Risk Tone Switches To Neutral.

* Risk Tone is short-lived.
* Interest Rate differentials in play!
* Gold loses $12.50 yesterday.
* U.S. Data is good and bad.

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

Good Day. And a Wonderful Wednesday to you! Well, shame, shame shame, as Gomer Pyle used to say, on me! What an awful dad I was yesterday! I could blame it on my fogged brain, or the fact that I just don’t really know what the day of the month it is each day. But either way, I was simply a dolt yesterday, as it was my little buddy’s birthday! Yes, Alex turned 21 yesterday, and went along with the Pfennig forgetting all about it! I have gone from the Dad Hall of Fame to the Dad Hall of Shame! UGH! Well, Happy 21st Birthday bud! I hope your day was grand. Longtime, I mean real longtime readers remember Alex sitting on my lap and helping me writ the Pfennig when he was 3. He was so darn cute! Earth, Wind and Fire greet me this morning with their song: September. Now if that song doesn’t get you dancing, or just jiving in your seat, you have a problem!

Well, the risk tone that had taken over the markets yesterday morning is gone today, nowhere to be found. Seems to have fallen into neutral this morning. Gold lost $12 yesterday, but the currencies led by the currencies that had taken the biggest shots across their bows, sterling and euros, had a good day, and U.S. stocks rebounded by 269 points, but yields on U.S. Treasuries remained very low at 1.47%. The all-time record low of 1.38% was set in July of 2012, and the way things are going right now, I wouldn’t be surprised to see that all-time record level broken or at least met!

I think that some of the things coming out of the European Union / EU Summit yesterday, took the risk tone out of the markets today, as it has become clear that not only has the U.K. decided to leave the EU, but now there’s no going back, according to German Chancellor Angela Merkel. And now, there are rumblings from Scotland, Ireland, Spain and France that they too would like to show some independence. So, there are some currencies with gains VS the dollar this morning, but most of them are flat to down.

Well, it occurred to me yesterday when I had that epiphany that it was the 28th of June, my youngest son’s birthday, that we are closing in on not only month-end, but all the end of the 2nd QTR. And with the end of the quarter, we could very well see some major trading in the currencies, as traders square up their books for the QTR-end records. From what I’ve seen so far this month, that would mean unwinding long dollar trades that were put on last week. Up until last week’s BREXIT results, it would have been a reverse of that, and the unwinding would be in the currencies. But from what I saw last Friday and Monday, long dollar trades were the king of the hill, and they will have to be dealt with come the close of business tomorrow.

I always like for month-ends and Quarter-ends to wind up being on a Friday. That way all the books are squared, and when we come back after the weekend, we start anew. Well, this week, it will sort-of be like that, given that tomorrow, is Thursday, but Friday is the day before a 3-day Holiday Weekend (4th of July) and we could see very little in the say of volume and the taking of positions by the junior guys and gals left on the trading desks. They drew the short straws, and will be instructed to just fill trades and not take positions. So, then, when we come back on our Tom Terrific Tuesday next week, we will start anew.

I was reading an article on the Bloomberg site this morning, and the analyst sounded like he was a Pfennig Reader, as he said to forget about a rate hike this year, and next year, and that January 2018 would be the first time the Fed would entertain the idea of a rate hike! WOW! So, I guess he’s not one of the people surveyed (if a survey was actually done!) by The Conference Board. I wasn’t surveyed either! Oh, Consumer Confidence bounced higher by a large margin in June. More on that later.

On a sidebar, I would like to suggest that the Conference Board be responsible for getting out data reports from here on out, for it they can do a survey enough people to make this data worthwhile, and still get the report out in the same month, then kudos to them! And I would like for them to responsible for getting all data reports out, for then, maybe the reports would be more timely! But I really don’t care about when data is released, what I am trying to point out here is that I don’t buy that the Conference Board really surveys that many people, because if they did, 1. They wouldn’t be able to compile the data in get the report out in 12 days, and 2. How in the world, or what planet did they survey, for Consumer Confidence jumped from 92 to 98. in these times, when the Fed has stated that they don’t foresee strong economic growth for some time in the future? I’m not buying that Consumers are Confident!

Whew! That was a long sidebar, Chuck, you had better get back on the road here, Hey! You bumbling idiot, didn’t you see my blinker on my car blinking, indicating that I wanted to merge? Getting back on the road isn’t as easy as it may sound! HA!

