Chuck Butler’s: A Pfennig For Your Thoughts
July 18, 2017
* Dollar gets sold like…
* The strong dollar trend…
* Is over… are you ready?
Good day… And a Tom Terrific Tuesday to you! Are you ready for this? I know, I have to tell you what “this” is, right? Well, I’ve been talking about it for a couple of months now, come on, you know it, it’s on the tip of your tongue, right? Of course I’ll tell you, but you’ll have to wait a minute, because first Al Stewart greeted me this morning with his song: The Year of the Cat… And I love Al Stewart’s music, so it comes first! HA!
Well, I turned on the laptop this morning, and went to the currencies, and saw what I’ve been talking about for a couple of months now… The end of the strong dollar trend! The Big Dog euro is trading well into the 1.15 handle, and the Aussie dollar (A$) has its sights set on 80-cents! Oh, and the Dollar Index has fallen below 95 to 94.65 this morning. And the A$ has not been this strong since May 2015! And then it was going in the opposite direction! And no one out there in newsletter land is talking about an end to the strong dollar trend, but little old me… Like I said a couple of weeks ago, they call me: Lone Wolf… (I know you were thinking more like they call me Looney Tunes!)
So, what has catapulted the Big Dog, euro well into the 1.15 handle? That’s simple… The selling of dollars. Always, always I tell you, be yourself, no wait! I always tell you that the euro is the offset currency to the dollar, so dollar weakness will be seen in euro strength. What was I thinking, tailing off into Mr. Wizard? But, I see it now… My mind was thinking that the dollar is like Tooter Turtle, and in trouble once again, and looking for help from Mr. Wizard… I know, my mind is a strange place to live…
So, why were dollars being sold? Because they were supposed to be, given the outlook for the U.S. economy… But that’s just me being plain and simple with my answers… The pundits out there will tell you that the dollar got sold when two more Republican lawmakers decided to not go along with everyone else regarding the Health Care re-write. That decision pretty much deep-sixed the vote on the re-write, because if you don’t have the votes to pass something, don’t bring it to a vote!
I’m on the other side of the fence on this thought, because the dollar has been getting sold in bits and pieces for 6 months now. Sure it has seen a day or two of rallies, but if you look at the euro 6 months ago, it was 1.0630… And this is where I get up on my soapbox and begin to talk about Trends…
You see trends are long sweeping moves in asset classes, like currencies, and they begin for a fundamental reason, and don’t end until they do… Trends are the reason, in this case, that currencies move stronger VS the dollar, and all the other stu, ff that goes on, like technical, and jocular attempts to move currencies, are just things that happen inside the Trend. A Trend is NOT a One-Way Street, as there can be volatility inside the Trend… The current strong dollar trend began with the discovery of Europe’s debt problems in 2011, and looks to be on its last legs…
There have been 4 completed Trends and one near completion since Gold was removed from backing the dollar by Richard Nixon in 1971… Remember that? it was supposed to only be a “temporary move”, and here we are 46 years later, and we’re still dealing with his “temporary move”… Ok, I’m getting away from the discussion of Trends here, but you get my point… A Trend is a powerful thing for asset, either way, good or bad…
And one of the things that points to the this being the end of the strong dollar trend is that all the currencies are on the rally tracks, and we also have Gold with multiple days on the rally tracks. I told you yesterday that the currencies each have their own “stories” as to why they are on the rally tracks, but those just explain what’s happening inside the Trend, which in my opinion is now a weak dollar trend. There… I said it! And it began 6 months ago…
Currencies like the Norwegian krone that play follow the leader, are really moving stronger, not being affected by the small drop in the price of Oil in the past 24 hours. And now that Big Dog euro, has established its place as the leader, the currencies will all be singing: We’re following the leader, the leader, the leader, We’re following the leader, wherever he may go!
The price of Gold gained $5.30 yesterday to close at $1,233.70, and at last check this morning it was up another $2.30 in the early morning trading.
I was doing some reading yesterday when I received an email from the GATA people. I always stop to at least see what it is they have to say, and in doing so yesterday, I read a report from securities lawyer and markets analyst, Avery Goodman, who was telling everyone that in his recent Examination of the U.S. Commodity Futures Trading Commission’s reports, he explained how the bullion banks continue to close huge volumes of short positions in the monetary metals that they have been carrying for years. “If the bullion banks know what they’re doing, Goodman writes, this foretells a major rise in metal prices in coming months.” WOW! I wondered what was up with that $11 gain on Friday, and then yesterday Gold gaining momentum as the day went on…
Have the “boys in the band” decided to take their instruments and go home? Now, wouldn’t that just be a shot to the heart for the dollar, if Gold is allowed to run up? I guess at this point we can only hope the “boy in the band” have left the building, because I’m tired of their “songs”! wink, wink…
Let me take you back to what I was telling you a couple of months ago now… And that is that the sentiment toward the dollar was changing, as traders were growing leery of the Fed’s claims that the economy would surge in the 2nd Half of this year, and that’s why the Fed rate hikes were warranted. As the sentiment continues to change from buying dollars to selling dollars, it will build momentum, and by the end of summer, things will look quite different… Well, it appears that the timetable has moved up a bit, but who cares? If you listened to what I was telling you months ago, and bought euros when they were trading with a 1.06 handle, then you really don’t care that the timetable has move up!
So, now I’m going to climb back up on my soapbox and give a speech, are you ready for this? Fill up the coffee cup, because I’m loaded for bear this morning!
