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The Dollar Wins Another Spin!

* Dollar plays Joker’s Wild again!
* Williams, Rosengren & Evans help dollar rally!
* Gold holds strong yesterday, but.
* Not so much this morning. UGH!

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

Good Day. And a Tub Thumpin’ Thursday to you! I’m going to start off whining today. HA! Seriously though, more rain yesterday and overnight, what? When did we become the Northwest? And it was sunny and 85 on my beach in S. Florida yesterday, I’m just saying. The Beatles greet me this morning with their song: We Can Work It Out.

Boy, did we see a change in sentiment yesterday in the markets toward the currencies. The metals stood strong against the strong wind the dollar was blowing yesterday. Gold was up $2.10 on the day, closing at $1,253.40, and Silver added a few cents to its value. But that was yesterday, the price action in the early morning trading is not so favorable for the metals, and it appears they have succumbed to the dollar’s pressure.

The dollar played another game of The Joker’s Wild yesterday, receiving a Joker, Joker, Joker to win the game, and get on the rally tracks. the winning reveal came from 3 Fed member speakers, that I told you yesterday, would be speaking. Fed Member Williams got everything going, talking about the possibility of 3 more rate hikes this year, which would total 4 for 2017. Fed Member Rosengren also talked about 3 more rate hikes this year, and then the kicker, as far as I’m concerned, Fed Member Evans, who had been a staunch dove, put on a Hawk’s clothes, and also talked about more rate hikes. This one really gave me the old V-8 head-slap, for Evans had always been the one Dove that was unshakeable in his dovish stance. So. what’s changed that has caused this change of position for Evans, and also pushed the rate hike envelope for Evans and Rosengren?

Has the economic data been better? Well, unless you count prints like Consumer Confidence, and the hedonically adjusted BLS Labor report, then I don’t see it. In fact, I saw a graph this morning from a dealer that showed “soft data” surging above “hard data” here in the U.S. And real economic data, like Durable and Capital Goods Orders, Factory Orders, Personal Income and Spending, Retail Sales, and a few others, just haven’t shown the ilk of what it would take to justify 3 more rate hikes this year.

I’ve talked about the economist, Richard Duncan, many times in the past. In fact, his book from about 15 years ago, really had me thinking. The Dollar Crisis came out in 2003.. and he followed that up with his book titled: The Corruption of Capital in 2009. In that later book, he talked about how the world had become so enamored with Credit. It’s how the world’s GPD grew these last 40 years. He calculated that the world’s Credit was dependent on more Credit, and so on. He said that you needed to increase Credit at a 2% pace each and every year, or the whole shootin’ match collapses. Longtime readers shouldn’t be surprised to read this, as I’ve talked about this scenario more than once in the past 5 years!

Well, yesterday, longtime friend, and publishing guru, Bill Bonner, brought up Richard Duncan, in his daily diary, which can be found on his website: www.bonnerandpartners. I’ll give you the highlights of the discussion about Richard Duncan and the pace of credit.

“Economist Richard Duncan, who keeps a keen eye on the “creditization” of the global economy, calculates that without at least 2% credit growth, recession is unavoidable.

Duncan says credit grew by 2.6% last year, enough to avoid a recession. This year, he says credit will increase no more than the 2% minimum, putting the economy in jeopardy. ”

Chuck again, well Bill was on a roll yesterday, as he was also talking about the surging “deep subprime auto loans” and how “Borrowers are falling behind on repayments on most subprime auto loans. But “deep subprime” borrowers are falling behind fastest.” And according to Morgan Stanley, “deep subprime auto loans make up one-third of the subprime auto loan market.

Aye, Aye, Aye. We’ve got Credit slowing, Subprime Auto Loans in trouble, and Corporate Credit defaults rising. With soft data surging. And did you happen to see the article that was prominent just about everywhere, with pictures of abandoned Malls here in the U.S. ? But we’ve got a stock market that keeps rising, and Consumer Confidence that’s soaring. and now, even a Dove Fed Member telling us more rate hikes are coming. Tell me, please how that all adds up?

