Let’s All Head To The Hamptons Too!

Good day… And a Happy Friday to one and all! The infusion confusion fog dissipated for the most part yesterday as the day went along, but still lingers a tiny bit this morning. The heart doctor visit was good. He was very pleased with the weight I’ve lost since seeing me in the hospital 2 months ago. I’ve still got a ways to go with regards to weight loss, but I didn’t gain it all at once, and I won’t lose it all at once! This is the start of a 3-day, holiday weekend. Memorial Day weekend. YAHOO! I could use a few days of sleeping in! I’ll have more on Memorial Day in the Big Finish today… Aaron Neville greets me this morning with his song: Tell It Like It is.. . I always get a little emotional when I hear this song, because, this is the song that my oldest sister, Brenda taught me to slow dance to… Brenda was so special to me, she taught me to tie my shoe, she taught what never to say to a girl, and so on…

OK, I’ll get off the nostalgia road I was on there… Well, the markets will get really thin this afternoon, as the U.S. heads to a 3-day holiday weekend, and the Big Swinging Traders will be heading to the Hamptons, thus leaving their trading books with the junior traders with strict instructions to not take on any risk positions. I always think of myself in those situations, and seeing an opportunity to buy something cheap, and going ahead and taking on the position, and then take the mantra of: It’s easier to ask for forgiveness than to ask for permission! But shoot Rudy, don’t we all wish we could Head To The Hamptons too?

With the U.K. also on holiday Monday, it’s made the thin volume already present in the markets, and the currencies are just trading sideways this morning. Pound sterling is taking on some water though this morning after the latest poll had the Conservatives lead narrowing to just 5 percentage points… I’m going to point out once again that I called this scenario two months ago, when PM May called for this election, thinking that it would strengthen her position as the U.K. headed to BREXIT… I said at the time that I thought she was taking a risk that she didn’t need to… And now look what’s happening! The pound has lost the 1.29 handle on the poll news, and… 1st QTR GDP was revised downward to 0.2% from 0.3%…

Well, I guess it wasn’t a very well-kept secret was it? I’m talking about the OPEC and non OPEC nations meetings yesterday, where they agreed to maintain their production cuts for 9 more months… They didn’t catch anyone off guard by announcing additional cuts, as I was thinking they might do… And the price of Oil? Well, traders weren’t too happy knowing ahead of time what the outcome would be, so… it was a very clear case of buy the rumor sell the fact, as traders sold Oil after the meeting announcement. I do want to point out that at the beginning of May the price of Oil had a $45 handle on it, and on Tuesday it was trading with a $51 handle on it… So the “buy the rumor” part was strong… I’m thinking that the “sell the fact” part won’t end up being that strong… But so far this morning the price of Oil has a $48 handle..

Inflation is falling in Russia… And has been for over a year now, thus the previous rate cuts from the Central Bank of Russia (CBR) have been spot on. Last month, I wrote about how I saw the internal rate in Russia being cut several times this year, and ending the year around 7.5% for their internal rate. Now, in days gone by, traders would have loved to see inflation falling like it is, and if the so-called experts who make calls on stuff like this, are correct, the headline inflation # could very well be below 4% by the end of summer… Food inflation has been the big mover in Russian CPI (consumer inflation) A year ago the food inflation component of CPI was 5.3%,this year (same month) it was 3.6% year on year.. Now, one would think that given this fall in CPI, and the thought that the internal rate will be cut several times this year, that the ruble would be under pressure… But not so much, as the ruble remains tied to the price of Oil right now…

The euro is trading above 1.12 this morning at 1.1220, and it’s all just a reflection of what the dollar is doing, as there’s been no news from the Eurozone the last couple of days, nor today, so the euro rises as the dollar gets sold, but it’s not an across the board selling of the dollar, as the euro is one of the few currencies that has moved positively this morning, as the other currencies, as I said above, are moving sideways.

Gold lost $3.20 from its price on Wednesday, and closed at $1,255.40… The shiny metal is up $6.80 as I write… And in the aftermarket yesterday Gold recovered the $.3.20 lost during the day and added to its price… This will be one of those strange days where the SGE price of Gold is on top of the COMEX price of Gold. This happens when here in the U.S. the price of Gold rallies in the aftermarket and in the early morning trading. The SGE takes the closing COMEX price and goes from there… So, don’t worry, the SGE price will play catchup on Sunday night, when we’re still attempting to get the smell of charcoal smoke off our bodies!

Investment returns… Investors are addicted to them, always looking for something that returns more… But these days, even stock market gains are minimal compared to other things… Publishing guru, Bill Bonner wrote in his letter yesterday (www.bonnerandpartners.com ) about investment returns, and he had some interesting information that I think you all should hear.. So.. with no further ado, here’s Bill!

