Kicking The Can Down The Road Again!

In This Issue.

* Currencies are stronger this morning.
* Commodity currencies rally!..
* ECB & Riksbank disappoint Chuck!.
* Following up on Kondratieff.


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

Good day. And a Happy Friday to one and all! I woke up, and my head didn’t hurt, I don’t seem to be in a fog, so this is all a good thing today! Cardinals sweep their doubleheader yesterday, so they were Tub Thumpin’ yesterday and last night, were you? I was alone last night, as Kathy went to a Kentucky Derby fundraiser. She was looking pretty spiffy with her bonnet on when she left for the evening. All alone, that meant the call to Pizza Man was made. Hello? Pizza Man, Pizza, this is Elvis, I want a large cheese, no make that a large double cheese pizza.. You should hear me do that in my Elvis voice! HA! Steely Dan greets me this morning with their song: My Old School..

Well, we made it! It’s Friday! And guess what Congress is getting ready to do today, when the deadline for the budget arrives? They are going to kick the can down the road, and pass a bill that moves the deadline to next Friday. That gives them a week to get it done, which is interesting that they think they can do it in a week, when they’ve had months to get it done previously! What this does is avoid a Government Shutdown, and that’ll make some of the people happy but not most of the people. I just don’t get politics folks. And I used to be a part of my little river town’s Government, as an elected alderman. I’m just glad I didn’t choose that path as my career choice!

The currencies and metals are ending the week, so far that is, on a good note, as they ratchet up some gains VS the dollar this morning. I know, we have the rest of the day to work through, and things can change, but for the most part, with Congress kicking the can down the road, there’s nothing there to help the dollar today, and yesterday’s data in the U.S. was disappointing again, so I’m going to go out on a big fat limb and say, the early gains in currencies and metals have a better than the average bear’s chance to continue throughout the day today!

We do have the U.S. 1st QTR GDP print, which I do believe is the final one, which is about time given we’re one month away from ending the 2nd QTR! I tell you, these delays in data prints are done on purpose (in my opinion that is) to keep everyone guessing! Any way.. I’ve told you previously that the Atlanta Fed said that their GDP Now calculations show that 1st QTR GDP is going to print at 0.2%… The consensus according to Bloomberg, is for a 1% print, and I think it will print below 1%… I can tell you that with the consensus at a 1% print, that any number below that figure is going to look really bad, and I would think the bond boys would jump on that immediately, rallying bonds which would tell the rest of the markets that the next rate hike, on the docket for June, is not a given.

But I think the bond boys will be deluding themselves if they really truly think the June rate hike is questionable. It’s my opinion, and I could be wrong, that the Fed is going to hike rates in June come hell or high water! But. and again this is my opinion that I’ve espoused to you several times previously, and that is that this would be the last rate hike, before the Fed has to begin to reverse their rate hikes, because the economy will have gone to the dogs. (why do people say gone to the dogs? Is that fair to dogs? HA!)

Well, it seems that in Ancient China, dogs were not permitted within the walls of the cities. So the stray dogs roamed outside the city walls, living on rubbish thrown out by the cities inhabitants. Criminals were often expelled from the cities and sent to live outside the walls, “with the dogs”, and such the term, “gone to the dogs” came to be. Of course back then the phrase was a “literal” phrase, and these days it’s a “metaphoric” phrase. So, there you go!

Hey! I know you come to the Pfennig for all kinds of education and information, and so, I strive to keep it interesting! HA!

The U.S. isn’t the only country printing a GDP report today, with the U.K. and France also on the GDP print docket. And the Eurozone will print their April flash CPI (consumer inflation) which will most likely show that inflation in the Eurozone is not going away, and will be around 1.8%… So, the data geeks will be busy today. Not me though! I’m not going to worry about anything but to have a wonderful weekend once I get this letter out the door today! Of course longtime readers know better than that! I’m one of those data geeks, in that I take every print and dissect it, look under the hood, and then write about it!

The Commodity Currencies look a little better this morning after getting taken to the woodshed most of the week, after President Trump announced his 20% tariff on Canadian soft wood exports to the U.S. Like I said when I first talked about this earlier this week, this tariff affects $5 Billion in trade. It’s not like the President placed a 20% tariff on everything Canada sends to the U.S.! Now that would have been something to weaken the Commodity Currencies, certainly not $5 Billion worth. Look at me! Throwing around $5 Billion like it’s pocket change! I certainly don’t think I’ve become Comfortably Numb with the size of figures being bandied about these days!

