Good day. And a Happy Friday to one and all! It's a stormy Friday morning for us here in St. Louis. I could hear the rumbling thunder when I first woke up this morning, and now the lightening and very loud rain has knocked out our internet / wireless system here at home, so unless something changes, this will be later than usual this morning, and short-n-sweet. Pink Floyd greets me this morning with their song: Time. You know the one where all the different sounding alarm clocks go off at the beginning of the song.
Yesterday, we saw the Political pressures / risks that just ruined the dollar bugs' day on Wednesday, go away, with the dollar gaining back some lost ground. However, the Political pressures/ risks have spread to places like Brazil, and the buying of dollars has spread to places like India. So, I've got the skinny on both of those to talk about today. But first let's talk about something I made the wrong call on yesterday.
Well, I was wrong, it took too long, I got caught in the rush hour, fellows started to shower, you with love and affection, look out it's coming in your direction, on the expressway to your heart! Ahhh, some 60's music lyrics to brighten my day. You see, I was wrong about the Bank of Mexico (Banxico) and their rate decision yesterday. Banxico decided to hike rates 25 Basis Points to an internal rate of 6.75%. The peso tried to rally, and did for a short-time, but then traders acted on their sentiment that inflation in Mexico isn't all that it's thought to be by Banxico. And that the Bank pulled the trigger too soon. So there you have it.. We have the U.S. and Mexico hiking rates, and the rest of the world waiting for Columbus.. or inflation, or economic growth, or Bullwinkle to pull a rabbit out of his hat!
The Big Dog, euro, which has, for this week at least, returned to its former self, full of you know what and vinegar, and ready to chase the dollar down the street, lost a little ground to the dollar yesterday, but overnight has recovered that lost ground from yesterday. I read a report this morning that European Central Bank (ECB) President, Mario Draghi, is concerned about the "messages the ECB sends to the markets". I laughed and laughed, until I was afraid I would end up hurting something. Really, Mario? What gave you the hint that the markets trade on your comments? Oh, the problems of a Central Banker, eh? Oh, well, people say the darndest things, eh?
Yesterday, I told you that the Political pressures / risks here in the U.S. had spread to Brazil. And the real had taken a step back its recent rally, but not a large step at the time.. But the move yesterday was much larger. Yesterday morning it seemed that the it was just too early for investors to know for sure that the interim Gov't's plans for an ambitious agenda to help Brazil's fiscal footing, is going to crumble under the Political pressures/ risks. But given how many people still believe that the previous President (Rousseff) was railroaded out of town, the suspicion of another railroading is casting its net over investors thoughts, right now, and that has deep sixed the real, which comes at a time when the real was one of the best performing currencies year-to-date. Brazilian stocks were also among the best performers year-to-date too, but not now. There's just too much uncertainty going on here, and I've always told you that traders don't like uncertainty.
Another currency that was recently among the top performers year-to-date, is the Indian rupee.. Remember when I was telling you how much it had rallied, and the markets were thinking that it was going to either be 1. Overbought, or 2. Overheated.. And that would bring about its demise. In fact, the markets had built up a sizeable lot of short trades in rupees, in case they needed to pull the trigger. Well, the rupee lost ground yesterday and overnight, but not because of being overheated or overbought, no. instead it was a flight to dollars as the U.S. Political Pressures / risks built steam. I see this as a good "correction" if you will, for rupees, because the way I see it, when all the dust settles on the Political stuff, the sizeable lot of short trades won't be there to stand in the rupee's way, for they will have been used in the panic buying of dollars, which I believe will prove to be a false dawn, a tempest in a teapot, and whatever else you want to call something th at has moved the markets so much, but will never come to pass.
That's right. I don't think Trump will be impeached, but instead this was just a way for the powers that be, and run the show, to show the president who's really in charge. But that's all I'm saying about that!
