SGE Takes On Gold Fixing On March 20.

* Dollar taking no prisoners.
* But two currencies carve out gains today.
* Euro in a free fall, like dollar in 2009
* Swiss francs fall below parity! .

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

Good day.. And a Wonderful Wednesday to you! Another Carlos Santana instrumental, this time it’s the song: Samba Pa Ti, greets me this morning, another soft number that turns loud and busy at the end. I finally broke down and went to see a dermatologist about my hands yesterday. The doctor was very young, and I was in a good mood when I left, so that’s a first for a doctor visit on my part! But then the haggling with the insurance company got me full of you know what and vinegar, just proving once again that in every silver lining there’s a dark cloud. No wait! Isn’t that supposed to be the other way around? Yes, I just adjusted it to fit my needs!

I figure that if the BLS can do that, I can too! Except my “adjustment” isn’t hedonic, and it doesn’t mislead markets and people into taking big losses, or gains and all that! So there! I have editorial rights to change things to fit my needs! (that is I have editorial rights as long as I don’t step on anyone’s toes, call someone a dolt, or make guarantees, otherwise, those things get cut quickly!)

Well, the euro continues its free fall from grace.. Every day it seems it loses another whole figure (1-cent). Yesterday, it was the $1.07 figure. At this pace the single unit could be trading below parity to the dollar in the next week! YIKES! We haven’t seen the euro below parity for 13 years! These daily losses for the euro can be attributed to the European Central Bank (ECB) Governor, Mario Draghi, and his bond buying program. Yes, how many of you recall when the U.S. first started out on their bond buying program in March of 2009? And what that did to the dollar’s value, especially when it all began for there are just so many things that can go wrong from bond buying programs, that it’s all an unknown to the markets, and if I’ve taught you all one thing through the years, it’s that markets don’t like unknowns.

So, we can pretty much expect the same kind of treatment of the euro that the dollar got in 2009 in round one of QE/ bond buying. Round two of QE/ bond buying in the U.S. brought about some additional weakness, but not at the same pace as round one, and then by the time Round three came about, the markets were tired of beating on the dollar for this monetary policy, and Round three saw very little dollar weakness.

While I’m on what to expect from the Draghi’s bond buying. Who here among us also recall a couple of years ago, when Mario Draghi, told the markets that the ECB was prepared to do everything to protect the value of the euro? I do, I do, I do! Call on me Mr. Kotter! Just shows to go ya, that words are just that words, and as my dad taught me many years ago. “Money talks, B.S. walks”. I guess Draghi’s words were just that B.S. and now they are walking. Walking down memory lane to a euro below parity.

The dollar is taking no prisoners these days, and it’s beginning to look pretty scary for currency and metals holders, but remember this, it was very much the same in 2005, 2008, and 2011, and we know how those dollar rallies turned out to be false dawns for a multi-year rally. But for now, it’s duck and cover and batten down the hatches.

This morning, we have a couple of currencies carving out gains VS the dollar, but that’s it, and Gold isn’t one of them! I have some more thoughts on Gold that I’ll get to in a minute, but right now, let’s highlight the couple of currencies carving out gains VS the dollar today, eh? First on the very short list is the Norwegian krone. You may recall me telling you over and over again that this dance is gonna be a drag, no Wait! What I did tell you over and over again is that Norway is not Club Med, and the krone doesn’t have the same bad fundamentals as Club Med, so therefore it should not be tarred with the same brush as the one used on the euro, and that one day traders would wake up, do a V-8 head slap and realize this. Well, no. I don’t believe that today is that day.

But what traders did wake up and smell this morning was a housing sector that’s heating up so fast that it could turn to a bubble at any time in Norway, that’s going to need to be addressed with either housing sector measures or a stronger monetary policy. This housing sector problem has been the reason Norway’s Norges Bank has been Steady Eddie with rates, when everyone around them in the world is cutting them to the bone. So with the thought that monetary policy might be the easiest path to take here, traders are pushing the currency appreciation envelope with the krone today. I sure wish this was the V-8 head slap for traders, but right now, it’s just a knee jerk reaction to the realization that something must be done!