And kiwi got an extra boost last night when their March Trade Balance came in as a deficit that was smaller than expected, as exports grew strongly in March. New Zealand March exports grew 446 Million (kiwi) or 11% in March from February. Most of those exports were of the dairy and lamb shipments to China. I read in a New Zealand paper that China is New Zealand’s top destination for goods and contribute a quarter to the total dairy exports value. WOW. I was quite aware that China’s demand for goods from New Zealand was strong, but not that strong! I think this report also shows us that China’s economy isn’t collapsing, as all the naysayers out there said it would years ago, and keep saying it!

Speaking of China. Earlier this week I talked about how the renminbi has been range bound between 6.87 and 6.89 (and change of course) and then last night I was reading during a pitching change in the Cardinals game and read that China continues to relax the currency controls they placed on the outflows earlier this year, which tells me that things are calming down here, thus the trading range in the currency. Otherwise, if things have continued the way they were going a couple of months ago, China would have devalued the renminbi by now, and since they didn’t have to, and now it’s range bound, I’m getting the feeling that things have really calmed down here. And that’s a good thing, folks!

The European Central Bank (ECB) had their meeting yesterday, and it was ECB President, Mario Draghi’s opportunity to set the market straight (we talked about this earlier this week), and that’s exactly what Draghi did, he told the markets that the ECB would hold their negative rates steady, and continue its ambitious stimulus scheme. The markets were holding out hope that there would be a wink, and nod that things in the Eurozone were getting so much better that it was time to begin to remove the stimulus measures. But NOOOOOOOO! That didn’t happen, even though things in the Eurozone ARE looking better. I see what’s going on here in the Eurozone, right now. The ECB has gotten addicted to the stimulus measures, and don’t want the healing in the economy to come to an end. But, shoot Rudy, I have to wonder if the ECB ever heard of weaning off something, instead of thinking you have to go cold turkey?

I don’t think that Draghi wants any part of the “taper tantrum” that the U.S. markets went through, the first time then Fed Chairman, Big Ben Bernanke, muttered the word “taper” when discussing the then bond buying that was going on in the U.S. Better known as Quantitative Easing, or debt monetization, or money printing.

And I also thought that Sweden’s Riksbank would announce a cutting back on their negative rates and bond buying schemes, but again I was barking up the wrong tree, as the Riksbank announced that they plan on keeping their negative rates until mid-2018, and increase their bond buying by 15 Billion krona, until inflation reaches 2% and stays there, they won’t be fooled with a one month rise to 2%!

But guess what each of these two respective currencies did after these two Central Bank announcements of continued stimulus? They rallied. I know, I know, there are no fundamentals in place here! UGH!

The price of Oil inched higher by about one quarter of a dollar yesterday, nothing to write home about. The Russian ruble after seeing its value rise to the 55 handle earlier this week, is now seeing it value drop to the 57 handle. I remember reading an article on MarketWatch back about a month ago, when the author of the article said there were no compelling reasons why the ruble was the best performing emerging markets currency in 2017. Well, if there were no compelling reasons for the rally, there certainly don’t have to be any for the selling!

Up $5 one day and down $5 the next day. That’s the life of Gold these days. Gold closed at $1,263.50 yesterday, and is up a few bucks in the early morning trading today. I would have though the Geopolitical Tensions meter would have registered a higher reading when U.S. President Trump said that he wants to seek a diplomatic solution to the crisis in N. Korea, and revealed that China is helping to pressure Kim John-un, but. if negotiations fail, a “major conflict” with N. Korea was possible. But Gold didn’t get any positive movement from that comment yesterday, so apparently the comments didn’t register on the Geopolitical Tensions meter!

Well, I don’t know what’s up with the Geopolitical Tensions meter, but I think a depression meter needs to be installed here in the U.S. As I said above, the data that printed in the U.S. yesterday was disappointing again. Durable Goods only gained 0.7% when 1.4% was expected, and Capital Goods only gain 0.2%, which was unchanged from February’s print. So, very disappointing, folks.. then sprinkle in Pending Home Sales for March fell -0.8%, with only the South region seeing an increase. And the Trade Deficit widened to $64.8 Billion last month VS $63.9 Billion in February. I can see now why the Atlanta Fed revised downward their 1st QTR GDP Calculation to 0.2% from 0.5%!

