The Euro Steps Up To The Plate…


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

The Euro Steps Up To The Plate…

Good day… And a Tom Terrific Tuesday to you! Another Chamber of Commerce day here in the Midwest yesterday, almost gets the awful rain and floods out of my mind from late last month. No baseball for us in St. Louis last night, but the Big Bad Red Sox come to town for two games starting tonight. I’m getting a later start this morning than usual, given I had to set up two laptops and so on in a new location this morning. Of course I could have done that all last night, but this was a case of, what can be done tomorrow is better than getting done today! HA! Maroon 5 greets me this morning with their song: One More Night…

Well, that currencies rally that I talked about yesterday, and said that it would be interesting to see if the currencies could hold their gains and add to them tomorrow, have done just that! The euro is trading well into the 1.10 handle this morning. What’s gotten into the euro these days? The single unit is “stepping up to the plate” with confidence… Well, the economic data there has been better, not great, but better, and we all know how bad it was for a year or so. For instance, today 1st QTR GDP for the Eurozone and it is highly expected that it will show a gain of 0.5% VS the 4th QTR 2016. Inflation was higher than expected last week for the Eurozone, and Germany posted that moon shot Industrial Production number last week. So, the economic data prints are better, and at the same time the economy just seems to be unraveling here in the U.S. So, with the euro being the offset currency to the dollar, when the dollar gets sold, the euro does well… At least that’s how things have been for about 16 years now.

And Norway is showing the world that it’s not a one trick pony, with the price of Oil being that one trick pony… 1st QTR GDP for Norway printed this morning, and beat the expectations of a 0.5% print with a 0.6% print! The previous quarter was revised upward too! Things are healing here, and of course if the price of Oil could really rebound, it would push the Norwegian economy back to where it used to be. The Norwegian krone is on the rally tracks, but it was already there courtesy of the rally in the price of Oil.

Speaking of the price of Oil… Well, it didn’t rally in the past 24 hours, but then it didn’t slip in price either… So, they call that a consolidation of the price… And I really don’t think we’ll see much more movement in the price of Oil this week, as the OPEC nations meet next week, and they’ll discuss the production cuts. It is thought, and I agree, that if anything, we’ll see an announcement of further production cuts, or at the very least, an extension of the time period for the production cuts. I don’t think we’ll see anyone balking about the production cuts, and therefore, the price of Oil could rally on the news from the OPEC meeting next week.

And that would be good for the Petrol Currencies that include the Russian ruble, Norwegian krone, Brazilian real, Canadian dollar / loonie, and two laggards in the U.K. and Mexico…

Speaking of Mexico… Last week I received an email from a friend, and in the email he pointed out that investment research firm “X” was touting the Mexican peso… I replied and said, “are the nuts?, although Mexico has ratcheted up their interest rates in the past year, they are still a long way from providing a “risk premium” … Look at the Russian ruble, or the Brazilian real, they are both emerging markets currencies, that pay a “risk premium”… the “risk premium” is what I call having interest rates above everyone else’s by a wide margin, which could provide protection from the volatile swings in an Emerging Markets currency. And then yesterday, I came across this on Bloomberg..

“Mexico’s existing oil reserves are dwindling so fast the country could go dry within nine years without new discoveries.

That’s the message from the National Hydrocarbons Commission, which said Friday that the reserves fell 10.6 percent to 9.16 billion barrels in 2016, from 10.24 billion barrels a year earlier. Once the world’s third largest crude producer, Mexico’s proven reserves have declined 34 percent since 2013.” Is the main message of the article that can be found here:

People that have no history to fall back on, or look to for future guidance, have no place issuing forecasts… They are too enamored with recent events to know the “whole story”… Or as the great orator, Paul Harvey, used to say, “Now, the rest of the story”… And that’s where people with history and experience pull the skeletons out of the closet…

OK… Well, yesterday, I had to field a response from a reader on the Pfennig Blog site ( ) . The reader accused me of being a “voice box for the wealthy”… Boy, did I take exception to that! I’ve banged on administrations going back 25 years for running up debt, that our kids and grandkids will have to deal with. I’ve spent most of my career in investments, which go back to 1973, trying to educate investors on the merits of diversification. And for everyone that has diversified their investment portfolios using currencies and metals, I write a daily letter, to inform them of what’s going on that could affect their investments. Nowhere in that description of what I do, is there anything about being a voice box for the wealthy!

OK, now that I’ve gotten that off my chest, let me point out something regarding car loans that I’ve been harping on for 3 years now… That’s right 3 years ago in Vancouver, I pointed out the following (this is from my presentation notes)..

“Over the past three years alone, Consumer Credit has risen 22% !

