Counting Eggs Before They Are Hatched…

July 29, 2014 · by 

Good Day! …  And a Tom Terrific Tuesday to you! I’m back in the saddle again… Out where a friend is a friend, and so on.. Yes, I decided to return! I know that a few of you worry each time I go away, that I’ll never return… And then the rest of you hope that I don’t return! HA! I did get to see some old friends in Vancouver last week. We didn’t have “normal” Vancouver, July, weather, but still, the city is magnificent! My main stage presentation went well… The bright lights had me sweating profusely by the end of the presentation. Well, it was either the bright lights or me fearing that I could get “taken out” with all my pointing out of the debt situation here in the U.S.!

Well, I read the Pfennig each day while I was away (Thanks Mike and Chris!), and saw that the euro has once again been placed in the pressure cooker VS the dollar… In my workshop, that was attended by just a handful of people, I guess they all knew what they need to be doing to combat the added tax of a purchasing power loss… Anyway, what I was going to talk about is that I talked about how the dollar index isn’t the best judge of how the dollar is doing, as it is so heavily weighted toward euros… Currencies like Aussie dollars (A$), kiwi, reals, Sing dollars, Chinese renminbi, and others aren’t a part of the index… So, don’t get in the habit of thinking that dollar is sitting in tall cotton, when the dollar index rises… It just means that the euro is not performing too well…

Speaking of the euro, the rug has been pulled from under this currency ever since it hit 1.40, and looked to be heading to the moon… I have no doubts that it will return there eventually, but for now, it’s batten down the hatches for the single unit.  Traders are pointing to interest rate differentials… But not ones that are current, ones that they see in the dollar’s favor in the future… Strange don’t you think? Sort of like counting your eggs before they are hatched, as my grandfather used to say… (he had a chicken house as long as a city block on the farm, so he knew a thing or two about chickens and eggs!)  These are the things that traders like to do though, and when the rate hike actually does happen, all the good stuff that should go along with a rate hike announcement is treated like water under the bridge… It could very easily happen that way for the euro going forward, bad now, good later, based on this scenario… I’m just saying…

Well, did you see that last week the Russian Central Bank (RCB) hike rates 50 Basis Points (1/2%)? I forget if I sent Mike a note on that or not… But the ruble isn’t getting any love these days, even with the 50 Basis Points rate hike announcement… Ukraine is weighing on the ruble like the cares of tomorrow weigh down a man… (that’s an old saying, so don’t shoot me for not saying women too!)  But what do I always tell you about buying currencies, or really anything for that matter? You should look to buy on weakness, not strength, and look to sell on strength not weakness… Not that we can do anything with rubles anyway, right now, but this should carry over to the other currencies…

The dollar seems to be in charge this morning, except for the Chinese renminbi / yuan, and Sing dollars (S$), and Gold… Could this be the beginning of the long awaited “year of the dollar”?  Hmmm… Funny thing, I talked about this very thing last week in Vancouver! So, let’s revisit that talk a bit, eh?  The thing that everyone is raving about these days (except Chuck of course!) is a rapidly strong economy in the U.S.  I’d like to point out a few skeletons that this so-called “strong economy” is going to face… Like the fact that the U.S. is now, in current terms, $60 Trillion dollars in debt… That’s Gov’t, State, City, Business, and personal debt has reached $60 Trillion dollars… We have NEVER been that much in debt before, and don’t forget what professor Lawrence Kotlikoff says is our total Unfunded Liabilities which he says is more than $200 Trillion dollars! Are You Kidding Me?  That makes me think of when we were kids, and someone would say “are you kidding me?” and someone else would say, “no, I wouldn’t kid you, you’re my favorite Billy goat! HA!

Chris told you yesterday that this week’s Data Cupboard is chock-full-o-data, with the first reading of 2nd QTR GDP on the docket for tomorrow… The economy here in the U.S. is so uneven, one week you get a favorable data print, and the next week you get an unfavorable one, and when you step back and take a look at everything, you see what I mean about it being so uneven… A month ago, the forecasts were for a 4% increase in 2nd QTR GDP… Those estimates have slipped to 3%…  And I told the audience in Vancouver last week, to mark this down, that Chuck thinks that after all the revisions, that 2nd QTR GDP will be 2.8%…  now after posting a negative -2.9% growth figure in the 1st QTR, where will that leave us after 6 months?  That’s right, still digging…  Oh, and this just in.. 35% of Americans are experiencing debt collectors… YIKES!

