A Call For A Return To A Gold Standard…

March 27, 2018  

* A “nothing day” for the currencies…

* Media hype gets traders all lathered up…    

 

Good Day…  And a Tom Terrific Tuesday to you! Good news from the oncologist yesterday. The tumor in my jaw has shrunk significantly, which I already knew, but the effects of the medicine on my body functions, haven’t shown up, yet, so it’s all systems on Go! My last full day in S. Florida, where the frigid weather up north never gets to, and that makes me very happy! Dave Loggins greets me this morning with his song: Please Come To Boston…  Which I’m sure the people of Boston are singing to warmer weather!   

Well, it was a “nothing day” for the currencies yesterday, but they held their ground and inched higher in some cases, and lower in other cases.. Gold found a way through the short Gold paper traders’ gauntlet, to gain $6.40 on the day, and the price of Oil held steady Eddie.   As with many things these days, the media got the markets all lathered up late last week and over the weekend, on the news of a Trade War, and then the news feed faded and the markets are left to trade on its own…

And that’s what we saw yesterday.  One day it’s all about buying the euro, and the next day, not so much… Oh well, I carry on despite the flaws of trading currencies these days… 

Yesterday, I meant to talk about the rise in pound sterling, as it was trading as high as 1.4225. This move higher came about because of the news that the BREXIT negotiation might not cause a hard landing for the U.K. economy…  But that was yesterday, and today the pound is getting sold on the news / rumors that BREXIT negotiations aren’t going well… See what I mean?  The media gets the markets all lathered up about something one day, and then no follow up the next day… 

This will continue to go on, until it doesn’t…  Yes, one of these days, the markets will ignore the media’s hype about something, and when that happens, this trading pattern will have ended…  But until that day, we have to be careful and not go feet first into the traps that the media sets… 

Trends are the things that move markets in sweeping moves that take years to play out. There can be volatility within those trends, like the stuff we’re seeing now, but eventually the asset will return to the underlying trend.   

I’m not seeing any love being sent the direction of the Petrol Currencies, which is weird, given the upward push of the price of Oil. The Russian ruble, Norwegian krone, Canadian dollar/ loonie, and Brazilian real, all are stuck in ruts, neither gaining or losing ground VS the dollar these days. I think Petrol Currency traders have figured out the media hype trading pattern and aren’t falling for it any longer.  Well, not until Oil breaks out of this $62-$65 range, and makes a strong move toward $70…  

I’ve been doing some reading about the pending Credit problems for bond issuers…  It’s some scary stuff folks… And I don’t mean to cause you to hide in your rooms after reading this, but I do need to let you know what could happen, so you can prepare your investments accordingly… 

I’ll keep it to the broad strokes to keep from getting from too detailed…  But first, promise me you’ll put away the sharp objects… OK, are we finished?  OK… here goes…

Basically we’re looking at the high probability that we could see a credit default coming… And here’s why… Basically, corporate bond issuers took advantage of the Fed’s zero rate circus and issued bonds by the boat loads, but it’s my opinion that these corporations didn’t use the funds generated by the bond sales to increase their business like corporations have done for eons before now. Instead, it’s my opinion that these corporations took the bond proceeds and bought their own stocks, buy backs if you will, to prop up their stock price, and in the end the Captains of these Corporations receive HUGE bonuses for the performance of the company’s stock… 

So, there’s nothing in the till to pay off these bonds, and as they come due, they will have to be refinanced, but at a much higher interest rate, because the Fed has moved their zero rate circus to another city. These higher interest rates can’t be paid by the bond issuers… Uh-Oh!  Or even worse, no one will buy their refinanced bond… Double Uh-Oh!  

So, you can relax now, that’s all over… Whew!  There’s not much happening in the U.S. Data Cupboard, until we get to Friday’s edition, when Personal Income and Spending will print. Today, we’ll see the latest Consumer Confidence report, and it’s expected to rise once again…  That’s fine, go ahead and get real confident, and complacent about the economy, for when that happens, a Minsky Moment will be upon us in a heartbeat, and it will be too late baby, now it’s too late, though I really did try to make it…  

And before that happens what should we be backing up the truck to? You get a shiny star if you said, Gold!  OK… well, Gold did gain $6.40 yesterday and is taunting the price manipulators’ line in the sand at $1,350…  Hmmm… This line in the sand will be long forgotten, and out of the rear view mirror,  in my opinion, once everything begins to come crashing down upon us…  I really don’t like to talk like that, because it sounds so gloom and doom, but when you hold Gold it softens the gloom and doom…

To Recap… It was a “nothing day” for the currencies yesterday, as the hype of the Trade War faded yesterday, not gone , but faded yesterday, and that caused some, “take a breather” trading in the currencies. Gold gained $6.40 and is taunting the $1,350 line in the sand drawn by the price manipulators.  The U.S. Data Cupboard doesn’t have much for us until Friday, and Chuck goes dark and talks abut credit defaults…  

For What It’s Worth… I found this in a round about way.. I first saw it from the GATA folks, then Ed Steer highlighted it, so I check it out, and it’s an article about the need for a Gold standard, and it originally printed on the Wall Street Journal site, but since you have to subscribe to the WSJ to read it, the GATA folks printed it out…  I’ll give you the WSJ link and hopefully you can get something from it:  https://www.wsj.com/articles/steel-and-aluminum-lets-talk-about-gold-1522005011  

Or, here’s your snippet: “I believe in free trade, but I still understand why President Trump is imposing tariffs on steel, aluminum and a range of Chinese products. America’s industrial workers have suffered for a long time, and Mr. Trump is fighting to create middle-class jobs.

Achieving that will take more than righting the last administration’s wrongs on taxes and regulation, a task already well under way. Blue-collar prosperity was eroded along with American manufacturing. From 2000-10, U.S. manufacturing employment shrank by a third after holding steady for 30 years.

President Trump has rightly blamed bad trade deals, particularly those with Mexico and China, for contributing to this meltdown. But the Federal Reserve deserves a share of the blame, too, since its inflationary policies priced out U.S. manufacturers from global trade. Since 2000, their prices have risen nearly 50%, compared with about 25% for German competitors — mirroring the domestic inflation rates in each country. As a result, manufacturers fled the U.S., much the way American families have fled high-tax states.

The solution is to take control of the money supply away from the Fed and give it back to the American people-in other words, to return to the gold standard. Gold gets a bad rap in some history books because of its misuse during the 20th century. This ignores its peacetime record of high growth and nil inflation between 1834 and 1913.” 

Chuck Again… I know, I know the so-called snippet was quite long today… but I had to do it that way to get the call for a Gold standard in there…  

Currencies today 3/27/18… American Style: A$ .7725, kiwi .7277, C$ .7776, euro 1.2415, sterling 1.4115, Swiss $1.0560, … European Style: rand 11.6559, krone 7.70, SEK 8.2250, forint 251.81, zloty 3.3930, koruna 20.51, RUB 57.09, yen 105.63, sing 1.3084, HKD 7.8465, INR 64.81, China 6.2859, peso 18.33, BRL 3.3076, Dollar Index 89.32, Oil $65.74, 10-year 2.84%, Silver $16.70, Platinum $955.56, Palladium $978.30, and Gold… $1,354.50  

That’s it for today…  There will be no Pfennig tomorrow morning, as it’s a travel day back home for me. I’ll pick it back up on Thursday morning from my writing desk at home.  Thanks to all that sent along welcome back wishes and birthday wishes… When I receive so many, I can’t reply to each one or else I would be at my laptop for days! So, hopefully thanking you all as a collective group works… Going to baseball games, day games at that down here means so much to me. I’ll probably get to go to one or two games back in St. Louis, but down here I get to go to 15 in one month!  But spring training is over now, time to head north with the Cardinals!  The Four Tops take us to the finish line today with their great song: Reach Out… I’ll Be There.   I hope you can make this a Tom Terrific Tuesday, and I’ll talk to you again on Thursday… And don’t forget to Be Good To Yourself!  

Chuck Butler

He’s Back! Just As Promised!

March 26, 2018  

* Trade War looms, and dollar gets sold!  

* U.S. is proud of its new $1.3 Trillion spending Bill! 

 

Good Day… And a Marvelous Monday to you! Yes, I’m back, just as I promised, although the thought did cross my mind today to walk away from this daily routine, but the thought didn’t last long, and here I am! I thoroughly enjoyed my two week vacation, with first my spring training buddies, and then Alex, Dawn, Jerry, Delaney, and Everett visited, and to finish off the vacation, yesterday, I was visited by my good friends, Walt and Laila… I don’t know what I can really talk about today, as I’ve not kept up with the markets, except Gold, for the last two weeks! But, I’ll give it my best shot, as always…  John Lennon greets me this morning with his song: Mind Games…  Hmmm, seems apropos doesn’t it?  

Mind Games seems to be the thing that the Fed is playing with us. But I’ll save that discussion for another day. Today, we have to concentrate on the Trade War that seems to be coming to fruition. When I left you, the U.S. had announced tariffs on Chinese Steel and Aluminum, but as it turned out, those tariffs stretched their tentacles and showed they would also hurt European, Canadian and Mexican steel exports to the U.S.  

Now, two weeks later, the Chinese are beating the Trade War Drum, with retaliatory measures that right now haven’t been detailed, but we do know they are coming, because if we’ve learned one thing about the Chinese over the years, it’s that they don’t say things they don’t mean…  And what does all this mean to you?  Well, history shows us that protectionism is not good for a country that is implementing the protectionism measures.  But as I explained to Walt yesterday, on my home away from home Butler Patio, the Chinese renminbi is a managed currency, so the damage to the renminbi from the Trade War will be determined by the Peoples Bank of China (PBOC)…  

However, the damage to the dollar could end up being quite noticeable… I was reading this morning that a couple of reserves managers at Central Banks are looking to dispose of extra dollars they have on hand, and are looking at the euro as the destination for those reserve dollars.  And why not? The euro has seemed to gotten past the persistent problems that have plagued the single unit currency for the past 7 years, and if things continue to improve in the Eurozone, we could very well see the stimulus measures like negative deposit rates, become a thing of the past… So, I ask the question again, why not euros?  

