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Rocktober 31, 2018

* Currencies and metals take on more water… 

* Chuck explains his dislike of the Fed… 

Good Day… Boo! And a Wonderful Wednesday to you! And a Happy Halloween to one and all! I recall going to New Orleans on Halloween for a conference years ago… They sure do get into Halloween in New Orleans! No baseball, no football, no hockey to watch, what’s a guy to do? HA! Our Blues don’t play again until tomorrow night… I sure liked the strike-shortened season of a few years ago, when they crammed as many games as they could into a short time, it seemed like there was a game every other day! I don’t live each night on sports watching alone, if that’s what you think, but it does help the night go by, and keep me from sitting at my writing desk, reading and researching for the next day’s Pfennig… I do so much of that already, I don’t need to be doing it at night too! The late, great, Tom Petty, greets me this morning with his song: You Got Lucky…

And don’t you feel you got lucky so many years ago, when you found this letter? HA! I’m feeling better today, as my one-week trip on steroids ended yesterday morning… So, if there’s a dolt out there, I’ll find them for sure! Whoa, there Partner, what on earth do you mean, If there’s a dolt out there, You know darn good and well that there are plenty of dolts out there!

One guy who’s not a dolt, and is a very well respected and admired economist, David Rosenberg, likes to use Twitter, which is pretty cool for me, because I get to see his quotes for free! Yesterday, he posted the following to his Twitter Account: “Best economy of all time generated the first decline in real per capita disposable personal income last month since June 2017!” – David Rosenberg

He does have a way of using a pointed stick, doesn’t he?

OK… Well, the dollar’s spell over the currencies remains, and the euro took on more water yesterday. The Trading Ranges so far this week have been quite muted/ small… But the overall depreciation of the currencies remains in place… The euro, is still above the 1.09 level it was 18 months ago, but it’s also far below the 1.25 it reached last spring. And there’s just not that much going on overseas to talk about… In Australia today, they will print their latest CPI (consumer inflation) for the 3rd QTR… The experts are forecasting an unchanged level from the 2nd QTR of 0.4% growth.. That won’t get annual CPI above 2%, so you can see why the Reserve Bank of Australia (RBA) has disappointed the markets so far this year with no rate hike.

Gold never could recover from its early morning selling yesterday, and closed the day down $7… UGH! No forward momentum can be found with Gold, folks… it’s up one day, down the next two, up two days, down the next one, and so on, and so on… Just bumping along, picking up passengers … That’s right, buyers at these reduced levels seem to be ganging up, but right now, they’re just not making any difference… But they will…

Have you ever held a one-ounce Gold coin in your hand? The Maple Leaf is the shiniest, and the Gold Eagle is pretty shiny too… Once you hold a Gold coin in your hand, you get this feeling of being wealthy… Well, you may not be wealthy, but you’ve provided yourself a store of wealth, with the Gold coin… I’m just saying…

There was more evidence overnight that the Trade War with China is hurting both countries, but this time it’s China’s manufacturing… China’s official manufacturing Purchasing Managers’ Index (PMI) was 50.2 — lower than the 50.6 analysts expected in a Reuters poll and down from 50.8 in September. Gloom, despair, and agony on both economies in this Trade War… If it weren’t for bad luck, I’d have no luck at all… Gloom, despair, and agony on me..  

I made a big deal out of the increase in debt to our country yesterday, and one of the things I was all set to talk about that was related to that, escaped my mind at the time of writing… About an hour later, I realized that I had completely forgotten to talk about what was related to the spending! UGH! (A Senior moment?) Anyway… let’s look at this from another angle… Military spending is soaring, folks… And when you get down to the cheese that binds… Gov’t. spending is making up most of the gist of GDP these days… yes, if it weren’t for the Gov’t spending like there’s no tomorrow, GPD would be much lower… So, there! I finally said it! Aren’t you glad I remembered? HA! 

One of my “go-to’s” with economics questions through the years, Lisa, used to tell me, that it’s the role of government to fill in the gaps of consumer consumption…  I used to argue, why? We rarely saw eye-to-eye with things, but she made me think, and I adored her for that! 

OK… I told you yesterday that was going to talk about my dislike of the Fed today… Many of you will recall when I used to make a big deal out of a saying that I coined… Repeal 1913!  For it was 1913 that Woodrow Wilson crammed the idea of a Central Bank down the throats of Americans, and we ended up with the Federal Reserve, which by name alone is a bunk of malarkey, for there’s nothing Federal about it! 

I was asked a question the other day, that I had to really think about the answer, not that I didn’t know what to say, but more how to say it so that there were no follow-up questions… So, the question was… “Chuck, you’re always being negative of the Fed, why is that, is there some risk that they’ve added that we, the public don’t’ know about?”

Then I saw this quote and thought this says it all!  “The greatest threat to the central bank’s existence is the tendency of Fed governors and economists to pursue abstract economic theories that make no sense in real world terms and often do more harm than good. “I have written at length about how the radical policies followed by the FOMC, first under Bernanke and then Yellen, have distorted asset allocations, and the term structure of interest rates and credit spreads.

I went on to say, “think about what easy money the past 10 years has done to asset allocations and valuations? Think about about what easy money has done to the yield curve of Treasuries bonds? And think about what easy money has done to the retired people’s savings… Was all that necessary? The answer is an emphatic NO! Operation Twist, doesn’t get its due, but when the dust settles on this coming financial mess, people will look back and examine the damage that Operation Twist did to the yield curve… And ask the question… “What on earth was the Fed thinking?”

Yes, there’s risk that no one talks about… That’s why I’m 100% behind an “audit the Fed” bill… Sort of like the health care act, we won’t know what’s in there until we pass it…  

So, there it is in a nutshell, folks… My take on the Fed, and what they’ve done to our economy and our future… I really got a kick out of a recent article I read that quoted former Fed Chairman, Paul Volcker, with him really calling out Bernanke and Yellen over their complete lack of knowledge regarding deflation, and the stupid 2% inflation target…

The U.S. Data Cupboard saw the Case/Shiller Home Price Index for August fall to 5.8% from 6% in July… I told you yesterday that the big move in home prices probably hadn’t occurred yet for the August report, but that we could still see some weakness, and that’s exactly what we saw… I sure hope the Fed Heads are watching all this rot being exposed on Housing’s vine… If not, what are they watching? I heard it’s reruns of WKRP In Cincinnati… HAHAHAHAHAHA! Just kidding… Baby, if you’ve ever wondered, wondered whatever became of me… I’m living on the air in Cincinnati, Cincinnati WKRP…

In addition to the HPI… This piece of data falls under the heading of… Believe It or Don’t! Consumer Confidence for this month… Let me make that clear, this month… increased from an index number of 135 last month to 137.9 this month! And they say that most of the Consumer Confidence Index is derived from stock market performance? Well, that can’t be the case any longer, because the stock market has really pushed the exit button this month, and Confidence rose? Go figure that one!

If Consumer Confidence is so darn strong I have to ask the question, Why then are the mid-term elections next week so “up in the air?” I’m just saying, and that’s as far as I’ll go with politics…  Ask a question and then retreat… Throw a grenade, and retreat…

Today’s Data Cupboard will have the ADP Employment Change report… Which signals to me that this Friday will be a Jobs Jamboree Friday! We’ll also see the Employment Cost Index (ECI), which I bet is increasing… Unless the ADP report falls out of bed, I doubt that either of these will cause too much disturbance in the currencies’ atmosphere…

To Recap… The dollar’s spell cast over the currencies and metals remains in place this morning, with bot asset classes taking on more water this morning. Chuck is concerned with debt, as usual, but looks at it from a different angle today, which should be interesting! The Trade War with China is having negative effects to their manufacturing, as evidenced by the latest PMI print from China.  And the rot on housing’s vine is being exposed more and more with every housing report… Are you watching, Fed? 

For What It’s Worth…  Ok, I haven’t talked much about Gold price manipulation lately, so when I saw this article highlighted on Ed Steer’s letter this morning, I just had to use it for my FWIW today… So, that’s what it’s about and it can be found here: https://hedgenordic.com/2018/10/precious-times-times-ahead/

Or, here’s your snippet: “Behind the scenes, the dynamics steering the gold price are undergoing some fundamental changes that could lead to this breakout, Eric Strand of Swedish Pacific Fonder suggests. One indication, he believes, came when the CFTC (Commodity Futures Trading Commission) reported in early September 2018, that for the first time in 17 years, commercial participants in gold futures flipped their COMEX positioning from short, to being net long. Retail, and technical funds, however, now have big short positions, “which could lead to a big short squeeze”, Strand adds.

“The price of gold has been suppressed artificially for too long, Strand believes, and now may be the time for a change”.

Strand refers to Silver expert Ted Butler who has monitored the market every single day for over 30 years and describes it as follows: “Every time we’ve had a rally in the last 10 years, ever since J.P. Morgan took over the investment bank Bear Stearns, J.P. Morgan has added aggressively to its paper short division on the COMEX as retail speculators and technical funds come in to chase rallies higher. J.P. Morgan has always been the seller of last resort, and they sell whatever is required to satisfy all buying. And, ultimately, after that buying is satisfied, the prices roll over and come back down. J.P. Morgan adding short positions has stopped every rally in silver – and gold, for that matter – over the last 10 years.

J.P. Morgan never sells on the way down. They only sell and add short positions on the way up. And, when J.P. Morgan adds short positions, once they’re done selling and the buyers are done buying, the price stops going up and people turn to sell. That’s when J.P. Morgan rings the cash register and buys back all the shorts that they’ve added at lower prices than where they sold, meaning they always make a profit.”

Chuck Again…  I think this plays well in the sandbox with what I talked about earlier this morning, with regards to Gold… So there you go!

