MSCI Decides To Wait!

* Currencies for most part are unchanged.
* Rate advantage currencies rally.
* MSCI tells China to wait a year .
* BOJ meets tonight what will they do?.

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

Good Day. And a Wonderful Wednesday to you! Well, you know how when it gets hot, I usually perk up, given that warm weather is my bag, baby! But then there’s always the fact that air conditioning has made hot weather bearable. And it was A/C that was missing yesterday at the Butler house. Yes, our A/C quit working, and a repairman wasn’t able to come until today. It was a “toasty night” at home, but we all survived, and so we carry on. Elton John greets me this morning with his song: Mona Lisas and Mad Hatters. A great morning song for sure!

Front and Center this morning is the news from the MSCI (we talked about this yesterday) where they declined to include Chinese A shares in their Emerging Market Indices. They gave a laundry list of reasons why they were going to review the inclusion next year, but in the end, it’s a real blow to the Chinese who were looking for two things here. 1. A boost to the Shanghai Stock Exchange, that’s the worst performing exchange the past 12 months, and 2. And this is where I was excited. If all those Chinese A shares were going to be purchased, the currency/ renminbi, was going to have to be purchased to settle the trades, and that would have meant another step toward openness in China’s Capital Markets. But all that was put on hold by the MSCI decision to wait and review it again next year. UGH!

The dollar is taking a breather today, and the for the most part, the currencies are trading the in the same clothes as yesterday. With the exceptions being the Aussie dollar (A$) , New Zealand dollar / kiwi, Brazilian real, and Russian ruble, which are all vying for best performer overnight VS the dollar. It’s a Fed rate decision day, and with all the focus now on no rate hike today, these relatively speaking, high yielders have been given some love by the traders. And there was no new Poll on the BREXIT referendum so the last poll showing the “leave vote” in the lead is still on the minds of pound sterling traders and investors.

I had a meeting yesterday with Joseph Stolzer and Chris Gaffney, as it was time for our monthly Managed Currency Committee to meet. I mentioned to them that the Swiss franc was really perking up but that we had missed this opportunity to buy it cheaper. I also mentioned what I’ve told you here in the Pfennig, and that is that I think a lot of the franc buying is coming from investors leaving the pound, in fear that BREXIT will take place. So, that brings up a good question.. Should an investor just walk away and forget about buying as asset if it has already had a nice bump up? I’ve always been someone that looks at buying an asset differently than most people. I’ve always been the guy that if he likes something and wants to own it, he just goes out and buys it, no worries on the entry price. (of course something has to have “opportunity buy” written all over it first!) So, why did I make such a big deal out of missing the opportunity to buy francs cheaper? Another good question! The answers to those and many more questions will be given in future Pfennigs! HA! So, make sure you read each day! HA!

So, the Big Kahuna deal today is the Fed rate decision that ends their two days of playing board games to pass the time. I suspect that Fed chair, Janet Yellen, will be fair and balanced in the statement following the meeting, where the Fed will leave rates unchanged. She’s still hanging her hat on the resurgence of the labor market, and just tries to sweep the inflating of the economy under a rug so that no one notices what a failure it has been. I mentioned yesterday that with everyone on board with the idea that the Fed will leave rates unchanged today, that they could throw a cat among the pigeons and surprise the markets with a rate hike today. Talk about causing chaos! We would need to call Maxwell Smart! But not to worry, that’s got a snowball’s chance in hell of happening today.

Speaking of Inflation. I was watching a video by Wall Street Daily of an interview with Jim Rogers, and in the interview, Jim said something that made me laugh. The conversation was about how consumers feel the weight of inflation every day, but the official Gov’t figures, supplied by the BLS, show that inflation barely exists. Jim said, ” Well, the BLS has a secret place to shop, where there’s never any inflation”.

And he must be right, because the inflation I’ve seen in insurance, health care, tuitions, travel, and the list goes on, is strong. But the BLS keeps telling us that we should move along, for these are not the droid we’re looking for.

