Which Way Did He Go? Which Way Did He Go?

* The dollar fights back!
* Was it Lockhart’s words?
* Or the U.S.’s new “Monitoring List”?
* James Rickards on a Wednesday.

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

Good Day. And a Wonderful Wednesday to you! One day after hitting 5 home runs in a game, my beloved Cardinals can’t hit their way out of a wet paper bag with runners in scoring position! UGH! It’s going to be one of those years, I believe. But then a few years ago, the team was 35-35 after 70 games and looking like they were going nowhere only to go on to win the World Series. So.. patience, Chuck, patience! Emerson, Lake and Palmer (ELP) greet me this morning with their great song: Lucky Man. I used to play that song on my guitar, and of course sing along! When I meet a new nurse or technician that asks me to list my surgeries, I give them the laundry list and then tell them, “They call me Lucky”. HA!

The dollar’s taking back of some lost ground continued throughout the day yesterday, and the overnight sessions into this morning’s early trading. The Japanese yen is taking the brunt of the dollar’s rebound, along with the Aussie dollar (A$), while the euro remains pretty much in a trading range around 1.15. But that’s 1-cent below yesterday’s level! Gold has really tumbled after hitting $1,303 a couple of days ago. And what do we have to point to for the reason the dollar has bounced back?

Well, it was words. Between the lines of age.. No wait! It was words spoken by a Fed member, Dennis Lockhart, that got the rate hike campers coming out of the walls once again. I shake my head in disgust because this guy knows as well as I do that the U.S. economy can’t deal with another rate hike at this time, so why is he talking so optimistically about the chances of a rate hike in June, now? Beats me, well actually I do know, and I think you do too!

Which way did he go? Which way did he go? Remember that character in the cartoons that would say that, with a real dumb sounding voice? Now you’re laughing because it brought back the memories of that old cartoon, I believe it was a fox and a hound. Oh well, what I’m getting at here is the markets are so confused as to what the Fed has up its sleeve. The Fed would do a Bullwinkle and tell you “nothing’s up my sleeve”. For they are transparent, right? Well, maybe transparent to themselves, but not to the markets or us poor humble investors trying to figure out what’s going on!

In April, the Fed met, and did the old reversaroo. They had gone from a Central Bank that was beating the drum optimistically, and loud, because they just knew that the U.S. economy was going to take off back in December, to a Central Bank that sounded dovish, no let’s say if they sounded optimistic at one meeting, they sure sounded pessimistic at the next meeting! And that had really set the tone in the currencies, equities and bonds, and even the commodities that interest rates weren’t going to be hiked again any time soon. So, just when everyone was feeling safe about putting their toes back in the investment waters, along comes a BIG Shark! And he tells everyone that the June Fed meeting will be a “live” meeting, and that he doesn’t see any reason why the Fed would delay a rate hike past June. Uh-Oh! We’ve fins to the left, fins to the right, and you’re the only girl in sight!

From “walking on sunshine” to “oh woe is me, nobody likes me, everybody hates me, think I’ll eat some worms” to back to “walking on sunshine”. My neck is sore from all the twisting and turning I’m doing would you please stop, Fed members? I know, I know, we’re all humans, and we do human things, which is why I’ll stop right here, and move on. I’ve got bigger fish to fry in the FWIW section today. But really, all I’m doing is to report on what has factually happened, nothing more.

Well, the Aussie dollar (A$) got a double dose of stimulation, and this time the markets didn’t like it. Go figure! Remember when traders were rewarding currencies from countries that implemented stimulus? Well, the A$ received a double dose of stimulus, and got taken to the woodshed for it. Of course, I agree with the latter of the twos outcomes, because Central Banks have no business getting their hands in the economy’s cookie jar! So, you already know that the Reserve Bank of Australia (RBA) cut rates on Monday night for the first time in a year, but I’m not letting them off the hook for that delay. But then the Aussie Treasury announced their Budget just hours after the RBA announced their rate cut.

The Aussie Treasurer, Scott Morrison unveiled a plan to cut company taxes, boost infrastructure spending, and provide income tax relief, and then reported that the deficit would be A$37 Billion for the 12 months through June 2017. This would bring net debt in Australia to 18.9% of GDP through June 2017, and rise again to 19.2% in the ensuing 12 months. And while that doesn’t sound all that bad given the high numbers that are sprinkled around the Eurozone, Japan, U.K. and of course the U.S., it’s the trajectory that’s the bad thing for Australia.. Of course all this bad stuff goes away, when China recovers, but for now, we have to look at China as a drag.

