A Double Whammy Deep Sixes The Dollar

March 2, 2018  

* ECB to keep everything the same next week? 

* New steel tariffs to be announced? 

Good Day… And a Happy Friday to one and all… Whew! I’m worn out! I did a lot of walking yesterday, for me that is, and I’m paying for it this morning! UGH!  But an absolutely beautiful day again here, and day baseball… It doesn’t get much better for yours truly! And the day ended with us watching the Full Moon rise up over the ocean, very nice indeed! March sure came in like a lamb down here! I hear that up north they are preparing for a major Noreaster…  Batten down the hatches folks, and be safe! The Allman Brothers greet me this morning with their song; Southbound, which I’m thinking I would be doing if I lived up in the north east!   

Just when  you thought that dollar buying was the rage, it isn’t! Yesterday, we had the dollar buying going in the early morning, and then there was a story from the Eurozone, that the European Central Bank (ECB) will NOT announce any withdrawal from their bond buying program when they meet next week and will delay any such end of the bond buying until at least summer… That news swept through the currencies, and the dollar buying ended on a dime!   

The euro, yen, Swiss francs and U.S. Treasuries were bought as if there had been nothing else going on the past 5 days with the dollar. It was as if we turned back the hands of time to last week, when the dollar was getting sold like funnel cakes at a State Fair. 

Add to all that pressure on the dollar, the fact that there is a very strong rumor that the Trump Administration is going to announce another Trade tariff, this time on steel to add to the one they announced previously this week on aluminum foil…  A double whammy if you will deep sixed the dollar yesterday, lets see how far that carries…  

I’d like to take you back to 2001… A fairly new president, an economy that was just muddling through year after year, so tax cuts were implemented, the National debt was rising, and stiff tariffs were placed on Japanese Steel…  And I wrote a white paper about the Decline of the Dollar, because I saw all of these things as a perfect storm on the dollar… And guess what?

The began a long, deep slide on the slippery slope in Feb. 2002… People thought I had a crystal ball… I had no such thing, but… what I did have was logical thinking in my corner! And now, I’m looking at the horizon here and seeing a lot of the same things as the 2001 recipe for dollar weakness…  Tax cuts, an economy muddling through, the National Debt on an unsustainable path, and now trade tariffs, on steel no less! 

Dollar weakness is just around the corner, in my humble opinion, which could be wrong… But in my opinion the U.S. has not learned anything from history and therefore is doomed to repeat it! That’s my story and I’m sticking to it!  I know that quite a few of you dear readers were around with me back in 2001, and remember how the Decline of the Dollar was met with a lot of criticism because people thought that the King dollar was going to be strong forever, that interest rates would be rising and there was just no way the dollar was going to decline… 

And then that Minsky Moment happened and no one wanted dollars any longer…  James Rickards talks about “snowflakes” that could cause an avalanche… could that snowflake be the announcement of Trade Tariffs? Or could it be the printing of awful economic data like the car sales data that printed yesterday? U.S. Car sales have dropped for 2 consecutive months folks… Detroit auto makers on Thursday reported the second-consecutive collective decline in domestic sales in 2018, with dealers saying that it is getting harder to offer customers an attractive monthly payment.  Uh-Oh!  

Negative Retail Sales, Durable and Capital Goods, and car sales dropping like a rock from a cliff… Then add in the news from yesterday that U.S. Personal Spending showed signs of consumers petering out and you’ve got an economy that’s not going anywhere and certainly not worthy of 4 rate hikes this year!   And whenever the markets figure this all out, the dollar won’t be getting bought … I’m just saying…    

So, the euro got a boost yesterday from the news from the ECB rumor… I can see the ECB doing what its rumored to do, which is nothing when it comes to ending their bond buying.  What has happened to the strong Central Bank presence at the ECB at Duisenberg and Trichet presented to them?  The Eurozone has seen their economic recovery hit a speed bump, as recent data like CPI showed a slowing of inflation, and so on… And their reaction to the speed bump is to take cover and not come out until the sun is shining again on their economy… 

I don’t know why I’m so against the ECB’s decision here, as it sure gave a boost to the euro, which in turn sure needed one! But you dear reader know me all too well, and know that I’m against the ECB’s decision, because it means that their stimulus measures are not going to begin to be withdrawn now, but is getting pushed off until summer, and who knows then IF the sun and moon will be aligned to allow them to begin the withdrawal process…  I’m all about if you need to or want to do something, do it.. NOW!  My dad always told me, “there’s no time like the present, Chuck”…  

The U.S. Data Cupboard yesterday had January Personal Income and Spending, of which I touched on the Spending piece above. But Personal Income did show the effect of tax changes, as personal taxes fell 3.3 % in the month to help underpin total income which rose a solid 0.4% for a second straight month. But Personal Spending, well, showed some signs of consumer fatigue… and only printed up  0.2 % overall and marking a weak first-quarter start for the consumer. Spending on durable goods fell 1.5 percent on a downturn in vehicle sales.  