Earlier this week I talked about the Kondratieff Wave, and told you I would look into this more, and boy am I glad I did! So, Nikolai Kondratieff was a Russian economist, who was executed by Stalin’s henchmen for issuing a report saying that the Great Depression wouldn’t bring about the end of Capitalism. And his work was kept under wraps for decades following his death, but when it came out, many “real economists” have found his work to be brilliant. He believed in what he called “K waves” (K for Kondratieff) which are 60 year cycles with internal phases that he described as Spring, Summer, Autumn and Winter. He believed and tracked his 60 year waves back to ancient China times. There have been 18 K Waves, and the one we’re in right now, as I described the other day, is in the “winter phase”, which bring with it, Excess Capacity worked off by massive debt repudiation, commodity deflation & economic depression.

I think it would behoove the leaders of this county, the Gov’t, the Treasury and the Fed to take note of this K-Wave we’re in.. As Christopher Quigley writing for the website Financial Sense, suggests, “Such evidence also supports the proposition that the FED and the ECB, instead of prolonging the agony through $5 trillion of credit expansion, should liberate the “international market” and let it intelligently and efficiently do what it has done 18 times before” – Mr. Quigley’s whole article on Kondratieff can be found here:

To recap. The currencies and metals are beginning the day on a good foot, and look to end the week that way. The U.S. Congress will most likely announced that they passed a bill to delay the deadline for the Budget to next Friday, to avoid a Gov’t shutdown this weekend. The ECB and Riksbank both disappointed Chuck by keeping their stimulus measures in place, and Chuck fears they have become addicted to them.. Gold lost the $5 it gained the previous day, but is up a few bucks early this morning, and Chuck pays tribute to Nikolai Kondratieff.

For What it’s Worth. I found this on Ed Steer’s letter today, and like I always say, if Ed thinks it’s worthy, then that’s good enough for me! This is about China’s Gold Consumption, and the article can be found here:

Or, here’s your snippet: “China’s actual gold consumption rose 14.73 percent to 304.14 tonnes in the first quarter of 2017 due to steady gold ornament sales and strong sales of gold bars, new data showed Thursday.

Thanks to strong demand around Chinese New Year, gold ornament sales rose 1.4 percent to 170.93 tonnes and gold bar sales surged 60.18 percent to 101.19 tonnes, the China Gold Association said.

The surge in gold bar sales came on the back of more people using them to hedge against risk as the public became more aware of its attributes, according to analysts.”

Chuck again. yes, it’s a short-n-sweet FWIW today, which is good because I did want to end this letter today on a positive note.

Currencies today 4/27/17. American Style: A$ .7480, kiwi .6870, C$ .7330, euro 1.0940, sterling 1.2940, Swiss $.99, .. European Style: rand 13.2824, krone 8.5215, SEK 8.8115, forint 285.12, zloty 3.8557, koruna 24.6257, RUB 57.01, yen 111.38, sing 1.3948, HKD 7.7796, INR 64.19, China 6.8948, peso 19, BRL 3.1720, Dollar Index 98.74, Oil $49.45, 10-year 2.31%, Silver $17.41, Platinum $949.10, Palladium $818.57, Gold $1,267.70 and SGE Gold. $1,274.62

That’s it for today. The end of April Shower’s month! And we’ve certainly had our share of April showers (the actual rain, not the person!) this month! It looks all gloomy like it’s going to rain outside right now! UGH! Well, a great comeback in the first game of the doubleheader led to a fast start in the 2nd game, and the Cardinals swept the two games. The Birds are now back to .500 where they started a month ago! I guess that better than the 3-9 start they had going! Our Blues get back on the home ice again tonight. So, a baseball game, and a hockey game going on at the same time in downtown St. Louis tonight. Traffic to and from downtown tonight will be a real pain. Monday will be May Day. I’m just saying. Johnny Rivers takes us to the finish line today with his cool song: Secret Agent Man. The odds are he won’t live to see tomorrow. I remember dancing at teen town to that song! And with that thought, no matter how disgusting it may have been, I need to get off this b
us this week, and send you on your way to a Fantastico Friday! Be Good To Yourself!

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