Where Did Abe's Three Arrows Go?

And now… today’s Pfenning for your thoughts…

Good day, and a Tom terrific Tuesday to you!

Well, to start the day today, we have a different group of currencies that are carving out gains vs. the dollar this morning, and those that were doing so yesterday, have gone to the dark side and are giving back their gains from yesterday.

Today’s winners include: S. African rand, Norwegian krone, Swedish krona, Aussie dollar (A$), and Chinese renminbi. Not too many to upset the dollar conn applecart, eh? Gold is down $3 as I write, and oil remains below $42 this morning.

The currency and metals trading is still centered on the rate hike talk here in the U.S., of which we heard none yesterday. That was kind of strange, but after the disappointing Retail Sales report from Friday, how could the Fed Members sound like they knew what they were talking about?

The euro has fallen below $1.07 this morning. The power of words, has won the battle vs. data here. Germany’s Business Confidence Index, measured by the think tank ZEW, rose from 1.9 to 10.4, the first rise in the index in eight months. The Index is supposed to predict economic developments six months ahead. So, this data should have been able to underpin the euro this morning.

But then along came European Central Bank (ECB) members, Praet, Nowotny, and Coeure’, were all out today shouting from the rooftops that the ECB does not want the Eurozone to fall into a Japan-style disinflation scenario and the more they pound the drum with that message, the more traders take it as more stimulus for the ECB economy is coming. And with that thought, down goes Frazier. I mean the euro…

In other news this morning, the U.K. printed their latest CPI (consumer inflation) report this morning and unfortunately for Bank of England (BOE) Gov. Carney and his bag of rate hike promises, CPI remained negative at -0.10% in Rocktober. The pound sterling isn’t high on traders’ hit parade with data like this. And again, I want to say to those traders that drove the price of sterling higher and higher last year, that “I told you that was wrong”.

Moving along. Well, so much for the three arrows, eh? Remember the three arrows that Japanese PM Shinzo Abe introduced a few years ago now? They were going to lead Japan out of the two decade long economic funk.

Well, for those of you who still believe that Abe’s three arrows are going to do the trick when everything else (except cutting the debt) has been tried here, had better sit down and listen.

For the second consecutive quarter (the 3rd QTR) the Japanese economy has contracted. This time contracting -0.8% year on year. Japanese businesses just aren’t making capital investments, consumer spending is soft, which is an understatement, and now with China slowing down, Japan’s economy is in deep dookie again. No wonder the yen has traded on the darks side of 123 this week, even with a safe haven call after the events in France last week.

Two consecutive negative quarters of growth is equal to a technical recession. But in reality, hasn’t the Japanese economy been in recession for two decades now? There were always hopes for change (sound familiar?) and the yen would get bought and everyone would be on board that “this was it” only to be dragged back down in the mud. What kept dragging them?

Well, there are a couple of things. The demographics of Japan are circling the bowl, immigration is needed, but you and I will never see that happen in Japan. And then there’s the debt. And lots of debt, no let me restate that, lots, and lots, and lots of debt! Again (sound familiar?).

The Global Recession is tightening its grip folks. Uh-Oh.

I mentioned above the S. African rand was carving out a gain this morning vs. the dollar. I don’t get around to talking about the rand very often, mostly because there’s never really much going on there that warrants talking about.

For instance this morning the rand is the best performer overnight, but go try and find why that is. And the only thing you’ll find is that S. African Citrus exports reached a record in Rocktober. The S. African Reserve Bank (SARB) will meet soon, and maybe traders are pushing the envelope that the SARB will keep rates unchanged and not join the “rate cutters” of the world.

The Norwegian krone is also booking gains vs. the dollar this morning, and here it’s not so difficult to look under the hood as it is in S. Africa. The krone pushed higher this morning after a better than expected 3rd QTR GDP print. But want some depressing news? All the analysts I read following the 3rd QTR print of 0.2% were all saying that they are sure the unexpected growth is from the weak krone. UGH!

The krone has lost 9.5% vs. the euro this past year, and 28% vs. the dollar in that same period. And these guys and gals think that’s OK, and in fact they think it’s a good thing. I just shake my head in disgust. Nothing more to do other than that, folks. I could get all ramped up about this, but I won’t. I don’t need that in my life right now. HA!

So, as I said above, we heard no rate hike talk from the Fed members yesterday. I think it would have been in bad taste to be out talking about a rate hike in light of the terrorist attacks in France on Friday. Bet you didn’t think I was going to say that, eh? But yes, that’s how I feel. But it could have been a coinkeedink that there were no speeches scheduled. And that’s a good thing in my mind! But that won’t stop them forever, so expect them to begin to trickle out slowly.