At this point, I have to wonder about the so-called Shanghai Accord that was put in place (despite official denials by the countries) in March, having lasting affect like the Plaza Accord did in 1985. I would think that this so-called Shanghai Accord was to stop the negative feedback loop and thereby prevent a sharp devaluation of the yuan; however, it was meant to curtail the rise of the dollar, not sharply reverse it. But that’s what was happening, the dollar’s strength was getting reversed, and the 5 year strong dollar trend looked to be ending.

But a funny thing (not funny ha-ha!) happened on the way to the forum, and that is the dollar fought back, and in a not so loudly announced report the U.S. printed their “monitoring list”. What’s that, Chuck? Well, grasshopper, come sit and I’ll explain. As a part of the Trade Facilitation and Trade Enforcement Act of 2015 (that’s right I never heard of it before now either) the U.S. decided to point out some problem countries. You see the “ACT” specifies that there are three criteria to qualify for a special attention. 1. A “significant” trade surpluses with the U.S., 2. a “material” current account surplus and 3. “persistent one-sided intervention in the foreign exchange market.” While five countries made the list by triggering two alarms — China, Japan, Korea, Taiwan, and Germany — the Treasury said no one “currently meets all three criteria.” The report did, however, wag its finger at the currency policies of the first four countries.

And what region has the currencies that have performed the best VS the dollar since the so-called Shanghai Accord? The Asian currencies. So what does this tell us about where we go from here? Well, I think the Dennis Lockhart speech yesterday was just a warning signal to the markets to not drive the value of the dollar down too far. But once again, a funny thing normally happens when Central Banks attempt to direct currency markets. The currency markets are known for going for the whole 9-yards, folks. So, the Lockhart and Treasury Monitoring announcement might hold the dollar steady for a few days, and then we’ll have to see where it goes from there. My thought is that IF the U.S. continues to push the “stop, we’ve had enough weakness envelope” then a return to the Currencies War could ensue. IF they don’t, then we’ll return to removing the value from the dollar.

Like I said above the euro remains in a trade range around 1.15. There are a ton of PMI’s (manufacturing indexes) due to print in the Eurozone, and outside the Eurozone today, and in fact some of them have just come across the screen. Let’s go see what they look like! Well, Spain and Italy both added to their flash estimates and Germany and France saw reductions to their flash estimates, but overall the Eurozone aggregate remained steady at 53.. For the newbies, freshmen, new jays, and so on, to the Pfennig. the PMI indexes have a line in the sand of 50, any number above 50 represents expansion and any number before 50 represents contraction.

The piece of data that I found the most interesting in the PMI’s was the confidence piece, and here we saw Spain’s confidence rise in spite of the Political logjam that’s going on there, so the economic side of the equation must be looking perky to overcome the Political mess there!

Sweden and the U.K. will also print PMI’s this morning. So, it’s PMI Day in Europe! Also, there was another survey taken on the BREXIT referendum that will take place at the end of next month, and the survey showed the “don’t leave” vote to have edged ahead of the “leave” vote.. And again for those of you new to this BREXIT stuff, it’s all about the U.K. dropping out of the European Union (EU). The “leave” vote was pretty strong a couple of months ago. and that had weighed heavily on the pound, but with this latest survey, the pound can breathe a little easier.

The price of Oil slide another whole figure since yesterday and now trades with a $43 handle.. Just a week ago, it appeared that $50 was in Oil’s future. The Petrol Currencies led by Russian rubles continue to get taken to the woodshed whenever the price of Oil drops, and today is no exception. UGH!

Today’s Data Cupboard has a couple of items worth looking into, leading off with the ADP Jobs report for April. This is supposed to be a precursor to the Jobs Jamboree, and it’s calling for 195,000 jobs in April, right now, the print later will confirm that number. You know, a lot of traders, economists, and analysts prefer to use the labor component of the ISM Services report, which will also print today. I’m not one of those that prefer the ISM report on labor, I prefer the ADP report. For who else knows about new payrolls than the company that nearly does payroll for entire country?

We’ll also see a piece of “real economic data” in the form of March Factory Orders. UGH! March seems like a long time ago for me. I was sitting at Roger Dean Stadium watching my beloved Cardinals during March, and yesterday and the day before I was wearing a Blues hoodie sweatshirt, because it’s so darn chilly here! Any old way, Factory Orders might print a positive, albeit nascent, number for March, after months of negative numbers each month. Remember, we saw the PMI’s for March (last month) print stronger, so it only makes sense that Factory Orders would be stronger too in the same month.