And I do believe that the markets figured that out yesterday. Bond yields rose, stocks recovered a big chunk of their previous day's losses, Gold gave back a large chunk of what it had gained the previous day, and the dollar tried to mount a rally, and did in the Dollar Index. Boy, was that ever a couple of days where Political Hysteria took over! I don't like it, it's not a fundamental, and I have no dog in this hunt!
Longtime readers know I do NOT like to steer this letter into a discussion of politics. But when they cause markets to move like they did on Tuesday & Wednesday, I do have to steer this letter down that road, but, as soon as it gets too deep into the subject, I can always, and will always veer off in another direction.. And so here we are, going in another direction.
Gold gave back $14 of its $24 gain on Wednesday. UGH! You know it had to be a wild and crazy day for Gold, as 329,000 contracts were traded! You may recall me going bananas over trade volume in the 200,000 contracts region? Well, imagine me seeing 329,000 contracts traded in Gold yesterday! Dear reader Bob sent me snippet of a blog he reads where the Gold researcher points out that in 2016 the ratio of paper trades to physical trades in Gold was 233:1.. Gold traded in 2016 had an all-time record of 243,000 tonnes of Gold, or $9.8 Trillion worth. That sounds great right? Well, no. it isn't because that includes the paper trades. 243,000 tonnes of Gold is 76 times global mine supply!
So, at the end of the day, Gold buyers appreciate the paper trades, because they keep the price at a level that gives new buyers and buyers that want to add to their positions the opportunity buy it at a reasonable price, that is, compared to what some of the Gold Bugs are forecasting for Gold.
But the price of Oil rallied in the past 24 hours and is close to $50 and it could spit in $50's back yard! The Russian ruble is caught between the price of Oil rising and the U.S. Political stuff, but the other Petrol Currencies are loving the Oil price rally!
The U.S. Data Cupboard yesterday, had the Philly Fed Index, and I had told you that given what the Empire (NY region) had printed earlier in the week, that this Index would probably show the same rot on the vine. But, it didn't! The Philly Fed Index printed an increase in the manufacturing activity of the Philadelphia region! Wait! What? Yes, pilgrim, manufacturing in the Philly region is strong, while just up the road in the NY region it's not strong! Somebody get me a cold drink! For this doesn't make any sense to me! Oh, and Leading Indicators fell in April from March's print. Hmmm.
Today, the U.S. Data Cupboard is empty. Bare. Containing nothing, nada, nil, zilch, a big fat goose egg! That usually means the dollar will have a decent day, because there's no bad data to bring it down!
But, as the internet system here begins to show a sign of coming back on, I see I'm back on the regular time schedule, just a little later than usual, so that's a good thing. But, this connection seems to be shaky at best, so who knows?
To recap. The Political pressures/ risks here in the U.S. seem have backed off, and the dollar gained back some of its lost ground throughout the day, Gold gave back $14 of its $24 gain the previous day, bond yields rose, and stocks rebounded. The euro gave back some gains early yesterday, but then turned around later in the day, and had really moved higher in the overnight markets, and is within spittin' distance of 1.12, as I write. Banxico surprised the markets and hiked rates 25 Basis Points yesterday, but the peso didn't see much love from the move. Brazilian real and Indian rupee were both subjected to the Political pressures / risks yesterday. The real was sold on the thought that interim Gov'ts ambitious agenda to get Brazil's fiscal books on terra firma will have to be scrapped if the interim President has to resign, from the allegations he knew about the hush money give to the previous President that caused her impeachment. And the rupee saw a flight to dollars as traders here still fear that the U.S. President will be subjected to further problems. But Chuck sees this as a correction for the rupee, and should be a good thing going forward.
Or, here's your kind of long snippet today: "Consumer credit scores may end up being a lousy predictor of U.S. borrowers' ability to repay their car loans, according to UBS strategists, citing flaws in the scores similar to those that emerged during last decade's housing bubble.
