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Trump faces his first big test.

* Say a prayer for Chuck.
* Trump’s first big test.
* New Home sales rise.
* Palladium hits a 2 year high…

And Now, Today’s A Pfennig For Your Thoughts.

Good morning. As you all are aware, Chuck is headed under the knife first thing this morning – getting a pacemaker installed. I’m sure he would appreciate it if you say a quick prayer for him before beginning this morning’s Pfennig.Amen. He sounded great yesterday and expects to be able leave the hospital and be back at home this afternoon. I found it a bit tough to believe, that installing a pacemaker is basically ‘outpatient’ surgery – but that is where our healthcare has advanced. Now if we could just figure out how to make it affordable.

Speaking of Chuck, he sent me the following thoughts while on his way to the hospital this morning:

Well, with the country, the markets, and the guy down the street that walks his dog without a plastic bag, all focused on whether or not the new Health Care vote would take place, and a speech by Janet Yellen on the docket for later in the day. A different Fed member took the markets by surprise with some comments that turned some heads and got the markets thinking.

San Francisco Fed President, Williams, gave an interview to the WSJ on Thursday, and well, as I said, he turned some heads. Let’s listen in. “I would expect. assuming the economy progresses as I expect and we raise interest rates a few more times this year. That we’ll be closer towards the end of this year, to be ready to start that process of the normalization of the balance sheet.”

Not only did this statement take the “dovishness” out of the Yellen statement following the rate hike last week, but it brought the idea of dealing with the balance sheet this year, front and center.

Now, as you would expect, I have some thoughts on this statement by Williams. First of which is my position that I’ve held for some time now that the U.S. economy won’t handle multiple rate hikes very well, and by summer we would be looking at a Fed in reverse. The second of which is that even if I’m wrong on the summer thing, I do have to take exception with the Fed’s position that the economy is going to continue to grow (I don’t think going backward in 4th QTR GDP VS 3rd QTR GDP is “continuing to grow”, but I digress) I told you last week that I put the finishing touches on the April Review & Focus ( ), in doing so, I talked about the Fed’s track record of forecasting economic growth. I don’t make these things up folks. Here is the track record for the Fed’s forecast of GDP going back 6 years.

In 2011 the FOMC projection of growth was 4.5%, In 2012, the projection was 4%, In 2013 the projection was 3.75%, In 2014, the projection was 3%, In 2015, the projection was between 2.0 and 2.3%, and in 2016, the projection was between 2.3 and 2.6%… Just goes to show you that projecting growth rates is not a job that provides security! I left out the actual GDP numbers for each year so that no one’s feelings would be hurt, but I think you all know that the U.S. hasn’t seen an annual 3% GDP in over 10 years.

Thanks Chuck. Healthcare is what drove the markets yesterday as investors watched President Donald Trump work hard to get his version of a new healthcare bill passed through Congress. There was a big push to get this bill through yesterday since it was the 7 year anniversary of the signing of Obamacare, but in spite of this ‘unofficial’ deadline, Republicans failed to find an acceptable compromise. It looks like the negotiations will begin again today with pressure being applied to both edges of the party in order to try and find some middle ground.

Investors didn’t like the delay, with many seeing this healthcare bill as the first test of Trump’s ability to enact the changes he had promised during his campaign. Stocks spent most of the day drifting higher along with the dollar and precious metals edged lower. But as the trading desks packed up and headed home these moves reversed. And now, here is a brief update from Dane Moody on the where things are this morning:

Looking at the screens this morning, the bias overnight was to sell dollars, as most currencies and all the precious metals are flat to up so far. I think the markets are playing the wait-and-see game when it comes to the healthcare replacement, not wanting to take strong positions ahead of this vote, whenever it might happen. While the healthcare repeal and replace negotiation and vote might not have an enormous impact on the currency markets directly, traders want to see if the president can put the Art of the Deal into action. Trump and his administration have made ambitious promises on infrastructure spending and tax reform, which would have a much more direct impact on the strength of the US dollar. A setback here with healthcare would affect the markets’ confidence that he can come through on the others.

The big currency mover overnight was the Russian ruble, which was up almost .70% on the day. It feels like almost every time I write, the ruble is the big mover overnight – sometimes up and sometimes down. Today, the ruble’s move is almost in lock-step with the overnight move in the price of oil. RUB is knocking on the door of the 56 handle, a figure it has only seen once since the middle of February. Palladium, everyone’s favorite industrial metal, is up over 1 percent this morning.

