Geopolitical Pressures Rise Again

And now… today’s Pfennig for your thoughts…

Good day, and a Tom terrific Tuesday to you!

I needed a “morning music” song this morning, as I really need to start slow and quiet this morning, and build my momentum.  Something traders should probably learn in trading school!

Yesterday’s bloodletting was something, but overnight, the currencies have been range-bound, with the dollar looking a bit softer, but still in control folks, still in control.  We are seeing a bout of geopolitical pressures this morning after a Russian war jet was downed in Syria last night. And once again, gold has reacted to the geopolitical pressures by rallying, but once again the rally is watered down. Hmmm…

The Russian ruble is the worst overnight performer on the downed war jet news, and is not being helped at all by the jump higher in the price of oil overnight. The price of oil jumped from the $40 handle to the $42 handle, and most of the petrol currencies are moving in the right direction with that jump in the price of oil. But not the ruble.

The Eurozone’s largest economy, Germany, saw the latest Business Confidence Index as measured by the think tank IFO, unexpectedly rise, which is a sign that Germany is weathering the storm in the Eurozone. For those of you keeping score at home; the index rose to 109 from 108.2 in Rocktober. The consensus was for this data to remain unchanged, so the result was a good one here, and one thing I think was important is that the attacks in Paris didn’t have a negative effect on German Business Confidence.

The euro is basically flat, but up a few ticks this morning. One would think that news like this would lift the euro higher, but not in today’s trading world.  Alrighty there Chuck, stop right there! Let’s move on to something else here before you get all half-baked about traders again! Good idea, for I’m just warming up from my slow start, and no ready to put the pedal to the metal just yet!

Well, the “hot news” yesterday morning, regarding the closed door meeting of the Fed Board of Governors didn’t yield anything for us to talk about. But the message boards were full of comments, most of them very funny, well, funny if it weren’t true!  I didn’t have the thoughts about what they would be talking about quite right yesterday, but then it was just a guess on my part. I’m sure it was more about the “audit the Fed bill” or the new highway tax funding, because a discussion on rates at this time is ill-timed for these Central Bankers.

OK, moving along here… The Aussie dollar (A$) is stronger this morning, but kiwi is not. However the moves are small so we can’t really hang our hat on either move. The Aussie Treasury Dept. revised its growth expectations for next year from 3% to 2.75%… And Reserve Bank of Australia (RBA) Gov. Stevens, will speak tonight (tomorrow for them) and I have to wonder what he’ll say about this downward revision for growth, given that the RBA’s latest minutes and speeches have seen an upbeat feeling about the Aussie economy.

I read a brief report from James Rickards yesterday, and in the report he really disses the BRICS (Brazil, Russia, India, China & S. Africa). I like reading things that go about knocking down the thoughts I have for something, so that I can then build a stronger case. And quite frankly, Rickards was really focusing on near-term stuff with the BRICS. So I get it. Near-term doesn’t look so rosy for just about anything with the Fed rate hike hanging over the assets like the Sword of Damocles. But come on! Throw me a bone here! These countries, minus S. Africa, who by the way, I still don’t know how they got into this exclusive group, but minus S. Africa, the growth in population comes from these countries, so wouldn’t just forget about them easily.

The Japanese yen continues to trade back and forth, over and under the 123 handle. I really don’t know what traders here are waiting for. An invitation?  Yes, that’s it! That’s the ticket! Traders here want an invitation by the Bank of Japan (BOJ) to take yen weaker, for its long anticipated next move down.  I don’t think they’re going to get one, so they’re going to have crash the party. Come on have some intestinal fortitude!

I do have to say that the next Currency of the Month write up for the SundayPfennig is going to be about the Japanese yen. I put together some thoughts on yen the other day for the article, and realized that I could write a book on yen!  And I think that only one chapter would be dedicated to that period where we saw yen strength. I still get a good laugh regarding the 3 Arrows, and try to think about that to change my mood whenever I’m down! HA!

The Mexican peso is much stronger this morning. Apparently, the Mexican government has broken the tie between inflation and the peso moves.  Really?  Why? Because inflation in Mexico has remained stubbornly low?  So, you break the tie that has been a part of the peso valuation for years?  Hmmm…  I have to say that this reminds me of when the Mexican government decided to move the decimal point over on the currency’s value back in the 90’s.

Hey! When you have the ability to make change, why not take advantage of it! HA!  So, any-old-way you look at it, traders should be taking the peso to the woodshed, but not in today’s traders’ world, instead, the peso is enjoying a nice strong rally. Go figure. because I can’t anymore!

Well, I mentioned above that gold was stronger this morning, but not by as much as one would think given the geopolitical pressures right now. Our metals guru, Tim Smith, sent me an article yesterday from the  (the guy’s name is Turd Ferguson) who writes about gold & silver almost daily. In this latest report he talks about the shortages in the metals that are coming as a result of the paper trading. One note he highlights: Thomson Reuters GFMS released their latest Silver Interim Report, which projected the third consecutive year of a global shortfall in the supply of physical silver.

So, what ever happened to the laws of Supply and Demand?  If there has been a shortage of physical silver for 3 consecutive years, why isn’t the price of silver back to $50 or beyond? Good questions for all those that believe that no one out there has an axe to grind to keep a lid on metals prices.  Answer from them? Crickets…

Lions and tigers and bears, oh my! That’s what I kept repeating in my head yesterday, when I saw the color of the Markit PMI for this month. I told you yesterday that this data, which is the manufacturing Index that they shorten up to PMI, would no doubt continue its descent this month.  I was expecting a small drop in the index number, but what we got was a very large drop in the index number!  From 54.1 to 52.6, in the whole scheme of things, that’s considered to be a HUGE drop!

Granted, it’s still above 50, the line of demarcation between expansion and contraction, but the trend is certainly not manufacturing’s friend right now.  Hello, Is this the Federal Reserve Bank?  Thank you for taking my call.  I’m just wondering, as Fed member Williams told us the other day, the Fed is data dependent, so did you happen to see the drop in the PMI?

So, the U.S. Data Cupboard yesterday had  that weak data print, and something else. Existing Home Sales joined its kissing cousin Housing Starts and printed a drop in sales for Rocktober. As a reminder, Housing Starts fell -11% in Rocktober, and now Existing Home Sales fell -3.4% for Rocktober.

I think this is the beginning of the end of the housing recovery folks. I know that won’t sit well with all the mortgage guys, and I recall having the same type of discussions with them in 2005, when I told them there was a housing bubble and they argued with me that there wasn’t. Problem for them was that they had drank the Kool-Aid, and wouldn’t listen to anything else.  Maybe they’ve changed. But probably not!

Today’s Data Cupboard has the next revision of 3rd QTR GDP, which, I’ll remind you I told you last week that due to the funkiness of the GDP calculation which adds to GDP when inventories rise, will see an upward revision from the original print of 1.5%… We’ll also see the S&P/CaseShiller Home Price Index for September.

Alrighty then, it’s time get this Tom Terrific Tuesday going. Now let’s see if you can get a Tom Terrific Tuesday going too!


Chuck Butler
for The Daily Reckoning

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