One thing I keep hearing that’s just preposterous. and that is that the Fed’s FOMC Meeting Minutes from their last meeting will not sound as dovish as their statements since. That’s crazy talk folks! Of course the minutes are going to sound dovish, the Fed members didn’t just decide on their own to come out of the meeting talking about how a rate hike was looking good for the December meeting!

There is one thing that bothers me, well, there’s more than one thing, but for this discussion I’m talking about the one thing that bothers me regarding all this rate hike talk by the Fed members prior to this week. They’ve run the markets’ expectations to a frenzy high, and I told you yesterday that 70% of the rate hike is already price in, to unwind all that would be very ugly, and quite a few people would get hurt. But I still wouldn’t put it past the Fed to bypass the rate hike in December.

The U.S. Data Cupboard yesterday only had the Empire Manufacturing index, from the NY region. This regional data print has been just plain awful recently, and yesterday’s print was no exception showing a negative number for the 4th consecutive month. The November print was -10.74. Not that the markets care, or anyone else, except the workers in this region that Manufacturing is in the dumps.

The U.S. Data Cupboard for today, has the stupid CPI, which I told you about yesterday, and then two of my faves, Industrial Production (IP) and Capacity Utilization (CAPU) which have been very disappointing recently, and I expect that to be the case again as they print the results for Rocktober. The Net TIC Flows will also print for September. As I keep saying and sound like a broken record, I’m well aware of, but always good to remind everyone, that this data used to be very important, as it tracks the net foreign purchases of U.S. securities. But that was before we all found out that the Fed was able to buy as many bonds that it wanted to and thus rendered this data useless.

You know, now that we know that the Fed’s preferred inflation data is the PCE (Personal Consumption Expenditures), which last printed at 1.2% not anywhere close to the 2% inflation target of the Fed’s, what good is the stupid CPI? I say here and now, let’s start a grassroots campaign to rid the Data Cupboard of CPI! Say out loud. No More CPI, No More CPI, No More CPI. Doesn’t that feel good? Come on, No More CPI!

Well, I told you above that gold is down $3 or so this morning. Yesterday’s $8 gain in the early morning trading was wiped out once the NY traders arrived. I’m still baffled as to why gold was not trading with a flyer on Monday morning after the events of Friday in France. Have the price manipulators become so brazen that they now even cut a pound of flesh from gold even in the face of world crises?

The price manipulators had better tread carefully here, for isn’t it just about true with every kind of organization, country, cartel, you name it, that once they become brazen about breaking the rules, that eventually a mistake is made, and then they are exposed?

For what It’s worth… About three years ago, I wrote the Sunday Pfennig for the Thanksgiving Week, and it was the most responded to Pfennig ever! The theme was Chuck’s Debt Solutions. I took on some very touchy subjects and hit them head on with a hammer, which is my way of doing things in life, yes, I may use a hammer to kill a fly, but if it works, who cares?

Anyway, I think the readers that responded that day, wanted me to run for President! Or something that I could take those solutions to Washington with me, and get them implemented. Well, the reason I bring that up is that one of the things I talked about was that we as a country should look to either self-finance within a state or have a 3rd Party Entity take over the financing of a public project.

I pointed out that the great mother-road, Highway 66, was privately financed. I pointed out how we as a country could see highway developments to, let’s say Australian construction companies who would build it, and make it a toll road, thus getting their investment back in tolls.

So, yesterday, I see this article on Reuters, and a big smile came across my deformed face. You can find the whole article here, or here are the snippets:

Three of Canada’s largest pension fund managers said on Friday that they would acquire the operator of the Chicago Skyway toll road for $2.8 billion.

The Canada Pension Plan Investment Board, Ontario Municipal Employees Retirement System and Ontario Teachers’ Pension Plan will each own a one-third interest in Skyway Concession Co LLC, which has an agreement to operate the road until 2104.

Each of the three Toronto-based pension fund managers will contribute an equity investment of about $512 million toward the deal, which remains subject to regulatory approvals.

The 7.8-mile Chicago Skyway is the only Illinois toll highway not operated by the state Toll Highway Authority. SCC was awarded operation rights on the road in January 2005 for $1.83 billion.

Chuck again. Nothing more to add than what I’ve already said above, other than it’s nice to see this happening, now if would just catch on. The government could get out of the road building business, and reduce that deficit spending item from their budget.

Before we head to the Big Finish today. this will only take a minute to read. I read yesterday that in the state of Oregon, where marijuana was just approved a month ago, there are already more retail marijuana shops in the state than there are McDonalds or Starbucks. I don’t know if this is a good thing or bad thing for the economy, I guess we’ll find out soon enough!

That’s it for today. I do hope though that you go out and have a Tom terrific Tuesday!


Chuck Butler
for The Daily Reckoning

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