Powell Lights Up The Markets

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

February 28, 2018

* Fed Chair sends dollar up everything else down…
* U.S. Announces another trade tariff…

Good Day… And a Wonderful Wednesday to you! What in the world has happened to our Blues? I tried to watch their game last night, but that’s just bad hockey that’s being played by our team! UGH! I also watched my beloved Missouri Tigers win their basketball game. College basketball teams are getting ready for their Conference Championship tournaments, and then the NCAA National Championship tournament. March as always will provide us many college games that keep us on the edge of our seats, for they don’t call it “March Madness” because all games are boring! Carlos Santana and Dave Matthews joined together for the song that greets me this morning… Love Of My Life…

We’re here… The end of February, which has been a beautiful month, weather-wise down here in S. Florida, and it has been a month of fighting back for the dollar. But before we could close the books on the month, new Fed Chairman, Jerome Powell, gave his testimony on the Hill to lawmakers yesterday. This used to be called the Humphrey-Hawkins Bill that required the Fed Chairman to give both the House and Senate his take on the economy. The Bill ended many years ago, but Fed Chairs since then have still honored that old requirement.

So, the Fed Chair comes to the Hill, with his prepared speech, (remember that because we’re coming back to it) and then answers some softball questions from the lawmakers… Yesterday, Powell, was prepared to tell the lawmakers that the Fed’s team was trying to put out a message that it wasn’t in a hurry to lift interest rates aggressively, no matter the passage of the fiscal stimulus in the form of tax cuts and the $300 billion-plus budget bill. That’s what he thought he was prepared to say… In Central Bank parlance that means 3 more rate hikes this year…

But, instead of a softball that he could hit for a home-run, a lawmaker threw the old Uncle Charlie (curveball) to Powell, and instead of sticking with the prepared comments about things wouldn’t change, he went down a road the markets were not prepared to hear… Stocks went south, bond yields rose, and the dollar got bought… Here’s his prepared comments… “In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.” All was Ok until a lawmaker asked him this question… ” what would cause the Federal Reserve to hike more than three times that the central bank’s guidance currently calls for?”

And this is where Powell, got in trouble… As you can imagine… I can see him fumbling around with his notes, to find the answer to that question in the notes, and then frustrated, he puts down the notes and decides to “wing it”… He first explained how the “committee” arrives at a rate hike decision, and that they would be getting together in March to review the economic data, that he felt was continuing to show the economy strengthening. Apparently he hadn’t seen the most recent prints of Retail Sales, Car Sales, Durable & Capital Goods Orders, or the New Home Sales data… He made the point of saying that in his opinion the economy was showing strength, and that was the straw that stirred the rate hike camper’s drink…

The thought quickly switched to 4 rate hikes this year, which sent the dollar soaring, bond yields higher, stocks down and Gold down… It was not a pretty sight to see on the day, if you owned bonds, stocks and Gold and euros.
So… I’ve talked a lot about all this rate hike stuff this morning, and quite frankly, I’m not buying it… Powell and what ever other Fed Head they send out to spread their message can go on an on about 4 or 40 rate hikes, I’m not in line to buy the T-Shirt… Why not? Because, the economy isn’t as strong as they want to believe it is!

Look at yesterday’s real economic data… The U.S. Data Cupboard wasn’t kind to all those flag wavers that think the U.S. economy is strong… January Durable Goods orders printed worse than expected an posted a negative -3.7% print… Capital Goods Orders were also negative at -0.2%… But those that think that everything is seashells and balloons in the economy, thought it best to push the stupid Consumer Confidence to a level of 130.8 from a previous level of 124.3, which I thought to be preposterous!

So, in the last week, we’ve seen the January reports for Retail Sales, Durable & Capital Goods and all three have printed negative to start the year! And later this morning, the latest revision to 4th QTR GDP will print, and I believe it will be lower than the last revision of 2.5%… The 4th QTR laid an egg, and now the 1st QTR of 2018 is doing the same, but the 4 rate hike campers are out there marching in the street, and they loud and they are proud!

The price of Oil saw some slippage yesterday as once again the Oil supplies showed another build up in reserves.. This whole Oil price / supply scenario is simply a case of lather, rinse, repeat, and do it again, and again, until everyone gets tired of it all and takes their bat and ball and goes home… We haven’t gotten to the end yet here, but we will, one day…

Did you hear the latest news on Trade with China? The U.S. announced that had placed stiff duties on aluminum foil from China after concluding that the country’s producers are receiving unfair subsidies and dumping the product in the American market. And the timing of the announcement couldn’t have been better, given that Chinese President Xi is sending his top economic adviser, Liu He, to Washington for discussions over the two nations’ trading and economic relationship.

