The Big Dog Gets Off The Porch!

In This Issue.

* Currencies & metals rally.
* BOC meets this week.
* Oil price continues to recover .
* All by myself. again!


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

Good day. And a Marvelous Monday to you! OMG! What a beauty of a day yesterday. There was still a bit of a chill in wind, but blue umbrella skies, and warm sun, a real Chamber of Commerce Day here. Well, I’m still not used to my CPAP set up, but I am sleeping better than I was, but then that’s not saying much! I have a few things on my schedule this week. I take my wife to the airport tomorrow, switch up days on my infusion, which will be Wednesday this week, and then see the heart doctor on Thursday. I kind of dread the heart doc visit, I’m sure they’ll put me through the wringer, but then how else will they know if all the stuff they’ve done or made me change has worked? The Alan Parsons Project greets me this morning with their song: Time.. A perfect soft morning song to get things started!

The Political pressures/ risks here in the U.S. have slipped behind the curtain so that no one see them, and they are pushed out of traders’ minds. So, we’re back to looking at the dollar’s future, and from what I can see this morning, that future isn’t good, because the present is looking pretty shaky. We have a Currency rally going on this morning, that began on Friday, and has carried through to this morning. And just like “back when” the currencies are led by the Big Dog euro, who has found some renewed strength, and has decided to get off the porch and chase the dollar down the street!

Well, the Big Dog, euro knocked on the door of 1.12 on Friday, and someone let the Big Dog in. Someone’s knocking on the door, somebody’s ringing the bell, do me a favor, open the door and let ’em in. So, the euro closed trading on Friday afternoon at 1.1210.. That’s equal to a 6.8% return VS the dollar year -to-date. The euro is the top performing Major Currency, or reserve currency that represents an SDR (Special Drawing Rights) that countries hold and are issued by the IMF. And wasn’t it just last week, that I was talking about how traders were looking at the euro differently these days, and that’s when it was 1.08!

And this morning, the euro briefly fell below the 1.12 figure, but has since recovered back to 1.1215. The Big Dog is really stretching its legs, eh?

I have a good friend, Mike, that makes fun of me all the time for getting all giddy about 1-cent moves in currencies. I was explaining what I did to a new friend on Friday night, when Mike said, “And you should read his letter, when the currencies move 1-cent!” So. how does 4-cents sound? Of course it’s still not the stuff that a strong currency trend would be made of. In 2002 when the last weak dollar trend began, the euro was around 92-cents, and most of you can still see the euro around 1.50 during that weak dollar trend, but that all changed when “someone” discovered that the PIIGS (Portugal, Ireland, Italy, Greece and Spain) had truckloads of debt (2011).

Well, up north in Canada, they saw two good data prints on Friday, which helped the Canadian dollar/ loonie, to rally and get back close to 74-cents. So, close they could be knocking on the door to 74-cents! First Canada saw their March Retail Sales jump 1.2%! That closed a strong 1st QTR for Retail Sales, as evidenced by the 8% increase in the quarter VS the previous quarter! Then as gravy, manufacturing sales also rose in March! And to close this all out. Canadian CPI (consumer inflation) remained steady Eddie at 1.6%.. The way I figure it, if Retail Sales continues to be strong like they were in the 1st QTR, then inflation will come, and when inflation comes, so too should the rate hikes, and that all should be good for the loonie!

But those rate hikes won’t be coming this week when the Bank of Canada (BOC) meets (Wednesday). So, everyone will be focused on the statement following the no rate move decision, and here is where I think we’ll see some discussion of the housing bubble in Toronto and Vancouver, and a cautious tone about everything else in the economy. But a heated discussion about the housing bubble could very well lead Traders to believe that the BOC would combat that housing bubble with rate hikes, and that would certainly be an underpinning for the loonie!

The antipodean currencies of Australia (A$), and New Zealand (kiwi), have been very stealth-like in their recoveries VS the dollar. The excitement generated by last week’s New Silk Road Summit for China has really helped these two currencies to recover their recent losses. Their moves have to be slow and stealth-like so that each respective countries’ Central Banks don’t get wedgies in their pants, and start complaining about their strong currencies. When we all know that .7455 and .6955 respectively are not “strong currencies”. I remember when the A$ was $1.05, and kiwi was 80-cents! Now that was strong levels for these currencies!

