Will There Be Helicopter Money?

* Risk Aversion shifts to neutral.
* Base metals continue to improve.
* What did Janet Yellen say now? .
* Spending more than we make again.

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

Good Day. And a Tub Thumpin’ Thursday to you! And infusion day for me, so up until then I’ll make it a Tub Thumpin’ Thursday, after that, you’ll have to take over for me! While I liked not having my day completely consumed at the infusion center two weeks ago, when they scheduled me very early in the morning, I didn’t like that I had to ask the team to fill in for me with the Pfennig! I would rather write, like this morning, and then go to the infusion center. The Allman Brothers greet me this morning with their song: Ramblin’ Man, which I do believe was their first hit song on the radio. Of course they had been playing long before that happened!

The last day of June, the last day of the 2nd QTR, and the last day of the risk aversion that took control of the markets last Friday. As I said yesterday, the risk tone had shifted to neutral, and this morning, it has moved just slightly in favor of risk assets, but still hovering around neutral. The proof is in the pudding, as the so-called safe haven assets of dollars, Treasuries, Gold, yen and francs have all backed off their lofty levels of earlier this week. The dollar Index was 96.29 on Monday, and 95.53 this morning, 10-year Treasury yields were 1.46% on Monday, and 1.53% today, Gold was $1,333.90 on Monday and $1,319.40 this morning, yen was 101.55 on Monday and 102.85 this morning, I think you see the point I’m making, so let’s stop this comparison stuff! Just know that when the risk aversion is removed from the markets, the risk assets are allowed to move freely about the cabin, which is what they’ve been doing the past two days. No, the moves aren’t flag waving stuff, but they are positive moves, and that’s a good thing for risk assets holders! And besides, after that crushing blow they took on Friday and Monday, the healing process should be slow.

Earlier this week I talked about the iron ore and steel prices staging a rally, and that was helping the Aussie dollar (A$) to move higher, but I cautioned that these moves in the Iron ore and Steel, have recently shown that they are short lived, and could reverse their boost to the A$ very quickly. But maybe we’re seeing something to erase that recent memory, as iron ore futures were up 2.5% the previous night, Hmmm. And did you see the move in kiwi the other night? And did you hear the comments from the U.K.’s Finance Minister, George Osborne? He said that BREXIT may increase the attractiveness of the New Zealand dollar / kiwi. So, improving base metals prices, positive interest rate differentials, and country leaders talking glowingly about you, have these two currencies moving in the right direction. In fact, they were the first to move in the right direction on Tuesday, while every other currency was still licking their wounds.

The Petrol Currencies, and this time it includes all of them, are firmly on the rally tracks this morning, as the price of Oil hit $50 overnight, but has since backed off a bit. The Russian ruble leads this group of currencies, as usual, to higher ground. Remember what I told you previously in that a major brokerage house is forecasting $55 Oil by year-end? Well, we’ve got 6 months to get there, no reason to get there all at once, take your time, and instead of going west on Interstate 44, take the old Route 66. I hear that you’ll get your kicks on Route 66! HA!

There has been some very good developments in the Canadian economy, and like I said a week or so ago, it certainly appears that Canada has weathered the plunge in the price of Oil. Today, we’ll see the color of the April GDP for Canada, and I believe that this will be the month that Canada leaves the negative monthly GPD reports and prints a positive, and that might, just might, because you never know, get the Canadian dollar / loonie to push past some resistance levels that are just ahead for the currency that’s gone from 70-cents to start the year to 77-cents (in U.S. dollar terms) this morning. A good strong move, don’t you think? And there could still be more where that came from, should Canada continue to print improving economic data.

The Singapore dollar (S$) has been pushing the currency appreciation envelope without the help of the Chinese renminbi lately. I find this to be somewhat amazing and certainly interesting! Normally these two currencies move in tandem, but the Chinese have been depreciating the renminbi, and the S$ is appreciating. I don’t access to the types of screens I used to have, to give you comparisons over a period of time, so I can’t do that here this morning, so, you’ll just have to believe me when I say that this scenario is a rare occurrence, and one that I don’t think is going to last too long. But enjoy it while it lasts!

Here in the U.S. the economic data continues to be spotty at best. Well, well, well, what have we here? Seems this was something that slipped under the radar screens this week, and is just now being talked about, and since it has to do with Janet Yellen, and money, I’m all over it like a cheap suit!