Thanks again Dane. Data released Thursday showed sales of new homes in the US jumped to a 7 month high in February. Unseasonably warm weather in February offset a rise in mortgage rates and higher home prices. House prices increased 5.7% in January compared to a year ago as reported on Wednesday. And since it was Thursday we saw the release of the weekly jobless claims which showed initial claims for state unemployment benefits increased by 15,000 for the week ending March 18. The seasonally adjusted 258k figure was higher than expected, but still below the 300k threshold associated with a healthy labor market. This weekly data, along with the monthly reports show the job market is near full employment but wages still haven’t taken off.

As mentioned earlier, the US dollar drifted through the day with the dollar index inching higher. The pound sterling rode up to a one month high on the back of stronger retail sales. UK sales rose by 1.4% in February, topping the economists forecast of a .4% increase. This jump ended a three months of consecutive declines. Sentiment toward the pound has shifted recently as investors start to price in a possible interest rate increase by the BOE sometime in the next year. But investors should continue to be careful trying to predict moves in the pound as negotiations with the EU regarding BREXIT have yet to begin. The next few years should see a lot of ups and downs for the pound sterling as PM May hammers out the UK’s divorce from the EU.

Gold moved lower at the end of the trading day after peaking just over $1,253 – the highest level for the most precious metal in the month of March. Gold prices could see additional gains if the Trump administration is unable to pass their new healthcare bill.

Palladium was the biggest mover of all of the precious metals yesterday, climbing to a 2 year high of over $800. As Pfennig readers know, palladium demand is dominated by the automobile industry, so positive global economic news has helped push it higher. Just yesterday the ECB said that the euro zone recovery was gaining ground, and another report showed new car sales in Europe rose during the month of February.

I spotted this article online earlier in the week and thought it gives some good insights on why the price of gold has held on in spite of the recent interest rate increase, and also gives some positive comments on the currency markets and future demand from India:

Here are your snippets: “There also may be a U.S. dollar effect, with analysts at JP Morgan noting that it’s likely that the greenback has already seen the bulk of its rally in this tightening cycle. In the current cycle, the broad U.S. dollar has so far appreciated by 22 percent, and we see the dollar rallying another 2 percent higher into midyear before retracing to current levels by the first quarter of 2018,” JP Morgan said in a note published March 15. “In short, the lion’s share of this cycle’s U.S. dollar appreciation could potentially be behind us,” the note said.

Rising U.S. inflation and a peak in U.S. dollar strength may mean that the traditional impact of a U.S. monetary tightening cycle may be less than usual. What the gold market is currently signaling is that while U.S. interest rate rises are still a bit of a headwind, they may not be enough to offset some compelling tailwinds. India is gold’s best hope. The main boost to gold prices in 2017 may well come from India, formerly the world’s top consumer of the precious metal.”

Lastly, Chuck sent this my way to share with all of you as well.

For What It’s Worth. This comes to us from the folks at KITCO, and is about how two teen boys in Oregon were caught selling fake Gold bars on Craig’s List. It can be found here:

Or, here’s your snippet: “Two 17-year-old boys were arrested in Bend, Oregon, for selling fake gold bars to customers on Craigslist, according to police.

Oregon Teens Make $50,000 Selling Fake Gold Bars on Craigslist The teen boys bought knockoffs of Perth Mint and Royal Canadian Mint gold bars online and then re-sold them as real ones.

The pair managed to earn a total of $50,000 in eight months.

“The juveniles were sophisticated and used multiple ways to conceal their identity and scheme,” local media quoted Bend police Lt. Clint Burleigh as saying.

The two are being charged with aggravated theft by deception and conspiracy, and felony computer crime, police stated. And only one of the suspects is being charged with money laundering.”

Chuck again.. Just shows to go you that you should not be looking to Craig’s List or any other bullion dealer to make your Gold purchases. I was absolutely shocked last week, when a reader sent me a note and asked me where I thought would be the best place for him to buy Gold. Of course I pointed out that EverBank Metals Select is my choice. He was shocked too, that he didn’t know that!

Thanks again Chuck! And we’re wishing you well and the best of luck!

That’s it for today and have a great weekend!

Currencies today 3/24/16. American Style: A$ .7615, kiwi .7015, C$ .7490, euro 1.0801, sterling 1.2490, Swiss $1.0080 European Style: rand 12.4750, krone 8.4896, SEK 8.8174, forint 286.69, zloty 3.9496, koruna 25.005, RUB 57.0901 yen 111.04, sing 1.3995, HKD 7.7673, INR 65.37, China 6.8845, pesos 18.9140, BRL 3.1330, Dollar Index 99.674, Oil $48.01, 10-year 2.41%, Silver $17.61, Platinum $959.75 Palladium $809.00, and Gold $1,245.75

Chris Gaffney, CFA
EverBank World Markets

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