China and Russia Create Joint Platform

And now… today’s Pfennig for your thoughts…

Good day, and a wonderful Wednesday to you!

Well, the risk sentiment rally is already fading. UGH! I’ve got it, no you take it, no I’ve got it! I feel like currency movements are like watching a tennis match. One day the ball is in the risk sentiment’s court, and the next day the ball is in the safe haven’s court. Really, come on boys, can’t you get this going in one direction, please? I’ve got a ton of stuff to talk about today, so grab that cup of coffee, and let’s get going!

The Risk Sentiment is fading, but not altogether at this point. Right now, the Aussie dollar is flat, the euro is up a small amount, the Russian ruble and Chinese renminbi are both stronger vs. the dollar by large amounts today, as is the S. African rand. But the star performer for the past week, kiwi, is seeing some profit taking and is down this morning. I’ve got something for you regarding China and Russia in the FWIW section today, so be sure to stay tuned for that! In the meantime, gold is flat this morning, after gaining $17.80 yesterday, and coming within spittin’ distance of $1, 250 once again.

The Norwegian krone sure had a good day yesterday, and it’s about time too! The krone has been the worst performing G10 currencies in the past two years, and of course the drop in the price of oil sure hasn’t helped the krone any. Well, I’ve got good news, according to the chartists. The 55 day moving avg. of the krone is moving through the 200-day moving average. The last time the krone moved like this vs. the dollar was 2014, and it went up 30% after reached that figure. So, IF the chartists are correct, and the krone continues its move vs. the dollar, things could get much brighter for the krone.  And the fact that the price of oil has stabilized doesn’t hurt either!

Same goes for the Canadian dollar/loonie, which is back on the rally tracks today, and has moved to a 9-month high vs. the green/peachback. The stabilization of the oil price, and overall U.S. dollar weakness is really helping the loonie recover some lost ground. And then whenever the risk sentiment kicks in, it’s all good for the loonie!

The price of oil slid overnight and it looked like a rout on the commodity currencies would be on, but then miraculously the price of oil rebounded and sits a bit higher than it did yesterday morning! So, I guess that’s what they mean when they say the price of oil has “stabilized” HA!

The Indian rupee is rallying this morning, which is something new for the currency that has seemed to be stuck in the mud for the longest time. The rupee is getting some love because India posted their smallest Trade Deficit in five-years overnight. The Trade Deficit which is real bugaboo for the Indian government and central bank to deal with, narrowed to $5.07 billion in March. A narrowing Trade Deficit is currency positive in countries like India that habitually run deficits. And with the dollar losing steam as the strong dollar trend fades, the rupee looks like it’s ready to follow the renminbi again.

The euro is up a bit this morning, but weaker than it was at one point yesterday. The single unit saw profit taking overnight  and has just turned that around in the early morning trading. The European Central Bank (ECB) will meet tomorrow, and recent meetings have seen ECB president Draghi, throw the euro under the bus. But tomorrow, I’m thinking that he’ll leave everything as it is, including its stance with the euro. This is an important meeting for the ECB to defend their monetary policies, after recent criticism from Germany. I wonder if Draghi can pull that off.

I told you earlier that gold had gained $17.80 yesterday. I read two different pieces yesterday that talked about how 1. Hedge funds have never been this bullish on silver, and 2. The last time Hedge Funds were this bullish on gold the price hit a record high! Hmmm, time to ride the wave?   

I have always held the idea that you should follow the money. So, let’s get this straight. Central Banks around the world (minus the U.S. and Canada) are buying gold, and now Hedge Funds are bullish on gold and silver. Hmmm…

Last week I wrote about Deutsche Bank signing a document agreeing to settle with the authorities regarding gold price fixing manipulation. I thought some follow up is in order, and who best to break it all down for us than the silver guru, Ted Butler (no relation that I know of). So, let’s listen in to Ted…

“Deutsche Bank didn’t admit to rigging the price of silver, as that’s the whole purpose of settlement-to avoid any such admission of guilt.”  He also pointed out that it was a civil case, not a criminal case-and unless the manipulation scheme ends up where it belongs-“centered on the COMEX and JPMorgan-it’s hard for me to get terribly excited at this point.”  But he went on to say that although they “were not the main focus of last week’s legal development, both are clearly in the crosshairs.”

