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The Dollar Loses Ground As A Reserve Currency.

* Currencies fight back!
* Euro trades on fundamentals?.
* Price of Oil slips..
* Gold gains $7.40

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

Good Day. And a Wonderful Wednesday to you! It’s travel day for me, I wonder how the other passengers are going to feel about my coughing and hacking. Oh well, I’m sure I’ve contracted illness on planes before, so turnabout is fair play, eh? Seriously, I’m concerned about this, but there’s not much I can do, besides wear a surgical mask. And that would get in the way of my drinking of bloody Marys! HA! Simon and Garfunkel greet me this morning with their song: America, which was also done by the band Yes, but I like the S&G version best. And we walked off to look for America..

Well, nothing has changed in the currencies since the Election in November, when President-Elect Trump, surprised everyone and won. Since then the currency trading has been all about speculation. Traders and investors are speculating that Trump’s campaign promises of fiscal policy and tax reform basically of convinced investors that monetary policy would end smoothly, global growth enhanced and corporate profits boosted. I think that to have optimism is a good thing, but there has to be some reality to everything. And I think that this is giving investors a false sense of well-being. Think about that for a moment.. The economic data that’s printed so far in the 4th QTR has been much weaker than it was in the 3rd QTR, which in my opinion will prove to be nothing more than a temporary upswing in an economy that’s headed for a recession. And the data is what investors should be looking at, not promises. If the promises come to reality, then rally on Garth! But not now.

But that’s the way it is right now, and has been since the election.. So, the dollar started the year yesterday with strength. As the day went along yesterday, we saw the dollar give back some of those early morning gains And overnight, the currencies have drifted a bit, the Dollar Index is down and things look different this morning, but that doesn’t mean a hill of beans until things look different for consecutive days and a trend begins, right now, this is probably more a “go back and fill in the gaps” kind of trading than anything else.

The global growth folks did receive a gift over the past weekend when the Chinese Caixin PMI beat expectations handily I might add, (we talked about this yesterday) And we could see Eurozone flash PMI’s this morning give a further boost to the euro, which as I told you yesterday, might get a boost from a stronger German CPI, and it did.. I was actually amazed that the currency traded on a fundamental. But then stranger things happen every day, eh? So, speaking of the global growth folks.. What currency do I always tell you is the “proxy” for global growth?

Well, if you said the Aussie dollar (A$) then you win the grand prize! Johnny, tell them what they’ve won! You’ve won a NEW. CAR! OK, Chuck stop with the game show bit.. The A$ really took the Caixin report and ran with it yesterday and overnight, gaining more the 1/2-cent. Kiwi grabbed ahold of the A$’s coattails and went along for the ride. There hasn’t been much news from these two gems in the South Pacific. They’ve kind of been flying under the radar, which is a good thing in my opinion, because once something gets highlighted, it’s all over but the crying.

The price of Oil slipped by a couple of bucks in the past 24 hours, after bumping higher to $55 yesterday morning. But the Russian ruble isn’t getting its feathers all ruffled about the slippage, and that’s a good thing. I had a reader send me a note last week, asking me why I was siding with Russia on the sanctions. I said I wasn’t siding with Russia, on anything, but simply pointing out that the sanctions had gone long in the tooth, and probably needed to be removed. I just don’t believe in messing with other countries and their economies. So there!

It appears that manufacturing around the world is picking up.. the PMI’s (manufacturing indexes) are coming in a printing better than expected. Here in the U.S. the ISM (PMI) was 54.7, which is a strong print. And we already know about China’s PMI, and we should see Eurozone flash PMI’s stronger this morning too. So. what gives with this pick up in global manufacturing? I really can’t figure that one out folks. The Industrial Production (IP), Durable Goods and Capital Goods data doesn’t indicate that manufacturing would be picking up, in fact they indicate that manufacturing should be weakening.

The Mexican peso has moved past 21 this morning.. YIKES! I read where Ford decided to not build a $1.6 Billion auto plant in Mexico. I doubt that had much to do with the weakness in the peso, but still it was in play. I don’t see the peso as a currency that will do well as we go along, and it all comes back to the “risk premium” that I’ve explained several times in the past, that Mexico doesn’t pay investors any longer, and therefore the foreign investment in Mexico is lacking.

Well, it’s nice to see Silver trading back above $16 this morning. I wasn’t happy with it trading with a $15 handle. Gold added $7.40 to its price yesterday, and is up $3 in the early morning trading today. Gold was up about $15 yesterday at one point, but then the rug was pulled from under it. Can’t have Gold gaining $15 in one day, investors would start to think that they need to get in before it takes off! I say that facetiously, I hope you took it that way.. Gold imports in India and China has backed off according to reports printed in the past couple of days. In India I see that happening due to the chaos that has gone on since the Gov’t announced they were removing the 2 large bills from circulation. (we talked about this yesterday) But China? Maybe it’s just a timing thing, or holiday problem, etc.

I talked earlier about how German CPI ticked higher last month. The German think tank IFO issued a statement to the European Central Bank (ECB) calling them to stop their bond buying purchases should the rest of the Eurozone follow Germany’s lead and print stronger inflation reports. You have to remember that Germany still fears the days when hyperinflation ruled in Germany, and they’ve had their finger in the inflation dike ever since. But I’m in agreement with the folks at IFO. Of course I would have preferred that no bonds were bought to begin with, but it is what it is, and to end it ahead of time would be HUGE in my opinion.

