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Navarro Sends The Dollar To The Woodshed!

Good Day… And a Wonderful Wednesday to you! I’m going to have to leave for my scan this morning before I finish the letter, so I will hand it off to Chris Gaffney & Mike Meyer for them to put the finishing touches on it for me… Yesterday saw the euro leap from its tight trading range… We saw the Trump administration’s head of the newly formed National Trade Council, Peter Navarro, blast Germany and the weak value of the euro, and we saw Gold rise for a 3rd consecutive day, and we saw blue sky following me, nothing but blue sky do I see… Bluebird singing a song, nothing but blue skies from now on… Oh, how I wish! The Classic V greet me this morning with their song: Spooky.. I can still play that song on my guitar, and it was redone by the Atlantic Rhythm Section (ARS) years later…

Alrighty then, Front and Center this morning… Peter Navarro, the head of the newly formed National Trade Council went straight for the throat of Germany yesterday, and he didn’t beat around any bushes for sure. He said, “that Germany is using a “grossly undervalued euro to exploit the U.S. and its EU partners.” He told the Financial Times that the “ euro was like an implicit Deutsche Mark whose low valuation gave Germany an advantage over its main trading partners.” Well, those comments sure stirred up a hornet’s nest and sent the euro soaring on the day more than 1%. Last night when I checked the currencies the euro was knock, knock, knocking at the door, somebody’s ringing the bell, to 1.08! Do me a favor, open the door and let it in…

So, what bug crawled up Navarro’s shirt? Well, it’s jawboning again folks.. But this guy Navarro has said some things leading up to yesterday that scare the bejeebers out of me, regarding protectionist measures that he plans to take… Gee, you have to wonder why? At this time any way… Why not work on the things that could really open up the economy like tax reform, and other things that promote growth, and not worry about these protectionist things out of the starters’ gate… And that’s the reason the currency traders started selling dollars.. they want to see the new administration get the economy going, for it has been in stall for 10 years, and if I’ve told you 1 time in the past 25 years of writing the Pfennig, I’ve told you 100 times, and that protectionist measures are not looked kindly upon by currency traders, and any country implementing them, has, in the past, seen its currency get taken to the woodshed…

And I might add here, that maybe he might want to back off that statement about “Germany holding an advantage over its “main trading partners”… Does he know that 80% of all trade in the Eurozone is among Eurozone members? So, they use the euro too, so no advantage to them… China is #2 trading partner, and the Chinese have seen their currency weaken too, so it’s more of a this for that in my opinion… And then finally at #4 is the U.S. So, Navarro wants Beemers and Mercs to cost more? I don’t know, maybe a restructure of his comment might be in order, eh?

Yesterday, we talked about the “something” that would knock the dollar out of its strong dollar trend, I proposed that the Fed rate hikes and any narrowing of the Fed’s Balance sheet could do the trick… But this journey down the protectionist rabbit hole could very well do the trick… In fact, I’m thinking right now, that it probably could be the “something”, that knocks the dollar out of the strong trend… I guess we’ll have to wait-n-see, what kind of measures Navarro implements, for that will be the determining factor of where this goes… For once in my life, let me get what I want, girl don’t let me down! – Righteous Bros. And it plays so nicely here, because for once in a blue moon we, might, get to see a potential currency trend mover play out right before our eyes, and we were waiting for it… I’ve heard James Rickards talk about the snowflake that causes an avalanche, and not know where that snowflake will come… Well, as far as I’m concerned, we have our snowflake… Now, of course, I could be wrong about all of this, but just so you know… my spider sense is really tingling…

The last time we saw a currency trend mover before it happened was in 2001, when the new President at that time, Bush, implemented tariffs on Japanese Steel… If we could go back and read what I said that day, I’m sure I said something like, “In the Decline of the Dollar white paper, I highlighted the fact that in history, a country with a current account deficit to GDP ratio of more than 4.5% would experience a currency crisis. But so far, the dollar remains well bid, for how much longer? Well, I doubt too much longer, because President Bush just signed on to charge a tariff on Japanese Steel… That’s a protectionist measure folks, and could very well be the straw that breaks the dollar’s back.”

