Yen Traders Ignore BOJ Warning Signs.

* Gold rises 4.2% on the day!
* Yen is best performer overnight.
* Kiwi is worst performer overnight.
* The Big Short revisited.

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

Good Day. And a Happy Friday to one and all! I think this will turn out to be a Fantastico Friday here, as it gets closer to normal with the weather. The Allman Brothers greet me this morning with my fave song from them: Melissa. I played briefly with a band back in the day that loved to play blues/ rock music. It was quite an interesting experience, musically, for me, that’s all I’ll say about that! But I love the guitar work in the song Melissa, great stuff! Well, I know you all are champing at the bit to see what I have to say about the performance of Gold yesterday. So, let’s go to the tape!

Yesterday, I told you that Gold was soaring in price, Shoot Rudy, it was the title of that day’s letter! But that was just part of the move, as Gold continued to rise throughout the day, ending the day up 4.2%, the largest one-day move for the shiny metal in 4 years! And that’s not all, Gold is now at its highest level in over a year! Unfortunately, there’s was some profit taking going on at the end of the day that brought Gold back some, and that profit taking has continued overnight and Gold is down $7 in early morning trading. After two days of listening to Fed Chair, Janet Yellen, do her best two-step shuffle, the markets came away with the thought that interest rates in the U.S. aren’t going anywhere in the near future, especially in March, and taken with the market turmoil around the world, some downright safety was sought. And the old adage of “don’t wait to buy Gold, buy Gold and wait” came home to roost. For all the Gold buyers that bought when Gold couldn’t find a bid for two consecutive days, are now smiling like the Cheshire Cat.

But, us longtime Gold holders/ buyers, know all too well that the wolf (price manipulators) are always at the door. Knock, knock, who’s there? Candy gram. HA! I have no idea why I do that. Here, I’m talking about something very serious, price manipulation, and I interject humor. Why, Chuck? Because that’s how my mind works, and you get the good with the bad, I guess!

The currencies are mixed again today, with the euro getting sold, but sorry, beaten and battered currencies of Russia (ruble) and India (rupee) are up solidly VS the dollar this morning. The list of currencies with smaller gains include: the Aussie dollar (A$), Canadian dollar/ loonie, the Mexican peso, S. African rand, and Swedish krona. The best performer overnight is the Japanese yen. Yen has made its biggest 2-week move VS the dollar since 1998! Yikes! 1998? What an awful year for yours truly. In fact I don’t even want to go there, so let’s just move along for these are not the droids we’re looking for.

I find this move in yen to be quite interesting, especially since there was a lot of verbal intervention going on last night by Bank of Japan (BOJ) officials. So, the BOJ officials are out pounding their collective chests and telling the markets that they will be sorry running the price of yen higher, and then you have the markets, traders, etc. going out and defying the BOJ, and pushing yen to a 112 handle. When we began February, just two weeks ago, yen was 121. I told you earlier this week that it was going to be interesting to watch this play out between the BOJ and the markets. So far, that’s exactly what we’re seeing. I wouldn’t be surprised to see the BOJ round up the usual suspects (other Central Banks) to make a coordinated intervention in yen, selling it by the truck loads in an attempt to wrestle control of the currency back away from the markets, who at this point have the conn with yen.

And isn’t that the way it’s supposed to be? Now, if the markets could only wrestle control of the dollar, that would be great, and then they could go to work on gaining control of interest rates! Now you’re dreaming, Chuck! Yes, but dreams are for people who are Big Thinkers! HAHAHAHA!

The New Zealand dollar / kiwi is one of the worst performers overnight. Makes no sense to me, given that New Zealand posted their January PMI (manufacturing index) and the index rose to a 15-month high, of 57.9 from 57 in December, with production and new orders showing strong growth! Now, remember with these PMI’s, any number above 50 represents expansion, and I would have to say that New Zealand’s manufacturing sector is strong right now! So, they print this number, that shows the manufacturing sector on terra firma, and the currency gets sold. I would think a report like this would push a March rate cut to the back of the closet, but apparently currency traders don’t think like me. Wait, I was once considered to be a currency trader, and I haven’t changed my way of thinking! I’ll just put this down as a strange deal today for kiwi.