And the Conference Board surely didn’t survey Jim Rogers either! Here’s a quote from the famous Jim Rogers that I found on Ed Steer’s letter this morning.. “This is going to be worse than any bear market that you’ve seen in your lifetime. 2008 was pretty bad because of debt, well the debt all over the world is much, much higher now. Stocks in the US for instance have been going sideways for 18 months, 24 months. That’s called distribution by many people, so when you have distribution for a year and a half, it usually leads to bad things.” – Jim Rogers

OK, enough of that! Let’s talk a bit about what the bond boys are telling us. With U.S. Treasury 10-year yield at 1.45% this morning is that they don’t believe the U.S. economy has any legs to stand on, and that basically, for the next 10 years, you’ll be happy to received 1.45% yield. Of course, I’ve explained this before, but for those of you new to class. When a 1.45% yield is quoted it’s for the large multi-million dollar trades that institutions do. For Moms and Pops, you and me, and the guy down the street that mows the lawn with his shirt off, we have to pay to buy the bond, and that means we pay more than the multi-million trades pay, so that means we don’t get 1.45%, we get something less than that. Probably 1.25%… And who knows how much lower this will go? We have over $10 Trillion in Gov’t bonds around the world that now trade with negative yields, and last night, Japanese Gov’t bonds saw their yields drop below 0.1% to .065%… Are you Kidding me? This is crazy folks, absolutely, crazy! No, wait, the issuers are the crazy ones, they are if no one buys their bonds, but buyers are lining up to buy these negative yielding bonds, and they are the crazy ones!

The Aussie and New Zealand dollars are two of the currencies that are gaining VS the dollar this morning. I think that the thought that the U.S. can’t or won’t hike rates for some time is really beginning to creep into the minds of traders. I say that because the Russian ruble and Brazilian real are both stronger VS the dollar this morning, and the price of Oil slipped a tiny bit in the past 24 hours, so there isn’t that Oil movement to boost these two, what else could it be? Oh, their wide positive interest rate differentials to the dollar, that’s it! Wouldn’t it be great if the fundamentals of interest rate differentials actually held steady Eddie, and we could depend on them once again? Oh, and I read on Bloomberg this morning that BlackRock’s high-yield bond exchange-traded Fund brought in $291 Million Friday. Hmmm.

Another thing that’s causing my spider sense to tingle this morning is the fact that the dollar and Gold are moving in the same directions in the past few trading sessions. Wait, What? Yes, that’s what I said! Stranger than fiction, but it’s true. Yesterday, when there was a risk on tone in the markets, Gold got sold. and the previous day when the dollar was still receiving the love from the Friday events, Gold moved higher too. What does all this mean? For we don’t see the dollar and Gold move in the same direction. very often. Yes, when there are flights to safety we see it sometimes, but these have been good strong moves we’re talking about, up $59, up $12, down $12, and so on. Does this mean that “everything has changed, and we’ll never go back to the way we were?” I do believe so. We could be moving toward the end of the Credit Cycle, or the end of the Debt accumulation cycle, or the end of something that we haven’t considered yet. So, let’s keep track of this, and se
e what becomes of it.

The U.S. Data Cupboard had some data for us to view yesterday. First the good news then the bad news. The good news was the Consumer Confidence saw a big jump higher to 98 from 92.4. What these people surveyed (if they were actually surveyed) are so confident about is not something I would understand, I guess, because I just don’t see it that way. !1st QTR GDP was revised upward to 1.1% (should anyone be waving the “we’re in the money” flag here? But it was revised upward, so I guess that goes down as good news. And finally a piece of data that I’ve said over and over again should replace GDP as our measurement of how the economy is doing, printed. Final Sales at 1.2% it marked the 4th consecutive quarter that is has fallen/ decelerated/ dropped.. And downside risks to the U.S. economy continue to increase, adding more coal to the train engine that’s about to pull out of the station and head to Recessionville.

Today’s Data Cupboard has the Personal Income and Spending data for May. With Retail Sales already printed for May, and it was awful, one would expect the Spending piece of this data to look like Retail Sales for that same period, right? Well, when things that should work out like this end up not working, then that brings up questions of how the data is compiled, so in the interest of not wanting to have to question how the data is compiled, let’s hope that Personal Spending reflects what Retail Sales have already told us!

Now, longtime readers know that I’ve harped on this piece of data that I’m going to talk about, over and over again, as my piece of proof that the BLS’s Birth / Death Model is a bunch of malarkey. Well here it goes again. The non-partisan Economic Innovation Group (EIG) found that fewer new businesses have been started in the last 5 years than at any time in the last 30 years. And that Business failures have outnumbered Business startups by around 70,000 per year since 2008. And the BLS was adding hundreds of thousands of jobs using their Birth/ Death model every month? And no one is upset that they have moved the dollar each and every month for years now, with numbers that are so wrong, they are almost, no wait, they are an embarrassment! I can’t stop here, I’ve got to go on ripping this data set, and how it’s put together, based on this report from the EIG..

And EIG also reports that the new businesses that did start up during 2010-2014 were domiciled in just 20 large U.S. counties, mostly on the East and West Coast and in Texas. not in rural America. Must all be high-tech ventures, right?

