April 4, 2019
* Dollar continues to hold down the currencies and metals
* Chuck gives us a glimpse into his old Presentations!
Good Day… And a Tub Thumpin’ Thursday to you! I heard the weather channel did a bit from Palm Beach Gardens, which is right next to us here in Juno Beach. And they talked about how bad the weather was… I looked outside, and wondered what planet they were on, for here on the beach, the sun was mostly shining and it was 75 degrees… A bit windy, but that’s the beach! This will be my last weekend down here, as I return to St. Louis on Tuesday (no Pfennig that day) next week. I don’t want to go home, I don’t want to go home! But, all good things must come to an end, right? I’ll be back though, probably mid summer… Carlos Santana greets me this morning with his band’s song: Black Magic Woman…
I’m going to start the letter a little differently today, and give you the results of the Data Cupboard, first, because, well, the Data Cupboard revealed quite a lot to us yesterday… First, the ISM, (non-manufacturing index ) for March printed, and it showed a large weakening in the index number to 56.1 VS 59.7 in Feb… That’s a huge drop for that data folks… Did any cable news casts talk about this? I doubt it… There was also the ADP Employment report, which is a precursor to the BLS Jobs Jamboree on Friday, showed that only 129,000 jobs were created in March… The so-called experts are forecasting an increase of 179,000, so we’ll see which one we get, eh?
But once again, currency traders didn’t give any notice to the data… As there was little to no movement in the currencies yesterday, with a slight move down being the only thing happening… And Gold lost a few bucks in trading on the day… Thanks to those of you who sent along a note thanking me for saying what I said yesterday regarding Gold pricing… I know of a former colleague and friend, that was shaking his head no, to all that I said… But that’s OK… I know where he stands on it, and he knows where I stand on it… I’m not here to attempt to get someone to change their position… Just present the facts, as I know them, mixed with some speculation!
OK… So, when will the weak data finally get recognized that it’s not something good for the dollar? A weak economy, means smaller interest rates… And OMG! I totally missed something in Fed Chariman Powell’s recent talk… He said that instead of allowing Treasuries that the Fed holds, to mature, that they were going to reinvest them… This, folks, is what I’ve been talking about… that the Fed would be reversing their tightening… And it’s also what I’ve told you is going to happen with regards to QE… Yes, it’s not going to be called QE… But you can put lipstick on a pig, and it’s still a pig… I’m just saying!
This morning in Germany, the Eurozone’s largest economy, the economic print was not so good… In fact it was miserable! Factory Orders for February fell -4.2%, and year on year the were -0.4%… A few weeks ago, we saw data from Germany that painted a different picture for the economy, but this new picture is not a good one, and the euro got sold on the news… Hmmm… Bad data is noticed by euro traders, but not the dollar… Double hmmm…
That fact alone tells me that the dollar is still hanging onto its strong trend, for when a currency is in a strong trend, the old saying that “the trend is your friend” couldn’t be more correct! Bad things are ignored, while bad things for the currency not in a strong trend get magnified…
But what I’ve been talking about for some time now, is that all this bad data that’s piling up on the dollar will be too much weight for the dollar to bear, and it will bring about a shift in trends… This current strong dollar trend has been around since 2011, when the debts of Greece were exposed… A look at trends history would be a good thing here, Chuck, just like you used to go through it in your Presentations! Are you ready for this? If you never attended a conference that I spoke at, this is what it would have sounded like…
It all began in of August of 1971, when then President, Nixon, closed the Gold Window and removed the backing of Gold from the dollar. Within a couple of years, after some failed attempts to restore a Gold backed currency system, the rest of the world succumbed to this new “fiat currency” era.
You see the debts of President Johnson’s, “ great society”, and Vietnam disaster, had grown so much that countries holding dollars were skeptical that the U.S. would be able to pay off their debts with Gold… So, as the story goes, France called the U.S.’s bluff, and that’s when Nixon closed the Gold Window.
And the first currency trend was born… It was a weak dollar trend, that began in 1971, and ended in 1978… Do you recall this time period? Remember WIN buttons? WIN stood for Whip Inflation Now… But before that we had the first Oil embargoes and stagflation, a Presidential resignation, from a scandal, and it wasn’t all bad, we did get to celebrate our Bicentennial, and Chuck and Kathy were married!
