE Gold . $1,217.70

That’s it for today. How about that Packers / Cowboys game on Sunday? WOW So, the two teams that I wished to see in the Super Bowl, the Packers and Steelers are still in the hunt. The Steelers game wasn’t exactly pretty, but they won. The people down here, were surprised to see that I would root for the Steelers instead of the K.C. Chiefs, as they thought I would root for the team from Missouri. I told them K.C. is on the other end of the state, and I have no pull to them at all! Besides there’s always 1985. All the other games were pretty much over once they began. Hey! Our Blues finally decided to play some defense, and won their last two games 4-0 and 2-1, on the road to boot! Hopefully they have turned the corner on their season! Thanks to those dear readers that sent along notes regarding the 25 year anniversary of the Pfennig this year. Goes hand in hand with the 50-year anniversary of the Summer of Love, and so on. I know, sometimes it’s difficult for me to believe that I’ve given 25 years of my life to writing a daily letter that most readers love. Firefall takes us to the finish line today with their song: Strange Way. A late 70’s song, that showed that good rock music was around and it wasn’t just Chris Gaffney’s favorite sound. disco! HAHAHAHAHA! Got Ya Chris! I hope you have a Tom Terrific Tuesday. And Be Good To Yourself!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com