U.S. Data Continues To Disappoint!

* Currencies & metals rally! .
* Is the stock market the economy now? .
* BOC & Riksbank meet today.
* LMCI confirms Chuck was correct! .

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


Good Day. And a Wonderful Wednesday to you! Geez Louise, what a dolt I am! I plum forgot to put my iPod in my computer bag yesterday when I go home, and now I’m sitting here kicking myself for being such an airhead, dolt! UGH! I was dead tired when I arrived home, but that’s no excuse! So, today, like yesterday, I’m sitting here listening to my phone’s music, without amplification. Oh well, life goes on. Blue Swede greets me this morning with their remake of the song: Hooked On A Feeling.

Well, there are a couple of Central Bank meetings around the world today. And I’ll get to those in a minute, but first things first. This past weekend, my friend, John Mauldin, (www.mauldineconomics.com) took Fed member Stanley Fischer to the woodshed (verbally) for Fischer’s comments about supporting the stock market. To set this up, a dear reader, Bob T., and I were having an email discussion about whether I saw the stock market as the economy. And then this little ditty in John’s weekly letter, just answered that question. Let’s go to the letter. First here’s Fischer’s statement about negative rates. “Well, clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that, and we have to make trade-offs in economics all the time, and the idea is, the lower the interest rate the better it is for investors.”

Did you get that? I’m shaking my head in disbelief, but let’s John Mauldin answer him. “The ultra-easy monetary environment of the US has produced 1% GDP growth over the last six months, almost no productivity growth, and an employment reality in which seven million men between the ages of 25 and 54 – prime working age – are no longer even looking for work. The only way you can possibly think your monetary policy is working, Dr. Fischer, is if you are measuring it only by the Dow Jones average. Which is not what most of us out here in the real world actually think about when we think of a thriving economy.

Whether equity prices are decent, indecent, or somewhere in between should have nothing to do with the Fed’s monetary policy decisions. Their job is to encourage full employment and to minimize inflation. That’s it. Propping up the stock market is not in the Fed’s wheelhouse, yet it has obviously become the main driver of policy since Ben Bernanke and arguably since Alan Greenspan.”

Alrighty then, now that’s the way to start a morning letter, eh? Phi-Slamma-jamma! Are you wake now? Ok, about those Central Bank meetings.. The Bank of Canada (BOC) will meet later this morning, and Sweden’s Riksbank is meeting while I write. I don’t believe we’ll see either of these two Central Banks move rates. As I’ve said many times in the past, once you’ve cut them so low, it makes no difference to the economy if you cut them further. In the Riksbank’s case, they have negative rates of -0.5%, and with the data surprising on the upside recently, I would hope the Riksbank would move the rates back to at least zero. But I doubt they will, today.

In Australia overnight, their 2nd QTR GDP printed at 0.5% (consensus at 0.6%), so close enough to the forecasts for government work! And I think the Reserve Bank of Australia (RBA) will be happy with themselves for leaving rates unchanged at their last meeting, and indicating that the rate cuts are over. And the Aussie dollar (A$) responded nicely to the close to forecast GDP number. And according to the WSJ, this year marks 25 years since Australia has felt the sting of a recession! Now that’s pretty amazing, and impressive!

In fact, most of the currencies are booking gains VS the dollar this morning, and the Dollar Index has fallen through another figure, with the euro participating this time. Things have been pretty quiet in the Eurozone, other than the news that German Chancellor Angela Merkel’s party lost some regional elections this past weekend, while everyone, including me had wonderful aromas rising out of their smokers or grills! There was some data that printed in Germany this morning that wasn’t exactly good. Industrial Production (IP) in July fell -1.5% VS June, but before you panic, June’s IP was revised upward to 1.1%, so basically, the two months end up down -0.4%, not exactly Armageddon.

And why would the currencies be booking gains at this point of the morning? Well, in my opinion, which means I could be wrong, it appears to me that the markets have given up on the thought that the Fed will hike rates in 3 weeks. However, we will have 2 very hawkish members of the Fed speaking today. FOMC members, Lacker and George will appear before House Financial Services Sub-Committee, and they could re-light the flame that burned so strong a couple of weeks ago for a September rate hike. But in reality, they would only be trying to keep the markets interested, and not allow the rate hike talk to go stale. Right now the markets are thinking there’s a 60% chance of a rate cut in December.

Remember a month or so ago, when I told you that IF the Fed were to raise rates this year, and I didn’t think they would, but if there were a chance, it would be after the election, and in December, to commemorate their rate hike a year ago in December. So, looky there, even a blind squirrel can find an acorn! HAHAHAHAHA!

The price of Oil inched higher in the past 24 hours, back to a $45 handle, and the Petrol Currencies and I mean all of them today, are on the rally tracks. rubles, real, krone, loonies, pesos, pounds, you name it, if a currency has anything to do with Oil, black Gold, Texas Tea, then it finds itself on the rally tracks today.

That sure was a nice rally for Gold yesterday, eh? Gold added $22.70 to its price in one day! Of course, in my view, it would take one hundred days like yesterday, to make up for all the whackings that Gold takes from the not for profit sellers. Silver finally found its way back to the $20 handle, where it resided for weeks before the whacking that all the metals took when the markets thought that a rate hike was coming in 3 weeks.

I wonder how many of you followed through on my invitation to read the FWIW piece yesterday on www.bullionstar.com by Ronan Manly? Well, if you didn’t, no worries, but if you did, you’re probably now on board with me regarding the not for profit sellers. But Gold’s big move yesterday didn’t just come out of thin air. It was a result of some bad data in the U.S. that pretty much put the last nail in the September rate hike’s coffin.