Oh, and German Unemployment for December hit a 26-year low of 6.1%! And they don’t drop unemployed people because they’ve been on the unemployment list too long!

And while I’m on the Eurozone, Germany and the euro. I might as well get this out. The U.S. dollar’s share of currency reserves reported to the IMF slipped in the third quarter of 2016 to its lowest level in two years, data from the IMF showed on Friday. In the 3rd QTR the dollar comprised 63.3 % of allocated reserves, the smallest share since the 3rd QTR of 2014. The euro’s share rose to 20.3% from 20% a year earlier. So, the euro has been drawn and quartered, tied the whipping post, and driven like a rental for the past 5 years, and what has Central Banks done? Increased their weighting of euros. Pretty interesting, eh?

The U.S. Data Cupboard will only have vehicle sales today after printing the strong PMI yesterday, and tomorrow getting to the ADP Employment report. Car sales have really given the economy a boost the past couple of years, but how much longer can this go on? 1. Doesn’t everyone that wanted a new car have one now? (I don’t but I don’t need one!) 2. And financing of the new cars has gotten “creative” , much like housing was back a decade ago, and cars purchased a couple of years ago, are under water, so to trade them in now would be at a loss. But I’m sure the print today will be strong, and show that not everyone has bought a new car yet!

To recap. The optimism trading that has taken place since the election remains in place and Chuck get into that thought. The currencies have fought back overnight and this morning, but Chuck thinks it’s more of a case of fill in the gaps, rather than a new trend. Germany CPI beat expectations, and the IFO thinks that if the rest of the Eurozone sees CPI tick higher that the ECB should end their bond purchases. The price of Oil slipped in the past 24 hours, and Gold gained $7.40 yesterday.

For What It’s Worth. This is another sign of the times here in the U.S. and it’s about brick and mortar stores closing. You can read it all here:

Or Here’s your snippet: “Retailers are bracing for a fresh wave of store closures at the start of the new year.

The industry is heading into 2017 with a glut of store space as shopping continues to shift online and foot traffic to malls declines, according to analysts.

“If you are weaker player, it’s going to be a very tough 2017 for you,” said RJ Hottovy, a consumer equity strategist for Morningstar.

He said he’s expecting a number of retailers to file for bankruptcy next year, in addition to mass store closures.

Nearly every major department store, including Macy’s, Kohl’s, Walmart, and Sears, have collectively closed hundreds of stores over the last couple years to try and stem losses from unprofitable stores and the rise of ecommerce.

But the closures are far from over.

Macy’s has already said that it’s planning to close 100 stores, or about 15% of its fleet, in 2017. Sears is shuttering at least 30 Sears and Kmart stores by April, and additional closures are expected to be announced soon. CVS also said this month that it’s planning to shut down 70 locations.

Mall stores like Aeropostale, which filed for bankruptcy in May, American Eagle, Chicos, Finish Line, Men’s Wearhouse, and The Children’s Place are also in the midst of multi-year plans to close stores.”

Chuck again. yes, it’s all about online commerce these days, and going forward. My fave cartoon, Pearls Before Swine, recently ran a few days with the characters fearing “da Google”.. I love to laugh, don’t you? As Jimmy Valvano said in his iconic speech when he was dying of cancer. “To me there are three things everyone should do every day. Number one is laugh. Number two is think — spend some time in thought. Number three, you should have your emotions move you to tears. If you laugh, think and cry, that’s a heck of a day.”

Currencies today 1/4/17. American Style: A$ .7267, kiwi .6932, C$ .7489, euro 1.0440, sterling 1.2265, Swiss $.9750, . European Style: rand 13.5782, krone 8.6250, SEK 9.13, forint 295.35, zloty 4.1947, koruna 25.8716, RUB 60.94, yen 117.43, sing 1.4425, HKD 7.7555, INR 67.98, China 6.9525, peso 21.06, BRL 3.2730, Dollar Index 103.00, Oil $52.43, 10-year 2.44%, Silver $16.15, Platinum $915.65, Palladium $687.45, Gold $1,158.30, and SGE Gold . $.1,181.00

That’s it for today.. Well, we’re supposed to get our first snow of the season tonight here in St. Louis, so I’m getting out of Dodge just in time! Today was my dad’s birthday.. It’s been over 20 years now since he passed, and I miss him at Christmas time so much. And knowing that today was his birthday. Well, all my bags are packed I’m ready to go, the next Pfennig sent to you will come from S. Florida where there will be no snow tonight! One of my fave Jackson Browne songs takes us to the finish line today: These Days. These days I sit on cornerstones, and count the time in quarter tones to ten, my friend, don’t confront me with my failures, I had not forgotten them.. Sweet little Delaney Grace and brother Everett came to see me yesterday. Such cuties! Little D will turn 10 in August of this year.. Where did those 10 years go? More on that as the year goes along, but for now, let’s go out and make this a Wonderful Wednesday and Be Good To Yourself!

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

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