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The Dollar Turns Softer To End The Year.

* Dollar weakens.
* Ruble is best performer in 2016!.
* Sterling is worst performer in 2016!.
* Waiting on China.

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

Good Day. And a Tub Thumpin’ Thursday to you! I’m up in the middle of the night writing, because I was coughing so bad, I couldn’t sleep! I had a relatively good day yesterday, but laying down seems to trigger the whole process. UGH! Oh well, I need to get rolling along here today, anyway. These last couple days of the year are always pretty lacking in the financial news department, and usually, I don’t write on New Year’s Eve morning, but this year it falls on Saturday, so that tradition can continue! Buddy Miles greets me this morning with his song: Down By The River. Neil Young and Crazy Horse also did that song, and their live at the Fillmore West recording is classic.

I’m having some technical difficulties this morning, apparently Bloomberg doesn’t want to feed information at this hour of the morning/ night! Or my laptop is, as I’ve said before, getting old. I saw a cartoon the other day, where the dad told his kids he was “old school when it came to tech stuff” and the kid said to the other kid, “ever notice when someone says they are Old School, they are “Old”? HA! So, what I’m telling you is that when we get to the currency roundup this morning, I won’t have every price that I usually have for you. ?

Well, the dollar chopped around a bit yesterday. I told you yesterday morning that it was softer, well that lasted until the junior traders arrived at their desks, but the mini-rally only lasted a couple of hours and then it was back to selling dollars, and then we rinsed and repeated again later in the day. In the overnight markets, the dollar has slipped further, but the moves aren’t huge, so I’ll just ramble on about some stuff today if you don’t mind. And I’ll start right now!

I was doing some reading last night in between periods of the Blues / Flyers hockey game, and came across an article on Bloomberg, that listed the currency returns for 2016. And going into the last couple of days of trading, the Russian ruble is the best performing currency with a 21.31% return in 2016, and that’s just currency return, it doesn’t add in the interest one would have earned had they held the ruble from 1/1/2016 through today. A quick look at the interest rate we pay on ruble CD’s tells me that it’s now at 6.66% APY, so that is added to the currency return and you get a total return of nearly 28% (27.97% actual) . And interest rates were higher earlier in the year, so another goose to the figure is possible.

It was an interesting chart because I had no idea that platinum had such a good year. Platinum placed in third place with a 20.08 return. And Silver placed 5th with a 14.41% return. Remember in late spring when Silver had posted a better than 30% return y-t-d at that time? I left out 2nd place on purpose, can you guess what it is? If you paid attention early this year, when I kept telling people about the Olympic boost a currency receives, then you know what it is. 2nd place goes to the Brazilian real with a 20.96% return to date, and then add in their interest of 8.78% APY, and you get 29.74% (actually total return greater than rubles, but the adding of interest is my doing, and the chart is just currency/ commodity price return.

The worst performing major currency? Well, if you read the Currency of the Month report from last winter, you would know that I forecast a rough year for the pound. And with the BREXIT vote, and debt up to their eyeballs, and an economy that can’t get its legs under itself, the pound posted a -17.08% return in 2016 to date. I don’t like writing negative pieces for the currency of the month report, but I have on more than one occasion in the past two years. And the pound just seemed like a layup to me.

There were other currencies that carved out small gains VS the dollar this year, even with all this dollar strength. The S. African rand gained 11.57% year to date, the Canadian dollar gained 1.92% year to date, the Norwegian krone gained 1.38% y-t-d, and kiwi gained 1.02% y-t-d. There were a couple of other currencies that had small losses VS the dollar, and with any interest they are probably flat on the year. The Aussie dollar is down 1.92% y-t-d. And then the zero rate currencies come in line. like Sing dollar, and Swiss francs.

The offset currency to the dollar, the euro, lost 4.31% this year to the green/peachback, and like I said yesterday, I’m somewhat surprised that the Italian banking crisis and prevailing dollar strength aren’t causing more problems for the euro.

And that winds up the update for the currencies. I doubt the last two days, given there’s no data to speak of, will move things wildly either way, except if short covering of year-end positions is on tap, of which I would think that most of that was done before the Senior boys and girls left their trading desks last week.