The other currency carving out a gain VS the dollar this morning is the Swedish krona, and while some of the gain could be attributed to coattails trading on the krone’s positive move, the real reason the krona has reached a 5-month high VS the euro today is that inflation is back! ( I can’t believe it has come to this, countries celebrating inflation, but it has.. right now, The Animals are playing their song: We gotta get out of this place, if it’s the last thing we ever do!, it seems so apropos right now, eh?) But Swedish inflation rose to an annualized .1%, after having fallen for 11 of the previous 13 months. So, leaving deflation, got traders all lathered up to mark up the krona. And let me point out once more that the inflation gain was only .1%… Imagine what these traders might do, if it was a real strong number?

The Swiss franc has fallen back below parity this morning. It has dropped quite a bit from the lofty levels it saw after the peg to the euro cross was dropped on January 15th. I didn’t think at that time that the franc could hold to those levels, but didn’t think it would drop this quickly to below parity within 2 months. OUCH!

Well, I was reading an article on the Bloomberg this morning about how Chinese renminbi / yuan traders are reining in their bets that the Chinese would allow quite a bit of weakness in their currency. In fact, there have been lots of reports going around that the Chinese were thinking of a devaluation of their currency. I knew that was bunk when I saw that, for why would the Chinese look to devalue their currency when they are booking record trade surpluses in back to back months? . Then we had comments by Yi, of the Peoples Bank of China (PBOC) who said, ” that there was no urgent need to adjust the trading band.” And that was followed up by a comment from Chen, PBOC advisor, who said, “a broader trading range isn’t necessary.”

So, I hope these traders who shorted the renminbi / yuan got their shekel or two before having to close out their short. Now go away! Don’t go away mad, just go away!

Alrighty then, so I told you earlier this morning that I had more on Gold, and the Gold info I’m going to give you is tied to China, so since I was just talking about China, this just flows very nicely if I say so myself! HA!

So, did you hear the news? Well, of course they did, Chuck, you told them yesterday about the new Chinese Gold Fixing. Well, yes, but I didn’t tell them the start date, which is going to be March 20th. That’s the day the Chinese Shanghai Gold Exchange (SGE) will be able to influence the spot price of Gold. This won’t happen overnight folks it will take some time to begin to influence Gold’s direction. But there’s the little ditty that I think is a “game changer” for Gold. You see the SGE does not allow all the shenanigans that are currently allowed at the COMEX here in the U.S. where the manipulators are allowed to have more shorts on the books than the amount of Gold backing it up, and most of those short trades never reach delivery date, as they are closed out ahead of time and then put back on with a new future date of delivery.

Well, at the SGE, you can’t do that! The SGE requires settlement in physical Gold, and they have the Gold to back this requirement, as China is the world’s largest importer and producer of Gold. So, do you see why I think this will become a “game changer” for Gold? The SGE is growing very quickly too folks, I wouldn’t be surprised to read in the next couple of years that it has surpassed the COMEX as the preferred Gold exchange.

Oh! And before I leave China, there was also a bit of news from China that I believe is another baby step toward their removing the dollar standard (their words not mine) . China announced yesterday that they are on track for a September/ October start of the Chinese Payment System (CIPS) that will rival the U.S. dominated SWIFT payment system. You may also recall that Russia has recently opened their own payment system.

And if you’re keeping score at home you might notice in the currency roundup below that 10-year U.S. Treasury yields are coming back down (again!). Just last week they rose to 2.23%, as it looked like interest rates might very well be hiked soon. But since then 10-year yields have ratcheted downward again to 2.13% this morning. Does this tell us that the bond “guys” don’t think rates are going higher soon? Or is this some back door buying by a very large entity that I won’t name, but I’m sure you can figure it out?

The U.S. Data Cupboard is still begging for some data, and the markets are in line behind them begging for some data too! Yesterday, we saw some data that was supposed to stay behind the curtain, and not been seen by anyone, but leave it to the boys and girls at to find it. “For the first time since Lehman, Wholesale Trade Sales dropped for a 3rd month in a row in January. Plunging 3.1% MoM (against -0.5% expectations), this is the biggest drop since March 2009. Excluding auto sales, wholesale sales fell 3.5%.”

