Bullard's Words Boost The Dollar

And now… today’s Pfennig for your thoughts…

Good day, and a happy Friday to one and all!

That would be apropos (no thinking) given there hasn’t been much thinking going on in the markets for some time now. We could go back to when the markets were pumping up the coffers of Greece, know all the while that Greece would never be able to pay them back, and so on. Shoot Rudy, we could go back even further if we wanted with TARP, cash for clunkers and rebates, but that would be reopening old wounds, and that sounds nasty, so we’ll skip that for today!

But skipping ahead to today… We’ve still got a stock market floating around the room looking for a pin, bond yields with “real negative yields”,  and a dollar that goes along as if it doesn’t have over $200 trillion in debt hanging on it, as Professor Lawrence Kotlikoff says.

The dollar holds the conn again this morning for the sixth consecutive day. Yesterday, the dollar got a boost from Fed St. Louis president, James Bullard, who told the markets that the Fed “may be getting close to lifting rates again.”After the gasp from the crowd, he added a caveat that many didn’t hear; “Provided growth continues as forecast”.  

Hmmm, would that be the growth in the economy that was illustrated yesterday with a negative print of Durable and Capital Goods Orders for February? Go ahead and prove to me that you have “real economic growth”, and not the kind that is underpinned by Gov’t spending, when businesses aren’t buying equipment.

At least this morning it’s not an all-out assault by the dollar, as the petrol currencies have carved out gains, with the Russian ruble posting the best performer title this morning.  The gains the petrol currencies have carved out are very tiny.

The price of oil rose a bit yesterday, not a lot, but a bit, and that helped the petrol currencies that include the currencies from Norway, Russia, Brazil, Canada and Mexico. I thought the petrol currencies traders had given up moving their respective currencies every time the price of oil moved an inch or two. But apparently not, because that’s what the price of oil did yesterday, move an inch or two. But you won’t see me, or hear me complaining about these moves. They just make me scratch my balding head.

Gold wrapped a tourniquet around their open wound to stop the bleeding it had done for the last couple of days. I was reading Ed Steer’s letter this morning, and he noted that every time gold attempted to move past the previous day’s low, it was met with resistance, with three notable push-backs coming within an hour of the close of the COMEX. I shake my head in disgust at this stuff folks, and wonder when the regulators are going to do something about it, but knowing all along that they never will.

Anyway, gold ended the day down $3 ($3.40) and at a low price for the month, which had held so much promise until this week. Oh, and don’t think for a minute that the other precious metals of silver, platinum and palladium have escaped the massive selling in gold.

I still have my focus set on the first week of April, which is when the Chinese will begin their renminbi denominated spot pricing of gold. I know that a lot of hope has been centered on this implementation by the Chinese, as it could end the paper trading and the short trades that total more than the metal above ground. I don’t believe this implementation is going to work wonders right away, but eventually, maybe, just maybe, you never know, it might!

Well, I already gave away the milk above when I told you about the Durable and Capital Goods Orders. But for those of you keeping score at home, Durable Goods Orders for February were negative -2.8%, and January’s positive number was revised downward. Capital Goods Orders also saw a negative number of -1.8% in February, and their January number was also revised downward. The Markit PMI (manufacturing index) gained less than expected, rising to just 51 instead of the 51.4 forecast, but well ahead of the January 49.7 print. As I told you yesterday, the markets don’t particularly pay attention to these Markit reports, and they didn’t yesterday.

Today’s U.S. Data Cupboard has a final print on fourth QTR GDP. That works out well, since we’re about to end the first QTR. Which by the way my GDP Tracker has running about 1.7%, which would be a pickup from the 1% fourth QTR total, that I believe will print today. Besides GDP, we’ll also see the Fed’s preferred inflation data, the PCE (Personal Consumption Expenditures). I don’t expect any major changes to the PCE, but I would think James Bullard is, given his upbeat talk yesterday.

Thank goodness for Ed Steer’s letter on days like this. Ed’s letter pointed me to a story on Zerohedge.com that can be found here, or you can view the snippet:

the Atlanta Fed just confirmed that the current U.S. economy is about as weak as it was when the Atlanta Fed first started estimating it at the start of February with a paltry 1.2% forecast.

As of moments ago, this is where we are now:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 1.4 percent on March 24, down from 1.9 percent on March 16. After this morning’s durable goods manufacturing report from the U.S. Census Bureau, the forecast for first-quarter real equipment investment growth declined from 0.9 percent to -1.4 percent while the forecast for the change in inventory investment in 2009 dollars declined from -$9 billion to -$11 billion. The forecast for real residential investment growth fell from 14.6 percent to 7.8 percent after Monday’s existing home sales release from the National Association of Realtors and yesterday’s new home sales and construction cost releases from the Census Bureau.

In other words, the U.S. economy is once again rapidly deteriorating, which is precisely what the Fed wants now as it needs every possible economic cover to justify its recent flip-flop decision to lower the number of forecast hikes from 4 to 2.  Expect even more economic “weakness” in the coming weeks as the Fed remains concerned that the S&P is just not high enough or, said otherwise, bad news is once again bad news.”

Chuck again. I’ve said it before and I’ll say it again, the economy is going nowhere, and when the sunshine and lollipops kids realize this, we can get to reality.

That’s it for today. Happy Easter to those of you who celebrate it, like I do, I hope you have a nice Good Friday/Holy day, and that you get to head to fantastico Friday. And please, be good to yourself!

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