Currencies today 10/31/18.. American Style: A$.7095, kiwi .6540, C$ .7614, euro 1.1338, sterling 1.2740, Swiss $1.0060, European Style: rand 14.7025, krone 8.4295, SEK 9.1780, forint 286.36, zloty 3.8190, koruna 22.8448, RUB 65.66, yen 113.14, sing 1.3858, HKD 7.8450, INR 73.79, China 6.9629, peso 20.01, BRL 3.7104, Dollar Index 97.03, Oil $66.41, 10-year 3.14%, Silver $14.35, Platinum $836.12, Palladium $1,073.15, and Gold… $1,217.78

That’s it for today…  Except… I hear that talks with China regarding Trade/ tariffs are going on, and if they don’t come up with something, the U.S. is ready to add more tariffs to China’s bill… I shake my head , and wonder when this will all go away…  It’s raining cats and dogs outside right now, I sure hope it ends before the Trick or Treaters go out tonight!  I’ve become a candy lover, and having all this candy here waiting for tonight, is driving me crazy! I got caught stealing some Starburst yesterday…  I said, Oh, come on, we’ve got more candy here than there are kids in the neighborhood, can’t I have a piece?  OK, enough of that… I can’t wait to see the little ones tonight, as each year, I sit on the front porch, and give out candy to the Trick-or-Treaters…  Why did the mushroom get invited to the party?  Because he was a fungi! HAHAHAHA! Happy Halloween! The late great Alvin Lee and his band Ten Years After take us to the finish line today with their song: I’d Love To Change The World…  Now, it’s your responsibility to go out and make this a Wonder Wednesday, a Happy Halloween, and remember to Be Good To Yourself!

Chuck Butler

Rocktober 30, 2018

* dollar continues to cast its spell over the currencies

* Germany’s Merkel announces that she’ll step down… 

Good Day… And a Tom Terrific Tuesday to you! Almost to the end of Rocktober, can you believe that one? It won’t be long now, and all the discussion around the house will be about Thanksgiving, and when we go and cut down our Christmas Tree! WOW! On Saturdays on SiriusXM they play the top 40 songs on the 70’s on 7, from a corresponding week of the 70’s… Casey Kasem’s coast to coast… This past weekend, we were in the car, and I asked Kathy if she liked hearing songs from her freshman year of High School… Well, all I can say is that I enjoyed it! No baseball! What’s a baseball loving boy to do? I guess if I lived out in Arizona, I could watch some fall baseball, but I don’t… so I won’t! HA! S The great Rod Stewart greets me this morning with his song: Every Picture Tells A Story…

The BIG News yesterday came from Germany, where Chancellor Angela Merkel announced that she was stepping down…  This would be at the end of her term which happens to be 2021. Germany, right or wrong, had steady leadership through all the mess of the uncovering of debt in the PIIGS… (Portugal, Ireland, Italy, Greece), and the austerity plans, and the awful decision to allow so many refugees into the country… That’s my opinion, nobody else’s, so if you have a problem with me saying that, I hope you can go on without wanting to do physical harm to me!

That’s the problem in the U.S. these days, you can’t have an opinion that’s not of the ruling crowd, for if you do, you get met with physical harm… I’m just glad I can give my opinions on the internet, and the ruling crowds can’t find me! I don’t know whether to say Ha! Or I’m sorry!

OK, enough of that… The Dollar’s spell over the currencies remains in place, and yesterday, we saw more weakness in the currencies led by the Big Dog euro… Shoot, even the strong charging Brazilian real saw some profit taking and a loss, after the man they all wanted to win the election, won! Now, that, that has taken place, we’ll have to see where the real goes now… if, it’s anything like most of these politically charged currencies go, after “the fact”, the real has seen its best days… But then, we could actually see a Political leader get the things done he talked about during his campaign, and that would be good for the real… So, it’s a wait-n-see… But I’m leaning toward, the real have seen its best days…

I could be already wrong, as I just checked the real and it has recovered yesterday’s small loss and the rally continues…  We’ll see for how long… 

Gold looks to have lost about $5 on the day yesterday, and is down another $7 in the early morning trading today…  I was looking over friend, and former colleague, Omar Ayles, Gold Charts-R-Us report, and Omar thinks that Gold in technical terms is ready for a breakout upward in price… I continue to received emails from dear readers who ask me why I think that Gold could breakout upward in price, with all the manipulation that I’ve talked about through the years… And my answer, always, is simple… One day the manipulators will go home, and when they do, and Gold is allowed to reach its potential price, well, I don’t think that potential price is going to be lower than it is right now!

OK, the U.S. Data Cupboard was quite interesting with its prints yesterday… First we had Personal Income, which slowed in Sept… And Personal Spending, which also slowed, but its gain was more than Personal income, so we spent more than we made once again… And then Core Inflation slowed in September… Inflation for the year to year, fell to 2.0% from 2.2%… And this leads me right back to what I kept saying when the Fed began this rate hike cycle, and tried to tell us they were attempting to get inflation to 2.0%… You DO NOT HIKE rates when you’re trying to let inflation run… You HIKE rates when you want inflation to stop… Our Fed is backwards, which is the nice way to say that by the way… So, now rates are rising, and inflation that the Fed worked so diligently to increase, is falling… Go figure, right?

I found this on Twitter last night… It’s Danielle di Martino Booth, talking about rate hikes… “New homes sales report was very weak. It doesn’t matter where mortgage rates are, what matters is how much interest rates have increased, becoming a depressant on consumer activity. That pans out in consumption, which drives our economy.” -Danielle di Martino Booth…

But will all this put a lid on rates? Not so fast there… As I’ve said before, the Fed is hell bent and whiskey bound to hike rates further, and will continue to hike them in December… That one’s a given, right? But what would happen to the dollar’s spell over the currencies and Gold IF the Fed held back and didn’t hike rates in December, due to all the bad data in housing, and inflation? So, there, I put it out there, two months early, but that’s the risk that will be hanging over the Fed’s FOMC meeting in December, like the Sword of Damocles…

Ok, back to the currencies… I came across an article in the Business insider that can be found here: https://www.businessinsider.com.au/fx-currency-aud-australia-dollar-china-yuan-cny-tariff-trump-merkel-2018-10

But for those of you short on time… The article talks about how the Aussie dollar (A$) has become the whipping boy for the currency traders, as the Chinese renminbi continues to slide further, even after the Chinese leaders said two weeks ago that they were going to stop the daily depreciations and stabilize the renminbi… Look, I’ve said this before, but there are times when You have to repeat yourself, and this is one of those times… The weakness in the A$ can be attributed to all sorts of things, but there just one thing that if changed would reverse this weakness, and that is a rate hike from the Reserve Benk of Australia (RBA)… It was thought, last year at this time, that the RBA would be hiking rates in the 1st QTR of 2018… Well, as we all know, that didn’t materialize, and so the A$ has weakness… You can blame all the outside influences that you want, but the major blame should be laid at the feet of the RBA…

And the euro has dropped downward again… I guess some of that could be attributed to the news about Merkel, for there is now an “unknown” that the markets will have to deal with…  I think this recent bout of dollar strength, certainly gives those of you who have procrastinated and held off diversifying your investment portfolios, an opportunity to buy at cheaper levels… I always remember my former colleague, Ty Keough, who would tell people that when currencies dropped in price that “it was a good thing, because now they can buy more of them”…  So True… So True… 

I read this morning that the U.S. is going to have to finance $1.34 Trillion in the next year… That’s a whole-hell-of-a-lot-of Treasuries to issue, eh? At a time when foreign Central Banks are backing away from the Treasury auction window, and the U.S. consumer has tapped out…  I know I told you all last year that by now the Fed would be thinking about reversing their rate hikes, and begin a rate cut cycle that ended with negative rates, and a Central Bank buying stocks, and bonds…  And, well, that obviously hasn’t happened… yet that is… I still believe it will happen… 

I was talking on the phone with good friend Dennis Miller of www.milleronthemoney.com  and we touched on the subject of how all the bad things we’ve talked about that could happen, just seem to be put in corner and not allowed to come out… I reminded him of the great saying, about how the markets can remain irrational longer than you can remain solvent…  This dark cloud hanging over the U.S. and it’s debt picture, continues to amaze me that it can go on, and on, and on, and on… 

But, it all ends when the countries around the world stop buying, and using dollars for everything…  That’s why I always highlight the news of a currency swap agreement being signed that removes the dollar from the terms of the trade, like the one that Japan and China signed last week. Look, like what I have to say here or don’t… But I have to say it…  We’ve ticked off everyone in the world, and sent them to other lovers… Be it our handling of the dollar’s value, or our run up of debt, or our Trade Wars, the shine has come off the dollar folks… Which is why I’m so lost when I turn on the currency screens each day, and the dollar is till on top…  Props… I used to use a three legged stool to illustrate what happens when a leg/ Prop is removed, and the biggest Prop for the dollar is the rate hike cycle… 

The U.S. Data Cupboard today has the Case/Shiller Home Price Index (HPI) for August, which shouldn’t show the real drop that started in September, but we could still see some shaking of Housing’s foundation today…  The stupid Consumer Confidence is also going to print… This index has gotten so strong, and I have no idea, except the stock market’s performance, why, but stocks are getting sold these days, so this will be interesting… not important, but interesting… 

To Recap… Well, I climbed out on big fat limb a few times today, eh? The currencies continue to be under the dollar’s spell, Gold lost its footing, and the Business Insider things the A$ has become the whipping boy of currencies…  We as a country will need to finance $1.34 Trillion this year… Attempt to get your arms around that one, folks… and then you’ll be like Chuck who gets lost when he sees the dollar on top… 

For What It’s Worth… Well, I mentioned this above, the need to finance $1.34 Trillion this year and here’s article about just that… Put away the sharp objects first, and then click here: https://www.zerohedge.com/news/2018-10-29/americas-true-deficit-us-borrow-over-13-trillion-2018

Or, here’s your snippet: “Confirming recently reduced estimates of U.S. debt borrowing needs – mostly as a result of new funds brought in via Trump’s trade tariffs – the Treasury Department today lowered its estimates of fourth-quarter borrowings to $425 billion from the $440 billion forecast it made in July, while assuming an end-of-December cash balance of $410 billion, up from $390 billion 4 months ago.