As many as one in five auto-loan borrowers admitted in a survey that their applications for debt contained inaccuracies, UBS strategists led by Matthew Mish wrote, meaning fraud could be more pervasive than lenders planned for. A growing number of borrowers have searched on the Internet for "credit score," signaling that borrowers may be getting better at figuring out how to game their credit scores, the strategists said.
The report raises questions about one of the key arguments for investors not worrying about consumer credit, and car loans in particular: borrowers' credit scores are broadly rising, and have been higher for recent auto loans than they were before the financial crisis. Those scores have been climbing while auto lenders loosen many loan terms, including allowing longer payback periods, the strategists wrote.
"Everything but credit scores have been eased in lender underwriting," Mish said. "Loan terms are stretched out, interest rates are aggressive, but there may be an over-reliance on credit scores, and that's the danger."
Chuck again. Smells like 2007, walks like 2007, quacks like 2007. Could it be 2007 revisited? Well, certainly not the size of the problem, but think about this. James Rickards talks about snowflakes all the time, and I agree with him, that all it takes is a snowflake to cause an avalanche, and this car loan problem could be a snowflake for the U.S. economy.
Currencies today 5/19/17. American Style: A$ .7435, kiwi .6890, C$ .7370, euro 1.1182, sterling 1.3015, Swiss $ .9788, . European Style: rand 13.2670, krone 8.4031, SEK 8.7588, forint 276.95, zloty 3.7578, koruna 23.7054, RUB 57.44, yen 111.25, sing 1.3871, HKD 7.7820, INR 64.63, China 6.8875, peso 18.74, BRL 3.2081, Dollar Index 97.32, Oil $49.94, 10yr 2.25%, Silver $16.79, Platinum $939.74, Palladium $766.24, Gold $1,253.10, and SGE Gold $1,265.60
That's it for today. I go for my 3,000 mile oil and lube job on the pacemaker this morning right of the starter's gates, so have to get a move on here, and get going! I slept with my new CPAP machine for the first time last night, I guess it's something I'm going to have to get used to, for I didn't notice any real difference in my sleep, and I'm sure there are "adjustments" that need to be made. It's going to be a stormy day here. My dad used to walk through the house singing a song. Stormy weather. Don't know why there's no sun up in the sky.. Stormy Weather. My dad had a great voice for singing, and I can still hear him singing Hank Williams songs. Ok, Cardinals and Giants this weekend here in St. Louis. I sure hope the Cardinals can turn this losing record at home games around soon! Like this weekend! The Marshall Tucker Band takes us to the finish line today with their song: Can't You see.. And with that it's time for me to get off this bus today, and send you on your way to having a Fantastico Friday! Be Good To Yourself!
The Daily Pfennig is written each business day by Chuck Butler and distributed by EverBank World Markets.
The purpose of the Daily Pfennig is not to provide investment advice or to manage your money – THOSE ARE DECISIONS THAT YOU HAVE TO MAKE. If you do hold investments you should conduct your own research and evaluations taking into account other independent sources of information and commentary.
The Daily Pfennig is a general update on the global marketplace, is a commentary on the conduct of fiscal, monetary, and political policy and their collective impact on the currency markets, is the analysis of an individual who has nearly 35 years in the investment business and over 15 years experience in the currency market, is the thoughts of a dyed in the wool Saint Louis Cardinal and Missouri Tiger fan (and sometime Saint Louis Ram’s and Blue’s fan), and is a publication that is designed to provide you with some information, some levity, and some analysis to assist your thinking about currencies and their place in an investment portfolio.
All statements, comments and opinions expressed are solely those of the writer and are not the statements, comments or opinions of EverBank or of any of its affiliates, and are subject to change without notice. This is not a solicitation for the purchase or sale of any securities or options on securities, and it does not constitute a recommendation to you or to any specific person of any particular action. EverBank, its officers and employees do not provide investment or other types of advice. All factual information has been obtained from sources the writer believed to be reliable, but the accuracy and completeness of the factual information is not guaranteed. Not all investments are right for everyone. You should conduct your own research and/or consult your investment or other advisor before making any investment.