The rest of the currencies would seem to be in line for some love from reserve managers too, as these reserve managers are keen to diversification rules. In June of 2016, 9 months ago, I wrote about a change in sentiment among traders, that would lead to a new weak dollar trend. Well, that new weak dollar trend has been slow to develop, but develop it has, as the euro has risen from 1.09 to 1.24  and Gold has risen from $1,212 last July to $1.350-ish today…  

But if the HUGE buys from Central Banks come to fruition, then this nascent weak dollar trend could very well get some legs and begin to run. I’m just saying… Wink, wink…   

Gold continues to be held back each time it rises to the $1,350 level, which as I wrote in last weeks Dow Theory Letters, seems to be the line in the sand that the price manipulators have drawn. I still hold out hope that the gig will be up on the price manipulators soon, and then Gold will be allowed to move freely through price handles.

I really call the Fed to the red carpet in my last Dow Theory Letters (DTL) piece last week… I’m parting ways with one of my fave economists, Danielle Di Martino Booth, who believes interest rates need to be higher, and I don’t believe that. But just because we disagree on this, doesn’t mean I discontinue reading her work…   OK, I digress here, and need to move along now!  

Whenever you see these reserve managers of Central Banks begin to reallocate their reserves, the major currencies get the most love… That means the euro, sterling, yen, francs, and a bit of Aussie dollars (A$).  And quick look at those “majors” and their respective performances these past two weeks, shows that my thoughts are correct, as the yen has rallied to a 105 handle, sterling has risen to 1.42 handle, and the A$ has moved steadily toward 78-cents once again.  

OK, this just came across my screen, and I’m feeling my blood pressure rise…  you can find it here: https://www.blacklistednews.com/article/64729/bank-of-america-merrill-lynch-agrees-to-pay-ny-42-million-fine-for.html  

And it’s about how Bank of American/ Merrill Lynch has agreed to pay a record $42 million fine to the state of New York for fraudulent activity related to its electronic trading services.   Brother! Another Scam and another fine, but no one goes to jail..  UGH!   And trust me on this folks, these fines that get paid are nowhere near the profits that were made, and the perpetrator looks at the fine as a “cost of doing business”…   A mere slap on the wrists… I shake my head in total disgust folks…   

Gold gained more than $18 on Friday, after days of being sold for small amounts, the shiny metal finally rebounded!  But as I mentioned above, Gold is back to $1,350, which has been the limit level that the price manipulators seem to allow before whacking Gold back in price. I would think that given the turmoil in the markets right now, with the pending Trade War and stocks getting smoked on Friday, that Gold would be a very good alternative  right now… Gold is ALWAYS a good alternative but there’s something about what’s going on right now, that has my spider sense tingling for Gold…   

The price of Oil has climbed to a $65 handle in the past two weeks… The Chinese begin trading their Oil futures contract today. This is the contract that is denominated in renminbi, but can be converted to Gold at the Shanghai Gold Exchange (SGE) , so  lot of people are saying this contract is denominated in Gold… And that’s not true.. .It can be converted to Gold easily, but it’s denominated in renminbi…   And it makes its debut today… This should stir up the energy sector market, eh?   

To recap, the dollar appears to be on the chopping block as Central Bank reserve managers begin to diversify out of dollars in fears that the Trade Wars will be bad for the U.S. economy and dollar. The euro is the main beneficiary of the reallocation of dollar reserves, but the major currencies are also seeing some love. China will enter the Trade War that was started by the U.S. and Chuck doesn’t think the dollar has much hope of remaining well bid.    

For What It’s Worth…  yeah, I know, I didn’t mention the $1.3 Trillion spending bill that was passed last week… Well, we all knew it was going to be HUGE, so nothing new there… But what was new was the news that Venezuela decided to knock off a couple of zeroes in their currency’s value….  That story can be found here: https://www.reuters.com/article/us-venezuela-economy/venezuela-knocks-three-zeros-off-ailing-currency-amid-hyperinflation-idUSKBN1GY3AP  

Or, here’s your snippet:”Venezuela’s President Nicolas Maduro ordered a re-denomination of the ailing bolivar currency on Thursday, by knocking three zeroes off amid hyperinflation and a crippling economic crisis. 

The measure to divide the so-called bolivar fuerte – or “strong bolivar” – currency by 1,000 would take effect from June 4, the socialist leader said. It would not have any impact on the bolivar’s value.

The move illustrates the collapse of the bolivar, which has fallen 99.99 percent against the U.S. dollar on the black market since Maduro came to power in April 2013. A $100 purchase of bolivars then would now be worth just a single U.S. cent. ” 

Chuck again… a bout There’ll come a day, not in my lifetime, but my kids will be here to see this same announcement take place here in the U.S.  That’s all I’ll say about that..   

Currencies today 3/26/18… American Style: A$ .7738, kiwi .7289, C$ .7780, euro 1.2408, sterling 1.4225, Swiss $ 1.0577, … European Style: rand 11.6775, krone 7.6980, SEK 8.1944, forint 252.07, zloty 3.4060, koruna 20.4854, RUB 57.24, yen 105.97, sing 1.3107, HKD 7.8464, INR 64.85, China 6.3141, peso 18.45, BRL 3.3136, Dollar Index 89.20, Oil $65.64, 10yr 2.84%, Silver $16.62, Platinum $951.51, Palladium $983.52, and Gold… $1.353.70   

That’s it for today…. Well, while I was on vacation, I celebrated my birthday. I never used to get into birthday celebrations, but since I was told I had cancer, I’ve enjoyed putting another notch in the belt of life each year, and this year was no different.  I spent the day at the ballpark, with two of my grandkids.. .what a day! My time here comes to an end on Wednesday, as we’ll head home for Easter…  The tumor in mouth which had become a real problem with its size earlier this month, has begun to react to the new chemo I’m on, and has already shrunk by a significant amount. YAHOO! And I seem to be tolerating the new chemo right now, so that’s good… I’ll find out this afternoon how my body is reacting to the new chemo when I visit my Florida oncologist for the last time this year…  The Moody Blues take us to the finish line today with their song: Story In Your Eyes…   And with that, it’s time go! I hope you have a Marvelous Monday! And remember, to always Be Good To Yourself!  

Chuck Butler

 

 

 

Swedish Krona Is Most Undervalued Currency?

March 8, 2018  

* Trade War talk cools for a day…

* The dollar fights back in the overnight markets… 

     

Good Day… And A Tub Thumpin’ Thursday to you! The early morning rain came and went yesterday, and didn’t interfere with the baseball game, and the day turned out to be another beautiful day at the ballpark! I’m having an iffy morning with my stomach so far, I think it’s due to the anticipation of the new drug I’ll be taking. It’s going to be delivered to me today…  I just don’t know what to expect, so I guess it’s a good thing that this is the last Pfennig for two weeks. Hopefully, no problems occur, and I’ll be back in two weeks full of you know what an vinegar! Buddy Miles greets me this morning with his band’s song: Them Changes   Which is pretty apropos considering my “changes”…   

Well the dollar fought back in the overnight markets last night and this morning, but not by much, the Dollar Index traded at 89.49 yesterday morning and is trading today at 89.72… So, some slippage but not much… The European Central Bank (ECB) is meeting as my fat fingers fly across the keyboard. As I told you earlier this week, most of what the ECB is going to say and not do, has been leaked, and so the actual meeting should be very anticlimactic…  No surprises, here, move along now, for these aren’t the droids you’re looking for!   

Did you see that HUGE Trade Surplus that Australia booked yesterday? WOW! Australian trade  rebounded from a surprisingly large deficit at the end of last year, to record an unexpectedly large surplus in January.

Australia recorded a $1.05 billion surplus, a more than $2 billion turnaround on the $1.1 billion deficit the month before.
While total exports on goods and services jumped 4 per cent, a 2 per cent drop in the big import bill from December also helped. The surplus as underscored by the fact that around three-quarters of the surplus was made up by a $770 million contribution by gold, with exports jumping 54 per cent over the month. Hmmm…   This report not only shows that the Aussie economy has turned the corner and is headed for growth, but also shows the recovery of physical Gold demand…   

On the other side of the world, the U.S. printed a Trade Deficit for January that was the  highest level since October 2008. The Commerce Department said Wednesday that the trade deficit rose to $56.6 billion in January, up 5 percent from $53.9 billion in December and the highest since October 2008’s $60.2 billion trade gap. The trade deficit has risen for five straight months. 

And this Trade Deficit is not going to sit well with President Trump, and I think he’ll use it as an example of how unfair the trade practices are around the world. I would look for a wide range of new tariffs to be announced soon… Think of it like a poker game… The U.S. raises the bet with an announcement of Tariffs, The Eurozone matches that bet and raises the pot with their own Tariffs, back to you U.S. what are you going to do? 

And all the while, China has not said what they intend to do about the Tariffs on their exports of Steel and Aluminum. Remember a few Pfennigs ago, I wrote about a thought I had as to how China could retaliate by stepping away from the Treasury bond auction window? Well, apparently someone at Bloomberg is a Pfennig reader and they did their own version of “Chuck’s Thought”  by talking about how China’s relative share of the market for Treasury notes and bonds is near its lowest since 2005, at 9.4 percent.

And I know they aren’t being dragged into the Trade War yet, but Japan, which owns $1.06 trillion, its 8.4 percent share is the smallest in at least 18 years! Which begs the question once again… Who’s buying the ever increasing number of Treasuries that are issued to finance our ever increasing deficit spending?  Unless the Fed has some “secret account in the Caymans” it’s not the Fed bellying up to the Auction window, for their balance sheet is shrinking due to them not participating in QE any longer.

Inquiring minds need to know who’s buying Treasuries?  China has already begun to show their true colors and Japan’s not buying really surprises me, but then The Bank of Japan  (BOJ) has been busy buying their own bonds, and stocks for years now. Shoot Rudy, Japan started QE / bond buying before it was cool to do!  Of course I kid, because it was never cool to do, in my opinion…  I

was looking over an article that longtime reader Bob sent me and in the article it talked about overvalued and undervalued currencies, based on a formula that included purchasing power parity PPP, and the behavioral equilibrium exchange rate (BEER)  (I like that one! HA!) and came to the conclusion that the Swedish krona was the most undervalued currency, and the Swiss franc was the move overvalued currency… The euro was in the middle.  The Canadian dollar/ loonie was considered undervalued, while the Aussie dollar (A$) and kiwi were both considered to be overvalued…   Hmmm… I’ll have to think about this a little more before I comment further…   

The U.S. Data Cupboard had a ton of data for us yesterday, so let’s take a look at what was shown…    Leading off and playing second base… The ADP Employment Report, which showed 235,000 jobs created in February, which was off from the forecast of 245,000… then batting second, was the Consumer Credit (read debt) for January… Yesterday, I told you that given the negativity of the data reports for January so far, I would have been surprised to see this debt figure fall in January… And it did, falling from an upward revised $19 Billion in December to $14 Billion in January… 

The savings rate in the U.S. is down, Personal Spending last week was weak, and Retail Sales for January were negative, now does that look like an economy where the consumer is geared up to spend and make the economy grow? Or does it look like an economy where 4 rate hikes are needed this year?    

