Good Day! … And a Happy Friday to one and all! Brrrr…  the cold air has returned to St. Louis! UGH! Not the kind of weather I expect to experience in the middle of May, but, we carry on despite Mother Nature’s reminders that warm weather is not here to stay yet!  I tell you this, that there are so many opinions on the markets out there… I read them, and walk away from them scratching my balding head, not knowing any more than I did before reading them! In a recent Gov’t poll, most Americans think that they are smart..  And I think I’ll just leave that lay right there, and move along… Good move, eh?

This morning, the dollar is drifting lower, but the move is nascent at best… The U.S. Data, and I’m talking “real market moving data” was not good, more on that in a minute… There’s not a lot of news out there this morning that would drive the dollar lower, so this is just a drift, if you will, as the true underlying weak dollar trend, rises to the top… Just like cream, eh?  The euro has climbed back over 1.37 overnight, but that’s not the headline news in currencies…

The headline news in currencies belongs to India this morning… Overnight, the new leader of India, Modi, was confirmed as the winner of the elections. Now remember last week, when the Indian rupee was rallying because of exit polls showing this eventual outcome? Well, if the rupee was rallying because of exit polls, you can bet your sweet bippie that it rallied when the outcome was confirmed! This currency has really seen a reversal of fate in the past year… A year ago, you couldn’t find anyone that would have liked the rupee’s future… And now, that’s all behind the currency…  I do have to caution people that the time to buy rupees was before all this move… Like when I was talking up the new Reserve Bank of India (RBI) Gov. Rajan, and his programs… Let’s see, I think that was last August, when I was in San Francisco, and I did a radio interview, one of the last one’s I’ve done, by the way, with Pimm Fox at Bloomberg Radio…

So… I hear you asking me as you just finished reading that paragraph… So, if now’s not the time to rush into rupees, why are you telling us all about the gains?  Ahhh grasshopper, if there’s anything to be learned from reading my newsletter over the years is that Chuck likes to blow his own horn, slap himself on the back, for calls that he has made… You see Chuck’s dad taught him to blow his own horn, because there might not be anyone else to do that for you!

Well, what have we here? Now that we’ve moved into spring, and even though it’s chilly outside right now, the weather has become more consistent with what we’re used to in spring. And that means no disruptions for blizzards, and Nor’easters, etc.  And also with that, gone is the excuse that bad weather disruptions cause economic slowdowns…  Just this week we’ve seen April Retail Sales badly disappoint printing only at .1% growth, a rounding error from being negative I might add… and then yesterday, Industrial Production for April fell -.6%!  And to top off the week of bad data and not from bad weather, was one of my fave data prints, Capacity Utilization, which fell to 78.6% from 79.3% in March…  That’s not good folks…  and if I were a Fed member, I would be shaking in my boots right now, and wondering “did we begin to taper too soon?”

But then we have that poll… No wait! I said I wasn’t going to talk about that again… So, let’s just move along, for these are not the droids we’re looking for…  But these weak data reports of real market moving data are beginning to pile up again, just like last spring… Capacity Utilization is one of the few forward looking pieces of data that we get here in the U.S. When Companies ramp up their plant utilization, the economy is ready to take off… But this data has been stuck below 80% Capacity since November 2007… And today’s level is a far cry from the go-go days when Capacity Utilization was 85%!

I think that this data alone tells us a lot about the U.S. economy… It’s there, sure, it’s moving, but it’s more like one step forward, two steps back… We seem to get moving, and then take backward steps… And what’s causing this? Well, if I tell you, then you’ll want to nominate me to run the Fed, Treasury, and shoot the country! HA! The list is so long, that I would be listing things causing this for days!  But in Chuck style, I’ll give you the broad strokes of what I think keeps our economy from moving forward with a bang…

Debt… The debt is so large, that companies fear it, and what it might do to their tax situation, etc. The Debt servicing is monstrous, and takes up a large part of revenue that might be used elsewhere. Gov’t interference in small businesses… Businesses need to be able to fire someone… think about that for a  minute… If you owned a small business would you want to hire someone that you know, you’ll never be able to fire, without going to court, and paying out all kinds of money?  The healthcare situation… I’ll say no more about that here…  The Fed paying interest on Bank reserves on deposit… That’s money that would normally be put to use in the economy, but think about this too… If you were a bank, and you knew you could get paid on your deposits without any risk whatsoever, or put it to work in the economy for a wider spread, but with all kinds of risk, what would you do?  So, until the Fed drops the deposit rate for banks, this economy isn’t going anywhere!