The revised Treasury numbers bring the total net borrowing needs for calendar 2018 at $1.338 trillion, while borrowings for fiscal year 2018 (which ended on Sept. 30) amounted to just under $1.2 trillion.
The Treasury also released its first estimate of borrowing needs for the January – March 2019 quarter, which it expects to hit $356 billion, well below the $488 billion borrowed in the same quarter of 2018, while assuming an end-of-March cash balance of $320 billion.

Meanwhile, during the July – September 2018 quarter, the last of fiscal 2018, the Treasury borrowed $353 billion in net debt, up from the $329 billion it had estimated in July and ended the quarter with a cash balance of $385 billion, which was also higher than the $350 billion forecast previously. The increase in borrowing resulted from the higher end-of-quarter cash balance partially offset by higher net cash flows.
So why did the U.S. borrow $1.2 trillion in Fiscal 2018 even though the official budget deficit was reported to be $779 billion for the same period? That is mostly due to “off budget” items that Congress thinks shouldn’t be part of the normal budgetary process. It includes things like Social Security and Medicare, which vary from year to year, and can be anywhere from $200 billion to almost $500 billion.

Of course, since the U.S. Treasury ultimately ends up borrowing those dollars as the table above shows, the true deficit that adds to the debt is actually about 50% higher than the number discussed by the media.”

Chuck Again… That’s going to be a lot of Treasuries issued in the next year… I’m just saying… 

Currencies today 10/30/18.American Style: A$ .7096, kiwi .6550, C$ .7630, euro 1.1352, sterling 1.2746, Swiss $.9976, European Style: rand 14.6586, krone 8.3942, SEK 9.1735, forint 285.95, zloty 3.8116,  koruna 22.7825, RUB 65.69, yen 112.83, sing 1.3845, HKD 7.8460, INR 73.47, China 6.9538, peso 20.03, BRL 3.60,  Dollar Index 96.92, Oil $66.60, 1o-year 3.11%, Silver $14.43, Platinum $835.07, Palladium $1,085.23, and Gold… $1,222.06

That’s it for today… Tomorrow I think I’m going to get into discussions I’ve had with dear readers about why I bang on the Fed so much… So, look for that! I have no idea why I climbed out on the limb so far and so many times today, must be this new feeling I have… I’m not holding anything back any longer… So you had better watch out! Tomorrow is Halloween, and it looks like the weather people are calling for a rainy Halloween here in the St. Louis area… That’s too bad for the little guys…  R.E.M. takes us to the finish line today with their song: Losing My Religion…   (and now I’ve said too much) which is me today, I think!   I hope you can make this a Tom Terrific Tuesday, and remember to Be Good To Yourself!

Chuck Butler

 

Rocktober 29, 2018 

* Currencies are stuck in the mud…  with no 4 wheel drive vehicle to use!

* The Rot is being exposed on Housing’s vine… 

 

Good Day… And a Marvelous Monday to you! A simply marvelous weather-wise weekend here in the Midwest this past weekend… I spent some time outdoors, not much, as there’s little I can do, while I’m dealing with this gout… But… I soaked up some Vitamin D… which is always a good thing, had dinner with Andrew, Rachel and Braden last night, and I’ve been up half of the night, given I’m on my last couple of doses of steroids… Those things play hell with my sleep! My beloved Missouri Tigers got Mizzoued on Saturday, that’s all I’ll say about that, and our Blues finally played a complete game on Saturday night. R.E.M. greets me this morning with their song: Fall On Me… Buy the sky and sell the sky, and tell the sky… Don’t fall on me…

I guess that’s what a lot of stock jockeys are singing these days… But… a tree doesn’t grow to the moon, and bull markets don’t either… I am told, that nearly $ 9 Trillion in global markets have been taken off the table, and that all the U.S. indices are trading below their 200 day moving averages… That’s all I’ll say about that, but IF it’s coming to an end, it was one hell of a ride, eh? 

To Start the week this week, the markets get to digest the editorial that appeared in the Wall Street Journal late last week, written by Fed Head Neel Kashkari, who flatly states that the Fed needs to stop hiking rates… I told you last week about the speech James Bullard made that bordered on dovishness, and now this… I also told you that there were whispers going around at the Eccles Building… And now those whispers are going to change to shouts, and soon there will be waring members of the Fed, and traders won’t like that one iota… So, get ready for that…

Kashkari, reminds me of a story in the book by Danielle Di Martino Booth, Fed Up, but only the opposite…  In the book she describes how Dallas Fed President Richard Fisher, opposed the rate cuts to zero, but he was the only one… And now Kashkari opposes the rate hikes to normal… And the cheese stands alone… for now that is… 

The week that was last,  had 4 Central Bank meetings, of which there was only one that make a move, the Bank of Canada, and the other non-moves were quite frustrating, if you ask me… Norway and especially Sweden with their negative rates, need a change, to be out in front of inflation… But they chose to remain with their hands firmly planted beneath them, and the European Central Bank (ECB) decided to not move up their calls for the next rate move, which in essence should have been a good thing for the euro, because the recent data in the Eurozone has shown the effects of the Trade Wars, and there were some that thought the ECB might be moved talk about the slowing down as a risk… But they didn’t… and the euro didn’t get any love either… go figure…

OK… enough with the housekeeping from this past week. As I look at the currencies this morning I see them still being held under the dollar’s spell… They seem to be like deer caught in the headlights… Not knowing if they should hold still, jump, run, retreat, what? I find times like these to be the worst of times to write about currencies, because there’s just nothing there… Unless I want to sound once again like I’m beating a drum and waving a flag for the Russian economy, (hint, they are kicking tail and taking names later!) But… I carry on despite the inadequate amount of information available when nothing is happening!

Or talk for hours about how the Brazilian real continues to recover its losses from these past couple of years, with another big jump in the value of the real overnight. But we’ve seen how these politically charged currencies (see Indian rupee) can get pumped up, to be totally set up for a reversal when the new leader (s) can’t get anything accomplished. 

Shoot Rudy, even the Canadian dollar/ loonie, which saw a nice rally right after the Bank of Canada (BOC) hiked rates last week, has given back those gains… Man, that was quick, eh? It’s much like most things in life… gaining the objective is much easier than maintaining it! You can lose weight, but it much easier to lose it than to keep it off… And so on… So, the loonie, gave back its gains, and the price of Oil didn’t give any of the Petrol Currencies reason to gain last week.

We start the week with the price of Oil trading with a $67 handle… A far cry from the $80 a barrel that was being talked about just two weeks ago…

Gold, also seems to be stuck in the mud along with the currencies, the shiny metal was able to gain a whopping $1.20 on Friday… That’s it, that’s all, thanks for coming, there’s a nice parting gift waiting for you at the door… Johnny, tell them what they’ve won!

There was something that came across my computer screen this past weekend, and that is news that, China and Japan had signed a bilateral currency swap agreement on Friday during Japanese Prime Minister Shinzo Abe’s visit to China, sized at 200 billion yuan (28.7 billion US dollars), China’s central bank announced on its website Friday.

After all those years when there were unmentionables, from past wars, keeping these two from working out any agreements, they’ve come to an agreement that works against the dollar… Think about that for a minute and then come back…

The U.S. Data Cupboard on Friday printed the first view of 3rd QTR GDP, and it was 3.4%, certainly good enough, but well below the 4.2% of the 2nd QTR, and if you asked me over a cold frosty one, I would tell you that I would bet a shiny quarter that this will be the highest 3rd QTR Print, as I believe the following revisions will show 3rd QTR GDP to have dropped even more…  

This data takes me back to 3 months ago, when I wrote that the 2nd QTR’s GDP was like a star that’s burning out… It shines the brightest before flaming out… Not that I’m patting myself on the back or anything like that, but hey! I said it then… so why not remind everyone? HA!

Today’s Data Cupboard starts the week off with bang, as two of my fave reports will print for Sept: Personal Income and Spending, which probably won’t be good… And then Sept. Core Inflation will print…  Tomorrow’s Data Cupboard will have the Case/Shiller Home Price Index, which will be watched intently, after the past couple of months of rot on housing’s vine….  Cause and effect, folks… Apply that to the rate hikes and the rot on housing’s vine…  the definition is: the operation or relation of a cause and its effect….    I’m just saying… 

Before I head to the Big Finish today, I was reading my Things That Make You Go Hmmm… by Grant Williams last night, and he had this little ditty among all his other great passages about housing in his letter. He was talking about Commercial Real Estate (CRE) that’s circling the bowl right now, and pointed out this: “(Forbes, October 22, 2018): Bank OZK lost more than a quarter of its value on Friday after the Arkansas based lender (formerly known as Bank of the Ozarks) wrote off about $46 million in commercial real estate loans on two unrelated projects in North Carolina and South Carolina.”  

That’s right he said $46 Million in write offs of bad, or non-performing CRE loans…  I truly believe that when we look back at this mess in a couple of years, someone is going to say, “remember when Bank OZK had to write off $46 Million in CRE loans, that seems to have been the trigger”…  

OK, back to our regularly scheduled programming… To Recap… The currencies are being held under the dollar’s spell, and are like deer caught in the headlights… Gold was only able to eke out $1.20 on Friday, and is down $3.57 in early morning trading today…  Oil continues to stay down in price, and Chuck was very frustrated with the Central Bank meetings last week from Norway, Sweden and somewhat surprised by the non-fallout of the ECB meeting. 

