The Markets Were Wrong, Chuck Was Right!

* Brainard disappoints the markets.
* She gave no wink and nod for a rate hike.
* Markets won’t give back all the gains it took!
* John Mauldin on negative rates here in the U.S..

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

Good Day. And a Tom Terrific Tuesday to you! Say it ain’t so, Joe! Say it can’t be true! The Cubs could actually win the division while in St. Louis this week, and celebrate on our turf? OMG! Well, the baseball Gods will have given us a taste of our own medicine should that come to fruition! UGH! Kansas greets me this morning with their song: The Wall. With that disgusting disco craze of the late 70’s, Kansas was one of those bands that allowed me to keep the faith with rock-n-roll. The Brainard speech left the markets open mouthed, and they deserve that! So, let’s go to the tape and see what happened yesterday and overnight.

Well, then, who was right, and who was wrong? I bet you know the answer to that one, eh? Chuck was right, and the markets were wrong! They were wrong for thinking that Fed Gov. Lael Brainard, who is a dove, would give them the wink and nod for a rate hike in two weeks. Chuck was right for pointing out that he didn’t think the “dove” would do that, and that the markets had gone bonkers again. Well, Brainard said, “my main point here is that in the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor markets.” That’s Central Bank parlance for, “it’s too early to hike rates”. And then Fed member Kashkari echoed Brainard’s thoughts in his speech. So, two Fed members with a strong consensus for no rate hike in two weeks. I was right, I was right, the markets were wrong, the markets were wrong, neener, neener, neener!

However, the markets don’t take these things laying down, folks. And they have not given back to the currencies, stocks, bonds, and metals all that was taken from them from the time the Brainard speech was announced as a late addition to the speakers list last Thursday. Yes, they have given some back, but not nearly enough to make up for all the whacking those asset classes took since Thursday. The markets just will not admit they were wrong, and they’ll hang onto those gains they’ve taken for the dollar, until they actually see the Fed leave rates unchanged on September 21. I know, I keep saying in “two weeks” when it’s actually 8 days, but it looks like two weeks to me! For the FOMC won’t meet this week, or next week, that’s two weeks to me!

I’m beginning to think that this was all a “set up”. Get the markets all thinking that a rate hike could occur soon, and they froth on the stock markets will get knocked off, and all the other stuff is collateral damage. But, that’s just my spider sense tingling right now. These things always seem contrived and have a pattern of reversing “just in time”. But then, that’s just me thinking out loud, I don’t mean to say that anyone tried to “fool the markets” on purpose.

Well. As I’ve said for a couple of days now, the Brainard speech would have to carry us through to Thursday when we finally see some real economic data, in August Retail Sales, which the BHI tells me will be very disappointing. So, what will the markets do now with the Brainard speech, that’s the question that inquiring minds need to know! HA! Seriously though, that is the question, and it appears to me that they are going to be very slow about reversing the whackings that stocks, currencies, metals and bonds took as they were going down the wrong path of monetary decisions.

So, I think we’re back to slow motion moves in the asset classes I talked about above. That is until we get to Thursday and Retail Sales prints. The overseas markets have some data to sift through, but it’s all about U.S. rates, folks. But, since they have the data, let’s sift through it, ok?

First up on the docket is U.K. inflation. CPI was unchanged for August on a year on year basis at 0.6%. Consensus was for a rise to 0.7%, but that didn’t happen. So, the U.K. is still mired in a low inflation, slow-to-no growth environment for their economy. There’s nothing here to suggest the pound sterling would be rallying.

Next up we have Sweden’s inflation. The July CPI was 1.1% year on year, and is expected to remain there. Sweden needs for their CPI to rise to 2% and above before they can get their negative rates at -0.50% back to positive. The FWIW section today, has John Mauldin’s viewpoint on Negative Rates for here in the U.S. so, you’ll want to make sure you take the time to read through that article that was in Forbes.

Aussie Business Confidence was up a little bit, and the Aussie dollar (A$) has seen some gains, but the gains are limited at this point. And I’m surprised given the whacking the A$ took. But good data from China will help the A$ to recover, so let’s head up to China and see what’s going on there!

Well, looky there, Industrial Production in China beat expectations, along with Retail Sales! Again though, everyone is on board with questioning what China prints these days. I say, just take it with a grain of salt, and move on. I’ve long told you to just believe half of what China prints, and if that’s the case with these two prints today, well, China is still looking like there’s a pulse in the economy, and that’s a good thing for global growth.

Well, I was on Bloomberg several times yesterday, and I kept seeing this headline for a news story that read:
Want to Know How Trump’s Doing? Just Look at the Mexican Peso.

Every time I ran across that story, I thought to myself, the peso was over 19 this morning, so that’s going in the wrong direction, so does that mean that the peso is an inverse reflection on how Trump is doing? Well, then longtime reader Brett in WPB, sent me the actual article, and that’s exactly what they are talking about in the article.. They even kidded a bit by saying, “forget the polls, just follow the peso”. Me? I think it has more to do with the fact that traders know in their heart of hearts that the U.S. economy is in deep dookie, and Mexico depends heavily on the U.S. economy to be strong, so without that underlying strength helping Mexico’s economy, the peso gets hammered.. . and trading as low as 19 is getting hammered if you ask me!

