The End Of The Fed’s Innocence?

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

Good Day. And a Tom Terrific Tuesday to you! What a mess yesterday! I truly apologize for the very late delivery of the Pfennig yesterday, although it was posted to the website (www.dailypfennig.com) at its regular time, the delivery was held up as we worked through technical difficulties.. I can’t do anything about the times that technical difficulties pop up, but I can tell you that when that happens, I’m not a happy camper. Who would be? I get up before the farmers, to read and find out what’s gone on overnight, then write a letter that hopefully helps people to think and act before the day gets away from them, and when I load it up to send, it encounters technical difficulties.. UGH! Well, today, I have no idea if it will go out on time or not, as we had to do a work-around to get it out yesterday. UGH! Frank Sinatra greets me this morning with his song: The Way You Look Tonight, which was the song that my darling daughter Dawn and I danced to at her wedding.

Well, the day has started out not so great for the currencies and metals.. There are only a handful of currencies carving out gains VS the dollar this morning, and they include the Russian ruble, Brazilian real, and Chinese renminbi. The euro got smacked in the European session when another European Central Bank (ECB) member decided to give his two-cents worth opinion of the euro’s current value.ECB member, Coeure, commented that the euro is now at an appropriate level for the economic situation in Europe.. And those comments took the euro below 1.07. but that wasn’t all the euro had to contend with this morning.. In addition, German Industrial Production (IP) printed a surprise for the markets with December IP going negative -3.0% VS November. And for the Quarter, IP was negative -0.1%.. And this print, which was expected to show a slight rise in IP, sent the euro further down into the 1.06 handle this morning.

Last night the Reserve Bank of Australia (RBA) left rates unchanged, as I told you they would, and basically the RBA Gov. Lowe, didn’t sound too enthusiastic about things, and so the sentiment toward the Aussie dollar (A$) soured, and the currency dropped about 1/2-cent, but remains above 76-cents as I write.. Lowe, really disappointed me with his milk toast comment following the no rate move announcement. I mean, look at how commodity prices have improved in the last 6 months, look at the nascent recovery in Global Growth, and he couldn’t have put on a happier face? Well, I guess he’s being “cautious”.. I guess I won’t be too hard on the Beaver this morning.. Ward, don’t you think you were too hard on the Beaver? HA!

There was other news from downunder last night.. Reserve Bank of New Zealand (RBNZ) Gov. Wheeler, announced that he will step down as Gov. when his term ends in September.. And I say “good riddance!” Longtime readers know how Wheeler is a Central Banker that can’t stand a stronger currency, and therefore throws kiwi under the bus every opportunity he gets. Oh, well, after September, he won’t be around for me to complain about any longer! There was something else in New Zealand last night. Oh, yeah, their 2year inflation outlook improved to 1.92%.. (was 1.68%) That’s quite a pickup, eh? Well, kiwi popped higher at first glance of this report, but with New Zealand’s kissin’ cousin across the Tasman, A$ getting sold, kiwi sold off in sympathy.. UGH!

The BRICS (Brazil, Russia, India, China, S. Africa) saw 3 of their fellow members of this not really-a true-organization, it just what I believe that Goldman Sachs decided to lump them together and call them the “BRICS”.. Brazil, Russia and China carved out gains VS the dollar to sit stronger this morning. The Indian rupee had been on quite a tear lately, but wasn’t able to rally alongside the 3 BRICS members on the rally tracks. Taking a breather? I would think so, but then things in India are a mess right now, so maybe traders decided to back off the appreciation trades until things look a little calmed down here.

In Canada today, we’ll see their latest Trade Balance report.. this report will be for December, and it will most likely reverse most if not all of the first Trade Surplus in Canada in two years that printed in November.. The Canadian dollar / loonie is weaker this morning, as traders prepare for this Trade Balance report. So, the risk here is that the report is much weaker, and that would knock the stuffing out of the recent rally by loonies.

Gold had a nice day yesterday.. Gold closed yesterday at $1,235.20, up $15.70 from Friday’s close. I was reading the Daily Reckoning last night and analyst guru, James Rickards wrote down his thoughts that while the paper trader dominate the price of the metals right now, that he sees signs that this scenario is about to come to an end, and the price discovery of supply and demand in physical metals would take over. Here’s a snippet of what he said, “Players on the physical side are price takers, not price makers. This has been true for years, but now the tables may be turning. I’ve received firsthand reports of shortages of physical gold from refiners. Vault operators have told me physical gold holders are taking gold out of banks and putting it into private vaults, where it is no longer available to prop up the paper market.”

He also points out something that quite frankly I hadn’t thought about.. I knew that Gold had been on the rally tracks so far this year, but I guess I wasn’t paying attention to the gains. Gold started the year at $1,160, and today trades at 1,236.. That’s a $76 gain so far this year! Go Gold, Go Gold, Go Gold! I’m sitting here at the table doing the cabbage-patch dance, thinking about this run so far by Gold, and there’s nothing out there, (except rate hikes in the U.S, which potentially could rock the boat there, but I doubt it) that’s going to stand in the way of this Gold Rush. That is, as long as the paper traders remain on the sidelines!