Oh, and before I go on, I saw this blurb in a WSJ email to me yesterday.. Westinghouse Electric has filed for chapter 11 bankruptcy protection, its Japanese parent Toshiba said, raising questions about the fate of four half-finished nuclear reactors in the U.S.

The reactors, in Georgia and South Carolina, have run billions of dollars over budget, a financial disaster that threatens Toshiba’s viability.

And you know me, I can’t just leave something alone, I’ll keep picking at it and picking at it! And the thing I’m talking about here is that I have one more example that things aren’t as rosy, as some would have you believe. Bloomberg is the “industry standard” for trading screens with research, information and the ability to do all sorts of things with data. I used to have a Bloomberg screen that I could go on the road with. But I digress. The thing I wanted to point out here is that the “industry standard” is seeing the number of Bloomberg terminals fall for only the second time in company history (the other time was during the financial meltdown of 2008). I’m one of those people that see things that others just shrug off, and think, this has got to have something with what’s going on in the economy.

And once again I’ll point out that the Bond Boys sure aren’t buying the 3 rate hike talk, and the 10-year’s yield fell to 2.38% yesterday. And yesterday, investment guru, Steve Sjuggerud, wrote about how he sees going long the 10-year short term, right now is a real contrarian trade, but one that he thinks will bear fruit.

Well, it wasn’t just about the rate hikes in the U.S. that had the euro on the run overnight. Yesterday, an article on Reuters really put the euro on the defense, and took away its mojo it had earlier this week when it was approaching 1.09. the Reuters article was about how the European Central Bank (ECB) meeting in March was “over interpreted” and pretty much gave the hint that the ECB was uncomfortable with the markets’ take that they would be ready to hike rates in 2018.

So, what we have both here in the U.S. and Eurozone, is a failure to communicate! Only it’s a little more serious than the problem than the line used in Cool Hand Luke, or Smokey and the Bandit. This failure to communicate causes markets to move, and that can either cause huge losses in an asset class, VS another.

I can tell you this much. My dad always told me. Chuck, it all comes out in the wash. And sooner or later the rubber will meet the road. I have to be patient, for I usually see things that are evident, but not yet imminent.

The Indian rupee keeps pushing ahead in spite of what’s going on around it. And the Aussie dollar (A$) held to its gains yesterday, shrugging off the rate hike talk in the U.S. The Canadian dollar / loonie also gained some ground VS the green/peachback, as did the Russian ruble, which reacted favorable to another jump in the price of Oil yesterday. So, it wasn’t “all about the dollar” yesterday, but for those of you who keep track of the dollar with the Dollar Index, the Index saw a nice recovery from 99.83 yesterday morning to 100.13 today.

Banxico, Mexico’s Central Bank will meet today, and it is widely expected that they will hike rates by 25 Basis Points. Me? I wouldn’t be surprised to see them hike rate 50 Basis Points and then sit back and watch their previous rate hikes start to work. Yes, Banxico has raised their internal rate 325 Basis Points since December 2015. That’s 3.25% for those of not familiar with what a Basis Point is. Mexico still has a long way to go, to reach an interest rate that I would think have a “risk premium” in it. And I do believe that after this rate hike today, especially if it’s 50 Basis Points, that the Central Bank would be ready to slow down.

The U.S. Data Cupboard has another revision to 4th QTR GDP for us today, and with the boiling brew that the spin doctors will mix up, using things like: eye of newt, bat eyelashes, and other things that even Madame Rue would turn her nose up at, the 4th QTR GDP will be revised upward from 1.9% to 2%… As if, that makes a hill of beans difference! But, a 2% figure does look better than 1.9%… if we’re just talking about curb appeal.

Tomorrow’s Data Cupboard finally has some data for us to review and judge if its worthy of 3 more rate hikes. Personal Income and Spending for Feb will print tomorrow, along with the Personal Consumption Expenditures (PCE), which is the Fed’s preferred inflation calculator.

