Author: admin

July 3, 2018   

* Currencies hit a roadblock yesterday… 

* It’s Our Independence Day Tomorrow! 

Good Day… And a Tom Terrific Tuesday to you! Are you staying cool? Because it’s going to be a hot one here for the 4th of July Independence day Holiday. I’m going to put something in the Big Green Egg, and 6 hours later I’ll check it. No standing over a hot grill for me! But Barbeque will be in order for sure! I’d like to do some ribs, but, I don’t think everyone that will be here are fans of ribs, so I’ll have to think of something else…  Kansas greets me this morning with their song: The Wall…  In the 70’s you didn’t get much hotter for a band than Kansas was… I’m just saying… 

Well, I was looking over some charts yesterday, of the stock market performances of the S&P 500, Dow and Russell 2000… And if you believe in charts, then go out and load up on more stocks… But if you only use charts as a “helper”, then be careful… Because in other charts I looked at, the effects of the Trump tariffs are already kicking in, as they might not be actually kicking in, but psychologically they’re kicking in, as companies worry about what it’s going to do their costs… 

That was very evident in the ISM (manufacturing index) that printed yesterday for June. The ISM index rose to 60! WOW, now that’s impressive, especially given that Durables and Factory Orders were all negative in growth… But I digress…  The thing that caught my eye in the ISM though were the “internals” of the report.  You see, apparently the supply chain is under stress and factories are taking longer to deliver goods.

My friend, David Gonigam at the Five Minute Forecast  had this yesterday… “The “supplier delivery” number is up to 68.2, and this is an instance where higher numbers aren’t necessarily better. Instead, we’re looking at the worst disruptions to the supply chain since the “oil shock” of the mid-1970s.

The cause? Steel and aluminum tariffs, say the report’s authors. “Respondents are overwhelmingly concerned about how tariff-related activity is [affecting] and will continue to affect their business,” says ISM’s Timothy Fiore.” – David Gonigam www.agorafinancial.com

I love it when I have a thought about something, and then out of the air, comes a link, a newsletter, etc. with confirmation of what I’m thinking!  

There’s certainly a “split” if you will, of people in this country that think everything’s coming up roses, and then there’s people like me that think that the roses are 7-days picked!  But that’s what makes the world go around, right? As long as we can have a civil discussion about it, I hear you, you hear me, and we go get a beer, right? 

I keep talking about a credit crisis that’s going to hit the markets sooner or later… It could come from any number of credit sources… Auto loans, student loans, mortgage loans, corporate loans, etc. But I’m keeping my eye on the student loans… There’s more than $1.5 Trillion in Student Loans and the default rate has steadily climbed to 20%… And it’s still growing, folks…

A credit crisis begins in one sector and then spreads to the other sectors very quickly… So, we had better keep our eye on all of these credit sources… because they are all risky business, and I’m not talking about the Tom Cruise movie either!   One of these days, all this stuff will come crashing down around us, you don’t keep adding to debt until it can’t take any more! And you have to stop digging a hole when you find out the hole doesn’t have any Gold! 

Well, I should have figured that if I saw that China’s renminbi was being allowed to depreciate, to offset trade tariff effects, then the People’s Bank of China (PBOC) was ready to disavow any hint that this is what was going on… And the PBOC has begun to talk about how they will not allow the renminbi to be taken down excessively… Those sly Chinese bankers… They knew just how weak they could allow the renminbi to go before they would apply the brakes on any further thoughts of depreciation.

And that’s what they are doing right now… applying the brakes… The Chinese have come to the conclusion that the renminbi has fallen enough… Enough is enough, now we’ll have to see if the markets are going to play along…

When I first began trading currencies for the old Mark Twain Bank, I was taught that the markets had deeper pockets than any Central Bank… And that’s why I’ve always said that Central Bank intervention can move markets short term, but they won’t last, because the Central Bank can’t continue to spend money on a falling currency to defend it. 

But I think China’s PBOC presents a different animal to the equation of whether Central Bank intervention works or not. The Chinese proved back in 2015, when the Capital Flight out of China was HUGE, and there were all those calls for a collapse of the Chinese economy… But, China simply used some of their $3 Trillion plus reserves and bought renminbi, to defend it, and soon, the markets were playing along with the PBOC…

I was excited to see that my Pfennig last week titled: Emerging Markets, the Canary In The Coal Mine, got a lot of notice… The Twitter-verse seemed to like it, and I didn’t get one email that day telling me I was wrong, as opposed to a normal day where people tell me I’m wrong all the time! HA!    

I’ve gone this long into the letter without telling you what the currencies did yesterday… And that was on purpose, as the currencies and their attempt to recover got stopped at the border…  I had a funny line (to me that is) ready, but decided it wouldn’t be funny to everyone… See how I’ve matured? HA!  

During the day yesterday, the euro was giving back most of its gains from Friday, but by the time the day ended the single unit was back to the same level it was early yesterday morning 1.1642.  Overnight, there was more movement, and the single unit has inched higher, but not by much. The Dollar Index is trading at 94.68 this morning, and yesterday morning it traded at 94.79… 

The rot on the Emerging Markets currencies’ vines is beginning to really take hold, and getting exposed to the sunlight, which means it’s going to keep growing… The price of Oil has bumped to near $75 this morning, and the Russian ruble can’t find a bid, and the Brazilian real continue to fall like a rock from a ledge. 

Come to think of it, the price of Oil’s rise isn’t helping another of the Petrol Currencies this morning, as the Canadian dollar/ loonie has dropped in price. The Norwegian krone, which follows two leaders, the price of Oil and the euro, is on the rally tracks this morning, due to both of its leaders bumping higher. 

 told you yesterday that on Friday this week, it’ll be the Jobs Jamboree for June… Right now the so-called experts are expecting 205,000 jobs created in June… That sure doesn’t say much for all those college grads that were looking for jobs, eh? Yesterday afternoon, I got to thinking about me not being around after today for the rest of the week, and thought, well, I guess I should at least give everyone a heads up as to what else could move markets as the week goes on…

OK, so starting today… automakers will report their June sales totals. Forecasters predict full-year sales falling short of the three previous years when sales have topped 17 million cars and trucks.

Also today, we’ll see Factory Orders for May… April’s negative showing here, will probably spill over to May, so another piece of real economic news in the negative…

The stock market will close today at 1pm ET, and be closed tomorrow along with banks and a whole shootin’ match of other things. We pick things up again on Thursday with the Fed’s last meeting Minutes… These could be a powder keg for the markets, so look out for those Meeting Minutes!

Then on Friday, we have the aforementioned Jobs Jamboree, and, more importantly, in my opinion, since the Jobs report is so heavily hedonically adjusted each month. The first round of Trump tariffs goes into effect on Friday when the U.S. will begin imposing a 25% tax on $34 billion worth of Chinese products… And the rot on the economy’s vine will begin to creep up the vine…

So, there you have it… a week’s worth of stuff that will go on once I sign off today… You know, that reminds me to remind you, that the last week of July, first week of August, is my annual summer vacation… I’ve been taking those weeks off for so long now, that I almost forget they are coming up! It’ll be a two week sabbatical for you from me, so you have that to look forward to!

Yes, it’s just me these days… At my old place of business, I had “back ups”, when I was unable to write, like vacations, scans days, infusion confusion days, etc.  So, now there’s just a void… I’m sure my publishers, the wonderful Aden Sisters, will probably send you a letter or two during those two weeks…  I have to say that I’m loving my association with the Aden Research folks, Mary Anne and Pamela…  

Gold lost another $6 in yesterday’s trading… The shiny metal just can’t seem to catch a break or a bid these days. I’m still not going to back off my view that Gold is a store of wealth, is independent, has no obligations, or any dolt Central Bank doing dolt things like implementing negative deposit rates, etc.  And since Gold hasn’t performed very well lately, a lot of people/ investors panic… But… if you want to diversify from the legitimate fear for your assets into tangible assets –  Then an asset allocation to Gold I would think would be good especially in view of the unresolved debt crisis and the policy of the central banks – then Gold is an obvious choice of asset class…  And that’s all I’m going to say about that! (today at least! HA!)’

And looky there! Gold is up $5 in the early morning trading on this Tom Terrific Tuesday! They used to have a saying on the trading desk at a brokerage firm I worked at in the late 70’s…  just to get this out of the way, no bodies were harmed….   But the traders would say, “even a dead body bounces”…  And when I saw Gold bounce this morning, my mind drifted back to the late 70’s…  Sorry if I offended anyone with that old trader saying about assets that bounce…  Man, that’s so long ago, my oldest child, Dawn, wasn’t even born yet!  Wait, What? I had a life before children? I don’t believe that for one minute! HAHAHAHAHA!

To Recap…  The currencies hit a roadblock yesterday, and their advances were stopped at the border, but have recovered in the overnight markets to sit about where they were yesterday morning. Gold lost $6 in trading yesterday, but is up $5 in the early morning trading today. Chuck brings you up to date with all the goings on for the rest of the week, and the Trump tariffs are already showing up in the economic data! 

For What It’s Worth…  I’ve been talking about the rot on the Emerging Markets for a few weeks now, and when I saw this synopsis of the goings on in these markets I had to get it in this letter so you could see it too… 

• The DXY index, which tracks the US dollar against other major currencies, rose 5%.
• The Argentine peso and Brazilian real fell 30% and 14%, respectively.
• The Turkish lira and South African rand each fell nearly 14% versus the dollar.
• A bunch of Asian emerging market currencies fell 3% – 6%.
• Europe’s emerging markets weren’t spared. The Hungarian forint (-10.0%), Polish zloty (- 9%), and Czech koruna (-8%) led a long list of EU peripheral currency losers.
• China’s stock indexes fell by double-digit percentages in the quarter, though that might have more to do the incipient trade war than relative inflation and interest rates.
• Asian junk bond spreads (their yields versus those of high-grade bonds) widened dramatically.
• Emerging market bank stocks got crushed, including Banco do Brasil (-30%), Banco Bradesco (- 30%), and Brazil’s Ibovespa stock index, down 27% in U.S. dollars.
• Last but definitely not least scary, US and European bank stocks fell hard last week, which isn’t surprising since they’re on the hook for untold amounts of the aforementioned emerging market securities and currencies.

Chuck Again…  I have to say that this all could certainly blow over, and everything will be right on the night… There! I said it, now this FWIW piece is fair and balanced!  But do I believe that? Not for one Iota! Like I said earlier in the week… The Emerging Markets is the Canary in the Coal Mine… 

Currencies today 7/3/18: American Style: A$ .7395, kiwi .6735, C$ .7583, euro 1.1650, sterling 1. 3188, Swiss $1.0062, European Style: rand 13.7228, krone 8.1275, SEK 8.8521, forint 281.60, zloty 3.7743, koruna 22.4025,  RUB 63.21, yen 110.85, sing 1.3660, HKD 7.8445, INR 68.56, China 6.6542, peso 19.68, BRL 3.89, Dollar Index 94.68, Oil $74.82, 10-year 2.87%, Silver $15.94, Platinum $824,48, Palladium $947.47, and Gold… $1,247.26

That’s it for today… And for this week… I sure hope you can have a grand Independence Day tomorrow… I would suspect the markets, for the most part will be shut down for the rest of the week, as those that are able to make this a long holiday week, will do just that!  My beloved Cardinals are making a trip out west, which means I won’t get to see much of the games because they are on so late! Last night, for instance I went to bed in the 5th inning! Maybe a trip out west is what they need to straighten themselves and their season out… time will tell… At least they got off on the right foot last night with a win in Arizona. I hear that there will be a large crowd of people here tomorrow, and I was asked what would I like to cook for them… Hmmm… I’ll have to think about that, since it’s going to be near 100 tomorrow! The late Great Leon Russell takes us to the finish line today with his song: Queen of the Roller Derby…  So, get out there and shoot some fireworks, wear some red, white and blue, and fly a flag… And be careful! I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!

