Chuck Butler’s: A Pfennig For Your Thoughts
July 21, 2017
* Draghi throws euro traders a bone!
* RBSA cuts rates…
* Tons of paper trades keep Gold in check
Good day… And a Happy Friday to one and all! Boy did yesterday’s infusion whack me out yesterday, as I came home, ate a delicious, Carl’s Deli sandwich, and went to bed, and slept most the day. I’ve still got that “foggy feeling” this morning, so I won’t attempt to make this a marathon news letter today. I know, you’re thinking, “Whew!” That’s OK, I’ll be gone for the next two weeks, you’ll be missing me soon enough! HA! Don Henley greets me this morning with his song: The Last Worthless Evening…
Well, let’s get right to this today… The dollar ends the week looking at a Dollar Index number that it hasn’t seen since 2015… And the main driver of the index’s downward move is the rise of the euro… And if you haven’t figured it out by now, even though I’ve said it over and over again, that this dance is gonna be a drag, no, wait! I’ve said over and over again that the sentiment toward the euro has switched to loving the single unit and not the dollar…
Well, we’re going to the chapel and we’re, going to get married, going to the chapel and we’re, going to get married. Gee I really love you and we’re going to get married, going to the chapel of love… That’s what euro traders and the euro were singing together yesterday, as the euro’s relative, Mario Draghi, gave the traders the wink and nod, and all was right again, after the euro traders had displayed a bout of cold feet at the altar the previous day… I told you that the traders would be back, and come back they did, with flowers, candy, and heartfelt sweet nothings for the euro’s ear… It’s now a match made in heaven…
Ahhh, I love it when a plan comes together, and it was little old me that played match-maker for these two 6 months ago, when I said the strong dollar trend appeared to be ending, and the sentiment / love would switch from the dollar to the euro… Back then the euro was trading with a 1.09 handle… So, let’s see, even if you waited a bit and didn’t buy your euros until they reached 1.10, you would still be looking at a 6-cent gain! Now, that may not sound like a lot to you, but when you invest larger sums of money, which you tend to do with currencies,, that’s a 5.4% return… I’m just saying… I wrote about it here… I wrote about it in the Old Review & Focus,… I wrote about it in the Dow Theory Letters… and if I was a Beatle, I would sing it from a rooftop! If I were a hammer, I’d hammer in the morning, I’d hammer in the evening, all over this land, and I would hammer home that the strong dollar trend has ended, it’s time to back up the truck, and get a load of euros, and whatever flavor of currency you prefer, and throw some Gold & Silver on top so they don’t blow away while you drive off into the sunset, with a smile as wide as a country mile!
OK, slow down here Chuck, you move too fast, you’ve got to make the morning last! Why don’t you tell them what Draghi said yesterday that stirred the euro to a 1-cent gain on the day? OK, I guess I can do that… Well, as you know, being the astute reader that you are, because I told you so… The markets were looking for the ECB and Mario Draghi to throw them a bone about when the uber-accommodating monetary policy might begin to be dismantled.. And Draghi delivered the goods, telling the markets that Q/E (Quantitative Easing) talks to tighten would begin in September. What’s that fizzling sound in the background? Oh, it’s all the euro holders grabbing for the Plop, Plop, fizz, fizz, oh what a relief it is, Alka Seltzer… Hey there was no reason to get your stomach all tied in knots over this, if he didn’t say it this time, it would be the next meeting, or the meeting after that…
And how can I be so sure that THIS TIME is not a false dawn with regards to the end of the Strong dollar trend? Well, I’ve told you before about the data prints in the U.S. whether they be good or bad, the dollar ends up getting sold anyway… And then yesterday, yes, Mario Draghi did throw the markets a bone that they were looking for, but he then went on and sounded pretty dovish to me, but the euro traders didn’t care, they got what they came for, and let the dovish comments slide… That’s a classic illustration of a currency that’s in a strong trend… And the dollar’s reaction to economic data is a classis illustration of a currency that’s in a weak trend…
And here’s something else that’s really a side session, but plays back into the dollar/ euro trading… The Reserve Bank of South Africa (RBSA) surprised the markets and the economists that made a call on rates, with a rate cut. Their first rate cut in 5 years… The rand fell as a knee jerk reaction to the surprise rate cut of the internal rate from 7% to 6.75%, but then rallied back by the end of the day, and has continued to rally in the overnight markets…
So, is the RBSA on a rate cutting spree? I doubt it seriously, folks… The cut rates with inflation at the top of their range, and I think this is a one and done for the RBSA, which means if the rate cut didn’t slow down the real, which has been one of the better performing emerging currencies this year, this time, then the rand should be set for a nice run… Now, I’ve always said that I wouldn’t touch rand “with your 10-foot pole”, except in a bundle that would help protect the investor from the wild swings of the rand… That’s why at the “old place” I created what I called the Commodity Currency CD, that included: A$, kiwi, rand and loonies…
Back then, the Brazilian real, and the Russian ruble weren’t available, but are now… And look what currencies are setting the pace that aren’t the euro, or a part of the Dollar Index… The A$, kiwi, and rand, the loonie is a part of the Dollar Index, but its weighting is low, so let’s say it’s not! I read an article a couple of days ago, about how this has been a disaster of a year for commodities… And I thought, hmmm… Is that right? It’s not been a great year, or a good year, but a disastrous year? Hmmm…
So, here we are in the middle of summer, the middle of July, and we’re watching the dollar’s strong trend come to an end… These trends don’t end with a loud bang, instead they fade off into the sunset. That’s why it’s difficult to pinpoint exactly when a trend ended or began… The thing that really concerns me about this new weak dollar trend, is that it begins at a time when debt levels are soaring, and going higher every day… Knowing that, my mind begins to race around and think about all the bad things that can happen when debt levels cause a financial system to collapse…
But then I just say, “Chuck that can’t happen”, and then go check my statement for my Gold & Silver holdings, just in case… And of course I know “it could happen” but don’t you tell yourself little lies to make you feel better? Well, that’s what that is…
Speaking of Gold, it was a wild day at the COMEX yesterday, with 216,000 contracts traded, which the “boys in the band” needed to put a governor on Gold, as the Dollar Index began sliding, and Gold looked poised to rise by a good amount, but was held to a $3 gain to close the day at $1,244.00… But “something” happened in the overnight markets and Gold has popped higher to $1,253.80 as I write.
