What Lola Wants. Lola Gets! But Maybe Not Today...

And now… today’s Pfennig for your thoughts…

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

Well, it certainly looks like the tracks are greased, the horse is saddled, the buggy is hitched, and any other descriptor that says the Fed is ready to hike rates! Fed Chair, Janet Yellen, told her audience yesterday that she is confident about the U.S. economy continuing to show modest growth, and a small pick-up in inflation toward the Fed’s 2% target.  She did leave the door to bypassing a rate hike slightly cracked, when she said that the Fed would raise rates when it feels reasonably confident inflation will move up toward 2%…

Well, like I said yesterday, what makes them so confident right now? Why can’t they tell us?  It sure would go a long way toward removing the questions that linger out there right now.

And stop to think about this statement by Yellen for a minute. The Fed is confident that we will continue to show “modest growth” going forward?  Really? Modest Growth, is out goal now? And I can hear her responding to me, saying, well that’s about what everyone else is shooting for these days.  And I would shoot back the same thing I used to tell my kids when they would tell me that everyone they knew was doing something or going somewhere, and I would look at them and say, “But don’t you want to be better than everybody else?”

So, Janet. shouldn’t we want to be better than everyone else that’s shooting for Modest Growth? We’re settling, aren’t we?  You know we’re marrying someone that we’ll be “comfortable with”. Settling. I shake my head ns disbelief at what this has become.

So, as I said yesterday, when I told you she would probably talk about hiking rates, and the dollar bugs would come out of the wall boards, and that’s exactly how the day played out.  But gold took the brunt of the dollar buying.   The dollar buying was strong at first, but then settled down and the euro remained near 1.06, the Aussie dollar (A$) remained near 73-cents, and so on. But gold, got whacked, and whacked good, UGH!

I had a nice conversation with my good friend, and retirement guru, Dennis Miller, yesterday.  I had received an email from him earlier, responding to my question the previous day, when I asked: I wonder how many people in that room at the Orlando Money Show in February 2010, recall me telling them this would all change for the renminbi by the end of the decade. And he told me, “When I read that, I raised my hand”.  I was super pleased that at least someone came forward and acknowledged what I had said in 2010.

Any way. I was talking to Dennis, and he said he continues to get emails from analysts/writers saying that gold is going to $5,000 and the dollar is going to collapse, and wondered what I thought. And for the answer to that, you’ll have to go to Dennis’s newsletter here! But you’ll have to wait, because he’s still putting it all together! How about that for a teaser?

Did you hear that Brazil is going to go forward with the impeachment process for president Dilma Rousseff?  Yes, it’s finally come down to this, which speaks volumes about how a president decided that she was above the law. Hmmm…  The hearings on this impeachment are bound to be ugly, and all the while it goes on, the Brazilian real looks like it will rally, given the prospects of the president that killed the goose that laid the golden eggs in Brazil would be gone.

But all of that will take a backseat to the European Central Bank (ECB) meeting that’s going on while I write.  Given the stubbornness of the Eurozone CPI (recall it remained at +0.1% in November) I fully expect ECB president, Mario Draghi, to exit the building by rooftop where a helicopter will meet him and he can then fly over the people dropping euros out of the helicopter.

Remember “helicopter Ben”? Well, this will be “helicopter Mario”. And I read on the Bloomie this morning that Goldman Sachs says that at the end of the day today, after “helicopter Mario” is finished, the euro will lose 3% to the dollar. That’s right they said 3% in one day! OUCH! That hurts, Goldman! Did you really have to play so rough with the euro?

Ok, here’s where I normally say, so get ready for Goldman is Lola, and what Lola wants, Lola gets.  But I’m going to say that the euro loses ground today, but the markets have been talking about this additional stimulus for weeks now I would have to think the euro has seen a lot of this “stimulus pain” priced in already.   I know it’s dangerous fighting “City Hall” but Shoot what else am I going to do?

Well, Lola is well on her way to getting what she wants, because the euro has steadily moved downward while I was writing this letter this morning, and is now down about 1/2-cent on the day.  Remember in 2009, when the U.S. first announced Quantitative Easing/ QE, aka bond buying, money printing, crack cocaine for the markets, and how badly the dollar got punished? And then there was the gap of time between the end of QE1 and the start of QE2, but the dollar got punished again when QE2 was announced. So, it makes abundant sense that the euro suffer the same punishment.

But I think there is a big difference here. With all things being equal between the two economies that lead the world in size, the U.S. and Eurozone,  debt problems, growth problems, deflation problems, immigration problems, and wishy-washy leadership problems, alone in one corner stands the Eurozone with a Current Account Surplus. And in the “old days” of fundamentals ruling the trading world, having a Current Account Surplus meant something, and was a very important tool to have in one’s tool box!

