Raise Your Hand If You Believe A Rate Hike Is Coming Soon

And now… today’s Penning for your thoughts…

Good day. And a Tom terrific Tuesday to you!

Consistency isn’t what the currency traders are known for. Except of course if you want to count them as consistently being fickle. Here they come again. The Fed members talking about how there could still be a rate hike this year. Yesterday it was Atlanta Fed President Lockhart, doing the Dave Clark Five hit a go for reporters. And with the talk returning to a rate hike in the U.S. guess what the dollar is doing again?  That’s right, it’s back on the rally tracks.

Haven’t we learned anything here? Haven’t the currency traders been burned by counting their chickens before they are hatched, and pricing the dollar higher while one Fed meeting after another is void of a rate hike?

I can see the folks in Canada laughing at us, because they’ve seen this all before when Bank of Canada (BOC) Gov. Carney led the markets on for over a year, promising a rate hike, and never delivered, and by the time the markets figured this one out, they had put so much into the Canadian dollar/loonie, that the sell-off was nasty.

The folks in the U.K. are just now figuring this one out as Carney has moved to the Bank of England (BOE) with his bag of promises. In the U.K., they are looking at the U.S. now and saying, “Hey, that reminds us of what’s going on here, I wonder if..”

Well, there’s no wondering if! They are not getting a rate hike in the U.K. this year, and neither is the U.S. But that’s not going to stop the Fed members from going out on the road and proclaiming that they are prepared to hike rates this year.

I look at this as something that is akin to the road signs that say “Be Prepared to Stop”. What, wait. When you’re driving aren’t you ALWAYS supposed to be prepared to stop? Or is that just “old school” drivers ED?  Do, they just teach kids nowadays to just “drive fast and take chances”? Shouldn’t the Central Planners all be prepared to hike or cut rates at any time? I laugh out loud when I hear these comments by the Central Planners.

So, it’s all about the dollar today. There’s not one currency out there that has a gain, to speak of, against the dollar today. The Swedish krona, New Zealand dollar, and Hungarian forint, are all basically flat vs. the dollar, with maybe a shekel or two of gains, while the remainder of currencies are taking on water.

It’s a double whammy for the euro, as I told you yesterday that the European Central Bank (ECB) members were going to be out in force this week to talk about the need for additional QE. And how that wouldn’t be good for the euro.

Well, you have that, and now add the talk from the U.S. of a rate hike (again, I might add!) and the euro takes hits on both sides of the pond.  Just last week the euro was heading toward 1.14, and this morning, it has lost the 1.12 handle. So, over two cents in two days. OUCH! That’s going to leave a mark!

In China tonight, the flash PMI’s (manufacturing index) will print, so to commemorate that the Chinese renminbi was pushed downward again overnight, thus marking two consecutive days of large downward movements.

I saw a headline story yesterday that President Xi, was defending his government’s economic stewardship and said that their intervening to arrest the plunge was necessary to defuse systemic risks. Not unlike action taken by governments in “some mature foreign markets”. Ok, did you read what I just wrote?  He didn’t just take a shot at the U.S. did he? Why yes he did! Oh, and while he was at it, the spray hit the Eurozone, and Japan too!

Yesterday, I told you about the firm that does the Chinese Beige Book and how they thought things in China wasn’t as bad as everyone made them out to be.  Recall I told you they said this: “Perceptions of China may be more thoroughly divorced from facts on the ground that at any time in our nearly 5 years of surveying the economy.” Well, a dear reader sent me a note to follow up on this, which said that the Baltic Dry Index was picking itself up off the canvas and we all know that this “pick up” would be driven by Chinese demand.

Oh, and Xi is heading to the U.S. to meet with the U.S. officials and the President. This would be the first time a Chinese leader visited the U.S. when China wasn’t growing by leaps and bounds over all other countries, but I doubt that’s going to stop him from showing up with a chip on his shoulder.

On a side bar — have you ever wondered when you see an interpreter talking for someone that doesn’t speak the native language, that who knows if the interpreter is actually saying what he supposed to be saying?

Well, I haven’t talked about the Indian rupee in a while, and for good reason, as there just hasn’t been much going on there. The rupee has been stuck playing follow the leader with the Chinese renminbi, but even more as the rupee hasn’t seen many up days recently.

Well, the Indian Finance Minister, Jaitley, said last night that he would like to see interest rates in India come down. And how this for timing?  The Reserve Bank of India (RBI — still the best Central Bank abbreviation) will meet on Tuesday next week to discuss rates, and now that it has been so strongly suggested by the Finance Minister, one would have to think that his wish will be granted.

India has been a big disappointment to me, well maybe not the country, but the country’s leader, PM Modi, who was thought would come in, make sweeping reforms, unlock the Indian economy, and be hoisted onto the shoulders of the rejoicing citizens, and paraded through the streets. Well, Modi has been able to push through a couple of reforms, but nothing more than that.

