Tax Reform Talk Has Dollar Bugs All Excited!

September 28, 2017

* Slip Sliding Away stops…
* RBNZ leaves OCR unchanged
* Gold gets whacked!

Good day… And a Tub Thumpin’ Thursday to you! I want to send a Thank You note to the Cardinals, or the schedule maker, for moving their game up an hour, so I could watch my team lose again to the Cubs! Everything was going along just fine, and the it didn’t! And the season was lost… There are 4 more games to be played, but in reality there’s nothing to play for but their pride, which I would have called into question back in April… I had a great lunch with Frank Trotter yesterday, more on that in the last paragraph, and The Blue Jays have the perfect song this morning to greet me… The Blue Jays were a spinoff from the Moody Blues, with Justin Hayward, and John Lodge starting the Blue Jays, and producing one album, which is one of my fave albums… Anyway their song this morning is: When You Wake Up… See? Perfect title for an early morning letter!

The dollar bugs took a breather yesterday, and the currencies’ values stopped slip sliding away. The Big Dog euro dug in at 1.1750 and remained there all day. Gold on the other hand, it nearly gave back the $13 it gained the day before, losing $11.20 on the day… It was as if “the boys in the band” took a pause for the cause on Tuesday, and when they came back they saw what had happened, and decided they needed to do something quick! And do something they did, as the volume in Gold contracts traded yesterday was a monstrous 330,000…

The President’s tax reform plan was presented yesterday, and so far, it appears to be something that as they used to say on the farm… “that dog ain’t gonna hunt”…. So, the boost the dollar got the previous day when it was announced that the President was ready to present his plan, didn’t get wiped out, but I think as the days go on, and more and more people/ traders/ hedge fund managers/ etc. See, that over $1 Trillion in deductions for tax payers will be eliminated, in order to pay for the tax rate reductions, I believe the dollar will give back those gains… A classic buy the rumor, sell the fact… of course, once again for any new readers, that’s my opinion and I could be wrong!

In the overnight markets the euro has carved out a small gain, and I mean small! But at least the slip sliding away has stopped for now… And I have to think that how the markets view the President’s tax reform will be the determinate of whether or not the currencies get back to the underlying trend of weak dollar / stronger currencies.
The Bank of Canada Gov. Poloz, spoke yesterday, and I was thinking that this was going to be his chance to really take a large portion of the air out of the housing bubbles in Toronto and Vancouver, by saying something like, the rate hike last week was just the beginning of a new rate hike cycle… But NOOOOOOOO! Instead he has this to say: ““There is no predetermined path for interest rates from here,” the Governor concluded. “Monetary policy will be particularly data dependent in these circumstances and, as always, we could still be surprised in either direction. We will continue to feel our way cautiously as we get closer to home, fostering economic growth and keeping our inflation target front and center.”

Hmmm… Well, longtime readers know that I’m not a fan of Poloz, as he still allows his roots as a “trade guy” to influence his rate decisions. Trade Guys don’t like a strong currency because it makes it more difficult for them to promote trade of goods and services. I recall talking about this the day after Poloz was named Gov. of the Bank of Canada… And I’ve talked about it just about every opportunity I’ve had since! So, the loonie lost move ground yesterday, because the markets were really wishin’ and hopin’ and thinkin’ and prayin’ that Poloz would let down his guard, and talk about a new monetary policy… But that didn’t happen, so we move on from here, for we’ve spent far too much time in Canada this morning!