Chuck Butler

 

 

July 2, 2018  

* Currencies continued to rebound on Friday   

* The price of Oil jumps higher, but Gold remains without a bid… 

Good Day… And a Marvelous Monday to you! And welcome to July! It’s Pfennig tradition that we being July like this:   There I was on a July Morning, I was looking for love. With the strength of the night behind me, and a road of my own- Uriah Heep…  I made 4.5 hour drive to the beautiful home of Ray and Donna Hambuchen this past weekend. They were wonderful and gracious hosts to the whole Butler family! Their home is on the White River in Arkansas, and I could have sat out on their deck overlooking the beautiful White River every day of my life!  Steely Dan greets me this morning with their great song:  Rikki Don’t Lose That Number… 

I want to get this out of the way front and center this morning…  With the 4th of July Independence Day Holiday  on Wednesday this week, I’m going to make it a short week for me and the Pfennig… Today and tomorrow, and then off on Wednesday, and so on…  Alrighty then, that’s put to bed, now let’s see what’s going on in the markets, economies and in the minds of dolts… 

The currencies ended the week last week on a good foot, not a great foot, but a good foot, as they attempted to rebound after the week’s weak performance had them reeling… The euro traded back above 1.16 and the A$ had found its way back to 74-cents, after dipping to .7350 on Wednesday/ Thursday last week. But in the overnight markets last night, the A$ dipped back below 74-cents… Back and forth, back and forth… Get’s Old after awhile, eh?

The Emerging Markets currencies, and the Asian currencies continued to get whacked but not for the same reasons… I told you about 10 days ago about the Emerging Markets’ problems with rising debt servicing costs that come from the Fed’s rate hikes… And I also told you about how the Asian currencies, right now, appear to be the whipping boy for the dollar bugs, because of the Trade War… 

But did you hear the news from Tokyo this weekend? 16 Asian nations are forming a Trading Block, that would cover over 1/3rd of the global trade…  This would be a way for these countries to avoid tariffs on trade amongst themselves… There are many obstacles before an agreement is signed, which could come before year-end, and these obstacles  include India’s requirement that any agreement to reduce tariffs on goods and services should allow for free movement of people, something India wants for its highly skilled information technology sector. You see when you get this many nations involved, every nation has their “been in the bonnet” item that will fill or kill the deal. 

This is a must for the Asian countries, that include Australia and New Zealand to help offset the U.S. tariffs… As long as they keep that main goal at the top of their lists, and number 1 in their collective brains, they should be able to reach an agreement before year-end… 

For the most part, I would stick with the major currencies through this rough patch with the dollar bugs hoopin’ and hollerin’ just about every day…  For the major currencies will be able to stand up to the dollar bugs every now and then.    

Gold finished the month of June down over 3%, and hasn’t seen the light of day in the $1,300 hand since mid-May. I get it, I get it, forget about all the hot spots around the world, and how they are like tinder waiting for a match, and that Gold should be well bid during this time… Well, no, actually I don’t get it… I don’t get why Gold isn’t reacting favorably to all this “stuff” going on in the world…  I’m well aware of the physical demand for Gold from Central Banks in the East, and I’m also well aware of the short Gold paper trading… But to me, one should be on top of the other, thus giving Gold it’s proper due.. 

All I can say about this “selling of Gold on paper” is that it gives all of you who have procrastinated and put off buying Gold a cheaper price to buy! And after Friday’s performance, in which Gold added $4.40 to its price, the shiny metal sits at $1,248 this morning… As the early morning trading isn’t being nice to Gold… 

The price of Oil continues to rise and this morning it’s trading with a $74 handle… One would have thought that ROPEC’s announcement last week that they were going to increase production would have brought the price of Oil back down… But, as I said last week, that thought is thrown out the window, once the U.S. puts pressure on its allies to not buy Oil from Iran… 

Down in Arkansas this past weekend, I paid $3.54 for a gallon of premium gasoline… Before I left I paid $3.11 here in my little river town… I thought to myself, “man they must really like their gas here!” Now, some of the increase could have come from rise in the price of Oil on Friday, but, I get the feeling that most of the difference came because I was on a two-lane road in northern Arkansas, and it was the only gas station around…  

We saw some interesting economic data on Friday last week… Personal Income and Spending, along with the Core PCE, the Fed’s preferred inflation calculator…  OK, first things first… Personal Income was bang on expectations to gain 0.4% in May… But Personal Spending was not up to snuff, and only gained 0.2% in May…  That’s not a good thing for the economy folks…  And then the Core Personal Consumption Expenditures, which take out food and energy (like we don’t use those things every darn day of our lives!) and it rose to 2% annualized, which is the Fed’s Target! 

Remember what the Fed Heads told us a few months back, that they were willing to allow inflation to run a bit once it hits 2%…  So, why stop here? And I don’t think inflation will, folks… Like I’ve said before, I truly believe that we are headed to a low growth, high inflation time period… There’s a name for this phenomenon and it’s called Stagflation! 

And while this will be a shortened week here in the U.S. and there probably won’t be anything but “junior traders” left on the desks of the major banks and brokerage houses come Friday. The Jobs Jamboree will go on without them on Friday morning… Today’s Data Cupboard has the ISM (manufacturing index) for June, you might recall that the Markit version of this data printed last week and showed slippage.. 

The yield on the 10-year Treasury continues to inch downward…  I’ve said this before, and I’ll probably say it many more times, but the bond boys get the picture of the economy, and that’s why they have reduced the rate on the 10-year, which is used to price mortgages.  Oh, and the overall yield curve? it’s doing its best imitation of Head East…   Flat as a Pancake… for all of you not knowing what I’m talking about! 

I tried to add a graph of the Yield Curve, but I guess I don’t have the skills required for such a thing… So, I’ll just keep typing words, and hope that you can visualize the Treasury Yield Curve flattening…   

To recap…  The currencies are attempting to rebound, and that has been going on since last Friday. The major currencies seem to be the only ones that have a chance to gain VS the dollar right now, as the Emerging Markets and Asian currencies get whacked for different reasons.  Gold still can’t find a consistent bid, and is off again in the early morning trading today. The price of Oil has found a consistent bid, and is trading with a $74 handle this morning! 

For What It’s Worth:  James Bullard is the President of the St. Louis Fed, and someone that has been able to move markets with his words before, as he was the original Fed Head to mention QE2… Well, Bullard was speaking in St. Louis the other day, and had something to say about interest rates that I think you’ll find interesting. You can find it all here: https://www.marketwatch.com/story/fed-should-not-raise-interest-rates-just-because-second-quarter-gdp-growth-may-surge-bullard-2018-06-28

Or, here’s your snippet: “In an press conference with reporters following a speech in St. Louis, Bullard said the surge in growth is likely to be temporary and the economy’s growth rate will likely be on a downward trend in 2019 and 2020.

So the Fed should not react with a “permanent rate hike” to a “temporary” increase in output, Bullard said. The strong second quarter is also flattered by the quirks in the GDP data that continue to depress growth in the prior quarter. So the best way to view the second-quarter is to average it with the 2% growth seen in the first quarter, he said.

Bullard is one of two officials on the central bank that have been calling on the Fed to be cautious about hiking rates further.

The Fed’s benchmark rate, now in a range of 1.75%-2%, is close to neutral, neither stimulating or dampening growth, he said.”

Chuck Again…  So… what he’s saying, in Central Bank parlance here is that The Fed should NOT raise interest rates just because the 2nd QTR GDP may surge…  And I agree, as I said last week, the 2nd QTR GDP may be north of 4% when it prints later this month, but it will be like star that shines the brightest right before it flames out! 

Currencies today 7/2/18: American Style: A$ .7363, kiwi .6737, C$ .7595, euro 1.1642, sterling 1.3160, Swiss $1.0074, European Style: rand 13.8058, krone 8.1648, SEK 8.9657, forint 283.17, zloty 3.7696, koruna 22.3205, RUB 22.32, yen 110.75, sing 1.3671, HKD 7.8454, INR 68.70, China 6.6193, peso 20.01, BRL 3.8761, Dollar Index 94.79, Oil $74.07, 10-year 2.83%, Silver $15.97, Platinum $839.05, Palladium $948.64, and Gold… $1,248.81

That’s it for today…  I had a great weekend with my family, but my beloved Cardinals didn’t have a great weekend, as they were swept by the Braves… UGH! At Home, no less! double UGH! Storms rolled through last night, and I think they will cool things down a bit here in the St. Louis area But remain hot, which is fine with me! Yesterday morning it was early, and only Braden and I were up, and we watched a critter of some sort walk around outside looking for food. We had an interesting conversation to say the least! HA!  It’s our Independence Day week! YAHOO!  The great Carlos Santana takes us to the finish line today with his song: Black Magic Woman…  So, keep cool, go out and make this a Marvelous Monday, and Be Good To Yourself! Can you do that? I knew you could! HA!  

Chuck Butler

 

 

June 28, 2018  

* Currencies stop spinning and go into reverse!

*it’s Alex’s Birthday! 

 

Good Day… And a Tub Thumpin’ Thursday to you! Today is my youngest son Alex’s birthday… So Happy Birthday, front and center this morning to the young man that 20 years ago, used to sit on my lap, during my first “retirement” and help me write the Pfennig… Yes, even though the bank that had bought the old Mark Twain Bank and then performed ethnic cleansing on the Mark Twain Employees, got rid of me… I still wrote the Pfennig from my home, much like I do these days. Except then I had two kids in college, and a 3 year old at home. At the time I thought it was the end of the world losing my job, but when one door closes another opens, and soon I was working with the group led by Frank Trotter, to start a new bank, which would become EverBank… Charlie Daniels Band (CDB) greets me this morning with their song: Long Haired Country Boy…  Now that’s one song that will get the crowd singing along! 

Well, the euro bears won the day again yesterday, pushing the euro below the 1.16 handle… Just two days ago, I remarked that the euro had climbed back above 1.17, so a chunk of change has been taken away from the single unit in the last two days. When the roosters come home to crow, those euro bears are going to be going into hiding…  But then that’s what we’ll have to wait for, but I do believe it will come… the Fed Heads just need to show their hand, begin to reverse their rate hikes, or halt their balance sheet unwind, and out the window goes the remaining thread of credibility they have left..   

I’ve put so much thought and work into this scenario that if it doesn’t come to fruition, then I’m going to wave the white flag, and become Puff the Magic Dragon, who went back into his cave, and ceased his mighty roar! I’m serious here folks… I will give up, and throw in the towel! No more analysis from me, no more conspiracy ideas, and no more Pfennig… For like the Fed Heads, I would have no more credibility…  So, that’s a sobering thought this fine Tub Thumpin’ Thursday, now isn’t it?

So, while I still have a “job” being your Pfennig writer, I’ll continue to do my best to look forward, around corners, under hoods, and back alleys to find the information you need to make informed investment decisions… 

And today, that means.. I have this to say… I’ve been telling you about the difficult time the Emerging Markets are going through right now… And well, they are the canary in the coal mine regarding the seizing up of the Credit Markets…  It’s happening in the Emerging Markets right now, folks… so I’ll ask you this again… “Got Gold?”

Speaking of Gold… Once again the price manipulators took their pound of flesh from the price of Gold yesterday…  Depending on what price you look at, Gold lost either $4 or $5 yesterday… Ed Steer tells me this morning that there were over 255,000 contracts traded yesterday…  Have you heard of Ted Butler?  I’ve mentioned him a time or two in the past. Ted Butler, has taken it upon himself to bring the price manipulation of Silver and taken further to Gold, to the masses, in hopes that one day the CFTC gets some intestinal fortitude and decides to really investigate the goings on with Silver and Gold…  Remember the old CFTC member, Bart Chilton, telling us that he looked into it and found nothing?  I remember responding to this back when he made that comment, that he couldn’t find his rear end with both hands!  And now he’s got his own show on cable talking about economics! 

I shake my head and wonder about how people that fail miserably in their previous jobs end up getting promoted?   Man, am I ticked off this morning or what?  And no it’s not because my beloved Cardinals’ winning streak came to an end last night!   Or because it’s hotter than hades in St. Louis with humidity that you could cut with a knife!   No, it’s because I keep hearing the Fed Heads telling us the economy is robust and strong… And they will all be dancing in the streets when the 4%+ 2nd QTR GDP prints in a month or so… But like I keep telling you, this is going to be a case of a star burning the brightest right before it flames out… 

Oh, and I was going to talk about Ted Butler, and got sidetracked there! What a dolt I am sometimes! But there’s a real good piece on price manipulation by Ted Butler that appeared in Ed Steer’s letter the other day… that, in case your interested, is here: 

[T]he allegations that JPMorgan has manipulated silver and gold prices for a decade are so serious that any proportionate fine would be too large to assign. And any fine would only precipitate a virtual landslide of public and private lawsuits from investors, producers and producing countries, so as to jeopardize JPMorgan’s existence as a going concern. Not that the CFTC could ever move against JPMorgan, since the agency has long been held captive to JPM’s lawyers and lobbyists. The CFTC has never enacted any policy or regulation that JPMorgan has opposed; starting with legitimate position limits.