“But that doesn’t mean you’ll make money with Buffett. Over the past 20 years, Berkshire Hathaway failed to beat the return from 30-year U.S. Treasuries. What? How could that be?

Following the 2008 crisis, the Fed bought long-term Treasuries as part of its QE program, driving up prices. Even Buffett couldn’t keep up. But wait, there’s more.

Guess what beat BOTH long-term Treasuries and Buffett… with zero management fees… and near-zero risk.?

And before we open the envelope, consider that this was a period in which every major central bank was pushing up bond prices directly with $12 trillion in newly created money.

…a period in which the Dow tripled…

What beat stocks and bonds? Can you guess?

Gold, with an annual return of 7.6%. Go figure.”

Thanks Bill, for reminding us that you need to look over periods of time, and not just what have you done for me lately with investments!

Speaking of Gold… my guitar playing friend, Steve Sjuggerud, was writing about Gold yesterday in his letter that is sent out by www.stansberryresearch.com . But more to the point he was illustrating why he thinks Platinum is ready for a run… He said that he doesn’t have a particular expertise in Platinum but he knows three things:
1. The downturn in prices is still in place
2. So, I’m not a buyer yet… However…
3. History says Big Platinum discounts usually don’t last long.

So, there’s something for you to think about this morning or whenever it is that you get around to reading the Pfennig!

Well, yesterday I talked about the Fed’s Balance Sheet of $4.5 Trillion in Treasuries and Mortgage Backed Bonds, and how the Fed was going to probably give the skinny on their unwinding of the positions at the June meeting. The 5 Minute Forecast (www.agorafinancial.com ) was discussing the Fed’s unwinding of its Balance Sheet. First let me correct something I said yesterday, when I called the “Great Unwind” the GW. A dear reader pointed GW out to me and said, “shouldn’t it be GU”? Of course it should! What a dolt I was, but then I do have an excuse going for me, as I was suffering from infusion confusion…

So, anyway, the “5” had this to say about the GU… “By some estimate, a $500 billion reduction in the Fed balance sheet has the same tightening impact as a 1% increase in the fed funds rate. At present, the fed funds rate is 1%, and the Fed is looking to raise it to 1.25% next month.”

WOW! That could end up being a real bugaboo for the Fed should they unwind too quickly! I’m in agreement with James Rickards on how the Fed will unwind, and that is to simply allow maturing bonds to pay off and not reinvest the proceeds, which is good, because the Fed created the money to buy the bonds out of thin air to begin with, and the proceeds should go right back to thin air! The Fed created the dollars and when the bonds come due, they’ll take those dollars and send them to the Treasury. What the Treasury does with them is up in the air.

Oh woe is me… I’m sitting here thinking of all sorts of things that the Treasury could do with the proceeds, and that’s useless! I’m worried about this process and I need to stop worrying! OK, there! I said to myself, Chuck, stop worrying! Hopefully, that will work!

What should I worry about? HA! I guess I should worry about the economic data here in the U.S. So, let’s check out the Data Cupboard, and get on with this!

The U.S. Data Cupboard yesterday, had the April Trade Balance (read deficit!) for us to look at… You might recall me telling you that with the weaker dollar in April that we might see a narrowing of the Deficit from $65.1 Billion in March.. But that didn’t happen… And the Trade Deficit grew to $67.6 Billion! Now that figure doesn’t take in any credit from Services, as that total will be printed on June 2nd… But normally those “services” don’t change the total number too much.. The reason the Gov’t separates these two, is to have a better feel for GDP…

And with that thought, I can tell you that a lot of the economists, and economic research places are already changing their outlook from a robust 2nd QTR GDP to one that isn’t so robust… Uh-Oh, that should throw a spanner in the works for the Fed, who are still saying that 1st QTR slowdown was only “transitory”, and that the 2nd QTR would be much better… Uh-Oh…

Today’s U.S. Data Cupboard will have plenty of data for us to chew on… A revision to 1st QTR GDP, which originally printed at 0.7%, is expected to be revised upward to 0.9%, as if that would make a difference worth a hill of beans! But, the rate hike campers will be pointing to the upward revision, and doing their happy dance… We’ll also see April Durable Goods Orders which will most likely print negative… And Capital Goods Orders, which I’ve explained several times in the past, is the cornerstone of a growing economy, without Capital Equipment being bought, the economy has nowhere to go. And then finally we finish it all off today with the final April print of Consumer Sentiment, which should remain high, but as always I want to point out, that this is simply a measure of the stock market, and nothing else!