The Federal Reserve ‘might legitimately consider’ using Public Money Creation in ‘extreme circumstances’, when there is ‘very weak growth’ or ‘deflation’, Fed Chairwoman Janet Yellen said earlier this week at a press conference.

Yellen did not elaborate on what type of Public Money Creation the Fed would consider using. However, it is relatively safe to assume that it would most likely resemble some form of money-financed Helicopter Drops as advocated by Yellen’s predecessor – Ben Bernanke. In Big Ben’s proposal, the Fed would use newly created money to finance a tax-cut or direct cash transfer to households, such as a one-off citizen’s dividend.

Public Money Creation, using central bank money to directly finance spending in the real economy, has been taboo for over fifty years. In accepting that the central bank of the world’s biggest economy might have to create money to stimulate the real economy, Yellen is implicitly suggesting that central banks might need to update their toolkits. Uh-oh.

First it was “we’re ready to hike rates 4 times in 2016”, then it was “we’re now ready to hike rates 2 times in 2016”, and then it was, “we are in a slow growth, low inflation, low productivity scenario that might keep us from hiking rates for some time”. Now, I get it that I’m more sensitive to this stuff than other people, but my spider sense is tingling here, and why wouldn’t it? Think about that for a minute folks.. OK, ready? But when the Fed talks like they just did, I don’t get a warm and fuzzy about the economy, and neither should you, for if the economy was strong, we would already be looking at higher interest rates this year! But it’s not. And when a Central Banker “mentions something” they do it to grease the tracks. So, at some point down the road, the Fed is going to implement helicopter money (no, they won’t call it that, but we all will know what it really is) and when they do, Yellen will be able to say, “well, I told you several months ago, that we could use this if we needed to, and we need to”. Oh ,my, my, oh hell yes, honey put on that party dress. for we need to party now, before this all happens and our purchasing power goes to hell in a hand basket!

And by that I mean, the dollar loses value in that scenario for sure, just like in QE, and ZIRP, and when the dollar loses value, you lose purchasing power.

Gold has gotten caught up in the unwinding of the so-called safe havens. While Gold is one of the true safe havens, it gets thrown in with dollars and yen, which I just don’t see as safe-havens. But traditionally they are, so, old habits die hard. Gold is down $7 in early morning trading today, but still above $1,300. My longtime friend, and someone I haven’t talked to in a couple of years, due to jobs changing and lack of travel on my part, Jeff Clark, the Gold guru, as I call him, sent me a note the other day, highlighting his latest newsletter. And it in he showed some numbers that were quite revealing. Basically he charted the price of Gold from 1975 for the 5 Gold Bull Markets. 1976 – 1980 Gold went up 717%, 1985-1987 Gold went up 75%, 1992-1996 Gold went up 25%, 2001-2008 Gold went up 288%, and 2008 – 2011 Gold went up 163%…

Why 1975?, that’s when it became legal for U.S. investors to own Gold again. And why not just have 2001-2011 as one bull market? Because there was a drop in Gold’s price during 2007-2008. So we started over again in 2008. Well, why did he do this you may be asking? Well, he decided to go to the low of $1,049 set in December 2015. So, if Gold were to rally 25% its price would be $1,311.75, if it were to rally 75% its price would be $1,836.45, or 163%, the price would be $2,770.42, or 288% $4,082.17, or heavens to Betsy, 717% the price would be $8,573.60.

So, basically when/ if the next Gold Bull Market begins, and it could very have already started given that Gold is up 24.9% this year so far, but to extend that thought, these percentage gains were reached during previous Gold Bull Markets, so they could very well, or potentially reach them again, and if they do, you now know what that would mean for your Gold’s price. Although as you know, past performance is no guarantee of future results, and we may not be within another long-term Gold trend yet.

The U.S. Data Cupboard yesterday had the Personal Income and Spending Data for May, with Consumer spending rising 0.4% which was better than the expectations, but Personal Income only rose 0.2%, which is always a warning signal to me, about what type of spending this was. Debt driven. But the Spending data will help boost 2nd QTR GDP. But we’ve been through this GPD stuff before, right? I don’t get why the markets and economists still rely on GDP data, instead of Final Sales data.

