What Did She Say, That Was New?

* Yellen sets the dollar up for a rally .
* Abe thinks another Lehman Brothers is on the way .
* Gold continues to get whacked!
* Big Al Greenspan leaves the dark side..

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

Good Day. And a Tom Terrific Tuesday to you! Well, did you have a great Memorial Day Holiday Weekend? The weather here couldn’t have turned out better, after the weather people kept telling us all week that the weekend was going to be washout! Kathy left on Sunday for two weeks, leaving me all by myself again. The kids and grandkids came to visit yesterday, so I wasn’t alone on Memorial Day. The Moody Blues greet me this morning with their song: I Know You’re Out There Somewhere. This song always reminds me of our first family trek to Spring Training in 1993. It was a good sing along song for us in the car.

Well, Janet Yellen had all the rope she needed on Friday, and she lassoed the markets with it, and came away with the markets wanting. And isn’t that the trick to show business? I was told by a showman many years ago, as I was waiting to go on stage with my band, that “you have to leave the crowd wanting”. When you get down to it, she didn’t tell us anything new.. She said, “It’s appropriate, and I’ve said this in the past, for the Fed to move gradually and cautiously to increase our overnight rate over time. Probably in the coming months would be appropriate.”

Did she tell us anything new? No.. Did she leave the door open for a rate hike? Yes.. But hasn’t this been done before? I don’t see what all the hub-bub was about on Friday, but the currency traders sure did, and these comments triggered a dollar rally in very thinly traded, low volume markets. It was the Friday afternoon before a 3-day Holiday weekend, and most senior traders were on their way “to the Hamptons”. The euro fell to its lowest level since mid-March, and reached its 200-day moving avg. and the yen moved past 110. The Dollar Index was up to a high level that reached a 4% gain since the first week of May.

I told you Friday morning that it was all about Janet, and well, it sure turned out that way, but, as I said, the thinly traded currency markets ahead of the holiday weekend, made her comments turn out to be the perfect storm for dollar. But that didn’t carry on from there, because, well, it was Friday afternoon.. So, the overnight markets on Monday would give us some indication of what the foreign markets thought of the Yellen speech, and from the looks of it they were giving the Big Bad Wolf the old, “not by the hair of my chinny, chin, chin” response, and some of the currencies gained back some lost ground. Some of them.. not all.. and that “not all” includes the Japanese yen, which has lost another full figure since Friday, and is trading with a 111 handle this morning.

We also had a G-7 meeting in Japan this weekend, and at the G-7 meeting, Japanese PM Shinzo Abe must have sounded like the boy who cried wolf, because the rest of the G-7 ministers probably didn’t think that Abe was sitting on his rocker just right. Abe told the ministers that he believed another Lehman Brothers-like crisis was coming in the global markets and therefore he was going to introduce another 10-trillion yen stimulus measure ($90.7 Billion) and delay the increase in taxes that would have surely squashed any recovery the Japanese could have mustered. Japan is the poster child for a country that sees no private and public spending, and decides to take up the slack with Gov’t spending.. And we see what it has gotten them through the years, right? Debt up, past their eyeballs, and spilling out their ears, and yet, they keep going back to the well, and implementing another “stimulus measure”. What’s the definition of insanity? Well, that’s where the Japanese leaders
are folks. And all the while they don’t do anything about their awful demographics.

Alrighty, then, I didn’t mean to make this a Sunday Pfennig and focus just on Japan, so I’ll move along now before I say something that will get me trouble! So, yen was the example of a currency not doing well this morning, and the example of a currency doing well is. drum roll please: The Aussie dollar (A$)! After dealing with currency traders selling the A$ since the rate cut in the first week of this month, the A$ saw some love, after a stronger than expected economic data print. So, let’s take a trip down-under and see what’s up! HA!

The Aussie Current Account Deficit narrowed in April to A$ 20.8 Billion from A$ 22.6 Billion. This news gave traders the reasonable thought that the start to the 2nd QTR saw economic activity picking up, and immediately the large banks in the region, began to revise their forecasts for 2nd QTR GDP. The Current Account Deficit remains at 5% of GDP, which is still too large for the country, and so I would temper this enthusiasm and remind everyone that Debt is Debt, and until it’s under control, it’s bad debt.. But given that the A$ has been subjected to selling since the rate cut, the outcome was a good one, and the A$’s move higher was the reason the rest of the currencies in the region also moved favorably.