For What It’s Worth… My oh my, what have we done? We’ve allowed this welfare state to become so massive that we border on it becoming unsustainable… This is quickie article today, folks, that includes a quote from Albert Von Mises and can be found here: https://needtoknow.news/2018/10/over-half-of-america-gets-more-in-welfare-than-it-pays-in-taxes/

Or, here’s your snippet: “More than half of Americans receive more money in various types of government transfer payments (Medicare, Medicaid, food stamps and Social Security) than they pay in federal taxes. The Congressional Budget Office reports that only the top 40% income earners in the US pay more in taxes than they receive in government transfers. Ludwig von Mises once noted that once we get to the point that a majority of the voting population receives more in benefits than it pays in taxes, then voters will demand more and more wealth be transferred to them through government programs. It will then become politically necessary to extract larger and larger amounts of wealth from a minority in order to subsidize the majority.”

Chuck again… I shake my head, and think about… no wait, Chuck, you know darn good and well that nothing good will come from what you were about to talk about, so just move along and have a good day without all the trouble… OK… but I really wanted to say… No! you don’t!

Currencies today 10/29/18.. American Style: .7096, kiwi .6560, C$ .7640, euro 1.1397, sterling 1.2837, Swiss $1.0004, European Style: rand 14.4336, krone 8.3412, SEK 9.1126, forint 284.48, zloty 3.7855,  koruna 22.6615, RUB 65.61, yen 112.20, sing 1.3820, HKD 7.8431, INR 73.26, China 6.9435, peso 19.55, BRL 3.6580, Dollar Index 96.46, Oil $67.28, 10-year 3.09%, Silver $14.68, Platinum $839.00, Palladium $1,111.95, and Gold… $1,229.96

That’s it for today… Sorry for the skip through the park on the currencies today, but there’s just not enough there to spend a lot of time with… But that will change, as it always does! Congrats to the Red Sox for their World Series Championship that was completed last night. It’s not often that the team with the best reg. season record, wins it all. (right 2015 Cardinals?) The pain in my foot joint is gone, so the gout has left… YAHOO! Thanks for the suggestions on how to deal with the gout from you dear readers…  This is my second time having to deal with the gout, but the first time was 2 years ago, so, I look at it as my body telling me to slow down… And so I did!  Next week, I’ll be writing to you from my home away from home, as I go to check up on work that’s being done… The World Series is over, so now the Free Agent signings can begin… Here’s my weekly plead to the Cardinals to get Bryce Harper…   And with that…  One of my all-time fave songs by anybody will take us to the finish line… Chicago Transit Authority’s: Beginnings…    I hope you have a Marvelous Monday, and Be Good To Yourself! 

Chuck Butler

 

Rocktober 25, 2018

* Bad Data day for the U.S. changes the course of the currencies

* And Gold continues to gain new investors… Follow the money! 

Good Day… And a Tub Thumpin’ Thursday to you! Man o man, I can’t catch a break these days with something always causing me pain somewhere in my body… I woke up yesterday morning with the gout… Now, I already needed a cane to walk with, and now I limp at the same time! A couple of days of steroids will knock that out, then what will come next? Only the shadow knows…. I’m always reminded of a TV commercial, that I used to imitate the announcers aggravating voice, and say that’s Jim he can’t skate he’s got the gout! I haven’t done that voice since my former colleague and longtime friend Ann Hopkins left the bank… She always requested that I do the voice… Ok, Loggins & Messina greet me this morning with their live version of: Angry Eyes… Well, I bet you wish you could cut me down with those angry eyes…

A nasty first part of the day yesterday, saw the euro drop below 1.14, and the A$ lose about ¼-cent, and even though the Chinese said they were going to stabilize the renminbi, that hasn’t happened, and that went through the morning, until… a couple of headlines… First, it was an article in the Financial Times that said that “Foreigners cut back purchases of Treasuries as Deficit Grows” And now we’re talking about more tax cuts? What am I living in a nightmare here or what? Ok, back to writing… The second headline was from MarketWatch that said, “New-home sales plunge to a near two-year low as housing picture deteriorates”

After the markets got a strong whiff of those headlines, the dollar bugs began backing off their assault on the currencies, and in turn, the currencies got to kick some sand in the dollar bug’s face! Will that be enough to turn this dollar strength around for good? We will know something more definitive by the end of the day tomorrow… 

Last night I was checking the currencies and saw that the kicking of the sand in the dollar bug’s faces had come to an end, as now the focus shifted to the European Central Bank and their meeting this morning…  So, after all the gyrations of yesterday and the overnight markets, we begin this morning with the currencies wearing the same clothes as last night, except for the loonie… 

The Bank of Canada, (BOC) didn’t surprise many watchers yesterday, when they hiked their internal rate to 1.75%, from 1.50%, making this the highest rate that Canadians have seen since 2008! And the loonie responded marvelously, gaining more than 1-cent! I can hear my good friend Mike Kettler, laughing right now, he always kids me that I get too excited about 1-cent, or something near that, gains… but in the whole scheme of things, a full 1-cent move in one day for a currency is HUGE… You have to remember, as I always respond to Mike, that the currency market is $5 Trillion a day in size… Large sums of money trade currencies…

The Riksbank (Sweden) left their negative (-.50%) rate remain in place yesterday, and the Norges Bank issued a communique that they will announce their rate decision today… It was just yesterday, that I talked about bad timing for these two Central Bank in that they would love for the European Central Bank (ECB) to go first, and not the other way around… Well, the Norges Bank bought themselves a day,  and all they did was leave rates unchanged at .75%…  UGH! 

The ECB has already stated that they intend to end their bond buying program at year’s end. So, that’s a start… They also have stated that the negative deposit rates would remain until next summer… The markets are so keyed up about this, and any sign, intentional or unintentional will be reacted to and found in the euro’s moves. ECB President, Mario Draghi, isn’t new at this… And I doubt he’ll slip up, so any remarks that are made will be intentional, with the hopes that it moves the markets one way or the other… In this case, I don’t think he’s going to move up the negative deposit rates, timeline for removing them, and that will leave traders with sour tastes…

Well, Gold started the day yesterday down a couple of bucks, and ended the day up about $5 bucks… The Wall Street Journal, which normally has to search their roster to find a writer that can do an article on Gold, found one the other day, and check out this heading… “Gold Regains Its Shine Among Investors”, and then followed that article up with another heading that said, “Other Market’s Woes are Boon to Gold prices”…  We’ve seen the usual Central Bank suspects, Russia, China, India, making announcements that their Gold reserves are growing , and we’ve seen some newcomers like Hungary, and Poland come around to the Central Bank Gold buying party going on… My dad always told me to “follow the money”… Where the money goes is where you should go with your money, and then he would add, that is when you get some money!”

Yes, all of these Central Banks are backing up the trucks to the Gold window because the price of Gold has dropped so much, and in my humble opinion, that’s what you should be doing too! I’m just saying… 

The U.S. Data Cupboard yesterday, had more housing data, and it wasn’t very good, as we discussed above… One of my fave economists, Danielle di Martino Booth, chimed in on Twitter that “with housing stocks down 40%, investors hope Fed gets the message”…  I found that interesting because she’s been behind the Fed’s rate hikes 100%, until now… 

As mentioned early this week, we finally get a piece of real economic data today with the print of September Durable Good and Capital Goods Orders… I expect the Durables to be negative, and the Capital Goods, which I prefer to refer to as CAPEX, which stands for Capital Expenditures, should be unchanged, which is to say… SLOW! 

After the James Bullard speech last week that we talked about on Monday, more Fed Heads hit the speaking circuit this week, and all them have had a different spin on their rate hike expectations… There’s whispering among the group, folks… Will there be an uprising? I think the Fed Heads see what everyone else is seeing, with regards to housing, and the stock market, not that they care about the stock market, tsk, tsk…   Or to put it another way, I sure hope to hell that the Fed Heads see what we see! 

I got a big kick out of a headline on the Bloomberg this morning… Get this… “• The U.S. economy is doing great. Why isn’t housing?   I can’t believe, no wait, I can believe, I just find it ridiculous to think that we’ve gone so far as to believe that the economy is the stock market…  The stock market should be a result of the economy, right? That is unless stock buybacks skewer the results…  Anyway, I hope Bloomberg found the answer to their question… 

To Recap…  The currencies got to kick some sand in the faces of the dollar bugs yesterday, after a couple of headlines warned that rate hikes are slowing the economy, at a time when debt is exploding higher… But the overnight markets took those gains off the table, and we’re back to the same clothes as yesterday for the currencies, ahead of the ECB meeting, taking place as I write.  Gold is getting warmed up in the bullpen for a late inning save for investors… wink, wink… 

For What It’s Worth… I’ve long been a big fan of James Grant and his Interest Rate Observer newsletter… Jim is a deep thinker folks, and his comments aren’t usually available to anyone outside of his subscriber list, so when I see them in the public’s view, I grab them immediately!  Ed Steer found them first, so kudos to Ed… But here’s James Grant talking about interest rates…  and can be found here: http://thesoundingline.com/james-grant-if-interest-rates-normalize-the-national-debt-will-cost-more-than-the-military/

Or, here’s your snippet: “It took rates exactly ten years to go from 2.25% in 1946 to 3.25% in 1956. Now already, we have gone on the ten-year from 1.375% to 3%. So rates have more than doubled in the course of two years. So the tempo… now would seem (to be) a bit more brisk… Mortgage activity has been dampened. Companies that have borrowed at floating rates are now having to re-budget. You know the federal government has got some debt and it has been paying the most concessionary rates. I think less than 2% on average. So, if the interest bill for the federal government were to go back to… 6%… on $18 or $20 trillion of market holdings, the interest bill would surpass the defense budget… Look at the number three (3% interest rates), of course it’s a small number, and it is small as measured against the evident rate of inflation. So, since the past 50 or so years, the 10-year treasury security has yielded something like 2.7% in excess of the rate of inflation on average… So the rate of inflation now is generously reckoned at… 2%… that would make the 10-year yield not at three-ish but at four-and-a-half-ish or higher and I think that would truly bite… People say, for that reason, it can’t happen. We cant afford that. Well, just because it would be inexpedient doesn’t mean it can’t happen.”