Oh, and Productivity for the 4th QTR was flat, and the Unit Labor Costs increased in the 4th QTR by 2.5%…  Nothing to see here, move along… 

I liked what Ed Steer when he said today, something like this: “what da boyz gave to us on Tuesday was taken away on Wednesday”…  Gold lost $9.30 yesterday after posting a $14 gain the day before. The shiny metal closed at $1,324, with 259,000 contracts traded…  Gold is seeing some buying in the early morning trading, but no real conviction to take it much higher yet…  I think the “boys in the band” or as Ed Steer calls them “da boyz” are going to have to work like the dickens…   You know… I have used that phrase “like the dickens” all my life, and always thought it had something to do with Charles Dickens…  But apparently not!  It has nothing to do with Charles Dickens. Dickens is a euphemism, specifically a minced-oath, for the word devil, possibly via devilkins.    So, I hope I passed something on for you to use at cocktail trivia!    

To recap…  The dollar fought back and gained some lost ground in the overnight markets, as the “Trade War” talk cooled off for a day…  Gold gave back nearly $10 of its $14 gain the day before, yesterday. Chuck wants to know who’s buying our every increasing amount of Treasuries? And according to ANZ’s new currency valuation model, the Swedish krona is the most undervalued currency, and the Swiss franc is the most overvalued currency…  Chuck is going to look into this further…. 

For What It’s Worth…  I sent off this week’s DTL letter to the publisher yesterday, and in it I talk a lot about how protectionism isn’t good for an economy… My friend and publishing guru, Bill Bonner, took it a step further yesterday and you can find his thoughts on this here: https://bonnerandpartners.com/why-trump-will-lose-his-trade-war/   

Or, here’s your snippet: “Protection is among the worst things you can give to a business; you may as well tell your children not to bother with their homework.

Legendary steel executive Ken Iverson explained it as follows:
As soon as prices began to rise so that the steel companies began to be profitable, they stopped modernizing. It’s only under intense competitive pressure – both internally from the mini-mills, and externally from the Japanese and the Koreans – that the big steel companies have been forced to modernize.

Unless you’re under intense competitive pressure, and it becomes a question of the survival of the business to do it, you’re just going to lapse back into your old ways. There’s no other answer.

But Mr. Trump thinks he has another answer. He spelled it out in his books. Hardly a single one of his tweets fails to mention it. He thinks you win by making someone else lose.

But this win-lose programming doesn’t work for business, commerce, trade, marriage, family, or friendships. In these things – and in most of life – you win by letting the other guy win, too.”  

Chuck Again… Well, this Trade War should be going great guns by the time I get back from vacation… I’ll try to tweet any thoughts I have during that time, should things get ugly…   

Currencies today 3/8/18… American Style: A$ .7801, kiwi .7262, C$ .7737, euro 1.2383, sterling 1.3879, Swiss $1.0582, … European Style: rand 11.90, krone 7.8415, SEK 8.2490, forint 251.77, zloty 3.3940, koruna 20.5151, RUB 56.84, yen 106.08, sing 1.3159, HKD 7.8388, INR 65.04, China 6.3213, peso 18.72, BRL 3.2228, Dollar Index 89.72, Oil $61.19, 10-year 2.88%, Silver $16.19, Platinum $949.80, Palladium $970.85, and Gold… $1,326.40

That’s it for today, and for the next two weeks… It’ll take me a few days to get used to not waking up so early, but then I’ll be in the swing of vacation!  Good friend Rick B. arrives today. Prayers and thoughts with good friend Kevin, who had to drop out of the Spring Training trip this year, due to a death in his family…  So, it will just be the original 3 Amigos Chuck, Rick and Duane for Spring Training games the next 5 days…  What will you do for the next two weeks? I’ll miss you more than you miss me, I’m certain of that! It sure looks like a good day, to have a Good Day! The sun is shining, and Robert Plant  takes us to the finish line today with his song: In The Mood…  So, let’s go out and make this a Tub Thumpin’ Thursday today, and remember to always Be Good To Yourself!  

Chuck Butler

January Data Continues To Show Cracks In The Wall…

March 7, 2018    

* Cohn resigns and the Trade Wars intensify…  

* Rate hike talk goes to the back burner… 

 

Good Day…. And a Wonderful Wednesday to you! Another beautiful day here, except if you wanted to go to the beach. The weather system up north has caused the ocean to really get angry down here, and the waves are some of the biggest ones I’ve seen here. We had a Happy Hour on the deck last night, our friends from St. Louis are going back home, but my good friend Duane arrived here.  There’s Big News that’s rattling the stock market futures this morning, so we’ll have that to talk about and more, so grab your cup of coffee, and let’s get going! Cheap Trick greets me this morning with their song: Dream Police…   

Yesterday, we talked about the tariffs and the Trade War that’s spooling up, and today we’re going to talk about how U.S. National Economic Council head, Gary Cohn, resigned over the tariffs…  You see, Cohn, is a free trade guy, and was believed to be the architect of the recent tax cut bill, but when he was pressed to stand behind the President’s Tariffs, he balked, and quit…  This has thrown the stock futures into a deep abyss this morning, and it will be interesting to see how they open and trade today…

Cohn was with the President on his thought that China was trading unfairly, but the steel and aluminum Tariffs will hurt Mexico, Canada and Europe too, and he just didn’t think that was the right thing to do… Europe has already responded, as I told you yesterday, and this whole scene is getting ugly fast!

Why would Cohn’s resignation upset the stock market applecart? The markets thinking that without his opposition voice in the administration, that this Trade War could really gear up fast… And from the rumors going around that someone’s underground, and she will… wait! What on earth are you doing Chuck?  The rumor going around is that Trump is ready to add to the Steel and Aluminum Tariffs with a whole array of other things that he feels America is getting the shaft on in the world…   

Gold sure got the memo that the world’s economies are about to begin to circle the bowl, and rallied to the tune of $14.40 yesterday… And the gain would have been greater on the day, but it was obvious that in the 253,000 contracts traded there were some trades that didn’t agree with the rally going on… wink, wink…  The shiny metal is flat to down a buck or two in the early morning trading this morning, but I would have to think that the disturbance in the galaxy that was the stock market, would tend to see Gold gain…   

Remember back in 2009, when stocks, currencies, and Gold all moved together as they were considered to be the “risk assets” and each day we would have to discuss whether it was a “risk on” or “risk off” day? Well, that’s no longer the case, as these three have all decoupled and trade on their own fundamentals now. Well, fundamentals with a strong presence of trader sentiment that is…   

The euro has just about gained back all that was lost last week, when the dollar bugs were getting their way, with all the rate hike talk, which have taken a back seat to the Tariff / Trade Wars talk.  The European Central Bank (ECB) meets tomorrow, and like I’ve already said, the rumors are that the ECB will announce that they are not ready to begin to unwind their bond buying program, and will revisit it this summer…  That means that the stimulus that has been in place for a couple of years now, will remain in place, for now, and the euro traders took this as a good thing for the economy and rising inflation, which would bring about higher interest rates, and therefore the buying of euros and selling of dollars has returned… 

The Aussie and New Zealand dollars are both on the rally tracks this morning, as they too attempt to recover the lost ground they experienced last week.  The Aussie dollar (A$) has climbed back over 78-cents, and the New Zealand dollar / kiwi is inching toward 73-cents…  With the rate hike talk on the back burner in the U.S. these two currencies that currently enjoy a positive rate differential to the green/peachback dollar, are free to move about the country…

The Canadian dollar / loonie and Mexican peso are getting sold on the threats that Trump’s Tariffs are going to affect their respective economies negatively.  I heard/ read a funny line about these two yesterday from famous and well respected analyst, Peter Boockvar, when he said that Trump originally said that the Tariffs were to protect American National Security, so “we must be expecting a war with Mexico and Canada”… HAHAHAHAHA!  Not that this Tariff stuff is funny, but that line is! 

OK… The U.S. Data Cupboard wasn’t kind to the dollar yesterday, just as I suspected it wouldn’t be… January Factory Orders fell to a negative -1.4% figure, the weakest month since last June. And the look under the hood wasn’t very pretty either…  here are the numbers, courtesy of Ed Steer’s letter this morning (www.edsteergoldandsilver.com) 

• Transportation equipment -10.0%
• Nondefense aircraft: -28.4%
• Defense aircraft: -45.6%
• Mining, oil field machinery: -8.9%  

Pink Floyd sang, all in all it’s just another brick in the wall… And Chuck is changing the words to all in all it’s just another crack in the economy’s wall…   

Today’s Data Cupboard has quite the bounty of data reports, like the ADP Employment Report, The Trade Deficit, Productivity, Unit Cost Index and Consumer Credit (read debt!)…   I’m really only interested in the Consumer Credit data to see just how much in debt consumers got themselves into during the month of January… We know that January data so far has been awful, which means that we could actually see the debt numbers of consumers go down in January…    I’m from Missouri, I’ll have to shown that!  

To recap… The Trade Wars are spooling upward, and U.S. head of the National Economy, Gary Cohn, resigned over the Tariffs that the U.S. has already announced, and now there are rumors of more Tariffs are going to be announced.  Gold rallied by $14 yesterday, and the currencies found a way to carve out more gains VS the dollar.  

For What It’s Worth… This link was sent to me by longtime reader, Bob, and I thank him for that! This is about how our lawmakers keep getting rich, and can be found here: https://www.pressherald.com/2018/02/27/in-the-moneycongress-net-worth-keeps-on-growing/   

Or, here’s your snippet: “The cumulative net worth of senators and House members jumped by one-fifth in the two years before the start of this Congress, outperforming the typical American’s improved fortunes as well as the solid performance of investment markets during that time. The total wealth of all current members was at least $2.43 billion when the 115th Congress began, 20 percent more than the collective riches of the previous Congress, a significant gain during a period when both the Dow Jones industrial average and Standard & Poor’s 500 index rose slightly less than 10 percent. Beyond that grand total, the median minimum net worth (meaning half are worth more, half less) of today’s senators and House members was $511,000 at the start of this Congress, an upward push of 16 percent over just two years – and quintuple the median net worth of an American household, which the Federal Reserve pegged at $97,300 in 2016. The financial disparity between those who try to govern and those who are governed is almost certainly even greater than that. Members of Congress are not required to make public the value of their residences and their contents, which are the principal assets of most Americans. Nor are they required to reveal their other assets and debts to the penny, or even close – instead using 11 broad categories of value … that do a comprehensive job of obscuring what each member is precisely worth.” 

