A Turnaround Tuesday?

February 7, 2018

* PPT and James Bullard to the rescue!

* Manipulated markets are everywhere!    

Good day… And a Wonderful Wednesday to you! Well, my fears of having “one of those days” yesterday didn’t come to fruition, and I spent most of the afternoon our on our public deck that overlooks the beach and ocean, with friends. We waited for the launch from Cape Canaveral of a Space-X rocket, and when it finally launched I didn’t see a thing, although some of the people on the deck said they saw it. I expanded my diet a bit, eating some Wheat Thins, but that’s about as sexy as my diet has been for the last 3 days. The Great Band, Chicago, greet meet me this morning with their song: Flight 602…  Not one of their chart busting songs, but one that I like… 

What a wild time on Mr. Toad’s Wild Ride yesterday for U.S. stocks, that finally put all the negativism to bed and rose 569 points… That meant that the “safe havens” that investors flocked to on Tuesday, were sold on Wednesday… Francs, yen, euros, Gold and Treasuries. Besides the PPT (plunge protection team) saving the stock market from the embarrassment of another HUGE selloff, yesterday, the thing that really caught investors’ attention, was a speech by Fed. St. Louis President, James Bullard, who said, in so many words, “What, me worry about inflation?”

No, he didn’t do his best imitation of Alfred E. Newman, but… He did sound like him when he told his audience that “he didn’t think the strong U.S. labor market meant that higher inflation is just around the corner.” Well, that calmed the stock jockeys, and stocks turned around on a dime, and headed higher for the day… The stock jockeys owe a BIG THANK YOU to the PPT, and James Bullard… I’m just saying… 

Overnight, the foreign markets have taken the dollar saving duo from yesterday to heart, and bought more dollars… Volatility in the investment assets has returned folks… And with a vengeance, I would say! Look at those huge swings in the stocks this week, and look at the currencies, they’ve been all over the place this week… And what’s a key rule that I’ve always told you about a trend?  That it’s not a ONE-WAY Street, and there can be volatility… 

Of course all those propeller heads that though they could get rich shorting the VIX, which is the symbol for the volatility index, and because the VIX hadn’t moved much in a couple of years, got their shorts handed to them these past couple of days. The VIX index had remained below 10 for a couple of months of Sundays, and then it didn’t… the VIX hit 38 yesterday… OUCH!  

And guess who came back to the party in Gold? You would be correct if you said “the boys in the band”…  Once again I’ll point to the number of contracts traded. The previous day when Gold gained $8, the number of contracts traded had fallen to less than 300,000 (292,000), but on the day Gold loses $15 the number of contracts explodes higher to 446,000!!!! The PPT and “the boys in the band” just couldn’t leave things alone could they? And that’s got me so riled up I could scream at the walls, but that would wake Kathy up, and that wouldn’t be nice of me!  

Manipulated markets, where have all the free markets gone? Long time passing… Where have all the fundamentals gone? Long time ago…  I shake my head, and wonder, if we’ll ever see free markets again?  The Treasury market has been manipulated by the Fed since 2009. Stocks and the dollar always have the PPT, that was originally put together by President Reagan after the 1987 stock market crash, and ever since JP Morgan bought the precious metals book from Bear Stearns in 2008, it’s been an adventurous time on Mr. Toad’s Wild Ride…  

You see, Bear Stearns had a small short paper trade operation in Gold & especially concentrated in Silver. Once JPMorgan saw how the business worked, they decided they could really make some big bucks with this shorting Gold & Silver business, and the rest, is history… Soon, other bullion dealing banks joined in to form “the boys in the band”… 

The short Gold or Silver paper trading has gone viral, and in Ed Steer’s Saturday letter, he always gives us the number of days of production that it would take to cover the short trades that are on the books… And for Gold, the number of days of production it would take is 98, and for Silver, hold onto your hat for this number… 190 days of production to cover the short positions in Silver!   

Come on Chuck, go onto something else! OK, twist my arm, that’s enough! HA! I just don’t get how the regulators can let these large banks get away with this, what I call criminal trading?   People aren’t stupid, if they stop in their normal daily routines, and take 5 minutes to think about this stuff, they would come to the same ending, and if enough of them were upset enough to do something about it, or at least got others to do something about it, maybe we could see an end of manipulations, but until then, we can’t depend on the regulators to have out backs, folks… They’re all in cahoots, in my opinion, which could be wrong of course!  

