In This Issue. * .8% of the 2.6% GDP was ACA. * Currencies try again to rally. * China to widen trading band? * Yellow means go faster! And Now. Today’s A Pfennig For Your Thoughts. 4th QTR U.S. GDP Disappoints! Good Day!… And a Marvelous Monday to you! And Welcome to February! Pitchers and catchers report in a couple of weeks. ? The Beatles greet me this morning with She Loves You. Admit it, you love that song, yeah, yeah, yeah, yeah. Well, did you watch the Super Bowl last night? I tried. But I was in one of those “spells”, and I actually threw in the towel with 5 minutes remaining. As I had told you, and became quite obvious, I really didn’t care who won the game, and I dislike both teams. When I wrote that a couple of weeks ago, I had a Seahawks fan rip me and say that he hoped the Rams left St. Louis that I deserved that. Whoa there partner! Them’s fightin’ words! Well, looky there! The first estimate of 4th QTR GDP here in the U.S. printed at 2.6% last Friday! WOW! What a drop from the trumped up 5% 3rd QTR print. But, the kicker here folks, is that if you recall, the 3rd QTR didn’t start out at 5%, in fact the previous estimate before the final revision was 3.9%… So, there will be a couple more “revisions” before we finally put to bed the 4th QTR GDP, and by the time we do so, it will be very stale data. And I’m sure that the book cookers will do their best to meet the President’s call for a strong 4th QTR GDP. But for now, 2.6% is a HUGE drop from 5%, and to me, it probably represents pretty close to what it should be. I had told you last Friday morning that I thought if the beans were all counted correctly before “adjustments” 4th QTR GDP would print below 3%… So, now that it did print below 3%, my mind is racing with all the questions about how many “adjustments” were made just to get it to 2.6%? And is this the beginning of the problems that I’ve been talking about for the economy without stimulus? And according to John Williams over at shadowstats.com, at least .8% of that 2.6% was a result of the ACA. So, not only did we stuff the ballot box of GDP reports last year by adding R&D, and other stuff to the calc, but we also added ACA. And the fun never stops boys and girls! Fun? You call this fun, Chuck? Well, not actually, I was being facetious. Oh, I see now, said the blind man as he spit into the wind, it’s all coming back to me now. So, when the 4th QTR GDP report printed on Friday, all the rate hike campers b’d and moaned, and it appeared that they had left their rate hike cake out in the rain. and I don’t think I can take it, because it took so long to bake it, and I’ll never have that recipe again. And for those of you thinking I’ve lost my mind. quoting lyrics by Donna Summer, I’m not. I go back to the original. Richard Harris. So, there! But, the rate hike campers took their bats and balls and went home, leaving the dollar to deal with everything on its own. And when the dollar has its accessories stripped away, it doesn’t look so good. on a funny note, I had a friend, send me a YouTube of an old guy singing a song called: I don’t look good naked anymore. That’s the song for the dollar folks! But the biggest surprise on Friday came when the price of Oil started rallying, and when the day finished the price of Oil had risen to above $50, a more than $5 move in one day! All the stories that attempted to explain this move pointed to the number of Oil rigs that had closed up the previous week which showed that the number of operating rigs was at a 3 -year low now, as the rig count dropped 7% the previous week. I’ve been told by people associated with Oil in some capacity that this rig count isn’t that big a deal, but I’ve got to say that it has to have something to do with production, because has rigs close, they certainly aren’t producing any longer! I don’t know where this will go, folks, but to me, it appears to be the beginning of the end. So, the currencies are attempting to rally this morning. The euro is up ½-cent, the Aussie dollar is up about 1/3rd of a cent, and so on.. But Gold is down again this morning sitting on a $7 loss right now. I’ve got some more on physical Gold in Asia later this morning, so I won’t spoil your appetite for that now, except to say the buying, producing and hoarding of Gold in the East just keeps gaining momentum. Other stuff that’s dropping includes Treasury yields. The “bond boys” sure didn’t like the color of the GDP report last Friday, and said so by dropping yields. The yield on the 10-year Treasury is 1.67%, just to point out on point on the yield curve.. 1.67%, that’s less than even the stupid CPI says inflation is running. So. there you go. back up the truck, buy some 10-year Treasuries and start out in the red. And if yields rise anytime in the next 10-years, you’ll remain in the red. OOOOHHHH, Daddy, can I have some, please, I’ll be a good boy, I’ll go to church, and open the car door for mom, please, oh please? Greece is attempting to mend the bridges they burned during the election process. The Prime Minister and Finance Minister will be touring Europe and having meetings with key people in an attempt to gain support for their plans to come up with a new deal for creditors. Well the PM and FM had better arrive bearing gifts, because they really ticked off the countries that have lent them money the past few years. So, this is what it’s like. Someone in your family borrows money from you. And they agree to the repayment terms, but then things get tight, and they no longer want to honor those repayment terms, so they go about talking bad about them to all their friends and it all gets back to you. And then the family member comes back to you, all nicey-nicey, wanting to talk about a new deal. If I were an European Central Bank (ECB) or Bundesbank (German Central Bank) member, I