And so all the rejoicing citizens have gone home, and there’ll be no celebrating the sweeping reforms. But there’s still time!  This can still become a reality!  I’ll decide when it’s over! Was it over when the Germans bombed Pearl Harbor? HAHA! (please don’t make me explain that comment).

Another currency that has seen some tough times in the past year, is the Singapore dollar. I’ve told you all about how the Sing dollar is really just an alternative for the Chinese renminbi, as the two have traded step for step since July 2005.

Well, the NODX (non-oil Domestic Exports) fell -8.4% in August, so the tough times for Singapore and the Sing dollar still have some ways to go, folks. The Monetary Authority of Singapore (MAS) will meet in October, and I’m pretty sure they are going to signal a narrowing of the trading band for the Sing dollar, which means that the Sing dollar’s ability to rally would be limited. So, we’ll have to keep an eye out for the MAS decision next month.

And the Aussie dollar (A$) which just last week was really looking perky is now two days down in value. I told you last week that the A$ selling had been overdone, and the ensuing rally in the A$ was probably going to be short-lived. So, while I love it when a plan comes together, I’m not celebrating here.

There was some data overnight in Australia that really illustrates what’s going on in Australia. In the city of Sydney home prices rose 18.9%, but in the commodity cities like Perth, and Darwin, home prices are down -1.2%…  YIKES!

Well, yesterday, I downplayed the data that would print from the U.S. Data Cupboard. But the more I thought about it, I have to say I think I see something here.

First recall that last week, New Home Sales dropped in August? And most economists said, No biggie, just a blip.  But then yesterday, Existing Home Sales also dropped in August. And this is what I see: for the previous months to August, there was all this hype around how the Fed was going to hike rates in September, which would have moved mortgage rates higher, thus pushing home buyers to make their deals while they could get rates below 3% (depending on credit rating of course!). Thus the strong home sales new and existing in the previous months.

But August home sales dropped. Did everyone get in while the getting was good? And for August it was nothing but the stragglers?  Well, while I usually would say that this is a precursor to continued problems in housing. But with the interest rate hikes on hold here, why would that indicate problems in housing?  So, calm down, and just keep buying houses. That’s what the Fed is telling you.

Of course the Fed, and the government would also love it if you went out and spent a fortune on your credit card!  But I’ve seen something in the recent prints of Consumer Credit (read debt) that I’ve been meaning to talk about, and that is that Consumer Credit seems to have peaked. We just haven’t seen the type of credit growth that we’re used to seeing (around $20 billion per month), and the numbers have fallen to around $15-16 billion per month. And former Reagan Budget Head, David Stockman says that consumer spending has peaked.

Uh-Oh. What’s going to be the thing that gets this going again?  Because this is what’s keeping inflation so low, no “velocity of money”.

Well, gold is down again this morning, this time by $5. Gold researcher Koos Jansen was back at it again yesterday, telling everyone that would listen that the numbers that government’s like China are reporting for their gold holdings are lacking some very large numbers. This was reported at Bullionstar.com and the GATA folks. Here’s Koos Jansen on his latest findings:

International trade record-keeping rules exempt the reporting of movement of monetary gold, gold held or purchased by governments and central banks, gold researcher and GATA consultant Koos Jansen reports today. As a result, Jansen writes, gold acquired by the People’s Bank of China or other proxies for the Chinese government is almost certainly not showing up in international trade statistics.

This is more evidence that gold transactions by governments are being concealed for policy purposes.

Jansen also notes that the International Monetary Fund classifies gold as the highest reserve asset of central banks, above even the IMF’s own special drawing rights, because even the IMF recognizes gold as “the only financial asset without counterparty liability.

WOW! The IMF values gold higher than their own SDR’s?  That’s amazing!

Well I saw this on Ed Steer’s letter this morning, and he directed me to the origin of the story which appeared on zerohedge.com . And can be found here. And here are the snippets:

However, while we have been chronicling the U.S. economy’s slide into contraction for the better part of the past year mostly on the back of the collapse in the U.S. energy sector, what is odd is that the Fed only now admitted that not all is well in the land of central planning.

But while in our previous post on this topic we focused extensively on what the economy itself is signaling, here is another reminder that the real life blood of the U.S. economy, corporate earnings, are about as bad as they were. in 2009. In fact as SocGen confirms, “U.S. profits growth has never been this weak outside of a recession.

Chuck again.  YIKES! But this plays nicely in the sandbox with my call that the U.S. economy is heading toward a recession, and that the Fed will be painted into a corner and have to opt for QE4. But that’s all still to come. But don’t say I didn’t warn you when it call comes to fruition! Of course, that’s just my opinion and I could be wrong!

Well, it’s time to get out of your hair for today, and hope that you have a Tom terrific Tuesday!


Chuck Butler
for The Daily Reckoning

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