Chuck Again… I should have been a politician, eh? Actually, on the lowest level of politics, I was an elected alderman in my little river city at one time, but never had grand designs of moving higher, but I guess I should have! HA!   

Currencies today 3/7/18… American Style: A$ .7808, kiwi .7283, C$ .7731, euro 1.2427, sterling 1.3865, Swiss $1.0658, … European Style: rand 11.9055, krone 7.7980, SEK 8.2334, forint 251.45, zloty 3.3755, koruna 20.4519, RUB 56.50, yen 105.56, sing 1.3142, HKD 7.8347, INR 64.88, China 6.3275, peso 18.88, BRL 3.2287, Dollar Index 89.49, Oil $62.14, 10yr 2.85%, Silver $16.72, Platinum $960.12, Palladium $974.50, and Gold… $1,333.60

That’s it for today…  The first rain since January will come down on us today, hopefully before game time, so we don’t have to sit through a rain delay or even heaven forbid, a rainout! A grand time was had last night with our friends, and even some of our friends from the building joined us! My good friend, Rick B. called last night to tell me it was snowing back home. He said, “I thought you would enjoy hearing that”… And I did! Rick and Kevin will be here tomorrow to round out the Spring Training buddies, and on Friday, I begin my two week vacation! And with that, the Allman Brothers take us to the finish line today, with their song: Whipping Post… Which I identify with regularly… Sometimes, I feel, like I’ve been tied to the Whipping Post!    Now, go out and make this a Wonderful Wednesday, and always, always I tell you to Be Good To Yourself!  

Chuck Butler

It’s All About Tariffs, Here, There, Everwhere!

March 6, 2018  

* RBA leaves rates unchanged… 

* Russian CPI drops again! 

 

Good Day… And a Tom Terrific Tuesday to you! I finally saw my beloved Cardinals win a game yesterday. I was beginning to think that I could go all spring without seeing a win… I know, I know, it’s only Spring Training, and the games don’t count for a regular season record, but… I’m a fan, and fans want to see their team win… period! It was another fun day with our friends from St. Louis and Oklahoma, but that ends tomorrow, and they are followed by my Spring Training buddies, who are followed by 2 of my 3 kids and family. Fun times in store for me! And that’s why I’ll be on vacation for the majority of that time that we have visitors. Blackfoot greets me this morning with their song: Highway Song…   a classic rock anthem…   

The dollar buying has ended and the rally that was cut short on Friday for the currencies, got some legs yesterday, and began to run…  I’m telling you this once again so you can hear me now and listen to me later, but this time period is eerily familiar to that of 2001, that I’m going to go and find a big fat limb to hold me, and say that we’re on the cusp of another run on the dollar like 2002 through 2004, and then again in 2006 through 2008…  So put that in your cake and bake it, then take to the cake sale and see how much it goes for! HA!   

Seriously, and I’m being as serious as I can be here… The Tariffs that the U.S. has imposed on Steel and Aluminum will not only damage the dollar, but also the U.S. economy… Just wait-n-see!   The damage to the dollar is already being felt. Since last Thursday when the Tariffs were announced, the euro has gained 2-cents, and the Dollar Index has fallen from 91 and change to 89.91…   

And now the Trade War is beginning to get ugly…  the European Union just announced Tariffs on U.S. goods like jeans, motorcycles and bourbon whiskey… And China hasn’t retaliated yet… Let’s just throw the Global Economic Recovery under the bus driven by Tariffs! I don’t know if I can put enough emphasis on how damaging these Tariffs will be to economies all around the world… But I’ve tried, hopefully you get what I’m talking about and are looking to protect your investment portfolio now, after me telling you to do so for more years than I care to admit. 

One way to protect your investment portfolio is to make certain that you are diversified with different asset classes that don’t correlate with each other. And that the asset classes have different pricing mechanisms. I’m not a stock jockey, but I made sure last week that I had stop trades on a lot of my stock positions… And I checked my Gold/ Silver holdings to make certain I was at 20% of my total investment portfolio.  Maybe you have a portfolio manager, and he’ll make certain that you have protection, and then maybe you don’t, and you have to make these decisions all by yourself…    And that’s all I have to say about that!  

The Aussies who are ahead of us time-wise, celebrated their Labor Day holiday on Monday, and on Tuesday (last night for us) The Reserve Bank of Australia (RBA) left their key rates unchanged, which was widely expected by the markets, so as long as the RBA didn’t go all Draghi on them with their statement that followed the rate announcement, the Aussie dollar (A$) would be given a pass… And the RBA kept to their tried and true statement about how inflation wasn’t a problem, and there were threats to Global Growth, and therefore Aussie interest rates wouldn’t be hiked…   And the A$ rallied…   

Gold, which saw its early morning rally get squashed like a bug on a windshield yesterday, is trying to rally again this morning, with a $5.80 gain so far… Gold did bump higher after the open with the $3 gains it had in its back pocket to start the day, but soon the short Gold paper trades began to mount up and at the end of the day Gold was down $2.80 to $1,319.80…   I do feel that it’s going to take all the ammo the short Gold traders (and short Silver traders) they can muster to counteract the drive higher in prices that these two metals are going to mount…  At least that’s how I see it, and I could be wrong, but… Oh never mind Chuck, they don’t want to hear about all your years of experience…    Have you noticed how Platinum and Palladium have really dropped in price lately? It’s all tied to the falling car sales data that I went through last week (I think, I’ve lost track of time). 

In Russia this morning, they posted a very good CPI (consumer inflation) figure of 2.1% year-0n-year… Once again Central Bank of Russia (CBR) Gov. Elvira Nabiullina has done a masterful job in achieving a growing economy and falling inflation, all while dodging the arrows shot at her in the form of economic sanctions. I would think that given this weaker CPI report that interest rates in Russia will be lowered soon… But they’ll still remain “high” compared to the rest of the world…  And that combination of a strong Central Bank and comparably higher interest rates should continue to underpin the ruble, which leaves the ruble to trade on the highs and lows of the price of Oil…  

Speaking of the price of Oil… the price of Oil continues to trade within a rubber band, when it falls too much it springs higher and when it gains too much it springs lower… It’s in a “spring higher” pattern right now, which has helped the Petrol Currencies maintain their moves VS the dollar. 

Yesterday, I told you that I didn’t believe the trading pattern of using Japanese yen to short the dollar would last long, and apparently yen traders must be Pfennig Readers, because yen lost ground while the euro gained yesterday and through the night. I don’t trust yen, never have, never will, but like I said yesterday, it still maintains its status as a Safe Haven currency, for some strange reason…   

The U.S. Data Cupboard just has the January print of Factory Orders, and like I said yesterday, I see this data as having the same result as Retail Sales and Durable Goods had in January… An negative print! Which won’t paint a good picture for January and the start of the year, eh?  I truly believe that the Bernanke/ Yellen credit craving economy is showing cracks, and poor Jerome Powell is going to have to pick up the pieces of a broken economy going forward…    

To recap…  It’s all about Tariffs, here, there, everywhere! The Global Economic Recovery is being thrown in front of the bus driven by Tariffs…  And Chuck gets all serious on us this morning… mark it down! Gold lost its early morning gains yesterday, and has early morning gains again this morning.  The damage to the dollar from tariffs seems to be already showing as the euro has gained 2-cents since last Thursday’s Tariff announcement.    

For What It’s Worth…  Since I spent a lot of time talking about Tariffs today, this article on the Daily Reckoning caught my eye… It’s by James Rickards and can be found here:https://dailyreckoning.com/now-trade-war-shooting-war-next-2/   

Or, here’s your snippet: “The problem with currency wars is that they are zero-sum or negative-sum games. It is true that countries can obtain short-term relief by cheapening their currencies, but sooner than later, their trading partners also cheapen their currencies to regain the export advantage.

This process of tit-for-tat devaluations feeds on itself with the pendulum of short-term trade advantage swinging back and forth and no one getting any further ahead.

After a few years, the futility of currency wars becomes apparent, and countries resort to trade wars. This consists of punitive tariffs, export subsidies and non-tariff barriers to trade.

The dynamic is the same as in a currency war. The first country to impose tariffs gets a short-term advantage, but retaliation is not long in coming and the initial advantage is eliminated as trading partners impose tariffs in response.

Despite the illusion of short-term advantage, in the long-run everyone is worse off. The original condition of too much debt and too little growth never goes away.

Finally, tensions rise, rival blocs are formed and a shooting war begins. The shooting wars often have a not-so-hidden economic grievance or rationale behind them.”  

Chuck Again… Let’s all hope and pray that this Trade War doesn’t come to that, eh?     I’m just saying…  

Currencies today 3/6/18… American Style: A$ .7791, kiwi .7270, C$ .7720, euro 1.2383, sterling 1.3878, Swiss $1.0650, … European Style: rand 11.7370, krone 7.7725, SEK 8.23, forint 252.52, zloty 3.3739, koruna 20.4867, RUB 56.83, yen 106.27, sing 1.3170, HKD 7.8331, INR 64.92, China 6.3391, peso 18.67, BRL 3.2507, Dollar Index 89.91, Oil $62.88, 10yr 2.89%, Silver $16.59, Platinum $962.78, Palladium $984.25, and Gold… $1,325.70

That’s it for today… One day closer to my vacation! YAHOO! I hope me being away for two weeks doesn’t hurt our relationship!  I’ll be back, no worries! This getting up early and researching and writing is in my blood, I don’t know what I would do if I wasn’t writing!  This Sunday is Selection Sunday for the NCAA Basketball Tournament, always fun to see who’s going where, and who they will be playing… The field of 64 gets chopped down to 16 after the first weekend of play! No game for me today, but good friend Duane arrives, so I’ve got that going for me today! Back to the ballpark tomorrow…  David Crosby and Graham Nash take us to the finish line today with their song: Wind On The Water…  about the killing of whales…  And with that, I sure hope you can have a Tom Terrific Tuesday, and remember to Be Good To Yourself! 

Chuck Butler

Some Ugly Scenarios

March 5, 2018   

* ECB meets this week, no changes expected 

* Yen enjoys watching the U.S. and China duke it out! 