The Commission can’t possibly ever admit that there is anything amiss in silver after denying any such manipulation for three decades. To do so now would be tantamount to formally ending the agency as an independent regulator. Besides, McDonald and company can’t even answer simple questions based upon the agency’s own data – it is completely incapable of ever seriously confronting the crooks at JPMorgan.

JPMorgan, in effect, regulates the CFTC — and not the other way around. — Silver analyst Ted Butler: 20 June 2018

Winning two out of three is not bad, especially to a team that was on a 7-game win streak, and were 16 games over .500 when the series began… But I digress here… back to work, Chuck!

I don’t know if you’ve been checking the currency roundup each day for the Chinese renminbi performance, but I’ll save you the trouble by telling you that the renminbi has been on the slippery slope downward for the last week… And this week’s performance has seen the renminbi’s slide turn to an all-out fall! I think I know what’s going through the minds of the folks at the People’s Bank of China (PBOC)…  They see the Trade War boosting the prices of Chinese exports to the U.S. which could cause a real loss of trade income, because if an item costs more, maybe consumers will choose not to buy it…  So, what can they do to offset this potential loss of trade income? Well, the easy thing that Central Banks turn to every time things het heated… They allow a depreciation (or sell their currency ) of their currency so that the exported items are cheaper… 

This ploy rarely works folks… But that doesn’t stop Central Banks from debasing their currencies in an effort to increase trade… Debasing a currency then allows inflation to be imported and before you know it you have rising inflation, and you have to hike interest rates, and that causes the currency to rise thus wiping out your competitive ace in the hole… 

So, I expect to see more rot on the renminbi’s vine in the coming weeks, unless calmer heads prevail with these Trade War fears. But like I explained yesterday, I think we’ve gone down this Trade War road too far, to turn back now… The Cornelius Brothers and sister Rose sang a song titled: It’s too late to turn back now, and here’s the link to the song in case you’re wondering how the song goes: https://www.youtube.com/watch?v=mfYkhQblYjY   

The U.S. Data Cupboard yesterday didn’t disappoint with its prints… Durable and Capital Goods Orders for May both printed negative, as I told you they would… Durables were a negative -.06%, and Capital Goods were a negative -.02%…  These are pieces of real economic data folks, and they tell a story of an economy that’s struggling…  Today’s Data Cupboard has the final revision of 1st QTR GDP, which should remain about 2.2%… 

Are you scratching your heads too, and wondering just when did 2.2% GDP represent “a robust and strong economy”? But that’s what Fed Chairman Jerome Powell will have you believing if you trust him… And the parade of Fed Heads our on the speaking circuit this week has been busy, but all of them believe the same thing…  Well, if you are thinking that this is all Mularky, then you’re in the same camp as me… So, should we make some s’mores with this campfire? 

Oh, and one more thing before we head to the Big Finish… When I said yesterday that the currencies needed to apply their anti-skid brakes to stop all the spinning of their wheels, I didn’t mean for them to then put the car in reverse! UGH! 

To recap….  The dollar bugs are winning this week… They have gotten the dollar up to a 95 handle in the Dollar Index.. The currencies got sold like funnel cakes at a State Fair yesterday and overnight, and Gold didn’t help offset the currency losses. The price of Oil, however, rose again and now trades with a $72 handle!  The Chinese renminbi is taking a ride on the slippery slope, and Chuck explains his view on why this is happening right now…  And the Data Cupboard had two more pieces of real economic data that paints a not so “robust and strong” economy… 

For What It’s Worth… I’ve been talking about the rot on the vine in the Emerging Markets currencies lately, and I came across this article that seemed to explain the problems in plain English, which is my forte!  So, you can find the article here: https://www.washingtonpost.com/news/wonk/wp/2018/06/28/how-to-tell-if-your-countrys-currency-is-falling-apart/?noredirect=on&utm_term=.c18b2ba26e8b   

Or, here’s your snippet: ” Are you an emerging market that’s wondering whether your currency is going to be the next to fall?

Well, if so, here’s a handy checklist to help you figure that out. Have you been borrowing a lot of dollars recently? Or relying on short-term debt that can leave the country at the macroeconomic equivalent of a moment’s notice? Or is your government either too strong, too weak or of otherwise questionable competence? If you answered yes to any of these questions, you should consult your currency market immediately. You might already be in trouble. And if it was more than one, well, you probably don’t need me to tell you that things aren’t looking great. You know.

Now, there are two stories here. The first is that a lot of the money that poured into emerging markets when the Federal Reserve was cutting interest rates down to zero is heading for the exits now that it’s raising them. 

That’s why money is leaving emerging markets so fast that their currencies are starting to fall quite a bit now, at which point they either have to raise rates themselves to try to persuade investors to stay, or else see all their dollar debts suddenly become much harder to pay back. This, of course, is more of a problem the more they borrowed — those are the ones who are depending on foreign investors — but it’s still a significant head wind for countries that you wouldn’t necessarily think were that much at risk.”

Chuck Again…  I think this line is especially important here: It’s still a significant head wind for countries that you wouldn’t necessarily think were that much at risk…  He’s talking about the mature Emerging Markets currencies, like South African rand, Mexican peso, and even the Russian ruble… 

Currencies today 6/28/18… American Style: A$ .7350, kiwi .6766, C$ .7525, euro 1.1590, sterling 1.3092, Swiss $1.0026, European Style: rand 13.83, krone 8.1670, SEK 8.9866, forint 282.95, zloty 3.7634, koruna 22.4320, RUB 63.13, yen 110.22, sing 1.3663, HKD 7.8479, INR 68.76, China 6.5973, peso 20.07, BRL 3.8224, Dollar Index 95.18, Oil $72.77, 10-year 2.83%, Silver $16.09, Platinum $852.68, Palladium $949.95, and Gold… $1,252,13

That’s it for today…  Hot and muggy… That’s what we’ll have this weekend here in the Midwest…  Alex is 23 today… 20 years ago, he sat on my lap while I wrote the Pfennig, his input would look something like this: 2o0u$(U&ldgul3y !  Happy Birthday little buddy!  (he’s not so little any longer!) I have multiple pictures of Alex through the years, on my desk wall here… Little Delaney Grace was here yesterday, and looking through my books I’ve got stacked everywhere, for something to read… She liked the purple book, so when I pulled it out it was Surviving the Financial Crisis! She took it, but I don’t think she was very interested in it! Well, it’s time to go… Jimi Hendrix takes us to the finish line today with his song: Foxey Lady…  I hope you have a Tub Thumpin’ Thursday today, and Fantastico Friday tomorrow… Be Good To Yourself!     bye~

Chuck Butler

June 27, 2018 

* Currencies spin their wheels yesterday, but get sold overnight

* Gold gets whacked again… But Oil jumps higher!

Good Day… And a Wonderful Wednesday to you!  Crazy weather day yesterday, with wild storms in the early morning, sun and warm weather midday, and then followed by wild storms again to end the day. Robert Plant and the Honeydrippers greet me this morning with their song: Sea of Love..  I’ve always appreciated Robert Plant’s singing, whether he was with Led Zeppelin, the Honeydrippers, going solo, or even his duets with Alison Krauss… 

It was a day of spinning wheels on the wet pavement, yesterday, in the currencies, little movement up or down in the euro, and the other major currencies. The Asian currencies are still under siege, as traders feel that they will be hurt badly by the Trade War.  On the outside of the Trade War, the Emerging Markets are still getting whacked for their lack of liquidity, and the rising costs of their dollar denominated debt, because of the Fed’s rate hikes.

I was surprised to see the euro hang so tough yesterday. For once it wasn’t European Central Bank (ECB) President, Mario Draghi, doing the honors of throwing the euro under a bus, but his partner Luigi, no wait,   ECB official Peter Praet told reporters that  the central bank remains in no rush to normalize monetary policy,  as the board member pledges to retain the zero-interest rate policy (ZIRP) ‘as long as necessary to ensure that inflation developments remain in line with current expectations of a sustained adjustment path.   Ahh, those pesky Central Bankers, always making life difficult for their base currency… 

In the overnight markets though, the euro sellers gained control and found a weak spot, and drove through it, to bring the euro down 1/2-cent…  So, maybe the words of Praet did do the trick…  You see, the leaders in the Eurozone aren’t country bumpkins like me, they see this Trade War as something that’s going to raise prices in the Eurozone, and slow the nascent economy, and so they’re doing everything they can to keep the euro from rising in price, thus making their exports more expensive too… 

There’s a great discussion on the Bloomberg this morning about how President Trump is the first president to point out the imbalances with European trade… I’ve talked about this for years, how Germany has a such a HUGE trade surplus, and I wished we could just buy Germany…  But we can’t… The Eurozone is like that bundle of mortgage loans that get put in a bond… There are some mortgages in that bundle that you would like to “cherry pick” as they say, and some mortgages you wished they hadn’t put into the bundle..  

I told you yesterday that the leaders of the China and the U.S. were having second thoughts about their plans to enter a Global Trade War… And yesterday, president Trump got into acquiescing going on by saying that may take a less confrontational approach, and that any measures would not just target China. The Senate, meanwhile, is considering options to limit the president’s authority to unilaterally impose tariffs on national security grounds.   

Have you ever had an argument with someone and the words get really heated, and when it’s over you realize that there were some words spoken that should have been spoken?  This is what the U.S. and China are going through right now. It doesn’t mean they will kiss and make up, it just means that the harshness of the tariff threats will be watered down some after the two parties go back to their rooms and think about what they said…  I don’t think anyone said anything like, “your mother wears army boots”, which was a real doozy of a put-down back in the day, but these days the kids would probably look at you and say, So?

Gold didn’t get an opportunity to rally back yesterday, after starting off down $8 in the early morning trading, the shiny metal spun its wheels too all day long…  And ended the day down $6…  All this spinning wheels, has me thinking of Blood Sweat & Tears, Spinning Wheel… here’s a link to hear that song if you’re interested…  https://www.youtube.com/watch?v=SFEewD4EVwU 

OK, I’m not the sharpest tool in the tool box when it comes to technology, and how to use it… It took me a number of years to find out that I can listen to just about any song on record by pulling up the YouTube link… A dear reader sent me a note last week with a link to YouTube to watch a young lady play the guitar, after I listed my fave guitar players… She was very good! 

Alright nice try to hijack this letter from currencies, economies, and dolts, Chuck but it won’t work! People come here for information on those things not your latest YouTube finding! 

The price of Oil sure has rebounded… And all this move coming after Saudi Arabia announced that they were increasing production… So, what’s up with Oil? Well, I’m glad you asked!  The price of Oil has rebounded to the $71 handle on fears that the Iranian Oil production is going to suffer severe disruptions, based on a head count of the countries that are considering following President Trump’s request that they not buy Oil from Iran… 

On the local newscast last night, they ran a story about how gas prices had fallen and it was just in time for the summer driving season… OOPS! Better pull that video and talk before someone other than Chuck sees it and points a finger at the TV and says, “You morons!” See, how that was done? I got the people watching TV to call the news people morons, I didn’t do it, for this is the kinder, gentler Chuck! HAHAHAHAHAHA!

Yesterday I went on and on about how I view the Fed Heads saying this is a robust and strong economy as FAKE NEWS!   But all that data that shows it’s FAKE NEWS, doesn’t mean as much as what the bond guys are doing… And the Bond guys are telling us that things aren’t as robust as the Fed Heads keep saying it is. The Yield on the 10-year Treasury has dropped to 2.86%…   At the beginning of the month it was 3.08% and had its eyes on higher levels…  I’m just saying… 

The U.S. Data Cupboard had the Case/Shiller Home Price Index print yesterday, and it showed that home prices had slipped in May from 6.5% to 6.4%, no big deal, but slippage, could this be the start of a fall? Most slippages are the cause of a fall, we had better watch this… The stupid Consumer Confidence report also printed, and bust my buttons, Confidence is falling this month… I guess a week of stock market losses will do that, eh? 