would tell the PM & FM to go to hello operator, give me number 9, if you don’t connect me, I’ll kick you in the behind the refrigerator was a piece of glass, and so on. I think you get the picture! Speaking of debts.I found this in my weekend reading. The White House will be seeking $561 billion from Congress to run the Pentagon in 2016 – its largest budget ever. However, a research and advocacy director told RT that the budget is closer to $1 trillion, and has been for several administrations. And why wouldn’t we believe what the advocates say? It was just 10 days ago that the President called for an end to “mindless austerity” and called for a surge in government spending, and then actually asked Congress to end the sequestration agreed upon four years ago. I wondered why this request was made at the time that it was, and now I know! In addition, riddle me this Batman. The U.S. says that their deficit last year was only $560-something Billion. But if you look at the U.S. Debt Clock, it shows that in that same period (actually 13 months) we added $1 Trillion to the National Debt. So, how do they do that? How does $560 Billion turn into $1 Trillion? Oh, that’s right, how could I forget? There are all those “off budget” things that get accounted for in a different room, that’s all smoky, and the accountants all wear green shaded visors, and sleeve protectors, and the adding machine tape is running all over the floor. That’s how! But doesn’t that just tick you off just a bit? They throw a ticker-tape parade in celebration that the Budget Deficit last year wasn’t $1 Trillion, the dollar rallies, and people dance in the street, but in reality, it was the same-o, same-o. But Shhhhhh, we don’t want to wake up the baby. Well, take me away from this discussion before I begin to yell at the walls, and here in the condo that would not be good for the other people in the condo! Well, the latest IMF Futures Position report from the previous week printed on Friday. And the extreme long position of dollars saw a reduction of 15,000 contracts, but still is quite large at 375,000. However, the non-dollar currencies remained all with net short positions, which leads me to believe that dollar positions were being sold to buy Gold. But that was the previous week, and not last week, it will be interesting to see the positions report this week for last week when Gold slipped once again. One of the really disappointing currencies in the last 10 days has been the Swiss franc. After going on a moon shot after the franc was untied from the euro, the franc has lost ground on what seems like a daily basis. I guess the “safe haven” status for the franc has either lost luster or, the markets are feeling like everything in the world is copasetic. It’s been a long time since I used that word, copasetic. My friend, Preston, who was the drummer in our band that traveled the country, used to say that word for everything. Hey Preston, want to stop and get a soda? Hey, it’s copasetic. would be the answer, and his answer to just about everything, so you can see why it’s been a while since I used it! HA! But seriously. what’s up with the markets anyway? Have they gone soft on us? Well, actually I think they have, they have fallen into the trap that the Central Banks set for them, and now the markets are afraid of the Central Banks and their ability to move markets against them. Central Banks rule the world! Can you see them wringing their hands together, and laughing that Doctor Evil laugh, and repeating, We rule the world, we rule the world? The Chinese renminbi / yuan saw a weakening overnight by the Peoples Bank of China (PBOC). I was doing some reading this past weekend. By the way, I’m reading a new book, titled: Confessions of an Economic Hit Man. I’m only about 1/3rd of my way through the book, but brother let me tell you, it’s good stuff! And a true story to boot! OK.. back to our regularly scheduled programming. The stuff I was also reading was about China, and the next steps for the renminbi. And of all the things that were talked about, the only one I saw that made sense was the widening of the trading band for the renminbi, which currently stands at +/-2%… The band was last widened from +/-1% in March 2014. and before that it was April 2012 that the band was widened from +/-.5%, and before that 2007 when they widened it from +/-.3%.. So, I think it would be the next step. Of course, widening the band doesn’t turn all the green lights on for renminbi appreciation. notice it does say + or – and in 2014, it was a case of both! But that doesn’t take away from the plans for the renminbi going forward, which I still maintain is taking away the reserve status from the dollar, and propelling the renminbi to such status. Just to be fair and balanced. James Rickards, doesn’t agree with that idea, and instead he has called for a collapse of the Financial system, at which time countries will created a new Gold backed currency. As crazy as I sound sometimes, and have been called gloom and doom, I can’t get myself to be that gloom and doom. The U.S. Data Cupboard today, has two of my faves data prints. Personal Income & Spending from December. We’ll also see the ISM Manufacturing Data for January.. Recall that the December ISM index number was weaker than it had been in November, and was a surprise to the markets. So, saying that, I come to the realization that “they” can’t let that happen again! And Gold. Well, I promised you something above on Physical Gold and so here we go! This is from Bullionstar.com and of course is the research of Koos Jansen. “As I wrote last time on data from the Shanghai Gold Exchange (SGE), in week 2 of 2015 withdrawals from the vaults of the SGE (that equal Chinese wholesale demand) came in extremely high at 70 tonnes; the third