 

Good Day…  And a Marvelous Monday to you! The unusually very warm weather down here has shifted to  cooler but still warm days, very beautiful if you ask me! Well, I hope all of you who live in the North East have battened down the hatches and are safe after a weekend of what looks to be on the TV, a horrendous storm. The Allman Brothers greet me this morning with their song, and my fave song by them: Melissa…    

Well, we’re into the first full-week of March, and the week, where Chuck begins his spring vacation on Friday! When I left you on Friday, the currencies were attempting a rebound, but as the day went on during Friday’s trading, there just wasn’t enough spring in the currencies’ jump and the rebound fizzled…   At least the dollar buying had ended… 

And that, no conviction to take the currencies higher has lingered through the air in the overnight markets, so we have the currencies trading in the same clothes as Friday. There’s just too many questions on Traders’ collective plates right now…  Will there really be 4 rate hikes this year? Or, will the economy finally show its true underlying colors and go into a full blown recession? Is the Fed really going through with their QE/ Unwind? Will Corp America use the tax cuts to buy back more stock like Chuck said they would do long before the tax cut was passed?  

These and more are being tossed around for answers, that aren’t going to come to Traders right away, and so the trading is not going to go in one direction any time soon. At least that’s how I see it, and that’s my story and I’m sticking to it! 

The European Central Bank (ECB) meets this week, and like I told you last week it was rumored that the ECB has decided to not announce a bond buying end now, and instead push it forward to sometime this summer. The most recent print of Eurozone inflation, had slipped, and I think the ECB has decided to take a wait-n-see approach… Which I think is prudent, and I also think they are using what the Fed has done as their blueprint on what NOT TO DO!  I don’t believe the ECB wants to put a governor on their recovering economy at this point… If the Fed had only seen the U.S. economy for what it was, and not through the rose-colored glasses they wear…   

But I’m here to give you my answers to some of the questions above, and add some different perspective on them in some cases…  As I said above, I told you months ago, that I saw the tax cuts for Corp. America to not be the medicine for what ailed the economy, but instead an excuse for these Corporations to buy back their stocks, thus propping them up, and getting bigger bonuses at year -end, or when they decide to pull the string on their golden parachute. 

But don’t just take my thought on this as the only person that thinks this.. Let’s listen in on David Stockman’s thoughts… “This isn’t a “told you so” point. It’s dramatic proof that corporate America has been absolutely corrupted by the Fed’s long-running regime of Bubble Finance. Undoubtedly, the C-suites view the asinine Trump/GOP tax cut not as a green light to invest and build for the long haul, but as manna from heaven to pump their faltering share prices in the here and now.

And we do mean a gift just in the nick of time. The giant Bernanke/Yellen financial bubble is finally springing cracks everywhere, putting corporate share prices and executive stock option packages squarely in harms’ way.”

Chuck again…  I love it when Big Time analysts, economist, traders, etc. see things my way!  And now lets see how the Fed is doing with their great QE / Buyback…  The guys over at Wolf Street did a great job at researching this, and you can find all their research here: https://wolfstreet.com/2018/03/01/feds-qe-unwind-marches-forward-relentlessly/    

But if you don’t have time for that here’s a snippet: “On its January 31 balance sheet, the Fed had $2,436 billion of Treasuries; on today’s balance sheet, $2,424 billion: a $12 billion drop for February. On target! In total, since the beginning of the QE Unwind, the balance of Treasuries has dropped by $42 billion, to hit the lowest level since August 6, 2014:”  

So, that’s al fine and dandy, right?  But let me lay out another scenario that I see coming to your newsstand soon enough…  And that is as the Fed goes about their business of unloading Treasuries, has anyone, at the fed, stopped to think about “who’s going to replace us as the buyer of these bonds?”  Now, throw in the fact that the Trump administration has just announced stiff tariffs, and thrown out the protectionism shield…

What could be one of the ways for a country like China to retaliate?  Could/ would they stop buying Treasuries? Oh-No! Say it ain’t So Joe! And at a time when the deficit spending is going to require even more bond issuance and the need for foreigners to buy them!   Oh, double trouble Bat Man!   This could end up being a major blunder on our part, much like the Smoot-Hawley trade protectionism helped usher in a deep recession in 1930… 

Look, I’m not here to be Mr. Gloom and Doom, folks… But when these things are staring at me I have to talk about them with you, so you can be prepared to deal with them should they come to fruition.  And with that, let’s talk  about Gold…  Gold was able to carve out a $5.60 gain on Friday, and is up another $3.10 in the early morning trading today. Questions that have ugly scenarios, should push Gold higher, and so I was happy to see that the “boys in the band” allowed a $5.60 gain on Friday.  One way to combat the ugly scenarios is to make certain that you have allocated a portion of your investment portfolio to Gold & Silver…  

Have you been watching the stealth-like move in Japanese yen lately?  Longtime readers know that I’m no  fan of yen, because of an array of problems that I don’t see correcting at any time, and so this rally by yen is very questionable in my opinion. But it is what it is, and right now, yen is enjoying being on the outside of the U.S. / China trade war…  And like I’ve said many times over the years, yen is still considered to be a safe haven currency, for some odd reason…  

A few week ago I wrote about how traders were using yen as the currency to short the dollar, more than the euro was being used to short the dollar… I really didn’t see that going on too much longer, but it has, and part of that reason is there’s just hasn’t been much going on in the Eurozone, other than the BREXIT negotiations… 

The U.S. Data Cupboard is chock-full-o-data this week, starting tomorrow with Factory Orders for January, and since Retail Sales and Durable Goods Orders were negative for January, I’m going to go out on a limb and say that the same fate awaits the January print of Factory Orders…  We’ll also see The Trade Deficit grow in January, and the Employment Cost Index (ECI) also move higher… And we’ll end the week with the February Jobs Jamboree…  Right now, the forecasters have the job increases at 210,000 for the month of February…  

But looking at the data this week, I don’t see how the dollar escapes unscathed, do you?  

To recap…  Not much has gone on since last Friday, as there are just too many questions on the Traders’ plates these days… Chuck takes a stab at a couple of the questions, but I doubt, the dollar bugs will want to hear what he has to say… The ECB meets this week, and their plans have already been figured out…. Gold gained $5.60 on Friday, and Japanese yen continues to enjoy being on the outside of the U.S. / China trade war…    

For What It’s Worth…  It was a bad week for U.S. retailers, first we had data that showed negative growth rate in January, and now this… I found this on CNN Money and can you can see it all here: http://money.cnn.com/2018/03/02/investing/retail-earnings-jcpenney-winners-losers/index.html?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Saturday+3+March+2018      

Or, here’s your snippet: “JCPenney announced Friday that it will cut 360 jobs at its stores and corporate headquarters. That’s on top of the more than 5,000 layoffs in 2017 after JCPenney decided to close nearly 140 stores.

The struggling retailer also said that its earnings and sales for this year will be worse than what Wall Street analysts were expecting. Shares of JCPenney (JCP) plunged nearly 10% in early trading.

JCPenney wasn’t the only prominent bricks and mortar chain to report poor results this week.

Barnes & Noble (BKS) posted a quarterly loss and a drop in sales Thursday morning, sending the bookstore’s shares to an all-time low.”  

Chuck again… Empty strip malls, big retailers in trouble, it’s a sign of the times, eh?   

Currencies Today: 3/5/18… American Style: A$ .7750, kiwi .7233, C$ .7750, euro 1.2310, sterling 1.3814, Swiss $1.0667, … European Style: rand 11.93, krone 7.8188, SEK 8.2040, forint 254.87, zloty 3.4040, koruna 20.6305, RUB 56.78, yen 105.60, sing 1.3191, HKD 7.8311, INR 65.10, China 6.3435, peso 18.88, BRL 3.2518, Dollar Index 90.01, Oil $61.55, 10-year 2.84%, Silver $16.55, Platinum $965.34, Palladium $988.80, and Gold… $1,326.50

 That’s it for today…  My beloved Cardinals don’t look so hot to start the Spring Training games, it was only the first week, but the pitching isn’t good, and puts the offense in the hole to start the game. There’s plenty of time to work it out though…  I wasn’t able to attend my good friend, Rick’s surprise birthday party this past weekend back in St. Louis… Rick is the youngest of our group of Spring Training buddies, and he turns 50 this week while he’s going to be down here!  Good friend Duane arrives tomorrow… We’ve had so much fun with the friends that are currently here… I need a day to slow down!  Learned how to play Mexican Train dominoes last night… Much fun indeed!  And with that I had better get this out the door…  Styx takes us to the finish line today with their song: Too Much Time On My Hands…  I hope you have a Marvelous Monday and Be Good To Yourself!  

Chuck Butler

A Double Whammy Deep Sixes The Dollar

March 2, 2018  

* ECB to keep everything the same next week? 

* New steel tariffs to be announced? 

Good Day… And a Happy Friday to one and all… Whew! I’m worn out! I did a lot of walking yesterday, for me that is, and I’m paying for it this morning! UGH!  But an absolutely beautiful day again here, and day baseball… It doesn’t get much better for yours truly! And the day ended with us watching the Full Moon rise up over the ocean, very nice indeed! March sure came in like a lamb down here! I hear that up north they are preparing for a major Noreaster…  Batten down the hatches folks, and be safe! The Allman Brothers greet me this morning with their song; Southbound, which I’m thinking I would be doing if I lived up in the north east!   

Just when  you thought that dollar buying was the rage, it isn’t! Yesterday, we had the dollar buying going in the early morning, and then there was a story from the Eurozone, that the European Central Bank (ECB) will NOT announce any withdrawal from their bond buying program when they meet next week and will delay any such end of the bond buying until at least summer… That news swept through the currencies, and the dollar buying ended on a dime!   

The euro, yen, Swiss francs and U.S. Treasuries were bought as if there had been nothing else going on the past 5 days with the dollar. It was as if we turned back the hands of time to last week, when the dollar was getting sold like funnel cakes at a State Fair. 

Add to all that pressure on the dollar, the fact that there is a very strong rumor that the Trump Administration is going to announce another Trade tariff, this time on steel to add to the one they announced previously this week on aluminum foil…  A double whammy if you will deep sixed the dollar yesterday, lets see how far that carries…  

I’d like to take you back to 2001… A fairly new president, an economy that was just muddling through year after year, so tax cuts were implemented, the National debt was rising, and stiff tariffs were placed on Japanese Steel…  And I wrote a white paper about the Decline of the Dollar, because I saw all of these things as a perfect storm on the dollar… And guess what?

