Kuroda Greases The Tracks For Negative Rates.

* Dudley & Fischer help the dollar.
* RBI has a new Gov. .
* Has Fischer been reading the Pfennig?
* Real the only currency with gains this morning!.

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

Good Day. And a Marvelous Monday to you! Whew! What a Whirlwind Weekend (sort of an alliteration to start the day and week for you poetry buffs!) Had a grand time on Bull Shoals Lake with good friends Kevin and Lisa, and then attended a wedding on Norfolk Lake (Good luck Andy and Katie). And then last night, the family got together to celebrate darling daughter Dawn’s (there’s another one! Boy I’m on the ball this morning!) Birthday… The overnight markets are not being kind to the currencies this morning, so we had better get to the meat and see what’s happening.

On Friday, Chris told you that Fed member Dudley had saved the dollar once again, the previous day with comments about how he still believed that September was in the cards for a rate hike, after the Fed’s Meeting Minutes reflected a different point of view. And then I saw an article that a dear reader sent me, that highlighted Fed member, Fischer, who said that he believes that “We are close to our targets”. “looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes.” He then called for more effective fiscal and regulatory policies to help BOOST PRODUCTIVITY. HEY!, You don’t think that he read my Sunday Pfennig on falling productivity do you? Nah. That couldn’t happen, he’s the Vice Chairman of the Fed, for crying out loud, Chuck, why would you think that he would bother with the thoughts of some country bumpkin in St. Louis? Maybe if they had read the Pfennig. I’m just saying.

So, the dynamic duo of Dudley and Fischer, had the dollar on top of the hill once again, and daring any other currency to come knock it off. (remember playing king of the hill as a kid?) If you would like to read everything that Fischer had to say, you can click here: http://www.bloomberg.com/news/articles/2016-08-21/fischer-signals-2016-rate-hike-with-economy-nearing-fed-goals But in reality, Fischer spends most of his time in the article talking about the low productivity levels in the U.S. So, maybe, after all, maybe there’s some truth to him reading the Pfennig!

So, are these guys like stalking horses for rate hikes? HA! What happens when in a few weeks the Fed meets, and Yellen tells these guys that they need to put their rate hike triggers away? Oh well, I can’t control that, so I shouldn’t put so much blood, sweat and tears, into talking about it. I don’t see a rate hike coming (maybe in December, but that’s 4 months away) and that’s my story and I’m sticking to it! Besides, I told you last week about the Yellen and Brainard duo and their mission to keep the economy from the throes of a rate hike induced recession ahead of the election. What? You didn’t think those “on-demand visits” to the White House by Yellen were for tea and crumpets did you?

I looked over all the currencies, metals and Oil this morning and only one asset is booking gains VS the dollar this morning. The Brazilian real, still feeling the glow of the Olympics, and don’t forget the Para-Olympics will be held there in 2 weeks, so the good times in Rio continue. But I have to say that we have to be careful from here on out, because the glow will fade as time goes on, and the real will begin to be looked at as a Petrol-Currency and one that has an interim gov’t.

Gold lost $11 on Friday, and is down another $6.70 in the early morning trading today. That’s more than $17 in losses in the past two days, so far. I just have to say about this, that it certainly gives us an opportunity to buy it cheaper today than on Thursday! And everyone loves a discounted price, right? HA!

And the Reserve Bank of India (RBI) has a new Gov. to replace Mr. Rajan. Urjit Patel was named the successor to Rajan and will start on Sept. 4th. I’ll have to do some research on Patel, like I did Rajan, and became so enamored with him and his policies. The initial reaction to the news wasn’t kind to the rupee. So, there must be something there I haven’t seen or read yet, but I will!