The price of Oil rallied to trade above $50 per barrel on Friday, and has held that ground in the overnight markets. And the Petrol Currencies led by the Russian ruble, have found higher ground, and seem to like it! One of the Petrol Currencies is getting a double shot of love from traders, and that’s the Norwegian krone, which not only has been able to ratchet up its price because of the rally in the Oil price, but now also because the Big Dog, euro, is showing it does a have a pulse. I call the Norwegian krone and Swedish krona, along with the Swiss franc, the “euro-lites”. The krone and krona can’t really move too much higher, if the euro isn’t leading the charge..

And I had a reader send me a note on Friday asking me about what the heck was going on with the Swiss franc, as it seems to be moving in the opposite direction from the euro. I explained that even though the Swiss National Bank (SNB) dropped the tie to the euro a few years ago, that the franc still needs a strong euro, so that they can allow the franc to slip in price and promote exports to the Eurozone. I don’t believe the SNB will allow the franc to continue to slip VS the euro, but for now, the SNB is happier than a Lark at what’s going on right now..

The OPEC meeting will be at the end of this week, and right now, it appears that all members are on board to extend the production cuts to 2018. Of course I’ve said that there’s a chance we could see additional cuts announced, but that’s going far out on a big fat limb for me, but then what else is new? I’m always going out on limbs, wearing my thoughts on my sleeve, and talking about things I see happening in the future. Remember things may be evident but they aren’t always imminent!

The Gold price is on the move, folks. Gold rose $8.80 on Friday, to close at $1,255.60, and is up a couple of bucks in the early morning trading today. Well, the Central Banks of Russia, China and Saudi Arabia continue to add to their Gold reserves. Last Friday, it was the Central Bank of Russia (CBR) that disclosed that they had added 200, 000 troy ounces of physical Gold to their reserves bringing them to 54.2 Million troy ounces, or 1,685.8 metric tonnes of the shiny metal. Russia is quickly becoming a “player” in this Gold accumulation period. That’s important, because, IF, the financial system should collapse under the weight of all this debt that everyone has accumulated, I see the Gold holding countries of the world come together, and he who has the Gold, makes the rules, right? Of course that’s just how I see it happening should the financial system collapse.. I could end up being wrong about the scenario, but, when the bad folks all get together at night, you know they all call Big Gold boss.

Well, the GATA folks posted a King World News article this past weekend, and while I can’t share with you the GATA stuff, I can point to the KWN article and will at the end of all this discussion. I can tell you that in 2010. I began giving presentations on a currency regime change. I made some bold statements about what I believed to be coming in the way of Gold, the renminbi, and China. I said that China was accumulating Gold so that they could back their currency with Gold, thus making it the most valuable currency on the Globe. They would then allow the renminbi to free float (well free float as much as other countries allow their currencies to “free float”, which isn’t much at all! I then said that by the end of this decade, of which we’re now in the 7th year of the decade, that China’s currency would take over from the dollar, the reserve currency crown, much like the dollar took the crown from the pound sterling after WWII.

Now I tell you all this, because quite a few of you have been at those presentations when I talked about the things above, and this is just a reminder to you. And for all of who don’t recall me writing about this in the Pfennig in the past, well, you’ll just have to take my words that I did talk about it, right here in the Pfennig. And to tie this all together in a neat bow. the KWN article quoted Steven Leeb, long time analyst and newsletter writer, as pretty much saying the same thing I said back in 2010, and many times since!

Here’s the link to the KWN article with Steven Leeb.

While I’m on the subject of precious metals. There sure has been a renewed interest in Silver lately. Writers, analysts, and more are writing about how they believe Silver will outperform Gold (percentage wise) when the next breakout comes for the metals. I’m really on board with that thought, and while I always talk about Gold, and that it gets all the headlines, and bright lights, Silver is the working man’s Gold. I would like to ask all these writers and analysts calling for this big move in Silver one thing. What about the short positions that number so much that it would take 180 days of Silver production just to cover the ounces of Silver that are represented on the short contracts?

Now, wouldn’t it be nice, if we could wake up in the morning when the day is new. No Wait! I’m trying to be serious here, so please don’t slip into more lyrics, Chuck! What I was trying to say, was wouldn’t it be nice if the short paper trades went away? Of course when they did go away, that would mean that you had better have already loaded up on the metals you want, because, in my opinion, which could be wrong, it will be very difficult to get them once the short paper trades are gone. Of course, that’s all wishin, and hopin’ and thinkin’ and prayin’, planning and scheming the paper trades are gone. But take that thought and a quarter and you still can’t buy a cup of coffee!