While we’re talking about the U.S. Well, we’ve known about the debt problems of Michigan, Illinois, New York, and California for a few years now, but now we have to add a new one to our watch. Just last week it was reported that the city of Honolulu is short $1.4 Billion in their retiree’s pension Benefits. I’m beginning to get the feeling that there aren’t any pension plans that are fully funded, and that’s a pretty ugly place to go to, so I stay away from there, but it’s information like this that sends me there. NO! I don’t want to go there! You can’t make me go there!

There’s another Central Bank meeting today. The Bank of Japan (BOJ) will meet tonight, and once again the markets are wishin’ and hopin’ and thinkin’ and prayin’ (Ahhh, the lovely Dusty Springfield) that the BOJ announces additional stimulus . It’s been this way for a few months now, that the markets believe the BOJ will announce additional stimulus, and then they get nothing, absolutely nothing, say it again! At this point, who cares if the BOJ implements additional stimulus? They’ve been implementing stimulus measures for over two decades now, I think the chance of any of those working some magic on the Japanese economy have had a slim chance of doing any good, and Slim left town! So, now it’s like piling on in football, they are just piling on, but as guys jump on the pile, it makes no difference the ball carrier is still down, and so it is with additional stimulus here, as they add stimulus to the economy that’s already down it makes no difference!

Tomorrow the Swiss National Bank (SNB) and the Bank of England (BOE) will meet. Nothing special about these meeting will take place as far as I can see, but just wanted to get them on the docket.

The price of Oil seems to be stuck at $48 and change where it has traded for the 3 trading days this week. What it’s waiting for beats me, unless the Oil traders are still holding out thinking that the Fed will hike rates today. The EIA weekly petroleum supply prints today, and last week we had crude supply fall, but the products like gas increase. The price of gas sure has reacted to the move in the price of Oil. I don’t recall it moving down as fast as it is moving up when the price of Oil plunged last year. Do you? But isn’t that like just about everything else? Take interest rates. They sure go up fast, but go down slow.

Gold added a buck-seventy yesterday ($1.70) but is down $4 bucks in the early trading today. I told you about the 3 things that Central Banks could do to inflate their economies, and one of those things was a repricing of Gold. The more I thought about this yesterday, the more the idea came to me that what if the two countries (China and Russia) that have been hoarding Gold production in the past 10 years were planning on implementing this “Gold repricing” themselves and thus taking over the Gold market? Hmmm, it would take a country with a large Gold reserve, and both China and Russia have that, and it keeps growing all the time too! I know, I know this could be viewed as conspiracy theory, but I look at it like this. I see it as a “possibility” And gives another answer to why these two countries have been hoarding Gold all these years!

The U.S. Data Cupboard had the May Retail Sales data for us yesterday, and the data surprised a bit to the upside with a 0.5% increase. I had half-expected this to print at 0.3%, but the difference is miniscule so I won’t complain about the number. I would say that this number is curious, given the fact that Department Store Sales fell -0.9% in May. Online sales must be the rage these days. And I guess when I think about it, I bought 3 different things this month, and bought them all online. But what happens to all those bricks and mortar stores when no one goes there any longer? The comedian Chris Rock has a funny routine centered around what happens to mall stores when no one goes to the mall any longer.

To follow up on the stronger than expected Retail Sales for May. and just in time I might add, is the Connecting Dots letter by Tony Sagami at who tells us that Credit Card Debt is rising at a pace that Credit Card Watchdog: CardHub, estimates that American Credit Card balances will hit $1 Trillion in 2016, a level of debt that has never been reached before.

And not only are Americans borrowing more on their credit cards, they are paying it back at a snail’s pace. In the first quarter of this year $71 Billion was put on credit cards, and only $26.8 Billion was repaid. the smallest paydown for a quarter since 2008.. So, in essence this is exactly what I thought was going to begin to happen. We are Americans! We see things and want to buy them, now! We don’t wait for sales! (Ok some of you do, but for the most part it’s like I said it was) And if we don’t have the cash in the bank to pay for what we want, we put it on credit cards. Have you ever seen someone pull out two cards and say, “put “X amount” on this card and the rest on this other card? Well, that’s where we are heading.. Aye, aye, aye. Heaven’s to Murgatroid! And we ran up this debt, for what?

