market views

Review & Focus®

Chuck Butler | March 1, 2016 10 MIN READ

February was the sweetheart month for a number of reasons, but not for economic data reports, interest rates around the world, and the stock market. As I write this edition of the Review & Focus® newsletter, gold has added to its January rebound, and is now up 11% for 2016. And the calls for an end to cash have moved from a whispering campaign to shouts on the steps of the county courthouse. These things and more will be discussed this month, so pull up a chair, put your feet up, and let’s go.

New readers need to be brought up to speed on the process of the Review & Focus. I write each issue around the middle of the month, so I don’t have the outcomes of things that happened in the final two weeks of the month. For example, in March, I’ll be writing as the Fed prepares to meet to discuss rates. Similarly, the chart of currencies and metals that is included in each month’s letter also spans from the middle of the previous month to the middle of the current month about which I am writing.

A Review of February

Whew—that seemed long-winded. Well, February brought about some real problems for the stock markets of the world, but since most of us are here in the U.S., we’ll focus on the U.S. stock market. I was checking out at my doctor’s office recently, and the woman taking my money asked me what I did for a living. I told her I am a financial newsletter writer, and she responded that she was frightened by what was going on in the stock market. I told her, “You know, this bull market for stocks has run for six years, going on seven. Trees don’t grow to the moon, and stock market rallies don’t last forever.”

There’s nothing here to get all upset about. Sure your stock portfolio’s total value doesn’t look so shiny right now, but it’s probably too late to take action. And in all my years of watching markets, I’ve seen bull markets and bear markets, but not collapsing markets, so calm down and breathe.

You read, hear and see pundits, economists, etc. blaming global stock markets’ problems on China and oil. I really don’t think the U.S. stock market has to look too far from home as to the reason stock values are falling. “Real economic data” is the economic data that really matters, in my opinion, continues to show that the U.S. economy may be on the fast track to Recessionville. In February alone, we saw Retail Sales disappoint at just 0.2% in January. Personal Spending was flat for January (the U.S. economy needs consumer spending to drive the economy), and the Manufacturing Index, called the ISM, was below 50 for the third month in a row, and has fallen to 48.2 from 58 in the last year. Additionally, Durable Goods Orders were a -5.0%, Factory Orders were a -2.9%, and Capital Goods Orders were a -4.3%. These are the real pieces of the puzzle that we call our economy folks: spending, manufacturing, and orders.

The Fed Reserve Chair, Janet Yellen, made her semi-annual trip to Capitol Hill to testify before lawmakers, and give her opinion on the condition of the U.S. economy. This followed the Fed’s rate hike two months ago—the first in nearly a decade. You knew that she couldn’t focus on the stumbling economy, especially since the rate hike was still fresh on everyone’s minds. Instead, she focused on the market turmoil going on around the world. Like I said above, the U.S. has its own problems, and to be looking across the seas at other countries’ problems, we’re going to wake up one day and realize that we should have been paying attention to what was going on at home.

The Currencies Fight Back

When it comes to currency rebounds we’ve seen a few false dawns in the past 5 years, but at no time were there questions about the U.S.’s ability to keep an economic rebound going, or whether or not the Fed would call for four rate hikes in 2016. Speaking of the Fed’s call for rate hikes in 2016, most observers thought that at their March 2016 meeting, the Fed would make their first of the four rate hikes in 2016. That was then, this is now, and right now the Fed Funds Futures are pricing in a 0% probability of a March rate hike.

But getting back to the currencies. The major currencies were all up vs. the dollar in the past month, except the Mexican peso. The currencies that have a positive interest rate/yield difference to the dollar have been the best performing, as traders look at that rate differential maintaining its edge. Interest rate differentials have always been a major fundamental that investors use to value currencies. It’s actually pretty nice to see fundamentals being used once again.

However, let’s not get all giddy about the use of fundamentals, because one of the better performing currencies in February was the Japanese yen. And this rally in yen came after the Bank of Japan (BOJ) announced negative deposit rates, and Japanese Gov’t Bonds (JGBs) saw their yields go negative. How can this be? This makes no sense whatsoever, right? Well, right now it’s all about so-called “safe-havens.” When the markets get scared, like they are right now, investors flock to the so-called “safe-havens.” Those include: dollars, yen, euros, gold, and U.S. Treasuries. Think of buying yen as a “muscle memory response.”