I don’t know if you’ve been paying attention to the U.S. Treasury 10-year yield moves in recent days? But, September has not been kind to 10-year Treasury owners, as the yield has risen from around 2.09% in early Sept. to 2.34% today… That’s a move that’s been flying under the radar, that is unless you own the bond, or are a bond trader/ salesman. And for all of you new to class, bond yield/ price move in opposite directions, so as the yield on the bond rises, the bond price drops, and vice versa…
I would imagine that there are some young bond guys out there that have never next a bear market in bonds. I’m not sayin that this is what this move represents, but I’m just saying that these young guys have only really see bond prices rise… Yesterday the yield dropped 7 Basis Points, and that drop had to be tied to the Tax Reform talk …

As I said above if the markets like the tax reform plan, and think it will give the economy the boost it needs, then the dollar will get bought, stocks will shine and bonds will go dark… I’m just saying…

Things have been pretty quiet In the Eurozone, but they did print some data today that is responsible for helping the euro carve out that small gain I talked about above… Eurozone Business Climate and Economic Sentiment both saw increases in their index numbers with the Business Climate rising from 1.08 to 1.34… And the Economic Sentiment index rose from 111.9 to 113 last month…

Germany will also auction off their 10-year Gov’t Bond today… Guess where you can buy a 10-year German Gov’t Bond? I’ll give you a hint… It’s yield is lower than the 10-year U.S. Treasury! 2.19%! Is that amazing or what? I was talking with Frank Trotter yesterday, and I mentioned that the I was surprised that Angela Merkel won her reelection, given that she was responsible of the immigration mess in Germany (and the rest of the Eurozone), and Frank replied… Well, Germany’s economy is doing very well, and that pretty much tells you why she was reelected.

See? I told you he’s the smartest man I ever met! I should have been able to put two and two together there, and not be so surprised that Merkel won, but I didn’t, and Frank did at the drop of a hat!

And in Japan today they are going to empty out their Data Cupboard in one day, and print August data for Inflation, Industrial Production, Retail Sales and their Unemployment Rate… Whew! Couldn’t they break those up some? Do that have to all print on the same day? Oh well, I don’t see any of these scream, “buy yen”! I see inflation, and Industrial Production falling from July’s prints, with Retail Sales rising a bit, and the Unemployment Rate remaining Steady Eddie at 2.8%…

Norway’s Norges Bank met last week, and while I had tiny hopes that the Norges Bank would step up and hit the ball out of the park, by saying that with inflation rising they are going to meet it head on, but that didn’t happen and the Norges Bank remained with a neutral bias, and then we had the political uncertainty in Germany this past weekend with the election results, pulling the euro down, and we had the price of Oil jump $2… And the krone got pulled by the euro weakness, and not the Oil price rise… UGH!

And the Reserve Bank of New Zealand (RBNZ) met overnight (Friday morning for them) and they left their OCR unchanged. For those of you new to class, in New Zealand the OCR is the Official Cash Rate, like our Fed Fund rate… I didn’t see any major change in the leadership of the RBNZ, as former Gov. Wheeler stepped down this month and the acting Gov. Spencer, basically said the same things that Wheeler has been saying the past couple of meetings… That the economy is growing nicely, with the help of a weaker currency… And he just basically flicked the housing bubbles going on in New Zealand off his shoulder, like it wasn’t a problem… I shake my head and wonder if Central Bankers can see anything any longer!
Well, my thoughts for interest rates in New Zealand haven’t really changed I still think the RBNZ will be moving to a rate hike cycle by year end, and hike rates in the 1st QTR of 2018…

Well, IT HAPPENED! Just like the CEO of the mining company said it would this year! Yes, I’m talking about the rise in price of Palladium that took it above the price of Platinum! It happened in the past 24 hours, and Palladium pulled past Platinum (that’s a lot of P’s in a row!) and the spread between the two now goes in the opposite direction! Hey! it feels good to cheer on something, and watch it go in the direction your cheering for, doesn’t it?

I said above that Gold sold off by $11.20 yesterday with another day of monstrous volume in paper contracts, of 330,000… So, Gold is below $1,300… I would think this to be an excellent area to look to buy, but then that’s just my opinion, and so on… Given everything that’s going on in the world right now, I don’t see how “the boys in the band” can continue to fight the tide of physical Gold buyers too much longer… At least that’s what I’m hoping!