The U.S. Data Cupboard sure took a vacation last week, and this week, it extends that vacation a couple of more days until we get to the Fed’s FOMC Minutes on Wednesday. We’ll see some 2nd and 3rd tier data today and tomorrow, but the FOMC Minutes are what everyone is looking to. They want to see if the Fed gives any hints on how they are going to unwind their balance sheet. I don’t think we’ll see much in the way of “how” but more a discussion of “when” in these minutes. I would think that the June meeting would be the right timing, given the Fed will be hiking rates at the June meeting, and probably talking about more rate hikes on the way.

In my Sunday paper’s Business Section they had some comments from Fed St. Louis president, James Bullard, who was on board with the June rate hike, but then warned his colleagues at the Fed about aggressively hiking rates, for he was wary of the economy’s strength. He’s not a voting member this year, so I don’t think these comments will go beyond the Sunday St. Louis Post Dispatch!

To recap. The currencies are on the rally tracks today, led by the Big Dog, euro, just like “back when” the dollar was in a weak trend. Traders are looking at the euro differently these days, and have pushed all the bad stuff they were concerned about weeks ago, to the corner. Canada printed some good data on Friday, and the BOC meets this week, but expect no rate moves. The A$ and kiwi are recovering from recent lost ground, and their moves have been stealth-like, with no one noticing but me! The Swiss franc is moving in the opposite direction from the euro, what gives? Chuck explains. And Gold and Silver are on the move..

For What It’s Worth. Well, I hope you had a chance to read the Sunday Pfennig. No, I didn’t write it, but it is a Currency of the Month article on India that Chris put together. I was looking through the Bloomberg this morning, and saw this on India, and thought, “why not do a follow up on the Sunday Pfennig”? So, here you go. this can be found here:

Or, here’s your snippet: “After finding common ground among India’s 29 states, the finance ministry on Friday released detailed rates for the incoming goods and services tax, slotting more than 1,200 items — from sugar to steel pipes and motorcycles — into five tax brackets between zero and 28 percent. With that done, India is almost ready to implement a tax code that unifies more than a dozen separate levies, effectively creating a single market with a population greater than the U.S., Europe, Brazil, Mexico and Japan combined.

The sweeping tax reform will gradually reshape India’s business landscape, make the world’s fastest-growing major economy an easier place to do business and is likely to raise government revenues by widening the tax net in the country’s largely informal $2 trillion economy. That means India could spend more on desperately needed infrastructure and training programs for a workforce that is growing by 1 million people each month, laying the groundwork for longer-term growth.

Importantly for India, a country in which fewer than 1 percent pay income tax, the GST will broaden its tax base, according to University of Melbourne economist Nathan Taylor.

“It will have profoundly positive implications for the economy,” Taylor said.

Chuck again. What’s positive for an economy should be positive for a currency, folks. It’s that simple. But don’t expect this positivity for the economy to happen overnight, the new rates don’t go into place until July, and it will be a few months after that before we see any traction.

Currencies today 5/22/17. American Style: A$ .7473, kiwi .6955, C$ .7407, euro 1.1237, sterling 1.2995, Swiss $.9708, . European Style: rand 13.1575, krone 8.3488, SEK 8.7138, forint 274.92, zloty 3.7273, koruna 23.5728, RUB 56.86, yen 111.40, sing 1.3880, HKD 7.7853, INR 64.50, China 6.8768, peso 18.62, BRL 3.2529 (political pressures are deep sixing the real) Dollar Index 97.02, Oil $50.78, 10-year 2.25%, Silver $16.98, Platinum $941.80, Palladium $760.73, Gold $1,256.40, and SGE Gold $ well. I’m not able to access the SGE price today, so move along for these are not the droids you’re looking for.

That’s it for today,,, Quite wordy today, eh? One never knows what’s going to go from my brain to my fingertips. HA! Got to see little Everett play ball yesterday. I get a kick out of parents that call it a “baseball game”.. Because what they are playing is NOT baseball! But they are learning, hopefully, for when they get older and do play “baseball”.. Kathy leaves town tomorrow, for two weeks, and I’ll be all by myself. Don’t want to be all by myself. Nah, I don’t care if I’m by myself. Braden was at the house yesterday, and naturally we played Sorry! Only this time it was my suggestion to play, to get his mind off of something he was harping on. Deflection, once learned, never forgotten! The Eagles take us to the finish line today with their song: On The Border. And with that, I hope you have a Marvelous Monday, and Be Good To Yourself!

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