So, other than the euro, which is being subjected to the harsh reality of having more stimulus behind it, the currencies look like they’ve weathered the Janet Yellen storm.  Unfortunately, not so much for the Chinese renminbi, Russian ruble, Indian rupee, Norwegian krone, British pound sterling, and Mexican peso, which are getting slobber knocked this morning. Remember that saying? “A slobber knocker”? Well, dear readers of my similar age, and older will know exactly what I’m talking about. As for you youngsters, that’s what you have Google for! HA!

On a sidebar I saw a bumper sticker the other day that said, “Kids you should congratulate your parents. They graduated school without Google!” Ahhh, but we did have our Encyclopedia Britannica! And the Dewey Decimal system at the library.  HA!  Again, youngsters, you’ll have to refer to Google to find out what I’m talking about here!

OK, back to the currencies. Well, I understand the rot on the vine for the ruble, sterling and peso due to the drop in the price of oil, which now is trading with a $40 handle, but oil’s price problems hasn’t hurt the Canadian dollar/loonie this morning, or the Brazilian real. We’ve already talked about the real, so I’ll wander over to the Canadian loonie and see what’s going on there…

Well, the loonie is getting some love from the news  yesterday that the Bank of Canada (BOC) left rates unchanged, and then issued a statement that talked about how they view the risks for inflation going forward to be “balanced”.  Whatever the heck that means! HA!  At least they’re not claiming to see ghosts! I bet you’re scratching your head right now and wondering where that came from.

Ahhh grasshopper…  I believe that the Fed saying that they see inflation in our future, is akin to claiming that they see ghosts. Now, that is unless they are going to take away the interest they are paying banks to hold cash at the Fed. Because, dear reader, that’s the reason we don’t have runaway inflation now after years of zero interest rates and over $4 trillion in money printing.

The money never got put into the economy, the velocity of money was never triggered, but the banks were able to shore up their balance sheets, and so on. But that’s two different things that I don’t want to talk about right now, I’m really just focusing on where the inflation is going to come from that the Fed sees coming.

Well, the Retail Stores didn’t have a bang up first weekend of Christmas shopping, but the reports from the online “cyber Monday” are coming in with strong stales. So, maybe the U.S. consumer hasn’t gone away?  I love shopping for stuff online for a number of reasons, so I for one certainly see the appeal in shopping online!

The U.S. Data Cupboard had the ADP Employment Change report for us yesterday, and the ADP report showed a strong 217,000 jobs created in November. This report is supposed to give us clues to the BLS surveys and hedonic adjustments that will print at the Jobs Jamboree on Friday.  So, the ADP report was good yesterday.

Today’s Data Cupboard is chock-full-o-data, with Factory Orders, Durable and Capital Goods Orders, The Challenger Job Cuts, and of course the usual Weekly Initial Jobless Claims. Factory Orders, Durable and Capital Goods Orders have all been disappointing for most of this year, but especially in the second half of the year, so I don’t expect anything different from these reports today. But none of it matters to the Fed right now, folks.  They are NOT data dependent as they claim to be.

So, I told you above that gold didn’t just get whacked but it got whacked good yesterday on the Yellen speech, and the overall feeling that the Fed might just as well go ahead and hike rates now, and not wait for December 16‘s FOMC meeting!  I read where the rate hike is now 75% priced in.  WOW! Now that just screams “event risk” to me.  Everyone is on one side of the ship here, folks, they had better hope and pray that a big wave doesn’t slam into the ship, or heaven forbid the ship hits an iceberg.

I found this on Reuters and can be read in its entirety here, and here are the snippets:

The drilling rigs are gone from the hills surrounding this Pennsylvania town of 30,000. The hotels and bars are quieter too, no longer packed with the workers who flocked in their thousands to America’s newest and biggest gas field.

The drilling boom of the past seven years is over, even though thousands of existing wells in the Marcellus region still produce a fifth of U.S. natural gas supply. Now, exclusive data made available to Reuters points to a slump in drilling that could hit production next year, defying government and industry expectations of a further rise in output.

Preliminary figures provided by DrillingInfo, which monitors rig activity, showed drilling permits issued for the 90,000-square mile (233,100 sq. km) reservoir beneath Pennsylvania, Ohio, and West Virginia, slumped to 68 in October from 76 in September.

Chuck again. That certainly is scary given the projections here.  But then if you were in the audience a couple of years ago in Vancouver during my presentation, I told everyone there that the preliminary reports were for the oil production in the U.S. to begin to tail off.  I wonder how many of you were there?  It was the year I had the audience singing along with me during my presentation, to the Trini Lopez song, lemon tree.

Hey! The euro has just rebounded with style!  It’s now up a third of a cent today, a huge turnaround. No time to figure this one out now. But I’m on it Steve!

That’s it for today. I hope you have a Tub Thumpin’Thursday!

Regards,

Chuck Butler
for The Daily Reckoning

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