Now, I get it… Liu arrives in Washington, and without the announcement of stiff duties on Aluminum foil, they wouldn’t have much to talk about, but now… Hey, Mr. Liu.. here’s something we can talk about! That makes two tariffs, if you will, on Chinese exports to the U.S. if you’re keeping score at home! I’m just saying…

I mentioned that Gold got sold yesterday afternoon, but didn’t get into the particulars.. So here you go… Gold lost $15 yesterday, and finished the day around $1,317… The shiny metal is back up a couple of shekels this morning to $1,320… The number of contracts traded yesterday in Gold were 297,000, of which there were quite a few short Gold paper trades, in my humble opinion, as the short sellers saw the markets moving and decided to go student body right on Gold… UGH!

To recap… It was all about Fed Chairman Jerome Powell’s testimony on the Hill to lawmakers yesterday about the state of the economy, and someone threw him a curve that he hadn’t prepared for, and decided to wing it with an answer that pretty much told the markets that Powell believes the economy is very strong and will need 4 rate hikes this year, which sent the dollar soaring, but stocks, bond prices, Gold and euros down on the day…

For What it’s Worth… I found this on Zerohedge.com and thought, that it would be good to offset the Powell, “everything is beautiful” talk above, with Powell, talking about an unsustainable path for debt in this country… You can find it here: https://www.zerohedge.com/news/2018-02-27/fed-chair-admits-us-not-sustainable-fiscal-path

Or, here’s your snippet: “Less than a week after Dallas Federal Reserve Bank President Robert Kaplan sounded the alarm over the level of debt that America’s government is projected to carry, Fed Chair Jay Powell told Congress today that “the U.S. is not on a sustainable fiscal path.”

Echoing the recent Goldman analysis, which warned that the recently implemented Republican spending plan could lead to an “unsustainable” debt load, Kaplan predicted the U.S. fiscal future beyond 2 years: he said that while the corporate tax cuts and other reforms may boost productivity and lift economic potential, most of the stimulative effects will fade in 2019 and 2020, leaving behind an economy with a higher debt burden than before.

“This projected increase in government debt to GDP comes at a point in the economic cycle when it would be preferable to be moderating the rate of debt growth at the government level,” Kaplan said”

Chuck again, as I said when the first comments from a Fed Head came out about our debt presenting a problem, it’s about time they noticed! But when I think about that I’m convinced that they’ve noticed all this time as our debt was rising, but are choosing to talk about it now… Could it be that they are trying to deep six this administration? I’m just thinking out loud here, no real statement on my part!

Currencies today 2/28/18… American Style: A$ .7810, kiwi .7215, C$ .7835, euro 1.2220, sterling 1.3867, Swiss $1.06, … European Style: rand 11.73, krone 7.8725, SEK 8.2568, forint 257.07, zloty 3.4190, koruna 20.7985, RUB 55.90, yen 107.11, sing 1.3228, HKD 7.8273, INR 65.17, China 6.3107, peso 18.79, BRL 3.2328, Dollar Index 90.44, Oil $62.91, 10-year 2.89%, Silver $16.44, Platinum $981.09, Palladium $ 1,045.54, and Gold… $1,320.80

That’s it for today… Today would have been my sister’s 65 birthday. We lost her to ALS last spring… I was thinking about her yesterday and how she and I went to speech school together. We talked like Elmer Fudd… I graduated and she didn’t and struggled with it all her life… We were very close at one time. I have a picture of her and me together that I hold very dear to me… OK.. A nice win last night for my beloved Missouri Tigers, who are still playing without the # 1 recruit coming out of high school last year… Tom Petty and the heartbreakers take us to the finish line today with their song: Mary Jane’s Last Dance… Their best song in my opinion… OK, let’s go out and make this a Wonderful Wednesday and remember to Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts

) The Daily Pfennig is no longer published by EverBank and it is now published by Aden Research Group.

Chuck Butler recently joined the Aden Research Group, a research center led by writers and market analysts Pamela and Mary Anne Aden. The Aden Research Group publishes three newsletters:
  • THE ADEN FORECAST. The flag-ship. Covering major markets and providing specific investment recommendations for over 36 years, written by Pamela and Mary Anne Aden. To subscribe, click here.
  • DOW THEORY LETTERS. A daily newsletter published for over 50 years, originally created by legendary investor and writer Richard Russell. Currently, it provides commentary written by in-house market specialists, including Pamela and Mary Anne Aden, Matthew Kerkhoff, Jon Strebler, Chuck Butler and Carla Pasternak. To subscribe, click here.
  • GOLD CHARTS R US. A weekly trading service started by legendary investor and trader Sir Harry Schultz. GCRU is written by trader and market strategist Omar Ayales. To subscribe, click here.