The price of Oil remains stagnate with a $49 handle, as it awaits the next move. will it be toward $50, or will the price of Oil slip again, like it has done over and over again so far this year? I’m thinking that with the summer driving months now here, that Oil will find its way to $50 and more, so that gas can be more expensive for those that travel by vehicle this summer. I used to pull our camper with my Navigator SUV, so I know all about how the price of gas goes up in the summertime! Speaking of Summertime, that reminds me of one of my fave summer songs, by Billy Stewart, titled, “Summertime”. But I digress, and it’s time to move on..

The Canadian dollar/ loonie has remained resilient with all the currencies losing ground to the dollar in the past 4 weeks. Canada will print their 1st QTR GDP today, and it should be quite strong, probably north of 3%, which would blow the 4th QTR’s 0.8% pick up out of the water! And that kind of news on the data-front would go a long way toward keeping the loonie resilient, and if the price of Oil does make it past $50 the loonie will have an even stronger underpinning. Hmmm.

I just mentioned that the currencies have lost ground to the dollar the past 4 weeks. What appeared to me as an end of the strong dollar trend ( I even resorted to singing, Ding Dong the witch is dead in the Review & Focus) turned out to be just an illusion, a false dawn, a trap, and any other description that describes this scene works here. A month ago, I was pointing out how the Dollar Index was about to trade below 93, which would indicate that the dollar was ready to fade, and 4 weeks later the Dollar Index is back to levels it held before the G-20 meeting in Shanghai, the last week of March, which is 95.75.

Yes, I said that normally when an asset is ready to leave its strong trend, that it will have periods of strength still, and give everyone the idea that it’s not finished, but it is, and soon it’s quite evident. Is this 4-week move by the dollar playing out this scenario? I would like to think so because I hate to admit I was wrong about it being nearing the end of its strong trend, but in the end, 4-weeks of rally is more than a short period of strength. Sure it’s a short period in the whole scheme of things in the world, but not a short period of time when it comes to the markets. So, I guess the jury is still out on the dollar and it leaving its strong trend, but it certainly appears that the court is in session, and everyone needs to rise, because, Here Comes the Judge, Here Comes the Judge! (remember that 60’s song?)

Yes, leave it Chuck to talk serious about something and then finish it with silliness! But, hey! That’s me! Have you ever heard me talk at a conference? Or sing at a conference? Well, if you have, then you get me.

Gold got caught up in what Ed Steer calls the Salami Slicer, with Yellen’s talk on Friday, and closed down nearly $7 ($6.70) And then yesterday in thin trading with the U.S. and U.K. out on holidays, Gold slipped another $8 ($7.90) But has gained about $6 in early morning trading today.. I have a somewhat lengthy quote from one of my fave writers, Grant Williams, who spoke at the Mauldin SIC this past weekend. This is really good, so please do not skip over it. Ready? OK, let’s go! Here’s Grant Williams on Gold..

“I don’t buy gold, I own it. I don’t buy gold at $1,100 because I think it’s going to go to $1,200. I buy it for what it does, not what the price is, the price is the last consideration for me. I think the way the picture has been developing over the last eight years, it’s like when you take a polaroid, you take a picture and you sit there and you watch this thing and it slowly comes into focus, and that’s what it’s been like for me watching gold, we’re watching this picture slowly develop.”

“We’re getting to the point where people are going to be able to see the picture, and at that point gold is the answer. It’s not just an asset anymore it’s the answer to a lot of people’s questions. When that happens, I think the most important stage of this completes itself and that is the resolution between the paper price and the physical asset. I think when we get to that point where people want to own gold, ETF’s won’t suffice anymore. A promise to deliver three months hence is not going to be sufficient anymore, people are going to want to own the asset. At that point you realize that there are multiple hundreds of claims per ounce, and those claims won’t be worth anything anymore it’s going to be the asset, and that’s the end game.”

“The picture is becoming clearer, and everything the central banks are doing is bringing that day forward a little bit.” – Grant Williams

The U.S. Data Cupboard comes back into focus this week after a week of nearly nothing to report.. It starts today with Personal Income and Spending, and ends on Friday with the May Jobs Jamboree.. Of course all the data this week, like the ISM (manufacturing) data tomorrow, will be tossed the side of the road once Friday gets here, and the Jobs Jamboree prints. The markets have once again tagged the Jobs report as the key indicator of whether we see a rate hike in June or not. Remember last month, when they said the jobs report was “judgement day”? and I chastised them for that? Well, if last month was “judgement day”, then this month should be even more important. And given that it is the last jobs report before the next Fed meeting in the middle of the month it will be important, but not for the number of jobs because at this point, who really knows that the real labor picture is here in the U.S. due to all the “adjustments” the BLS makes each month, but what will be important is something that I always have told you to focus on each month. The Avg. Hourly Earnings. Are we seeing wage growth continue or was last month an aberration?