Before I go to the discussion on Gold, I have one more item for the Data Cupboard talk. I was reading my Casey Dispatch yesterday, which you can find at www.caseyresearch.com and in it there was a quote that I just had to cut and paste for you. We’re now living in an “Alice in Wonderland” economy where stocks and bonds soar while the “real” economy barely grows.” – Doug Casey

Gold has really tumbled since reaching $1,303 on a couple occasions earlier this week. The shiny metal is down $8 this morning, after losing over $5 yesterday, and the metal’s move doesn’t look so shiny right now. And the other precious metals follow suit.. is this a “dip” that should be looked at seriously, or should we wait to see if there’s more selling going on? I’ve said this before and I’ll say it again, and again, so here goes. I’m not one to get too involved with the price of Gold when looking to buy. If I feel like buying some Gold, I buy it, and I don’t get all influenced by charts, prices, and what have you. For to me, if I feel like buying Gold, then I have no other idea in my head other than I’ve added to my store of wealth. period!

To recap. The dollar bounces back strongly against the yen and Aussie dollar and not so strongly against all the other currencies. It also takes a hunk of fat from the price of Gold but the euro remains well bid around 1.15. The U.S. issues its “monitoring List” of countries that are nearing the 3 criteria for currency manipulators, and the U.S. especially points out the Asian Countries that have the currencies that have performed the best VS the dollar since the so-called Shanghai Accord. Eurozone PMI’s remain steady at 53, and the latest BREXIT survey shows the “don’t leave” vote ahead of the “leave” vote.

For What It’s Worth. This is a very important piece today folks. I will NOT be breaking in with songs, lyrics, or facetious comments. This is serious. Well, let me restate that, this is as serious as you want it to be. It comes from the Daily Reckoning yesterday (www.dailyreckoning.com) And is about how the Global Elites want to fund their battles with low growth and no inflation, with a cry to fix global warming. The U.S. can’t fund it because it would mean $6 Trillion in new debt per year, so the IMF is going to pick up the ball on this, and issue SDR’s. Here’s Jim Rickards explaining it all.

“One of the reasons the U.S. can’t provide the fuel to power this $6 trillion annual boondoggle – sorry, “program” – is because of something called “Triffin’s dilemma.” It essentially says a nation with a reserve currency must run massive trade deficits to sustain global trade. The trouble is those massive deficits will ultimately bankrupt the issuing nation. So it must either choose to serve the world. or itself. Therein lies the dilemma.

The IMF faces no such constraint. Hence the SDR solution for global growth through unlimited spending.

It’s the biggest scam of all. Central banks invest in a new world money issued by the IMF called special drawing rights, or SDRs. Then the IMF, the World Bank and others take this money and invest in climate change, infrastructure and other projects they choose.

Soon this new money sloshing around causes inflation and wipes out the real value of existing government debt and your savings. The elites fund their pet projects, government debt melts away and you pay the bill. Best of all from the elite perspective, almost no one understands what’s happening, because the method is highly technical.”

Chuck again. I have to thank Addison Wiggin, Peter Coyne, new editor, Brian Maher, at the D.R. for printing this for us yesterday. And to James Rickards for bringing this to light. What it’s being called, what it will be used for, and who gets stuck with holding the bag in the end. And don’t shoot me, I’m just the messenger, but could this really be happening right now? I really don’t know folks, I’m just attempting to bring this to your attention, so you can research and do the work needed to find out if this is going to happen or not. Just a public service announcement, if you will!

Currencies today 5/4/16. American Style: A$ .7480, kiwi .6890, C$ .7845, euro 1.1485, sterling 1.4485, Swiss $1.0460, . European Style: rand 14.8220, krone 8.1455, SEK 8.0605, forint 272.35, zloty 3.8310, koruna 23.5350, RUB 66.38, yen 106.80, sing 1.3580, HKD 7.7607, INR 66. 61, China 6.5002, peso 17.77, BRL 3.5585, Dollar Index 93.13, Oil $43.67, 10-year 1.79%, Silver $17.33, Platinum $1,055.06, Palladium $600.31, and Gold. $1,282.20

That’s it for today. Blues Win! Andrew told me this morning when he came upstairs that the Blues game was like a baseball score and the Cardinals game was like a hockey game score, as the Cardinals lost 1-0, and the Blues won 6-1! I’ve been home all week with a case of the gout.. Man is that painful! But I saw the doctor yesterday, and he’s fixed me all up, should be better in a few days. See? Lucky! My primary care doctor loves me, my attitude, my smiling face, etc., etc. So, I’ve got that going for me! HA! Andrew, Rachel and Braden had their walk through for their new house last night, and then Braden told them he wasn’t going to move, that he’s going to stay here with us. Yeah, that wouldn’t last one night! But it was cute. David Bowie takes us the finish line today with his song: Waiting For The Man. This was a song featured in the movie: Almost Famous. We lost David Bowie recently, and he was certainly a “different performer” over the years. And with that, I’ll ask you to please go out and have a Wonderful Wednesday and remember to: Be Good To Yourself!

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