The began a long, deep slide on the slippery slope in Feb. 2002… People thought I had a crystal ball… I had no such thing, but… what I did have was logical thinking in my corner! And now, I’m looking at the horizon here and seeing a lot of the same things as the 2001 recipe for dollar weakness…  Tax cuts, an economy muddling through, the National Debt on an unsustainable path, and now trade tariffs, on steel no less! 

Dollar weakness is just around the corner, in my humble opinion, which could be wrong… But in my opinion the U.S. has not learned anything from history and therefore is doomed to repeat it! That’s my story and I’m sticking to it!  I know that quite a few of you dear readers were around with me back in 2001, and remember how the Decline of the Dollar was met with a lot of criticism because people thought that the King dollar was going to be strong forever, that interest rates would be rising and there was just no way the dollar was going to decline… 

And then that Minsky Moment happened and no one wanted dollars any longer…  James Rickards talks about “snowflakes” that could cause an avalanche… could that snowflake be the announcement of Trade Tariffs? Or could it be the printing of awful economic data like the car sales data that printed yesterday? U.S. Car sales have dropped for 2 consecutive months folks… Detroit auto makers on Thursday reported the second-consecutive collective decline in domestic sales in 2018, with dealers saying that it is getting harder to offer customers an attractive monthly payment.  Uh-Oh!  

Negative Retail Sales, Durable and Capital Goods, and car sales dropping like a rock from a cliff… Then add in the news from yesterday that U.S. Personal Spending showed signs of consumers petering out and you’ve got an economy that’s not going anywhere and certainly not worthy of 4 rate hikes this year!   And whenever the markets figure this all out, the dollar won’t be getting bought … I’m just saying…    

So, the euro got a boost yesterday from the news from the ECB rumor… I can see the ECB doing what its rumored to do, which is nothing when it comes to ending their bond buying.  What has happened to the strong Central Bank presence at the ECB at Duisenberg and Trichet presented to them?  The Eurozone has seen their economic recovery hit a speed bump, as recent data like CPI showed a slowing of inflation, and so on… And their reaction to the speed bump is to take cover and not come out until the sun is shining again on their economy… 

I don’t know why I’m so against the ECB’s decision here, as it sure gave a boost to the euro, which in turn sure needed one! But you dear reader know me all too well, and know that I’m against the ECB’s decision, because it means that their stimulus measures are not going to begin to be withdrawn now, but is getting pushed off until summer, and who knows then IF the sun and moon will be aligned to allow them to begin the withdrawal process…  I’m all about if you need to or want to do something, do it.. NOW!  My dad always told me, “there’s no time like the present, Chuck”…  

The U.S. Data Cupboard yesterday had January Personal Income and Spending, of which I touched on the Spending piece above. But Personal Income did show the effect of tax changes, as personal taxes fell 3.3 % in the month to help underpin total income which rose a solid 0.4% for a second straight month. But Personal Spending, well, showed some signs of consumer fatigue… and only printed up  0.2 % overall and marking a weak first-quarter start for the consumer. Spending on durable goods fell 1.5 percent on a downturn in vehicle sales.  

Speaking of those awful car sales… Remember back a few months ago after the hurricanes hit the U.S. I said that car sales would be brisk the following month, but it would be a one and done?   Well, since October’s hurricane-replacement sales boom, vehicle sales have been very soft, posting steep declines in two of the last three retail sales report. And sales in February failed to improve, coming in at a 17.1 million annualized unit rate vs 17.2 million in January.

Folks… this is the first indication of February consumer spending and it sure doesn’t point to acceleration, now does it? But the Fed heads aren’t going to let weak data get in the way of their mission to hike rates are they?    

Gold had another one “those days” yesterday, where it attempted to mount a rally throughout the day, only to be me by large short sales, and the shiny metal ended the day pretty much flat from the previous day’s close… But Gold traders are getting with the dollar selling in the early morning trading today, and Gold is up $14!   Wait until “boys in the band” see that!   I don’t think I need to remind you that the period beginning in 2002 going forward we saw a HUGE climb higher in the price of Gold… 

To recap…  The dollar buying ended on a dime yesterday after a rumor spread that the ECB won’t be ending their stimulus / bond buying next week when they meet, and will most likely announce a delay in that process of ending bond buying. Add to that the rumor that the Trump Administration will announce stiff tariffs on Steel, and the recipe to sell dollars fell into the laps of traders.  The euro, yen, and francs are the main beneficiaries of this dollar selling…   

For What It’s Worth…  Since I mentioned James Rickards above, I recalled reading a piece he submitted to the Daily Reckoning yesterday, and sure enough my friend, Ed Steer, highlighted it in his letter today, so I’m going to do the same… This is about the end of Conservative Spending, and can be found here:  www.dailyreckoning.com   

Or, here’s your Snippet: “Remember the “tea party” revolt in 2009-2010 against government bailouts and government spending?

Remember the “fiscal cliff” drama of Dec. 31, 2012, when Congress raised taxes and cut spending to avoid a debt default and government shutdown?
Remember the actual government shutdown in October 2013 as Republicans held the line against more government spending?

The days of caring about debt and deficits are over. In just the past two months, Republicans passed the Trump tax cuts that will increase the deficit by $1.5 trillion on a conservative estimate, and probably much more.

Then Republicans and Democrats “compromised” on eliminating caps on defense spending and domestic spending by agreeing to more of both. That repeal of the so-called “sequester” will add over $300 billion to the deficit over the next two years. Then there’s a tsunami of student loan debts in default that the Treasury has guaranteed and will have to pay off. Finally, the higher interest rates from this debt will add $210 billion to the annual deficit for every 1% increase in average federal debt funding costs.

Today we are looking at $1 trillion-plus deficits as far as the eye can see.”

Chuck again…  I had a reader point out how wrong Rickards had been lately about things, and told me I needed a new source…  Hey! we’re all wrong now and then, that doesn’t take away this man’s knowledge and experience…  

Currencies today 3/2/18… American Style: A$ .7761, kiwi .7241, C$ .7777, euro 1.2317, sterling 1.38, Swiss $1.0696, European Style: rand 11.8418, krone 7.7785, SEK 8.2386, forint 254.69, zloty 3.4030, koruna 20.6228, RUB 56.62, yen 105.40, sing 1.3194, HKD 7.8281, INR 65.14, China 6.3496, peso 18.88, BRL 3.2496, Dollar Index 90.08, Oil $60.79, 10-year 2.80%, Silver $16.46, Platinum $965.29, Palladium $992.29, and Gold… $1,320.00

That’s it for today… The NCAA Basketball Conference Championship tournaments get started this weekend, but I doubt I’ll watch much of the games given how nice it is to be outside here, and I do have baseball games today and Sunday… We celebrated our friend Diane’s birthday yesterday with breakfast at one of my fave places down here, the Juno Beach Café… And then it was onto the ballpark, where it was a hot one yesterday, that required lots of liquids… wink, wink…  HA!  My spring vacation is a week away… YAHOO! I think that today is a Good Day, to have a Good Day! Earth, Wind, and Fire are seeing that I get it started that way with their dancing in the seat song: September taking us to the finish line today!  Now, go out and make this a Fantastico Friday, because that’s what I hope to do!  And Be Good To Yourself!   

Chuck Butler 

Don’t Step In Front Of That Bus, Chuck!

March 1, 2018

 * dollar buying is the rage…

* Eurozone Unemployment Rate remains steady…  with no shenanigans!   

 

Good day… And a Tub Thumpin’ Thursday to you! And Welcome to March! One of my fave months! Today is the birthday of one of our visiting guests from St. Louis… So, front and center today, Happy Birthday Diane! Our Blues finally played some real hockey last night… I was beginning to wonder what was going on in the locker room there! I’m running really late this morning, as I just couldn’t get my motor running this morning for some reason.. The Band Doucette greets me this morning with their song: Mama Let Him Play…    Jazz is much too crazy he can play it when he’s old, he’s too young for the blues, he’s still in his first pair of shoes! 

The markets are still enamored with the thought of 4 rate hikes here in the U.S. this year, and so the dollar buying is still the trade that most traders are willing to execute, because, well, if interest rates in the U.S. are going to be hiked 4 times, then dollar deposits will enjoy a positive rate differential to most of the world for the first time in several months of Sundays! 

And nothing is being spared with the collateral damage of dollar buying being far and wide. I wouldn’t be brave enough to step in front of this moving bus that’s being driven by a crazy idea in my opinion. Sure the idea of 4 rate cuts isn’t that far fetched, given the rise of inflation that we’ve seen, but to act on the idea of 4 rate hikes is just plain crazy if you ask me!

I’ve talked about bond debt servicing before, and if the U.S. Fed Funds rate is almost 3% by the end of the year, the yields on Treasuries will rise even more, and that will put a crimper on the spending of the Gov’t… But will that stop them? NO! They’ll just pass a bill that allows them to deficit spend more!   The Debt Clock projects 4 years out should nothing change, (like 4 rate hikes) and the Debt Clock says that in 4 years our National Debt will be $23.3 Trillion… But I think that’s a conservative outlook, given what’s going on with rates and debt servicing here in the U.S.  

Recall that last week I told you that the latest Treasury Auction by the U.S. saw buyers demand higher yields, and the bills and bonds were being auctioned at rates not seen since 2006…  This is just the start folks… I tried to point out how important the auction was last week, but I’m just one guy with a laptop and an internet connection, that sees things differently than the average bear, and tries to warn his readers of the dangers of the decisions of dolts…  The markets are a beast, and it takes the likes of Lola, aka Goldman Sachs to move them in a different direction…  

Speaking of Lola… She made an announcement yesterday that spooked stock jockeys, but should have spooked dollar bugs too… Lola said that stocks could lose 25%, if the 10-year Treasury yield rises to 4.5%…   The 10-year Treasury’s yield is currently flirting with 3%, and eventually will go above that level. I recently wrote in my Dow Theory Letters (www.dowtheoryletters.com) Thursday letter about how quickly yields on Treasuries can rise once they get moving in that direction… I’ve seen it in the past, folks… I was a short term investments trader back in the day when interest rates here in the U.S. rose to 20%…

They didn’t start a 1.38% like the 10-year’s yield did in, can you believe that it was all the way back in 2012? no way! The 10-year’s yield was 1.38% just a couple of years ago, right? Time flies, eh? Yes, it’s been 6 years since that happened, but let’s just go back 6 months ago, when the 10-year’s yield was 2.07% (9/7/17) You can see how quickly things can change, and the bond boys haven’t really bought into the 4 rate hikes this year campaign yet… When they do… Uh-Oh! 

