Thứ Năm, 10 tháng 7, 2014

Waiting To See If Yellen Missed Anything

Good Day! . And a Wonderful Wednesday to you! Crazy! Two nights, two walk-off home runs in the bottom of the 9th, for my beloved Cardinals! Are you kidding me? We hadn’t seen a walk-off home run from the Cardinals since the famous Game 6 of the 2011 World Series by David Freese, and now two nights in a row, hey! Let’s make it 3! Sorry for all the baseball talk to start the day, but this is obviously not something I’ve seen before! Of course I was asleep when the 9th inning came around last night, so I saw it all this morning!

I also saw Brazil take their worst home country loss, or if it wasn’t the worst in score, it was in the worst for the timing of when they lost! A 7-1 loss to Germany in their home country, in the Semifinals of the World Cup! OUCH! Now that’s going to leave a mark! Now it’s up to Lionel Messi to keep the World Cup Final Game from being an “all European” affair. Now, onto other things.

Well, the currencies spent the day in a very tight range, tight like a Tupperware seal. But behind the very tight range was a softness to the dollar. I told you on Monday that we would see the dollar drift this week with not much data to review, and that’s exactly what has happened the past two days. Gold added a couple of bucks, while the alternative precious metals of Platinum and Palladium took a bigger chunk of gains VS the dollar on the day.

Yesterday, we had the high yielders with the best gains VS the dollar, and this morning, it’s the Asian currencies from China, India Singapore that have booked the best gains VS the dollar. It was nice to open the screens up this morning and see the Indian rupee gaining again. The recent moves in the rupee have not been favorable, with the price of Oil causing most of the damage, but the price of Oil has retreated from the $107 level of a couple of weeks ago, to $103 and change this morning, still over $100, but retreating nonetheless. And that has helped the rupee to get back on terra firma.

I just received some research on the new Indian Budget, and I haven’t had an opportunity to go through it yet, but I will! I’m hoping it is chock-full-o-surprises for the Indian economy, that is in need of surprises to unlock this potentially take no prisoners economy.

Slipping into the S. Pacific, the New Zealand dollar / kiwi has pushed past 88-cents this morning. The Fitch news that I told you about yesterday, is really providing kiwi with a nice base to push forward from. Reserve Bank of New Zealand (RBNZ) Asst. Gov. McDermott talked last night about how important growth in output is desirable and with it gives the New Zealand economy the opportunity to grow without raging inflation pressures.. The best part of his speech is what he didn’t say. He didn’t say that kiwi strength is a problem. He obviously didn’t tear a page out of the book on “how to diss kiwi” written by former RBNZ Gov. Bollard!

There’s an article on Bloomberg this morning, on how Nomura Holdings, Inc. has been the best currency forecaster over the past 4 quarters, which is impressive, but the thing I like in Nomura’s latest report is that they see the Aussie dollar (A$) continuing to gain to 96-cents, from its current level of 94-cents by year-end. Nomura bases its forecast on the economic recovery going on in China right now.

Remember when I told you about what Uridashi Bonds were? Well, in case you’ve forgotten or are new to class, a Uridashi bond is a bond issued by Japan, but denominated in another currency, usually a much higher yielding currency, so that the owner of the bond gets a much higher yield. Japanese investors love these bonds, for they can’t get yields like the ones from Australia, New Zealand and Brazil, at home!

Well, I’m told that Uridashi bond issuance has gone into overdrive the last three months with total issuance across all currencies increasing to $19.8 Billion from just $7.2 Billion in the first quarter. And guess which currency is favored above all the rest? The Aussie dollar (A$), with total A$ issuance increasing almost 4-fold! Brazilian real is a close second. But the A$ is the most favored! No wonder the A$ has gained a couple of whole figure-cents the past couple of months!

Oh, and the Chinese renminbi, was allowed to appreciate overnight as I mentioned above. As if. As if we didn’t know that the renminbi / yuan would appreciate ahead of the Chinese – U.S. talks that begin today!

China is expected to announce their latest report on Currency Reserves. I expect the total to come in around $4 Trillion worth. So, that puts China with $4 Trillion in reserves, and the U.S. Fed with a $4 Trillion Balance Sheet of debt holdings. And there are still people out there that don’t believe in the “China story”. I had a dear reader send me a long note about how I’m so wrong about the dollar weakening beyond recognition. And that’s fine, he did it nicely, and with lots of facts, so he did his homework. But, didn’t mention debt. Hmmm. I wonder what the U.S. is going to do with all that debt? Rising interest rates will make the debt servicing even more expensive and eat away tax receipts. But don’t worry about that debt, right?