To recap. the dollar played another game of the Joker’s Wild yesterday, and won once again with a Joker, Joker, Joker spin. this time it was the 3 Amigos, represented by Fed Members, Williams, Rosengren, and Evans, who all talked about how they see the need to hike rates multiple times this year. Williams and Rosengren called for 3 more rate hikes, while Evans, who was a dove, called for 2 more rate hikes. The euro got a double whammy with the rate hike talk in the U.S. and an article in Reuters about how the markets “misinterpreted” the ECB’s statement after the meeting earlier in March. Gold held Steady Eddie in the face of the stronger dollar yesterday, but has given back those gains and more in the early morning trading today. And Banxico will meet today and most likely hike rates .

For What It’s Worth. I found this on MarketWatch this morning, and it’s an article asking the question, “why can’t Americans agree about anything?”. I thought it to be quite interesting. and can be found here:

Or, here’s your snippet: “The United States has survived through periods of great division and yet today we all now seem incapable of finding common ground on even the smallest issues. This is a problem that is approaching the level of a national crisis that threatens our democracy.

Some of this tendentiousness is part of an irascible American culture that is, paradoxically, woven into our greatness as a nation. Our willingness to speak our minds and rely on our own common sense has been central to an American character noted by Tocqueville and others since our founding as a nation.

Still, American politics were once characterized by a fair amount of bipartisanship and even ticket-splitting in national elections. Today, in public forums, we engage each other not to learn or to converse, but to fight along the harshest and most intractable partisan lines – and to win, no matter how obnoxious we must be in order to carry the day.”

Chuck again. I do agree with the article that “some of this problem is generated by human nature, especially the problem of “confirmation bias.” We want to believe that our experiences and our beliefs, including the important issue of how we view ourselves, explain the world around us. We naturally want to reject evidence that conflicts with those cherished views (especially the ones about ourselves). We all do it, and it’s why we so easily drive each other crazy in our daily conversations.”

Currencies today 3/30/17. American Style: A$ .7660, kiwi .7016, C$ .7494, euro 1.0735, sterling 1.2434, Swiss $1.0034, . European Style: rand 12.9510, krone 8.5298, SEK 8.8993, forint 288.56, zloty 3.9389, koruna 25.1655, RUB 56.85, yen 111.24, sing 1.3949, HKD 7.7714, INR 64.86, China 6.8879, peso 18.69, BRL 3.1316, Dollar Index 100.13, Oil $49.39, 10yr 2.38%, Silver $18.18, Platinum $956.14, Palladium $791.10, Gold $1,252.90, and SGE Gold. $1,261.25

That’s it for today. I fell asleep in my recliner at the start of the hockey game last night and woke up at the end of the hockey game! UGH! But our Blues won 3-1, but still haven’t clinched a playoff spot, with only a handful of games remaining. They are sooooo close they taste it though! Well, I go to the pacemaker doc today to see if everything is on the up and up and I can resume my travel. I’ll also be free to move about the country driving my car again, which son Alex has had for a month now. Alex? Time to return dad’s car! My beloved Cardinals finished Spring Training with a win yesterday, and that totaled 20 wins in March, which hasn’t been done by a Cardinals team since 1997, that’s 20 years ago, and when they were based in St. Petersburgh, FL at the old Al Lang Stadium. So.. Maybe that’s an omen and maybe it’s not, the regular season begins Sunday night with a game VS the Cubs. So, the new-look Cardinals will be tested right from the get-go! And Sunday night? I totally dislike those Sunday night games, and have talked about it before, but it’s really magnified with it be the Season Opener! Day baseball. If I were king, I would declare that 50% of games were played during the day! Cat Stevens takes up to the finish line today with his song: If Want To Sing, Sing Out. Great lyrics to this song! And with that, I’ll get out of your hair for today, and send you on your way to a Tub Thumpin’ Thursday.. Be Good To Yourself!

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

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