It’s All About Janet Today.

* Currencies in a holding pattern .
* As traders wait for Yellen speech .
* U.S. CAPEX was awful!
* Jared Dillian talks bonds.

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

Good Day. And a Happy Friday to one and all! And. It’s the Friday before a 3-day Holiday Weekend! YAHOO! Memorial Day Weekend, the unofficial start to summer, and a time for us to stop and think about the courageous people that died while serving in this country’s armed forces. It was originally called Decoration Day, and began after the Civil War. It became a federal Holiday in 1971. The Great Leon Russell greets me this morning with his song: Masquerade. And well, before we fire up the grills and see if our bathing suits still fit from last year, we have to deal with one more thing.

Well, boys and girls, today’s the day. Yes, it’s the day that Fed Chair, Janet Yellen, speaks.. This is the speaking engagement that was added to the calendar under the cover of darkness, and has the markets all abuzz. I mean when the Fed Chair adds a speech on the day before the blackout begins for Fed speakers, (ahead of the Fed meeting 6/15) and where no one else could say anything that could put doubt in the markets’ minds of what she had said, the markets should be abuzz. Because this speech was added for a reason, folks, make no mistake about it. She is either going to give the wink and nod to the markets that a rate hike is coming in two weeks, or, she is going to put doubt in the markets’ minds that a rate hike will be coming in two weeks. It’s that simple.

Now, deciphering what she might say probably won’t be “that simple”! I call it “Fed Speak”. But in the end, the markets will get their direction. And then when the Fed meets in two weeks, there won’t be any questions about what might happen, right? HA, I laugh out loud, because. Only The Shadow Knows.

The currencies are in a holding pattern as traders await the outcome of the Yellen speech at Harvard today. The currencies are circling the airport and will either take off for another city (rally) or land (get sold) with whatever it is that Yellen is going to say today. The Dollar Index, which yesterday morning, traded at 95.24, is trading this morning at 95.27. So, not much movement.

The metals are a different animal, and they have been sold down the river, as the previous myriad of Fed speakers talking about a rate hike in June, have the metals on the run and looking for cover. I find this very similar to what happened in December. I told you about that the other day, how Gold got sold so fervently before the highly anticipated Fed rate hike, but once the Fed’s powder was wet, Gold began its rally that lasted until this month when the Fed speakers began to talk rate hike again. Could this be a case of history repeating itself? It sure is recent history!

A dear reader sent me a note yesterday and said that he heard an analyst named Simon M. say that according to some Swiss refiners, China has recently been selling some Gold, perhaps the Chinese are trying to drive the price down so they can purchase more at fire sale prices. Hmmm. Now I can’t argue with Swiss refiners, except to ask how they would know this information? But it all seems a little far stretched to me. But who knows these days?

Gold for those of you keeping score at home, actually had a nice $6 gain for most of the day yesterday, but in one 5 minute sequence it dropped $10, to end the day down $4. 5 minutes, that’s all it took to achieve what the price manipulators wanted and that is to put the question into investors’ minds about Gold and a rate hike.

The currencies attempted to mount a rally yesterday, and the euro touched 1.12 at one point, but the rally had no legs and faltered in the overnight trading. The dollar got sold for a period of time yesterday after the Durable Goods data printed. Now wait. I heard that Durable Goods Orders blew the doors off the expectations and grew 3.0% instead of 0.3%, so how could that great print cause the dollar to sell off? Ahhh, grasshopper, come, sit, and listen, and I’ll tell you how..

The U.S. Data Cupboard yesterday had a piece of “real economic data”, and then blew its chance to be “relative” by adding all kinds of non-defense aircraft orders that inflated the “real data”, but the good thing is it was easy to take the “additions” out, and see what was really happening, and well, it wasn’t so good. In fact, they do that for us, giving us the data ex-transportation, which includes cars and planes, and the increase was more in line with what I thought it would be at 0.4%… The real problem with the report was a decline in core capital goods orders, the 3rd consecutive decline for this data, which doesn’t bode well for the economy folks. I’ve told you until I’m blue in the face, that a strong rebounding economy needs capital goods expenditures (CAPEX) to be strong, but instead we’ve seen 3 straight months of decline.