Speaking of those awful car sales… Remember back a few months ago after the hurricanes hit the U.S. I said that car sales would be brisk the following month, but it would be a one and done?   Well, since October’s hurricane-replacement sales boom, vehicle sales have been very soft, posting steep declines in two of the last three retail sales report. And sales in February failed to improve, coming in at a 17.1 million annualized unit rate vs 17.2 million in January.

Folks… this is the first indication of February consumer spending and it sure doesn’t point to acceleration, now does it? But the Fed heads aren’t going to let weak data get in the way of their mission to hike rates are they?    

Gold had another one “those days” yesterday, where it attempted to mount a rally throughout the day, only to be me by large short sales, and the shiny metal ended the day pretty much flat from the previous day’s close… But Gold traders are getting with the dollar selling in the early morning trading today, and Gold is up $14!   Wait until “boys in the band” see that!   I don’t think I need to remind you that the period beginning in 2002 going forward we saw a HUGE climb higher in the price of Gold… 

To recap…  The dollar buying ended on a dime yesterday after a rumor spread that the ECB won’t be ending their stimulus / bond buying next week when they meet, and will most likely announce a delay in that process of ending bond buying. Add to that the rumor that the Trump Administration will announce stiff tariffs on Steel, and the recipe to sell dollars fell into the laps of traders.  The euro, yen, and francs are the main beneficiaries of this dollar selling…   

For What It’s Worth…  Since I mentioned James Rickards above, I recalled reading a piece he submitted to the Daily Reckoning yesterday, and sure enough my friend, Ed Steer, highlighted it in his letter today, so I’m going to do the same… This is about the end of Conservative Spending, and can be found here:  www.dailyreckoning.com   

Or, here’s your Snippet: “Remember the “tea party” revolt in 2009-2010 against government bailouts and government spending?

Remember the “fiscal cliff” drama of Dec. 31, 2012, when Congress raised taxes and cut spending to avoid a debt default and government shutdown?
Remember the actual government shutdown in October 2013 as Republicans held the line against more government spending?

The days of caring about debt and deficits are over. In just the past two months, Republicans passed the Trump tax cuts that will increase the deficit by $1.5 trillion on a conservative estimate, and probably much more.

Then Republicans and Democrats “compromised” on eliminating caps on defense spending and domestic spending by agreeing to more of both. That repeal of the so-called “sequester” will add over $300 billion to the deficit over the next two years. Then there’s a tsunami of student loan debts in default that the Treasury has guaranteed and will have to pay off. Finally, the higher interest rates from this debt will add $210 billion to the annual deficit for every 1% increase in average federal debt funding costs.

Today we are looking at $1 trillion-plus deficits as far as the eye can see.”

Chuck again…  I had a reader point out how wrong Rickards had been lately about things, and told me I needed a new source…  Hey! we’re all wrong now and then, that doesn’t take away this man’s knowledge and experience…  

Currencies today 3/2/18… American Style: A$ .7761, kiwi .7241, C$ .7777, euro 1.2317, sterling 1.38, Swiss $1.0696, European Style: rand 11.8418, krone 7.7785, SEK 8.2386, forint 254.69, zloty 3.4030, koruna 20.6228, RUB 56.62, yen 105.40, sing 1.3194, HKD 7.8281, INR 65.14, China 6.3496, peso 18.88, BRL 3.2496, Dollar Index 90.08, Oil $60.79, 10-year 2.80%, Silver $16.46, Platinum $965.29, Palladium $992.29, and Gold… $1,320.00

That’s it for today… The NCAA Basketball Conference Championship tournaments get started this weekend, but I doubt I’ll watch much of the games given how nice it is to be outside here, and I do have baseball games today and Sunday… We celebrated our friend Diane’s birthday yesterday with breakfast at one of my fave places down here, the Juno Beach Café… And then it was onto the ballpark, where it was a hot one yesterday, that required lots of liquids… wink, wink…  HA!  My spring vacation is a week away… YAHOO! I think that today is a Good Day, to have a Good Day! Earth, Wind, and Fire are seeing that I get it started that way with their dancing in the seat song: September taking us to the finish line today!  Now, go out and make this a Fantastico Friday, because that’s what I hope to do!  And Be Good To Yourself!   

Chuck Butler