FOMC Meeting Minutes Reveal Fed's Dovish Nature

And now… today’s Pfennig for your thoughts…

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

The dollar, which had given up some gained ground after the Fed’s Meeting Minutes (FMM) printed yesterday afternoon, has rebounded overnight and is back on top again this morning, although there are a couple of currencies with gains, and gold is up $16 in early morning trading, thus the dollar isn’t in all-out assault mode, this morning.

Speaking of the FMM. The Fed’s FOMC Meeting Minutes (FMM) were interesting in that the Fed members were already showing signs of being dovish, even though many of them had been out prior to the meeting talking about how the Fed could hike rates in April, and leaving rates unchanged at their April meeting. Curious isn’t it that the Fed members were out talking about a rate hike in April, but when brought together they were talking about leaving rates unchanged when they meet next in April? Were they attempting to throw the markets of the scent of a dove? 

Looks that way to me, because when you look under the hood, you see that the Fed members’ clearly saw global economic and financial developments as shifting the risks sharply to the downside, but refused to say that in the comment following the no rate change announcement. But IF that’s the case, it sure isn’t. No wait! I had better stop there, but I think you know where I was going with that.

Speaking of gold… Recently I’ve been talking a bit about the planned beginning of a renminbi denominated Gold Fixing at the Shanghai Gold Exchange (SGE). I’ve been wary about saying for sure it would start in April, because there have been two previous dates given for the start that didn’t materialize (April & Dec 2015).  I know this irks the Chinese leaders because they don’t like it when they say something is going to happen, and then is delayed. But I do believe we’ll see this new fixing soon. And when we do, things will change, folks. First of all one must be aware that there will be NO PAPER trades! Only physical gold trades accepted! So, there goes the ability of manipulators to play paper games with gold.

Speaking of which…  did you know that in the COMEX here in the U.S. Commercial traders on 4/1 reached an all-time record # of short contracts in gold? 207,900 short contracts that obviously represents more ounces of physical gold than is known in our universe to exist.  Talk about cheating consumers! Consumers buy with an idea that negative interest rates, geopolitical tensions around the world, and weak economies, Central Banks hell-bent and whiskey bound to inject inflation in their respective economies, and an idea that there are regulations that protect them from manipulated markets, are enough fundamentals to push the price of gold higher, only to then see it lose ground because of paper trades.

I loved, no wait, I absolutely loved this comment from James Rickards that came from his new book: The New Case For Gold. Let me set this up…

Rickards is talking about how Central Bankers including the Fed members bash gold whenever they get the opportunity. So, what say you James? Rickards said:

If gold is so worthless, why does the United States have more than 8,000 tons? Why do Germany and the IMF keep approximately 3,000 tons each? Why is China acquiring thousands of tons through stealth and Russia acquiring over 100 tons a year? . . . gold is the foundation, the real underpinning, of the international monetary system.

The best performing currency overnight is Japanese yen, which has rallied past through the 110 figure, and the 109 figure, down to 108.25. WOW!  This latest move pushes yen to the best performing currency this year! It’s up over 11% vs. the dollar year-to-date! I can see the Japanese leaders all sweating bullets, and vowing to get revenge with the yen traders that have done this dastardly deed to them and their plans for the Japanese economy that included the need for a weak yen to promote growth and inflation.

Japanese leaders have jawboned about all they can, and have become the boy who cried wolf. So, now they will have to resort to the bazooka effect of monetary policy that the European Central Bank (ECB) pulled out of the closet last month.

Funny thing though, that bazooka of monetary policy to weaken the euro, only riled up the currency traders and the euro has rallied since the ECB and its leader, Mario Draghi fired the bazooka. Remember me calling him Bazooka Joe? The euro is flat this morning and is trading just below the 1.14 figure at 1.1395. That’s what I call within’ spittin’ distance. I sure wish the ECB would just leave well enough alone, and allow the Eurozone economy to sink or swim. Of course I would wish that same thing for any country that has a Central Bank that thinks they know best. Whoa, there Chuck! Isn’t that just about every country? Ahhh, grasshopper, there are a couple of exceptions.  let’s check those out!

Singapore is a country that has long been a model of efficiency. I wrote about the Singapore dollar (S$) last month as the currency of the month in a Sunday pfennig, if you missed it or want to go back to read it you can find it here.

You see Singapore uses the Monetary Authority of Singapore (MAS) to set the trading band for the S$, and the MAS uses the S$ as their main tool to combat inflation, instead of just arbitrarily raising or cutting interest rates. Next week, the MAS will probably meet to discuss the trading band. I think they’ll keep things steady Eddie, as the S$ has gained about 5% so far this year, keeping inflation in Singapore in check.

And we have an old dog that’s relearning tricks it once knew – the Reserve Bank of Australia (RBA). I don’t want to spoil the soup, so I’ll stay out of the kitchen here.  You see, the Aussie dollar (A$) is the subject of my next Currency of the Month that will be on the newsstands in about a week. So, I’ll just tell you that I’m impressed with the RBA’s ability to keep a lid on rate cuts.

The Risk environment that was so prominent in the markets about 10 days ago, has faded away and it’s all about safe havens these days.  One thing that could really change that in a hurry is a stronger than expected Chinese PMI (manufacturing index). A stronger than expected report like that would really get the risk campers all lathered up again, but anything short of that will keep the risk environment at bay.

