Moody's Cuts China's Outlook Rating

And now… today’s Pfennig for your thoughts…

Good day, and a tub thumpin’ Thursday to you!

The currencies have a “rally flavor” to them this morning, for the most part that is. The euro is still stuck in the mud, and hasn’t budged more than 15 ticks in the last four days. The Aussie dollar has climbed back over 73-cents, kiwi is back to 67-cents, the Chinese renminbi saw an appreciation at the fixing, and the Indian rupee is still enjoying the fruits of having an aggressive budget. But wait! That’s not all, and if you call right now, you’ll also get the news that the Brazilian real is back in rally mode on renewed hope of an impeachment, and gold is up a couple of bucks this morning. You will have to pay separate shipping and handling though.

The Russian ruble, Mexican peso, Canadian dollar/loonie, and S. African rand are the currencies that had to sit at the kids table, and not with the adults for dinner, as they are all down vs. the dollar this morning.  And the currencies with a flat performance so far today include the Norwegian krone, Swedish krona, euro, Swiss franc, Polish zloty, Hungarian forint, and Czech koruna.   

When I saw that the ruble and peso were down I immediately went to the commodities screen to see where the price of oil was, because with that kind of performance, one would think that oil’s price dropped again. But that was not what I saw. In fact, the price of oil has climbed back above $34 this morning. So, the only thing I can think of is that these two currencies (rubles and pesos) are going back and filling in the gaps from their recent run-ups.

Well for once this week we didn’t have to start the day off with a review of data. I totally dislike having to do that, but when it has such a bearing on what happened in the markets, it’s a must! Well, I just love the way the Chinese always have an answer for the outsiders that either say good or bad things about them, by doing the opposite with the renminbi than the markets would have thought. And last night was no exception. The ratings agency, Moodys, reduced China’s credit-rating outlook from stable to negative, citing risk factors like rising government debt, and declining reserves, and the Chinese, took that news, and decided to give the renminbi a nice sized appreciation!

A year ago, I speculated, or more threw out a thought that has not materialized, yet, that is. A year ago, I said that the speculators were really putting the pressure on the Danish krone to break the peg to the euro, and I thought it was going to be enough to achieve that scenario. Well, soon after I said that, the pressure backed off. And is nowhere to be seen at this time.I was reminded of this by an article on the Bloomberg, talking about how the Danish Central bank believes that it has limitless scope to deter another speculative attack on its currency regime.

Now, if I were a currency trader and you were a lady. HA! No, instead, if I was still a currency trader with some intestinal fortitude, I would take that comment by the Danish Central Bank as a challenge. But those kinds of currency traders have all ridden off into the sunset, folks. Now all we have are a bunch of, no, wait. I don’t want to go there. What we have now are nice, round peg, round hole, traders.

One of the worst performing currencies overnight and this week, is the Japanese yen. It’s about time that traders came to their senses and stopped all that silliness about yen reaching “fair value”. What were they smoking? So, as yen gives back some of its so-called “safe haven” gains, the “risk” currencies rise (A$, kiwi, loonie, real). That also means that stocks have stopped the bleeding, for now.

I mentioned above that there are renewed impeachment possibilities in Brazil and that has helped the real push the currency appreciation envelope further across the desk. The Brazilian Central Bank (BCB) did leave rates unchanged yesterday, but the real continues to gain VS the dollar, and a lot of that has to do with the renewed impeachment possibilities. I’ve explained why that is in the past so I won’t get into it again. Just remember that the sitting President Rousseff has done everything to weaken the real in her terms, and getting rid of her, would be like manna from heaven for the real.

Well, I just can’t pass this up. The Fed’s Beige Book yesterday, really indicated that the Fed Governors are really optimistic about the U.S. economy. Well, that’s all good, if their optimism was based on what’s really going on! So, yesterday, I started this talk about the U.S. economy not being as peachy as we’re being told it is. And I had some very strong data proving that point. Well, today, I have more, under what I’ll call the new section that won’t appear every day, but will be “Things Just Aren’t That Peachy” or TJATP.