Oh, and one more thing. when I talk about the dollar collapsing, I’m not talking about it going away forever. I’m talking about in price and value. But then one can’t ever forget that no fiat currency has ever lasted forever.

The Wall Street Journal (WSJ) reported yesterday that Asia’s Central Banks grew their currency reserves in June, at the fastest pace since 2011, bringing their total currency reserves to $7.47 Billion. The reporter was estimating that China’s currency reserves will be around $4 Trillion, but Singapore, Taiwan, S. Korea and Japan have already reported. I received a note from a dear reader who asked me what the ramifications of this growing currency reserves in Asia were.

Well, basically, the Asian Central Banks would prefer to not hold such large currency reserves, but given what the U.S., Japan, and Eurozone have been doing with bond buying / QE, these Central Banks don’t have any other choice. You see, these Central Banks buy up the currencies that offset their respective base currencies, and have flooded the markets, in order to keep their base currencies from getting out of whack. In other words, too strong.

The scary part, is that there are so many dollars floating around. That, won’t be good for the dollar in the long run, you know you’re mother told you that too much of a good thing wasn’t good. And think of this way. Let’s say you make a lot of money, but the money goes to your neighbor who gets to hold it, and do with it as he pleases. That’s not an ideal situation now is it?

British pound sterling, which has been the belle of the ball in Europe for the last couple of months is still reeling from the negative Industrial Production report that printed yesterday morning. It was like a shock to the system! You see, the data from the U.K. had met or beaten expectations for an extended period of time, and the pound sterling enthusiasts just weren’t prepared for a negative data print! I told you to be careful with pound sterling, didn’t I? Now the U.K. will print their Trade Balance (Deficit) tomorrow, and hope that their next data print after that, returns to “happy times” in the U.K. again.

There’s something fishy going on in Canada folks. The Dept. of Finance will make an announcement this morning at 9 ET, and the announcement is under lock-up, and there is no indication of what they are going to announce. Probably nothing, but the suspense has got my attention for sure! The Canadian dollar / loonie doesn’t seem fazed by the suspicious unknown announcement, which is probably a good indicator that this won’t amount to a hill of beans.

The euro moved back over 1.36 yesterday, but once again it bounced around the level all day, before finally settling above 1.36 overnight. I had to love a comment by ECB Executive Board Member Coeure, who said, “it is wrong to say that the euro is too strong.” He also went on to say that the “exchange rate is not an objective for the ECB”. Good for you Mr. Coeure! Central Banks should only be concerned about providing price stability.

Speaking of the euro. My guitar playing buddy, and investment analyst supreme, Steve Sjuggerud wrote a very strong opinionated dissing of the euro because of rising interest rates in the U.S. while the Eurozone struggles with an economy that needs ZIRP. I sent him an email and said,” Just a thought that I’ve been repeating in my letter over and over again that one of the main reasons the euro has retained its strength against the dollar despite all the negativity in the Eurozone, is that the ECB’s balance sheet is shrinking, while the Fed’s is still growing (not as fast obviously, but growing still nonetheless).

Yes, interest rates have always been a key fundamental of a currency’s strength.. But since 2008, fundamentals have really been removed from the markets, don’t you think? It’s all been Central Bank driving the assets around.”

I’m sure Steve will be correct in the end, for he has far more gray matter than I. But I just wanted to ask him his thoughts on what I had to say. I’ll let you know if he responds. He’s so busy, that I’m sure he’ll never see the email. But I can always hold out hope!

Had to stop and sing along with the St. Louis band, Mama’s Pride, and their hit song: Blue Mist. But I’m back now. OK. ready for this? You know me and my dislike for the hedonic adjustments that the Bureau of Labor Statistics (BLS), and trust me I’ve seen all the other names that you dear readers call them, but the kinder gentler me, can’t use them any longer. And one of those hedonic adjustments is the BLS’s use of what they call the Birth/ Death model, where the BLS makes an adjustment to the jobs report from their view that tons of new businesses have been added, which will take a month to get on the jobs surveys. I’ve never seen any actual proof that these new businesses even existed, so to me, these jobs were “ghost jobs”.

Well, yesterday in the 5- Minute Forecast, my friend, Dave Gonigam, had something that plays well in the sandbox with my suspicions that the Birth / Death model is hogwash. Let’s go to the tape. “Unfortunately, another study by the Brookings Institution finds businesses are now going defunct faster than they’re coming into existence. “This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech,” says the study.

Affirmation comes from the Labor Department, which finds the number of businesses less than a year old at its lowest in records going back to 1994.” Dave then inserted a graph showing this huge downward slide in the number of firms less than 1 year old. If you don’t get the “5″ I strongly suggest you do. go to and see about signing up!