During this weak dollar trend, the Swiss franc gained 186% going from 4.30 to 1.50, and if a currency diversification investor like yourself (hopefully) were to own a simple combination of DMarks, francs and yen, they would have had a 131% gain VS the dollar or a 17% annual return… Not too shabby for a defensive move in your investment portfolio, eh?
But by 1979, interest rates in the U.S. were beginning to go sky high, and fundamentals being a HUGE part of currency valuations in those days (before the financial meltdown) the weak dollar trend ended, and a new strong dollar trend began and lasted for 6 years, from 1979 to 1985… Do you recall what happened in 1985, that would have turned the dollar’s fortunes around? It was a meeting of the finance ministers around the world, who came to the Plaza Hotel in NYC, to discuss the dollar’s strength, and their fear that the U.S. Current Account Deficit had reached 2.5% of GDP… It was decided then that the dollar would back off from its strong trend. But during its strong trend it gained back 47% of its losses to the Swiss franc going from 1.50 to 2.85, and our combo of DM, Sfr, and yen, gave back 39%, or a -6% annual return.
So, now we’re into the 3rd trend, and it’s another weak dollar trend, that began in 1985, and lasted ten years to 1995. By 1995, interest rates in the U.S. were above 6%, and the U.S. stock market was experiencing, in the words of Al Greenspan, “irrational exuberance” And the weak dollar trend ended, but during its run of 10 years, the Swiss franc gained back 138% of the ground going from 2.85 to 1.20, and our combo of three currencies gained 171%, or another 17% annual return.
The years 1995 to 2002, 7 years, saw good times and bad times, and through it all the dollar gained back 30% of the ground it had lost VS the Swiss franc, with the franc going from 1.20 to 1.72, and our combo of currencies lost 36% or a -5% annual return. By 2002, with the Dot-Com bust, corporate scandals left and right, and people around the world feeling squeamish, about owning dollars they took a flyer on a relatively new currency, the euro, and the next weak dollar trend was born.
2002, though 2010, 8 years… this weak dollar trend was different than the others before it due to stops and starts… from 2002 through 2004, and in those 3 years, the Swiss franc gained 40% VS the dollar. In 2005, the dollar rebounded on a tax rebate for Corporate earnings, and once that ended in 12/31/2005, the dollar went right back to its underlying weak trend. So, the total, including a down year in 2005, gain for the franc 2002-2010 was 52%… And our combo, which now was euro, francs and yen, gained, are you ready for this? 155%!
But just when it looked like the dollar might not ever rebound, along came the discovery of the debts of the Club Med (Greece, Italy, Spain, Portugal) countries of the Eurozone, and the euro, which had quickly become the offset currency to the dollar in a very short time period, was sold like funnel cakes at a State Fair! And so it began the last full trend that we’ve seen, a strong dollar trend, that lasted 7 years, from 2010 to 2016, and during that time the dollar gained back 8% VS the Swiss franc, and our 3 currency combo also lost a total of 48% during those years. Since 2016, we’ve witnessed a couple of false dawns, when it appeared that the strong dollar trend had ended, only to be fooled once again… UGH! But now that fundamentals are no longer the king of the hill in valuing currencies, it’s been quite difficult to read trader’s minds, for the sentiment of traders is what moves markets these days, along with a dash of fundamentals…
So to add it all up… The dollar has lost a total, net of strong dollar years, 291% to the Swiss franc, and our 3 currency combo was up 334% to the dollar…
So, as you can see, during weak dollar trends, the dollar loses far more than it ever recovers during strong dollar years. Now there one thing I want to make perfectly clear, and that is that during a trend, there can be volatility, which means a trend is not a ONE-WAY Street! But from this little exercise we know for sure that a “trend is YOUR friend”!
OK, that was fun… In 2006, the year before I was diagnosed with Stage 4 cancer, I spoke 35 times… That’s right 35 times… I was everywhere! And in demand from anyone holding a conference. I was interviewed for the Wall Street Journal on two different occasions by two different writers, with one of those writers carving out one chapter in his book, about me! It was very much like the Frank Sinatra song… I was flying high in 2006, shot down in 2007…
But during my time as a conference speaker, I nearly always told the story of the dollar trends… I once had an audience of 750 in Vancouver, singing along with me the Lemon Tree song… Now that’s something that had never been done at a financial conference!
Ok, sorry, I got going down that memory road, and just couldn’t turn around!
