April 18, 2018
* Platinum is shining once again!
* Chuck treats us to a snippet of his DTL writings…
Good Day… And a Wonderful Wednesday to you! Well, if you are a tax preparer procrastinator you received a gift yesterday… The IRS’s online tax filing system crashed on them, and so they had to announce an additional day for tax returns. So today is Tax Day 2… To me, it’s like a say of execution from the Gov. But some people love it, so there you go! I saw a funny cartoon where the guy was not happy while putting his tax return in the mail because he was thinking of all the expenditures the previous administration piled up for personal stuff… In 3 years the cartoon will be redone with the present administration piling up expenditures… The Allman Brothers greet me this morning with their song: Midnight Rider… Hey! I just realized that I have something in common with the Midnight Rider… He carried a Silver dollar coin, and so do I !
Before I get into the letter today, since it’s Tax Day 2, I found this… In a follow up to what I was talking about yesterday I came across the quote, that sums it up quite nicely, in my opinion… A thief is more moral than a congressman; when a thief steals your money, he doesn’t demand you thank him. – Walter Williams
The currencies fell backward in the overnight trading last night. I last checked on them around 6pm yesterday, and all looked as though yesterday’s trading didn’t exist, but this morning, it’s a different look, and it’s not one I would have expected, given all the bad things that’s facing the dollar, it’s being propped up by someone, or some entity, because everything I read form traders around the world is that they don’t like being long dollars at this time… So, what gives? All I can figure out is the PPT (Plunge Protection Team) is doing the dirty work… I wish the PPT would take a less from Steely Dan and tell the powers that be that they don’t want to do their dirty work anymore…
But that’s not going to happen, so just move ahead here Chuck… I don’t believe the gain in Industrial Production was the key to the dollar’s rebound, because the report had some ugly stuff in it… In fact, let’s talk about it now…
The U.S. Data Cupboard had two pieces of real economic data for us yesterday… Industrial Production (IP) and Capacity Utilization(CAPU) printed for March, and IP was not as strong as expected, but did carve out a nice 0.5% gain for the month. There is one troublesome piece of the IP that caught my eye… Industrial production has been consistently held back by weakness in the report’s manufacturing component and that is the expectation for March, at a consensus 0.4 percent gain overall but only a 0.2 percent increase for manufacturing.
And that led me to think about something that had come across my writing desk this week… Zombie Corporations… This all surrounds my economics mentor, Hy Minsky, and his thoughts on the phases that the economy goes through… For you readers of my Dow Theory Letters this wlll all sound familiar as I highlighted the great Hy Minksy in a letter a couple of months ago. But let’s listen in from what I said, then…
Chuck Butler: Dow Theory Letters 1/25/18…
1. Stability is Destabilizing. Minsky believed that during periods of economic stability, banks and firms can generate shocks through their own internal dynamics, because after becoming complacent with their current situation, they begin to take on greater risks in pursuit of further profits. Thus firms sow the seeds for the next financial crisis.
2. There are three stages of debt. Minsky believed in a theory called “financial instability hypothesis,” which says that lending goes through three distinct stages. He called them the Hedge, the Speculative and the Ponzi stages. You won’t believe how similar this is to now…
During the first stage, after the crisis, banks and borrowers are cautious. Loans are made in modest amounts, with borrowers known to be able to repay both the principal and interest.
As confidence grows, banks begin to make loans in which borrowers can only afford to pay the interest. The collateral on the loan is usually an asset that’s rising in value. When the memory of the past crisis has faded, and is almost forgotten…
The Ponzi stage begins. At this point banks make loans to firms and households that can afford to pay neither the interest nor the principal. This is done according to the idea that the asset that’s used as collateral will continue to rise in value. When the asset held as collateral stops rising, the loan is called. Thus begins a very bad circle of foreclosures, failures, and bailouts.
3. The Minsky Moment. This occurs when the Ponzi stage of lending is in place. Everyone is complacent with the situation, the asset held as collateral is still rising, and the borrower even adds to his debt because this stage can’t ever end, right?
When the assets begin to lose value, the lenders believe that there is debt on their books that will never be repaid. The collateral begins to get sold, causing an even larger fall in prices. Think about this moment as the classic cartoon, where the character is running, and runs off a cliff. He keeps running for a while, still believing he’s on solid ground, then he realizes that there’s nothing below him but thin air… That’s a Minsky Moment!
So… how about that! I treated you with some of my writing in the Dow Theory Letters… You should see what I wrote about this week that will print on Thursday! But let’s get back to something that is more current… I saw a report yesterday that U.S. shipments overseas gained over 11% VS last year… And that got me thinking… Let’s see, didn’t I tell you recently that the dollar, as measured by the Dollar Index, had gained 13% in the past year? See the connection? You don’t need any of those rose colored glasses that the Fed and Treasury use on a daily basis to see the connection…
Speaking of the U.S. Treasury, I wonder if they felt like they got their toes stepped on yesterday, when President Trump decided to tweet that “Russia and China were playing the devaluation game, and that’s not acceptable” You see, the dollar is the Treasury’s baby to talk about… Remember Robert Rubin when he was Sec. of the Treasury and his daily message to the markets about how the U.S. believes in a strong dollar… Yes, he had is fingers crossed behind his back, I do believe… HA!