I haven’t talked about the BREXIT this week, and I’ll rectify that right now! I had an anonymous email to the banking center from someone that wanted to start an argument with me about my stance on the BREXIT.  I’ve said that I thought that in reality, the U.K. Gov’t officials were for leaving the European Union (EU), and this anonymous emailer said that was wrong. Well, if he had given me his email address I would have responded to him and told him that I was going on comments that I had read from the backbench members, and not the “company line” that PM Cameron is telling the media.

The pound sterling/pound, continues to be drawn and quartered every time there’s something going on that would feed the “leave the EU” campers more ammunition. And that’s exactly what happened when a referendum in Holland was rejected that would have been a trade agreement with Ukraine. Now, that seems harmless right? Well, it’s not, because this is something that the “leave the EU” campers can point to as a reason why being a part of the EU is hurting the U.K.

The impeachment of Brazilian president Dilma Rousseff is gaining momentum and with every bit of information that talks about how the impeachment process is going, the Brazilian real reacts. If the information is positive for the impeachment process then the real rallies, and vice versa. I don’t like having currencies get tied up in the Political process like this. But it is what it is, and at this point with real, does it really matter? Rousseff threw everything including the kitchen sink at the real when she came into power, and ruined a lot of people’s investments, so if the real rebounds on her impeachment it seems to be KARMA to me.

The price of oil inched higher in the past 24 hours, but again no one is impressed at this point. I had a back and forth conversation with my friend Dennis Miller, the retirementor, (that’s what he’s called because he is a retirement guru! ) regarding the price of oil. He’s all for the lower price of oil because of what it does to the price of gas. And the idea that this could all lead to a break up of OPEC. And allowing the markets to set the price of oil again, not OPEC.

I’m all for that idea! But I worry about the oil producers, especially in this country, and all the loans they have on the books that they took out when things were going great for them, but now with the price of oil probably near or below the cost to produce, things get a little hairy, eh?

The dollar has taken more of a hold on the currencies as I’ve been writing, and I can’t figure out what’s going on here. The U.S. Data Cupboard is basically empty today, and there isn’t any big data out this morning elsewhere. Hmmm… Oh well, time to head to the Big Finish.

There’s basically no data in the Data Cupboard this morning, except some third tier reports, but next week we’ll get to see the March Retail Sales data. The BHI indicates to me that the report will be better than February’s negative -0.1% print, but still disappointing. And that doesn’t help the consumption data that the U.S. GDP relies on so heavily. The first QTR GDP continues to be downward revised in my GDP tracker. I told you yesterday, that after the widening of the Trade Deficit, that my GDP tracker had fallen to 0.4% for first QTR GDP.

Speaking of a weak first QTR GDP. My friend, and publishing giant, and writer extraordinaire, Bill Bonner, wrote yesterday that JP Morgan Chase has revised downward their forecast for U.S. 1st QTR GDP to 0.7%…  So, I have it at 0.4%, and JPMC has it at 0.7%…  Neither one would be good!   

Bill also shared with his readers that “Globally 36 Corporate Bond issues have defaulted so far this year, up from the 25 during the same period of 2015.”  Again, I don’t think the Fed needs to be so concerned with global problems, we have our own problems here in the U.S. that need to be addressed!

Well, gold is up $16 this morning, and I spent a ton of time talking about gold above, so I’ll switch over to silver this morning. Silver is up 9% so far this year, as it follows gold to higher ground. The Perth Mint reported that in March, silver coin sales were the second highest level on record! Physical demand for precious metals continues to be strong, and is something I think is starting to scare the paper traders.

For What It’s Worth. I came across this article when doing some research on the Bloomberg this morning, then I see it featured in Ed Steer’s letter, and I said, “I’ve got to go back and find that article on the Bloomberg” and I did! So, here is the link to an article titled: “The Coming Default Wave Is Shaping Up To Be Among The Most Painful”  You knew that had to catch my eye, right? Here’s the snippet:

When the next corporate default wave comes, it could hurt investors more than they expect.

Losses on bonds from defaulted companies are likely to be higher than in previous cycles, because U.S. issuers have more debt relative to their assets, according to Bank of America Corp. strategists. Those high levels of borrowings mean that if a company liquidates, the proceeds have to cover more liabilities.

‘We’ve had more corporate debt than ever, and more leverage than ever, which increases the potential for greater pain,’ said Edwin Tai, a senior portfolio manager for distressed investments at Newfleet Asset Management.

Loss rates have already been rising. The potential for them to climb further may mean that in general junk bonds are not compensating investors enough for the risk they are taking.

In bad times, corporate bond investors on average lose about 70 cents on the dollar when a borrower goes bust. In this cycle, that figure could be closer to the mid-80s, Bank of America strategists said. Those losses would be the worst in decades, according to UBS Group AG’s analysis of data from Moody’s Investors Service.

Chuck again. Well, it’s nice to see the rest of the world catching up to this story on corporate debt that I first started talking about a year ago! And again, this is one of those problems here in the U.S. that the Fed needs to be more focused on instead of things going on around the world. Of course that’s just my own opinion, and I could be wrong! That’s it for today. Have a tub thumpin’ Thursday, and to be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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