Bullard Throws A Cat Among the Pigeons

And now… today’s Pfennig for your thoughts…

Good day and a happy Friday to one and all! I’ve got some very interesting news about a Fed Member this morning, gold rallies big on Thursday, but the currencies flounder, and Chuck is surprised, given the Fed Member news.  So, we have our marching orders today, let’s get work!

Friday morning is starting out very strangely, as the U.S. dollar has the conn, on just about every currency and those that have carved out gains (Norwegian krone, Japanese yen, Mexican peso, and Polish zloty) aren’t exactly beating down the dollar this morning. Their gains are all small, and the rest of the lot, are getting taken to the woodshed vs. the dollar. Even gold, which saw a very strong $22 gain yesterday, is seeing selling this morning.

I have all these pent up thoughts regarding the tease I gave you at the top, and the very interesting news about a Fed Member, I’ve just to let them out here, and not wait any longer! Are you ready? Here we go!

Yesterday morning, I was all ready to talk about a blurb I saw that James Bullard, President of the Fed St. Louis, was cautioning against further rate hikes. I was all prepared to do a neenerneenerneener, but then I ran out of time, etc. and quite frankly had another senior moment, and forgot. That is until Chris Gaffney, who had attended a Bullard speech at the downtown Athletic Club Wednesday night, sent me a note with the highlights of what he said.

Now, before you read any further, let me remind you that Bullard is a very influential Fed member. It was he who first uttered the words QE2 at the Jackson Hole boondoggle years ago, and soon after, the Fed was implementing QE2. So, when James Bullard talks, Fed members listen, and so should the markets!

And, he’s not only said it once, not twice, but at least three times now. In St. Louis, on CNBC, and in the Wall Street Journal (I know you’re tired of waiting for this, so here it is) Bullard said that “it’d be unwise to continue rate hikes for now, and that the Fed forecasts may be mis-communicating rate outlook.” Aye, aye, aye. Did he just throw a cat among the pigeons? By Joe, I think he did! Let’s go to the tape from CNBC to get more on this:

Bullard for much of last year argued for an earlier rate hike, but said he now feels key assumptions supporting higher rates have been undermined.

Inflation expectations have fallen ‘too far for comfort,’ making it more probable inflation itself will fall and continue to miss the Fed’s 2 percent target, Bullard Said.

Now, does that sound like the March Fed meeting is going to yield another rate hike? Not to me it doesn’t! Now, I figured that once the markets got wind of these statements by Bullard, that the currencies and metals would rally, and the dollar would be sent to the woodshed, because all its strength is based on rising interest rates, without rising interest rates, the dollar doesn’t have a leg to stand on.

Well, gold traders got the memo, and like I said above, pushed the shiny metal to a $22 gain, that would have been even stronger, if not for a “end of market and aftermarket selling spree” More on that in a minute, but first, to continue this conversation. Unfortunately, the currency traders didn’t get the message, and the mixed day continued on as if Bullard had never even spoken. And now in the overnight and morning sessions the dollar has the conn? What the heck is going on here? How can that be? Bullard has basically told the markets that there would not be a rate hike in March, but yet, currency traders continue to buy dollars? Dolts all of them, in my opinion!

Alright Chuck, settle down! It’s true, Bullard doesn’t speak for the entire Fed, nor for Fed Chair Janet Yellen, so I get that his words should be taken cautiously, but should they really? He’s so influential at the Fed. That’s all I’m saying, and putting this to bed. Except, David Stockman thinks that Bullard was sent out by the Fed to save stocks, and if that’s the case and the currencies traders saw it for that, then that would explain why the currencies weren’t allowed to rally alongside gold.

Well, there’s not much to report from the EU Summit, as they spent most of the day yesterday discussing the refugee problem, and only got around to addressing the BREXIT, in the last two hours before heading to the pubs. So, today’s sessions will be quite interesting with a final communique this afternoon. Remember, though, PM Cameron has stated that the final decision of whether Britain exits the European Union or not will come from a public referendum in June. But, if Britain gains their points of contention, and the leaders drop the BREXIT talk, then the referendum will follow suit.  And vice versa.

The euro has really seen selling this week, dropping from near 1.13 10-days ago, to a 1.10 handle earlier this morning. The single unit has recovered back above 1.11, as I write, but I think you see what I’m talking about with the drop in the past 10-days, that has intensified this week. The European Leaders just don’t ever get to take a break from stuff like the BREXIT, GREXIT, PIIGS, and the need for Bond Buying and negative rates. Talk about a currency that is snake bit!