Speaking of China…. China has taken another step to opening up its futures markets to the world, announcing that it will allow foreign investors to trade domestic iron-ore futures as of May 4. The move follows the debut of China’s first renminbi-denominated crude oil futures last month in Shanghai, signaling the country’s ambition to have a say on the global pricing of commodities, don’t you think? I do!
Gold saw another day of plus 250,000 contracts traded, and at the end of the day it had moved very little… At least yesterday’s gain was more than one thin dime like the previous day! Yesterday’s gain was a whopping $1.70, but Gold continues to quietly creep toward the line in the sand dollar amount of $1,350… In fact, the shiny metal has creeped closer to $1,350 in the early morning trading…
I mentioned the surge in price of Palladium yesterday, and the alternative metal to Gold has seen its current surge take a trip above $1,000 again… And Silver, as I’m told by Ed Steer, is trading pennies above its 200-day moving avg. this morning…
The U.S. Data Cupboard also had the IMF’s outlook on the U.S. economy, and bust my buttons there it is right there! I’m sorry for throwing shade on you, this morning, PPT… The reason for the dollar rally is all right here! The IMF gave the U.S. economy a upgrade in outlook and stated that the tax cuts will be the reason the economy grows in 2018… For those of you who are new to the Pfennig… I’m being very facetious here…
To recap… the currencies saw a dollar rally in the overnight trading last night, the move wasn’t huge, but did stop the 2-day rally that the currencies had put together VS the dollar. Trump steps on the Treasury’s toes yesterday, Gold gains just $1.70, but Palladium is the big winner on the day, and Chuck treats us to a piece of his writings in the Dow Theory Letters…
For What it’s Worth… I was absolutely furious when I read this article last night, good thing my beloved Cardinals were beating up on the Cubs, or else I would have gone bananas over what Paul Ryan said in this article about old people… And it can be found here: “https://www.dailykos.com/stories/2018/4/16/1757506/-Ryan-No-way-to-avoid-trillion-dollar-deficits-because-of-all-the-old-people?detail=emaildkre
Or, here’s your snippet: “Speaker Paul Ryan wants you to know that it is not his fault at all that we’re going to have a trillion-dollar deficit. It’s the fault of old people.
That was going to happen. The baby boomers retiring was going to do that,” Ryan said on NBC’s “Meet the Press” of projections that the country will start running trillion-dollar deficits as soon as 2020. […]
“These deficit trillion-dollar projections have been out there for a long, long time. Why? Because of mandatory spending which we call entitlements,” he said when pressed by NBC host Chuck Todd on Corker’s criticism.”
Chuck Again… Of course they are, but haven’t guys like me, Bill Bonner, Addison Wiggin, Doug Casey, Frank Trotter, and more been pointing out the growing problem for years now? So why haven’t you, Paul Ryan, or anyone else drawing huge salaries and benefits, including a golden parachute retirement plan, done something about it? Just think if you guys had bitten the bullet years ago, we would be well on the path of thinking about the future in a better way… But with 10,000 Baby Boomers retiring every day for 10 more years, Trillion dollar plus deficit spending will continue won’t it? Don’t answer that Mr, Ryan, I already know the answer and have for over a decade, but don’t let me ruin you attempt to pass the buck…
Currencies Today 4/18/18… American Style: A$ .7751, kiwi .7310, C$ .7947, euro 1.2363, sterling 1.42, Swiss $1.0328, … European style: rand 11.9617, krone 7.7780, SEK 8.4140, forint 250.65, zloty 3.3730, koruna 20.4553, RUB 61.43, yen 107.25, sing 1.3110, HKD 7.85, INR 65.58, China 6.2798, peso 18.01, BRL 3.4096, Dollar Index 89.66, Oil $67.08, 10-year 2.83%, Silver $16.86, Platinum $943.91, Palladium $1,021.96, and Gold… $1,348.70
That’s it for today… I briefly mentioned above that my beloved Cardinals won in the frost bowl two last night in Chicago, where more snow is expected today. The Cardinals try to get in a day game before the snow falls and will attempt to add to their winning streak of 5 games now… I’ve got to skedaddle this morning, as I’m leaving on a jet plane, don’t know when I’ll be back again… No worries, I’m taking my laptop, that drives me berserk every time I use it! The aforementioned Steely Dan takes us to the finish line today with their song from my favorite Steely Dan album: Black Cow… Ok, now let’s try to make this a Wonderful Wednesday, and Be Good To Yourself for crying out loud!
Chuck Butler