Previous Guests

Michael Oliver
David Wolfin

Click here to listen to previous episodes.

About Chen Lin

Author "What is Chen Buying? What is Chen Selling?" Chen grew $5,400 to $2.3 million in 10 years. Learn More

Throwing A Cat Among The Pigeons!

* Yellen delivers “the goods” to the dollar bugs!.
* Greece to adopt the dollar?
* Paper trades prevent a real good day for Gold.
* Playing catchup with Chuck’s thoughts!

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

Good Day. And a Wonderful Wednesday to you! Well? How was your Valentine’s Day? Was your sweetheart happy? The Dollar Bugs sure were happy with the flowers and candy that Janet Yellen brought to them yesterday. Chuck and Kathy ventured out for lunch, and the restaurant at the marina was packed, with people having their Valentine’s Day dinner for lunch! I love this restaurant for the ambience, the food is good, but the ambience is the best, as it sits right on the harbor, with the yachts and fishing boats coming and going and the water all around, simply a beautiful setting.

Well, dollar bugs, are you happy now? Janet Yellen sure gave you what you were looking for yesterday.. Yes, you had to have knowledge of the goings on to pick out the important stuff, which was basically, a greasing of the rate hike tracks for a March rate hike. Going into her talk yesterday, the Fed Funds Futures only had odds of a March rate hike at 20%. The jumped higher after her talk.. Here’s what she said, and then I’ll show you where the greasing is..

“Incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to 2 percent, consistent with the Committee’s expectations. At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”

Ok.. first, job gains.. now, one could argue that the jobs gains that have been made are a far cry from them being bread winner jobs, but the number of jobs created has met the Fed’s target, so mark that one down as “completed”. Second, Inflation. Well, didn’t the stupid CPI breach the 2% target that the Fed had set out there as the figure to meet? Why yes, it did, and Employment Cost Index (ECI), the Fed’s preferred inflation report, printed at 2.2% for 2016.. So, mark that one down as “completed”. Well, are there any other questions? She mentioned two things that would indicate that a rate hike was coming, and both of those “things” have met or exceeded the Fed’s Targets.. So, maybe you had to have selective hearing to get that a rate hike is on the docket for March, but for all of you out there you now know too!

Well, the dollar bugs took these Valentine’s Day gifts from Janet Yellen and off to the races they went! The came out of the wall boards, and from the outside to join in, and have a dance fever party and stomp on the currencies and metals. Gold did gain $3 on the day, but was up $12 at one point in the day.. The euro, which is the offset currency to the dollar fell through the 1.06 handle, and is taking the brunt of the dollar bugs’ dance fever party. The trading began to get ugly yesterday, and I turned off the computer and went to a late lunch, trying to put the events of the day out of my mind. I succeeded, but it took the ambience of the Sailfish Marina to do that!

Before I get deep into today’s letter I have to point out a faux pas I made yesterday. I made a “counting the zeroes” error yesterday.. Talking about the Japanese budget for buying Japanese Gov’t Bonds.. Dear reader, Bob, sent me the correction and instead of it being $70 Billion it’s $707 Billion! Now that seems more like it. I knew something wasn’t right, but it is zero-dark-thirty when I write this stuff, so I’m betting you’ll give me a break here..

Ok.. Back to what’s going on.. Well, it wasn’t just the dollar surge that had the euro doing the rope-a-dope yesterday, check this out.. Talk about throwing a cat among the pigeons! That’s exactly what U.S. ambassador, Ted Malloch, did to the European Union yesterday.. The U.S. Ambassador to the EU was interviewed on TV the other day, and he said a lot of things about Greece, the euro, their debt, and the adoption of the dollar. Here’s some of the things that he’s reported to have said, or that the news agencies have taken and said in their own words.

Due to Greece’s crippling financial crisis, officials are said to be desperately searching for an alternative to the euro, and the senior Greek economists are looking into taking on American bank notes (the dollar), which would be Greece turning its back on the European Currency (euro). (and Chuck says: “Holy craziness Batman!”)

Greece leaving the EU would be the best option for residents, since the current situation is simply unsustainable. And that, I know some Greek economists who have even gone to leading think tanks in the U.S. to discuss this topic and the question of dollarization.