Quite a few of you longtime readers were with me when the last Financial Crisis hit the U.S. in 2007… And all the time that Ben Bernanke, then Fed Chairman, kept saying that, well, let me let you see what he had to say before all Hell broke loose in the economy… Here are some quotes from Big Ben, before and in the early stages of the Financial Crisis…
When asked about a housing bubble Big Ben said, “Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don’t think it’s going to drive the economy too far from its full employment path, though.” – July 2005
And then in Feb. 2007 as things were beginning to heat up Big Ben has this to say, “Our assessment is that there’s not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy. And the lending side of that still seems to be healthy.” – Feb. 2007
I could go on all day with these quotes, that indicated that the Fed Chairman, nor the Fed in general had any inkling of a coming disaster… And this wasn’t the first time this had happened… Shoot Rudy, you can go back to 1999, and hear Big Al Greenspan talk about how productivity was behind the stock market rise, and we all know what happened next, right? Or, you can go all the way back to right after the Great Depression, when Fed members and Senators, etc. were pounding their fists, and saying that all was well once again, only to have the economy fall right back into another recession a year or so later…
So, when Janet Yellen gets up in front of lawmakers last week, and says that the economy is doing fine, she expects stronger growth and inflation in the second half of the year, and that she truly believes that we, as a country, will never experience a Financial Crisis again, should you believe her? Or… should you run for the hills, because the past record of talking up the economy right before we have a major breakdown is right there before us… I don’t really hear people say this any longer, and I’m glad, but if there was a time and place for a Fed member to say it… “this time will be different”, now would be that time, you know, just to help them save face a little longer…
OK, I’ll get down now… I know that some of you like it when I get up on my soapbox and get all riled up… So, there you go! I hadn’t really done that since leaving my old employer, and it felt good to shake the dust off! My former colleague and longtime friend, soccer legend, Ty Keough, likes to call me: ChuckGambo.. in reference to the Great Mogambo Guru! And I love it when people think of me and the Great Mogambo Guru in the same way…
To recap… Well, it appears that from the look of things this morning that Chuck has decided to call it official… The end of the strong dollar trend, and the beginning of a new weak dollar trend… He believes it started 6 months ago, but has really gained momentum in the last couple of months. He explains Trends, and how powerful they can be. The Big Dog euro is trading well into the 1.15 handle this morning, the A$ has its sights set on 80-cents, and Gold has booked 3 consecutive days of gains!
Before I head to the Big Finish today… OK, I’m sure some of you noticed last week that I did some tweaking to the Pfennig each day, by making the font for the email larger, and with Bold type, so it would be easier read, and many of you sent me notes of thanks for doing that. But yesterday, I received a note asking me to un-bold the type… I laughed out loud, and said, “you can’t make everyone happy, Chuck!” Oh well, I’ll keep it as is, as it is easier to read on a mobile device than it was before.
For What It’s Worth… Here’s another, “Mom, he’s doing it again” thought… This time we’re talking about card debt loans and delinquencies…It can be found on the Bloomberg here: https://www.bloomberg.com/news/articles/2017-07-17/new-u-s-subprime-boom-same-old-sins-auto-defaults-are-soaring
Or, here’s your snippet: “It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017.
A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide.
Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis. But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo & Co.
Few things capture this phenomenon like the partnership between Fiat Chrysler Automobiles NV and Banco Santander SA. Since 2013, as U.S. car sales soared, the two have built one of the industry’s most powerful subprime machines.
Details of that relationship, pieced together from court documents, regulatory filings and interviews with industry insiders, lay bare some of the excesses of today’s subprime auto boom. Wall Street has rewarded lax lending standards that let people get loans without anyone verifying incomes or job histories. For instance, Santander recently vetted incomes on fewer than one out of every 10 loans packaged into $1 billion of bonds, according to Moody’s Investors Service. The largest portion were for Chrysler vehicles.”
Chuck again… OMG! Haven’t we seen all this stuff before? Well, I guess it’s a good thing that auto loans aren’t as big a slice of the pie as housing was, right? Uh-Oh! I just remembered, that the average car loan now is more than $18,000, and the length is 66 months… My parents first home was $13,000 and a 30-year mortgage… I’m just saying…
Currencies today, 7/18/17… American Style: A$ .7937, kiwi .7350, C$ .7927, euro 1.1552, sterling 1.3031, Swiss $ .9550, … European Style: rand 12.9485, krone 8.0977, SEK 8.2808, HUF 265.02, zloty 3.6377, koruna 22.5760, RUB 59.20, yen 112.16, sing 1.3669, HKD 7.8040, INR 64.28, China 6.7722, peso 17.57, BRL 3.1802, Dollar Index 94.65, 10yr 2.30%, Silver $16.10, Platinum $925.88, Palladium $866.15, and Gold… $1,236.00
That’s it for today, I read in the paper yesterday that we’ll see temps above 100 the rest of the workweek… Times like this is when I was glad I worked inside… For when I was a young man I worked one summer in the heat of Oklahoma, building in-ground swimming pools, nothing like dealing with that every day! Yes, I worked outside doing manual labor during the day, and played my guitar with the band at night… I don’t have the energy now to do either! The grandkids, Delaney, Everett, and Braden all swim in the prelims early this morning, good luck to all of them! I tell them all the time, you’re not racing the person next to you, you’re only racing the time clock… they look at me like I’m from outer space! HA! Head East takes us to the finish line today with their song: Never Been Any Reason… And with that, it’s time… I hope you can go out and make this a Tom Terrific Tuesday! And.. Be Good To Yourself!
Chuck Butler