U.S. Stocks Feel The Tremors

And now… today’s Pfennig for your thoughts…

Good day, and a Tom terrific Tuesday to you!

Tremors. That’s what we had in the U.S. stocks yesterday, before miraculously recovering at the end of the day. Those tremors were good for gold, and the shiny metal got within spittin’ distance of $1,200, but by the end of the day, stocks recovered some lost ground, the tremors were put on ice for now, and gold retreated, ending the day with a small gain.

The Big Winner in all this fear in the marketplace right now are the safe haven currencies of: dollars, euros, and yen. And then add in U.S. Treasuries, the yield on the ten-year Treasury has dropped to 1.76%… Can you believe that?

By the time the bond dealer takes his pound of flesh to sell the bond, a buyer is probably buying the bond with a yield that’s below the inflation rate. YIKES!

And in Japan, their bond yields have gone negative! And still investors line up to buy them in times of market turmoil. Why? Why buy bonds that you have to hold to maturity once interest rates begin to rise back to normal levels, otherwise you take a loss? And if you hold it to maturity, you have to explain to yourself why you hold a negative yield bond, when your neighbor is receiving interest on his new bond..

What will you say when your wife asks you, what you were thinking? I’m sorry dear, I must have lost my head for a short time and thought I had to buy something, and ended up with this negative yield bond. yes, dear, next time I’ll listen to you!

The currencies are mixed today, with just a handful of them carving out gains vs. the dollar, including the euro, Canadian dollar/loonie, pound sterling, Swiss franc, Czech koruna, Sing dollar, and Silver. There are some that are up a bit, but for the most part the gain is so small, I would say they are flat on the day.  The biggest loser overnight is once again, a currency that is quite familiar with this tag – the Russian ruble. And the best performer overnight is the Canadian dollar/loonie.

The Petrol Currencies for the most part, are carving out gains, led by the loonie. The exception to the rule is the ruble, but the loonie, Norwegian krone, and Brazilian real are on the positive side of the ledger this morning. Did you notice above that I included Silver with the positive currencies today? Now, why in the world would Chuck do that? Is it because he still views Gold & Silver as “true currencies”. Ding, ding, ding, you are correct! Give this man a big teddy bear!

Gold may be the offset to stocks right now, it won’t remain that way. But in the background, always is Silver. I actually had a reader send me a note yesterday, and he said ,”you always talk about owning physical gold, but not silver, wouldn’t it be better should things get really bad to own silver to buy the loaf of bread?”

I laughed to myself and thought, should I? No, yes, no, yes, Oh, OK, here’s goes, and I replied to him, “actually I own more silver than gold”. That’s it. nothing more, I think he’ll say that I agree with him.

I’ve talked about this gold and silver thing before, but for all of you that’s just joined us in the classroom, silver would be my choice between the two, because of the fact that silver is an industrial metal, and, an investment metal. In addition, I think of silver as the “poor man’s gold”.

In other words, the price differential of the two is so wide that for investors with not that much of portfolio money to allocate to metals, buying silver makes sense. But, the world is fixated on gold, and that’s why I normally just talk about gold, but when I do that I’m really talking about gold and silver, together. Got it? Good!

The Aussie and New Zealand dollars are both down this morning. The antipodeans are having to deal with a China that’s on a weeklong holiday, and therefore no business is being conducted. The market turmoil doesn’t do anything to help these two currencies, and without China providing cover for them, the dollars of both Australia and New Zealand are getting sold.

I’ve long said that the Aussie dollar (A$) was the proxy for global growth and risk. And right now, we have no global growth, and that is weighing heavily on the A$.

Of course, some strong economic data is what the antipodeans need badly, to ward off those pesky rate cut campers, that come crawling out of the woodwork every time a soft data report prints.

It’s nice to see the Indian rupee on the rally tracks today, especially given the fact that China is on holiday, and therefore the rupee has nothing to lean on. But I doubt that this trip on the rally tracks can last too long for the rupee, as it seems the country just keeps shooting itself in the foot. And to think that I was so hopeful a couple of years ago, when the new Reserve Bank of India (RBI) was announced. And then they had a new PM elected, and all things looked so bright in India you had to wear shades. But we all know that the Indian economy has gone nowhere, and all the investment flows that got caught up in the hype, have left the country now.

The safe haven currencies of dollars, euro, yen and francs are all looking perky today. The euro has popped back over $1.12. You may recall the euro popping over $1.12 a couple of months ago, only to have the trap door sprung on it, and struggle to get back to this level.

Recent reports on Factory Orders and output from Germany, the Eurozone’s largest economy, have been weak to start the year, and should be weighing heavily on the euro, but instead the euro flourishes because of its safe haven status.

The last piece of the puzzle that is fourth QTR GDP will print today. Inventories. So, we can finally close the books on 2015. My GDP Tracker is still pointing toward a 0.04% final figure for fourth QTR GDP. And in the spirit of the BLS and their hedonic adjustments to every report they get their hands on. I’m going to make a final adjustment to my 0.4% print.

That’s right, if the BLS can get away with it, so can I! And don’t you forget it!  HA! But, imagine if you can, that GDP number which is an annualized number for that quarter,  without the 3% that the government added last year with R&D. Oh, the humanity! No, please don’t do that to us Chuck!

Gold has turned positive this morning as I was typing away my fat fingers. I think that $1,200 is a real psychological level for gold. So what for that. Gold is within spittin’ distance of the level now.

This comes from my friends over at the 5 Minute Forecast, an Agora publication, that you have to sign up for through another letter, but can be found here. The guys, Dave and Addison, have taken up the discussion that I’ve talked about for a while, and that is how China and Russia have called for a “de-dollarization” and now Iran may be joining that small group. Let’s listen in:

A source inside Iran’s state-owned oil company tells the newswire that euro payment is expected not only for future deliveries, but even for oil already delivered and not yet paid for. Indian government sources confirm this development; India owes Iran about $6 billion, or should we say 5.37 billion euros.

‘Switching oil sales to euros makes sense,’ says Reuters, ‘as Europe is now one of Iran’s biggest trading partners.’

‘De-dollarization’ is a term that first turned up in the spring of 2014. As we explained it in real-time, Russian bureaucrats used it to describe the topic of a meeting with their counterparts from China.

Chuck again. And then there’s this to ponder (as stated in the 5); Russia and China are the two main powers in a non-Western group of countries known as the Shanghai Cooperation. Iran has been blocked from the SCO in recent years, while it was under U.N. Sanctions. With those sanctions now lifted, Iran might well join up this year, along with India and Pakistan. That could be a power de-dollarization bloc, eh?

That’s it for today. I hope you have a Tom terrific Tuesday!


Chuck Butler
for The Daily Pfennig

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