And at this point, 56% of all Americans have a subprime Credit Rating! According to CFED… And in 2010 it was only 25%! Does anyone else see a reoccurring problem here?

In my daily letter that I talked about how Retail Sales in the U.S. were dominated by vehicle sales, which were very strong in May… So have you noticed that most of your neighbors are driving shiny new cars these days? I also wrote that the tenor of car loans has gone from 66 months to 73 and 84 months… A 27.6% increase from a year earlier!

And… Get this… The size of the average monthly car payment is now $474!!!! I remember when my first mortgage payment wasn’t much more than that! And I’m sure that quite a few of you, can remember mortgage payments below that amount.”- C. Butler Vancouver July 2014.

Now skip ahead nearly 3 years later… This little ditty came from Fitch, the ratings agency… “Increased competition has led to increases in loan-to-value (LTV) ratios and extended term lending”

Did they just now see that what was happening? Well, welcome to the party, but what’s going on now is that lenders have lowered their credit standards on car loans to the point that in some cases you don’t even have to have a FICO rating to get a car loan!

I said it 3 years ago, and I’ve been saying it since… Doesn’t this all look, feel, and smell familiar?

And here’s another thought about 7 year car loans… it takes away from future demand.. Think about that for a minute, I’ll step away and let that sink in… The borrower won’t be able to trade in the car during the life of the loan without taking on a loss… So, for 7 years, there will be no new car bought by this person…

Now, longtime readers know that I don’t like to beat on something until it’s not recognizable… But this car thing has really put a bee in my bonnet (I don’t really wear a bonnet) Especially when I received an alert from my new fave economist/ analyst, Danielle Di Martino Booth, on Friday that she had just posted a new article on Bloomberg that can be seen here:

And in it she believes that the fate of the auto sector will determine which way the wind blows for the economy.. She said that instead of June 2nd when the Jobs Jamboree would print, that June 1st, would be more important, because that’s the day the U.S. automakers will report their car sales… As reported here in a previous Pfennig, the car sales have been dropping for 4 months now. So, another month of weak car sales, and one would have to think that there’s a problem Houston…. I told you in that previous Pfennig that the major carmaker economists are calling these last 4 months “transitory”… I shake my head, because what will these same economists be saying if on June 1st there’s another month of weak data? IF that happens they’ll all have egg on their collective faces for sure… But we won’t use up all our eggs on these economists, we have others in mind that will be my target once the economy falls to its knees by the end of summer…

Down Under, (my good friend, Duane, and I were talking about a restaurant in St. Louis called Down Under yesterday, so how strange is that?) The Reserve Bank of Australia (RBA) will print their last meeting minutes tonight, and I don’t expect anything “new” to pop up in the minutes. And Australia will also see the color of their 1st QTR Wage Index, which is expected to have risen 0.5% VS the previous QTR, and year on year… Wages in Australia, because of all of the “part-time” jobs added in 2016, haven’t really taken off, instead they have just seen modest gains for the past year and more… That’s not going to light a fire under the RBA to hike rates any time soon, and the Aussie dollar (A$) could very well see some selling unless the wage data is a moon shot..

The price of Gold was all over the place yesterday… Up, down, all around, and in between. The high price of the day was $1,237.40 and the low was $1,226.80, and the shiny metal settled the day at $1,230.40, just up $2.70 on the day… The short paper trades arrived around the COMEX opening yesterday, and made sure that Gold’s rise on the day was limited..

I received an email from a friend yesterday, and he was wondering what the heck was going on with Silver? I told him that currently it would take 180 days of physical Silver production to cover the short contracts that are outstanding. That’s a lot of weight for Silver to have to carry each and every day… And once again, I have to question how that’s not illegal for these institutions to have short contracts on something that would take 180 days of production before it was covered… Well, if not illegal, not ethical… I guess I’m the dumb one, because I just don’t see where it’s necessary to be “x” Bullion Dealer, and have short positions equal to 80 Million ounces of Silver! Why? The CFTC itself wrote something to the order of: A concentrated position in an asset is only used to manipulate the price… OK, sorry, I know I told you wasn’t going to get all bent out of shape talking about this stuff any longer, but when Brian asked me… Well, it just all was unleashed!

