Some Ugly Scenarios…

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

March 5, 2018

* ECB meets this week, no changes expected
* Yen enjoys watching the U.S. and China duke it out!

Good Day… And a Marvelous Monday to you! The unusually very warm weather down here has shifted to cooler but still warm days, very beautiful if you ask me! Well, I hope all of you who live in the North East have battened down the hatches and are safe after a weekend of what looks to be on the TV, a horrendous storm. The Allman Brothers greet me this morning with their song, and my fave song by them: Melissa…

Well, we’re into the first full-week of March, and the week, where Chuck begins his spring vacation on Friday! When I left you on Friday, the currencies were attempting a rebound, but as the day went on during Friday’s trading, there just wasn’t enough spring in the currencies’ jump and the rebound fizzled… At least the dollar buying had ended…

And that, no conviction to take the currencies higher has lingered through the air in the overnight markets, so we have the currencies trading in the same clothes as Friday. There’s just too many questions on Traders’ collective plates right now… Will there really be 4 rate hikes this year? Or, will the economy finally show its true underlying colors and go into a full blown recession? Is the Fed really going through with their QE/ Unwind? Will Corp America use the tax cuts to buy back more stock like Chuck said they would do long before the tax cut was passed?
These and more are being tossed around for answers, that aren’t going to come to Traders right away, and so the trading is not going to go in one direction any time soon. At least that’s how I see it, and that’s my story and I’m sticking to it!

The European Central Bank (ECB) meets this week, and like I told you last week it was rumored that the ECB has decided to not announce a bond buying end now, and instead push it forward to sometime this summer. The most recent print of Eurozone inflation, had slipped, and I think the ECB has decided to take a wait-n-see approach… Which I think is prudent, and I also think they are using what the Fed has done as their blueprint on what NOT TO DO! I don’t believe the ECB wants to put a governor on their recovering economy at this point… If the Fed had only seen the U.S. economy for what it was, and not through the rose-colored glasses they wear…

But I’m here to give you my answers to some of the questions above, and add some different perspective on them in some cases… As I said above, I told you months ago, that I saw the tax cuts for Corp. America to not be the medicine for what ailed the economy, but instead an excuse for these Corporations to buy back their stocks, thus propping them up, and getting bigger bonuses at year -end, or when they decide to pull the string on their golden parachute.

But don’t just take my thought on this as the only person that thinks this.. Let’s listen in on David Stockman’s thoughts… “This isn’t a “told you so” point. It’s dramatic proof that corporate America has been absolutely corrupted by the Fed’s long-running regime of Bubble Finance. Undoubtedly, the C-suites view the asinine Trump/GOP tax cut not as a green light to invest and build for the long haul, but as manna from heaven to pump their faltering share prices in the here and now.
And we do mean a gift just in the nick of time. The giant Bernanke/Yellen financial bubble is finally springing cracks everywhere, putting corporate share prices and executive stock option packages squarely in harms’ way.”

Chuck again… I love it when Big Time analysts, economist, traders, etc. see things my way! And now lets see how the Fed is doing with their great QE / Buyback… The guys over at Wolf Street did a great job at researching this, and you can find all their research here: https://wolfstreet.com/2018/03/01/feds-qe-unwind-marches-forward-relentlessly/

But if you don’t have time for that here’s a snippet: “On its January 31 balance sheet, the Fed had $2,436 billion of Treasuries; on today’s balance sheet, $2,424 billion: a $12 billion drop for February. On target! In total, since the beginning of the QE Unwind, the balance of Treasuries has dropped by $42 billion, to hit the lowest level since August 6, 2014:”
So, that’s all fine and dandy, right?

But let me lay out another scenario that I see coming to your newsstand soon enough… And that is as the Fed goes about their business of unloading Treasuries, has anyone, at the fed, stopped to think about “who’s going to replace us as the buyer of these bonds?” Now, throw in the fact that the Trump administration has just announced stiff tariffs, and thrown out the protectionism shield…

What could be one of the ways for a country like China to retaliate? Could/ would they stop buying Treasuries? Oh-No! Say it ain’t So Joe! And at a time when the deficit spending is going to require even more bond issuance and the need for foreigners to buy them! Oh, double trouble Bat Man! This could end up being a major blunder on our part, much like the Smoot-Hawley trade protectionism helped usher in a deep recession in 1930…

