IMF Says "You Can Join the Club"...

And now… today’s Pfennig for your thoughts…

Good day, and a Tom terrific Tuesday to you!

Well, the deed is done! The IMF did indeed announce yesterday that they were adding the Chinese renminbi to their basket of reserve currencies that makes up their SDR’s (Special Drawing Rights). I’m really hoping that soon, the use of SDR no longer has to have a descriptor of that it means every time I talk about the IMF currency for Central Banks… So, here’s the skinny…

The IMF announced that the renminbi would have a 10.92% weighting in the basket… That should account for somewhere between 150 to 300 billion dollars of renminbi that will have to be bought by the Central Banks over the next 5 years… So, what they means is that it’s not going to be a “everybody rush to the buying window at the same time deal” for renminbi… In fact, over time the buying effect on the renminbi’s price probably will be muted…

The big loser in the deal was the euro… The euro saw the largest decrease in weighting… And the U.S. dollar saw the smallest… What? What? The U.S. dollar had, and still has the largest percentage weighting in the basket, with the old weighting at 41.90% and a new weighting of 41.73%… A tiny .17% decrease, while the euro saw a 6.47% decrease, yen saw a 1.07% decrease, and sterling saw a 3.21% decrease.

I would have thought that the dollar would have seen a greater sized decrease in weighting. You don’t think that there was some smoky back room negotiations going on whereby the U.S. agreed to allow the renminbi into the “club” as long as their weighting didn’t take a big hit do you? I can’t talk about conspiracy theories any longer here, so all I can do is pose the question and let you decide… But I bet you can figure out what I’m thinking… That’s a funny… I know, that you know, that I know that you know…

Speaking of conspiracy theories… I received this email from a dear reader yesterday regarding the IMF announcement… “I think it’s funny how you’ve been talking about this since 07-08 when it was all just considered ‘conspiracy theory’ and finally it hits the main stream news!!!!” And another dear readers said, “Chuck is vindicated and a good predictor of what’s coming . . . !!”

Yes, when I first heard the news yesterday morning, I had two thoughts go through my mind immediately… 1. And they told me that none of my conspiracy stuff ever came true… and 2. I wonder how many people in that room at the Orlando Money Show in February 2010, remember me telling them this would all change for the renminbi by the end of the decade?

Oh, there’s more to talk about today other than the IMF, SDR’s and the renminbi… But Shoot Rudy, this is huge! This is the first time since the euro was added that the IMF changed things. I also want to point out to all of the naysayers, and you all know who you are, that ridiculed me, and told me what a dolt I was for saying that the renminbi would climb to be a Main World Currency because it was the currency of China… and all that goes with a perceived closed Communist country that had a managed currency… Crazy eh? Well, this goes back to the initial currency swaps that I noticed China signing with countries to remove the dollar from the terms of the transaction in trade. Oh, and I will pound my chest on this one… I know for a fact, that I was the first writer to talk about these currency swap agreements…

Alrighty then, I’ll stop here… I was beginning to become Big Head Chuck! Now if only the Fed would cooperate? I wonder if they would reconsider their calls for a rate hike if they looked at the chart I just looked at from the Fed St. Louis, that reflects sales in thousands of dollars at Retail Trade Department Stores. Would you believe that from a starting point of 1992, sales rose to nearly 21,000 (in thousands) in 2001, and then falling year after year to now sit below the 1992, starting point of 14,000… it’s a very unsettling chart if you ask me. And yes, it doesn’t take into consideration online sales… But like I said yesterday, soon the department store closes, the shopping center closes, the employees lose their jobs, and the economy takes a big hit…

RetailTrade

Alrighty then… The dollar appears to be a softer this morning, as the currencies, for the most part, are on the rally tracks vs. the dollar this morning… Even the precious metals are participating. With the only two currencies not playing ball, and taking their bat and ball home today is the Chinese renminbi, and the Russian ruble.. It’s always a strange sight to see the Indian rupee rally when the renminbi is not rallying, but that’s the case today… I told you yesterday that the Reserve Bank of India (RBI) would be meeting today, and they did just that!

The RBI left rates unchanged, and RBI Gov. Rajan said that he was content with rates and inflation where they were at the moment… The markets took his talk to say that interest rates in India aren’t going anywhere for a few months… And that has led rupee traders to put the rupee on the rally tracks…

Switching gears to the Eurozone…

Last week we had the “Flash PMI’s” print and show a rise in the Manufacturing index for the entire region to 52.8… Well, this morning, that 52.8 number was confirmed, and with that confirmation came the thought that the Eurozone economy might not need the additional stimulus that European Central Bank (ECB) president, Mario Draghi, is expected to announce on Thursday this week…

Unfortunately, I don’t see Draghi, altering his appointed rounds on Thursday… So, all this “euro love” is not going to last very long… About as long as it takes to read the book on “What men know about women”! HA!

