Japan Cancels Auction On Ten-Year JGB's

And now… today’s Pfennig for your thoughts…

Good day, and a wonderful Wednesday to you!

Well, nothing BIG happened overnight, the markets were moving, but not getting out of hand, the news was quiet, and well things were as they should be! The dollar was getting sold, for the most part, and fundamentals seemed to rule the roost. So, let’s go through the roster of currencies we normally talk about and see where it takes us this morning, eh?

Front and center, the New Zealand dollar/kiwi is the best performer overnight, after getting pushed around yesterday morning, kiwi began to recover, and that recovery kept going, especially after Reserve Bank of New Zealand (RBNZ) Gov. Wheeler chastised the markets about getting too locked in and focusing too much on the headline inflation rate, and then suggested that the RBNZ would not be cutting rates any time soon.   And that sent kiwi soaring!

The Aussie dollar (A$) has joined kiwi, but not to the degree of kiwi’s rally. There was some disturbing data overnight in Australia, and I’m wondering as I see this all unfolding, how the A$ is able to rally in the face of the Aussie Trade Deficit hitting an all-time high level in 2015 of A$ 32.7 billion, easily surpassing the previous record level of A$ 26.4 billion in 2007.

I think that this soaring Trade Deficit illustrates just how important exports of metals and mineral are to Australia, and with them slumping 16% last year, you can see why the Trade Deficit is so large.

The euro has a small gain this morning, and it’s getting smaller as I write! There will be a general election in Ireland next week, but I doubt this has any bearing on what the euro is doing. The BREXIT stuff is weighing on the euro, but not like the GREXIT stuff did. As there are a couple of BIG Differences between the two scenarios. Like, Britain never joined the euro, and Britain isn’t about ready to default on their debt. Britain does have a mountain of debt, but so far they haven’t been challenged with the question as to how they will pay it back, like Greece was back in 2011.

The Chinese renminbi was marked down at the fixing again last night. A few days up, the next few days down for the renminbi. I’m really growing tired of these shenanigans, aren’t you? Pick a direction, I just want to see a direction! Sort of like when I’m driving and a driver of another car can’t stay in their lane. I always have a smart alec comment to say, like: Pick a lane, any lane, come on you can do it! So, I wish the Chinese would pick a direction!

The Russian ruble stopped the bleeding of two days getting whacked. I was doing some reading regarding Russia’s problems with the drop in the price of oil, and the sanctions. There could be some light at the end of the tunnel for Russia, given that the Europeans are not so strong in their holding to the sanctions they implemented a couple of years ago, to be in step with the sanctions that the U.S. placed on Russia.

So, if Europe goes ahead and drops the sanctions or loosens them, that could help the Russian economy, and then think about this one folks: after the current administration leaves office at the end of this year, the U.S. sanctions could be dropped. So, the light, is very small and faint right now, but there is a light in my opinion, which could be wrong!

Well, it didn’t take long for the Japanese yen to gain back its losses from Friday and Monday. After the three-tiered negative rates policy was announced last Friday yen lost nearly three whole figures, but has gained two of those back since Monday. And I sit here scratching my balding head, wondering why. And especially after Japan announced that they had to cancel their bond auction for ten-year JGB’s because of lack of interest. Imagine that, no one wanted to buy ten-year bonds in Japan with little interest to pay you? Ooh,  sign me up for some of that, yes sir may I have another? NOT! No way, take the highway on that thought!

I cracked up a bit when I saw something yesterday. Swiss National Bank (SNB) Gov. Jordan was talking to reporters, and told them this juicy bit of information that I had never thought about, and was amazed that he had figured this out. Jordan told reporters that the euro’s problems stem from The ECB’s QE. Really? Thanks for that bit of “inside information” Mr. Jordan! I would have never figured that one out!

Okay, back to the currencies…  the British pound sterling is neck and neck with kiwi for the crown of best performing currency overnight. The latest British PMI – Services report beat expectations decidedly and put before the markets, the question of whether they were being too pessimistic about the direction of interest rates in Britain.

Well, if they would allow me to throw my two cents into the ring here, I say that NO the markets were NOT being too pessimistic, and should be getting themselves prepared to deal with no rate hike in 2017, and if anything, they should probably have a backup plan that would deal with a rate cut instead! I know, I know, I’ve been a little difficult on the Beaver here, but think about the mountain of debt that exists here, and then look at Japan, and the U.S. and imagine that Britain will experience the same problems as these two debt generating countries have experienced and will still experience in the future!