This is where a quote from John Williams over at www.shadowstats.com on GDP comes into play. let’s listen in to what John Williams says about GDP. “The GDP simply remains the most worthless of the popular government economic series, in terms of determining what really is happening to U.S. business activity. The series is the most heavily-modeled, politically-massaged and gimmicked government indicator of the economy. It has been so since at least the days when President Lyndon Johnson reportedly reviewed the numbers, before their release. He then would return them to the Commerce Department, if Commerce had gotten them “wrong.” He kept repeating the process until Commerce got them “right.””

There’s not much on the U.S. Data Cupboard’s docket today, so the markets will drift today.

To recap. The risk aversion from Friday and Monday seems to have ended, as the risk tone has shifted to neutral and leaning toward the risk assets as we head into our Tub Thumpin’ Thursday. The base metals prices continue to improve giving the A$ some room to move higher, and George Osborne thinks that BREXIT results will make kiwi even more attractive! The so-called safe haven assets have begun to unwind their flight to safety gains, and the price of Oil reached $50 only to see it drop back below the figure in the past 24 hours, but that hasn’t stopped the Petrol Currencies from rallying..

For What It’s Worth. Well, this started long ago, I began telling you about the Puerto Rican debt problem, and how they were looking for the U.S. taxpayers to bail them out. Well, here’s the latest on that problem, and it can be found here: https://www.washingtonpost.com/news/powerpost/wp/2016/06/29/senate-poised-to-act-on-puerto-rico-debt-days-before-debt-cliff/?wpisrc=al_alert-COMBO-politics%252Bnation

Or, here’s your Snippet: “Rescue legislation aimed at helping Puerto Rico address its mounting fiscal crisis cleared Congress Wednesday, two days before the U.S. territory is set to default on roughly $2 billion in debt payments.

The bill passed by the Senate on a 68-to-30 vote opens a path for an orderly restructuring of the island’s $72 billion in bond debt while creating a new federally appointed fiscal oversight board. It passed the House earlier this month, and President Obama has said he will sign it.

“Obviously, the bill isn’t perfect,” Senate Majority Leader Mitch McConnell (R-Ky.) said Wednesday, before arguing that it “offers Puerto Rico the best chance to return to financial stability and economic growth over the long term so we can help prevent another financial crisis like this in the future.””

Chuck again. Well, we were “saved”! I’m being sarcastic. but you knew that! I know that if this bill to rescue Puerto Rico would have failed they would have begun to default on their payments by next week, and once again, I’ll repeat what I said 9 years ago regarding debt bailouts. They should allow the state, the company, the Gov’t organization, whatever, to simply fail. no taxpayer bailouts. Let them fail, pick up the pieces and start over, that’s what I would do if I were King of the forest, not queen, not prince, not duke!

Currencies today 6/30/16. American Style: A$ .7450, kiwi .7120, C$ .7730, euro 1.1150, sterling 1.3460, Swiss $1.0247, . European Style: rand 14.7985, krone 8.3640, SEK 8.4565, forint 284.38, zloty 3.9815, koruna 24.3160, RUB 64.15, yen 102.85, sing 1.3460, HKD 7.7588, INR 67.51, China 6.6430, peso 18.53, BRL 3.2206, Dollar Index 95.53, Oil $49.53, 10-year 1.53%, Silver $18.47, Platinum $1,004.56, Palladium $589.05, and Gold. $1,319.40

That’s it for today. And this week for me, as is the new every other week tradition, I don’t write on the Friday following an infusion.. The Big Boss, Frank Trotter calls it, “infusion confusion”.. The sun is rising, and it looks like a beautiful morning. It’s a beautiful morning, think I’ll go outside for a while, and just smile. sorry, but I was typing that before I knew what was going on! Yesterday, I had to do the mea culpa for forgetting to talk about Alex’s birthday in Tuesday’s Pfennig. And that got me thinking that I missed another birthday this month of someone that is one of my fave people on earth! How could I do that? Well, all I’ll say is with my brain in funk these days, I forget what day it is at times, so to remember to mention something I can’t be at fault! (see I’m learning from the younger generation, to blame it on something or someone else!) But a very belated birthday Laura Baur! (which was actually June 9th!) And with that, I need to get going and get ready for a day at the infusion center! (a very depressing place I must say!) I hope you have a Tub Thumpin’ Thursday and Be Good To Yourself!

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