So.. do you know the great Don Henley song: The End of the Innocence? When I was reading this article about the House of Representatives calling out the Fed for their “secret negotiations with foreign Gov’t’s. that’s all I could think of was that song.. So.. this was in Ed Steer’s letter today. I don’t know how long it’s been since I last gave you the link to Ed Steer’s letter should you want to subscribe to it (it’s a paid for subscription) but what the heck, he helps me out so much, here’s the link to his website, and you can decide for yourself if you want to subscribe. I find that I depend on it daily! http://www.edsteergoldandsilver.com/

And here’s the link to the letter that was sent from the House to the Fed.. I can’t help but think that this could be the end of the Fed’s Independence. https://ftalphaville-cdn.ft.com/wp-content/uploads/2017/02/02104940/McHenry-letter-to-Yellen.pdf

I’m not pro or con on this folks.. I believe a Central Bank has to maintain its independence, but they do have to answer to someone. I just thought that this letter is going to open up Pandora’s Box of unknowns, and I don’t think we’re ready for them.

The U.S. Data Cupboard has a little data for us today.. The U.S. Trade Deficit will print for December, and should remain pretty high around $45Billion.. We’ll also see the December print of Consumer Credit (read debt) which I said yesterday should be a blowout number, given the month of the data. Consumer debt is a BIG DEAL folks.. We have Gov’t debt, State Debt, City Debt, and personal debt. it all adds up to.. . drum roll please.. $66.8 Trillion 2 years ago in Vancouver, I told the audience there that we had just reached $60 Trillion for the first time.. so, in less than 2 years, we’ve added over $6 Trillion in debt to the total.. This is all going to end up in tears in my opinion, folks. bit tears.. Oh, and if you don’t believe me on these numbers check them out yourself by going to the Debt Clock: http://usdebtclock.org/

To recap. the dollar is pretty much in control today, with only a handful of currencies carving out gains VS the dollar this morning. Brazil, Russia and China are on the rally tracks all by themselves today. The euro got double whacked by comments and weak IP data in Germany. Kiwi will get a new RBNZ Gov. in September, but sells off in sympathy to the selling in A$, which got sold because RBA Gov. Lowe couldn’t put on a happy face about leaving rates unchanged. Gold had a nice day adding $15 to its price, which is $76 higher than when the year started!, and James Rickards says that physical Gold will soon take over the price discovery from paper trades.

For What It’s Worth. Longtime colleague who was first a World Markets client, and Hall of Fame soccer player, Ty Keough, sent me this link yesterday, and I immediately, thought of this as my FWIW for Tuesday.. So here you go, the bank all precious metals holders that believe there’s price rigging love to hate, JP Morgan, is out front with calls to sell the dollar. You can read it here: http://www.marketwatch.com/story/time-to-sell-the-dollar-on-erratic-trump-policies-jp-morgan-says-2017-02-06

Or, here’s your snippet: “The dollar enjoyed a strong run after Election Day, but the Trump administration has turned into a headwind for the buck and more troubles are ahead, strategists at J.P. Morgan warn.

In a note out late Friday, the bank’s foreign exchange strategy team led by Paul Meggyesi said it had started to sell the dollar against the yen USDJPY, -0.43% and Swiss franc USDCHF, +0.0403% following comments from Trump and his trade advisor that the U.S. currency has gotten too strong.

“Dollar confidence and positioning is being eroded by erratic policy emissions from the White House,” the J.P. Morgan team said in the report.

“USD has retraced 45% of the Trump rally, but we believe risk-reward favors a deeper setback to USD vs. those pairs that have lagged, most notably.”

Chuck again. Well, maybe, somebody at JPM Morgan is a Pfennig Reader! What do you think about that? Because I’ve been out on the limb talking about what seems to be the end of the strong dollar trend, and now they write something like this? Coinkeedink? HA!

Currencies today 2/7/17.. American Style: A$ .7616, kiwi .73, C$ .7580, euro 1.0665, sterling 1.2370, Swiss $1.0009, . European Style: rand 13.4472, krone 8.3310, SEK 8.8840, forint 290.36, zloty 4.0260, koruna 25.2289, RUB 58.86, yen 112.30, sing 1.4185, HKD 7.7576, INR 67.31, China 6.8534, peso 20.70, BRL 3.1165, Dollar Index 100.66, Oil $52.89, 10-yr 2.41%, Silver $17.81, Platinum $1,017, Palladium $775, Gold $1,236.20, and SGE Gold $1,231.08

That’s it for today.. Well, it’s scans results day.. I sure hope I can get some relief for my back, pronto! I’ve tried all types of pain killing sprays, gels, patches, and nothing seems to work! Reminds me of 1991, when I had to finally resort to back surgery. But brother did it work! It’s always something with me, eh? I know, I know, I get so tired of having things wrong with me! I often say out loud, why are things so difficult for me? But shoot if some things were difficult I wouldn’t know when something was easy! Our Blues are a feast or famine team, they won last night 2-0.. The sun is about to rise on hopefully another Chamber of Commerce day here. Well, Styx takes us to the finish line today with their song: Too Much Time On My Hands.. Now it’s time to find out if our problems from yesterday got fixed! I hope you can make this a Tom Terrific Tuesday, and don’t forget to Be Good To Yourself!

Chuck Butler
Managing Director
EverBank Global Markets
Creator / Editor of: A Pfennig For Your Thoughts
1-800-926-4922
http://www.everbank.com