The euro is down 1/3rd of a cent this morning. On no particular news. the run up in the euro yesterday to well over the 1.13 handle was strong, and what we’re probably seeing is some profit taking, because the economic data that printed in the Eurozone today, showed that the Eurozone economy was moving along despite the market turmoil going on all around the world. Eurozone 4th QTR GDP was 0.3%, same as the 3rd QTR. And maybe there are some traders not happy that the Eurozone didn’t add to its 3rd QTR result in the 4th QTR, but you’ve got to realize that a lot of crazy stuff, and slowdowns are going on all over. and for a recovering economy, maintaining momentum is important, you certainly wouldn’t want to see a step back at this point in the recovery!

British pound sterling is another strong performer today. On Wednesday the U.K. printed an awful (-1.1%) Industrial Production report for December, VS November, and -1.7% year on year, and two days later, all is forgotten, and the pound is beating the drum today. I’m still a pound bear, because bad fundamentals in the country, so whenever the traders go hog-wild for pound sterling, I just sit back and smile, because they’ll see those moves reversed in my opinion, which could be wrong.

So, the self-proclaimed Gold Bulls were coming out of the shadows yesterday, and every one of them were claiming this to be the “sign” they’ve been waiting for with Gold. Hmmm. I guess they didn’t believe in the old adage I talked about above! I find this amusing, because where were these writers when Gold couldn’t put together two days of rallies and it appeared that it would be stuck in a trading range between $1,100 and $1,200 forever? Now, they’ll all be out there saying that they saw this coming, and that Gold is now ready to move higher. Look, I don’t know if Gold is going to move higher from here, I do believe it should, fundamentally, move higher, but then I’ve thought that for years now!

The Data Cupboards around the world are getting some air-time today. I told you about the New Zealand, and Eurozone data.. there are others that just aren’t 1st Tier data that have printed too. The U.S. Data Cupboard finally gets some data today to talk about, as the January Retail Sales will print. I already told you that the BHI indicates that the report will be disappointing. We’ll also see Business Inventories for December, and the U. of Michigan Sentiment (used to be call Confidence) for the first two weeks of February. The first two weeks of February have been quite tumultuous for stocks, so I can’t see this data being good, but then you never know when it comes to these surveys.

To recap. It certainly was a Tub Thumpin’ Thursday yesterday for Gold. The shiny metal rose 4.2% and was at the highest level it has been in over a year yesterday! We did see some profit taking at the end of the day that has carried over to this morning’s trading, but the all-out assault on the dollar by Gold yesterday was something we hadn’t seen in 4 years! The Japanese yen is the best performer overnight, with BOJ officials all giving warning signals to the markets, and traders ignoring them to run yen to the best two-week performance since 1998, it’s getting quite interesting in Japan. Eurozone 4th QTR GDP kept the momentum from the 3rd QTR going, but the euro is down this morning, and New Zealand printed a stronger than expected PMI, and kiwi is down this morning. It must be “opposites day”!!!!!

Before we head to the Big Finish today, I’ve got something else to say. I will blame this on chemo brain. I totally forgot to talk about the movie we went to see on Wednesday afternoon. The Big Short. It was about the 2007-08 housing meltdown, and how a few guys figured out what was going on and found a way to short the housing market in the midst of a bull market. All the while I was watching it, I couldn’t help but think that some of these guys were Pfennig Readers, because if they were, they received a white paper in 2004, that was an updated version of the white paper that initially came out in 2002, called: The Decline of the Dollar. In that I told people for the first time, I’m sure, that there was a housing bubble going on, and that it was going to pop and be worse than the stock market bubble pop in 2001. That’s right. Little old me. I said it first, I don’t care what anyone else says! I was laughed at by people in our mortgage company, my readers that told m
e that the housing market never goes down, and by everyone else that’s not on the list.