Gold found it difficult to gather a bid yesterday, and even with the Brainard speech in Gold’s corner, the shiny metal was only able to gather 40-cents on the day. This morning, Gold is up $6 in the early morning trading. Ed Steer had this interview with Ted Butler (no relation that I know of) the Silver guru, in his letter today, and I just had to cut and paste it for you. They are talking about the HUGE short positions held by the not for profit sellers in both Gold & Silver. and was sent to Ed by the GATA folks, so you only get what I give you on that!

“Cook: Now what? Rinse and repeat?
Butler: For the first time I don’t know. The numbers are just too big. The big shorts, not including JPMorgan, are out $2 billion in both gold and silver, the most ever. They aren’t going to go short that much ever again.
Cook: So are we at an inflection point where the nature of trading on the COMEX is altered significantly?
Butler: That’s possible. Bear in mind, those big traders are manipulating the market in order to reap massive profits. Miners and industrial users are supposed to set prices, not big short speculators. They’ve gotten so big in gold and silver futures they are a threat to their own solvency. It has to end and I think that will be soon.”

Chuck again, I sure hope Ted Butler is correct there, when he says that he thinks the short position in Gold & Silver will end soon..

The U.S. Data Cupboard is pretty empty today, as I’ve told you, but it will yield the Treasury Budget and this has really gone to the dogs lately folks, and all that talk about reduced deficit spending is malarkey. But here are other problems going on. The red ink in the Treasury budget has been deepening, up a fiscal year-to-date 10 percent to just over $500 billion at last count which was for July. And calendar timings for outlays and receipts have been understating the deficit, adjusted for which the increase in the government’s deficit has been approaching 20 percent. Corporate tax receipts have been down sharply while individual tax receipts have been flat. The deficit spending side of the ledger has been showing sharp increases in net interest payments and moderate increases for social security. This will be the 11th month in the Gov’t fiscal year, that ends in September.

To recap. Brainard’s speech left the markets with their collective mouths open, and wondering how they had figured what she was going to say all wrong. If they had just listened to Chuck, they wouldn’t be in this fix! But Brainard was emphatic about the need to be patient with rate hikes, and that pretty much signaled that there would be no rate hike in two weeks. All the damage the currencies, stocks, metals and bonds took since Thursday, has not been reversed. Only small pieces of it has, as traders don’t like to be wrong, and they are going to drag their tails on reversing those moves. Lots of data from around the world today, but only the Treasury budget here in the U.S. which we can all figure is a deficit! Now, let’s go to the FWIW section today, and see what John Mauldin is telling us about negative rates here in the U.S.

For What It’s Worth. I don’t think I’ve very hyped a FWIW article like this one. But when my friend, John Mauldin writes for Forbes, well, I think we should all pay attention. In this article, John talks about what he thinks went on at Jackson Hole last month. and can be found here:

Or here’s your Snippet: “And sure enough, high on the agenda was that session on “Negative Nominal Interest Rates.”

The lead presenter in that session, Marvin Goodfriend of Carnegie Mellon University, is an unabashed cheerleader for NIRP. Dr. Goodfriend was joined on the dais by Marianne Nessén of the Swedish Central Bank, which presently touts a -0.5% policy rate.

Neither of them sees any problem with dropping rates well below zero. So our own Federal Reserve invited them to explain how to do it.

Again, remember that Jackson Hole is not a summer long retreat. Whatever makes it onto the agenda is there for good reason. The attendees didn’t discuss NIRP for its entertainment value. They were carefully considering its effects and mulling over the practical aspects of implementing it. They also had the Group of Thirty leader in the room, ready to inform the big banks what was brewing.”

Chuck again. yes to be a fly on the wall at times during the Fed’s Jackson Hole Boondoggle. But I really think this article is good, and should be read so get to work on it! HA!

Currencies today 9/13/16. American Style: A$ .7535, kiwi .7335, C$ .7640, euro 1.1230, sterling 1.3265, Swiss $1.0283, . European Style: rand 14.3385, krone 8.2235, SEK 8.4922, forint 276.22, zloty 3.8765, koruna 24.0675, RUB 64.78, yen 101.90, sing 1.3595, HKD 7.7578, INR 66.92, China 6.6799, peso 18.97, BRL 3.2476, Dollar Index 95.30, Oil $45.16, 10-year 1.65%, Silver $19.21, Platinum $1,054.80, Palladium $662.73, and Gold. $1,331.60

That’s it for today. I about had a cow a few minutes ago, as I was ready to complete the FWIW section, my laptop froze up, and there was nothing that could be down, except shut down and start over. Thankfully, the Pfennig that I had worked on for the past 2 hours was saved as a draft. WHEW! If I was going to have to reconstruct it I was NOT going to be a Happy Camper! Cardinals lose to the Cubs last night, where have the bats gone? It’s an infusion week for me. Little Delaney Grace wanted to know why the infusion room was depressing as I say it is, for she wanted to brainstorm what she could do to make it better. How about that little girl? She wants to make an infusion room a better, brighter place. I love her to pieces! Dion and the Belmonts take us to the finish line today, with their song: The Wanderer. That’s your song isn’t it Jerry? HAHAHAHAHA! And with that, I’ll get out of your hair for today, and hope you have a Tom Terrific Tuesday. Be Good To Yourself!

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