RBNZ Cuts OCR, Kiwi Rallies!

* Dollar selloff ends.
* Currencies & metals give some gains back! .
* Inflation rises in Norway & Sweden.
* Bill Bonner on a Tub Thumpin’ Thursday!.

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

Good Day. And a Tub Thumpin’ Thursday to you! I love these “every other Thursdays” because I get to do some Tub Thumpin’ too! I’m running late again today, what else is new? I try to be diligent about the time I get up, get ready, get to work, and start writing, but. There are always bumps in the road. This morning though, our Little Christine, is bringing in breakfast sandwiches, so I’ve got that going for me today! YAHOO! I’m greeted this morning with R.E.M.’s song: Losing My Religion. In the late 80’s, early 90’s, there wasn’t a hotter band going than R.E.M. I finally got to see them live in 1995.

Well, the broad-based, or wide based, is how I described it, selloff of the dollar ended yesterday afternoon, and the currencies and metals had to give some of their gains back. But that didn’t completely wipe out all of their gains on the day. That’s the problem when you see a broad-based sell off like that, sooner or later, someone is going to say, “Hey, we’ve gone too far, too fast”, and the selling gears all stop, and begin to get reversed. It’s just like everything in life. When you go to correct something, you go way past the middle of the road, and go too far to the other side, and then eventually you have to correct that overage. And it’s a vicious circle. Eventually, unlike the song, the circle will be broken somewhere along the way.

So, this morning, we have a few currencies with gains, like the ruble, real, kiwi, krone, krona, loonies, and a couple others. Kiwi is the best performer overnight, and I bet you’re thinking, “Chuck told us that the Reserve Bank of New Zealand (RBNZ) was going to cut their OCR last night, so why would kiwi be the best performer overnight?” Good question! And one that I can’t give you a definitive answer for. I can tell you what I think went on, and we’ll go from there, OK? Yes, the RBNZ cut their OCR (Official Cash Rate) 25 Basis Points (1/4%), and then went on the offensive against anyone thinking that this would be the last cut in the rate cut cycle, by pointing out that the easing bias remains. The RBNZ was explicit about making certain that everyone understood that the “easing bias remains”.

But that didn’t stop the kiwi traders from calling RBNZ Gov. Wheeler on that statement. In the “hood” we used to call B.S. on something that didn’t sound kosher, and that’s what the kiwi traders did last night, and thus the best performer overnight title goes to kiwi! I guess when you give a statement and don’t sound real committed to the words, people will walk away with questions. So, memo to the RBNZ. Be Committed to the words! I have long been a believer of that. My dad used to tell me. Chuck, if you’re going to talk, make certain, you believe in what you are saying, and people will follow. (I think he thought I wanted to be a politician! HA!!)

My mom always thought I would be a sports announcer. And somewhere along the road, I became a markets observer, then trader, and newsletter writer. Those are far from politician or sports announcer!

One last thought on the RBNZ’s rate cut before moving on. The RBNZ did say that the high kiwi price was putting additional pressure on exports, but in the same breath, they also pointed out that House Price inflation has become more broad-based across the regions. But they cut rates anyway. Just blows my mind, I have to tell you, did they not witness what happened in the U.S. when we left rates too low in the middle of a housing bubble? Oh well, it’s done, there’s nothing I can do about it, so, let’s just move along.

I mentioned above that both the krone and krona are trading with gains this morning. Yesterday, Norway saw a nice bump in CPI (consumer inflation) and it is expected that today we’ll see the same result in Sweden, where core inflation has trended steadily higher in recent months. I find it interesting that Norway and Sweden sees inflation in their economy growing, while the Eurozone only sees nascent inflation that pops up, and falls back. But the two Nordic countries are seeing inflation grow steadily. And that gets the currency traders all lathered up these days, because the inflation is still below target levels. I also find it interesting that currency traders, who used to cough up a lung on any sign of inflation, now get lathered up about it. We live in strange times, folks.