Look, I’m not here to be Mr. Gloom and Doom, folks… But when these things are staring at me I have to talk about them with you, so you can be prepared to deal with them should they come to fruition. And with that, let’s talk about Gold… Gold was able to carve out a $5.60 gain on Friday, and is up another $3.10 in the early morning trading today. Questions that have ugly scenarios, should push Gold higher, and so I was happy to see that the “boys in the band” allowed a $5.60 gain on Friday. One way to combat the ugly scenarios is to make certain that you have allocated a portion of your investment portfolio to Gold & Silver…

Have you been watching the stealth-like move in Japanese yen lately? Longtime readers know that I’m no fan of yen, because of an array of problems that I don’t see correcting at any time, and so this rally by yen is very questionable in my opinion. But it is what it is, and right now, yen is enjoying being on the outside of the U.S. / China trade war… And like I’ve said many times over the years, yen is still considered to be a safe haven currency, for some odd reason…

A few weeks ago I wrote about how traders were using yen as the currency to short the dollar, more than the euro was being used to short the dollar… I really didn’t see that going on too much longer, but it has, and part of that reason is there’s just hasn’t been much going on in the Eurozone, other than the BREXIT negotiations…

The U.S. Data Cupboard is chock-full-o-data this week, starting tomorrow with Factory Orders for January, and since Retail Sales and Durable Goods Orders were negative for January, I’m going to go out on a limb and say that the same fate awaits the January print of Factory Orders… We’ll also see The Trade Deficit grow in January, and the Employment Cost Index (ECI) also move higher… And we’ll end the week with the February Jobs Jamboree… Right now, the forecasters have the job increases at 210,000 for the month of February…
But looking at the data this week, I don’t see how the dollar escapes unscathed, do you?

To recap… Not much has gone on since last Friday, as there are just too many questions on the Traders’ plates these days… Chuck takes a stab at a couple of the questions, but I doubt, the dollar bugs will want to hear what he has to say… The ECB meets this week, and their plans have already been figured out…. Gold gained $5.60 on Friday, and Japanese yen continues to enjoy being on the outside of the U.S. / China trade war…
For What It’s Worth… It was a bad week for U.S. retailers, first we had data that showed negative growth rate in January, and now this… I found this on CNN Money and can you can see it all here: http://money.cnn.com/2018/03/02/investing/retail-earnings-jcpenney-winners-losers/

Or, here’s your snippet: “JCPenney announced Friday that it will cut 360 jobs at its stores and corporate headquarters. That’s on top of the more than 5,000 layoffs in 2017 after JCPenney decided to close nearly 140 stores.

The struggling retailer also said that its earnings and sales for this year will be worse than what Wall Street analysts were expecting. Shares of JCPenney (JCP) plunged nearly 10% in early trading.

JCPenney wasn’t the only prominent bricks and mortar chain to report poor results this week.
Barnes & Noble (BKS) posted a quarterly loss and a drop in sales Thursday morning, sending the bookstore’s shares to an all-time low.”

Chuck again… Empty strip malls, big retailers in trouble, it’s a sign of the times, eh?

Currencies Today: 3/5/18… American Style: A$ .7750, kiwi .7233, C$ .7750, euro 1.2310, sterling 1.3814, Swiss $1.0667, … European Style: rand 11.93, krone 7.8188, SEK 8.2040, forint 254.87, zloty 3.4040, koruna 20.6305, RUB 56.78, yen 105.60, sing 1.3191, HKD 7.8311, INR 65.10, China 6.3435, peso 18.88, BRL 3.2518, Dollar Index 90.01, Oil $61.55, 10-year 2.84%, Silver $16.55, Platinum $965.34, Palladium $988.80, and Gold… $1,326.50

That’s it for today… My beloved Cardinals don’t look so hot to start the Spring Training games, it was only the first week, but the pitching isn’t good, and puts the offense in the hole to start the game. There’s plenty of time to work it out though… I wasn’t able to attend my good friend, Rick’s surprise birthday party this past weekend back in St. Louis… Rick is the youngest of our group of Spring Training buddies, and he turns 50 this week while he’s going to be down here! Good friend Duane arrives tomorrow… We’ve had so much fun with the friends that are currently here… I need a day to slow down! Learned how to play Mexican Train dominoes last night… Much fun indeed! And with that I had better get this out the door… Styx takes us to the finish line today with their song: Too Much Time On My Hands… I hope you have a Marvelous Monday and 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.