For years now, I’ve told people, and even wrote about this here and in the old Currency Capitalist newsletter I wrote for the Sovereign Society, that The U.S. would never suffer decades of deflation like the Japanese are doing, because we like to buy things. But sooner or later, you have to pay the piper. The Credit Card companies have interest rates around 15%, so you’ll never get ahead by allowing the debt to grow on your credit card.. And that’s when the card companies and the banks that issue the cards will have problems. But don’t let that worry you. That’s what bailouts are for!

To recap. the currencies, for the most part, are trading in the same clothes as yesterday, as the Fed rate decision looms and will be made this afternoon. Chances are because I wear a silly grin the moment you walk into a room, no wait! Chances are that the Fed leaves rates unchanged and that has given the currencies that have a rate advantage to the dollar, a chance to rally, but it’s only a handful, as most currencies around the world, sport zero, negative or just plain very low interest rates. The BOJ meets tonight, and will not announce anything to the chagrin of yen traders who are still waiting for additional stimulus. The price of Oil remains stuck in the $48 handle, and Gold recovered its early morning $3 loss yesterday to close up $1.70, but is back down $4 this morning.. So no movement!

For What It’s Worth: Once again I turn to Ed Steer’s letter this morning to find this article that can be found on Reuters, and is about how DoubleLine’s Gundlach say’s Central Banks are losing control. Sounds like something I’ve said once or twice before doesn’t it? Oh well, you can read it here:

Or here is your Snippet: ”
Jeffrey Gundlach, the chief executive of DoubleLine Capital, said on Tuesday investors are dropping risky assets and turning to safer securities including Treasuries and gold because they are losing faith in central banks.

The man known on Wall Street as the ‘Bond King’ is one of the first heavyweight investors to publicly raise red flags about the credibility of major central banks, including the U.S. Federal Reserve, as countries struggle to manage economic growth.

Last year, Gundlach correctly predicted that oil prices would plunge, junk bonds would live up to their name and China’s slowing economy would pressure emerging markets. In 2014, he forecast U.S. Treasury yields would fall, not rise as many others had expected.

“Central banks are losing control and they don’t know what to do … just like the Republican establishment and Donald Trump,” Gundlach told Reuters in a telephone interview, referring to the Republic Party’s unpredictable presumptive nominee for U.S. President.”

Chuck again. Notice the article says “the first of heavyweights” to say Central Banks are losing control? Well, I would certainly be considered a “heavyweight” if we were just talking about physical presence! HAHAHAHAHA! But I guess I’m not a “heavyweight” like the Gundlach, Gross, Rickards, Casey, etc. I’m just a country boy trying to make it in the big city!

Currencies today 6/15/16.. American Style: A$ .74, kiwi .7040, C$ .7788, euro 1.1230, sterling 1.4198, Swiss $1.0373, . European Style: rand 15.2365, krone 8.3265, SEK 8.3355, forint 279.71, zloty 3.9365, koruna 24.1174, RUB 65.73, yen 106.20, sing 1.3550, HKD 7.7615, INR 67.15, China 6.5813, peso 18.83, BRL 3.4832, Dollar Index 94.84, 10-year 1.63%, Silver $17.43, Platinum $979.75, Palladium $544.25, and Gold. $1,284.10

That’s it for today. Well, tomorrow is another infusion day, and the follow-up Whacked out Friday, or as the Big Boss, Frank Trotter calls it, “infusion confusion”. So, I’m going to have to bug out early this week, as they scheduled me for an early infusion tomorrow morning, so no time to write and get it out the door, before I have to be at the infusion center. So, I hope you don’t miss me that much! HA! Cardinals lose to the Astros last night, UGH! And my old “boy” Colby Rasmus came back to haunt us last night! Wait. did you hear about that awful alligator attack at Disney World? That’s horrible! What’s next for Orlando? Little Feat takes us to the finish line today, with their classic song: Dixie Chicken. This is from the live: Waiting for Columbus album, and it’s longer than the studio version of the song. This is one that can get colleague Aaron Stevenson going! Alrighty then I need to get out of your hair for today, Fed decision this afternoon, I’ve got to go home early and meet the A/C guy, it’s going to get to 96 degrees today! I hope you have a Wonderful Wednesday, Be Good to Yourself, and I’ll talk to you again next week!

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