I’ll say it again. Holy craziness Batman! All this time everyone and their crazy uncle Edward, thought that IF Greece left the euro, they would go back to their drachma, which then they could debase and devalue all they wanted to inflate their debt down to a working order. But they sure wouldn’t be able to do that if they started using dollars, that is unless inflation in the U.S. got out of control. Oh, me, oh, my.. butter wouldn’t melt so we put it in the pie.. Oh, here’s the link to the article where this came from:

I found it interesting that these comments came just 4 days after one of the EU’s most powerful finance chiefs (Schaueble) warned Greece will be forced out of the Eurozone if it fails to address its failing finances. You know, I’ve always been one to question why Greece was a part of the euro anyway.. They never met the criteria to adopt the euro, they never once kept their debt within the Maastricht Treaty limits (most of the countries in the Eurozone haven’t either), and then they hid their debt for years. They should have been kicked out at the first reveal of their hidden debt. And while a GREXIT would not look good on the outside for German Chancellor Angela Merkel, getting rid of the Eurozone’s crazy cousin Larry, would be a good thing down the road.. That’s just my 2-cents on it..

So, in the overnight markets and early this morning, the dollar seems to be consolidating its gains, and the currencies are pushing back, but not aggressively.. There are a couple of currencies that are doing better than the rest, and they include the Aussie dollar (A$), kiwi, The Russian ruble, Chinese renminbi, S. African rand, and Brazilian real. (the BRICS well represented again!) The ruble is the surprise to me.. I’ve explained this before, but for the new readers, here we go.. When I turn on the currencies in the morning, first check the euro, A$, and Russian ruble.. I get the offset currency to the dollar, the Proxy for Global Growth, and the proxy for Oil, and that tells me a lot of what I need to know before I read any research on the overnight markets. When I look at the ruble, I can pretty much tell you what the price of Oil has done in the past 24 hours, but not so fast, Tim! Not today! Today, I noticed that the ruble has dropped below the 58 handle (it’s a European priced currency which means the lower the price the greater the value in dollars, for it takes less of the currency to equal a dollar) and that should have indicated that the price of Oil had rallied. But later when I was recording the prices for the Currency Roundup, I saw where the price of Oil had actually slipped below $53 in the past 24 hours! Holy ruble to Oil relationship Batman! (Come on Chuck that’s the 3rd time you’ve use that Batman skit this morning, can’t you think of something else? )

But, that’s what’s going on.. The ruble is rallying, and the price of Oil is slipping.. I don’t think this is a new trend, or anything like that, it’s just “one of those days”, so no worries the trading relationship between these two hasn’t gone to the dogs.. They aren’t going to have to go to a marriage counselor.. or anything like that!

Well, as I told you on Monday, the data and events begin to ramp up today. First up is Sweden’s Riksbank, which is meeting while I type my fat fingers, and getting fatter every day, away.. This is going to be Tricky.. Tricky to rock a rhyme, that’s right on time! Oh, sorry, I heard that on the radio yesterday, and it’s one of my wife’s fave songs (and I use that term “songs” loosely), and the next thing you know I’m typing it out, before I realize what I’m doing! UGH!

Seriously though, the Riksbank will have to deliver a very hawkish message at their meeting today, since the markets have removed the odds of further rate cuts, that were in the Riksbank’s forward guidance in December.. So the risk for the krona today, is high, due to the fact that I don’t recall the last time the Riksbank was “hawkish”..

In addition to the Riksbank meeting, we have Aussie labor due to print this evening, and I expect the trend of good employment growth to continue here, which could be enough to push the A$ past 77-cents tonight. We’ll have to wait-n-see, eh?

The U.S. Data Cupboard is chock-full-o-data today.. First things first though.. Janet Yellen will do a rinse and repeat of her speech yesterday to the other side of Congress today. So, more confirmation of a March rate hike is on the docket today. Along with the Yellen speech, we will see January Retail Sales, which I just wrote about for the March Review & Focus, and said that U.S. economy and Retail Sales were being driven by auto sales (pun intended!) . But in January, the experts are forecasting a HUGE drop of auto sales. Hmmm.. So, in the end, Retail Sales will be OK.. not so great, but not so bad, and not just right either.. just OK..

Industrial Production (IP) and Capacity Utilization (CAPU) come next and these prints for January won’t be flashing “hike rates, hike rates, hike rates”.. IP will probably print negative, and CAPU will show a drop from 75.5% to 75.1%.. We’ll also see the stupid CPI for January, the Empire State Index (manufacturing for the NY region) , the Home Builder’s Index, and Business inventories..

Yesterday’s Data Cupboard had the January PPI (wholesale inflation) and this report was interesting in that PPI was only expected to grow 0.3%, but doubled up on that expectation, and printed at 0.6% growth.. Wholesale inflation will eventually feed into consumer inflation folks. So, are you getting ready for higher inflation? wink, wink?