highest amount ever. In week 3 (January 19 – 23), though, the Chinese withdrew even more at 71 tonnes, up 0.89 % w/w, and a new third highest amount ever. Year to date 202 tonnes have been withdrawn from the SGE vaults, up 15 % y/y. Like last week, this was happening while the price of gold was rising sharply, staggering numbers. It’s still a mystery why mainstream media are not tracking weekly SGE withdrawals. I’ve read all over the news that Russia’s central bank has added 152 tonnes of gold in total to its reserves in 2014. In perspective, this is approximately the same amount of gold China has imported in the first three weeks of 2015. In my post China Continues To Drain Global Gold Inventory I have, once again, pointed out that import numbers derived from SGE withdrawals are for 95 % covered by export from the UK, Switzerland, Hong Kong and the US. These countries disclose only non-monetary gold trade, which support my assumption PBOC purchases are an invisible side show from public gold trade numbers and SGE withdrawals.” Alrighty then. Now it’s time to go to the For What’s It’s Worth section for today. And today, I have something from my daily perusals of zerohedge.com, and can be read there in its entirety by clicking here: http://www.zerohedge.com/news/2015-01-30/what-happens-when-markets-realize To set this up, it’s Charles Plosser, head of the Philly Fed speaking, pay close attention here folks.. “One of the things I’ve tried to argue is look, if we believe that monetary policy is doing what we say it’s doing and depressing real interest rates and goosing the economy and we’re in some sense distorting what might be the normal market outcomes at some point, we’re going to have to stop doing it. At some point the pressure is going to be too great. The market forces are going to overwhelm us. We’re not going to be able to hold the line anymore. And then you get that rapid snap back in premiums as the market realizes that central banks can’t do this forever. And that’s going to cause volatility and disruption.” Chuck again. WOW! A Fed member actually talking about how the Fed has distorted normal market outcomes! For once you get to hear from a Fed member, and not just me, talking and ranting about this stuff, and to this point sounding like the boy who cried wolf. To recap. The 4th QTR GDP first reading was just 2.6%, well below the expectations for a +3% print. And .8% of that 2.6% came from the ACA, so the fun just keeps coming for us! The currencies tried to rally on the weaker GDP report, but fizzled out on Friday, and they have picked up the attempt to rally again this morning. Greece leaders are touring Europe in attempt to repair the bridges they burned during the election process. Chuck questions the accounting of the Budget Deficit, and Gold gets sold again. what’s going on? Before I go to the currency roundup today, I wanted to take a minute, and talk about the loss of a baseball legend. Well, they laid to rest one of the top 100 ball players of the last 100 years on Saturday. RIP Ernie Banks, Mr. Cub. I really only saw Ernie Banks play ball at the end of his career, but my dad used to tell me about his ability, which was always a strong sign of respect when someone praised a ball player on a different team than the Cardinals, and add to that a Cub! He was always recognized by that great smile, and his slogan, “let’s play two”. I had a Cub fan send me a note last week when it was announced that Ernie Banks had died, and he asked me if I was such a diehard Cardinals fan that I couldn’t bring myself to talk about the passing of Ernie Banks. WOW, I thought. I don’t think that would ever get in the way, and this is to prove it! My friend, and retirement guru, Dennis Miller, is a lifelong Cub fan, and he tells me that Ernie Banks the Stan Musial of Chicago. Now that’s high praise! So, RIP Mr. Cub. Currencies today 2/1/15.: American Style: A$ .7795, kiwi .7275, C$ .7885, euro 1.1340, sterling 1.5015, Swiss $1.0750, . European Style: rand 11.5755, krone 7.7540, SEK 8.2725, forint 274.20, zloty 3.6875, koruna 24.5005, RUB 69.23, yen 117.60, sing 1.3525, HKD 7.7540, INR 61.79, China 6.1385, pesos 14.94, BRL 2.6770, Dollar Index 94.76, Oil $50.06, 10-year 1.67%, Silver $17.15, Platinum $1,230.50, Palladium $777.30, and Gold. $1,272.14 That’s it for today. Quite full-o-words this morning, eh? Well, I was down and out in Beverly Hills most of the weekend, but got a good night’s sleep last night, so all is back to normal this morning! YAHOO! Little Feat is playing: Dixie Chicken on the iPod right now. Love to sing along with that song! Our Blues won in Washington D.C. yesterday, and I got to watch the game! NBC Sports Network aired the game, and just by chance I found that channel that I didn’t know I had! The TV Guide on the TV only goes to channel 98, but this channel was 730! I guess it pays to just keep clicking “next” until the end, eh? The Blues have picked up where they left off before the All-Star Game break, and that included them playing their best hockey of the year! Let’s hope they don’t peek too soon, like they normally do! I did face time with my grandson, Braden the other day. He cracks me up. I taught him last year, that green is go, red is stop and yellow means “go faster”! And he told Kathy that the other day, as the light turned yellow as she was driving through the intersection. “Mimi, yellow means go faster!” HA! Hey! Isn’t that my job as his grandfather, to teach him things? Cracks me UP! Well, we had a plethora of birthdays last week, I hope everyone had a grand day. And with that, I need to get going. I have a very important date! (not really, but the sun is out!) I hope you have a Marvelous Monday! Chuck Butler Managing Director EverBank Global Markets
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