The Petrol Currencies are Held Hostage

To the moves in the price of oil: We’ve seen the price of oil rise and fall, rise and fall, and just never really move out of its negative trading pattern. The currencies from Norway, Russia, Brazil, Canada, and even Mexico, have all seen their respective values move up and go back down with the movements of oil. The Russian ruble has been the proxy currency for the relationship between oil and the petrol currencies. So, it seems that the more that the price of oil plays into the overall performance of a country’s economy, the more that particular currency is affected. And that’s why we see the Russian ruble fluctuate wildly, with wide price swings, and we don’t see that with the Canadian dollar/loonie.

So, the $64 question is, “Where’s the price of oil headed?” I wish I knew, folks. I heard about the Russians and Saudis meeting to discuss production cuts. But unless those talks come to fruition, I feel as though the oil-producing countries of the world are going to go all-out, to out-produce the other guy, and therefore feed the glut of supply that we now have, and continue to push the price of oil lower. And if that were to happen, the petrol currencies will pay the price based on their reliance on the sales of oil.

What’s Wrong with Cash?

The whispering campaign that began in the past couple of years has really become something that Central Banks are talking about (see, I told you they were trouble), and the media is beginning to cover. The more I think about it all, the move by Central Banks to go to negative deposit rates is just the beginning. Sure, the original idea behind implementing negative rates was simple: banks would take a hit, but negative rates would get the economy moving. A stronger economy would then take over. Unfortunately, the best made plans of mice and men are often misguided.

The planners of negative rates knew that banks would take a hit, but they also thought that by now things would be turned around, and they wouldn’t have had to keep the negative rates in place this long. But not only have negative rates remained in place, Sweden and the European Central Bank (ECB) have gone deeper into negative territory. I just don’t see this experiment with negative rates working out for the countries that have implemented them.

And that leads me to what I believe these Central Banks are working towards. But first let’s take a look at the headlines surrounding this:

  • Norway’s Biggest Bank Calls for Country to Stop Using Cash
  • Germany and France Want to Impose a Europe-wide Ban on Cash Transactions of More than €5,000
  • The Next Weapon in the War on Cash: Capital Controls
  • Europe’s €500 Notes are the Latest Front in the War on Cash
  • Ban $100 bills to Tackle Crime: Ex-bank Chief
  • Scrap £50 Notes to Stop Plumbers and Builders Avoiding Tax, Urges Government Adviser

Those were all taken from Bloomberg, folks. I didn’t make them up.

The Central Banks know that if depositors begin to find solutions to the negative rates, the only way to combat that is to take away their cash.

Now, I’m not saying this is going to happen, and I’m not saying it’s not going to happen. All I’m trying to say is that this is being talked about on a regular basis now, and we should probably take notice.

Gold Recovers

When all appeared lost for gold back in December—when the Fed hiked rates, and then talked about four more rate hikes in 2016—the shiny metal pulled itself off the canvas mat and did a little rope-a-dope. Since the rate hike gold has rallied, and brought silver, platinum and palladium along for the ride higher and higher. As I said above, gold is a safe-haven and one that I totally agree with, and because of that status the shiny metal has finally left the $1,100 range and moved on to the $1,200 base.

Physical demand for gold is as strong as it ever has been, and China, India and Russia are leading the way. In the second week of February, gold gained $50 in one day, and I said in my world famous Daily Pfennig® newsletter that I bet gold holders were glad they followed the old adage that says, “Don’t wait to buy gold, buy gold and wait.”

An Update to Our Inconvenient Debt

In February, the U.S. National Debt crossed over the $19 trillion figure. Longtime readers will remember when I began this whole Inconvenient Debt watch, the U.S. Debt was less than $8 trillion, and I said then that it was too high. Here we are at $19 trillion, and no brakes. That’s right, the debt ceiling is a thing of the past, and controlling the country’s deficit spending is no longer checked.

And now there’s this from our own Fed Chicago: In the second week of February, the Chicago Fed warned that the U.S. true level of indebtedness is not the 105% that has been talked about, but, drum roll please, 305%! Remember when the world had a tizzy fit about the PIIGS debt, or about Greece’s debt? Those two former poster children for indebtedness never saw their debt levels go above 205%. But now the U.S. has a true indebtedness of 305%, and the Chicken Littles are nowhere to be seen. Except in this letter, ha!

