The Swiss National Bank Is Doing What?

Chuck Butler’s: A Pfennig For Your Thoughts

July 11, 2017

  • A Hazy, lazy, crazy days of summer…
  • Will the BOC hike rates tomorrow?
  • What are Gold sellers thinking?
  • A thought from Frank Trotter!

Good day… And a Tom Terrific Tuesday to you! Well, I wasn’t that interested in taking time to watch the Home Run Derby last night, but I did tune in for a bit of it, and that rookie, Aaron Judge sure did put on a show, hitting 47 total home runs with 4 over 500 feet! Someone turned up the thermostat outside! Reminds me of the words to a  song… Oh, it’s a hot one, like 7 inches from the midday sun!  And I was greeted this morning by Shooting Star playing their song: Last Chance…

Well, it was one of those “lazy, hazy, crazy, days of summer” yesterday, with little movement in anything… The Big Dog, euro remained on the porch all day, just sleeping the day away, and all the little dogs followed the Big Dog… Gold gained $1.90, and Oil bumped up to the $44 handle, from $43.88 yesterday.  Nobody wanted to take a flyer on a currency, metal or commodity yesterday… What’s up with that?

So, with that, no movement, in place yesterday, that gives me an opportunity to rail on somebody, something, or I could be nice and talk about sunshine, lollipops and rainbows with regards to the U.S. economy… What shall it be? Hmmm… How about I do a little of both? Well, not talk about sunshine, lollipops and rainbows regarding the U.S. economy, but maybe I should? I think not!

I have received a few emails from readers in the past week, with very nice thoughts about me and the Pfennig, so I thank you all very much for sending those along…  OK… let’s see.. I’ve also had a few readers want to know what’s going with the Swiss franc, as it is not participating in the change in sentiment from dollars to euros, et. al.. So, we’ll start there this morning…

The thought with the Swiss franc is simple… They are the only Central Bank in Europe still stressing that the franc is overvalued, and that they will keep their negative rates and current monetary policy, while the other Central Banks of Europe are at least hinting that they are ready to pull the plug on their accommodating monetary polices.  So, traders, being, astute, and forward looking, see this as a reason to sell francs… I would too, given these facts and adding  that the Swiss National Bank (SNB) is still buying U.S. stocks for its reserves..

What are they (SNB), thinking buying U.S. stocks? The Bank of Japan (BOJ) has been buying stocks too, but they keep their stock buying confined to  Japanese stocks… Recall a few months ago, I told you that the BOJ had become the largest buyer of Japanese stocks…  I don’t like Central Banks supporting any market, much less the stock market, but at least the BOJ is keeping things close to home, while the SNB has reached out and added a ton of U.S. stocks…  What happens IF the stock market has a correction?

So, that’s what’s going on in Switzerland and with the franc. Another currency that readers ask me about is the Indian rupee… It was a big mover against the dollar earlier this year, but that move appears to have been capped, and now the rupee just range trades, in a very narrow range, I might add! Indian PM Modi has really ruffled a lot of feathers in India, with his removal of currency denominations, and now the tax on undeclared Gold… And the Gov. for the Reserve Bank of India (RBI) that I really liked, Rajan, left last year… So, unless Modi can pull a rabbit from his hat, or the RBI has a trick or two left up their sleeve, I suspect the rupee will remain a range bound currency…

And finally, the last currency that readers ask about a lot, is the Canadian dollar/ loonie… Recall that I kept saying that the loonie was rising and traders were scratching their collective heads trying to figure out why, given that the price of Oil had stumbled?  Well, now those same traders are saying that the loonie has risen too far, too fast…

Well, we now know what was behind the loonie’s move and that was the thought that the Bank of Canada (BOC) will hike rates soon, and that thought was made stronger last month, when BOC Gov. Poloz hinted that he was ready to hike rates… Well, now the futures are pricing in a rate hike at tomorrow’s BOC meeting, and given the fact that last Friday, their version of a Jobs Jamboree, showed strong employment gains to back up a rate hike…  So, the initial reaction to a rate hike in Canada would be good for the loonie, but at this point I would have to think that the rate hike has all been priced in for the loonie…

I’ve been harping on Poloz to hike rates in Canada for a couple of years now, pointing to the housing bubbles in Toronto and Vancouver as reasons for the need to hike rates.. But nooooooooo! Poloz couldn’t pull the trigger until he saw the U.S. Fed go for the gusto and hike rates 3 times in the last 7 months…

I had to laugh out loud at something that  I read from a writer that was talking about how this was the week the dollar was going to turnaround… Here are his thoughts: (not mine let me remind you!) “With no expectations for any fiscal stimulus this year, plus a market-implied probability of March 2018 being the next period for a 25-bps rate hike, and US economic data momentum already at a six-year low, how much worse could it get? Not much more, if at all, it would seem.”

Well, I’ve go news for this guy! Things could get a lot worse, and that will if my thoughts play out… Of course that’s his opinion, and I have mine, which could be wrong… But, when we get to Friday, we’ll know for sure! Yesterday, I told you that on Friday, we’ll see Retail Sales, and Industrial Production, along with Capacity Utilization…

Retail sales need to rebound in June to help second-quarter consumer spending but the  consensus isn’t calling for much strength, at a gain of 0.1 percent vs an outright 0.3 percent decline in May. Unit vehicle sales proved flat in May which is not a positive indication for the autos component of this report which has posted 4 monthly declines so far this year.  And while Industrial Production is going to attempt to come out of the red numbers with a 0.3% gain in June, but… The manufacturing component, which has been in sizable contraction in 2 of the last 3 reports, is expected to post a more limited gain, at a consensus 0.2 percent.