Tomorrow’s Data Cupboard will finally get back on board with some real data, when the Feb. Retail Sales print. Reminder that the BHI indicates Retail Sales will rebound from the -.8% drop in January, although, the “bad weather” which turns out to be an excuse that can be used or dropped whenever needed, could play hell with the number tomorrow.

For What It’s Worth. So, I’ve been writing on and off about the energy / shale Oil sector and how the drop in the price of Oil is going to play hell with production, and all that, and yesterday, I came across something from my friend, John Mauldin, and his Mauldin Economics, which is a piece by his bond guy, Tony Sagami, regarding the subject of energy and how the cheap price of Oil is going to end up hurting things. I can’t give you a link to the story, because the Mauldin Economics is a paid for thing, but I will give you Mauldin’s link to sign up.

“Everybody loves a parade. I sure did when I was a child, but I’m paying attention to a very different type of parade today.

The parade that I’m talking about is the long, long parade of businesses in the oil industry that are cutting jobs, laying off staff, and digging deep into economic survival mode.

The list of companies chopping staff is long, but two more major players in the oil industry joined the parade last week.

Pink Slip #1: Houston-based Dresser-Rand isn’t a household name, but it is a very important part of the energy food chain. Dresser-Rand makes diesel engines and gas turbines that are used to drill for oil. Dresser-Rand announced that its laying off 8% of its 8,100 global workers.

Pink Slip #2: Oil exploration company Apache Corporation reported its Q4 results last week, and they were awful. Apache lost a whopping $4.8 billion in the last 90 days of 2014.

No matter how you cut it, losing $4.8 billion in just three months is a monumental feat.”

Chuck again. You know, the strength of the dollar has a lot to do with the drop in the price of Oil, and, referring back to Tony Sagami’s article, he said, “Regular readers of this column know that I believe the strengthening U.S. dollar is the most important economic and profit killing trend of 2015.” I couldn’t agree more with this statement!

To recap. The dollar is still on a rampage, but at least there are a couple of currencies carving out gains this morning, based on fundamentals. the krone and krona have are those two currencies carving out gains VS the dollar this morning. One on a housing sector heating up (krone) and the other with the return of inflation (krona). Gold is still being beaten like a rented mule (no animals were hurt here!) but there could be better times ahead for the shiny metal, as the SGE takes control of the fixing on March 20. The euro is in a free fall, and at this pace the single unit could be trading below parity within a week! And 10-year Treasury yields are falling again. what’s up with that?

Currencies today 3/11/15. American Style: A$ .7610, kiwi .7240, C$ .7885, euro 1.0575, sterling 1.5065, Swiss $.9925, . European Style: rand 12.3245, krone 8.1815, SEK 8.6165, forint 289.00, zloty 3.9185, koruna 25.8080, RUB 62.55, yen 121.50, sing 1.3880, HKD 7.7605, INR 62.77, China 6.1597, pesos 15.63, BRL 3.1000, Dollar Index 99.42, Oil $48.46, 10-year 2.13%, Silver $15.65, Platinum $1,126.75, Palladium $803.75, and Gold. $1,158.90

That’s it for today. Well, I was in a haze yesterday morning, and forgot to mention that my good friend Rick Baur celebrated a birthday. And for that matter I also forgot to mention that my other good friends, Kevin Yanker, and Duane Moody, also celebrated birthdays this winter in Jan and Feb respectively. With me away, I was very badly remiss in not mentioning those when they occurred. So, I hope a grand time was had by all on their respective birthdays! I have a Big One coming up, and that’s all I have to say about that! Our Blues won with a “fluke goal” in the last minute last night. Hey! That’s better than winning in a shootout! The Great Dusty Springfield is serenading me right now with her song: Wishin’ and hopin’ and thinkin’ and prayin’. We lost Dusty was too early in her life. sad.. Well, I’m getting on the road again, I just can’t wait to get on the road again. Well actually I can, given that I’ll miss 3 games while I’m gone, but work calls! It’ll be the first time in 3 months that I see Chris Gaffney, and David Conover, so that’ll be fun. But today, I head to my original destination for Cardinals Spring Training, St. Pete. I’ll be right down the street from Al Lang Stadium where I saw my first Spring Training game. So, with that I’ll get out of your hair today, get packed and on the road! I hope you have a Wonderful Wednesday!

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