Oh, sure rub it in my face that here in the U.S. we did see a rate hike. So, even a blind squirrel can find an acorn, right? Well, I’m here to tell you, so you can hear me now and listen to me later, but could the Fed be already admitting they made a mistake hiking rates in December? Well, I know one thing for sure, they aren’t feeling so good about their call for four more rate hikes in 2016.

Fed Vice-Chairman Stanley Fischer had this to say on Monday:

The U.S. central bank was worried the global market selloff could sap the strength of the U.S. economy, suggesting the market’s expectations of barely any interest rate hikes this year could turn out to be right.

Oh, you think the market could turn out to be right do you? Hmmm… that’s quite interesting don’t you think?  I think in the end, that the Fed’s attempt to hike rates in the face of 95% of countries in the world cutting rates even into negative territory, is going to end up much like when Sweden tried to hike rates a couple of years ago, and when the Eurozone hiked rates, and Australia and New Zealand. All had attempted to hike rates and start a rate hike cycle, only to have to come back to the rate table months later, and cut rates, thus reversing their rate hike, and then some!

Well, we will see two peeks into the Jobs Jamboree on Friday today. First up is the ADP Employment Report for January, which is showing a forecast of 193,000 jobs created in January, which is good, but far below that blowout number that printed in December of 257,000. And then the other peek will come from the ISM Non-Manufacturing Index, which is the Services Index, and the Services index has an employment component to it that is usually very good at indicating the direction of jobs in the U.S. especially in this day and age when most of the jobs come in the Services area, bartenders, waiters, etc.

Yesterday’s U.S. Data Cupboard was pretty empty, but did manage to spit out the vehicle sales in the U.S. for January, which showed that here in the U.S. we still love our new cars. the total didn’t reach the twice reached level in 2015, of 18 million units in a month, but it came close. Crazy stuff, eh? Retail Sales are negative, personal spending is non-existent but car sales are through the roof. Oh, and I know that most of those car sales were done on credit, but still, it’s pretty crazy. To me, that is!

I took a look at the Treasury screen this morning to see the 10-year Treasury yield had fallen to 1.85%…  that’s right, I said 1.85%! Is that not crazy? Who’s buying ten-year Treasuries at 1.85%? Well, just as I’m sure that stocks don’t grow to the moon, I’m sure that bond yields don’t fall forever. When this bond market bubble pops it’s going to be the biggest mess we’ve ever seen in financial markets, folks. But, I’ve given up trying to figure out when that bubble finds the pin in the room.

When I used to travel and give presentations, I had a Power Point picture of a guy sitting at a desk and he has the signs they use in the cartoons to illustrate a head that has been hit hard, so the idea is that the guy is banging his head on the desk, and I would tell people that it was a picture of me, watching Treasury yields continue to drop, after telling people that the Treasury Bubble was about to pop! HA!

I do have an “out” that I like to play whenever someone gives me grief for calling the Treasury Bubble, I simply say, yes, that was before anyone knew that the Fed was going to become a major buyer of Treasuries through QE1, QE2, and QE3. So there!

Gold is flat this morning, and in the end only gained $1 yesterday, after going back and forth between gains and losses. There were no new market fears yesterday, no new developments in geopolitical risks, and so on, so it was a nothing day for gold. And today seems to be starting out much like yesterday finished for the shiny metal. With all those vehicle sales going on here in the U.S. one would think that platinum would be being bought up by the truck loads. But platinum, palladium and even silver have had a tough row to hoe so far this year, with gold getting all the attention.

I did see a bank of charts yesterday from the St. Louis Fed (FRED) and they included graphs on Student Loans, Food Stamps, Federal Debt, Money Printing, Health Insurance Costs, Labor Force Participation, Worker’s Share of the Economy, Median Family Income, and Home Ownership. They are not a bunch of pretty pictures to look at, folks. They are all not only heading in the wrong direction, they’ve headed there long ago, and there’s nothing that indicates they’ll turn around!

And all the time I was looking at these graphs/charts, I just kept shaking my head in disgust that the Fed, knowing all this, as these are their graphs, still hiked rates in December! I had a dear reader send me a note and give me a thought that I hadn’t crossed before regarding the rate hike. His thought was that the Fed hike rates because of pressure put on them by the Pensions… interesting.

And with that, It’s time. I hope you have a Wonderful Wednesday!

Regards,

Chuck Butler
for The Daily Reckoning

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