So, I don’t see anything there that would turnaround the current sentiment toward the dollar do you?  We will have Fed Chair, Janet Yellen give a testimony to Congress tomorrow regarding the Fed’s thoughts on the economy and so forth… This is where the sunshine, lollipops and rainbows will be evident, folks… But today, is more of the same lazy, hazy, crazy days of summer in store for us..

And what do I always point to when talking about the U.S. or England, or Japan’s inability to generate strong economic growth? Debt levels… I have always maintained that an economy can’t grow at a pace that would be considered to be strong, as long as they have to deal with financing debt…

I keep telling you about my new face economist, Danielle DiMartino Booth, author of the book: Fed Up, and a former advisors to Dallas Fed president, Richard Fisher… Well this is what she recently had to say about global debt levels….  “Rather than address the underlying over-indebtedness that detonated systemic risk and culminated in a full-blown catastrophe, [central bank] policy had simply catalyzed further indebtedness…From a starting point of the end of 2007 through mid-year 2014, global debt rose by $57 trillion to $199 trillion. As a percentage of global gross domestic product (GDP), global debt had risen to 286 percent from 269 percent. — Danielle DiMartino Booth

I told you above that Gold gained a whopping $1.90 yesterday… but is down $3.60 in early morning trading.  What ARE these people thinking that are selling their Gold?  I have this feeling in my bones that these sellers of Gold will rue the day they sold their store of wealth!  I guess these sellers think that the Fed is going to aggressively hike rates here in the U.S. I can’t think of any other reason they would be selling, can you?

I had a dear reader send me a note yesterday, in which he told me that he thought that I hadn’t cut my apron strings from my former employer yet, because I said, “I had better stop there” on something…  I responded to him that I had cut the apron strings, and that “sometimes there are things that are better left unsaid”…  The point of this is to simply say, I don’t have anything holding me back, except my inner thoughts on what is right and wrong…

Speaking of Debt… The U.S. Data Cupboard had the May Consumer Credit (read debt) for us yesterday, and apparently, U.S. consumers went hog-wild with their credit cards or taking out loans, as the debt level for May was a whopping $18.4 Billion, VS $12.9 Billion in April..  Granted, $18.4 Billion is not the plus $20 Billion prints we saw a couple of months last year, but is still a very large amount of debt to be taking on by consumers in a month…

All this debt is going to end up with tears being cried… At least that’s how I see it…

Before I head to the Big Finish… I was going through my email box yesterday, because it had grown in size by too much! And I came across an email from my good friend, and former Big Boss, Frank Trotter. He quoted some lyrics from the Mrs. Robinson song by Simon and Garfunkel…
Here they are:
Sitting on a sofa on a Sunday afternoon
Going to the candidates’ debate
Laugh about it, shout about it
When you’ve got to choose
Every way you look at it you lose”

Still true, or maybe more true today

Ah, that Frank… always willing to stir up the pot!

To recap… it was a nothing day in the currencies and commodities yesterday, and today looks to be another day of lazy, hazy, crazy days of summer… Gold added $1.90 but is down $3.60 in early trading today. Chuck cleans out his email box, and gives us updates on: francs, rupees and loonies.. And then talks about some debt stuff..

For What It’s Worth… Since I asked the question above (in the franc update) about what happens if the stock market has a correction?  I thought that this piece on the Bloomberg was apropos…  And it can be found here: https://www.bloomberg.com/news/articles/2017-07-10/odey-says-drunken-markets-ready-to-topple-as-bearish-bets-pay

Or, here’s your snippet: “Crispin Odey, who made money for a second straight month by sticking to bearish equity bets, said the chance of a market crash is rising as growth slows and the Federal Reserve normalizes interest rates.

The credit cycle boosted by loose monetary policy has peaked and there’s a widespread slowdown in the auto, commodity, industrial and retail sectors, Odey wrote in a letter to investors. Unlike previous dips since the financial crisis, central banks aren’t responding by printing more money.

“This time they are doing the reverse,” which is likely to exacerbate the negative trend, the London-based hedge fund manager wrote. “All this sits very uncomfortably with the fun being felt in the stock markets. When I look at the move up since Trump’s election as president, I detect the walk of a drunken man.”

Chuck again… Yeah, but what about the Plunge Protection Team? Will they sit idly by as the stock market crashes? I don’t think so…

Currencies today 7/11/17… American Style: A$ .7610, kiwi .7218, C$ .7741, euro 1.1396, sterling 1.2909, Swiss $.9693, … European Style: rand 13.5032, krone 8.3581, SEK 8.4335, HUF 270.50, zloty 3.7218, koruna 22.9355, RUB 60.30, yen 114.33, sing 1.3843, HKD 7.8115, INR 64.57, China 6.8011, peso 18.04, BRL 3.2699, Dollar Index 96.12, Oil $44.15, 10-year 2.39%, Silver $15.47, Platinum $895.47, Palladium $840.76, and Gold… $1,209.90

That’s it for today…  So, did you watch the Home Run Derby? I’ll tell you that I was more interested in it when Albert Pujols played for the Cardinals and was in the Derby! The Cardinals catcher, Yadier Molina is an All-Star for the 8th time! Of course Stan Musial, the greatest Cardinal was an All-Star 24 times! Baseball people forget about Stan Musial, and how great a player he was. When he retired he held 17 major league records, 29 National League marks and nine All-Star Game records. Well, I’m hearing one of my top 5 songs right now, so, the Blue Jays take us to the finish line with their song: I Dreamed Last Night… and with that, it’s time to go! I hope you have a Tom Terrific Tuesday! And Be Good To Yourself!

Chuck Butler

Creator& Editor

A Pfennig For Your Thoughts

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