I’m still yelling at the walls, folks. Oh, and for those of you who are wondering where this data came from, it came from Gary Halbert’s newsletter, but I’m sure you can look up the EIG, and get the same info he had in his letter!

Well, I already told you that Gold fell $12 yesterday, and has gained back $2 of that loss yesterday, already this morning. So, did you buy Gold, or Silver yesterday on the dips? Don’t I always tell you to buy on the dips? That is IF you want to buy something! If you were looking to buy Gold or Silver, yesterday was a dip. I hope you didn’t miss it, but if you did, I’m sure there will be others as we go through Gold & Silver’s recovery. Speaking of Silver, in the currency roundup this morning you’ll see that Silver has risen above $18 again. It’s screaming that it wants to be bought! I read a report this morning that talked about how Silver is ready for a breakout and that come the middle of next month, you won’t be able to find any Silver to buy. WOW! But. how many times in the past have we heard this about Silver? That it was ready for a breakout? I’ll tell you what, if the price manipulators all wave a white flag, and admit that they are out of the market, then I would agree that both Gold & Silver would be ready for a breakout!

To recap. The risk tone that was prevalent in the currencies & stocks yesterday has backed off, and seems to be in neutral this morning, with some currencies gaining VS the dollar, and some not gaining. the currencies with positive rate differentials to the dollar are the big gainers this morning, as an analyst came out and said that the Fed won’t be able to hike rates until Jan. 2018! WOW! The price of Oil saw a tiny slippage in the past 24 hours, and the U.S. Data Cupboard results really sent Chuck on a tirade this morning, and then he found some data that confirms what he’s been saying for years now! Watch out whenever that happens! Gold lost $12 yesterday, but is up $2 this morning.

For What It’s Worth. Well, you have to love it when you buy something and then find out that the world’s largest economy (in some reports), is seeing their citizens buying the same something you just did! I’m talking about Gold and China. And you can find this article here: http://www.bloomberg.com/news/articles/2016-06-27/chinese-investors-join-gold-rush-for-haven-after-brexit-turmoil

Or, here’s the Snippet: “Turnover in Huaan Yifu Gold ETF, China’s top exchange-traded fund backed by bullion, jumped to a record 1.27 billion yuan ($191 million) Friday after Britain’s vote, said David Xu, managing director for indexing and quantitative investments division at the Huaan Asset Management Co., the manager of the fund. Outstanding shares of Huaan also reached a record 1.6 billion on June 20, jumping five-fold from the start of the year, he said.

“We saw a record trading of our fund immediately after the Brexit vote as it fueled bets that the global and local economies may suffer,” Xu said by phone from Shanghai Monday. Turnover rose as investors expect the U.S. may hold off raising interest rates and Japan, the EU and China may maintain accommodative monetary policy for longer, he added.

China, the biggest gold buyer, is joining a rush for the precious metal after the Brexit referendum disrupted global markets, boosting demand for haven assets. Holdings in bullion ETFs globally surged to the highest level since October 2013, according to data compiled by Bloomberg. Prices gained 25 percent this year.

Chuck again. Follow the money, buy on the dips, don’t attempt to catch a falling knife, and lots of other things I’ve told you about over the years, seem to play out all the time. And this one is simply another.. Follow the money, and right now it’s China and it’s huge population buying Gold. Hmmm.

Currencies today 6/29/16. American Style: A$ 7435, kiwi .7120, C$ .7695, euro 1.1080, sterling 1.3440, Swiss $1.0204, . European Style: rand 15.00, krone 8.4290, SEK 8.5125, forint 285.98, zloty 3.9918, koruna 24.4420, RUB 64.09, yen 102.65, sing 1.3480, HKD 7.7592, INR 67.68, China 6.6461, peso 18.71, BRL 3.3033, Dollar Index 95.89, Oil $48.27, 10-year 1.45%, Silver $18.28, Platinum $987.91, Palladium $573.94, and Gold.. $1,320.60

That’s it for today. Again, I sure hope that my little buddy, Alex had a grand day on his 21st birthday yesterday. We are celebrating his birthday this weekend, a bus, family and trip to Fast Eddie’s is on the agenda! Cards get one from the Royals and now come home to play the same team here two games. Strange schedule. Sorry this is so late today, but about 2/3rds into the letter, I got sick, and had to leave my desk for a while. But I’m back now, and ready to take on the day! Toad the Wet Sprocket takes us to the finish line today with their song: Walk On The Water. One of those 90’s bands that made a big splash, and then failed to duplicate it. But this album was a good one! Well, I’ll just get this out the door, and be done with it today, I had lots more to rail about but then my stomach said “oh no you don’t!” and I didn’t! I hope you have a Wonderful Wednesday and Be Good To Yourself!

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