Today’s Cupboard has the real economic prints of Durable and Capital Goods Orders, and like I told you yesterday, I believe they will both be negative prints for May, so put that in your pipe, you Fed Heads, and smoke that one! 

To recap… The currencies held Steady Eddie throughout the day yesterday, but saw some slippage in the overnight markets once again. Traders were feeling better about the dollar when president Trump indicated that he isn’t planning on going after Chinese goods with so much vigor…  I’m telling you this now, so hear me now and listen to me later, this whole Trade War thing is getting out of hand, and someone with a calmer head needs to step in and stop it all before it ruins the world’s economy!  Gold had another bad day yesterday, but the price of Oil is jumping higher… 

For What It’s Worth… Man, there are so many article out there that could qualify for a FWIW article today… Everything from Universal Basic Income, and Gold Manipulation, to this article that I’m highlighting for you that appeared on Paul Craig Roberts website. For those of you new to Paul Craig Roberts, he is best known as a journalist specializing in economic affairs from an anti-establishment, liberal conservative perspective. And today he’s talking about the Trade War, and how it should be dealt with, this is a very interesting take, folks… and can be found here: https://www.paulcraigroberts.org/2018/06/26/long-can-federal-reserve-stave-off-inevitable-paul-craig-roberts/   

Or, here’s your snippet: ” When are America’s global corporations and Wall Street going to sit down with President Trump and explain to him that his trade war is not with China but with them? The biggest chunk of America’s trade deficit with China is the offshored production of America’s global corporations. When the corporations bring the products that they produce in China to the U.S. consumer market, the products are classified as imports from China.
Six years ago when I was writing The Failure of Laissez Faire Capitalism, I concluded on the evidence that half of U.S. imports from China consist of the off-shored production of U.S. corporations. Offshoring is a substantial benefit to U.S. corporations because of much lower labor and compliance costs. Profits, executive bonuses, and shareholders’ capital gains receive a large boost from offshoring. The costs of these benefits for a few fall on the many-the former American employees who formerly had a middle class income and expectations for their children.

In other words, to put it in the most simple and clear terms, millions of Americans lost their middle class jobs not because China played unfairly, but because American corporations betrayed the American people and exported their jobs. “Making America great again” means dealing with these corporations, not with China. When Trump learns this, assuming anyone will tell him, will he back off China and take on the American global corporations?”   

Chuck Again… Pretty interesting take, eh? 

Currencies today 6/27/18… American Style: A$ .7405, kiwi .6830, C$ .7523, euro 1.1630, sterling 1.3190, Swiss $1.0075, European Style: rand 13.6855, krone 8.1525, SEK 8.8987, forint 280.91, zloty 3.7276, koruna 22.1663, RUB 62.93, yen 110.17, sing 1.3623, HKD 7.8476, INR 68.52, China 6.5618, peso 19.93, BRL 3.7790, Dollar Index 94.80, Oil $71.16, 10-year 2.86%, Silver $16.32, Platinum $863.44, Palladium $957.08, and Gold… $1,258.09

That’s it for today… The markets need some anti-skid brakes, to stop all this spinning in one place! Man, somebody woke up the bats for the Cardinals, as they scored 11 runs last night! It got started late because of a rain delay, and so I didn’t see all of the game, but saw 8 of the runs scored! Winning the first two games of three that will be played with the Cleveland Indians, just backs up my thought that the Cardinals play to the level of their competition… my trip to the dentist went just fine, and made my day! I’m lucky to have such a nice dentist… She’s great! The Allman Brothers take us to the finish line today with their song: Dreams…  And with that I’ll send you on you way to a Wonderful Wednesday, and remember to Be Good To Yourself!

Chuck Butler

June 26, 2018  

* Currencies rally, then fall back… 

* More warnings that a recession in near… 

Good Day… And a Tom Terrific Tuesday to you! How was your World Beatles Day? Mine was fine… not much going on, lots of reading. Had a nice phone conversation with good friend, Dennis Miller, who told me that 191 of you dear Pfennig Readers signed up for his letter and the special report I highlighted last week! Way to go! Of course in my mind, I would have thought tens of thousands should have signed up… But what do I know? HA!   The Big Bad Cleveland Indians came to town last night and well, Cardinals’ pitchers shut them out! YAHOO!   Triumph greets me this morning with their song: Lay It On The Line… 

I sure would like to see these currency rallies move as fast going up and they do going down! Yesterday, saw the euro gain from 1.1668 to 1.1705 on the day, not a huge move, but at least the euro has a 1.17 handle again, is what I thought when I turned the currency screen yesterday afternoon! 

In the overnight markets… the currencies continued to inch forward, at least those currencies from countries not in Asia! But then suddenly, things turned in the middle of the night, and the selling began, and the euro lost the 1.17 handle, and is trading right now (early morning for us) at the same level it was yesterday! 1.1668… And the Dollar Index yesterday was 94.52, and this morning it’s 94.50..  So, a day and night of gyrations, but we’re in the same clothes as yesterday… 

China’s Shanghai stock index got whacked yesterday, and the Peoples Bank of China took a pound of flesh from the renminbi last night…  With all the saber rattling going on between the U.S. and China, things for both countries are going awry… People are battening down the hatches, and there are some in China that are having second thoughts of an all-out Trade War with the U.S. 

And here in the U.S. those same thoughts but only from a U.S. point of view are evident… White House trade adviser Peter Navarro said that a Treasury Department report later this week on American restrictions on foreign investment won’t be as broad as investors fear as he sought to allay a trade standoff.  

Gold didn’t have a good day, which has been the norm lately… but at least this was only a $3 loss on the day…  Right now, in the early morning trading, Gold is down over $8!   These Trade War drums that were getting quite loud, have done a number on the shiny metal… Here’s the skinny on that.. So, if the countries of the world go all-in on a Trade War, that will halt the global growth that we began to see last year, and without global growth, there’s no inflation, and with no inflation, Gold gets whacked… 

Speaking of economic growth… I keep reading stuff about how the 2nd QTR’s GDP is going to be north of 4%…  And that makes me think of the old saying about how star burns the brightest right before it burns out…  I’m just saying… 

From my view in the cheap seats, it appears to me that this month’s downward move in the euro, was brought about by Europe, and not people buying dollars because they think the economy is doing so well…  First we had the Italian election, where the anti-euro party won a majority of seats, and will get to form a government there… Then we had the European Central Bank (ECB) issue dovish comments, and those were followed up a couple days later by ECB President Draghi, who spoke in Portugal and threw the euro under the bus again.  All the while, the only good piece of data that has printed in a month of Sundays in the U.S. was the May Retail Sales print… So, I don’t know much, but I do know that Europe has been the cause of the euro’s drop, and not people lining up to buy dollars! 

Of course, as I’ve said many times in the past, the euro is the offset currency to the dollar, so when the euro gets sold, mostly likely investors are buying dollars, but they are doing so, because that’s the trade… They are selling euros, and just happen to get stuck with dollars… 

The Eurozone left their recession they were in, many months ago, while the U.S. is headed to recessionville… All ahead, turbines to speed Batman! I’ve told you in the past that I read Jared Dillion’s letter, The 10th Man…  And he believes that the Trade War is going to be dollar positive, and therefore he believes the dollar is going to go on a strong run…  So, there you have it an opposite view of mine… fair and balance, right?

I wonder what the 10th Man thinks about this… Well… I know a lot of you haven’t seen this quote, so here goes… Bridgewater Associates, the largest hedge fund in the world, recently said, “2019 is setting up to be a dangerous period for the economy… for investors the danger is already here.”

Uh-oh!… Add that to the many other warnings economists and analysts, and country bumpkins like me, have been issuing about what the Fed Rate Hikes at the same time they are unwinding their balance sheet, with QT, and now Trade Wars are going to do the economy. It’s beginning to look a lot like a depression… (can you hear the choir singing?) 

Yesterday’s U.S. Data Cupboard didn’t have much to show us, and today’s is throwing all its eggs in the Case/Shiller Home Price Index for May… I’m sure it will show an increase, and the housing bubble just keeps getting more air blown into it…  Tomorrow’s Data Cupboard will finally have some real economic data with Durable Good and Capital Goods orders for May… I’ll be you a dollar to a Krispy Kreme that these two data prints will be negative…  Any takers? HA!

To recap…  There’s been some backing off of the Trade War drum beating but that hasn’t helped the stocks, metals, or currencies which have all been seen as liabilities in this Trade War…  The Asian currencies are hardest hit, as their gravy train of exports are seen to be getting caught in the mud of this Trade War.  The euro tried like the Dickens to trade above 1.17 and remain there, but like all the plans of mice and men…

For What It’s Worth… Well you don’t get much more All-American than Harley-Davidson, and well, that’s about to change…  Seeing that the Tariffs of the Trade War will cost them more than $100 Million per year in profits, the Company has decided to move some operations overseas… This article can be found here: https://www.upi.com/Top_News/US/2018/06/25/Harley-Davidson-to-build-motorcycles-destined-for-EU-outside-of-US/1221529934709/?nll=1

Or, here’s your snippet… “Harley-Davidson said Monday it will move production of its motorcycles headed for European Union customers outside the United States to avoid a new tariff.

The action comes in response to tariffs the E.U. imposed on U.S.-made motorcycles.

The tariffs, which took effect Friday, are retaliation for taxes President Donald Trump imposed on E.U. shipments of steel and aluminum.
In a Securities and Exchange Commission filing, Harley-Davidson said the 31 percent tariff, up from 6 percent, would add about $2,200 to the cost of each motorcycle — and the impact could reach $100 million per year.

About 16 percent of the Milwaukee-based company’s revenue comes from European sales, which reached nearly 40,000 units in 2017. There, it competes with European and Japanese-made motorcycles which are not subject to the new tariff.”

Chuck Again… thanks to Ed Steer (www.edsteergoldsilver.com) for highlighting this article this morning, so I could pick it up and have it for you! 

Currencies today 6/26/18… American Style: A$ .7402, kiwi .6871, C$ .7510, euro 1.1668, sterling 1.3240, Swiss $1.0105, … European Style: rand 13.5567, krone 8.1210, SEK 8.8629, forint 279.20, zloty 3.7186, koruna 22.1940, RUB 62.90, yen 109.65, sing 1.3616, HKD 7.8479, INR 68.11, China 6. 5314, peso 19.92, BRL 3.7795, Dollar Index 95.50, Oil $68.08, 10yr 2.88%, Silver $16.23, Platinum $862.78, Palladium $934.48, and Gold… $1,257.55

That’s it for today… Quite a bit shorter than yesterday’s letter, eh? Some days I have a lot to say, and some days I don’t! Baseball is a tough game to predict what’s going to happen… The Indians came to town with a 7-game winning streak and are one of the best hitting teams in Baseball, and a rookie pitcher shut them out for his 7 inning stint! I get to go see one of my fave people today… My dentist… Yes, I have a crush on my dentist… HA! Seriously… She’s great, and always so nice to me…  The thunderstorm that ripped through this area in the wee hours of the night were very strong, with winds,  heavy rain and a lightening show. It woke me up and then I couldn’t go back to sleep, so here I am… Rock you like a Hurricane! HA! The Gin Blossoms take us to the finish line today with their song: Follow You Down… 90’s music… I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!

Chuck Butler

June 25, 2018 

* Currencies rally on the Trade War news… 

* David Rosenberg visits the Pfennig again! 

Good Day, and a Marvelous Monday to you! Well, my oncologist gave me a high 5 last Thursday, and lowered the dosage on my chemo… It’s a start to being chemo free… At least that’s my hope!  Last Thursday night, I watched, probably the worst played game of baseball by my beloved Cardinals that I had ever seen! I was so disgusted with them at that point, but by Sunday, they were back to playing baseball the right way… Strange team, folks… a very strange team, and again I lay that all at the feet of the manager…  Today is World Beatles Day… So, with that in mind, I’ll be playing Beatles music all day, and in the car I’ll have it on the Beatles station on Sirius XM… So, the Beatles greeted me today with their song: And I Love Her…   (one of my fave Beatles song, YAY!)