So, as I said above, Gold gained $3.10 yesterday and closed at $1,227.80, and this morning in the early morning trading, Gold is pretty much flat, so no movement to speak of. The paper trades pushed the intra-day rally in Gold down to $3.10 yesterday, but they got theirs, we got ours, and we go on with life, right? Gold researcher extraordinaire, Koos Jansen, tells us that China imported 1,300 Tonnes of Gold in 2016.. Now, China doesn’t publicly disclose their import numbers, so Koos Jansen goes all Columbo on the various reports that do exist and comes up with a figure that he feels very good about publishing.. Now, we just need to know the production numbers for Gold in China to know just how much China’s Gold reserves grew in 2016. Between Russia and China accumulating physical Gold as reserves, you would have to think that there’s something there. right? Something that we can’t see or know at this point, only interject our thoughts and opinions. And longtime readers alr
eady know what my opinion on this Gold accumulation in China and Russia are all about.

For What It’s Worth. In the December Review & Focus ( I talked about how China, Saudi Arabia and Russia were dumping U.S. Treasuries, all for different reasons, but dropping Treasury holdings nonetheless.. Well, this article that was on Bloomberg, follows up what I was saying in December, and you can check it out here:

Or, here’s your snippet. “On the surface, this is an alarming development, considering that these investors own almost half of the Treasuries outstanding. Their flight could signal a drastic rise in borrowing costs for the world’s biggest economy.

In the year through November, these investors sold 3.3 percent of their U.S. government debt holdings, or a net $201.9 billion, the most ever on record. And it’s easy to think that this was a response to the election of Donald Trump as U.S. president, especially because the selling accelerated at the end of the year.

But there’s another big actor involved. While the U.S.’s new unpredictable leader has certainly raised questions at investment firms around the world, the shift in foreign ownership has more to do with China and its ability to steady its economy.

First of all, China and Japan are the two big sellers of U.S. government debt. Japan has been liquidating its assets as it tries to tightly control its bond yields, seemingly at whatever price.

And China has been funneling billions of dollars into its economy to keep it chugging along despite an increasing number of cracks in its credit system and to prevent its currency from depreciating too quickly. Despite all its efforts to prevent money from leaving the nation, capital outflows are continuing.”

Chuck again.. I want to thank the dear reader on the website for sending along that link to me yesterday.. I love it when the major media catches up with me, and my thoughts! They often, never even get close, but sometimes they do!

Currencies today 2/15/17. American Style: A$.7682, kiwi .7181, C$ .7647, euro 1.0552, sterling 1.2435, Swiss $1.0084, . European Style: rand 13.0042, krone 8.3982, SEK 8.9680, forint 292.23, zloty 4.0755, koruna 25.6025, RUB 57.60, yen 114.50, sing 1.4230, HKD 7.7614, INR 66.87, China 6.8705, peso 20.28, BRL 3.1048, Dollar Index 101.47, Oil $52.83, 10yr 2.47%, Silver $17.83, Platinum $999.52, Palladium $782.84, Gold $1,227.60, and SGE Gold. $1,239.47

That’s it for today. I was so frustrated with the news yesterday that the #1 pitching prospect in all of baseball, has a partially torn tendon in his elbow and will have to have surgery, before his major league career even gets rolling. UGH! Alex Reyes the Cardinals star prospect got the news yesterday that his elbow needed surgery.. I had just been telling a guy that the Cardinals pitching depth would be their strong point this year, and then this news comes out the first day of spring training! UGH! I’m really draggin’ the line this morning, as I woke up 2 hours early and couldn’t go back to sleep (darn steroids!)! The Marshall Tucker Bank takes us to the finish line today with their song: Heard It In A Love Song. I have always enjoyed the music of the Marshall Tucker Band, but they don’t make my TOP Ten Albums I would take to the island.. Remember when we played that game a couple of years ago? Here’s my TOP Ten, which can’t have any “greatest hits albums” or “live albums”, as the Live Albums Top Ten is a different list!

1. Seventh Sojourn – Moody Blues
2. Rubber Soul – Beatles
3. The Captain and Me – Doobie Bros.
4. Dark Side of the Moon – Pink Floyd
5. Souvenirs – Dan Fogelberg
6. Chicago – Chicago
7. Santana – Santana
8. CSN – CSN
9. Aja – Steely Dan
10. Who’s Next – the Who

And so, I say goodbye for today.. I hope you have a Wonderful Wednesday, and remember to always.. Be Good To Yourself!

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

Current Guests

John Rubino
Cherie Leeden

Click here for more details on guests.