And that’s the reason the dollar sold off on the data print. And this is another reason I think the dollar is getting near to the end of its strong trend. When the markets look for reasons in the data to sell an asset, you have to think that they are up to something. A year ago, when the dollar was sailing along in the strong dollar trend, the markets would have never looked under the hood to find the CAPEX number and decide that it was enough to sell the dollar. But now, things are different. And IF Janet Yellen leaves the dollar out on a line today, with dovish talk, watch out below, dollar!

But as I said above, the currencies didn’t have the legs to take off on a strong rally, and then the traders did the V-8 head slap and realized that Yellen was speaking today! So, they brought the currencies back to where they were before the data printed, and they’ve remained there since.

I’ve been watching the 10-year Treasury yield with some keen interest. (I always track it, but recently the price movement has been interesting) Not that long ago, 10-year yields were around 1.70%… Imagine that, investors were locking in yields for 10-year at 1.70%.. Wait, What? Who would do that? Your friendly neighborhood Fed would we all know that. But, please don’t tell me that individuals are buying bonds. And that means bond funds too. Well, someone was buying them. But getting back to the 10-year yield. the yield has risen to 1.87% yesterday, but back down to 1.82% today. But think about this for a minute. When I say 1.82%, that’s the market rate. When an individual or even a corporate buyer buys into that bond, they receive less, which means they are buying it with even less yield!

I was happy to see an article yesterday that was titled: I wouldn’t buy a bond with your money. Interesting take, and certainly not about global bonds that might have some yield, no, the writer, Jared Dillian from the 10th Man letter that can be found on is talking about Treasuries. Boy I’ve been down that rabbit hole before, and took some mighty body blows. But timing is everything, and well, maybe Jared is onto something here.. He goes about explaining about what he sees that’s going to happen as time goes on, and buying a bond now that locks you in for less than 2% for 10 years, just doesn’t make sense. I’ll leave it with a quote from Jared. “Let’s be clear-the bond market is as overpriced as it has ever been, right at the moment that the fundamentals have completely broken down.

Where does the exposure live? With you, the retail investor.

There are hundreds of billions in household assets in fixed-income mutual funds, retirement and nonretirement. After a 1% rise in interest rates, people will discover what the meaning of “duration” is.”

Well. I sure hope Jared doesn’t suffer through the pain, despair and agony I did, when I called the Treasury Bond Bubble, only to have the Fed announce a bond buying program a few months later. Gloom, despair and agony on me, deep dark depression, excessive misery, if it weren’t for bad luck, I’d have no luck at all, Gloom, despair and agony on me!

I was reading a piece on yesterday that caught my eye, as I usually go there and peruse the articles for stuff I won’t see on Bloomberg, Reuters or any of the other financial news outlets. And this one caught my eye. It was an article titled: “The System Itself Is At Risk Warns Bill Gross, Shorts Credit, As Day Of Reckoning Is Coming”. whoa there partner, what the heck is he talking about? Well, Bill Gross is known as the Bond King, so I’m guessing he’s talking about bonds.

And that’s what he’s talking about exactly! Gross told Bloomberg the previous night that “he is starting to short credit, a position that he said runs contrary to his instincts and training as an investor.” He went on to say that he, “believes a day of reckoning will come when central banks will no longer be able to prop up asset prices and investors will withdraw from markets.” Not buying credit as an investment means, “not buying stocks, not buying high-yield bonds”.

Now that was pretty interesting, and if you want to read all that Bill Gross said you can do that by clicking here:

Rain, rain, go away, it’s a Holiday Weekend, and Chuck wants to go outside to play! I ‘m guessing that you figured out that it’s raining again here this morning, but not like that storm that came through yesterday morning. The sky turned jet black, the wind blew so violently the windows of my office were rattling, and the amount of rain that got dumped on us was easy to measure! But the weather people are calling for rain all this Holiday Weekend for us here. UGH!

Today’s Data Cupboard has the 2nd revision to 1st QTR GDP, which originally printed at 0.7%… My GDP tracker has it inching upward to 0.9%… But that’s it. Still not the kind of economic strength an economy needs to support rate hikes, but don’t let that get in the way of the Fed wanting to hike rates! And maybe, that’s what Janet Yellen is waiting for so she can make last minute changes to her speech, as she waits for 1st QTR GDP. Hmmm. I doubt it, if she has it in her mind that rates are going to be raised, there’s no data that’s going to change her mind. But I just can’t get it out of my head (apologies to ELO) that Yellen was called to the White House recently for an unscheduled meeting with the President and VP. I doubt it was for tea and crumpets, and to see what Yellen was going to put on the grill for Memorial Day.