Friday saw the currencies rebound a bit, with the Big Dog, euro, gaining a full cent on the day… The Trade War Drums are beating louder and louder and coming from all corners of the globe, and traders don’t like the feeling of what this might do to the economy, and so, they sold dollars on Friday.  And to the euro’s credit, European Central Bank (ECB) President, Mario Draghi, didn’t speak on Friday or over the weekend, thus keeping the euro out of the path of the bus!

In the overnight markets last night the currencies held their gains, but didn’t add much to the them. I mentioned above that most of the currencies had gained, but I was remiss in not mentioning that the Asian currencies are getting whacked once again, as those Trade War drums beating louder, and louder are taking their toll on the Asian currencies. 

In fact, as I looked at the currency prices on Friday afternoon, I saw that most of them were up about 1-cent on the day, including: sterling, francs, A$’s, and some others… One currency that didn’t join the rally party, was the Canadian dollar / loonie…  The loonie, which has always been a fave currency of mine, due to their ability to sell raw materials to countries that need them, has seen better days, for sure, than what it has experienced in the last week… First it had to deal with the war of words between the leaders of Canada and the U.S., and then they had weak Retail Sales, and inflation data (CPI), and suddenly all the euphoria over the Bank of Canada’s rate hike outlook, was gone! Went up in smoke, adios, ciao, and see ya later alligator… Loonie holders are going to either have to batten down the hatches, or well, let’s just say batten down the hatches… 

Gold was able to eke out a $2 gain on Friday, nothing to write home about, but still a gain, so we can celebrate little victories, eh?  In Saturday’s letter from Ed Steer (www.goldsilver.com) he highlighted, as he always does in his Saturday letter, the number of days of production it would take to cover the ounces sold short in paper trades… Yes, in case you’re new to class, these criminals (in my opinion) are allowed to have more short trades on the books than there is metal above ground… I just hope they get their you know what handed to them one day… Anyway, in Ed Steer’s letter, he highlighted the fact that the number of days of production of Silver would take nearly 240 days of production! Remember when it used to be 180 days? Those short Silver trades are really piling up… And the number of days of production it would take to cover the short positions in Gold is 60… I’ve talked about this for a number of years, and even the naysayers of Gold & Silver manipulation, can’t answer why there’s more short paper trades than actual metal is above ground.  

And The Big OPEC meeting this past weekend left Oil traders with the feeling that supply is going to grow, but a funny thing happened (not funny ha-ha!) to that feeling that supply is going to grow, the price of Oil rallied… I know, I know, strange, eh? I even read this morning that traders were selling Oil, but from the looks of the price I just pulled from the Bloomberg… That’s not what’s really happening!

I’m in the mood to really go at the Fed Heads calling this economy “strong” this morning, so if this discussion isn’t your bag, baby, then skip ahead…    Well, once again we are being bombarded with the Fed Heads telling us the “economy is strong”… HOGWASH I say… There’s a laundry list of things that point to a weaker, than the Fed is telling us, economy, and I won’t get into them all today.. But, one of the scariest items is the fact that mortgage owners are spending a very large portion of their income on their mortgage… Bloomberg reported this as follows: “Americans Devote Biggest Share of Income to Mortgages Since 2009…  “

I tell you… It gets more difficult every day to find the information I need to write a daily, and for that matter weekly letter… Recently, Bloomberg.com went through changes, and you no longer can pull up articles and read them through, without signing up and paying for that information… UGH! That really ticks me off… First my former employer took my Bloomberg unit away from me, and told me I could still pull articles, not data like I could with my Bloomberg unit, from the internet… Well, that’s come to an end too… I can get the headlines, which will work in some cases, but to highlight an article is gone with the wind… I guess I’ll have to depend more on the Russian Times (RT)… Think about that for a moment, and let that sink in, as to what has happened in this country…

I read a great quote from David Rosenberg again late last week. This one was printed on the Bloomberg… And Rosenberg said, “economic cycles die, and do you know how they die? The Fed puts a bullet in its forehead.” Now isn’t that great? I wish I had come up with that one! I would have put it on Twitter, and announced it to the world! HA!

Rosenberg went on to say that he believes the U.S. will be in a recession within the next 12 months… I believe the current economy to be on a much shorter leash, but we’ll see, eh?   As long as we’re on a David Rosenberg kick here, I’ve got some more juicy tid bits from him… Check this out:

As we enter the last week of June, I’m reminded that the Fed’s Quantitative Tightening (QT) will be increased from the current $90 Billion in bonds each month to $120 Billion on July 1… Did the markets forget about this increase? Apparently so, but soon it will hit them like a forehead slap!

The reason I make a BIG Deal out of this QT is that, as I’ve explained previously, with each $500 Billion that the Fed doesn’t renew, it’s like a ¼% rate hike… In a recent DTL piece, I focused on the Fed’s QT, and just what will it mean for interest rates… And it’s not a good thing, unless that is, you’re looking for higher rates for your deposits… You see, I’ve explained all this before, but, it bears repeating here… Fed Rate hike cycles haven’t always been the actual cause of a recession, but they sure seem to be at the scene of the crime.

Last week I had David Rosenberg, give his two cents on a subject, and I’m going back to the well this morning, where I found another priceless quote by Rosenberg on Twitter… Here we go… “If the Fed raises rates and shrinks the balance sheet as much as it says it will, the cumulative de facto tightening by the end of 2019 will have totaled 525 basis points. If you don’t think this is enough to cause a recession, take note that the Fed tightened 425 bps from 2004 to 2006, by 350 basis points prior to the 2000 downturn, and by nearly 400 basis points in the lead up to the 1990 pullback.” – David Rosenberg on Twitter

And therefore, it’s my opinion, and always has been since the first rate hike in December 2015, (yes, that’s almost 3 years ago!) that the Fed will rate hike the U.S. economy right into a recession, because, well history shows us, it’s what they do! 

I love it when great minds, like David Rosenberg’s, talk in the same circles as I do… Not that I’m a great mind, but…  the fact that I’ve been talking about this QT phenomenon for some time now, and the rate hike effect it’s going to have on the economy, and David Rosenberg is too, well, that puts some starch in my collar!  And make me sit up straight! 

While we’re in this vein… The U.S Data Cupboard on Thursday & Friday, didn’t exactly spell out a strong economy… First we had the Philly Fed Index, (manufacturing index for the Philly region) fall from a 34.4 index number to a 19.9 index number in May… Then the Leading Indicator data showed a drop from .4% to .2% in May, and finally on Friday the Markit PMI (manufacturing index) fell from 56.4 in May to 54.6 this month… The index is obviously still well above the 50 level that determines the difference between expansion and contraction, but, the direction is not good…   

I had a dear reader ask me last week to discuss the idea of China selling all of their Treasuries…  Well, while that would be really bad for the Treasury market, it wouldn’t be so good for China either, as they would experience huge losses in the bonds, and if that much supply is getting sold, along with dollars, they would experience a loss in the dollar component of the trade too…   

It has long been thought in certain circles and by me, that the reason that China is accumulating physical Gold by the boat load is to have something to offset their losses when they do sell their Treasuries…  But selling their Treasuries would be the “nuclear option”, and I doubt we’ll see that happen, instead I believe we’ll see China continue to be absent at the Treasury Auction window… And that’s a bad thing for the U.S. because we finance our debt with Treasury bond issuance, and with the amount of debt were booking now and in the future, the total bond issuance is going to do nothing but grow larger, and larger, which then begs the question, “who’s going to buy all those bonds?” 

To recap… The currencies rallied on late last week, as the trade war drums are beating louder and louder from all corners of the globe. Have you ever wondered about that statement, if we’re talking about Globe, how can it have any corners? Food for thought I guess…  And Chuck goes to extremes to prove the U.S. economy isn’t strong, and it’s a good thing he stopped when he did, or else the laundry list of items would break a camel’s back! 

Before I head to the Big Finish today, I was reading my fave letter last night, Grant Williams’ Things That Make You Go Hmmmm….  And in it I read about a guy that owes more than $1 Million dollars on his student loan… His monthly payments don’t even cover the interest on the loan, and therefore $130 are added to the balance every day!   If nothing changes in two decades his balance will be $2 Million! And he’s not the only guy with that kind of a student loan balance… This from TTMYGH…  “Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.”

I just don’t know what to say or think about that… How in the world could that happen? Somebody is going to eat those loans… and guess who that will be? That’s right you, me and anyone else that pays taxes…

For What It’s Worth… I came across this article and it played so well with everything I was thinking about and writing about today, that I thought it would be good for a FWIW article… It’s about a guy that believes the next recession is going to be a doozy, and you can find it here:  https://www.marketwatch.com/story/hedge-fund-boss-who-predicted-87-crash-says-next-recession-will-be-really-frightening-2018-06-19?link=MW_popular   

Let me set this up… This is Paul Tudor Jones, a hedge-fund luminary  speaking… 

Or, here’s your snippet: “The next recession is really frightening because we don’t have any stabilizers.

We’ll have monetary policy, which will exhaust really quickly, but we don’t have any fiscal stabilizers.

The billionaire investor said the dynamic created by the Federal Reserve, as it attempts to normalize interest-rate policy from the 2007-‘09 financial crisis, is unsustainable, referring to valuations for stocks that many on Wall Street view as pricey. “

Chuck Again… Yes, this is the same stuff I’ve been telling you for some time now… Maybe now that Mr. Jones is saying it, people will listen! 

Currencies today 6/25/18… American Style: A$ .7427, kiwi .69, C$ .7521, euro 1.1668, sterling 1.3263, Swiss $1.0124, … European Style: rand 13.5267, krone 8.1170, SEK 8.8786, forint 278.77, zloty 3.7122, koruna 22.1641, RUB 62.96, yen 109.62, sing 1.3628, HKD 7.8469, INR 68.01, China 6.5027, peso 20.08, BRL 3.7853, Dollar Index 94.52, Oil $68.48, 10yr 2.89%, Silver $16.48, Platinum $872.29, Palladium $953.65, and Gold… $1,268.21 

That’s it for today… The heat here did break this past weekend, which was a relief, it was still warm, just not so darn hot! But the high temps are expected to return in time for this weekend…  Next week is the 4th of July! Can you believe that one? Where does the time go? Braden Charles stayed with us Saturday night. What a character! And he’s only 7! Next week’s schedule is going to be whacky with a holiday in the middle of the week, but I’ll deal with it… Long letter today, sorry, I was really loaded for bear, or better said, loaded for strong economy bunk!  The Beatles takes us to the finish line today with their song: A Day In The Life…     Alright, I hope you have a Marvelous Monday, enjoy World Beatles Day, and remember to Be Good To Yourself!   

Chuck Butler

 

 

June 20, 2018   

* The euro attempts to rebound, but is pulled back down

* David Rosenberg on this Wonderful Wednesday! 

Good Day… And a Wonderful Wednesday to you! Another day of extreme heat in my area yesterday. I hear we are supposed to be receiving a break in this heat streak, but I never trust what the weather people say! They always have an “excuse” for being wrong! Well, now, wait a minute Chuck, you always seem to have an excuse when you’re wrong too! Oh, so now I’m a meteorologist? HA! OK, enough of that silliness… Elton John greets me this morning with his song: Levon…  He was born a pauper to a pawn on a Christmas Day when the NY Times said God is dead, and the war begun… 

And once again yesterday, the euro attempted to tend to its wounds afflicted on it by European Central Bank (ECB) President , Mario Draghi…  I do believe that calmer heads saw the euro under the bus, and attempted to pull it to safety…  But the sellers were still in charge, and the euro only gained about 1/3rd of a cent…  In the overnight markets, there’s been more slippage, as traders overseas attempt to figure out, which country gets hurt worse in the Trade War…  

Right now, with China’s HUGE Trade Surplus, it appears that they have more to lose, but then we are talking about China, and they somehow always figure out how to avoid real problems. But since it appears that the Chinese Trade Surplus is at risk, that’s a potential problem for the economy, and slowdown for China’s economy is now being talked about, which is a bad thing for the rest of the countries in the region… 

Especially, Australia… The Aussie dollar (A$) has already dropped from the 76-cent level to the 73-cent handle, and now the fund, Blackrock, is calling for the A$ to fall to 70-cents this year on the China slowdown. Recall if you will the last time the Chinese economy slowed significantly, from plus 10% GDP prints to barely reaching 7%, and the A$ got sold from its lofty perch above $1.00 to the 70-cent range…  So, we’ve got history here, that can’t be ignored…  And like I said the other day, if only the Reserve Bank of Australia (RBA) had listened to me and begun their rate hike cycle late last year, they wouldn’t be facing a currency that just might lose the 70-cent handle! 