And remember, that this GDP report will undergo 3 total prints… So, tomorrow’s print will either light up the sky for the markets, or turn the lights down low, but the thing to remember, is that there will be a couple more versions of that print to view down the road…

Long time readers know that I disdain all the “data talk”… But there are times that it’s necessary… And this week is going to be one of those times… And the Fed members will have the GDP report in their back pocket when they meet later in the day on Wednesday to discuss things… I don’t think 2nd QTR GDP could print bad enough to have the Fed stop their QE tapering this month… But if 2nd QTR GDP is weak, it will certainly be in the backs of their minds…

Well, moving along to other things… S&P gave Australia their stamp of approval by reaffirming their AAA rating, and keeping their outlook for Australia at “stable”… The A$ is down by a small amount this morning, but that drag had taken the A$ below 94-cents… There was a time when news like maintaining a AAA rating and stable outlook would be good for a currency… Just shows to go you, that Central Banks rule on currencies these days, and fundamentals remain in the back seat… Shoot Rudy, they’re not even a back seat driver!

Maybe, the IMF has been reading the Pfennig… Here’s the skinny of what I’m talking about here… You all know that I’ve scratched my balding head over and over again on how the U.K.’s pound sterling was gaining so much ground, given all the skeletons in the U.K.’s closet, but again, the sterling gains were the main product of “rate hike expectations”… Not anything concrete, but “expectations”…

So, a news outlet in the U.K. printed a story on how the IMF feels that pound sterling is 5-10% overvalued… (probably because the U.K. didn’t adapt any of the IMF’s suggestions on how to recover!) But this is where I usually go the opposite way that the IMF does… But this time, it’s the IMF that’s jumping on Chuck’s bandwagon, so, maybe it’s time to turn the reins over to the IMF, and jump off this bandwagon!

While up in Canada last week, I made sure to read the Globe & Mail every day (mainly because I like it, but also because it was at my door each morning!) From the Globe & Mail I can get little tidbits of news on the economy through the eyes of a Canadian… Often times these tidbits are in line with what I’m thinking, but every now and then they light the bulb above my head… And last week the light bulb was illuminated! Canada is also expecting a strong 2nd QTR GDP number, which they hope will fuel a rebound for the economy…  Well, I had been saying that for a while now, folks… That the data reports were better all the time… I’ve got to admit it’s getting better, a little better all the time, it can’t get no worse!

As I said above the U.S. Data Cupboard is chock-full-o-data this week, and by the end of the week, we will be worn out, but will still have to work our way through the latest Jobs Jamboree! Can you believe that? Doesn’t it seem like we just did a Jobs Jamboree for June, and now we’re going to do one for July?  Any-old-way you look at it, this week is chock-full-o-risk… So, once again, I’ll have to remind you keep your arms and legs inside the vehicle at all times!

Gold was up $5 when I turned on the screens this morning, but is only up $3 right now… not that a $2 move is worth even mentioning, but it is what it is… Geopolitical risk is like at DEFCON 2 right now, but the markets aren’t looking at it that way… Stocks keep moving higher, and Gold keeps getting kicked below the knees. I’ve got a Bloomberg story on this scenario for the FWIW section today, so you won’t want to miss that!

It was interesting listening to Doug Casey in Vancouver last week, talk about how he doesn’t believe in metals price manipulation… I like Doug, we’ve puffed on cigars together before, and drank adult drinks… So I know that he couldn’t care less that I don’t agree with him on this! The Big Boss Frank Trotter also thinks I’m looney tunes when I talk about price manipulation, and other conspiracy things, which as I keep pointing out, eventually become conspiracy FACT!  So, I guess price manipulation isn’t everyone cup-o-tea… It is mine, and I’ll keep being all over this like a cheap suit!