I had a dear reader send me an email yesterday asking me to send him the 2002 white paper titled: The Year of the Euro. He wanted the history to fill in the gaps up to now with the euro. I thought to myself, when I saw the request, that this was a smart move, for if you’ve just joined in the discussion regarding the euro, you would be missing a large chunk of what has happened over the years since it was introduced in 1999.

In Canada today, they will print two reports that are important when reading the pulse of the Canadian economy.  First up with be their CPI (consumer inflation), and here the expectations are for a 1.8% print, but I’m going to say it will be 2%, and that will be followed by Retail Sales, which is forecast to show a negative -0.6% print, and I’m not buying that (pun intended) and think it will be positive after all.

The Canadian dollar/loonie was quite weak during the time period for these reports (January) and has just recently rallied, although it’s giving up some gains this morning.  But since the loonie was so weak in January, I’m thinking that inflation was higher.

The Chinese renminbi saw its streak of consecutive fixings with appreciations come to an end last night, but, the renminbi did post its best week of gains in over a year, this week. I think that this is the Peoples Bank of China (PBOC) signaling that a bottom is being set. We’ll have to wait-n-see if that comes true or if it’s just another false dawn for China’s economy and currency.

The U.S. Data Cupboard saw some weakness yesterday in the form of the Philly Fed Index and the Leading Indicators data. The Philly Fed Index is a manufacturing index for the Philly region, and has long been considered to be the most important of the regional indexes. The February print was a negative -2.8% and continues to show that manufacturing is suffering a slow death. And the Leading Indicators, which happens to be one of the few forward looking data prints, was also negative, at -0.2%, for January and the December data was revised downward from -0.2% to -0.3%…  Not a good showing for U.S. Data yesterday, folks.

I told you above about gold’s $22 gain on the day yesterday, but that it was greater than that at one point in the afternoon, before “sellers” showed up right at the close and in the aftermarket trading. Gold had reached $1,240 yesterday afternoon, before the “sellers” showed up and brought it down to close at $1,230. The “sellers” were the usual suspects in price manipulation. And that’s all I’m going to say about that!

I told you the other day that I had written about the end of cash for the March Review & Focus. It’s a shame that it won’t be posted to the website for another two weeks, but that’s here nor there, to what I’m talking about here. I gave you some stuff regarding the end of cash earlier this week, and now I’m back with a piece that friend, and publishing guru, Bill Bonner, wrote regarding the end of cash. This was found on the Daily Reckoning, Australia, site. 

So, Bill takes issue with the Larry Summers comment I told you about yesterday, regarding ending the $100 bill.  I’ll pick this up about half-way through his letter:

And now, Mr. Summers wants us to bring our cash to the town square.

Instead of $100 bills, he wants to force us to use electronic notations faithfully recorded in a federally regulated bank.

Have you ever seen one of these ‘electronic dollars,’ dear reader?

We have not. We don’t know what they look like. And we’re deeply suspicious of the whole thing.

The European Central Bank and the Bank of Japan – along with central banks in Denmark, Sweden, and Switzerland have already imposed a negative interest rate ‘tax’ on the accounts commercial banks hold with them (known as ‘reserve accounts’).

These central banks are hoping banks will pass on this new tax to their customers.

This has already happened in Switzerland.

As colleague Chris Lowe told Bonner & Partners Family Office members at our recent annual meeting in Rancho Santana in Nicaragua, Alternative Bank Schweiz (ABS) will begin charging a negative interest rate on customers’ deposits this year.

ABS will levy an annual penalty of 0.125% on deposits of less than 100,000 Swiss francs ($101,173) and an annual penalty of 0.75% on deposits of more than 100,000 Swiss francs.

Essentially, ABS is charging its customers to keep their money on deposit.

If you put $1 million in the bank, at 0.75% negative interest, you come back a year later, and you have $992,500 left. The bank has confiscated the other $7,500.

At a negative rate of, say, 3%.you pay $30,000 a year just to keep your money on deposit.

It sounds like a scam.

Governments abolish cash. You have no choice but to leave your savings on deposit. And you’re forced to pay banks for storing your money.

Chuck again. Yes, it was kind of a long one, and I didn’t even get to snippet all that I wanted to! So, go to the link if you want more and read it in its entirety.

And with that I need to get off this bus today, and head to fantastico Friday corner, I hope I get to see you there too!

Regards,

Chuck Butler
for The Daily Pfennig

P.S. Be sure to sign up for The Daily Reckoning — a free and entertaining look at the world of finance and politics. The articles you find here on our website are only a snippet of what you receive in The Daily Reckoning email edition. Click here now to sign up for FREE to see what you’re missing.

The Daily Reckoning