It’s All About Janet Yellen On The Hill Today!

* Currencies are mixed again today.
* Norway’s CPI rises to 3% year on year!
* Petrol currencies bounce back with Oil.
* Central Bankers have run out of tools.

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

Good Day. And a Wonderful Wednesday to you! The Four Tops greet me this morning with their song: Reach Out, I’ll Be There. When I was a young man, I was a Big fan of the Four Tops’ music. And the Temptations. And the. Oh, stop Chuck! I think they get the message, you were a fan of the 60’s R&B. I’ve really turned the corner with that problem I was having with not being able to sleep at night. In fact, I’m sleeping so soundly now, that I nearly sleep right through the alarm every morning, whereas I used to be laying there awake waiting for the alarm to go off! I like this much better! I hope it continues!

Well, today’s the day the markets have been champing at the bit for. Today, Fed Chair, Janet Yellen will make her first of back-to-back testimonies to lawmakers, with the second one coming tomorrow. I know I said yesterday that I wouldn’t even attempt to figure out what Yellen might say, but then as the day went on yesterday, I came up with a couple of scenarios, and now you get to hear them! Aren’t you the lucky one today? HA!

Scenario 1. Yellen decides to bypass all the talk about the strength in the economy, except she’ll take a Gold Star for the jobs numbers (even if all the jobs are bartenders, waiters, and waitresses, and other service oriented jobs) and instead do the old media training trick of deflection. She’ll steer the talk to the risks for the U.S. of the overseas turmoil in the markets, and how those could very well spill over to the U.S. economy, and leave the markets feeling like the rate hike for March is off the table. (this would be dollar negative)

Scenario 2. Yellen decides to go all-in and keep the rhetoric going about the strong economy, and how the Fed still sees inflation rising this year, and that the slump in the 4th QTR was just a blip, and leaves the markets with the idea that Yellen is still on the road to a rate hike in March. (This would be dollar positive)

So. Which scenario will you take? I’ll take scenario 1, Bob. I’m going to go out on a limb here and say that Yellen sees the writing on the wall. Remember the other day when I told you that the Fed Funds Futures had a rate hike for March only priced in at just 10%? Well, now, a couple of days later, that 10% has gone to zero. Bond yields continue to drop (in Treasuries that is), and the “real data” in the U.S. is struggling to print positive numbers! Now, if I’m wrong and Yellen decides to go with scenario 2, then I’m going to give up completely on the Fed.

The first news item I read this morning talked about how the markets had been very quiet overnight, and so I went to the currency screens for confirmation, only to see the opposite of that statement. UGH! The currencies are mixed again, but the moves are not what I would call “quiet”. The price of Oil slid to a $28 handle yesterday, and then recovered to $31, and the Petrol Currencies are celebrating that recovery, with the Russian ruble, and Norwegian krone two of the better performing currencies overnight.

The Norwegian krone is getting a double dip of ice cream today from the Oil price recovery, and the January CPI that printed this morning. Norwegian CPI (consumer inflation) rose 0.6% in January, moving the year on year number to 3%… I know. 3%, that’s a strong inflation figure for an industrialized country like Norway, these days. So, I bet you’re wondering just what is pushing the inflation envelope like this in Norway, with the price of Oil still so low? Well, it’s quite simple. it’s the weak krone. Yes, it’s like I always tell you, be yourself.. .No wait! Sorry about slipping into my impression of Mr. Wizard talking to Tudor Turtle. But I’ve always told you that a weak currency invites other countries’ inflation into the weak currency’s economy.

Yes, every country should covet a strong currency that fights inflation. But in the weird times we live in these days, countries are starved for inflation of any amount, and so having a strong currency isn’t high on their bucket lists. But that’s these days. I look at it like when my kids were teenagers, and they would come up with some new hip look, or saying, or whatever, that was popular then. I wouldn’t get on my soapbox and preach to them about how stupid something looked, or sounded, etc. I would just say to myself, “it’s just a phase, it won’t last long”. And the lack of stress served me well, because I was full of stress with my job! I think I just shared with you a very valuable lesson, that you can use from here on out! Remember. “It’s just a phase, it won’t last long”..

Back to the inflation discussion. In Norway’s situation, 3% CPI is considered a “good number” for it certainly confirms that inflation is in the Norwegian economy, but at the same time, it’s not soaring higher month-to-month, so a little inflation keeps the rate cuts away, and that’s a good thing for the krone.