Well, the U.S. Data Cupboard is still in search of a restocking and really doesn’t get much in the way of restocking today, but this afternoon, we will see the Fed’s FOMC Meeting Minutes from their June 2-day boondoggle. I think the markets are waiting to see if there was more to the meeting than what Janet Yellen told us about last month.

Gold is up $5 this morning, and has remained above $1,300 again for some time. The last time it slowly rose to near $1,350 it got taken down by the price manipulators, let’s see how long this will last this time. Our metals guru, Tim Smith, told me yesterday that the Gold fixing price was published and not 5 minutes later, Gold was taken down $10. I shouted back. If that doesn’t scream price manipulation I don’t know what does!

OK, so what was the best performing commodity in the first 6 months of this year? Well, if you said: Coffee, you would win the Gold Star today! Coffee rose about 50% in the first six months this year, which is quite impressive, eh? But what about the second half of 2014? Well, Jeff Kilburg of KKM Financial said that Gold reminds him of coffee. “Coffee got thrown to the curb just like Gold, and look what it did?” Kilburg likes Gold going forward.

For What It’s Worth. And to me. it’s not worth much! This idea by the IMF that is. (That sort of sounds like the Beverly Hillbillies song, and up from the ground came a bubbling crude, Oil that is. black Gold, Texas tea!) And I don’t make this stuff up folks, this was in a working paper printed by the IMF just last month, June 2014! Now, before you go out to the garage or barn and get your pitchfork or rake to march on IMF headquarters, let me remind you that it’s just an IMF idea, and our fave lawmakers (Congress) have not passed through any IMF ideas recently. So, put away the sharp objects and read on!

First, let’s recall the IMF idea to steal, I mean take, from savers, their savings to use to pay off debt servicing of Eurozone debt (bonds). OK. so now, the IMF thinks that they can play Hotel California with bond investors. Remember that great rock song says, “you can check out but you can never leave”. The IMF’s newest idea is to simply not retire bonds, but to extend them. So, a 5 year bond becomes a 20-year bond, or a 2-year note becomes a 20-year bond. Hey! If you liked owning the bond for 5 years, you’re going to love owning for 20 years!

For now, all these ideas are presented to the Eurozone. But do you really think that that’s where these ideas will stay? Especially given the debt problems in the U.S.!

Chuck again. I know, I never really left you, as I just told you about the IMF idea. But let me say this. The IMF (and to extend that, our lawmakers) have not ever brought to the forefront an idea to reform the current system. All they ever come up with are ways to hurt savers, but just keep spending and spending. I’m just saying.

To recap. The dollar remains soft, with the high yielders and overnight the Asian currencies. Gold is up $5 with the other precious metals doing well too. The dollar continues to drift this week with no data to view. The Fed’s FOMC Meeting Minutes print this afternoon, and Chuck thinks the markets are waiting to see if they can find something in the minutes that Janet Yellen didn’t tell us about already. They’re probably looking for love in all the wrong places. Kiwi trades over 88-cents and still basking in the Fitch comments, while the A$ is the favored currency to issue Uridashi bonds.

Currencies today 7/9/14. American Style: A$ .9405, kiwi .8805, C$ .9375, euro 1.3610, sterling 1.7115, Swiss $1.1195, . European Style: rand 10.7020, krone 6.1785, SEK 6.8075, forint 227.35, zloty 3.0350, koruna 20.1675, RUB 34.09, yen 101.70, sing 1.2425, HKD 7.7505, INR 59.75, China 6.1565, pesos 12.99, BRL 2.2120, Dollar Index 80.20, Oil $103.44, 10-year 2.57%, Silver $21.15, Platinum $1,502.00, Palladium $872.00, and Gold. $1,325.70

That’s it for today. Pretty wordy today, eh? See what happens when I get the proper amount of sleep! HA! The visit to the retina specialist yesterday went fine. Jr. Walker and the All-Stars are playing: What Does It Take on the IPod right now. Love that saxophone! I was a happy camper yesterday when I saw the latest: Things that make you go Hmmm, from Grant Williams in my email box! I don’t believe there’s a better mind or writer out there folks. (well, maybe James Grant would beat him on the mind part) I had written a long paragraph about the White House requesting $3.8 Billion for the immigration problem, but decided against putting my thoughts on that whole thing down, as it would probably not go over well with everyone, including my legal review! So, that discussion gets saved for the Butler patio! So, memo to Cardinals. Don’t depend on a walk-off homer every night! Well, I’m within a week of my summer vacation now, so, you know me, it’s time to wind it down! HA! I’m hoping you’ll understand! HA! Any-old-way, it’s time to get off the bus, right here, right now, and hope you have a Wonderful Wednesday!

Waiting To See If Yellen Missed Anything

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