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:   

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