China’s renminbi denominated gold fixing started yesterday. Do you know Steven Leeb? He’s been an analyst and newsletter writer for eons, and formerly wrote the Personal Finance Newsletter. Well, Leeb believes that China’s move with the gold fixing is just another step by the Chinese to take over the world’s finances. Interesting because that’s what I’ve been saying for years now!

Besides the Data Cupboard, I haven’t really talked that much about what’s going on in the U.S. and how that could be taking the starch out of the dollar’s collar. Yesterday, I was reading my Connecting The Dots by Tony Sagami who writes for Mauldin Economics and he had this to say:

“And it doesn’t help that Americans continue to rack up debt. Example: Outstanding auto loans have hit more than a trillion dollars, with an average balance of $12,000 per person that consumes nearly 8% of the average borrower’s disposable income!

No wonder that an estimated 62% of Americans are living paycheck to paycheck.

And all of us-low, medium, and high income combined-are working longer than ever to pay a growing tax bill. According to the nonpartisan Tax Foundation, tax freedom day, the day when the nation as a whole has earned enough to pay the state and federal tax bill for the year, arrives on April 24.

That means all the money we made in the first 114 days of 2016 went to taxes.”  And then he carried on with this. “Check out these discouraging numbers:

  • 39% of American workers make less than $20,000 a year.
  • 52% of American workers make less than $30,000 a year.
  • 63% of American workers make less than $40,000 a year.
  • 72% of American workers make less than $50,000 a year.

And the U.S. Data Cupboard yesterday had some housing data, and well. is the bloom off the rose there too? Housing Starts for March fell -8.8%, and Building Permits fell -7.7%. I know I don’t normally get to involved in this housing stuff, because I truly believe that we’re seeing another housing bubble, but that doesn’t play well with everyone, so I just skip by it most days.

Today’s Data Cupboard has more Housing data with the Existing Home Sales for March. The Housing Starts data was a real surprise to most observers yesterday, and I expect the same kind of surprise for Existing Home Sales today. It’s just all playing into the recession folks. Are you ready?

And before I stop talking about data. The earnings season hasn’t gotten off to a good start, with corporations reporting revenue that doesn’t meet expectations, or even worse, reporting losses for the quarter. And yesterday, Intel reported revenue that didn’t come close to expectations, and then announced that they would cut up to 11% of its workforce, or about 12,000 jobs. I say don’t worry, because the BLS is there to make sure they don’t count those 12,000 jobs cut, you can be sure of that!

Before I head to the Big Finish today I wanted to share this with you.I’ve told you before about the polls that they post on the CFA Financial News Brief they send me each work day before. Chris Gaffney is a CFA, and so he made sure I received this from that prestigious group each day. The current poll asks this question:  Which of the following behavioral biases is the most useful for successful investment decision making?

Optimism, Pessimism, Skepticism, Status Quo.

Which one would you pick? I picked skepticism. And currently 69% of the people choosing to participate in the poll also selected Skepticism. What does that tell you? Well, I know what it tells me! It tells me that I don’t do things like investing on a whim. Hmmm… I guess I should have had more skepticism when I bought  “x”! HA!

I found this on Reuters, and you won’t believe what this article has to say. Two former adversaries now forming a trading agreement..   You can find the entire article here, or here’s your snippet: 

The Bank of Russia and the People’s Bank of China want to create a joint platform that would unite gold trading by the world’s two biggest gold buying countries.

BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China, the gold trade is conducted in Shanghai, in Russia it is in Moscow. Our idea is to create a link between the two cities in order to increase trade between the two markets,” First Deputy Governor of the Russian Central Bank Sergey Shvetsov told TASS.

Chuck again. Well this is where I say that the article is being very conservative with their number for the amount of gold that China has. I read a recent report that said China only told the IMF the small amount of gold that they had, because they knew it would suffice, to get the IMF to approve the renminbi/yuan included in SDR’s. The report said that they believe that China has more than 9,000 tonnes of gold. Now that’s a number I can stand with.

That’s it for today. I want to thank you all for reading the Pfennig, and I hope you have a wonderful Wednesday. Be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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