Chuck Again… yes, I’ve said this before, and this looks like a good place to say it again, and PLEASE pardon the language, I’m just repeating it as said by then Presidential Candidate Trump… “If interest rates get to 4%, we’re screwed”…  

Currencies today 10/25/18. American Style: A$ .7078, kiwi .6522, C$ .7756, euro 1.1401, sterling 1.2895, Swiss $1.0003, European Style: rand 14.5302, krone 8.3260, SEK 9.1047, forint 284.30, zloty 3.7822, koruna 22.6471, RUB 65.45, yen 112.27, sing 1.3795, HKD 7.8397, INR 73.08, China 6.9393, peso 19.60, BRL 3.7006, Dollar Index 96.33, Oil $66.86, 10-year 3.13%, Silver $14.72, Platinum $827.00, Palladium $1,095.00 and Gold… $1,232.60

That’s it for today and this week…  I know if you’re a fan of either team in the World Series, the games are interesting, but for me, they can’t hold my attention very long. Maybe it’s the pace of the game with all the commercials and time spent adjusting batting gloves, but something’s not right for me this year…  It’s a BIG GAME this Saturday for my beloved Missouri Tigers, who will take on the #12 rated Kentucky Wildcats… Come on Drew Lock, you’ve got to beat this team once in your time at Mizzou! The Great Carlos Santana takes us to the finish line today with an oldie but goodie, classic rock song: Black Magic Woman…  The first time I ever heard Carlos Santana was when I went to see the Woodstock movie. I Immediately found my way to the record store to buy a Santana album! that was 1969…  Almost 50 years ago… WOW OK, let’s see what we can do to make this a Tub Thumpin’ Thursday, and Fantastico Friday! And remember to Be Good To Yourself!

Chuck Butler 

Rocktober 24, 2018

* Currencies get sold in the overnight markets

* Gold gains $8.20 on Tuesday, but needs to go on a roll! 

Good Day… And a Wonderful Wednesday to you! Well, I received a high five from my oncologist yesterday, but she reminded me that the wolf (metastatic cancer) is always at the door, and we should continue the chemo treatments… I liked, and pointed it out to her, that she said “we should continue the chemo treatments.” I told her that unless she’s going to get up at the time of day that I get up to take that medicine on an empty stomach, with me… Than “we” should come up with another way of saying that… Of course I laughed, she laughed, and she sent me to the infusion center as my punishment! HA! So, life is good for me right now, no active cancer in me at this moment in time… YAHOO! And the Beatles greet me this morning with a very appropriate song: Getting Better… I have to admit it’s getting better, it’s getting better all the time, (It can’t get no worse!)…

OK, that’s out of the way… I don’t have any bombshells to lob your way today, like I did yesterday… And the currencies just drifted yesterday with some booking some small gains, and others with small losses, it was a nothing day for the currencies, except… The Brazilian real, which trades outside the grid, if you will, and is not included with anything other than the BRICS… And the real has been on a very strong run for over a month now… A few years ago, the real was the best performing currency of the year! And then the trap door sprung under the real, and down she went, down, down, down… So, the first to worst title is owned by the real… Now, the question is… Can the real go worst back to first? I’ll leave that for you to decide, but if you decide to take a flyer on the real, please be careful and watch it like a hawk!

But as I look at the currencies early this morning, they have a different look to them than they did yesterday, and this look isn’t a good one for the currencies, as in the overnight markets they got sold further… I’m not seeing the justification for al this dollar strength, but it’s here, and so we have to batten down the hatches once again. UGH!

Gold couldn’t hold onto its early morning gains of nearly $13 yesterday, but did end the day up $8.20 to close at $1,229. I’m wondering what it’s going to take to get Gold on a roll, here… I noticed last week in the Commitment of Traders (COT) report that the Commercials had gone long gold futures…  Hmm… Apparently that news isn’t going to do the trick, so we’ll have to look for something else…  I guess, and this is my mea culpa, that the big move in the price of Gold that I thought we would see by the end of summer didn’t materialize…  I still believe that this will happen, but don’t have any timeline in mind at the moment. Not that giving a timeline makes it come to reality, right? 

The price of Palladium has really pushed the appreciation envelope lately, and as I understand it, this is because of a lack of supplies issue… Remember a few years ago, when Palladium and Platinum were the stories each day with their increases, and then one day it was no more? Well, that came about because Russia delivered a Truck load of the metals to the markets…   The question this time is… Will Russia be so quick to help out the West this time? 

The only thing I have for you that could be considered a bombshell, is the news that President Trump “Jerome Powell was endangering the US economy by raising rates and that he “maybe” regretted nominating him”

Unfortunately, for the President who is by nature a lover a low rates, and understands inflation, he did the deed, and he hired the Fed Chairman that has hiked rates 3 times so far this year, and will most likely do so again in December.  And this is reality, not reality TV, so, while it’s theoretically true that Powell could be “fired”, it’s not going to happen… 

Well, a couple of weeks ago, there was a lot written about how the price of Oil was heading back to $100… I even got caught up in it, thinking that the Hurricane hitting the Gulf of Mexico would be the lynchpin of a move for the price of Oil to reach $80…  But that didn’t materialize, as I explained last week, Oil supplies here in the U.S. have seen a huge ramping up and then I talked earlier this week about how China stopped buying Oil from the U.S. which was probably the cause of those supplies increases…  So, as I write this morning the price of Oil is trading with a $66 handle.. 

In Central Bank news… The Bank of Canada (BOC) meets this morning and most likely will hike rates 25 basis points or 1/4%, which would help the loonie out given the hit it is taking from the drop in the price of Oil.  

The Norges Bank and Riksbank (Norway & Sweden) are meeting as I write, but their timing couldn’t be more bad, given that the European Central Bank (ECB) meets tomorrow, and the Norges Bank and Riksbank would love to know what the ECB is going to say before they make any moves, so I don’t expect anything from these two today, and as far as the ECB goes, I’m hoping that they will be more upfront with their plans for the unwinding of their stimulus policies, that, my friends would go a long way toward helping turn around the euro… 

The Indian rupee has gotten a stay of execution from Currency traders as the price of Oil slips.. India is one of the countries that benefits from a lower Oil price, as their Current Account Deficit, doesn’t take so many hits…  On the other side of the Coin… The Russian ruble benefits when the price of Oil is in rally mode…  So, here are conflicting countries that are both a part of the BRICS (Brazil, Russia, India, China, S. Africa).

I read a report this morning on the Bloomberg that the writer was of the opinion that Oil’s rally wasn’t over yet, and this pullback in the price of Oil is temporary at best…  Hmmm…  no mention of the supplies… I’m just saying… 

It’s also PMI Day around the world…  Today and tomorrow, we’ll see the PMI’s (manufacturing indexes) from most countries… The Eurozone has already printed their PMI for Rocktober… And they weren’t pretty…  I took this from the Financial Times… “The purchasing managers’ index for the eurozone fell to 52.7 in October, down from 54.1 in September, and the lowest figure for 25 months. “The slowdown is being led by a drop in exports, linked in turn by many survey respondents to trade wars and tariffs, which appears to have darkened the global economic environment and led to increased risk aversion.” -Financial Times 10/24/18

The U.S. Data Cupboard will have the Markit version of PMI’s today, so it will be interesting to see if the Trade War is affecting the U.S. too… I suspect it is… 

To recap…  The currencies drifted yesterday, but are getting sold in the overnight markets. The Eurozone printed their latest PMI, and it dropped, due to the Trade War… The Trade War is beginning to show up everywhere folks… Gold gained $8.20 yesterday, but just can’t seem to find the umph to go on a roll… and President Trump “may regret” nominating Jerome Powell as Fed Chairman… 

For What It’s Worth… When I saw this on Ed Steer’s letter this morning, I about blew a gasket! Paul Volcker speaking? WOW! This has got to be good, I thought to myself, and it was, and now it ended up as my FWIW article today, and it can be found here: https://www.zerohedge.com/news/2018-10-23/paul-volcker-trashes-fed-washington-plutocrats-worlds-hell-mess-every-direction

Or, here’s your snippet: “While we have grown used to Alan Greenspan’s flexible world views appearing regularly among US media channels, when former Fed Chair Paul Volcker speaks, it’s low frequency nature tends to make on pay attention, and he is not optimistic about the state of the world… at all.

When he looks around now, he sees “a hell of a mess in every direction,” including a lack of basic respect for government institutions.

“Respect for government, respect for the Supreme Court, respect for the president, it’s all gone,”he said.

“Even respect for the Federal Reserve.”

“And it’s really bad. At least the military still has all the respect. But I don’t know, how can you run a democracy when nobody believes in the leadership of the country?”

…a current Fed that seems to be following a completely arbitrary benchmark…”I puzzle at the rationale,” he wrote. “A 2 percent target, or limit, was not in my textbook years ago. I know of no theoretical justification.”

…and a “swamp” in Washington run by plutocrats.

“There is no force on earth that can stand up effectively, year after year, against the thousands of individuals and hundreds of millions of dollars in the Washington swamp aimed at influencing the legislative and electoral process.“- Paul Volcker

Chuck again…  Well, respect is earned, and that’s all I’m going to say about that!

Currencies today 10/24/18.. American Style: A$ .7091, kiwi .6544, C$ .7636, euro 1.1400, sterling 1.2910, Swiss $1.0027, European Style; rand 14.1793, krone 8.3230, SEK 9.0832, forint 283.37, zloty 3.7732,  koruna 22.6510, RUB 65.35, yen 112.65, sing 1.3801, HKD 7.8417, INR 72.96, China 6.9374, peso 19.31, BRL 3.6918, Dollar Index 96.36, Oil $66.72, 10-year 3.14%, Silver $14.71, Platinum $826.28, Palladium $1,133.98, and Gold… $1,228.65

That’s it for today…  Well, the World Series began last night…  The Red Sox won the first game, which ended much later than I could bear to stay up for…  If you ever want to get depressed quickly… Visit a Cancer Center’s Infusion Center… I used to spend a lot of time in those centers, and don’t wish that on anyone! OK, Chuck, no need to bring everyone’s spirit down… move along here…   I wonder what’s on the agenda today? I haven’t a clue, and that’s a good thing… spontaneity!  Ok, get ready for this one… Humble Pie, takes us to the finish line today with their song: I Don’t Need No Doctor…  A young Peter Frampton was an important piece of that band… ( a little rock trivia for you today!)  I hope you can get out make this a Wonderful Wednesday, and remember to Be Good To Yourself!