I was cracking up at Bank of Japan Gov. Kuroda, who was quoted as saying that the “BOJ has room to drop interest rates further”. Well, no. he doesn’t! They are already zero! But he’s talking about is that he can take rates negative. JGB’s (Japanese Gov’t Bonds) already have a negative yield, so he might as well go the whole nine yards and make deposits negative too. That’s what he’s greasing the tracks for, folks. So, look for that announcement in your mailbox, and you don’t have to pay for shipping and handling!

And there was an announcement in Europe over the weekend that they tried to slip through under the cover of darkness.. The Royal Bank of Scotland is going to charge Big Corporate Clients for holding deposits. And that includes deposits that are held for collateral. Well, if that’s the case, then it won’t be long before regular individual accounts are being charged too. Aye, Aye, Aye. I would bet safe companies are really booking some gains these days, and shipping out safes to everyone from institutional firms to ma and pa. Why? Well, if the bank is going to charge you for holding a deposit, that means you’re not receiving any interest on the deposit, so you might as well withdraw the cash, and stuff it in a safe at home or the office?

Or better yet, buy some Gold or Silver with it and put it in your safe, at least with Gold & Silver you don’t interest, but you could have the potential for gains in value!

Later this week, Fed Chair, Janet Yellen will speak at the Fed’s Jackson Hole boondoggle. The markets are waiting impatiently for this speech, as they really believe that IF there’s going to be a rate hike in September, she will tell us in her speech. So, that speech takes place on the 26th. Are you ready? Yes, I’m ready.

I was reading my latest Strategic Investment , which is written by James Rickards for the Agora Publishing group (www.agorafinancial.com ) , and in it he lays out the scenario he believes is going to crush the dollar, starting on Sept 4th. Basically, he believes that the Petro-dollar deal with Saudi Arabia will be shucked to the sidelines, and a new reserve currency will begin to take over for the dollar. Now, the ending of a reserve currency’s regime, doesn’t’ happen overnight, and it will take years for this to finally work itself through, but he’s convinced that this is the scenario that will be played out starting Sept. 4th, the next G-20 summit.

Now, long time readers, and people that have heard me talk about the “changing currency regime” at conferences for the past 6 years (although I haven’t spoken in the past year) know that I have long said that I thought the Chinese renminbi would be the next reserve currency, and that it would happen in the current decade. Rickards isn’t sure if the SDR’s (special drawing rights issued by the IMF) or renminbi will be the next reserve currency, so IF he’s correct I’ll have been proven to be the first to tell people that a currency regime change was coming and I’ll have nailed down the decade! I think I should get a Gold medal or something for that!

I remember the looks on the face of the people attending a presentation by me, titled: The Changing Currency Regime” and I told them the dollar was no longer going to be the reserve currency of the world. I would go through the currency swap agreements that China was signing with countries all over the world, that removed dollars from the terms of the transaction, and then I would say but the real dagger to the heart of the dollar would be if the OPEC countries ever decided to sign one of these currency swap agreements with China. Well, If what Rickards says does come to fruition, then the scenario I laid out years ago in my presentations will basically become reality..

Now, let’s talk about SDR’s. As you know, these are currency baskets that the IMF created and sells to Reserve Banks. They consist of: dollars, euros, yen, and sterling, and soon will have renminbi added to the mix. Now, individual investors can’t buy SDR’s, but what you could do, is buy a specific weighting of the mix of currencies that make up SDR’s and then you basically would have your own SDR. I’m just saying.

Bad Company is playing there song, Shooting Star on the iPod right now, and I think according to Rickards (& me of course, because, well, I said it first!) the band is singing this to the dollar.”Don’t you know that you are a shooting star?

OK, back to regular programming. In New Zealand, the Reserve Bank of New Zealand (RBNZ) Gov. Wheeler is scheduled to make a speech tonight titled: “Monetary Policy Challenges in Turbulent Times”. Hmmm. I wonder how long into the speech it take before Wheeler disses kiwi? Kiwi Traders know Wheeler all too well, and kiwi has had difficulty finding a bid these past couple of trading days, for the traders know all too well that Wheeler can deep six kiwi faster than you can shake a stick!