With the dollar being bought, euros are getting sold, and have given up the 1.22 handle overnight. And with the euro getting sold, all the other currencies are falling line behind the euro to receive their marching orders to the woodshed. Gold held tight yesterday, but is getting sold in the early morning trading, and the price of Oil continued to slip lower with the thought of surging supplies. 

There hasn’t been much news from the Eurozone in recent weeks, and the economic data continues to show a healing process going on with Germany leading the way. The German political scene got good news this week when a ruling coalition was formed, but the euro didn’t get any love from that, with all the dollar buying going on.  This morning, the Eurozone Unemployment Rate held steady for January at 8.6%…  There are no hedonic adjustments in the Eurozone Unemployment Rate calculations, just a simple question, do you have a job… yes or no!

Not like the shenanigans that are played with U.S. job counts…  Where one of the questions are probably like this… Have you worked in the last 10 years? yes or no…   If yes, then you’re counted as employed!  HA!   I kid, but I don’t doubt that something like that is used by the BLS!  

The U.S. Data cupboard showed us the latest revision to 4th QTR GDP and like I said it would do, it was revised downward to 2.5% from 2.6%, which was a downward revision from the original at 3%, and let’s not forget that he New York Federal Reserve  raised its estimate of U.S. gross domestic product growth for the fourth quarter of 2017 closer to 4 percent back in December!    What a Charade!  Can these guys get anything right?

I shake my head in wonderment that the Fed employs thousands of propeller head economists from Harvard and other top notch schools, and they can’t get this forecasting right… Better they stop forecasting altogether, right? HA!   

Today’s Data Cupboard has plenty for us, with Personal Income and Spending for January, which spending should take a hit given the negative print of Retail Sales in January… We’ll also see the Feb ISM (manufacturing index) which will remain bloated at 59…  And Fed Chairman Powell, makes the 2nd leg of his trip to the Hill, today to speak to the House..  I wonder if he has made some changes to his prepared notes in case someone throws him a curve today instead of those soft balls that thrown to him to easily hit out of the park! 

To recap… The dollar buying continues and looks to be strong and wide right now. It’s all about the 4 rate hikes talk that has the dollar bugs all excited, and Chuck thinks the idea is fine, but to act on the idea is crazy given what we all know about debt servicing… Gold held steady yesterday but is getting sold in the early morning trading, and the 4th QTR U.S. GDP was revised downward, but I bet you didn’t hear about that on the evening news!   

For What It’s Worth…  I received this from the GATA folks, but they pulled it from here and so can you?  https://www.telegraph.co.uk/business/2018/02/28/libor-surge-nearing-danger-level-debt-drenched-world/

So, I’ll set this up… I talked a lot about debt servicing above, and the great writer, Ambrose Evans-Pritchard has given us his two cents on the subject, so… here it is…  

“The stress signals of the global credit system are flashing amber. The offshore dollar funding markets that lubricate world finance are facing an incipient squeeze.

The “Libor-OIS spread,” watched carefully by traders, has risen to levels reached during the onset of the Chinese currency crisis in early 2016 and during the onset of the Italian and Spanish funding crisis in late 2011. The three-month rate for dollar Libor (London Interbank Offered Rate) used to price a vast nexus of financial contracts around the world has spiked to a 10-year high of 2 percent this week. A third of all U.S. business loans are linked to Libor, as are most student loans, and 90 percent of the leverage loan market.
The U.S. can doubtless handle the sixfold rise in Libor costs over the last two years since it is a reflection of economic recovery itself. America needs tighter money: The economy is on the cusp of overheating, with a double blast of irresponsible fiscal stimulus coming from the Trump tax cuts and Republican pork barrel spending.

Whether the rest of the world can handle it is less clear. The Libor spike is transmitted almost instantly through global finance. The Bank for International Settlements says any rise in short-term borrowing costs on dollar markets resets rates on $5 trillion (L3.6 trillion) of dollar bank loans.

It tightens the whole credit structure in Asia and emerging markets regardless of what currency it is in. The Libor-OIS spread measures the extra cost that banks charge each other for short-term “unsecured” dollar loans on the London interbank market. It basically takes the pulse of the lending markets.”  

Chuck again… Maybe the markets will listen to Mr. Pritchard! Because they sure don’t listen to me!   

Currencies today 3/1/18… American Style: A$ .7732, kiwi .7220, C$ .7783, euro 1.2188, sterling 1.3750, Swiss $1.0577, European Style: rand 11.8752, krone 7.9298, SEK 8.2875, forint 257.40, zloty 3.4328, koruna 20.8531, RUB 56.27, yen 106.71, sing 1.3266, HKD 7.8269, INR 65.20, China 6.3260, peso 18.89, BRL 3.2467, Dollar Index 90.73, Oil $61.26, 10-year 2.83%, Silver $16.30, Platinum $ 970.68, Palladium $1,014.05, and Gold … $1,311.60  

That’s it for today…  Back to the ballpark today for my second Spring Training game of the year, hopefully our pitcher can get through 2 innings without giving up 6 runs! Again Happy Birthday Diane! And I’m counting the days now until my spring vacation that will begin next Friday! YAHOO! Our Blues won last night, but the St. Louis U. Billikens lost their basketball game, UGH!  Friends from St. Louis and Oklahoma City arrived yesterday, and the good times began immediately! March will be busy with guests and goings on, and that has me pumped!  The great band Chicago takes us the finish line today with their song: Movin’ In…  from their 2nd album, the one that blew me away as a young man listening to it the first time…  And now 46 or so years later, I’m still listening!  And with that, it’s time to go… I hope you can make this a Tub Thumpin’ Thursday, and remember to Be Good To Yourself!  

Chuck Butler

February 28, 2018    

Good Day…  And a Wonderful Wednesday to you! What in the world has happened to our Blues? I tried to watch their game last night, but that’s just bad hockey that’s being played by our team! UGH! I also watched my beloved Missouri Tigers win their basketball game. College basketball teams are getting ready for their Conference Championship tournaments, and then the NCAA National Championship tournament. March as always will provide us many college games that keep us on the edge of our seats, for they don’t call it “March Madness” because all games are boring! Carlos Santana and Dave Matthews joined together for the song that greets me this morning… Love Of My Life…  

We’re here… The end of February, which has been a beautiful month, weather-wise down here in S. Florida, and it has been a month of fighting back for the dollar. But before we could close the books on the month, new Fed Chairman, Jerome Powell, gave his testimony on the Hill to lawmakers yesterday.  This used to be called the Humphrey-Hawkins Bill that required the Fed Chairman to give both the House and Senate his take on the economy. The Bill ended many years ago, but Fed Chairs since then have still honored that old requirement.

So, the Fed Chair comes to the Hill, with his prepared speech, (remember that because we’re coming back to it) and then answers some softball questions from the lawmakers… Yesterday, Powell, was prepared to tell the lawmakers that the Fed’s team was trying to put out a message that it wasn’t in a hurry to lift interest rates aggressively, no matter the passage of the fiscal stimulus in the form of tax cuts and the $300 billion-plus budget bill. That’s what he thought he was prepared to say…   In Central Bank parlance that means 3 more rate hikes this year… 

But, instead of a softball that he could hit for a home-run, a lawmaker threw the old Uncle Charlie (curveball) to Powell, and instead of sticking with the prepared comments about things wouldn’t change, he went down a road the markets were not prepared to hear… Stocks went south, bond yields rose, and the dollar got bought…  Here’s  his prepared comments… “In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.”  All was Ok until a lawmaker asked him this question… ” what would cause the Federal Reserve to hike more than three times that the central bank’s guidance currently calls for?”  

And this is where Powell, got in trouble…  As you can imagine…  I can see him fumbling around with his notes, to find the answer to that question in the notes, and then frustrated, he puts down the notes and decides to “wing it”…   He first explained how the “committee” arrives at a rate hike decision, and that they would be getting together in March to review the economic data, that he felt was continuing to show the economy strengthening. Apparently he hadn’t seen the most recent prints of Retail Sales, Car Sales, Durable & Capital Goods Orders, or the New Home Sales data… He made the point of saying that in his opinion the economy was showing strength, and that was the straw that stirred the rate hike camper’s drink…

The thought quickly switched to 4 rate hikes this year, which sent the dollar soaring, bond yields higher, stocks down and Gold down… It was not a pretty sight to see on the day, if you owned bonds, stocks and Gold and euros. 

So… I’ve talked a lot about all this rate hike stuff this morning, and quite frankly, I’m not buying it…  Powell and what ever other Fed Head they send out to spread their message can go on an on about 4 or 40 rate hikes, I’m not in line to buy the T-Shirt…  Why not? Because, the economy isn’t as strong as they want to believe it is!  

Look at yesterday’s real economic data… The U.S. Data Cupboard wasn’t kind to all those flag wavers that think the U.S. economy is strong… January Durable Goods orders printed worse than expected an posted a negative -3.7% print… Capital Goods Orders were also negative at -0.2%… But those that think that everything is seashells and balloons in the economy, thought it best to push the stupid Consumer Confidence to a level of 130.8 from a previous level of 124.3, which I thought to be preposterous!   

So, in the last week, we’ve seen the January reports for Retail Sales, Durable & Capital Goods and all three have printed negative to start the year! And later this morning, the latest revision to 4th QTR GDP will print, and I believe it will be lower than the last revision of 2.5%…  The 4th QTR laid an egg, and now the 1st QTR of 2018 is doing the same, but the 4 rate hike campers are out there marching in the street, and they loud and they are proud!  

The price of Oil saw some slippage yesterday as once again the Oil supplies showed another build up in reserves..  This whole Oil price / supply scenario is simply a case of lather, rinse, repeat, and do it again, and again, until everyone gets tired of it all and takes their bat and ball and goes home… We haven’t gotten to the end yet here, but we will, one day… 

Did you hear the latest news on Trade with China? The U.S. announced that had placed  stiff duties on aluminum foil from China after concluding that the country’s producers are receiving unfair subsidies and dumping the product in the American market.  And the timing of the announcement couldn’t have been better, given that Chinese President Xi is sending his top economic adviser, Liu He, to Washington for discussions over the two nations’ trading and economic relationship. 