So, since we just mentioned the data, let’s get to it. First, we had the Labor Market Conditions Index (LMCI), and yesterday I told you that this index would most likely tell us if the BLS number of jobs created in August of: 151,000 was correct or Chuck’s number of 45,000 was correct. And the answer is. Of course it was me! The LMCI print a negative -0.7. The LMCI had printed 6 consecutive months in negative territory, before July interrupted that run, but the August report put the data set back in negative territory, and pretty much tells the world that the BLS report is nothing but a bunch of malarkey.

Yesterday, I told you that the ISM-Non Manufacturing Index (Services) would print, and then I went on to talk about how I felt about the U.S. and it becoming a Services economy. And a few of you dear readers responded with emails agreeing with me! Well, the Services economy got a blow to the midsection yesterday, as the August index fell to 51.4 from 55.5 in July, and brought the index below the 2-year low of 52.9, that we saw back in May. And before we put this away for this month, let me point out something that I read yesterday. A year ago in July, 2015, this index hit its 10-year high of 59.6! It’s fallen quite a bit since then, eh? Uh-oh.

There’s not much on the docket for today’s Data Cupboard, except a Gallup U.S. Jobs Creation Index, that nobody pays attention to. So, we have the two Fed members speaking before the House, and the markets will get its cue from what those two have to say.

The data dependent Fed, is in a pickle, because the “real economic data” here in the U.S. can’t get its motor started, and of course I’ve told you all why I think that is, and without a long dissertation on the subject, I’ll just say one word. Debt. and move along. But, there’s something else brewing under the table folks. And it has to do with male employment. There’s something happening here. What it is ain’t exactly clear. I’ll have more on this as we go along, that is as long as the Good Lord is willing, and the Creek don’t rise! Ooo! I know, I’ll talk about this in the next Review & Focus, which can be found at www.everbank.com/reviewfocus

To recap. The U.S. printed some really awful data yesterday in the LMCI and the Services index, and if the Fed is going to hike rates this year, this data had better start to print better. But the bad data and the rate hike going on the back burner, set the stage for a currency and metals rally. Gold added $20 and change to its price, and Silver found its way back to $20. The price of Oil inched higher and the Petrol Currencies all rallied. Two Central Bank meetings today, from Canada and Sweden, and no rate changes are expected. And John Mauldin reminds Stanley Fischer what the Fed’s main objectives are.

For What it’s Worth. I’ve talked about this for many years now. What, Chuck? The problems with pensions, from underfunding to overvaluing. And then I came across this in my bi-weekly Things That Make You Go Hmmmm. This is an article that can be found here: http://www.the-american-interest.com/2016/08/04/actuarial-establishment-tries-to-suppress-explosive-paper-on-public-pensions/

Or here’s your Snippet: “America’s slow-motion public pension train-wreck (by some estimates, the shortfall currently exceeds $3 trillion) has been kept in motion for years by deeply dishonest accounting practices employed by state and local governments, which presume unrealistically that pension funds can consistently earn white-hot annual returns approaching eight percent. So it’s disappointing, but not particularly surprising, that the actuarial establishment moved to suppress a report pointing this out. Pensions and Investments reports:

The American Academy of Actuaries and the Society of Actuaries Monday abruptly disbanded its longtime joint Pension Finance Task Force, objecting to a task force paper challenging the standard actuarial practice of valuing public pension plan liabilities.

“This paper (is) being censored by the AAA” and SOA, said Edward Bartholomew, who was a member of the former task force, in an interview. “They didn’t want it to get out.”

Others who were members of the task force also said in interviews the two actuarial groups are trying to suppress publication of the paper.

Chuck again. Brother! What’s next? Basically what you have here are powerful interests that don’t want public pensions to be governed by the same kinds of accounting principles used in the private sector, because, if they were, public pensions would go from seriously underfunded to catastrophically underfunded!” And why would this be economics news I hear you asking? Well. either the Pension funds go belly up, and all the pensioners have to scramble to make up for the loss of income, or 2. The Gov’t bails them out, which means more debt, and higher taxes, and that adds to problems for the economy.

Currencies today 9/7/16.American Style: A$ .7680, kiwi .7475, C$ .7790, euro 1.1245, sterling 1.3368, Swiss $1.0325, . European Style: rand 14.0435, krone 8.1680, SEK 8.4585, forint 274.76, zloty 3.8455, koruna 24.0260, RUB 64.34, yen 101.60, sing 1.3462, HKD 7.7554, INR 66.45, China 6.6645, peso 18.33, BRL 3.1965, Dollar Index 94.88, Oil $45.24, 10-year 1.54%, Silver $20.04, Platinum $1,096.62, Palladium $699.59, and Gold. $1,352.60

That’s it for today. Right when I laid my head on the pillow last night, my phone lit up, and I knew the Cardinals had at least tied the score in the top of the 9th. This morning, I checked the score of the game to find out my beloved Cardinals rallied in the 9th, and won the game 9-7. We had some awful pitching in the middle of the game, and I guess the Pirates had some awful pitching at the end of the game! I saw them putting up the Andy’s Frozen Custard sign on the new building across the street yesterday, and a HUGE smile came across my face! For a moment I thought of how I could drive through every day on my way home. And then I imagined how Big and Fat I got doing that, (Not that I’m not already big and fat now)! And I tried to get it out of my mind. But then on the way to work this morning, there was the sign again! UGH! Elvis takes us to the finish line today with his great love song: Can’t Help Falling In Love With You. And with that, it’s time to get out of your hair today, and send you on your way to a Wonderful Wednesday. Be Good To Yourself!

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