The U.S. Data Cupboard saw Durable Goods Orders for August attempt to climb out of the negative -6.8% hole from July, and rose 1.7%… A nice try, but no cigar! Capital Goods Orders were lower in August than in July, so no gains there… Today’s Data Cupboard will have the latest revision to 2nd QTR GDP… And they are going to attempt to get us to swallow a 3.1% 2nd QTR GDP… Yeah, and I have some… oh never mind, you know how I feel about Gov’t data reports…

To recap… The Slip Sliding Away for the currencies came to a stop yesterday, and the euro has carved out a small gain in the overnight markets. The rest of the currencies haven’t really gone with the euro yet…Gold nearly gave back the $13 it gained the previous day, and Palladium has seen its price rise pas the price of Platinum!

Before I head to the Big Finish today I wanted to acknowledge that Hugh Hefner has passed on… And then in the order of this letter…

On a sidebar… I read last night that the U.S. has fallen from the number 1 position for countries’ ability to feed their people. Ireland moved in front of the U.S., and when you factor in climate, the U.S. falls to 4th! I don’t know why I thought this was important to write about, but it’s a part of the overall weakening that I see, I guess…
For What it’s Worth… Well, this article has been around the block a couple of times, and had different names on it… But this is the original, and it’s about the dollar being doomed, and can be found here: http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=313

Or, here’s your snippet: “In 1934, through the Gold Reserve Act, President Roosevelt devalued the dollar from $20.67 dollars per ounce, to $35 dollars per ounce.
The devaluation was excessive, meaning that at $35 dollars per ounce, the world considered that it would rather own American dollars – as undervalued – rather than gold; for this reason, and because of fears regarding another World War, the world shipped enormous quantities of gold to the US, in exchange for US dollars.
The consequence was that the stash of American gold, at the end of WW II, was about 22,000 tons of gold.

The huge error which the American administration committed at the Bretton Woods, N.H., international monetary conference in 1944, where the monetary order of the post-war world was determined, was to force upon the world a defective monetary system: gold was to be the foundation of the post-war world economy, supported by the US dollar, which was to be considered – like it or not – as good as gold.

This huge mistake has brought the US and the world to an enormous economic distortion: all production in all countries of the world, today, and all economic relations, both internally within nations and with regard to their international relations, are disconnected from reality.”

Chuck again… This article goes on with some very well written thoughts by Hugo Salinas Price…

Currencies today 9/28/17… American Style: A$ .7820, kiwi .7192, C$ .8016, euro 1.1775, sterling 1.3390, Swiss $.9742, … European Style: rand 13.6037, krone 7.9594, SEK 8.1404, forint 264.26, zloty 3.6617, koruna 22.1294, RUB 58.04, yen 112.72, sing 1.3607, HKD 7.8096, INR 65.65, China 6.6384, peso 18.19, BRL 3.1777, Dollar Index 93.33, Oil $52.74, 10-year 2.34%, Silver $16.84, Platinum $923.36, Palladium $934.40, and Gold… $1,286.50

That’s it for today… Whew! I almost threw my laptop in the waste basket this morning… There I was writing the Pfennig, and it froze up…. I tried rebooting, and nothing, everything I had was lost! And so I tried rebooting one more time, and this time everything came back, and I was able to finish writing the letter! Whew! Had a great lunch with my good friend, Frank Trotter yesterday… I have to say that retirement looks good on him, he looked so relaxed, and free of all the things he couldn’t tell me! We talked about everything under the sun and moon and couple of hours later, we parted… Congrats to the Cubs for winning the Central Division last night… I have two good friends that are HUGE Cubs fans, Charlie, and Dennis, I know they are happy this morning, while I cry in my coffee! Neil Young takes us to the finish line with his classic rock song: After The Gold Rush… And with that it’s time to get out of your hair for today, and hope that you have a Tub Thumpin’ Thursday! Be Good To Yourself!

Chuck Butler
Creator & Editor of:
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