Gold got sold again, but this time it was by only $3.50 on the day, with 275,0000 contracts traded, again, with a huge amount entered by the short Gold paper traders…   David Kranzler is a guy that I’ve tracked through the years, and he has become a real go-to guy on Gold… He wrote the other day, that “physical Gold didn’t get sold”, it was simply “paper Gold” I liked that description, because I’ve said all along that the demand for physical Gold has remained strong, especially from Central Banks, not named the Fed, and the selling was dominated by the paper trades… 

I read the latest edition of Jim Rickards’ Strategic Intelligence last night, and in it ( I can give you a hint, as the letter costs money to read) he talks about all the “free money” that the new policy debate in the U.S. is all about… I kept shaking my head in disbelief that this is actually getting air play… Oh well, I’m old and getting older, and don’t really care that everyone in the U.S. could get paid whether they work or not, because right now nearly half of the population gets paid for not working, whether it’s warranted or not…  I say that, but in reality, I worry about my kids and grandkids, having to deal with the hyperinflation that something like these payment schemes could cause…   I know, I know “that kind of thing can’t happen here!” Well, that’s what everyone thinks, until… well, it does happen here! 

Last week it was announced that Russia had dumped 1/2 of their Treasury Bonds holdings… I dive deep into this in my latest Dow Theory Letters piece this week, where I point out that we could end up seeing more of this from countries that believe they are being wronged by the U.S. Trade Tariffs…  And David Rosenberg had something to say about this, so let’s defer to David Rosenberg… 

Last week, I highlighted a quote by one of my fave economists, David Rosenberg, who is Author of the daily economic report, Breakfast with Dave, and Chief Economist & Strategist at Gluskin Sheff + Associates Inc. And I pulled this quote of his from Twitter… “The end-game retaliation comes via a global boycott of the Treasury auctions. Foreign entities fund half the US fiscal deficit, which is set to double. Imagine the locals funding their own budget gap! This forces the savings rate up at the expense of spending. Recession follows.” – David Rosenberg

Alrighty then… So, men…do you ever sit back and think about nothing? It’s pretty cool thing to do, and if you haven’t tried it, you should make a concentrated effort to do so! It’s when we get out our “nothing box”… I can tell you that women do not like to catch their man doing “nothing”! But here I was this morning, and 30 minutes had passed before I realized that I was not writing, and I was just thinking about “nothing”..  Talk about “clearing your mind”!  There’s a YOUTUBE out there of a comedian doing a skit about a “nothing box” I laughed until I cried… 

The U.S. Data Cupboard yesterday had some housing data for us that showed a strong print for Housing Starts in May… The Housing Bubble just keeps getting air blown into it…   Today’s Cupboard has the 1st QTR Current Account for here in the U.S. And it should be a whopper! But then nobody cares about debt any longer, I’ve become a dinosaur with my warnings of debt accumulation…  I guess now I just wait for the BIG Meteor to hit, and wipe me from the face of the earth! 

Well, all this “doing nothing” has me behind the 8-ball for time this morning, and I guess I’ll just have to head to the Big Finish from here… 

To recap… The sabers are rattling in the Trade War between the U.S. and China, but Chuck fears the Chinese region will be hit too, and that includes Australia. The currencies tried to rebound yesterday, but the overnight markets put up roadblocks. And Gold continues to drop in price, but as Chuck points out today, it’s the paper price of Gold that’s dropping! 

For What It’s Worth… Not much in the way of good stuff out there this morning, unless you’re watching GE get bounced from the Dow! But I did come across this on the Bloomberg.com site this morning, and thought it to be interesting…  So, just go to www.bloomberg.com and look for it if you want to read the whole article, otherwise… 

Or, here’s your snippet: “German Chancellor Angela Merkel and French President Emmanuel Macron came to an agreement on how to move forward with strengthening the euro area, citing a common regional budget, a more robust European Stability Mechanism, and a shared approach to immigration. The leaders want to make it easier to restructure sovereign debt, while also putting pressure on banks to tackle bad debt problems that continue to dog economic growth. The proposals will have to be agreed by other euro members, which may prove difficult, particularly in the case of Italy where a populist government is in power.”

Chuck Again…  Yes, those pesky relatives that hold everything up! I’ll just let that one sit there and move along before I get into trouble! 

Currencies Today 6/20/18… American Style: A$ .7390, kiwi .6886, C$ .7521, euro 1.1565, sterling 1.3173, Swiss $1.0027, … European Style: rand 13.6782, krone 8.1823, SEK 8.88, forint 279.96, zloty 3.7318, koruna 22.3345, RUB 63.76, yen 110, sing 1.3577, HKD 7.8460, INR 68.05, China 6.4684, peso 20.50, BRL 3.7460, Dollar Index 95.15, Oil $65.10, 10-year 2.90%, Silver $16.27, Platinum $863.11, Palladium $969.03, and Gold… $1,272.96

That’s it For today, and this week, as I’ll be absent tomorrow, getting ready for a bright and early doctor’s appt with my oncologist…  I’m going to point out to her the good results of the scans, and she’s going to remind me that the wolf is always at the door, with me, and that I need to remain on the treatment… Isn’t it nice when you already have the appt. laid out? HA!  My beloved Cardinals come back, go ahead, give up the lead, and then go back ahead to win late… Crazy game… Day game today, it’s raining outside so maybe the weather will cool down for me to sit outside and watch the game today? Johnny Rivers takes us to the finish line today with his song: Summer Rain…  (all summer long we were dancing in the sand, Everybody just kept on playing Sgt. Pepper’s Lonely Hearts Club Band)…  In case you forgot that one..  So, let’s go out and make this a Wonderful Wednesday, and tomorrow, a Tub Thumpin’ Thursday, and then a Fantastico Friday! I’ll talk to you again on Monday, so don’t forget to Be Good To Yourself! 

Chuck Butler

 

 

June 19, 2018 

* Euro gets thrown under the bus again by Draghi

* Anything you can do, I can do better! 

Good Day… And a Tom Terrific Tuesday to you! It’s not quite a Tom Terrific Tuesday for the currencies, as they’ve been sold in the overnight markets. The Cardinals come back late, but lose in extra innings last night. UGH! Thanks to all that sent along nice notes about my scans results. I truly appreciate your kind words! The Outlaws greet me this morning with their 9 minute long song: Green Grass and High Tides…  My good friend, Mike (from the hood) likes this song when playing songs on our juke box at the local watering hole, because he “gets his money’s worth”… HA! 

Well, I spilled the beans right out of the starting gate this morning… The currencies got sold in the overnight markets last night… Which is strange to see, because normally, we see the overnight markets be more dollar bearish, but not last night… President Trump upped the ante in this Trade War by telling the markets that he would be adding $200 Billion in tariffs to Chinese goods…  And China’s Xi, responded that China would match the $200 Billion in tariffs of American goods.

Yesterday, it was a “anything you can do, I can do better” day for the leaders of the worlds two largest economies. China was first to say that they would outlast the U.S. in this Trade War, and that was followed by the U.S. saying they would outlast China in this Trade War…  I was already putting together some thoughts for next week’s Dow Theory Letter piece last night, so I’ll give you a little tease of what’s in it… just a small tease, because readers of the letter do pay for it! But I pointed to China’s savings horde as a reason that I believe Xi just might be right…  

So, what got the dollar bulls all lathered up overnight? Well, it was probably ECB President, Mario Draghi, speaking in Portugal that sent the dollar bulls into a tizzy again…  Mario Draghi addressed the bank’s approach to increasing interest rates, saying it will be patient in determining the timing of the first hike, then taking a gradual approach going forward.   

And that was all it took to remind the markets that they whacked the euro last week for the same crap from Draghi, and they went right back to work pushing the lead / Big Dog currency (the euro) back down… Alright then! We get it Mario! You’re not going to hike rates for the Eurozone for another year, and then you’re going to go at it very slowly, thinking that he’s the turtle in the fable the turtle and the hare… 

I’ve got news for you Mario, that’s all fine on paper, but when global inflation takes off this year, what are you going to do then? Germany’s Bundesbank will be all over you to hike rates because Germany has a long history with runaway inflation, and have vowed to never allow that to happen again… 

In the U.K. yesterday, the pound dropped to a seven-month low against the dollar after U.K. Prime Minister Theresa May lost a vote on her BREXIT legislation in the House of Lords. There’s another vote tomorrow, but from the looks of things, May’s proposals aren’t getting any love, and I’ve said for some time now that the pound would struggle because of these BREXIT negotiations…

The Aussie dollar (A$) has gotten all caught up in the “faster pace” rate hike talk in the U.S., as U.S. rates are for the first time in my life as a currency guy, higher than those in the land of OZ… (Australia for you new readers)… Of course had the Reserve Bank of Australia (RBA) begun their rate hike cycle by now as I implored them to do late last year, this new situation wouldn’t be happening! But then, why would the RBA listen to some country bumpkin from the middle of the U.S.? What does he know about what’s going on in Australia, that he could suggest the RBA is dragging their feet to hike rates, even with housing bubbles popping up all over the island nation?  

The “boys in the band” decided to take a pause for the cause yesterday, and only 170,000 contracts traded in Gold, but the threat of another engineered takedown by the price manipulators held Gold back on the day, with the shiny metal able to eke out a gain of $1.00…  I have a dear reader who is at odds with me on my thought that Gold will see a breakout to the upside this summer. He writes a commodity letter, and just doesn’t see Gold going anywhere this summer… So, there you have it… fair and balanced, and you dear reader get to decide which thought you will follow…  I thank Mickey F. for his contribution to the letter… 

The price of Oil took another drop down in the past 24 hours… Our friends at OPEC (NOT!) will meet this week to discuss the output question… But hanging over them like the Sword of Damocles is a vote in Washington where lawmakers there resurrect the ” No Oil Producing and Exporting Cartels Act,” or NOPEC, which would make members subject to the Sherman antitrust law, last used to break up John Rockefeller’s oil empire.

The bill’s chance of  passing have snowball’s chance in hell, but the impact on the oil industry, should hell freeze over, would be HUGE!

The Wall Street Journal (WSJ) reported this little ditty… “JPMorgan Chase & Co. agreed to pay a $65 million fine to settle claims that it tried to manipulate a global interest rate benchmark, the latest fine levied by U.S. regulators to punish crisis-era manipulation schemes by large banks.

The Commodity Futures Trading Commission said JPMorgan employees between 2007 and 2012 made false reports and attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix, a benchmark that is referenced in many derivatives products.”    

Again, no one goes to jail… and $65 Million? that’s like a drop in a bucket for JP Morgan Chase and Co. I would go as far as saying that I’m sure they made far more money than the $65 Million in the scheme… And the $65 Million, once again is just a “cost of doing business”…  I shake my head in disgust at this stuff folks, it’s just one scandal after another for these big banks, when will it all end? 

The U.S. Data Cupboard is still void of any real economic data this week, and we’ll see the Housing Data for May, and that’s it… However, Fed St. Louis president, James Bullard is scheduled to speak today, and he’s always good for a market moving quote… I wonder what’s on his mind today? 

The Data Cupboard is pretty bare this week, so out trot the Fed Heads to give speeches… It was Bostic yesterday, Bullard today, Kashkari tomorrow, and so on… I’ve said this before, but I truly like the “old days” when the Fed Heads were almost anonymous to the every day investor, and they didn’t give their opinions in speeches throughout the month… 

To recap…  Draghi did it again… reminds me of the old KSHE Radio TV commercial, with the dad playing air guitar to Brown Sugar, and his daughter catches him, and then yells, “Mom, he’s doing it again!” Of course it would have been better if Draghi was playing air guitar yesterday instead of repeating his promise to not hike rates for some time and then gradually once the rate hike cycle begins… The euro got whacked once again, and brought all the other currencies along for the ride on the slipper slope.  Trump and Xi play a game of “anything you can do I can do better”, and the markets get whipsawed by the talk of more tariffs… 

For what It’s Worth… OK, this is good… For as long as I can recall, I’ve been telling readers that currency (FX) intervention might work in the short term, but that’s it, as it becomes a losing deal…  I saw this on Ed Steer’s letter this morning and had to highlight it here, because it’s as if this guy just figured that intervention doesn’t work, and it can be found here: https://www.zerohedge.com/news/2018-06-18/brazil-central-banker-makes-striking-admission-warns-fx-interventions-are

Or, here’s your snippet: “The good news for the Brazilian Central Bank was that these ongoing interventions managed to stabilize the Brazilian real last week, when the BCB unveiled as much as $10BN in weekly swaps to spook the shorts and halt the capital flight, which succeeded in sending the USD/BRL back to 3.70, and stabilizing the BRL in the 3.70-3.80 range.