Gold, Silver, Platinum and Palladium, were all stoking hot yesterday morning, but as the day went along, they lost a lot of heat, and cooled down eventually. My friend, Dave Gonigam over at the 5 Minute Forecast (www.agorafinancial.com) had the skinny on what moved Platinum and Palladium yesterday.. So, I’ll let him tell you. “Palladium is up 19% over the last month. Supplies are tight. Production from Russia and South Africa isn’t keeping up with demand. And word came overnight that Chinese car sales just hit a 17-month high. The platinum group metals are essential for the pollution controls on modern cars.

Dollar weakness is also helping matters. Ever since the dollar pop last Friday that coincided with a respectable jobs number, traders have come back to their senses about the likelihood the Federal Reserve will raise interest rates next month.”

Thanks Dave! I didn’t have the time yesterday morning, to find that information on my own, so a truly appreciate you doing it for me! Yes, I had to write and dash yesterday to the hospital for scans. But all’s back to normal today. And I can’t wait for our Little Christine to arrive!

Alrighty then, back to the currencies. Singapore printed their 2nd QTR GDP number last night, and well. Things don’t look so good in the Singapore economy right now, as the economy only grew 0.3% VS the 1st QTR, and 2.1% year on year. All major sectors, Manufacturing, Construction, Services and others, showed weakness, so it’s not just one area bringing the Singapore economy down right now. I do believe that the pull from China has been too strong for Singapore to be insulated, and that’s what is dragging their economy through the mud. It’s not negative. yet. The Sing dollar (S$) is down a tiny bit this morning on the data news.

But like I’ve told you for years now. The S$ and the Chinese renminbi are like twins. So the Chinese renminbi was marked down by a tiny bit in the overnight fixing. So, you could almost set your watch on the idea that the S$ would also move downward a tiny bit.

Oh, man! I just saw on the TV that Walt Disney World is pulling the plug on their Electric Parade. Say it ain’t so Joe! Sign of the times I guess.

The Aussie dollar (A$) is up a bit in value this morning, as it follows the rampaging kiwi. I found an interesting article on iron ore, which is HUGE for the Aussie economy, on the Bloomberg this morning, so let’s go there and see what it has to say because this is HUGE for the A$…

“Iron ore will probably extend 2016’s rally as China takes further steps to stoke growth and the dollar weakens, according to Prestige Economics LLC’s Jason Schenker, whose rare bullish call in the final quarter of last year is turning out to be right.

While the ride may be choppy, the commodity will trade at about $60 a ton this half and average $55 in 2016, said Schenker, president of Austin, Texas-based Prestige. That compares with $53 so far. Further gains are in store, with $62 seen in 2017 and $72 the year after, he said in a phone interview.”

Well, now wouldn’t that be grand for a number of things, including overall commodity prices, the Aussie economy, the A$, and let’s not forget China, for if the price is rising, that means China is back at the buying table. and if China is back at the buying table, that means their economy has rebounded.

Gold is down a couple of bucks this morning, no biggie. The World Gold Council (WGC) is out with their latest report on Gold holdings, and the WGC is saying that “Record Investment drives strong growth in the first half of 2016”. “ETF inflows were the main reason for H1 investment demand more than doubling from 2015. Growth was most prominent in Western markets and U.S. and European investors reacted geopolitical and economic uncertainty.”

They then go on to tell us that Gold gained 25% during the first 6 months, which is the best 6-month move since 1980. WOW! Remember when Gold was steadily moving higher to $1900, which seemed like just about every day it set a new record? And this past 6 months was a better move than that period of time? Pretty amazing to me.

The U.S. Data Cupboard may have been empty yesterday, but there was still some data printed that wasn’t on the calendar, because no one ever really knows when the Gov’t is going to come around with their deficit numbers. And so it was that in July the U.S. posted a deficit of $112.8 Billion. Down from July a year ago, but July this year was less 2 days than last year. The decline in receipts that totaled $210 Billion was broad based, and the spending was $322.8 Billion. So, I see where U.S. Households get the idea to spend more than they make, but just because the U.S. Gov’t does it, doesn’t mean that Households need to follow the leader. We’re following the leader, the leader, the leader, we’re following the leader, the leader, we’re following the leader, wherever he may go!