I received an email from a dear reader, and he had this to say regarding the economy:

As a Global Account manager, I call on a major automotive company.  They are my only account.  My customer is closing ranks.  OPEX and CAPEX spending are being cut.  Several open job recs are not being filled.  They want to be prepared.  Pundits confuse unit sales today with their long term plans.

And then another dear reader decided to send me some data that would dispute the “everything is peachy” mood that the Fed members are in:

Peachy? Sports Authority files bankruptcy, will close 140 stores…

#1 Sears lost 580 million dollars in the fourth quarter of 2015 alone, and they are scheduled to close at least 50 more “unprofitable stores” by the end of this year.

#2 It is being reported that Sports Authority will file for bankruptcy in March.  Some news reports have indicated that around 140 stores may close, but at this point it is not known how many of their 450 stores will be able to stay open.

#3 For decades, Kohl’s has been growing aggressively, but now it plans to shutter 18 stores in 2016.

#4 Target has just finished closing 13 stores in the United States.

#5 Best Buy closed 30 stores last year, and it says that more store closings are likely in the months to come.

#6 Office Depot plans to close a total of 400 stores by the end of 2016.

Well, these things certainly don’t give me a warm and fuzzy about the economy, does it have that effect on you?

The U.S. Data Cupboard yesterday, had the ADP Employment Change, and it printed better than expected (213,000 vs. 190,000)  And once again, the rate hike campers paraded around banging their big drum.

Today’s Data Cupboard, has some interesting things in it. Most looked at though, will be the employment component of the ISM non-manufacturing index (Services). Things just never seem to work out correctly with this stuff, so I don’t know why the markets get all lathered up over them.

For instance, I had a dear reader send me a note yesterday, asking me how it works, that the regional manufacturing indexes were all down, but the national index was up in February? I said, just put that down to my problem with government reports, you just can’t trust them. I do need someone from the government to sit down and explain this phenomenon with me. I can hear the knock on the door, and as I answer it, I hear, “Hello, I’m from the government and I’m here to help.” Oh, the heavens no!  The late great President Reagan warned us about this happening.

Well, gold stopped its daily run up and takedown trading yesterday, as gold traders finally got the message. “If you want to push the price of gold higher, you must do it in very small increments, otherwise, we’ll take it down”. So, they pushed the price higher by $7 yesterday, and is up like I said above a couple of bucks this morning.

Well, that brings me to some more talk about Russia and China buying all the physical gold they can get their hands on. The GATA folks sent me an article that appeared in the Russian newspaper Pravda, and on the paper’s website that talked about how in January Russia bought 688,000 ounces of gold. China bout 520,000 ounces (both per the IMF). And this quote from the German newspaper was a part of the article:

This is a quiet attack on the almighty dollar. Russian President Putin buys a lot of gold without attracting much attention to it. As long as  political circles fear a new cold war between Moscow and the West, this war has already erupted in the financial sector,” Germany’s Die Welt wrote.

A dear reader sent me a note yesterday, pointing me to an article on USA Today, regarding a rebuttal of the notion put forth by Larry Summers that we should ban the $100 bill.  let’s pick this up and see what shakes out of it. you can read the whole article here, and here’s the snippet:

Former Treasury secretary Larry Summers wants to get rid of the $100 bill. But I think he has it exactly backward. I think we need to restore the $500 and $1000 bills. And the reason is that people like Larry Summers have done a horrible job.

Reading this got me to thinking: What is a $100 bill worth now, compared to 1969? According to the U.S. Inflation Calculator online, a $100 bill today has the equivalent purchasing power of $15.49 in 1969 dollars. Likewise, in 1969, a $100 bill had the equivalent purchasing power of $645.55 in today’s dollars.

So even if we brought back the discontinued $500 bill, it wouldn’t have the purchasing power today that a $100 bill had in 1969, when larger denominations were discontinued. And carrying around a $100 bill today is basically like carrying around a $20 in 1969.

And although inflation isn’t running very high at the moment, this trend will only continue. If the next few decades are like the last few, paper money in current denominations will become basically useless.

Chuck again. I love it! Here’s a poke at you Larry Summers, and your ” ban the $100 bill crusade”! The article was written by a guy named Glenn Reynolds, and I thank him for putting it this way!

I’ll get out of your hair for today, and hope you have a tub thumpin’ Thursday and remember – be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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