In conclusion, we’re two months into 2016, and the best thing I can say about it so far is that at least in February pitchers and catchers reported for spring training, and we all get to start anew again. I love baseball, all that it stands for, and what it doesn’t stand for, and I’m here in South Florida where my beloved St. Louis Cardinals play spring training baseball games. I’m in heaven, for a handful of games, and hopefully some very warm weather. I hope you like the new format of the Review & Focus. It had to be done, and we move along—onward and upward.

I also want to make mention that in March we’ll celebrate St. Patrick’s Day again. Being of Irish heritage, I will do my best to be “Irish” on that day. Have fun, but be careful.

ASSET TRENDS 1/15/2016 – 2/12/2016

Source: Bloomberg World Currency Ranker Screen (WCRS). WCRS asset trends are based on BGN “Bloomberg Generic” indicative or “spot” currency exchange rates and metals prices as of 5 pm Eastern Time on the dates specified. Such rates and prices are generally only available for large volume transactions conducted by institutional investors at a specific point in time. These values are illustrative only and do not reflect interbank rates available to us or the rates or prices we make available to customers at any point in time, and the trend data provided do not include retail exchange spreads or other transaction costs.

Currency1, 2 Trend Change (%)
Australian dollar 3.03%
Brazilian real 1.61%
British pound 1.47%
Canadian dollar 4.30%
Chinese renminbi 0.16%
Columbian peso -3.29%
Czech koruna 2.92%
Danish krone 3.01%
EMU euro 3.01%
Hong Kong dollar 0.08%
Hungarian forint 4.77%
Indian rupee -0.92%
Israeli shekel 2.04%
Japanese yen 3.60%
Mexican peso -4.62%
New Zealand dollar 2.54%
Norwegian krone 2.63%
Polish zloty 4.87%
Russian ruble1 -2.10%
Singapore dollar 2.91%
South African rand 5.48%
South Korean won 0.14%
Swedish krona 1.95%
Swiss francs 2.44%
Turkish lira 4.04%
Metals3 Trend Change (%)
Gold 13.45%
Silver 12.66%
Platinum 15.55%
Palladium 6.12%
EverBank CD Baskets1, 2 Trend Change (%)
Balanced Debt® 2.52%
BRICS 0.85%
Commodity BasketSM 3.84%
Euro Trax® 2.61%
European OpportunitySM 4.35%
Geographic BasketSM 0.38%
Global Power Shift® 2.89%
Investor's Opportunity® -0.13%
Mining OpportunitySM 1.40%
New World EnergySM 3.32%
Pacific Advantage® 2.33%
Pan-AsianSM 2.53%
PetrolSM -0.17%
Ultra Resource® 2.57%
Viking® 2.54%
World Energy® 2.86%

EverBank CD Basket trends are also based on WCRS indicative spot rates for the underlying currency mix, which is described at, and thus are not reflective of interbank rates available to us or the rates we make available to customers at any point in time and do not include our spread. For more information, please see

Chuck Butler
Chuck Butler
Managing Director of EverBank Global Markets Group
Chuck Butler
Chuck Butler
Managing Director of EverBank Global Markets Group
You can count on Chuck to tell it like it is. He has over 35 years of experience in the currency field. And he's got a wit all his own. A frequent and respected analyst for various national media outlets, Chuck is also the original author of the popular Daily Pfennig® blog.

Asset trend data are illustrative only and do not reflect retail exchange spreads or other transaction costs.

Along with the potential for market gains, foreign currency accounts carry some additional risks from currency fluctuations, economic and political factors, and accounting differences.

All statements, comments and opinions expressed are solely those of the writer or speaker and are not the statements, comments or opinions of EverBank or of any of its affiliates, and are subject to change without notice. Due to the rapidly changing nature of currency and commodities markets, any statement, comment, or opinion may quickly become outdated. This is not a solicitation for the purchase or sale of any securities or options on securities or for the purchase or sale of a currency or any precious metal, and it does not constitute a recommendation to you or to any specific person of any particular action. EverBank, its officers and employees do not provide investment or other types of advice. All factual information has been obtained from sources that the writer or speaker believed to be reliable, but the accuracy, completeness, and interpretation of the factual information is not guaranteed and has not been independently verified. Not all products are right for everyone. You should conduct your own research and/or consult your advisor before making any purchases.

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