Now, I get it… Liu arrives in Washington, and without the announcement of stiff duties on Aluminum foil, they wouldn’t have much to talk about, but now…  Hey, Mr. Liu.. here’s something we can talk about!  That makes two tariffs, if you will, on Chinese exports to the U.S. if you’re keeping score at home!   I’m just saying…   

I mentioned that Gold got sold yesterday afternoon, but didn’t get into the particulars.. So here you go… Gold lost $15 yesterday, and finished the day around $1,317… The shiny metal is back up a couple of shekels this morning to $1,320…  The number of contracts traded yesterday in Gold were 297,000, of which there were quite a few short Gold paper trades, in my humble opinion, as the short sellers saw the markets moving and decided to go student body right on Gold… UGH!

To recap…  It was all about Fed Chairman Jerome Powell’s testimony on the Hill to lawmakers yesterday about the state of the economy, and someone threw him a curve that he hadn’t prepared for, and decided to wing it with an answer that pretty much told the markets that Powell believes the economy is very strong and will need 4 rate hikes this year, which sent the dollar soaring, but stocks, bond prices, Gold and euros down on the day…    

For What it’s Worth…  I found this on Zerohedge.com and thought, that it would be good to offset the Powell, “everything is beautiful” talk above, with Powell, talking about an unsustainable path for debt in this country… You can find it here:  https://www.zerohedge.com/news/2018-02-27/fed-chair-admits-us-not-sustainable-fiscal-path  

Or, here’s your snippet: “Less than a week after Dallas Federal Reserve Bank President Robert Kaplan sounded the alarm over the level of debt that America’s government is projected to carry, Fed Chair Jay Powell told Congress today that “the U.S. is not on a sustainable fiscal path.”

Echoing the recent Goldman analysis, which warned that the recently implemented Republican spending plan could lead to an “unsustainable” debt load, Kaplan predicted the U.S. fiscal future beyond 2 years: he said that while the corporate tax cuts and other reforms may boost productivity and lift economic potential, most of the stimulative effects will fade in 2019 and 2020, leaving behind an economy with a higher debt burden than before.

“This projected increase in government debt to GDP comes at a point in the economic cycle when it would be preferable to be moderating the rate of debt growth at the government level,” Kaplan said”  

Chuck again, as I said when the first comments from a Fed Head came out about our debt presenting a problem, it’s about time they noticed!  But when I think about that I’m convinced that they’ve noticed all this time as our debt was rising, but are choosing to talk about it now…  Could it be that they are trying to deep six this administration?  I’m just thinking out loud here, no real statement on my part!   

Currencies today 2/28/18… American Style: A$ .7810, kiwi .7215, C$ .7835, euro 1.2220, sterling 1.3867, Swiss $1.06, … European Style: rand 11.73, krone 7.8725, SEK 8.2568, forint 257.07, zloty 3.4190, koruna 20.7985, RUB 55.90, yen 107.11, sing 1.3228, HKD 7.8273, INR 65.17, China 6.3107, peso 18.79, BRL 3.2328, Dollar Index 90.44, Oil $62.91, 10-year 2.89%, Silver Z516.4

A Return To An Old Trading Pattern?

February 27, 2018

* Rosengren begins to talk like Chuck!  

* Data returns to the U.S. Data Cupboard…

Good day… And a Tom Terrific Tuesday to you! What an awful night of restlessness for your truly.. UGH! Oh well, as they say in the military, “sounds like a personal problem”…  No Olympics last night, no good games on TV, and the stars weren’t participating in my usual night on the deck singing to them, led to a night where I was searching for things to write about… I found a few, but the findings just weren’t there in numbers!  The Beau Brummels greet me this morning with their song from the 60’s: Just A Little…

A few years ago, we experienced a trading pattern where the overnight markets of Asia and Europe sold dollars, and in the U.S. session dollars were bought… And so far in this week’s trading that’s what we’re seeing once again.. And that makes be think about the Plunge Protection Team (PPT) which operates in the U.S. markets. I told you a couple of weeks ago how the PPT, in my humble opinion which could be wrong, had stepped into save the stock market and the dollar, which both were about to fall off a cliff.  This trading pattern makes me think the PPT is in each day to ensure that we have none of that stuff from a couple of weeks ago… 

Of course I could be caught off base on this thought, but years of experience tells me that traders on different sides of the ocean don’t usually think differently on how assets should be traded, and when you see the dollar getting sold overseas, but bought here, something is awry folks… I’m just saying…   

So, yesterday morning we had the currencies and Gold rallying against the dollar, but as the day in the U.S. went along, those rallies were snuffed out. For instance, Gold, which yesterday was up $11.90 in the early morning trading found its way higher by a couple more bucks and the Dollar Index was continuing to drift lower than 89.55, but then they weren’t, just like that the tables had been turned on the currencies and Gold, and the two assets struggled the rest of the day to find a bid. 

Gold was able to hold on to $4.70 for an overall gain on the day, but was higher during the day before what I believe was the entry of the PPT in the markets. 

The euro also saw some love early in the day after the overnight markets had bought the currency and sold dollars. But soon the 1.2343 level for the euro yesterday morning, was reduced to a figure below 1.23… But overnight, the buying of euros and selling of dollars returned, and the single unit is back above 1.23 at 1.2330… 

I told you yesterday about how S&P had upgraded Russia’s credit rating, and how the ruble was looking like it could trade below 56 if the price of Oil continued to rise… And that’s exactly what happened in the past 24 hours… The price of Oil has continued to recover, and the Russian ruble has dropped below 56 to 55.90 (rubles are priced in European terms, which means as the price number drops, the less of the currency it takes to convert to a dollar, and that means it is rallying VS the dollar. 

The rest of the Petrol Currencies, like the Norwegian krone, Canadian dollar / loonie, and Brazilian real didn’t really participate in the rise in the price of Oil, but that doesn’t mean they won’t, as sometimes their reaction time is slower, that I would think it to be.   

The Mexican economic data, has really taken a nosedive in recent months… Yesterday, Mexican Retail Sales printed a 2% plunge, the biggest drop since 2013.

It is perhaps no coincidence that Mexico’s retail sales peaked in November 2016 — the month President Trump was elected — and have fallen ever since. This marks the 5th straight month of annual declines in Mexico retail sales… I was reading this on www.zerohedge.com and agree with the writer that both Mexico and Canada are seeing major downturns and disappointments in their macro data in recent weeks, as NAFTA negotiations get critical. 

In China yesterday the leaders said that they would change their “one man rule” that limits the President to two terms.. This means that Chinese president Xi will remain in power and continue his drive to bring China out of the dark and into the Capitalist world…  The Chinese renminbi was allowed to appreciate by a wide margin overnight, and there hasn’t been much uproar over this change, which I thought there could very well be some…  

The Chinese political arena is completely different than ours, so thislifting of the  two-term limit isn’t as bad a thing for the country as it would be here…   

Speaking of here in the U.S. I think the debt is beginning to get on people’s minds, and we’ll start to see those that don’t think accumulating debt is a Big Deal, and those, like me, that think it’s not going to lead to good things… Yesterday, we had Boston Fed President, Rosengren, talking about debt, and apparently he’s leaning toward the way Chuck thinks, as he told an audience that, “Large deficits now may make future actions difficult” for the government. He added it was “difficult to depend on” fiscal policies in the face of a recession “given political pressures and uncertainties.” – Eric Rosengren…     

And this note was found here: www.reuters.com   “Since mid-December the Republican-controlled Congress and U.S. President Donald Trump aggressively cut taxes and boosted spending limits, two fiscal moves that are expected to push the annual budget deficit above $1 trillion next year and expand the $20 trillion national debt.”    

Of course when the tax cut reform passed and the budget deficit was announced I went all DEFCON 4 on our leaders for increasing spending and cutting revenue at the same time, but usually it takes “others” to repeat what I’ve said to really get what I’ve ranted about to sink in with the masses…   And this is one of those cases… 

The U.S. Data Cupboard finally gets a chance to get in the game today when it will show us the color of the January Durable & Capital Goods Orders… I told you yesterday that I see Durables printing like Retail Sales.. Negative…  And Capital Goods should follow suit…  

Yesterday’s Data Cupboard was not kind to New Home Sales, which saw January’s numbers  crashed 7.8%, following December’s awful fall of 9.3%… This housing stuff is beginning to worry me folks. How about you?

To recap,  The first two days of trading this week reminds Chuck of a trading pattern we saw a couple of years ago, he believes the PPT is behind it all. Gold gained a bit yesterday, but had a better gain during the morning session, and the Price of Oil continued to ratchet higher, allowing the Russian ruble to rally to the 55 handle overnight.  

For What It’s Worth…  Since I was talking about the PPT above, that when I saw this on the Daily Reckoning I thought it would be good to follow up, with some else, and that’s what I have for you today… This was written by Nomi Prins at the DR, and can be found here: https://dailyreckoning.com/secret-force-behind-todays-rigged-markets/   

Or, here’s your snippet: “Markets were up again big today and volatility was down. But we haven’t seen the last of rising volatility, nor of the central banks’ attempts to thwart it. This week, new Fed Chair Jerome Powell will be giving his first congressional testimony, and you can be sure that markets are waiting on his words with bated breath.

Before his testimony, the Fed will be releasing its Monetary Policy Report, which will also give an indication to the direction of Fed policy.
Because these will be his first official comments as Fed chair, Powell will want to both make a personal mark and make sure markets don’t panic over his remarks.

I believe he will temper his comments to neutralize any negative market impact the report could have.”  

Chuck again… I read a lot of stuff that Nomi Prins writes and I find her to be quite good… I’m just saying…   

Currencies today 2/27/18… American Style: A$ .7843, kiwi .7283, C$ .7880, euro 1.2330, sterling 1.3968, Swiss $ 1.0680, … European Style: rand 11.6285, krone 7.8174, SEK 8.1764, forint 254.38, zloty 3.3816, koruna 20.59, RUB 55.90, yen 107, sing 1.3188, HKD 7.8264, INR 64.91, China 6.3152, peso 18.65, BRL 3.2347, Dollar Index 89.79, Oil $64.76, 10yr 2.87%, Silver $16.65, Platinum $996.59, Palladium $1,060.93, and Gold… $1,334.20  

That’s it for today…. After two awful game last weekend by our Blues, the GM tried to shake things up by trading a popular player yesterday… I find that these late season trades in hockey usually upset the chemistry in the locker room. I guess we’ll have to wait-n-see what happens here…  Another beautiful day here in S. Florida yesterday…  March will be my last month here, so I sure hope it moves slowly, and not as fast as February did! I don’t see another baseball game until Thursday. UGH!  Pink Floyd takes us to the finish line today with their song: Learning To Fly…  And with that, I’m going to hope you have a Tom Terrific Tuesday, and also hope you remember to Be Good To Yourself!   

Chuck Butler