The U.S. Data Cupboard finally sees some “real economic data” today, with the April prints of Industrial Production (IP) and Capacity Utilization (CAPU)… The problem for the dollar is that neither of these two reports are going to show that a rate hike is needed in June. I expect IP to print weaker than the previous month’s 0.5% increase, and CAPU to be flat if not weaker… Did you hear that Ford announced that they were going to cut 10% of their Global Workforce? (read a large amount of those cuts will be made here, for the U.S. worker costs more than his counterpart in some foreign country)

I received an email the other day from a reader that said he was confused with what I was saying because I had said long ago that we were in a depression, and now I was talking about us going into a recession…

Well, yes, I said all along that we never left the “Great Recession” in my humble country boy opinion. That it just wasn’t as evident as it used to be, because of people having to go stand in line for a job, or food, they received money in the mail in the form of a check or EBT card… When you have as many people in a country that is need of Gov’t assistance (or so they think), but you don’t see it on the evening news, then you think everything is hunky dory… And the talking I’m doing now about us going into a recession, is simply referring to the textbook explanation of a recession, which is 2 consecutive quarters of negative growth. I, myself, prefer to think of a recession as a significant decline in activity across the economy, lasting longer than a few months. It is visible in the “real economic data”…

To recap… The currencies were able to hold their gains from yesterday, and some cases they are adding to those gains, like the euro which has traded up to well within the 1.10 handle in the past 24 hours. The Norwegian krone is stronger again this morning because not only did the price of Oil hold its gains from yesterday, but 1st QTR GDP in Norway beat the expectations, and the previous quarter’s GDP was revised higher… The Petrol Currencies are rallying ahead of the OPEC meeting next week, where Chuck thinks whatever comes of the meeting will underpin the price of Oil. And Chuck revisits his last trip to Vancouver, and Chuck’s new fave economist, analyst, Danielle Di Martino Booth, visits the Pfennig this morning!

For What it’s Worth… Well, I search far and wide this morning for a FWIW article, and none seemed worthy, until I came across this one on MarketWatch… I could get on my soapbox and pound my fist and speak in an authoritative voice about how we as a country misappropriate funds and have done so for many years… This plays well with that thought, because it’s about our badly we do at upgrading our infrastructure, and can be found here:

Or, here’s your snippet: “U.S. infrastructure has received an average grade of D+, meaning “poor and at risk” due to chronic underinvestment, according to the 2017 report card released earlier this month by the American Society of Civil Engineers.

“Our nation’s infrastructure is aging, underperforming, and in need of sustained care and action,” the ASCE said.

The U.S. has received a subpar grade in each of the last six reports, stretching back to 1998. Each sector is graded on eight criteria, including capacity, condition and funding.

Rails was the only sector to earn a B due to $27 billion in improvements by the freight railroads. Ports, bridges and solid waste each received a C+. The remaining dozen categories — aviation, dams, drinking water, energy, hazardous waste, inland waterways, levees, public parks, roads, schools, transit and wastewater — were in the D range.”

Chuck again… Like I said above, we as a country could do much better at appropriating funds in the right direction than we do, and this is an illustration of a sector that should get more attention… Or turn them private.. Like I’ve said for years now, allow entrepreneurs to take over the funding of a road or whatever, they’ll figure out to make money at it! Remember, you can get your kicks on Route 66? Well, that iconic road was built with private money.. Now, there’s some cocktail trivia for you!

Currencies today 5/16/17… American Style: A$ .7412, kiwi .6870, C$ .7345, euro 1.1060, sterling 1.2880, Swiss $.9908, … European Style: rand 13.1280, krone 8.4905, SEK 8.7815, forint 279.56, zloty 3.7929, koruna 24.8805, RUB 56.61, yen 113.65, sing 1.3974, HKD 7.7894, INR 64.03, China 6.8963, peso 18.70, BRL 3.1140, Dollar Index 98.46, Oil $49.19, 10yr 2.35%, Silver $16.73, Platinum $938.07, Palladium $806.80, Gold $1,234.80 and SGE Gold… $1,242.27

That’s it for today… Well, here I am at Lake Woebegone… Nah, not really, but I am a lake with the sun rising on it, and fog lifting, it’s a beautiful sight, even if it was only in my mind… Not much else going on these days.. I get my new CPAP machine on Thursday night, and on Friday, I go in for a 3,000 mile oil and lube job on my pacemaker… I know how to have all the fun don’t I? HA! Warm weather has finally settled in here in the Midwest, YAHOO! I came back from Florida this spring hearing everyone saying that it was a mild winter, so I thought, cool beans.. Then the chilly days with rain came, and I wanted very badly to go back to Florida where it was warm! Oh well… the trials a tribulations of your, always wanting to be where it’s warm, Pfennig scribe… Little Braden Charles Butler stayed with us Saturday night, and we played more board games. He loves playing Sorry, so Sunday morning, he was wanting to play Sorry with me, and he told me… “General, do you know what I love most about being here with you?… Playing Sorry with you” Ok, I responded, let’s go play Sorry… And with that, it’s a Maroon 5 day, as they take us to the finish line with their song: This Love.. And with that I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!

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