But, the “love” is there today… I thought the look under the hood of the Eurozone PMI was interesting in that, Germany, Italy and Spain saw nice increases in their manufacturing production, while France saw a reduction. It was the November reading, so maybe the Paris attacks were responsible for the slower manufacturing production in France…

Speaking of slower Manufacturing as evidenced by a lower PMI index number, that’s exactly what we have going on in the U.K. , where they saw their PMI index number fall from 55.2 to 52.7 in November… YIKES! That’s a HUGE drop for this data series… The Consensus thought the fall would be to 53.6, but the fall was even greater! The index number is still well above the 50 number, which is the demarcation between expansion and contraction, but it’s obviously heading in the wrong direction…

Much like the direction of the U.S. ISM Manufacturing Index… We used to call it the PMI like all other countries do, but we changed it to ISM, a few years ago… Well, the ISM will print today for November… I’ve pointed out that this index number has shown a steady fall from August of 2014, and last month sat barely above the 50 level at 50.1… The experts say it will rebound a bit in November and print at 50.5… I say, well, if apples are apples and oranges are oranges and all numbers are calculated correctly, wink, wink, then the index number will have fallen below the 50 level…

Which leads me to say that if you believe that all government data prints have not gone through the review process and had hedonic adjustments to them, then you would also believe that…

Well, gold and the other precious metals are up in price today… Very nice to see when things go the way I believe they SHOULD go, given the fundamentals… Which drives me nuts sometimes… Shoot Rudy, if the dollar warranted the strength it had, if its fundamentals were strong and without question, I would be the first to say it deserved its strength, but that’s not the case… I do realize that some have said that the dollar is stronger right now because it’s the cleanest shirt in the dirty laundry… But that doesn’t mean a hill of beans to me when talking about gold, silver and so on.. The precious metals don’t belong in the dirty laundry, and they also don’t deserve to be whacked every time they get on the rally tracks.

Reuters is reporting that the U.S. Mint’s sales of American Eagle coins (gold and silver) were very strong in November, with gold tripling sales in November over sales in Rocktober, and silver reaching a new annual record of sales… The U.S. Mint sold 97,000 ounces of American Eagle gold coins in November, and selling out of most 2015 dated coins. So, this addresses the question I asked the other day, about how much longer will being able to buy at a cheaper price be enough to support the price of gold? Well, through November, it certainly wasn’t in danger of being lost!

So, physical demand is still strong… China posted some very strong physical demand numbers too, but that’s nothing new for them… And still, the price of gold, silver, et al, slip and slide like someone that doesn’t know how to ice skate on the ice for the first time… Oooooh, Oooooh, I’m going to fall…. OUCH! That hurts!

The U.S. Data Cupboard has the aforementioned ISM data to print today… Construction Spending for Rocktober and vehicle sales for November will also print… The vehicle sales data should be interesting folks… The U.S. has reached 18 million car sales in a month only a few times in the past, and it appears that November will reach that number… Everybody gets a new car in 2015… And the car loans continue to stretch the imagination for creativity… But, I don’t want to be the Grinch that Stole the euphoria from 18 million car sales in November, so I’ll just leave that all right where it is for now…

Before we head to the Big Finish today… Did you, or your kids ever play the computer game: Where in the world is Carmen San Diego? It was also a kids show with the singing group: A-Capella… Well, I associate that with Frank Trotter… My longtime friend, and boss… The man who came up with the idea of a foreign denominated CD that would be FDIC Insured! Frank is a man on the go for EverBank, and some for himself… He’s not like me, in that 5 minutes after sitting on a beach, he would be stir crazy! So, with that in mind, we’ve found where in the world is Frank O. Trotter! And here he is:

I am working out of a conference room in our Home Lending office this week in Avon, Colorado. As part of our nationwide coverage EverBank has a number of offices and activity in the mountain communities here in the Rockies across Colorado, Utah, Wyoming, Montana, and Arizona. It’s a busy place with clients coming in for consultation and members of the lending team heading out to meet with customers. For those not familiar, Avon sits at the base of the Beaver Creek ski area. Of course I’ve been sampling the snow and inspecting the chair lifts here at Vail-Beaver Creek from the perspective of a paying customer over Thanksgiving and I can report all is ready.

That’s it for today. I hope you have a Tom terrific Tuesday!

Regards,

Chuck Butler
for The Daily Reckoning

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