On a sidebar.. A dear reader sent me some stats that were in his local paper that I thought I would share with you. nationwide railroad employment is down 32,300 people year on year (15-16), total freight shipped is down 9%, and crude oil shipments are down 44%. But this is the kind of news you can’t find on the nightly news. Why? Because it doesn’t mesh with what the Gov’t wants us to believe.

To recap. Janet Yellen turned the currency traders into dollar bugs in thinly traded Friday before a 3-day Holiday Weekend trading. But what did she really say that was new? Nothing, absolutely nothing! It was the same-o, same-o.. Japanese PM Abe warned his fellow finance ministers at the G-7 meeting that he sees another Lehman Brothers-like crisis on the horizon for the global economies and therefore he was announcing yet another stimulus package for the Japanese economy. Insanity? Yen has fallen past the 111 figure, and if Abe has his way yen won’t stop there! The Aussie Current Account Deficit shrank, but still remains high for this country, but that didn’t stop the A$ traders from giving the A$ some love for the first time in 4 weeks.. . Gold continues to get whacked on the rate hike talk. and the price of Oil remains stagnate for now.

For What It’s Worth.Well, there I was on a Saturday morning, reading email, because, well, I have no excuse. But I was reading it, and I looked through Ed Steer’s letter, and saw a reference to an article on Alan Greenspan, who sure has left the dark side now that he’s no longer the Fed Chairman. This can be found on newsmax.com and you can read it all by clicking here: http://www.newsmax.com/Finance/StreetTalk/Alan-Greenspan-economy-entitlements-productivity/2016/05/26/id/730990/?ns_mail_uid=34436709

Or here is your snippet. “Alan Greenspan, former chairman of the Federal Reserve, said the global economy’s inability to produce goods and services efficiently is going to cripple the ability to pay for pensions and health programs for the elderly.

Greenspan says governments are going to confront another major financial crisis as economies struggle to pay for entitlement programs.

“Entitlements are crowding out savings and hence, capital investment. Capital investment is the critical issue in productivity growth and productivity growth in turn is the crucial issue in economic growth,” he says. “We’re running at the end of this period to a state of disaster unless we turn it around.”

Chuck again. I find it very interesting that Big Al was pointing out that he told everyone 25 years ago that this was going to happen with the “entitlement programs” but nobody listened to him. Really? Nobody listened to you? I find that to be a little unbelievable that nobody listened to him, don’t you?

Currencies today 5/31/16. American Style: A$ .7235, kiwi .6720, C$ .7655, euro 1.1135, sterling 1.4585, Swiss $1.0090, . European Style: rand 15.7980, krone 8.3615, SEK 8.33, forint 281.45, zloty 3.9280, koruna 24.2192, RUB 65.96, yen 111.10, sing 1.3770, HKD 7.7676, INR 67.30, China 6.5799, peso 18.42, BRL 3.5698, Dollar Index 95.75, Oil $49.48, 10-year 1.87%, Silver $16.10, Platinum $976.97, Palladium $543.94, and Gold.. $1,213.20

That’s it for today. As I said at the top this morning, the weekend weather was great, and I got chance to be outside for most of it. Yesterday I fired up the Big Green Egg, and smoked some baby back ribs, oh, brother did they taste Fantastico! My beloved Cardinals split 4 games in D.C. and moved on to Milwaukee. We watched little Braden go from a kid that wouldn’t leave the shallow end of the pool to a kid that wants to jump into the deep end this weekend, quite amazing the change! And fun to watch too! Rain is expected today, but that’s OK given the weekend weather we had! It’s an infusion week, so that means someone else will have the conn on the Pfennig for Friday, and right now, I’m writing from home, because well, I saw more of the overnight hours than I care to admit, so it’s off to bed for me once this is out the door! Today, is a Happy Birthday Day for Cheryl Harper, who I have worked with for 16 years. When we were a small outfit, Cheryl used to bake cakes for each person’s birthday. But just like everything else that gets too big, things get lost in the shuffle. And that means my pineapple upside down cake, and German chocolate cake on my birthday don’t get made any longer, UGH! But. Happy Birthday Cheryl! I hope your day is grand! And with that I’ll send you on your way to having a Tom Terrific Tuesday, and remember to Be Good To Yourself!

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