So, nothing there really to move the dollar weaker this morning… So after reading the Pfennig this morning, just close up shop, and start the 3-day holiday weekend early! You have my permission to do so!

To recap… The currencies, for the most part, are moving sideways today, as thinned out trading desks and volumes will be the call to order today, as we head to a 3-day Holiday Weekend here and in the U.K. The euro is back above 1.12, but it’s strictly a case of the dollar getting sold and not euro strength on any Eurozone news, because there is none! The pound sterling is getting sold though this morning on the news that the Polls showed just a 5 pt. lead for the conservatives… I think I’m going to get to say, that I told her so! Gold heads higher in the early morning trading after losing $3.20 yesterday, and the price of Oil drops after the OPEC meeting, thus being a case of buy the rumor, sell the fact…

For What It’s Worth… I have a special treat for you today… This is my newest fave economist, Danielle Di Martino Booth, talking in her latest missive that she sends out pretty much every week. I implore you click on the link and read her message about how we should beware of Central Bankers bearing gifts… And you can read it all here: http://dimartinobooth.com/beware-central-bankers-bearing-gifts/

Or, here’s your snippet: “the Federal Reserve’s last Federal Open Market Committee Minutes warned that “equity prices are quite high relative to standard valuation measures.”

Let’s see. Where does the stock market fit into Congress’ statutory requirements that the Fed’s objectives be: “maximum employment, stable prices and moderate long-term interest rates”? You neither, huh?

The Minutes also indicated that, “equity price indexes increased over the intermeeting period.” Is it the slightest bit alarming that monetary policymakers are nodding to a phenomena that’s been in place since March 2009 as having just occurred to them? Are we pondering pure coincidence or is this exactly what it appears to be — political pandering?

This from CNBC: FOMC Minutes have unleashed the word “valuation’ as it pertains to equities six times since Alan Greenspan, a self-described obsessive observer of the stock market, first uttered the words, “irrational exuberance.” In every instance, stocks were hit over the next 12 months.”

Chuck again… From time to time I will highlight Danielle Di Martino Booth’s letter, because I believe she and I walk in the same circles, but her credentials are far better than mine! Might I also throw in that her book, Fed Up, is a very good read, and something that everyone that wants to know what was going on inside the Fed during the last Financial Crisis, will want to read. I’m sure you can find it on any of the online book stores like Amazon or whatever…

Currencies today 5/26/17… American Style: A$ .7455, kiwi .7050, C$ .7433, euro 1.1225, sterling 1.2875, Swiss $.97… European Style: rand 12.8933, krone 8.3716, SEK 8.6646, forint 273.53, zloty 3.7223, koruna 23.5398, RUB 56.35, yen 110.98, sing 1.3815, HKD 7.7945, INR 64.42, China 6.8742, peso 18.45, BRL 3.2774, Dollar Index 97.08, Oil $49.20, 10-year 2.24%, Silver $17.30, Platinum $959.21, Palladium $779.05, Gold 1,269.50, and SGE Gold $1,266.53

That’s it for today… Today begins the Holiday weekend known as Memorial Day… This is a day that we are to remember those brave soldiers that died for this country. I know that the day will be celebrated by those that think about Memorial Day as the first day of summer, and that pools open, and BBQ smells fill the air. And I do enjoy all those things, but to me this is a somber Holiday. One that I feel should be made more of… A dear reader sent me a 5-minute video about a Catholic Military Chaplain in the Korean War… It brought tears to my eyes, and yes, even though I only have one good eye, I still tear up in both eyes. And it’s with great personal feeling that I give you the link to this video… I hope it moves you the way it moved me.

But, just because I make a big deal out of the real reason for Memorial Day, doesn’t mean you have to, so go out an fill your neighborhood with the smell of charcoal burning! That smell always gets my mouth watering for what till come later! Today, Dawn and Delaney Grace will be celebrating the end of the school year, with Delaney and Everett’s friends coming over to swim, and tomorrow, is Braden’s birthday party here at the house. So, I’ll be busy the next two days, and on Monday, me and my boys, go to the Cardinals game. Sons Andrew and Alex, and adopted son Jerry (Dawn’s husband) are heading to Busch Stadium on Monday, should be fun! And I think Mike Leake will be pitching that day! The Scorpions take us to the finish line today with their song: Still Loving You, which every time I hear this song, I think of my friend, Laura Baur, who loves this song! And with that, I hope you have a Fantastico Friday, and a Wonderful Weekend! I thank you for reading the Pfennig, and hope you forward it to all your friends and family! Be Good To Yourself!

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


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