So, how many of you recall the late 70’s early 80’s, when the Carter years ended and the Reagan years began? The dollar had been in a real spiral downward since Richard Nixon had removed the Gold backing from the dollar in August of 1971. And along came Paul Volcker, who began to hike interest rates that would eventually reach levels not seen before. The thought at the time was that he was fighting inflation with his rate hikes. But after further review, what IF he was fighting inflation, but at the same time saving the dollar from its downward spiral? It worked, right? Because by 1985, Finance Ministers around the world met to orchestrate a coordinated intervention to sell dollars, for they had gotten too strong for the rest of the world, and the U.S. Current Deficit had grown to more than 2.5% (I’m laughing out loud right now, at how preposterous that statement is, 2.5%? HA! Do we really count all the beans?

OK, I got off track there. what I was talking about is the thought that the Fed could have stepped in to save the dollar back in the late 70’s early 80’s. So, if we agree that could have been the case, then what would stop them from doing that again? Nothing, there’s nothing wrong with that, Central Banks defend their base currencies all the time. But, when I apply this defense of the dollar to the current situation with rate hikes, I see similarities. Don’t you? And then when I do that, I have the V-8 head slap moment! Now, I understand, what you tried to say to me, and how I suffered for my sanity, (Don McClean) when the Fed hiked rates, when the data sure didn’t say “hike rates”! Now. I. get. it!

Of course that’s just me looking at thing differently than everyone else, and who knows the real reason for the rate hike talk, other than the members of the FOMC. I love to think about things that no one else is talking about, it keeps me sharp, and different from every other newsletter writer out there. And I’ve always tried to be different than everyone else. When I played sports, in school, with music, at life, etc. But as the years go on, I’ve been domesticated. So, when I have a flashback to being different, then that makes me happy!

So.. I’m not even your last choice on the team of stock jockeys but I have to ask this question: Where does this stock market rally go from here? Do trees really grow to the moon? The election of President-Elect Trump sure has people thinking that we’re going to see a revival of the American economy, like we saw when Reagan was elected. And that has the stock jockeys all lathered up for higher returns from here. But shouldn’t they have gone back and really looked at the first couple of years under the Reagan administration, when the administration was trying to get out of all the muck that the Carter administration had to deal with? And P/E ratios in stocks were single digits. And the debt was only 30% of GDP. We’re now 105% of GDP with our debt. Things are different this time, and this is the one time I don’t cringe when I hear those words, because they are true already, and not some pie in the sky forecast!

But Like I said I’m not even your last choice as a stock jockey, so all I’m saying is that it looks sticky to me. But I also said the Bond Bubble was going to pop back in 2008.

The price of Oil slipped below $54 in the past 24 hours, but the move is small, so nothing to be concerned about at this point. Yesterday, I talked about how I thought the shale producers could be getting back to profitability with the price of Oil rising. And then I read a report that showed that the new Oil rig count had really jumped higher in the past couple of weeks, so there’s your proof in the pudding! But, isn’t this a Catch-22? The price of Oil rose higher based on production cuts. But if the shale producers ramp up oil production, then isn’t that going to put a cap on the price? Why, yes it will, Chuck! Thank you for bringing that to our attention. You’re welcome.. Just doing my job.

Gold added $4.80 to its price yesterday. The last couple of days have seen the selling of Gold calm down, which is a good thing, but the wolf always seems to be at the door, right? I read a report over at that talked about how the flow of Gold, which for years was a one-way direction from West to East, but in recent months had reversed direction, but has now reversed again, and is flowing from West to East again, as Chinese demand for physical Gold remains strong, and India is recovering from a slump it was in with regards to demand for physical Gold.

I harp a lot about physical Gold, and how it should be the market, and not paper trades, and for years I’ve said that “if everyone, and I mean everyone only bought physical Gold , it would put the paper traders out of business.” I still believe that, and to prove that we need everyone, to do this, China, Russia and India demand doesn’t offset the paper trades. They need the West to participate to make it work, and so far, that hasn’t happened, obviously.

Speaking of China.. The renminbi has had an awful year. And I’m still anticipating a major downward move in the currency orchestrated by the Chinese Gov’t in retaliation for the rate hike in the U.S. The Peoples Bank of China (PBOC) may have nixed the “devaluation option” for now, and have chosen instead to just allow daily downward fixings for the currency. But, nothing says, “take that rate hike and shove it” like a devaluation to weaken the renminbi and tick off U.S. Trade representatives, and the President-Elect!