There was just one problem: as we reminded the market last week, these massive swap interventions would have to be settled at some point, and only then would it emerge just how naked the Brazilian FX reserve emperor truly is.

Just 4 days later, it was none other than Brazil itself which confirmed our warning, because as Bloomberg reports on Monday afternoon, citing an unnamed central bank official with direct knowledge of issue, that the volume of currency swaps the Brazilian central bank is currently offering to reduce volatility is not sustainable through the Oct. general election.”

Chuck Again… I told you, I told you, I told you! Oh, wait, Chuck, there’s probably not a soul in Brazil much less the Brazilian Central Bank members that read the Pfennig! Yeah, you’re right… Oh well, if they had… HA!

Currencies today 6/19/18… American Style: A$ .7365, kiwi .6898, C$ .7538, euro 1.1550, sterling 1.3170, Swiss $1.0043, … European Style: rand 13.8675, krone 8.2140, SEK 8.9310, forint 280.90, zloty 3.7355, koruna 22.3746, RUB 63.33, yen 109.85, sing 1.3584, HKD 7.8495, INR 68.29, China 6.4374, peso 20.63, BRL 3.74, Dollar Index 95.19, Oil $64.97, 10-year 2.89%, Silver $16.35, Platinum $878.94, Palladium $981.42, and Gold… $1,278.43

That’s it for today… A little shorter today, which means I wasn’t as loaded for bear today as yesterday… writing every day, can begin to feel like a broken record for the writer… But on “days off” I sit here and read and find things I want to talk about! So, there’s never really any “days off”…  I’m not complaining, just making a point… Besides nobody want to hear a complainer! Another day of “extreme heat” according to my weather alert this morning… I stepped outside yesterday evening and it was a nice summer evening with a little breeze blowing, not too shabby! So, Mike Matheny, maybe Mikolas needed to warm up longer before starting the game last night, eh? I’m just saying… And with that, Heartsfield takes us to the finish line today with their song: The Wonder Of It All…  (I’ll never cease to be amazed at the wonder of it all)  So, let’s go out and make this a Tom Terrific Tuesday, and please Be Good To Yourself!

Chuck Butler

June 18, 2018

* Euro has biggest one day drop! 

* Gold gets whacked by $23 drop! 

Good Day, and a Marvelous Monday to you! I sure hope that all the “dads” had a fantastico Father’s Day yesterday… I know I did… It sure was hot here though… 98 degrees and the humidity was tough! We spent most of the day in the pool… I was pleasantly surprised when I walked into my usual Friday afternoon watering hole last week, and saw two of my fave former colleagues waiting for me to arrive! My little Christine, and Danielle, or former office manager, stopped by to say hi! I can’t tell you how much I enjoyed seeing them again! I hired Christine when she was a young 20-something, and taught her the business from the ground floor up. I used to make her come in on the weekends to help me with preparations for the next week’s trading. I don’t think she liked me much back then… But through the years we worked things out, and she was my assistant for over 15 years! OK… enough of that… I don’t want to get sappy here… The Blue Jays, who were two members of the Moody Blues, Justin Haywood, and John Lodge, greet me this morning with their song: Maybe…

In the song, there’s a line that I’ve used for many years… Maybe, maybe I’m wrong… I have no qualms about saying when I’ve been wrong about something through the years… I even incorporated the line: It’s my opinion, and I could be wrong, to make the “reviewers of the letter” happy every time I spouted off about something… I’m not telling you anything new here… I know I was so wrong about the Treasury Bond bull market ending, and the Fed’s first rate hike, and a few other things through the years… But through it all, I’ve always laid out my reasons that I think this or that is gong to happen or not happen, and all the cards are on the table, for everyone to see, pick apart, or agree with…

My dad used to tell me that if I said something now, but it didn’t happen for some time down the road, that I wasn’t “right”… That timing was everything… So, I began to talk about things in the future that I saw happening, so that there was no time deadline… But last week, I went rogue, and said that Gold would have a huge breakout to the upside from the recent ranges, this summer… Now, I’ve locked myself in on that, and from the looks of trading on Friday, I should have kept my mouth shut! The price manipulators went at Gold’s price with both barrels blazin’… 407,000 contracts traded in Gold and after all the slicing of the salami (as Ed Steer calls it) Gold finished the day down $23!!!!

There’s no reason whatsoever that this should have happened, folks… And don’t let them point to higher interest rates as their reason for slicing the salami… The Fed Funds rate is only 2%!!!!!! So, here’s where I am with all this talk about a Gold breakout to the upside… I think the price manipulators are seeing the same thing, and they wanted to get Gold’s price lower, so they could buy at much cheaper prices and then be long at those cheaper prices when Gold takes off later this summer! I also have to go back to something I wrote about a couple of weeks ago, when I told you that the Dow Theory Letter’s Gold guru, Omar Ayales, pointed out that Gold could drop to $1,278, before making its move higher… Well, guess where Gold closed on Friday? That’s right… $1,278… beep, beep, beep, what’s that sound I hear you asking? It’s the sound of the truck backing up… wink, wink…

The Currencies also got whacked on Thursday, and I mean whacked good! And then on Friday the currencies attempted to heal some, and wrap a tourniquet around their bleeding… Just for those of you keeping score at home… The euro was trading at 1.1825 on Thursday morning, and we were waiting for the ECB and Mario Draghi, to announce an end of stimulus, which he did… And then the selling began, and at the end of the day on Thursday the euro had dropped into the 1.15 handle! Folks, that’s a HUGE one-day move in a currency! What on earth happened to cause this Huge move?

Well, let’s take a step back to review just what Mario Draghi had to say, because this is where the body is buried here, folks… Draghi, did announce an end to the bond buying program, which was good… But then he stepped in the dookie, by emphasizing a more cautious than predicted approach to rolling back its easy money policies… The ECB will begin tapering their bond purchases in Rocktober, by $15 Billion per month. They currently buy $30 Billion per month, and end the purchases altogether by the end of the year, which is all good, but here’s where things got messy… He then emphasized that the ultra-low interest rates will remain for most of the next year, giving trades the idea that they wouldn’t see the Eurozone leave negative rates behind until 2019, and that deep sixed the euro!

I told you earlier last week that I thought that if Draghi dropped the ball on what the markets wanted to hear, that the euro was get whacked… And that’s exactly what happened… I certainly didn’t believe that Draghi would disappoint once again, but he did…

This was the worst 1-day performance for the euro is some time, and begs the question… “Should we buy at these cheaper prices?” You’ll have to answer that one yourself, but for me… I would think that the worst has been absorbed by the euro, and things should get better from here… But then that’s just my opinion, and I could be wrong!

Well, President Trump had his trade people announce more tariffs on Chinese goods on Friday, and this morning the Bloomberg is reporting that China’s Xi, is saying that he will match Trump’s tariffs one for one, and thus the Trade War begins… the previous stuff was just small conflicts here and there, but now… The real Trade War begins…  And Gold got whacked because of this? Wait, What? No, what I’m saying here is that there is no reason on earth that Gold should have gotten sold when the two largest economies of the world are duking it out in the Trade ring.  UGH!

The Bloomberg article also had XI saying that China would outlast the U.S. with the devastation that this Trade War is going to do to each country’s respective economy… Well, hang on to your hats, people… This is going to get really interesting, and if you ask me, it’s also going to hurt the U.S. in regards to foreigners buying Treasuries to finance our deficit spending… 

And here’s an example of what I’m thinking here… The GATA folks sent me a note on Saturday, and I have it for you here, but first let me repeat something that I’ve said about Russia several times through the years… And that is that they are doing everything they can to promote a “drop the dollar” stance… the dreaded “dedollarization” So, here’s the GATA note…

“Russia has held a major selloff of U.S. Treasury bonds, dumping some $47 billion worth of papers and momentarily dropping six places on a list of major foreign holders of U.S. securities, recently released statistics for April have shown.

In just one month Russia proceeded to sell $47.4 billion out of the $96.1 billion the country had in U.S. Treasury bonds in March. The latest statistics released by the U.S. Treasury Department on Friday showed that, in April, Russia had only $48.7 billion in American assets, occupying 22nd place on the list of “major foreign holders of Treasury securities.”

Chuck Again… Selling Treasuries and buying Gold, I’m quite sure that’s the trade that Russia is trying to show the world that it needs to get done…

A couple of weeks ago, in my weekly Dow Theory Letters piece, I wrote about “what did we do to deserve this?”  And then I went back to my very early days of writing a daily letter, when I would talk about how debt is slavery, and deficit spending if allowed to be added on to instead of paying off each year, would become a real problem here in the U.S.    And that’s exactly what has happened…  We were not good stewards of the reserve currency in the world, and now, other countries have the wherewithal to do something about it…  I’m just saying… 

On Thursday morning, all three anti-dollar assets, Gold, euros, and Oil were pounding their respective chests…  And then the dollar bugs kicked sand in their faces… And like the old ad for Charles Atlas’s work out, the currencies need to go “bulk up” and then come back and confront the big bad bully, dollar…  

So, I was reading one of my fave writers, Bill Bonner, the other day, and he was feeling the knife in his back like I am these days, and the fact that the markets believe the Fed is winning this economy… So, he said if this is true… , “We’re finished. We’re done. This is not a world we know. Up is down. Down is up. Time goes backward. Suckers are given better-than-even odds. And fools are reunited with their money.

If so… we will recant, insincerely, and slip off our little stage like a drop of rain off a windshield.”

I doubt he’ll have to do any of those things… But I feel the same way… (Maybe this is my way of actually retiring! HAHAHAHAHAHA!) 

Before we begin to head to the Big Finish I have a fun thought for today… This past weekend, was the 51st anniversary of the famous Monterey Pop Festival that Jimi Hendrix showed off his guitar playing to the crowd. I was a young man just learning to play the guitar in 1967 (I taught myself to play), and I remember thinking that Jim Hendrix was the greatest guitar player of all time back then… He still ranks pretty high, but through the years, I’ve heard even better guitar players… My all-time fave guitar player was Terry Kath, of Chicago… Jimi Hendrix once told a member of Chicago that Kath was better than he was… Carlos Santana, Alvin Lee, Duane Allman, David Gilmore, Eric Clapton, are some of the greatest, in my humble opinion… 

Friday’s Data Cupboard had two real pieces of economic data in Industrial Production (IP), and Capacity Utilization (CAPU) for May… Well, these two pieces of data told a different story than the strong Retail Sales report told on Wednesday last week..  IP for May printed a negative -0.1%, and CAPU dropped from 78.1 to 77.9… Not huge drops for these two, but drops nonetheless, and that tells a different story about the economy than the rogue Retail Sales figure… 

To recap… Trump announces additional tariffs to China and China responds with the same to the U.S. The Trade War is for real folks… Gold got whacked badly on Friday, by $23! And Chuck has his thoughts on why the price manipulators did that on Friday…  The euro fell out of bed on Thursday and has spent the last two trading sessions trying to get up off the floor… Mario Draghi was responsible for kicking the dollar out of bed, as he has done a several occasions these past couple of years… 

For What It’s Worth…  It’s been quite some time since I highlighted John Mauldin’s letter here… John and Chuck have been friends for some times now, but since I don’t travel to conferences any longer, I haven’t seen John in a few years. I read all his stuff, eventually that is, and this one is one that dear reader Bob, sent me a note and said I should read this article… It’s about the pension problem and as usual John goes through it with a fine toothed comb…  and it can be found here: http://www.mauldineconomics.com/frontlinethoughts/archive

Or, here’s your snippet: “Unlike actual trains, we as individuals don’t have the option of choosing a different economy. We’re stuck with the one we have, and it’s barreling forward in a decidedly unsafe manner, on tracks designed and built a century ago. Today, we’ll review yet another way this train will probably veer off the tracks as we discuss the numerous public pension defaults I think are coming.