OK… let’s move on to something else… But before I do… Let me tell you that Janet Yellen agrees with me on the economy… Last night in a speech she said that, “the U.S. has further to go to achieve full health for the economy.”

I was reading a research paper from one of my all-time fave economists, David Rosenberg… and while his stuff is usually only for his clients, this piece showed up in the Globe & Mail… It’s quite long, as he talks about what happened to the Canadian dollar last year, and I found that he and I agree on something here… Rosenberg says that it’s just two words that describe the cause of the weakness in the Canadian dollar/ loonie…. Stephen Poloz…

Long time readers will recall that when Poloz was named the replacement Gov. and the Bank of Canada (BOC) for departing Mark Carney, I warned everyone that he was from the “trade side of Gov’t” and I do believe I went on to talk about how the guys on the Trade side of Gov’t are always banging the drum of a weaker currency to make exports more competitive…

I think though there’s one thing to think about with the loonie, and that is, while it no longer has a place above parity, like it once did, it still above 90-cents…  13 years ago, the loonie was picking itself up off the mat of 65-cents… So, let’s keep things in perspective…

Singapore received some good news yesterday, as their non-oil domestic exports expanded .9% in April from March, which has seen the exports fall -6.6%… Improved exports to the U.S. and China were cited as the reason for the stronger data in April. And in Singapore they have a separate category on exports called non-oil re-domestic re-exports, and this category, which includes many electronics, expanded 6.6% in April from March… so  the Singapore economy is still cooking with gas folks…

The Chinese renminbi was allowed to appreciate again last night, marking two consecutive days of advance in the renminbi / yuan. The renminbi / yuan has been a real disappointment in 2014, but come on… From July 2005 when the peg to the dollar was dropped, until 2007 when the financial meltdown began, the currency practically advanced VS the dollar on a daily basis. Yes, the moves were small, but when you do them daily for a couple of years, they begin to amount to something.  Then from 2007 to June 2009, the renminbi / yuan remained flat as the Chinese held the currency steady Eddie through all the global financial meltdown. And then from June 2009 through 2013, the currency again enjoyed a consistent appreciation VS the dollar..

I’ve told you all why I feel the renminbi / yuan has backed off this year, and seen more volatility than ever before, and I think this is just what the Chinese want from the currency, for they want to see how the economy reacts to a volatile currency, for one day the Chinese Authorities will allow the renminbi / yuan to float…  So, don’t get all panicked and Chicken Little on the renminbi… It’s the currency of the future, in my opinion, and of course I could be wrong…

But, the reason I began this long-winded talk on the renminbi / yuan, is that the weakness in the currency this year, has played a BIG part in the reason the Singapore dollar (S$) has not been able to find terra firm this year… Remember what I always tell you… That these two currencies will trade similar, for each country can’t allow their respective currency to get too far out of whack with the other currency, otherwise face the consequences of damage to exports…

Did you hear the news, (actually I know you didn’t for this is not Miley Cyrus-worthy news) that the Eurozone announced that there would be no collection of capital gains taxes from holders of Greek Gov’t Bonds in 2012 and 2013..  That’s HUGE for Greece folks… And the bond holders can feel some relief given their tax amnesty on holding the bonds… I’m surprised that this hasn’t helped the euro gain some traction…

Ok… on the funny side of things… I saw two T-Shirts that made me crack up, and… are probably now on my list of things to buy… The first one said:  My Bucket List:  1. Beer  2. Ice..  HA! And the second said: In Dog Beers… I’ve Only Had One! HAHAHAHAHA!

Gold is down again this morning a few bucks… and back below $1,300…  The $1,300 level seems to be a line in the sand… But then a couple of months ago, the line in the sand was $1,350…  If they keep moving the goal posts downward,  no one is going to think that Gold has a chance to rebound… Well, no one except me!  I have a snippet that I pulled from Ed Steer’s letter this morning that has Eric Sprott talking about a Gold shortage, for the FWIW section below…

The U.S. Data Cupboard, after handing us the bad news in Retail Sales, Industrial Production and Capacity Utilization this week, will take a breather today, with only some housing data to report… The Asian and S. Pacific markets are already into Saturday, and Europe is about to head to the pubs, so with little data today, the markets will be left to drift, which is exactly what we’re seeing the dollar do this morning!