I know, I know, I’m sounding all giddy about this potential currency trend mover… Not really… I’m happy that should all this come to pass, that fundamentals would have returned to the markets, and the trend change wouldn’t have come from just “sentiment”… I’m wouldn’t be happy about what protectionist measures would do to our economy… But, if that’s what’s going to happen, then we might as well take advantage of what it could cause, dollar weakness…

So, the euro is just shy of 1.08 this morning, and the rest of the currencies, for the most part, remain, firmly, on the rally tracks… One exception is the New Zealand dollar / kiwi.. Last night when I checked the currencies, kiwi was pushing toward 73-cents… But then some softer than expected data printed and kiwi got taken to the woodshed. Here’s the skinny on the data… 4th QTR Employment rose 0.8% (better than expected 0.7%) but… The Unemployment Rate increased to 5.2% (expected at 4.8%) And the markets decided to focus on the this piece of the labor report… I have to say that normally, the markets don’t really pay attention to the N.Z. labor reports because they can be volatile, but the markets decided to pay attention to this one for some reason?…

Across the Tasman, the Aussie dollar (A$) is pushing toward 76-cents this morning, and data that prints tonight could very well be the straw that stirs the move to 76-cents. Tonight, Australia will print their December Trade Balance, which has turned to a Surplus in recent reports… A$ 3.5 Billion would be a record high, so I’ll be watching for that!

Gold finally caught some wind in its sails yesterday, as the shiny metal rose $15 on the day, and Ed Steer tells me that there were tons of paper trades thrown at Gold’s rally, to keep it from going higher on the day… Darn paper trades… But you can’t argue too much with a $15 gain on the day, eh? The Dollar Index has fallen below 100, and dollar weakness across the board is behind this gain in Gold… One more thought on the protectionist measures that could be coming down the road… Trump told us during the campaign that this is what he was going to do, so we shouldn’t be so surprised… I just wish this stuff came later, and economic growth measures were implemented first…

The price of Oil continues to wallow in the mud below $53… I had a reader send a question to me through the website yesterday, regarding the Canadian dollar / loonie. He wanted to know if I thought the loonie could keep going higher or was it going to drift from here? I responded that I thought the loonie had been quite resilient given the plunge in the price of Oil, and now that it is rising again, it’s a good thing for the loonie. So, one’s outlook for the price of Oil would be the determining factor of whether the loonie goes higher from here, in my opinion, which could be wrong.

Oil’s wallowing below $53 had caused a pause for the cause in the Russian ruble, and once again the ruble’s forward looking opportunities to gain ground is bundled up in the price of Oil…

Speaking of the ruble… I told you previously that I had chosen the ruble as the next Currency of the Month, and you’ll be able to read what I have to say about the ruble and Russia’s economy in that report that should be in your email box in a couple of Sundays..

The U.S. Data Cupboard yesterday saw the 4th QTR Employment Cost Index (ECI) rise 0.6%, which beat the expectations of 0.5% and the previous quarter’s print of 0.5%, and January Consumer Confidence Index rose to 112.9.. quite strong, but then stocks recently hit 20,000! I wouldn’t have expected anything less! We were scheduled to see the color of the Case/Shiller Home Price Index, and Chicago PMI (manufacturing for the region) , but something happened and they didn’t print… Hmmm…

Well, today’s Data Cupboard has the January ISM Manufacturing index, which in 2016 spent the majority of the year weakening, has in recent months recovered and printed gains, which was one of the reasons I recently pointed out in the Review & Focus ( that Global Growth was showing a pulse… The ADP Employment report will also print, and is supposed to be a good indicator for the Jobs Jamboree that will print on Friday, but in reality, it hasn’t helped that much…

But the Big Event of the week will take place today! I’m almost to the end of the letter, and I’m just now acknowledging this… The Fed’s FOMC Meeting will take place this afternoon, and there’s nothing whatsoever expected from this meeting… No press conference, no policy changes, or anything like that. Just a statement in writing about what the Fed sees, which I would think would be more hawkish, given the recent activity with rising inflation…

To recap… The new head of the National Trade Council (NTC) Peter Navarro, sent the currencies to the rally tracks yesterday, when he blasted Germany for the weakness of the euro and Chuck calls him out on that… But his comments send the dollar to the woodshed, and for the most part, the currencies are firmly on the rally tracks this morning. The Big Event for today is the Fed’s FOMC Meeting this afternoon… Don’t expect anything, other than some hawkish comments in the statement that will follow the no rate movement decision announcement.