The fundamentals of the U.S. continue to disappoint, and be very shaky… I was reading a piece on the Burning Platform website, written by Jim Quinn, and he pointed out some very disturbing data…  Let’s listen in…  “All is well. Real median household income just surpassed the level achieved in 1999. Think about that for a second. It took seventeen years for the average American family to get back to a household income of $59,000. The $59,000 of household income in 2017 doesn’t quite go as far as it did in 1999, with even BLS manipulated inflation showing an 87% increase in medical costs, 80% increase in energy costs, 51% increase in food costs, 53% increase in housing costs, and a 115% increase in college education. And of course the BLS changed their methodology, boosting household income by $1,700 in 2013. So, in reality it is still below 1999 levels.”  

Chuck again isn’t that some chilling data?  And when you think that 1/2 of the country is below the median income of $59,000, it means that 1/2 of the country doesn’t have two nickels to rub together, and when or if the next recession comes, it’s going to be a very bad one…  But traders and the PPT are still lining up to buy dollars in times when the dollar looks like its ready to fall off a cliff.  Makes you wonder about the mental capacities of these guys, right?   

I’ve really gone off on some tangents this morning haven’t I?   So, let’s do a quick roundup of the currencies and other assets before we head to the Big Finish today… The euro has dropped below 1.24, but is still 3% ahead of the dollar so far this year, and more and more analysts are rethinking their call that the euro would rise to 1.24 this year, it’s already there! Now they’re rebooting their forecasts to 1.30 for this year.  The pound has slipped as the Bank of England (BOE) will meet tomorrow, and no one expects nice things to be said there. The Aussie dollar (A$) was a stealth rally currency overnight, gaining about a quarter from yesterday.  And the Chinese renminbi was allowed to appreciate overnight after they posted their 12 consecutive month of gains in their reserves…   OK, now I feel better and we can proceed…   

The U.S. Data Cupboard today has the data I’ve been waiting for since last month when Consumer Credit (read debt) exploded higher to $28 Billion in November. I said then that if it went that high before the Christmas shopping season I couldn’t imagine how bad it would be for December, and today I don’t have to imagine any longer!   And that’s it for data today…    

To recap… The PPT and James Bullard came to the aid of stocks and the dollar yesterday… Chuck goes on and one about manipulated markets. But all the safe havens that were bought the previous day were sold yesterday, along with other currencies. Gold lost $15 on a day when the number of contracts traded were greater than 446,000! And we do a review of the rise of inflation in the U.S.    

For What It’s Worth…  Well, on a day with all this “other stuff” going on, I’m going to remain calm, and talk about China and Gold… This article appeared on Bloomberg.com and can be found here:https://www.bloomberg.com/news/articles/2018-02-06/china-s-love-affair-with-gold-heats-up-on-property-boom-riches  

Or, here’s your snippet: “China’s growing throng of affluent consumers is driving a rebound in demand for gold rings, bracelets and necklaces as a property boom and high stock market valuations boost wealth in the largest bullion market.

“Things are much more positive than they were this time last year,” and the jewelry market has bottomed out after three years of declines, said Nikos Kavalis, London-based director of research firm Metals Focus Ltd.
Colleagues who visited the southern commercial hub of Shenzhen in early January told him showrooms were quite busy and wholesalers expected clients to return to replenish their stocks before Lunar New Year in the middle of February.

The nation’s demand for gold jewelry climbed 10 percent last year to almost 700 metric tonnes as the wealthy increased purchases and consumption improved in second and third-tier cities, according to the China Gold Association. Buying of ornaments represented more than 60 percent of the 1,090 tonnes of gold consumed in China last year and made up a third of world jewelry demand.”  

Chuck again… Good to know that some things never go away for good, eh? 

Currencies today 2/7/18… American Style: A$ .7866, kiwi .7318, C$ .7990, euro 1.2352, sterling 1.39, Swiss $1.0640, … European Style: rand 11.9430, krone 7.8277, SEK 7.9783, forint 250.93, zloty 3.3668, koruna 20.4213, RUB 57.17, yen 109.19, sing 1.3196, HKD 7.8191, INR 64.26, China 6.28222, peso 18.64, BRL 3.2543, Dollar Index 89.84, Oil $63.21, 10-year 2.77%, Silver $16.63, Platinum $985.91, Palladium $1,000.79, and Gold… $1,330.60  

That’s it for today…  What a beautiful day here yesterday, and another one is in store today… It took longer than usual, this year,  but the normal sunny and 80 days are returning…  And I can’t tell you how great that makes me feel! Well, my beloved Missouri Tigers kept their winning streak going last night with a win at Ole Miss, and I got to watch it! Our Blues were also on cable which I got to watch, but they played a stinker of a game and lost.  Onward and Upward as my good friend and former Big Boss, Frank Trotter always used to say…  the band Kansas takes us to the finish line today with their rock classic, Dust In The Wind… I have a great story to tell you about that song when we get to Cinco de Mayo… I hope you have a Wonderful Wednesday, and Be Good To Yourself!    

Chuck Butler