Before I head to the Big Finish today, I just wanted to mention something I read this morning… Ed Steer is reporting that there’s a possible discrepancy in GLD’s Gold Bar Accounting… Long time readers know that I’ve questioned these investment vehicles before… Apparently there’s a discrepancy in the “GLD Trade Spreadsheet VS GLD Bar List”..  Nothing is confirmed or admitted to here folks, please keep that in mind… these are just allegations, but ones that have HUGE ramifications if proved to be true!

For What It’s Worth… This story can be found on in case you want to read the whole story… And it’s about Geopolitical risk… So, let’s see what these guys have to say about it!

“Since the start of the year, conflicts in Syria, Gaza and Iraq have escalated, China has become more assertive in pursuing territorial claims against Japan, Thailand reverted to military rule, Russia annexed Crimea and a civilian airliner was downed in Ukraine.

These crises have had little lasting impact on major financial markets in the U.S., Europe and in Asia. Now Raj Hindocha, a managing director with Deutsche Bank Research in London, is warning that investors and money managers could be in for a rude awakening later this year.

Geopolitical risk is being underestimated and volatility suppressed, thanks in large to the open monetary spigots at the U.S. Federal Reserve, European Central Bank, and Bank of Japan. Hindocha went on to say, “It’s the abundant liquidity that has numbed the markets. Nobody wants to bet against that firepower.” He went on to say that “the shift in market sentiment could come as early as September. All of these risks that have been drowned out because of liquidity could be a trigger for people to take a more bearish view of the markets.”

Chuck again… Well, what do we have here?  Let’s revisit things that Chuck has said previously that tie in nicely to what Mr. Hindocha is saying here… First, I said that we would see  liquidity  dry up by the end of summer early fall… And without liquidity in the markets, all hell could break loose… I also said that it would be this damage from a lack of liquidity that would push the Fed members to go back and revisit the QE table…  Not pretty things to think about, but we do have $60 Trillion in current Debt that’s attached to our shoulders like an Albatross!

To recap… The dollar seems to be having its way with the currencies this morning except the Chinese renminbi, Sing dollar and Gold… The moves aren’t that big either way folks, as I think everyone is awaiting tomorrow’s 2nd QTR GDP and FOMC meeting… The euro is getting dragged through mud of interest rate differential expectations! That could all come crashing down around the dollar bugs eventually, but for now, they get to come out of the walls… Chuck enjoyed his time in Canada, as usual, and got caught up on what’s going on in Canada! Look for a huge rebound of economic growth in the 2nd half of 2014 in Canada! And there’s a possible discrepancy in GLD’s Gold Bar Accounting… Notice I said possible, so I have to do an opposite call from the great Jack Buck… Don’t go crazy folks!

Currencies today 7/29/14… American Style: A$ .9395, kiwi .8515, C$ .9250, euro 1.3430, sterling 1.6955, Swiss $1.1055, … European Style: rand 10.5895, krone 6.2305, SEK 6.8365, forint 230.95, zloty 3.0915, koruna 20.4595, RUB 35.66, yen 101.95, sing 1.2415, HKD 7.7500, INR 60.13, China 6.1615, pesos 13.01, BRL 2.2220, Dollar Index 81.06, Oil $101.60, 10-year 2.46%, Silver $20.65, Platinum $1,484.50, Palladium $884.25, and Gold… $1,307.63

That’s it for today… The Happy Song is playing on the IPod this morning, that song just puts a smile on your face folks… Well, the reports from the Junior Olympics tournament in California were good and bad for the St. Louis team… They lost 2 of 3 games the first day, won all three the next day, and then had a chance to really move on in the tournament but lost by 1 goal yesterday… Alex is expected to get home about midnight tonight, and then he needs to begin to get ready for college! The schools, and I mean all of them, start the school year so darn early these days… In my day, we went back to school after Labor Day… Now, these kids are ready to receive a session grade by the time Labor Day hits! Cardinals head to San Diego for 3 games after taking 2 of 3 from the Cubs…  The Cardinals really need to get on a roll to the end of the season and not just for 3 or 4 games! I must be late, as Mike just walked in… So, it’s time to get off the bus, and hope you have a Tom Terrific Tuesday!

Chuck Butler


EverBank World Markets

Editor of A Pfennig For Your Thoughts


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