For What It’s Worth… Oh me oh my… The past comes back to haunt us (well, it might come back to haunt India this time). Many years ago, I read a book by Bill Fleckenstein about Alan Greenspan, and the origin of the housing meltdown. Believe it or not, the housing meltdown had its roots all the way back to the mid-90’s, during the Clinton administration. This is a long story, so please stay with me on this… Clinton wanted housing to be affordable for everyone, so he challenged Greenspan to figure out how it could be done. Greenspan came back to Clinton and said that in order for this to happen, interest rates needed to drop, and the only way interest rates could drop was if inflation were to drop. Clinton then assigned the Boston Consulting Group to figure out how to get inflation to drop… And that’s where all the hedonic adjustments to CPI came in… The weightings, the substitutions, the season adjustments and all the rest, and guess what? Inflation as measured by CPI came down, and so did interest rates, and the housing boom began… Oh it took a couple of years for home buyers to realize what was going on but when they did, and the mortgage lenders jumped in with both feet, well.. you know the rest… But remember that firm’s name: the Boston Consulting Group because… It just so happens that they could be involved in the ban on cash in India… They deny it, but this report from a newspaper in India spells it out differently than The Boston Consulting Group and Google tend to tell the story… you can click here:

Or… here’s your snippet… “German business journalist and blogger Norbert Häring in his latest blogpost on Tuesday writes on how in July, 2016, Boston Consulting Group and Google laid down the road map for demonetization.

Boston Consulting Group (BCG), the omnipresent US-consulting company, and Google, the global data miner, issued a joint report in July 2016 on the “$500 billion Pot of Gold”, which is the Indian digital payment market.

Even though the authors deny it, the report gives much reason to suspect that the authors knew that something radical was imminent from the Indian government. The report is remarkably honest about the aims of the whole exercise.”

Chuck again.. and for those of you interested in reading the Bill Fleckenstein book you can find it on Amazon by clicking here:

Whew that was a long one today… and probably full-o-stuff that you didn’t know, or weren’t in class the first 10 times I talked about this in the past… Frederick Sheehan was also an author on this book, and I’ve talked to him over the phone and via email a few times in the past… He’s certainly not a fan of Big Al’s…Oh, and I’m not saying that the Boston Consulting Group is bad… I’m just pointing out that they are thought to be involved in both of these game changing policy moves over the years… Oh, and Big Al got his start at the Boston Consulting group, if I recall that from the book correctly… They were just doing what they were paid to do!

Currencies today: 2/1/17… American Style: A$ .7588, kiwi .7275, C$ .7650, euro 1.0796, sterling 1.2603, Swiss $1.0107, … European Style: rand 13.47, krone 8.2350, SEK 8.7242, forint 287.05, zloty 4.0018, koruna 25.02. RUB 59.95, yen 113.40, sing 1.4120, HKD 7.7591, INR 67.50, China 6.8808, peso 20.74, BRL 3.1303, Dollar Index 99.67, Oil $52.89, 10-yr 2.47%, Silver $17.57, Platinum $999.50, Palladium $762.80, Gold $1,211.65, and SGE Gold, which hasn’t changed this week due to their holiday is; $1,209.90

That’s it for today… Well I didn’t need the guys back in St. Louis after all to finish the letter, but I do need them to get it out! So, thanks guys! Our Blues went right back to giving up lots of goals last night losing 5-3… So, the NHL All-Star break didn’t help them any… UGH! Well, it’s February, which means that Valentine’s Day is smack dab in the middle of the month. I’ve already taken care of getting something for my Valentine, have you? It was absolutely beautiful here yesterday again, but I slept through a lot of the afternoon, as I think I hit the wall, or something like that because I just felt like sleeping… The Stray Cats take us to the finish line today with their song: Rock This Town… Brian Setzer is a whiz on the guitar, and I really enjoy it when he plays with the Big Band, horns and all! And with that, I’ll get this out the door, and to you eventually… .I hope you have a Wonderful Wednesday, and Be Good To Yourself!

Chuck Butler
EverBank World Markets

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