Chuck Butler 

 

 

 

 

Rocktober 23, 2018 

* The dollar continues to hammer on the currencies

* Gold rallies in the early morning trading on Asian fears… 

Good Day… And a Tom Terrific Tuesday to you! I forgot to mention this yesterday, so here goes… 36 years ago, this past weekend, I witnessed a Game 7 World Series victory for my St. Louis Cardinals… The night is strong in my memories of the evening. We drew tickets out of hat, and I got Game 1 and Game 7, the other ticket went to a young lady that worked for me at the time, named Kate… So, we bundled up and went to the game… There’s a picture of me and Andrew (he was a baby) at the victory parade the next day, that I proudly display on my writing desk’s pin up board… I was quite a bit smaller in size, and had hair! So, there you go! Blood Sweat & Tears, greet me this morning with their song: You’ve Made Me So Very Happy… I sing this all the time, but I get ignored… HA!

Alrighty then… I’ve got a bombshell to talk to you about this morning, but first, we need to get you the info on the currencies and metals… Yesterday, the euro kept sliding downward in the 1.14 handle, as I watched on OAN News, Italy is prepared to present their deficit laden budget to the European Commission today… What’s will the Eurozone leaders say about this budget? Well, if I were king, I would tell them to go back, sharpen their pencils, and to not return until they’ve cut the deficit in half!

The Eurozone leaders probably will be more diplomatic than old “shoot from the hip, Chuck” But that’s just leaves the door open for negotiation, and in things like budgets, getting hard numbers to meet is a better process… I know, I went through 39 years of “Budget negotiations”…

So, that’s what’s weighing down the euro right now… Italy is the 3rd largest economy of the Eurozone, so it would be like the state of New York, which is 3rd in GDP size behind Texas and the leader California, having major budget problems… The good news from the press conference in Italy was that the Italian leaders were emphasizing their intent to remain in the Eurozone and with the euro…

OK,  who did it? Who shined the light on the Aussie & kiwi dollars and brought the markets focus to their recent stealth rises? Remember I told you to be Shhh… not to wake up the markets?… But somebody had to be the loud mouth. HA!  But here’s the thing I want to say about these two currencies… They are known as Commodity Currencies… Now we all know that commodities do well in a rising inflationary environment… They also do well, when Commodities enter a bull market like they did in the early aughts… So… if inflation, (and I know all to well it’s affecting me!) is affecting everyone, and is rising again, which is why the Fed claims it is hiking rates every 3 months, then Commodities and the Commodity Currencies would be looked at to rally… I’m just saying… 

OK, I’ve held this back for this long, but I’m like a horse champing at the bit… So, here goes!

I wrote a long piece for the DTL group on derivatives a couple of months ago… And I’ve talked about it here… But, In the piece, I explained that no one, and I mean no one, fully understands the delivery method of when all these derivatives begin to get executed…  The systemic risk is off the charts folks… I’m serious about this!   And then yesterday, I saw a video clip of a former NY Fed Banking Regulator basically say the same thing, and made the point that, “Ex-bank regulator: We don’t understand ‘how systemically broken the system is.”

OMG! Pack the bags, turn out the lights the party is over folks… Here’s a link to the video, and then come back and read the rest, you’ll be fuming out the ears at that time… https://finance.yahoo.com/news/former-bank-regulator-dont-understand-systemically-broken-system-155149941.html

It’s not a question of IF another financial crisis is going to hit us, it’s more a question of “when”, in my mind… Oh, and I do recall that former Fed Chair, Janet Yellen told us that there were no chances of another financial crisis… So, we should all feel free to throw more money into stocks, and forget about Gold… right? Well, I’m not buying that one… And while I feel like Frank the Tank in the movie when he thinks everyone is following him and his streaking, only to find out he was alone… It’s not going to deter my fears of this whole thing blowing up, right… before… your… eyes…

And guess who the Ex NY Fed Bank Regulator’s main bank was that she was assigned to?  Yes, Goldman Sachs…  Figures, right?  Lola doesn’t want to calculate or even acknowledge the systemic risk of these derivatives, and The Fed allows them to do this.. I’m so mad, right now that I’m going to go yell at the walls!   I’ve had to deal with Bank regulators for years on years, and they never gave an inch! But for Lola… they get the whole darn yardstick! 

OK, move along Chuck before you say something that gets you into hot water!  I really didn’t have to say much at all, just point people toward the link of the interview on YAHOO…   But I had to throw my two cents in, and get my blood pressure all worked up and I have to go to the doctor this morning. That’s not going to look good when they check my blood pressure! 

Well, Gold lost $4.80 yesterday, but is up nearly $13 in the early morning trading today… The turnaround’s reason is pointed at the Asian stock markets, led by China… After a two-day rally in this region’s stock markets, Traders began to question, China’s ability to provide enough Global Growth to push the other countries along, and that question, got the stock markets in Asia selling stocks and buying Gold… 

It’ll be interesting to see if this fear carries over to the U.S. markets today, as of right now, the stock futures here in the U.S. are down significantly…  Remember in January 2016, when there were HUGE fears in the markets about China? Capital flows out of China were hinging on having very negative affects on the Chinese economy, and the stock jockeys got scared, and stocks dropped for a few weeks?  This could be the snow flake that causes an avalanche in stocks… But then that’s not my cup o’ tea, so I’ll just leave that there, and say to the stock sellers, welcome to Gold… 

To recap…  The dollar bugs have the hammer and they keep swinging it at the currencies…  Gold lost $4.80 yesterday, but is up nearly $13 this morning on Asian fears…  Chuck found an interesting interview on YAHOO, with a former NY Fed Banking Regulator, who says, that we don’t know the systemic risk of derivatives… Hmmm, I’ve heard that somewhere before, where was it? …. Oh, that’s right I said that plenty of times before! 

For What It’s Worth…  I’ve talked a lot about the exits of countries all over the world from the use of dollars as a main currency in their system, and this article talks more about that, and it’s relationship with Gold… And it can be found here: https://www.rt.com/business/441807-emerging-countries-stockpiling-gold/amp/

Or, here’s your snippet: “In the near future we can witness a big change in the rules of the game. At the beginning of the year, developing countries were the first to feel investor panic. If a crisis in Latin America and South Asia doesn’t surprise anybody, now is the time to worry about the largest economies of the world,” Mikhail Mashchenko, an analyst at the social network for investors eToro in Russia and CIS told RT.

“The aggressive U.S. policy in recent years has forced some countries to look for an alternative to the dollar and replenish their gold reserves. Worries about the future growth of global economy are an additional incentive for purchases. Many question Donald Trump’s protectionism,” the analyst added.

There are signs that the global financial system dominated by the U.S. dollar could collapse, says financial institute FinIst analyst Denis Lisitsyn. These signs include the uncontrolled emission of money from different countries, an increase in U.S. interest rates, trade wars, the rapid rise in energy prices, geopolitical tensions in Syria, Iraq, the war in Yemen, he says.

“Many countries are buying gold in advance. They understand that paper money is constantly eaten up by inflation, equities will sharply fall in price in case of a crisis, and foreign deposits can be arrested, confiscated or frozen,” he said.”

Chuck Again… I have to thank the RT for sending me their headlines each day, they sure look different from the headlines here…  And they’re in English, so it’s not the language that’s different! 

Currencies today 10/23/18… American Style: A$ .7071, kiwi .6555, C$ .7630, euro 1.1460, sterling 1.2980, Swiss $1.0042, European Style: rand 14.3672, krone 8.2803, SEK 9.0250, forint 281.57, zloty 3.7485, koruna 22.5278, RUB 65.33, yen 112.32, sing 1.3790, HKD 7.8390, INR 73.43, China 6.9378, peso 19.36, BRL 3.7002, Dollar Index 95.98, Oil $68.18, 10-year 3.15%, Silver $14.73, Platinum $826.58, Palladium $1,136.49, and Gold… $1,234.80

That’s it for today… recall I told you yesterday that today’s letter would be shorter, and it is!  Our Blues blew another game last night after having a lead late in the game, this time in overtime… UGH! It’s been a slow start for our Blues, but… in my opinion, I would rather see that and build on the season, than to start fast and fade, like they have the last couple of years… Well, will this be the oncologist meeting where she tells me I don’t have to take chemo any longer, at least for now? Because I’m fully aware that the wolf is always at the door!  My body needs a break… I’m just saying…  Ok, here’s a twist today… Chris Stapleton takes us to the finish line today with his song: Tennessee Whiskey… (I loved that song!)  Now, go out and make this a Tom Terrific Tuesday, and Be Good To Yourself!

Chuck Butler

 

Rocktober 22, 2018  

* China is getting back at the U.S…. 

* Currencies & metals drift lower… 

Marvelous Monday to you! The chilly, raw, gray days of last week, turned to sun filled, but still quite chilly days this weekend… I’m a sun worshiper, if you haven’t figured that one out yet, and anytime you have the sun shining it’s a good day… And a Good day was had at Mizzou’s Homecoming on Saturday. It was just last week that I was reminiscing about past glorious Mizzou Tiger Teams, and on Saturday they honored the 1978 team! My Tigers won the game too! We watched the game at a local establishment with friends, Kevin, Lisa, Denny and Nan… A good time was had by all! And I attended another soccer game with grandson Braden, playing this time… I always remember when I coached young boys in soccer… I don’t talk about soccer much, but I sure played it a lot when I was a young man in S. St. Louis, where soccer was king! Stevie Ray Vaughn greets me this morning with this song: Pride and Joy… Now that one will wake up the house!