For What It’s Worth… OK.. like I said above, this is Eric Sprott, and was pulled from Ed Steer’s letter, which I read religiously daily, and Eric is talking about a coming Gold shortage, which if you recall I talked at length earlier this week about a Coming Silver Shortage…  and before I go on, let me remind you why a shortage would be good for Gold or Silver… price is met at the crossing of supply and demand… no supply and strong demand is equal to higher price…  OK.. here’s the piece…

“I am very excited about developments in the gold and silver markets today. I have been speculating since late 2012 that Western central banks could be running out of gold. I put the sell-off in gold and silver in 2013 to the fact that the Western banks needed a way to generate physical gold supplies. As the metals prices went down, there was a lot of liquidation of gold which increased the supply by an estimated 900 tonnes last year.

Let’s look at the figures. The annual supply of gold is around 4,300 tonnes. 3,000 tonnes come from mining and the other 1,300 tonnes or so from recycled material. In 2013, an additional 900 tonnes came onto the market from ETFs that were being liquidated – a supply increase of around 21%.

Quite frankly, I believe this was all orchestrated in order to create this supply. During the time when the price was knocked down, a tsunami of buying started. India bought 336 tonnes from April to June of 2013. I’m sure that the central bankers went to the Reserve Bank of India and said: “You’ve got to stop people from buying gold.”

Of course, the Reserve Bank of India went on to create rule after rule to try to stop people from buying gold. They managed to get monthly imports of gold down to around 20 tonnes from its normal imports of around 80 tonnes per month. Obviously, those official numbers leave out smuggling, which probably makes up a very large amount of gold imported into India.”

Chuck again… I’ve said all I can say about these shortages, etc. and yes, I agree with Eric Sprott, the manipulation of the price downward, got mom and pops to sell and create supply… But now that is dried up…

To recap… The dollar is drifting lower this morning, but the moves in the currencies are nascent at best, as there is little in the way of data from the U.S. nor was there any in the overnight markets. India has chosen a new leader, and the rupee is enjoying the outcome. U.S. data yesterday was awful, and with no bad weather to blame, what does the Fed, the Gov’t, and lawmakers have to say about the weak data?  Nothing, nada, nil, zero, zilch… what did you expect? A coming to Jesus about how the economy isn’t as strong as they previously stated? Yeah, right…

I just had a special treat from the IPod, as it’s on shuffle, as usual, but played two Al Stewart songs back to back!

Currencies today 5/16/14… American Style: A$ .9365, kiwi .8635, C$ .9190, euro 1.3705, sterling 1.6805, Swiss $1.1225, … European Style: rand 10.3925, krone 5.9440, SEK 6.5770, forint 223.25, zloty 3.0605, koruna 21.9885, RUB 34.82, yen 101.45, sing 1.2525, HKD 7.7515, INR 58.87, China 6.1628, pesos 12.96, BRL 2.2195, Dollar Index 80.01, Oil $101.59, 10-year 2.50%, Silver $19.35, Platinum $1,465.25, Palladium $808.35, and Gold… $1,293.80

That’s it for today… Well, I got to go to the day game yesterday with my son Alex… We had a great time, and the rain held off until right after the last pitch was made! I paid for not taking an afternoon nap though last night… UGH! Cardinals finally got a timely hit… and it was from the pitcher!  UGH! Happy it happened, sad state of affairs for the Cardinal hitters… Ran into an old friend, that I didn’t recognize at first at the game… Tina sure looked different to me… Great, but different!  And I thought my Alex was smart… I just saw on TV that a family sent 7 kids to college at age 12! WOW! The Brainy Bunch! HA!  I asked Alex yesterday if he was sad about his H.S. sports career ending, and he said yes, but… He still had the Junior Olympics and that made things better… I remember my last game as a H.S. football player, we won, and I cried in the locker room afterward. I have no problems telling people that a big hulking mean football player was emotional after his last game… But Alex said no tears were shed by him, so I guess I was just a big cry-baby! HA!  OK… it’s supposed to get a bit warmer this weekend, with sun, so that’s a good thing, now let’s go out and make this a Fantastico Friday!

 

Chuck Butler

President

EverBank World Markets

Editor of A Pfennig For Your Thoughts

1-800-926-4922

http://www.everbank.com

 

 

 

 

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