The euro, which lately has been the belle of the ball for the currencies, with steady gains each day, is actually showing some profit taking this morning.. The single unit was very nearly getting close to the 1.13 handle yesterday, before the profit taking set in overnight. I have to cringe thinking about what European Central Bank (ECB) President, Mario Draghi is thinking about what he’s going to have to do, to weaken the euro again. The once, Mr. “I’ll do everything to protect the euro” , has turned into Dr. Jekyll and Mr. Hyde, with regards to the euro. The Doctor drinks a potion and becomes the animalistic Mr. Hyde and throws the euro under the bus every chance he gets..

What happens to these Central Bankers that change their personalities and personal mantras? It happened here in the U.S. with former Fed Chairman, Big Al Greenspan, who was a Gold Bug and Ayn Rand follower, before becoming Fed Chairman, and then once becoming the Fed Chairman, he went about doing and saying everything opposite of his pre-Chairman personality.. If the skies parted, and the powers to be said. “Chuck Butler, as punishment for your sins, you are now Fed Chairman” I wouldn’t change, I would be the same smart Alec, conspiracy loving person that you all know and love. HAHAHAHAHAHA! Now, that’s funny stuff, Chuck, and you thought of that all by yourself?

Well, the Bank of Japan (BOJ) Gov. Kuroda, let the markets know yesterday that he was not happy with the strength in the yen, and that “he’s watching the markets”. wink, wink. That’s central bank parlance for: If you guys don’t back off the yen buying, I’m going to intervene to get the yen weaker”. I have to say that I don’t blame Kuroda for thinking that way, Shoot Rudy, the BOJ and Finance Ministry, have done just about everything under the sun and moon to weaken the currency, and while, yes it’s weaker now than it was a few years ago, before PM Abe, took over, the currency is still not as weak as the BOJ believes it needs to be to introduce inflation into the Japanese economy.

Now I’m not saying I’m OK with central bank intervention. What I said was that I didn’t blame Kuroda for thinking that way. But that doesn’t mean I’ve gone over to the “dark side” and believe that central bank intervention is the cat’s meow! Quite the opposite my friends. In fact, when you get right down to it, I’m of the belief that we don’t need Central Banks! A reporter asked me a few years ago (when I used to be the go-to guy for information on the currencies, metals and economies), why I thought that way about Central Banks, and if Central Banks were removed, what would I replace them with. and then I remembered a great quote from Thomas Sowell, and said, “When you remove cancer, do you replace it with something else?”

Come on Chuck, you’re really going off on tangents this morning are you? Sorry about that! OK, back to the currencies. The Aussie dollar (A$) and New Zealand dollar/ kiwi are back on the rally tracks today. One day they’re here, the next day they’re gone. that’s what I think about with these two. One day they are rallying the next day they aren’t. And today’s rally in these two is simply a case of the old “risk on” stuff. These days, it’s a bit different in that it’s really just the A$ and kiwi that represent risk being bought or sold in the markets. And I find it strange that traders feel that way, as we approach the first of two testimonies by Janet Yellen today.

Traders must really feel confident that Yellen will opt for scenario 1 that I described above. I like that in Traders, you know, have some intestinal fortitude to take a stand. It’s not difficult to do! You just have to have some intestinal fortitude, and then if it goes against you, let discretion be the better part of valor, and run for the hills!

Well, Gold seems to have run into a roadblock at $1,200. The shiny metal is down $7 this morning, after once again attempting to take out $1,200 yesterday. I talk about this type of trading through a resistance level all the time, but for the newbies to class. We normally see an asset run up to a resistance level and drop back, run up to it again, and drop back. the markets’ participants will normally allow this to happen a few times, and then they will either push really strongly to get the asset through and stay above the resistance, or they’ll give up and move on to a different asset. Gold has two attempts at $1,200 under its belt at this time. How many attempts will the markets give Gold before giving up? Hey! Gold has not come this far to be turned away at the door of $1,200 now.

The U.S. Data Cupboard is still lacking any real data to print. Friday’s January Retail Sales will be the first real piece of economic data this week. And I can tell you right here, right now, that the Butler Household Index (BHI) is indicating to me that January Retail Sales will be disappointing once again. Maybe up marginally.

Well, remember me pounding and pounding the fact that the Unfunded Liabilities of the U.S. Debt, were going to soar, once all the Baby Boomers were on the retirement roster of the U.S.? Well, I was reading about the President’s $4.1 Spending Budget and I came across some very interest numbers that will have a lot to do with me and my pounding, about the Unfunded Liabilities.

