Gold Up $10 This Morning

And now… today’s Pfennig for your thoughts…

Good day, and a wonderful Wednesday to you!

Well, it looks like we’ve got a range bound currency market today. We have some currencies that have carved out gains, and others that have losses, but everything is within a very small range, except gold, which is up nearly $10 this morning! Wait until the boys and girls in NYC arrive at their desks this morning and see that!

I see where L-O-L-A, Lola (aka Goldman Sachs) is saying that the dollar is going to continue to rally, maybe even 15% over the next two years. They point at the dollar’s reaction to the weak jobs report last Friday, (it didn’t drop as one would have expected) as proof that this dollar rally is good to go on. Lola also thinks that the markets have been too negative about the potential Fed rate hikes.

Of course, I could point out that Lola also called for the euro to reach parity and the Japanese yen to reach 130, and had to reverse those calls to their clients. You can’t be right all the time, I guess. I’m not knocking them for these calls.. Short term forecasts for currencies are bound to be the opposite of what you think. What I’m more concerned about is this call by them now that they see the dollar rally lasting two more years. Shoot Rudy, I’m not even sure that the dollar will be around in two years! But that’s their prerogative. And they are Lola, and what Lola wants, Lola gets, right?

Well, I had a dear reader send me a couple of notes yesterday, chastising me for talking about the impeachment of Brazilian President, Dilma Rousseff. The reader thought I was cheering for the impeachment, and told me to stick to things that I know about. That’s fair. But as I pointed out to him, I’m no fan of Rousseff for the policies she brought forward that damaged the value of the real, which during the Lula years as president, the real was the best performing currency a couple of years. But that I was really just attempting to bring real holders the news that effects their currency holdings. And that is the impeachment, which is weighing heavily on which way the real goes each day.

And while the currency traders think the impeachment will be a good thing for Brazil, I’ll point out that at least two times in the past couple of weeks, I’ve said that the real rally could be short-lived once the impeachment is completed (could be tonight) given that no one has offered up a new monetary and fiscal plan for the country. If it’s just going to be the same-o, same-o for the economy, then why go through all this hand wringing to oust the President? And that’s my take on the whole thing… And I’m not attempting to be an expert into Brazilian politics. Shoot Rudy, I’m not even an expert into U.S. politics, and that’s by choice!

Well, the gag order that was placed on Japanese officials, governmentt, Finance Ministry, and Bank of Japan (BOJ) was pushed aside last night when the Finance Minister warned the markets that he will take action to stop the “one-sided” situation in yen. This reversed the downward slide the yen had been in for three days, and it has moved back under the 109 figure.

I have to question the yen traders on this move to strengthen yen on those comments. I really think that the BOJ has no teeth, no bite to its bark, nothing left in the tank, and any other description you can think of to say that they washed up, beaten, a “has been”, and so on. In fact, the BOJ could walk away and dissolve, and nothing in Japan would change. Their demographics would still be rotten to the core, their economy probably would be better off without a Central Bank putting their hands in the cookie jar and crumbling up the cookies every time the economy shows signs of strength..

The New Zealand dollar/kiwi is firmly on the rally tracks today after a very interesting twist to things overnight. Let me explain.  The Reserve Bank of New Zealand (RBNZ) released their Financial Stability Report last night. But it wasn’t anything in the report that got kiwi on the rally tracks, that came later when RBNZ Gov. Wheeler told a parliamentary Committee that the RBNZ was “seriously looking at measures to restrict housing related lending, such as further restrictions on loan to value ratios.” Now, what in that comment got kiwi traders all lathered up? Ahhh, grasshopper, this is the train of thought so stick with me here. This comment implies the RBNZ is looking for ways to stop the housing sector from becoming a real problem, and that means the scope for interest rate cuts has narrowed greatly.

In Australia overnight, Consumer Confidence jumped by 8.5% so far this month. I guess Consumers are excited about the Reserve Bank of Australia (RBA) rate cut at the beginning of the month. I would question their thoughts there. Why would you be confident when the Central Bank is telling you that things aren’t so great and that’s why they had to cut rates? Aussie dollar (A$) traders weren’t fooled into believing anything different about the economy, and the A$ failed to gain on this strong Consumer Confidence report. The A$ didn’t lose ground either, as it is flat on the day.

The price of oil recovered a bit in the past 24 hours, and that has helped the Russian ruble keep its recent rally going in the right direction. The other petrol currencies have moved too, but their moves are very small.

Gold moved higher by just $1.90 yesterday, so basically a flat day. But as I said earlier in the letter, gold is up nearly $10 this morning so far. I told you yesterday that I would talk to our metals guru, Tim Smith, about physical demand and I did! Tim tells me that leading up to a couple of weeks ago, physical demand was very strong to start the year, but the last couple of weeks, as the price of gold has range traded, the demand has faded. I read last night that John Hathaway, who runs Tocqueville Gold Fund, thinks that the bottom for gold has been reached.