They say, “Payback is a b&%#”… And that’s what China’s doing to the U.S. for the U.S.’s tariffs on Chinese exports… It was reported last week that China had sold a basketful of Treasuries for only the second time in their history of buying Treasuries. Reuters reported late last week that, “China has sold $3 billion of sovereign dollar bonds. This is only the third such move by Beijing in the last 14 years, and the first involving bonds with a 30-year maturity.

China sold $1.5 billion of five-year bonds at 3.25 percent, $1 billion of 10-year bonds at 3.5 percent, and $500 million of 30-year bonds at four percent.”

Reuters says that this info came courtesy of the Finance Ministry… Well, now this is a horse of a different color is it not? Oh, and that’s not all… China stopped buying U.S. Oil… No wonder, as I reported last Thursday, the U.S. supplies have grown… That was nearly 335,000 barrels per day, but that all stopped in September…

So, as I’ve said over and over again, this dance is gonna be a drag… no wait! I’ve said over and over again that no one wins in these Trade Wars… The U.S. is placing tariffs on everything Chinese, and the Chinese are hitting the U.S. back, and when it comes to Treasuries, and who’s buying them to finance the debt, that’s akin to hitting below the belt… But all’s fair in love and war, right? UGH!

And before we get to the currencies and metals, let me say that China selling Treasuries at this time when the U.S. is issuing more and more of them to finance our exploding debt, is not what the doctor ordered for the economy, folks… And the President sees it… he gave out homework assignments to his Cabinet members late last week, telling them to come back with 5% cuts to their budgets, he did say that the military was not included in this assignment…

Oh, and one more thing to discuss in depth this morning, and that is St. Louis Fed President, James Bullard, and his speech last week… Before we begin, something to remember here is that Bullard isn’t on the Fed’s rate setting committee, but will be come next year.

Remember when I told you that one of the reasons the dollar was still hanging around was that all the Fed members were singing from the same song sheet, and traders love it when there’s harmony at the Fed… Well, that all changed last Friday, when Bullard decided to speak the truth… He said that “unlike other Fed officials, he sees no reason to believe the underlying trend growth has risen beyond the range 1.7% to 2.1% that policymakers estimate as the economy’s current potential. As a result, Bussard said the Fed Fund Rate should stay where it is currently at a range between 2.0% and 2.25%, until something clearly changes for better or worse. Further rate increases would be taking somewhat more recession risk than otherwise, unless the economy continues to outperform.”

His talk didn’t gain much press, folks… Wonder why? Well, I have my thoughts, but I’ll keep them to myself… Bullard has been known to sway Fed members in the past, so when he gets back on the FOMC in January, things may change…

Dollar traders didn’t pay any attention to the Bullard speech, and the dollar continued to hold the hammer. But it was swinging the hammer too much on Friday, more just holding it over the currencies and metals with the threat that it could hammer away at any time. The euro remained just above 1.15, and the Aussie and kiwi dollars were sneaking up the ladder in the darkness… Shhh! Don’t make a scene otherwise their climb will be seen and that will be the end of that!

The overnight markets have ignored the Bullard speech also, and have gone about selling euros and anything that isn’t a green/peachback. The moves are huge or anything, but they are responsible for the euro dropping back below 1.15 this morning. 

And after a day or two of profit taking in the Brazilian real, the currency has gotten back to rallying… The Political scene in Brazil continues to excite real traders… I’m just going to say this one more time… betting on politics in currencies can seem like a good way to invest, but I’ve seen that road strewn with land mines along the way too many times… So, be careful here…

Not that I’m patting myself on the back for this call, but my dad did always tell me to toot my own horn, because you can’t depend on someone else tooting it! Remember when the tax reform act went through, and I told you that it wouldn’t be for you and me, but more for Corporations, and In my opinion, it won’t get put to good use, as the Corporations will just use the extra cash to make more stock buybacks… Well, that’s exactly what’s taken place… And this caught one of my fave economists’ eyes…. Danielle Di Martino Booth’s decided that all these stock buybacks should have been used to correct underfunded pensions…She took it further and pointed out 5 BIG Companies that have been doing stock buybacks while their pensions remained underfunded… “Danielle DiMartino Booth of Quill Intelligence who picked out a few of the more standout firms whose “enthusiasm for funding pensions was subpar compared to buyback” include: American Airlines, Boeing, GE, Lockheed Martin, and AT&T…

Way to go guys… leave those pensions underfunded for you’ll be long gone before that comes to a head… I shake my head in disgust…

OK… Gold eked out a $1.20 gain on Friday, but has given that back and a couple of bucks more this morning as the shiny metal is looking at a loss this morning of $3.50, as I write… That’s easily wiped out though, so, come you Gold Traders! Gold finished last week on the positive side of the ledger for the week, and that made two consecutive weeks that Gold has boked weekly gains VS the dollar. I saw some graphs this past weekend that pointed out that the huge day that Gold had 13 days ago, was indeed, what I thought it looked like, a short squeeze…  

There are still more shorts in Gold & Silver than you can shake a stick at, and so that leaves us with the potential that we could see more days like that going forward. I’m just saying… 

The U.S. Data Cupboard left the country wondering if Housing is about to take a dive here in the U.S. after last week’s housing data proved to be yet another month of weaker data… But that didn’t bother the dollar bugs… And this week, there’s really no real economic data until Thursday, when Durable Goods Orders and Capital Goods orders will print for September… Remember what I’ve always said about this data and have told you for years on years, that Capital expenditures or CAPEX is the most important piece of this data… When an economy is going strong, CAPEX is strong, companies are spending money on their plants, equipment, space, etc. That’s what helps a strong economy along, for it puts so many people to work…   

But we wont see that until Thursday, which means the dollar should be subjected to selling, but since that’s not happening already this morning, there’s another sign that fundamentals still don’t amount to a hill of beans when valuing a currency… Wait! What am I saying here? The U.S. economy is strong and robust and will continue to be that way for the time being… Isn’t that what the Fed Heads keep telling us? The markets get their clues about the future from the Fed… Which brings me back to the Bullard speech last Friday, I still can’t figure out why the speech got no media coverage, and traders ignored it… Hmm…

To recap…  Friday was a day for drifting in the currencies and metals, but the overnight markets last night has seen the dollar swinging the hammer once again.  China is beginning to do things to offset the tariffs, as the Trade War escalates!  Fed St. Louis, President, James Bullard, spoke on Friday, and basically said he didn’t think the Fed should hike rates any more. But the markets ignored it… 

For What It’s Worth… I’ve long been telling you about how Russia was building an alternative to SWIFT, which is the international money delivery system… Well, it’s finished now, and Russian companies are using it, and soon it will open up to International clients… This was sent to me from longtime reader Bob, and he found it on zerohedge.com and can be found here: https://www.zerohedge.com/news/2018-10-19/foreign-banks-are-embracing-russias-alternative-swift-moscow-says

Or, here’s your snippet: “On Friday, one day after Russia and China pledged to reduce their reliance on the dollar by increasing the amount of bilateral trade conducted in rubles and yuan (a goal toward which much progress has already been made over the past three years), Russia’s Central Bank provided the latest update on Moscow’s alternative to US-dominated international payments network SWIFT.

Moscow started working on the project back in 2014, when international sanctions over Russia’s annexation of Crimea inspired fears that the country’s largest banks would soon be cut off from SWIFT which, though it’s based in Belgium and claims to be politically neutral, is effectively controlled by the US Treasury.

Today, the Russian alternative, known as the System for Transfer of Financial Messages, has attracted a modest amount of support within the Russian business community, with 416 Russian companies having joined as of September, including the Russian Federal Treasury and large state corporations likeGazprom Neft and Rosneft.

And now, eight months after a senior Russian official advised that “our banks are ready to turn off SWIFT,” it appears the system has reached another milestone in its development: It’s ready to take on international partners in the quest to de-dollarize and end the US’s leverage over the international financial system. A Russian official advised that non-residents will begin joining the system “this year,” according to RT.
“Non-residents will start connecting to us this year. People are already turning to us,” said First Deputy Governor of the Central Bank of Russia Olga Skorobogatova. Earlier, the official said that by using the alternative payment system foreign firms would be able to do business with sanctioned Russian companies.”

Chuck Again… I know this snippet was long, but I think it’s THAT important for you to know that the dollar’s days of being the reserve currency of the world is nearing an end… And don’t think for one minute that I want to see this happen… I’m just one of the few people in the world that will tell you that it’s happening…

Currencies today 10/22/18… American Style: A$ .7101, kiwi .6577, C$ .7680, euro 1.1488, sterling 1.2996, Swiss $1.0030, European Style: rand 14.3186, krone 8.2340, SEK 8.9840, forint 280.87, zloty 3.7297, koruna 22.3765, RUB 65.48, yen 112.82, sing 1.3791, HKD 7.8392, INR 73.42, China 6.9287, peso 19.31, BRL 3.7095, Dollar Index 95.79, Oil $69.22, 10-year 3.19%, Silver $14.62, Platinum $833.83, Palladium $1,090.89, and Gold… $1,223.01

That’s it for today… A long one today, but I had lots to say, so you got your money’s worth today. HA! And tomorrow’s will be shorter, as I have a doctor’s appt. early in the day that I’ll have to get to… Last week, heart doctor, this week oncologist…  But the oncologist appt. should be a good one, given my scans results last week…  The TV Execs. got their wish, and the World Series will be the Red Sox and Dodgers, and I doubt I’ll pay much attention to the games, because I can’t bring myself to root for either team!  They are “coast teams”… And my dad taught me that coast teams have an advantage, so to never root for them… I taught the same thing to my sons! Depeche Mode takes us to the finish line today with their song: Policy of Truth…  I hope you have a Marvelous Monday, and remember to Be Good To Yourself!

Chuck Butler

Rocktober 18, 2018

* Gold hasn’t been able to follow up it’s big gain… 

* Fed meeting minutes send bond yields higher! 