“Even with the increased taxes, Obama’s budget projects sharply higher deficits in coming years, totaling $9.8 trillion over the next decade. Just last summer, Obama’s baseline forecast a deficit of $8 trillion over the next decade.

Much of the problem stems from the surge in spending on the government’s big benefit programs of Social Security and Medicare, which are forecast to soar with the retirement of millions of baby boomers.”

Chuck again. And get this. The President’s budget is forecasting an annual growth of 2.6% this year. Hmmm. right now, I doubt that GDP is anywhere near that figure. Real GDP, not the made up stuff, real GDP. Oh, and today the snapshot of the Unfunded Liabilities looking out to 2020 (just 4 short High School years from now) is a whopping number of $121,449,937,000,000 That’s $121 Trillion in short form!

To recap. It’s Janet’s Day on the Hill. Fed Chair, Janet Yellen will give her testimony on the economy to lawmakers today and tomorrow.. And the markets along with Chuck believe that she will not be so gung ho on the economy except the jobs data and leave the markets with the feeling that a rate hike for March is off the table, which will be dollar negative. But then she could opt to go all-in with talk about the strength in the economy (from where?) and that the Fed still sees inflation rising this year. (that would be dollar positive). The biggest piece of economic data today came from Norway, where CPI showed a year on year increase of 3%… A good number for Norway, and will keep the rate cuts away, which has helped the krone to rally today. The price of Oil slipped lower yesterday only to see a recovery and Gold is lower today by $7, as $1,200 seems to be a roadblock right now for the shiny metal.

For What It’s Worth. I came across this article on last night and thought it played nicely with all the things I talk about. It can be found here:

Or. here’s the snippet. They’re pumping money into their economies, creating negative interest rates and buying billions of dollars in bonds. Yet experts are worried some of these strategies will not be enough to turn around the slump in the world.

“Major central banks have run out of ammo,” says Ed Yardeni, chief investment strategist at Yardeni Research.

Central bankers are trying to stabilize their economies and currencies as they navigate through the volatility of the global slowdown, market meltdowns and investors pulling cash out.

But many admit they don’t know what to do next.

“The world is an uncertain place, and all monetary policymakers can really be sure of is that what will happen is often different from what we currently expect,” Stanley Fischer, the No. 2 at the U.S. Federal Reserve, said in a recent speech.”

Chuck again. Kind of gives you a nice warm and fuzzy feeling, eh? NOT! And besides, the programs that the Central Banks have provided have really done nothing but provide short term relief, they are by no means long term solutions!

Currencies today 2/10/16.American Style: A$ .7105, kiwi .6660, C$ .7225, euro 1.1260, sterling 1.4545, Swiss $1.0270, . European Style: rand 15.8344, krone 8.5330, SEK 8.4440, forint 276.20, zloty 3.9305, koruna 23.9980, RUB 78.85, yen 114.90, sing 1.3925, HKD 7.7920, INR 67.85, China 6.5314, pesos 18.67, BRL 3.8840, Dollar Index 96.17, 10-year 1.76%, Silver $15.14, Platinum $921.74, Palladium $510.32, and Gold. $1,183.58

That’s it for today. Well, I completely forgot about mentioning Fat Tuesday yesterday. UGH. It’s Pfennig Tradition that I talk about Shrove Tuesday! UGH! I can’t believe I let that slip right on through! Shrove Tuesday in Ireland, traditionally, is a day where pancakes are eaten up by the truck load ahead of the start of lent, which begins today. I’ll have to turn in my Irish-catholic honorary card for that omission yesterday! The Mardi Gras celebration in St. Louis as last Saturday. St. Louisans know how to have a street party, and while theirs is not on the same scale as the New Orleans Mardi Gras, everyone has a grand time. I used to go to the parade and then the street party afterward back when I had two good legs to walk with. Gerry and the Pacemakers take us to the finish line today with their song: Ferry Across The Mersey. Every time I hear this song, it reminds me of when Alex was a baby/ toddler, and I would rock him to sleep, singing him this song. Alex will be 21 in a few months, so that was a long time ago! I can remember something from long ago, but not Shrove Tuesday! UGH! Oh well, hopefully, my mea culpa gets me a get out of sinners jail free card! Now, let’s go out and make this a Wonderful Wednesday!

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