To recap. It’s all about Janet Yellen today folks.. This speech that was put on the calendar late, is carrying more weight with the markets than a FOMC meeting! The currencies attempted to mount a rally yesterday after the awful CAPEX number in the U.S. but didn’t have the legs nor the traders backing as they realized that Yellen was speaking today, and decided to keep the currencies in a holding pattern. Not so much for the metals though, as Gold lost more ground, and took the other precious metals with it. Chuck gets stuck on a tangent with Bonds, and it’s Memorial Day Weekend!

For What It’s Worth. I was having a nice telephone conversation with my friend, Dennis Miller, who for a Cub fan didn’t rub it in that his Cubs took 2 of 3 from my beloved Cardinals this week, and he told me about his letter this week called: Wolf, Wolf, ., ., Wolf! And he sent me a pre-release copy of the letter, and I thought it was a great one, given that he talks about portfolio protection from inflation. I know, I’ve told you about Dennis before, and that you should probably sign up for his letter: Miller On Money. So, here’s the link to that letter from yesterday, and you can sign up through this link:

And here’s the snippet: At a recent Money Show I entered booths of four name brand money management firms. These dapper young folks all bragged about their sophisticated allocation formulas for ultra-conservative to high-risk investors – and anything in between. I asked, “How are you protecting your clients’ portfolios from high inflation?” Without hesitation, they all said “We can allocate a portion to TIPS”.

TIPS are Treasury Inflation Protected Securities. Treasury Direct says: “They were first auctioned in January 1997 after the market expressed a strong interest in the inflation-indexed asset class.” (Isn’t it ironic the wolf sells “wolf protection” insurance?)

Protecting your portfolio from inflation requires investing in assets that historically increase in value higher than the rate of inflation. I call this the umbrella effect. TIPS, by their very design, limit inflation protection to the amount you have invested in them – nothing more! To truly protect your “portfolio” from inflation, you must look at other asset classes.”

Chuck again. Dennis goes on to talk about other inflation hedges, and uses Gold as his main option. And the point he makes is that if you’re going to protect your investment portfolio from inflation you need an inflation hedge that also has an opportunity to have gains that outperform the rate of inflation.. Great information folks. And I commend Dennis for bringing this information to his readers!

Currencies today 5/27/16.American Style: A$ .7215, kiwi .6738, C$ .7669, euro 1.1175, sterling 1.4645, Swiss $1.0093, . European Style: rand 15.6350, krone 8.30, SEK 8.3127, forint 281.43, zloty 3.9365, koruna 24.2090, RUB 66.02, yen 109.65, sing 1.3755, HKD 7.7653, INR 67.03, China 6.5609, peso 18.48, BRL 3.5838, Dollar Index 95.27, Oil $49.09, 10-year 1.82%, Silver $16.30, Platinum $992.90, Palladium $547.26, and Gold. $1,217.26

That’s it for today. Whew! I climbed out of bed this morning and said, “YAHOO! I get to sleep late the next three days!” And that got me going, because without that I would have probably stayed there on the side of the bed and whined about getting up! HA! Tomorrow we will celebrate grandson Braden’s 5th Birthday. His mom (Rachel) told us he grew 2 inches this last year. Cardinals lose again last night. UGH! Three steps forward, three steps back. They can gain no traction on the season so far. Next week we will start June! WOW! The Counting Crows take us to the finish line today with their song: Mr. Jones. I used to work with a guy named Bob Dybala that called the Counting Crows music: Complaint Rock. I always thought that was funny. I wonder what Bob is doing these days? Oh well, time to get off this bus and head to a Fantastico Friday, but wait! Before I go, I have a quote from Ronald Regan that is quite apropos for Memorial Day. I hope you have a Fantastico Friday and Be Good To Yourself!

“Freedom is never more than one generation away from extinction. We didn’t pass it on to our children in the bloodstream. The only way they can inherit the freedom we have known is if we fight for it, protect it, defend it and then hand it to them with the well thought lessons of how they in their lifetime must do the same.”-Ronald Reagan

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