The U.S. Data Cupboard is not worthy today! It only has the Chicago regional manufacturing index to print. And tomorrow is much of the same in regards to light economic news. In fact, we won’t see “real economic data” until Thursday when Durable Goods/ Capital Goods Orders prints for July. And then the Yellen, Jackson Hole speech on Friday.

The Dog Days of Summer have really set it, folks, and it is affecting the Data Cupboard too!

To recap. The dollar is back as the king of the hill this morning after comments by Dudley (rate hike for September) on Friday and Fischer yesterday (after reading my Sunday Pfennig on low productivity HA!) have the media and traders all lathered up for a rate hike in September, but as I’ve said before that’s not going to happen in my opinion, and then who will look like they were left at the altar? Kuroda greases the tracks for negative deposit rates in Japan, Wheeler prepares a speech on monetary policies, will he diss kiwi? The RBI has a new Gov. (Patel), and Gold just can’t find a bid these last two trading days, with all the rate hike talk.

For What it’s Worth.. Well.. Ed Steer highlighted this story on his Saturday letter, so that’s good enough for me too! This is an article that was Reuters regarding the physical Gold buying in India and China picking up. and can be found here: http://in.reuters.com/article/asia-gold-demand-idINKCN10U0QZ

Or, here’s your Snippet: ”
Physical gold demand in Asia improved modestly this week as consumers returned to the market ahead of upcoming festivals in India and China when demand is usually high.

In India, the world’s second biggest gold consumer, discounts narrowed as jewelers started buying for the festive season. Dealers were offering a discount of up to $52 an ounce over the global spot benchmark, down from up to $60 last week.

“Large jewelers have started building inventory for the upcoming festival season. In coming weeks, demand is expected to pick up further if prices remain stable at the current level,” said a Mumbai-based bullion dealer with a global bank.

India’s gold demand may rise in the second half of 2016 after falling to the lowest in seven years in the first half as monsoon rains spur rural demand during the peak festive season, the World Gold Council said on Aug. 11.

Two-thirds of gold demand in India comes from villages, where jewelry is a traditional investment.”

Chuck again. the 4th QTR typically accounts for 1/3rd of India’s Gold sales, so physical demand from here on out through December should be quite strong. Gold will have that going for it!

Currencies today 8/22/16. American Style: A$ .7605, kiwi .7245, C$ .7732, euro 1.1295, sterling 1.3090, Swiss $1.0380, . European Style: rand 13.64, krone 8.2515, SEK 8.3975, forint 274.60, zloty 3.8090, koruna 23.93, RUB 64.48, yen 100.56, sing 11.3522, HKD 7.7524, INR 67.18, China 6.6544, peso 18.35, BRL 3.2050, Dollar Index 94.74, Oil $47.22, 10-year 1.58%, Silver $18.95, Platinum $1,109.75, Palladium $707.10, and Gold. $1,339.50

That’s it for today. Cardinals take 2 of 3 from the Phillies, and return home going 6-3 on the road trip.. They are the best team in baseball on the road, but their record at home this year is abysmal. The Olympics came to an end last night. I enjoyed what I saw of it, I really didn’t see that much, but I love the swimming, track and field, water polo and basketball. Now it’s back to watching my beloved Cardinals, and switching the channel when a political ad comes on! It rained off and on all day Saturday, but an hour before the wedding that was outside overlooking the Lake, was to begin the sun came out, and it was a beautiful evening. As the ceremony was going on, a Bald Eagle flow overhead simply beautiful. The wedding took place at the lake home of our good friends Gary and Dianne, whose son Andy got hitched to the lovely Katie. And then it was time party! Well, we have the rest of the week to see what’s in store for us with Yellen on Friday, so there’s plenty of time to get ready. So, please go out and make this a Marvelous Monday! Be Good To Yourself!

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