I sure hope that what I wrote about earlier this week, is going to come true… I’m talking about the quote I printed by Avery Goodman, who said that he witnessed lots of closing of short paper Gold Trades that were long dated… His thinking was that the short paper traders were pulling out… Well, the “boys in the band” may have put their instruments down, but they haven’t left the building, because they were in with a bang yesterday keeping Gold in line…
Well, I’m just about out of things to talk about this morning, but did want to mention the large move in the New Zealand dollar / kiwi yesterday and overnight, and if you took a peek at the currency roundup, that’s right, that’s kiwi trading with a 74-cent handle this morning! Remember when I kept telling you that the time to buy kiwi was when it was 72-cents, and that it was flying under the radar? Well, fly under the radar no more! But, if this goes the way I think it will, it’s still not too late…
There is no trace of a data print today in the U.S. Data Cupboard, and yesterday’s lot of data prints was a virtual “who cares?”… But I can tell you that the Philly Index, which is a check on the pulse of the manufacturing for the Philadelphia region, fell from 27.6 in May to 19.5 in June… Quite a drop, but in the whole scheme of things, really not that important…
And this is another classic illustration of a currency in a weak trend is when there is no data to print, and it should be able to garner a buy or two, but can’t seem to find a buyer anywhere. Sign, sign, everywhere a sign Blockin’ out the scenery, breakin’ my mind… The signs of the end of the strong dollar trend are everywhere folks… And just because I’m the only one out there that’s saying it doesn’t make it wrong!
To recap… Mario Draghi, while sounding dovish, did throw the euro traders a bone yesterday, telling them when the talks will begin on tightening QE (Sept)… And the euro rallied more than 1-cent on the day! Chuck sings an oldie and talks about how the euro traders and the euro got married yesterday, after the traders had displayed a case of cold feet the day before. Kiwi also had a great day and night, and Gold was able to gain $3, but has popped higher in the overnight trading.
For What It’s Worth… I found this on the Bloomberg this morning, and it talks about something that I began talking about in 2003… Underfunded Pensions here in the U.S. Well, this problem has gone from a minor problem to a major problem that the markets can’t ignore any longer. You can read it here: https://www.bloomberg.com/view/articles/2017-03-24/pension-crisis-too-big-for-markets-to-ignore
Or, here’s your snippet: Well, I don’t have a snippet for you today, because, well… I think it best for you to read the article… But in reality my cut-n-paste feature won’t work this morning… So there you go!
Chuck again… Could this be the snowflake that causes an avalanche here in the U.S.? I would think so! As I said above, I began talking about Underfunded Pensions in 2003, so that’s 14 years of growing even more underfunded… That’s scary to me folks…
Currencies today: 7/21/17… American Style: A$ .7926, kiwi .7442, C$ .7954, euro 1.1644, sterling 1.3013, Swiss $.9501, … European Style: rand 12.9579, krone 8.0335, SEK 8.2442, HUF 262.11, zloty 3.6329, koruna 22.3397, RUB 58.96, yen 111.55, sing 1.3635, HKD 7.8081, INR 64.26, China 6.7625, peso 17.48, BRL 3.1396, Dollar Index 94.13, Oil $47.10, Silver $16.37, Platinum $932.45, Palladium $852.78, and Gold… $1,253.80
That’s it for today… Cards lose another game in the 9th inning yesterday, one step forward, two steps back for this team… UGH! it’s a good thing I slept through the game… Alex is staying with us for a couple of days while the A/C in his building gets fixed… It’s nice seeing him here… Well, this is it for two weeks for me… But… don’t dismay! My good friends, and now bosses, Mary Anne and Pamela Aden are going to be sending you dear Pfennig readers a treat the next two weeks, as they go through some of their favorite letters, that still hold true today… So, look for that in your email box! I asked Mary Anne and Pam to do this, and promised them that you dear readers wouldn’t have a problem with it… Besides you get another viewpoint for 2 weeks… Pink Floyd takes us the finish line today with their song: Time… Which is appropriate because it’s time for me to get off the bus this week, and send you on your way to a Fantastico Friday! Be Good To Yourself my friends, and I’ll talk to you again in 2 weeks!
Chuck