Before I head to the Big Finish today, here’s my Olympic update. Secretariat, I mean Katie Ledecky won two more Gold medals last night. She’s amazing! U.S. swimmers have taken medals in 18 of the 20 swimming events so far. of course not all the medals are Gold, but quite a few are. And Kristin Armstrong, won her cycling event for the 3rd time in the last 3 Olympics and she turned 43! It’s not all about the youngsters!

To recap. The broad-based dollar selloff ended yesterday afternoon, and traders had some sellers remorse, and the currencies and metals gave back some of their gains. The currencies are mixed this morning with a few of the currencies booking gains, and are led by kiwi, which is the best performer overnight, despite the fact that the RBNZ cut their OCR 25 Basis Points and made a point of saying that their easing bias remained in place. Kiwi traders called B.S. and began to markup kiwi. Other than that, not much has gone on overnight. Gold gave back some of its gains, and is down a couple of bucks today. The WGC tells us that the first 6 months of 2016, have been the best 6 months for Gold since 1980!

For What It’s Worth. I’m going to give you treat today. A little Bill Bonner. I took this from his daily letter, and can be found at: [email protected] So, with no further ado, here’s Bill!

“A bear market should be of no particular concern to the authorities.
After all, since when was the Fed in charge of making sure that the rich get richer?
Ah. since about 1987!

That’s when Fed chairman Alan Greenspan began the foolish and fatal policy of protecting investors from their own mistakes.
When the Dow collapsed by 22% on “Black Monday,” Greenspan reacted by lowering rates and telling the press that he was committed to stabilizing stocks.

Since then, every attempt to correct the stock market or the debt market has been met by the feds like the French Imperial Guard charging the British lines at Waterloo. Hopeless and futile, it nevertheless confused the situation and postponed the inevitable collapse.

And now, almost 30 years later, there is no turning back. No point in reconsidering. It’s too late for further reflection. The Fed must draw up its cannon, unsheathe its sabers, and ride to the sound of the guns. Otherwise, the battle will be lost.

Falling stock prices – when they come – will first be greeted by calm announcements from the Fed.
“We are keeping a close eye on the situation,” it will say.
“Our data show nothing to worry about,” and so forth.

But investors will worry. They will retreat with more of their money. Prices will fall further. and the Fed will be forced to bring out its heavy artillery.

“New initiatives,” will be widely discussed. Incredible new weapons will be unveiled.

But that is still in the future. perhaps far in the future.”

Chuck again. Thanks Bill! It’s been a few years since I last talked with Bill. But from what I read, he’s doing well, living well, and writing well..

Currencies today 8/11/16.American Style: A$ .7710, kiwi .7245, C$ .7670, euro 1.1145, sterling 1.2965, Swiss $1.0251, . European Style: rand 13.4035, krone 8.2815, SEK 8.4640, forint 278.55, zloty 3.8275, koruna 24.2563, RUB 64.73, yen 101.45, sing 1.3445, HKD 7.7562, INR 66.87, China 6.6401, peso 18.37, BRL 3.1274, Dollar Index 95.87, Oil $41.64, 10-year 1.52%, Silver $20.16, Platinum $1,172.90, Palladium $721.40, and Gold. $1,349.60

That’s it for today. Cardinals get back to business last night winning the series with the Reds. The Cardinals had lost the last series they played with the Reds, and that was strange, given that the Cards had won 18 of the last 21 series played with the Reds. (or some amazing number like that!) Well, unless the sky is falling, I won’t hear from my doctor on my scans until I see him next Thursday. I can’t let worrying about these things enter my mind. A positive state of mind is a must when you have cancer. King Crimson takes us to the finish line today with their song, the classic rock song: In The Court Of The Crimson King. OK, should be about sandwich time, so I’ll get out of your hair for today, and send you to the place where we’ll do some Tub Thumpin’! Be Good To Yourself!

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