I tell you all this, because, the same things that got us in deep dookie back in 2007, are creeping back into the economy once again. Sub-Prime Loans, CDO’s, easy access loans, greed, and so on. I’m not saying we’re heading back to 2007-08, all I’m saying is that we, as a country, had better be careful here, because when it becomes a fad for mortgage brokers to brag about the special kinds of loans they are booking, it will be too late!

For What it’s Worth. Well, Gold research guru, Koos Jansen, was back with a post on the BullionStar website yesterday, and this time he’s talking about how the supply of Gold in London is dropping to very low levels. Here’s the link to the whole article:

And here is the snippet. “In December 2015 the UK has net exported 184 tonnes of gold, which is the third highest amount on record, according to data released by Eurostat. Net gold export in December was up 218 % from November and up 3,730 % from December last year.

In a year that saw strong gold demand from China, in total withdrawals from the vaults of Shanghai Gold Exchange accounted for 2,596 tonnes in 2015, we turn our eyes to the most obvious place for sourcing such quantities of physical gold: London, the heart of gold wholesale market. Since the gold price came down sharply in April 2013 there has been a spectacular drain from the vaults in the London Bullion Market. In 2013 the UK net exported no less than 1,424 tonnes. Whilst net gold export from the UK in 2014 decreased to 452 tonnes, in 2015 the gold exodus from London has accelerated to 573 tonnes.

When there is no more gold left in London to export the gold price is likely to go higher on strong global demand induced by economic headwind. At the time of writing the spot gold price is $1,251.80 per ounce, up 18 % year to date, while the S&P 500 is down 9 % year to date. Is the gold price rising because of physical supply shortages?”

Chuck again. The great transfer of wealth from the West to the East continues folks.. How in the world did this happen? You might be thinking to yourself, “why is that such a big deal, Chuck?” If that’s the case, you should just keep your thoughts to yourself! HA! Just kidding!!!! No, the discussion on this has been going on for a long time, in this letter, and for me to go back through now would cause shivers to go down the spines of the people that have to distribute the letter! So, let me give you the Reader’s Digest version of this discussion. When the financial turmoil of the world causes a reset button to be pushed, and the countries of the world all meet to discuss what kind of financial system will be used, the old adage will come into play. He, who has the gold, rules. it’s called the Golden Rule for a reason! And if most, if not all the Gold has been transferred to the East, guess who’s going to make the rules?

Currencies today 2/12/16. American Style: A$ .7105, kiwi .6675, C$ .7195, euro 1.1280, sterling 1.4540, Swiss $1.0260, . European Style: rand 15.8030, krone 8.5765, SEK 8.3785, forint 274.70, zloty 3.91, koruna 23.9620, RUB 79.28, yen 112.60, sing 1.3945, HKD 7.7910, INR 68.23, China 6.5314, pesos 19.11, BRL 3.9845, Dollar Index 95.76, Oil $27.34, 10-year 1.68%, Silver $15.68, Platinum $955.43, Palladium $523.25, and Gold. $1,238.47

That’s it for today. Well, I came home from my infusion yesterday and felt fine, went out to the deck, enjoyed the sun, and conversation with other people here, and then in the early evening it was like I was hit by a truck! I was dazed and confused, so I just went to bed! And this morning all is well, I guess as well can be! I almost sent out a distress signal to Chris, Frank and Mike last night, but thought that I would wait until morning to see how things were, and looky there, I didn’t need to send that distress signal at all! Lucky Me! HAHAHAHA! Journey takes us to the finish line today with their song: Girl Can’t Help It. I hear that Journey’s lead singer for all their hits, Steve Perry, is ready to rejoin the band. I still think that the story of how Journey found a replacement for Steve Perry when he left the band is amazing. You should Google it, pretty amazing. Our Blues play the Florida Panthers tonight down here, so I should be able to watch them on the Fox Sports Florida Chanel. Go Blues! Tomorrow is the Birthday of my very good friend Duane. Happy Birthday buddy! This is the birthday you’ve been waiting for! The sun just burst through, time to head to the deck, with my coffee. So, let’s all head for a Fantastico Friday together, eh? Bye!

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