The U.S. Data Cupboard is pretty much empty today, and is preparing itself for the grand entry of the Jobs Jamboree tomorrow… What happens to the dollar, if we get another disastrous jobs report tomorrow that’s much like February’s 20,000 number? I would think that this could be the straw that breaks the camel’s back, but then I’ve been wrong before, and I’m not afraid of being wrong… Like I said earlier in the week, I’m sure that the folks at the BLS (Bureau of Labor Statistics) got the “memo” reminding them that they have a shelf full of hedonic adjustments to use to keep a disastrous jobs report from happening again…
Before I head to the Big Finish… I wanted to mention this… In my old office we had a bank of windows on the east side of the building, and during the winter, Mike Meyer and myself would note the position of the sun each day, as it moved north in the sky, and would always give us a feeling of hope that spring wasn’t far away… I mention this because I noticed this morning that the sun is moving north across the sky, as my view to the east no longer has the sunrise in it…
You know, my dad always told me that “just when you think you’ve got something, somebody has something greater”… I was on a boat recently and the captain pointed out a house that he explained had a rotating living room, so that the owner could watch the sunrise, and the sunset without leaving his couch! WOW! I guess I just need more windows down here!
To Recap… Another day of dollar strength, albeit soft dollar strength, but strength nonetheless was what Wednesday was all about, and the overnight markets didn’t give an inch either. Germany received some bad economic data today with factory orders for Feb. falling -4.2%! The euro took a bit of a hit on the news… And Chuck gives us a glimpse of his old presentations!
For What It’s Worth… Ok, longtime reader Bob, sent me this and while reading it, I thought it to be FWIW worthy… It’s about a Financial Tax that’s being talked about by lawmakers… and it can be found here: https://www.globalresearch.ca/why-us-needs-financial-transaction-tax/5673391
Or, here’s your snippet: ” The financial transaction tax is an issue that never goes away from the public agenda completely. It keeps coming back to the policy and political discussions in different forms across the world. Currently, the idea of a financial transaction tax (FTT) is gaining in popularity within the Democratic Party of the United States as a policy tool to curb excessive speculation and high-frequency trading that destabilizes markets; and to generate a significant amount of revenue to finance social programs such as free college tuition.
On March 5, Democrats in both houses of Congress introduced bills to introduce a financial transaction tax in the US. Senator Brian Schatz of Hawaii introduced a bill titled, “The Wall Street Tax Act of 2019”[1] in the Senate while Representative Peter DeFazio of Oregon introduced a companion bill in the House of Representatives. The bill proposes a 0.1 percent tax (i.e., 10 cents on every $100 financial transaction) on stocks, bonds, foreign exchange, derivatives and other financial assets traded in the US markets. While initial public offerings (IPOs) and short-term debt of fewer than 100 days would be exempted from the proposed FTT. Further, the proposed tax would apply to the actual payment for the derivatives contracts between the seller and the buyer, rather than to the notional value of derivatives contracts.”
Chuck Again… Well, I’m no fan of taxes, folks… And this tax would be a real problem for investors… I’m just saying…
Currencies today 4/4/19 American Style: A$.7115, kiwi .6780, C$ .7487, euro 1.1230, sterling 1.3156, Swiss $1.0018, European Style: rand 14.1660, krone 8.5829, SEK 9.2732, forint 284.63, zloty 3.8206, koruna 22.868, RUB 65.23, yen 111.40, sing 1.3533, HKD 7.8492, INR 69.12, China 6.7101, peso 19.24, BRL 3.8547, Dollar Index 97.15, Oil $62.46, 10-year 2.50%, Silver $15.08, Platinum $886.71, Palladium $1,412.52, and Gold… $1,291.65
That’s it for today, tomorrow and the week! This letter was a bit long today, but since I don’t write on Fridays any longer, I like to extend the Thursday letter a bit… Like I said above, no Pfennig next Tuesday, as I’ll be traveling early in the morning. Well, today was supposed to opening day for my beloved Cardinals in St. Louis… But they’ve already called off the game and the opening day ceremonies, because of rain that scheduled to hit there today… So, Opening Day in St. Louis, which is like no other city when it comes to Opening Day, will be tomorrow… I used to be lucky enough to gain a ticket or two for Opening Day, from my good friend, Sandra, but… times change… And now I’m not even “in town” for Opening Day! The Moody Blues take us to the finish line today with their song: I Know You’re Out There… I hope you have a Tub Thumpin’ Thursday, and Fantastico Friday tomorrow, and will Be Good To Yourself!
Chuck Butler