Last week, I described the massive global debt problem. As you read on, remember promises are a kind of debt, too. Public worker pension plans are massive promises. They don’t always show up on the state and local balance sheets correctly (or directly!), but they have a similar effect. Governments worldwide promised to pay certain workers certain benefits at certain times. That is debt, for all practical purposes.

If it’s debt, who are the lenders? The workers. They extended “credit” with their labor. The agreed-upon pension benefits are the interest they rightly expect to receive for lending years of their lives. Some were perhaps unwise loans (particularly from the taxpayers’ perspective), but they’re not illegitimate. As with any other debt, the borrower is obligated to pay. What if the borrower simply can’t repay? Then the choices narrow to default and bankruptcy.”

Chuck Again… It’s a long read so make sure you allot enough time for it, but once you do get through it, you’ll see what I’ve been warning people about since 2003…  

Currencies today 6/18/18… American Style: A$ .7442, kiwi .6941, C$ .7592, euro 1.1620, sterling 1.3250, Swiss $1.0050, …. European Style: rand 13.4685, krone 8.1243, SEK 8.8185, forint 277.70, zloty 3.69, koruna 21.1475, RUB 63.10, yen 110.50, sing 1.3503, HKD 7.8495, INR 68.03, China 6.4382, peso 20.69, BRL 3.7288, Dollar Index 94.72, Oil $64.78, 10yr 2.91%, Silver $16.59, Platinum $885.02, Palladium $988.04, and Gold… $1,283.70

That’s it for today…  A lot to get through today, I know… sorry, but I had a lot on my mind today!  The Cubs sure put the heat on the Cardinals this past weekend, winning 2 of 3… The Cardinals sure aren’t playing “Cardinals baseball” these days, and I blame the manager for that!  Another “hottie” today here… “Extreme Heat” is what my weather advisory is telling me right now…  OK, are you ready for a health update? I had new scans taken on Friday… And besides something on my lung that they’re not sure what it is and it hasn’t grown, all the other spots where cancer existed are gone or nearly gone…  And the extreme pain in my hip, from the infection there last Nov. is pretty much gone too… In other words, I’m a happy camper! So, how about that? Ok, time to go…  Chicago takes us to the finish line today with their song: Does Anybody Know What Time It Is?   Great 70’s music for sure!  And so, I hope you have a Marvelous Monday, and Be Good To Yourself! 

Chuck Butler

 

 

 

June 14, 2018

* Currencies rally on U.S. rate hike… 

* All three anti-dollar assets rally!

Good Day… And a Tub Thumpin’ Thursday to you! WOW! It’s Flag Day! So, Happy Flag Day to one and all! Well, for the first time in over a week, I had a good night’s sleep! And woke up ready to fight a bear! Or at least dollar bugs! I watched another night of weak at-bats by my beloved Cardinals last night… They just have no consistency whatsoever, and I blame the manager for that. I’m just saying…  The Cornelius Brothers & Sister Rose greet me this morning with their song: It’s Too Late To Turn Back Now… 

That’s funny, because I think that’s what the Fed Heads are saying to each other about now… It’s too late too turn back now, with their rate hikes that is… Yeah, they sure sounded quite hawkish yesterday, and mentioned that their going to pick up the pace of rate hikes because in their words, “the economy is strong”…  But I’m of the opinion that the Fed is hiking rates to fill their quiver with arrows to use on the upcoming recession… And that’s why they’re picking up the pace, because they see it coming, and they haven’t got enough arrows in their quiver to combat it… 

And just like in the Wizard of Oz, my all-time fave movie. (you should ask me to do the Lollipop Guild skit sometime!) Dorothy sees the Kansas twister coming and she can’t get to the storm cellar… It’s too late to turn back now for Dorothy, and the Fed Heads… the recession is coming, and you turning hawkish now so late in the economic cycle is only going to make matters worse!

So, did the dollar get all kinds of love because the Fed Heads have turned hawkish? No sirree Bob it didn’t, the currencies have been on the rally tracks since the Fed announcement and press conference yesterday, and now we wait for the ECB’s decision, which will come shortly this morning… 

Well, this morning, the European Central Bank (ECB) is meeting, and this is a BIG meeting for ECB President, Mario Draghi… The markets have grown tired of hearing that “an explanation “ was forthcoming when talking about the stimulus unwind, and they are wanting to see something concrete at the meeting today, or else!

But I have faith in Draghi, he might not always do what’s right for the euro, but he does understand what the markets want, and I think he’ll deliver them what they want today… We won’t have to wait long to hear about it as the meeting should end about the same time I get this out the door, or shortly afterward!

The euro has climbed back above the 1.18 handle this morning ahead of the ECB meeting, so apparently traders are thinking like me, which is usually a bad combination, folks! HA!  

In fact, all three anti-dollar assets are on the move VS the dollar since the rate hike decision yesterday… euros, Gold & Oil…  The price of Oil is within spittin’ distance of $67 and Gold did trade albeit briefly above $1,300 yesterday, but the “boys in the band” saw to it that this move over $1,300 didn’t close there…  However, the “boys in the band” will have to be back at it again this morning, because Gold has gained $6 in the early morning trading today, and back above $1,300… 

Alrighty, let’s get to the “I told you so” part of the letter today… Remember when the tax deal was put through, and I said I doubted it would do more than just add to our deficit spending, for the tax deal wasn’t about you and me, it was about Corporations, and I said, that I thought those Corporations’ Big Shots would use the tax deal to buy back their company’s stock? And thanks to a story on CNBC.com I found this: Stock buybacks in 2018 to total $800 billion thanks to tax reform

I told you, I told you, I double, double told you!

Since the rate hike yesterday was such BIG news, well, actually the Fed Heads statement that they are picking up the pace of rate hikes was really the BIG news, let’s circle the wagons and talk about it some more…  

Well, as expected, the Fed hiked their Fed Funds rate 25 Basis Points (1/4%) yesterday, and repeated their earlier stance of looking to hike rates again in Sept and December. But will they actually get the chance to do that? I doubt they will, and have been shouting from the rooftops for sometime now that they’re going to have to begin to reverse these rates hikes and end up looking very foolish doing so.

It’s not just the actual rate hikes that are putting the governor on the economy, but as I’ve stated before, you have to also add in the Quantitating Tightening…. Talk about something that continues to go along and fly under the radar! But, it’s there, and it’s causing problems already… I’ve read where $500 Billion of QT, is equal to 1/4% in rate hikes… So, since the Fed has been performing QT since Rocktober of 2017, they’ve held to their unwinding schedule that looks like this:
The schedule of monthly caps consistent with the Committee’s September 20 decision and the June 2017 addendum is as follows: Monthly caps on System Open Market Account (SOMA) securities reductions Treasury securities Agency Securities1 Oct – Dec 2017 $6B $4B Jan – Mar 2018 $12B $8B Apr – Jun 2018 $18B $12B Jul – Sep 2018 $24B $16B From Oct 20182 $30B $20B

So, if my new math is correct, The Fed will have unwound a total of $80 Billion in Treasuries by year end. They will reach a total of $2.5 Trillion by 2023… 2.5 Trillion would be equal to 1.25% in additional rate hikes… But if things go the way I expect them to go, the Fed won’t see the end of the “great unwind”… They’ll be back to Quantitative Easing before they get to the end of their “great unwind”…

And further more… I’m sick and tired of hearing the Fed heads say that this “great unwind” is not contractionary… But wait! Didn’t they spend many years telling us that Quantitative Easing was stimulus? So, when you take the stimulus away, why wouldn’t that be contractionary? Man, I would love to be able to throw that in their faces and hear what they have to say about that!

Well, I need to get this out the door, so I can sit back with a cup of coffee and see what Mario Draghi has to say this morning…  I usually like to have the Thursday Pfennig be a bit longer because there’s no Pfennig on Friday any longer… But not today! I’ve said all there is to say about the rate hike, the ECB, and more… 

Oh, and China’s Peoples Bank of China (PBOC) left their key interest rate on hold last night, and that has the Emerging Markets and the rest of Asia in a good mood… At least for today that is!  

So, what was up with the U.S. Data Cupboard this week? Here’s what I’m talking about… Usually, PPI (wholesale inflation) prints before CPI (consumer inflation), but not this week! The mental giants switched the order, which makes no sense, but it was done anyway.  Well, after a week or so of non-meaningful economic data prints, we’ll get back to the meat today and tomorrow, with May Retail Sales today, and Industrial Production and Capacity Utilization tomorrow…  

May Retail Sales are expected to gain 0.4% for the month, which is not bad, but it’s also not good, and not worthy of a faster pace of rate hikes, I’ll tell you that! 

To recap… The Fed did hike rates yesterday as expected, but then threw a cat among the pigeons by announcing that they will pick up the pace of rate hikes… Chuck thinks this is them in panic mode, as they see the recession coming and they haven’t prepared the storm cellar! It’s BIG day for the ECB and Mario Draghi, Chuck thinks he’ll do the right thing today, and that should send some major love the euro’s way…  And then Chuck pulls out the abacus to do some quick calcs on the Fed’s QT… 

For What it’s worth… Back in the day… Back when I was with EverBank, and I wrote the monthly newsletter for clients, called: The Review & Focus, I wrote a piece in the winter of 2017, at that point, xci could see the writing on the wall for me, so I decided to go out on a limb and call out the Fed Rate hikes, pointing to the increased bond servicing costs (interest) , and pointing to the new President at that time, Donald Trump and saying that he said that if rates went to 4% “We’re screwed” (pardon the salt, but it’s what he said!) The Bank didn’t much care for me pointing out how the Fed was going to bring us under… But it went to press, and so on… life went on until… Until today, when the MarketWatch folks sent me an email with words from Jeff Gundlach, the new Bond King, who is calling out the Fed rate hikes… ( I bet he gets more attention than I did, when I did it!) and it can be found here: https://www.marketwatch.com/story/the-us-is-on-a-suicide-mission-warns-bond-king-gundlach-2018-06-13?link=MW_popular

Or, here’s your snippet: “Here we are doing something that almost seems like a suicide mission,” he said in a fresh webcast about his DoubleLine Total Return Bond Fund. “We are increasing the the size of the deficit while we’re raising interest rates.”
“It’s pretty much unprecedented that we’re seeing this level debt expansion so late in an economic cycle,” Gundlach reportedly said, noting that both Fed fund-rates and the debt-to-GDP level are rising.” – Jeff Gundlach

Chuck again… Yes, here we are pretty much at the end of the road as far as the economic expansion is concerned, and we’re still hiking interest rates… Seems pretty strange to me, but then I’m just a country bumpkin, what the heck do I know above all those PHD’s at the Fed! 

Currencies today 6/14/18… American Style: A$ .7550, kiwi .7040, C$ .7714, euro 1.1825, sterling 1.3428, Swiss $1.0164, … European Style: rand 13.18, krone 7.9950, SEK 8.6095, forint 272.60, zloty 3.6143, koruna 21.7415, RUB 62.71, yen 110, sing 1.3336, HKD 7.8479, INR 67.60, China 6.3988, peso 20.57, BRL 3.7125, Dollar Index 93.30, Oil $66.91, 10-year 2.94%, Silver $17.15, Platinum $907.03, Palladium $1,015.70 and Gold… $1,305.11

That’s it for today, and this week! I had a very frustrating day at the Social Security Administration’s office yesterday… It’s no wonder this country is in the debt situation it is in, and the years of neglect are showing… But that sounds like a personal problem, so I’ll leave that there! This Sunday is Father’s Day… Time to tell your dad that you love him, and thank him for all he’s done to make your life what it is…  I miss my dad every day, for when I sit down to write, there’s a picture of him, me, and my late brother David from many years ago… And when I sing the national anthem at baseball games, I close my eyes and see him sitting there smiling at me…  Stealers Wheel takes us to the finish line today with their song: Stuck In The Middle With You…  Clowns to the left of me, jokers to the right, and I’m stuck in the middle with you…  (man you don’t know how many times I thought that in the old days!)   And with that it’s time to head out and make this a Tub Thumpin’ Thursday! Please Be Good To Yourself!  And Don’t forget your DAD!   Bye~

Chuck Butler