You see, the renminbi, even though China has loosened the reins and allowed the currency to float more, they still have control over the currency. And they tie its value to a basket of currencies that represent their major trade partners. So, if the dollar keeps getting stronger, due to rate hikes and rate hike talk, that puts pressure on the renminbi to be stronger, and the Chinese are stuck between a rock and a hard place right now with their currency. They would like to have it stronger to stop the outgoing capital flows going on right now, but at the same time they NEED for the currency to be weaker, to help with trade.

The U.S. Data Cupboard remains barren to everything but data that would be considered 2nd and 3rd tier data. So, nothing to view here, move along, these are not the droids you’re looking for.. We did see Consumer Confidence yesterday for this month, which I’ve called out as being ridiculous, because it’s nothing more than a heartbeat/ pulse on the stock market’s performance, posted an increase this month and now has a 113.7 number. That’s pretty darn Confident! And today, we’ll see the Pending Home Sales for November, not your everyday piece of economic data!

Before I head to the Big Finish. I got an Echo for Christmas. So, after setting it all up, and downloading the APP I said, “Alexa, tell me joke” And the voice said, “Why does the mushroom get invited to all the parties?” “Because he’s a fungi” I about fell out of my chair laughing! I’ll have to remember that one for next Halloween!

To recap. the dollar chopped around yesterday, but ended the day softer, and in the overnight markets it has continued to soften, but the moves are small. The Russian ruble takes the prize as the best performing currency in 2016 (to date), and the British pound sterling takes the booby prize for the worst performing currency in 2016 (among the majors that is) Oil slips lower, and Gold inches higher. There’s just not a lot to talk about today, or will be tomorrow, but I’m here!

For What It’s Worth. I found this in my email box from MarketWatch who surprises me every now and then with something that’s interesting and talks about something other than stocks, and yesterday it was a discussion on Gold. Here’s the link to the article:

Or, here’s your snippet: “Both gold and silver will go down for the first half then move into a new bull market that will last well into 2020. This is the way the market shakes off the last remaining weak hands, prior to resuming the bull trend,” said Lamoureux in emailed comments.

“Where most turned bullish in 2016, in reaction to higher prices, we did not. Our view was and is that the bounce was an echo bubble of the prior bubble,” he said.

Note, gold could mark the first rise in 8 weekly sessions if the positive momentum we’ve seen thus far has legs. This year, the commodity is on pace to have halted a multiyear decline, in what some say has been a “pivotal year” for precious metals. Others say investors are riding a downward “slope of hope.”

Gold has slumped since August, but it still is around 7% higher as the year winds down, while silver has fared even better with a 14% gain.”

Chuck again. while I like the ending of that story, I sure don’t like the beginning! But who knows? This guy says that he didn’t get caught up in the 7-month rally of Gold last year, and I have to question that. Who didn’t? It was not forecast and just hit us right between the eyes, and just as fast as it came upon us, it was gone. I guess we’ll have to wait-n-see, but if Gold does go down as low as this guy says it will ($850) I know I’ll be backing up the truck!

Currencies today 12/29/16. American Style: A$ .7217, kiwi .6957, C$ .74, euro 1.0475, sterling 1.2255, Swiss $.9777, . European Style: rand 13.6688, krone 8.6748, SEK 9.1342, forint 295.45, zloty 4.2095, koruna 25.7880, RUB 60.48, yen 116.35, sing 1.4484, HKD 7.7550, INR 68.02, peso 20.68, BRL 3.2734, Dollar Index 102.72, Oil $53.97, 10-year 2.51%, Silver $1616, Platinum $914.10, Palladium $670.40, Gold $1,148.00 and SGE Gold. $1,171.05

That’s it for today.. Hey! Our Blues scored in the 3rd period! Not just once, not twice, but 3 times! The Blues had seen a drought in the 3rd period but broke out of it last night with a nice win over the Flyers. Alex had been home for a few nights but returned to his home at school last night. I think he had had enough of “mom and dad time”. Well, do you have BIG plans for New Year’s Eve? Kathy’s dad used to call NYE “amateur night” We’ve done the same thing for years, go to dinner with friends and then we all come back to the “hood” at a decent hour to ring in the New Year. Years ago, I entertained everyone by playing my guitar and singing songs. Funny, they haven’t asked me to repeat that performance since! HAHAHAHA! I don’t think I could, given my lack of playing the guitar any longer. Little Feat takes us to the finish line today with their song: Dixie Chicken. love that song! All righty then, I need to get out of your hair for today. Please go out and make this a Tub Thumpin’ Thursday for me, as I’ll be here coughing up a lung! ? Be Good To Yourself!

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

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