And just like I did above, I’m going to point out that Lola had to close their “short Gold” recommendation with a 4.5% loss.  I got this info from ZeroHedge that back on February 15th, Lola announced its latest trading recommendation. Short Gold at $1,205 with a target of $1,000 and a 7% loss. Well, once again, Lola didn’t get what Lola wanted did she?

I’m going to just simply say that I only point this stuff out to show you that just because a Big Boy Brokerage House like Goldman and all their economists and researchers says that an asset is going to go up or down, doesn’t always pan out. You should listen to yourself, and not a brokerage house that’s going to make money on your trades whether you do or not! And when you listen to yourself, you will have wanted to do all the reading on the facts that you can find.

But let’s see here… strike one was the euro, strike two was the yen, and strike three is gold. Three strikes and you’re out Lola!  O-U-T, out! Go grab some bench! If only they would take their bat and ball and glove and go home!

And I see where The Perth Mint (Australia) sold 47,542 ounces in gold coins and bars in April, which is 0.9% lower than March, but 79.1% higher than a year ago! And year to date, gold sales total 180,312 ounces which is an increase of 55.5% over the first four months of 2015. And for all of you who prefer silver to gold (I love both!), the Perth Mint also report some very lofty numbers for silver ounces sold in April (1,161,766 ounces) and year to date (5,440,474 ounces). In 2015, The Perth Mint sold 2,088, 897 ounces of silver for the period Jan through April, and this year they sold 5,440,474 ounces of silver in the same period, which is a 160.5% increase! So, belly up to the bar and be one of the millions of investors buying physical gold and silver.

The U.S. Data Cupboard is still looking for crumbs and not finding any. We will see the Treasury Budget today, but who really cares about that? I was doing some reading last night and came across something that quite interesting. How many of you recall that before Alan Greenspan, our Fed Chairman was Paul Volcker? Remember him? Recall his “Saturday Night Special”? (a rate hike out of meeting on a Saturday night). Well, he also called for a change in the target by the Fed. For years, the Fed targeted Fed Funds Rate. But Volcker thought it would be better to target Monetary Base. Good thing that change didn’t last past a few years, given the Fed’s Monetary Base these days!

There’s something happening here, what it is ain’t exactly clear, there’s a man with a gun over there, telling me I’ve got to beware.   Who’s the man with the gun over there? Ahhh, grasshopper, it’s not really a gun, it’s a make believe gun that’s pointed at U.S. Corporations playing funny games with their revenue calculations, which if put into check, would hurt the stock market more than any 25 Basis Points rate hike. Yesterday, Tony Sagami’s Connecting the Dots letter that can be found on www.mauldineconmics.com  addressed what’s going on here. This is a snippet from his letter yesterday, “SEC Ready to Stop Accounting Shenanigans”:

I’m talking about the Securities and Exchange Commission finally doing its job and putting a stop to the accounting hanky-panky that artificially inflates profits.

According to Dow Jones, the SEC is getting ready to step up its scrutiny of companies’ ‘homegrown earnings measures,’ signaling it plans to target firms that ‘inflate their sales results and employ customized metrics that stray too far from accounting rules.’

It looks like the SEC is waking up to the misleading picture that pro forma earnings-compared to generally accepted accounting principles, or GAAP-generate. Now the commission is launching a campaign to crack down on made-to-order earnings.

Mark Kronforst, chief accountant of the SEC’s corporation finance division, said, ‘The point is, now the company has created a measure that no longer reflects its business model. We’re going to take exception to that practice.’

So what will the SEC do? According to the Dow Jones article:

The agency plans to issue comment letters in the coming months that critique firms that booked revenue on an accelerated basis. Mr. Kronforst, who plans to speak Thursday at a Northwestern University legal conference about the issue, declined to name them.

Mr. Kronforst said regulators also plan to challenge companies that report their adjusted earnings on a per-share basis. The results are often higher than per-share GAAP earnings and look too much like measures of cash flow, which decades-old rules prevent from being presented on a per-share basis, Mr. Kronforst said. That is because investors could confuse cash flow with actual earnings, which truly represent the amounts that could be distributed to investors.

‘We are going to look harder at the substance of what companies are presenting, rather than what the measures are called,’ he said.

Chuck again. Boy oh boy, that sounds like a double whammy on the horizon for stocks doesn’t it? If corporations can’t fudge their revenue numbers, and retail sales/spending continues to flounder, and the Fed finally gets around to hiking rates (now their talking about September, yeah, right two months before the election? Give me a break!) stocks will need some shelter from all the debris being thrown at them. But then I’m not your last pick as a stock jockey, which is why I only talk about the stock market as a whole and not individual issues!

That’s it for today. I hope you have a wonderful Wednesday, and be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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