 

Good Day… And a Tub Thumpin’ Thursday to you… I’m hoping to include myself in your Tub Thumpin’ Today, because, well, I can! How about that! I had a nice meeting with my heart doc yesterday, and well, I feel good! I woke up this morning with the alarm, and I was in the middle of an interesting dream, so I turned the alarm off, and hoped I would return to the dream… That didn’t happen, but I did begin a new dream! And so, why this letter is later than usual… The Dodgers and Red Sox have leads in their respective League Championship Series. Boy the TV executives would be happy with that World Series matchup…. 10CC greets me this morning with their song: Dreadlock Holiday…

So, yesterday, the dollar continued its rebound from the night before, and pushed the euro down to just above 1.15. There wasn’t anything data wise to rally the dollar, in fact, if you want to get down to the cheese that binds, U.S. housing was weaker in Sept. than in August… A sign? Well, maybe, we’ll have to watch it… And on top of the weaker data in housing… The markets had this to contend with:

President Donald Trump plans to withdraw the U.S. from a 192-nation treaty that gives Chinese companies discounted shipping rates for small packages sent to American consumers, another escalation of his economic confrontation of Beijing.

Instead of us backing up a bit because the economy seems to be shaking at its foundation with these Tariffs, we go a step further, and the dollar rallies? I guess one of these days, I’ll get to sit at the grownups table and hear how all this happens… But until then… I’m as confused as you as to why the dollar bugs continue to party…  One day, it’s “sell the dollar, the tariffs are awful.” And the next day it’s “buy the dollar, the tariffs aren’t that bad”… Pick one, please!  I was driving on the interstate yesterday, and there was a car in front of me that couldn’t decide which lane they wanted to be in… I stayed back and kept saying, come on, pick one, I don’t care, which one, just pick one… 

That’s the message I would like to give to the traders of currencies and metals…  Look, the world is turning its back on the dollar, but you dollar bugs don’t care, for you have a Central Bank that’s going to keep hiking rates, come hell or high water! But it’s all going to come crashing down on you one day… and not to far in the future, either!  So, go ahead, dance your dance today, for tomorrow, the music may be gone… 

Well, yesterday’s BIG EVENT under the circus tent was the release of the Fed’s Meeting Minutes from their last meeting in Sept, when they hiked rates… The minutes were pretty much what I expected them to be, a rate hike jamboree among the Fed Heads, with most of them being hawkish, and that got the bond guys all frazzled, and the next thing you knew was bond yields climbing higher once again… The 10-year Treasury’s yield is back to 3.21% this morning… 

I have to question these guys for this move, for what in those minutes surprised you? I mean the Fed Heads hike rates last month at the meeting, did they expect the Fed Heads to be Eeyore on them or what?  Another case of young traders, not looking behind the curtain, around the corner, and under the hood for clues as to how they should trade… 

The price of Oil plunged $2 in the past 24 hours on news that U.S. storage of Oil has really bulked up…  And the Petrol Currencies saw some slippage too. I have to question this drop in the price of Oil too, given what’s going on in the Middle East, and all the saber rattling going on right now… But I’m not going to spend an enormous amount of time thinking about it for it is what it is… 

Ok… Lola is singing again… do you hear her?  Lola is what I call Goldman Sachs… The old saying was, “what Lola wants, Lola gets”, which is how I view Goldman Sachs…  Well, Lola apparently doesn’t like the Trade War, and tariffs…  Here’s something that I think will begin to filter through the markets…  “US sanctions policy against Russia undermines dollar’s reserve currency position” – Goldman Sachs. 

We’ve already hear the Ford Motor Co., Harley Davidson, and a few other U.S. companies complain about the tariffs, and now Lola decides to throw her 2-cents into the ring… Soon, we will begin to hear more calls to end the tariffs… At least that’s how I see it, and how things have worked before whenever Lola decided how she wanted things to go… 

Gold lost a couple of bucks yesterday, and well, I’m disappointed that Gold hasn’t been able to follow up last Thursday’s $30 rally…  Since then, Gold has been back and forth, up and down, with no follow through, and that usually doesn’t bode well for an asset, when there’s no follow through, folks… 

The U.S. Data Cupboard had the Housing Data (starts and permits) yesterday, and both showed a big drop in numbers from the previous month… And then a quick look at Mortgage Applications shows another big drop in the past few weeks…  Other than a couple of outlier weeks, mortgage applications haven’t been this low since 2000…  Oh, and the reason? Well, there’s a perfect storm here working against housing… 1. Home prices are too high, and 2. Mortgage rates are bumping up against 5%…   

But not to worry, there’s no chance of another housing crunch… NOT! There’s a HUGE chance of another housing crunch, with the Fed on the rate hike cycle that doesn’t look like it can stop!  I can’t help but to keep pointing out that the Fed started this rate hike cycle very late in the growth cycle for the economy, and that’s never worked out for a country… I’m just saying… 

And all this debt…  We just booked another year of extraordinary debts, and we’re already off and running in the new fiscal year, with $138 Billion in debts already booked in the first 11 days of the new fiscal year… I’ve got a good piece on this in the FWIW section today… Which asks the question that I keep asking… Who’s buying our Treasuries to finance this debt explosion? 

To Recap…  The Fed Meeting Minutes were the Big Event under the circus tent yesterday, and from the reaction of the bond guys, they were surprised at how hawkish the Fed Heads were… Chuck calls them out for this thinking…  President Trump upped the ante on the Trade War, with China, and the dollar rallied… Chuck wants a seat at the adults table so he can learn how this happens, and Gold dropped 2 bucks on the day, with no follow up from last Thursday’s $30 rally… 

For What It’s Worth…  OK, I already gave you a hint as to what this is about.  Debt is exploding and someone has to be buying our Treasuries… This article explores that question, and can be found here: https://wolfstreet.com/2018/10/16/who-bought-the-1-6-trillion-of-new-us-national-debt-treasury-securities-foreign-domestic/

Or, here’s your snippet: “

As a flood of US debt washes over the globe, someone has to buy.

So far in this fiscal year, which just started on October 1, the US gross national debt – the total debt issued by the US government – has jumped by $138 billion in just 11 business days, fueled by a stupendous spending binge and big-fat tax cuts, to a breath-taking $21.654 trillion, after having jumped $1.27 trillion in fiscal 2018. And these are the good times!

So who owns and buys all this debt? This is a critical question going forward, because the flood of new debt inundating the market is spectacular, and someone better buy it. Today we got another batch of answers from the US Treasury Department’s TIC data on this increasingly edgy topic.

In August, foreign private-sector investors (banks, hedge funds, individuals, etc. outside the US) and “foreign official” investors (central banks, governments, etc.) owned $6.287 trillion of marketable Treasury securities. This was up $37.6 billion from August last year but was about flat going back to the beginning of 2016.

Over the same 12-month period through August 31, 2018, the US gross national debt jumped by $1.614 trillion. So who bought it?

The Biggest holders didn’t buy, they shed: 

China’s holdings of Treasury securities have been inching down ever so gingerly with its holdings at the end of August at $1.165 trillion, down $37 billion from a year earlier.

Japan’s holdings fell by $72 billion year-over-year to $1.03 trillion and are now down by $210 billion from the peak at the end of 2014″

Chuck again… No sign of who is buying though… and it’s all beginning to become quite suspicious to me, how about you? 

Currencies today 10/18/18… American Style: A$ .7144, kiwi .6573, C$ .7667, euro 1.1518, sterling 1.3108, Swiss $1.0069, European Style: rand 14.2339, krone 8.2116, SEK 8.9666, forint 279.50, zloty 3.7280, koruna 22.4405, RUB 65.43, yen 112.46, sing 1.3778, HKD 7.8391, INR 73.42, China 6.9233, peso 18.90, BRL 3.7119, Dollar Index 95.53, Oil $69.05, 10-year 3.21%, Silver $14.51, Platinum $828.00, Palladium $1,066.00, and Gold… $1,224.00

That’s it for today…  And this week…  Man, I sure don’t like having to get our the long pants and long sleeve shirts for these chilly days… I’m a shorts, and golf shirt kind of guy. Getting dressed for chilly days, is like putting on a suit of armor for me… UGH! See how quickly I became that? Just 1 year removed from going to an office every day! At least once a week from now until something is announced, I’m going to be begging the Cardinals to sign Bryce Harper…  And with that… the group called Madness takes us to the finish line today with their 80’s song: Our House… (that’ll make Rick happy! HA!) I hope you have a Tub Thumpin’ Thursday today, and a Fantastico Friday tomorrow, and remember to Be Good To Yourself!

Chuck Butler

 

Rocktober 17, 2018

* Currencies rally, then fall back, over and over again!

* Rubles are best overnight performer… 

Good Day… And a Wonderful Wednesday to you! I have to get this buttoned up and out the door in a timely manner this morning, as I follow up yesterday’s 3 scans with an appt. with my heart doctor later this morning. I don’t know about you, but this switch in baseball to having bullpen pitchers begin their parade of pitchers in the 4th inning or before, has gotten on my nerves! When I was a young man, pitchers pitched 9 innings, and the only guys in the bullpen were washed up pitchers with hurt arms that could only go 1 inning or so… Bob Gibson, the greatest pitcher I’ve ever seen, completed 255 games in his career… He won 251 games, so there were games that he started and finished but lost! Juan Marichial and Warren Spahn, started a game that lasted 15 innings, both starting pitchers were still in the game at the end! Is baseball like everything else, it goes too far one way before it comes back? I certainly hope so! I listened to side 1 of Chicago’s 2nd album last night… My imagination took me back to 1972, when I first heard that music and my socks were knocked off me by the wall of sound! And I was only playing the album on a portable hi-fi record player! I mention that because Chicago greets me this morning with their song: Hard Habit To Break…

Well… I guess the old Butler Household Index (BHI) still carries some weight. I told you yesterday that September Retail Sales would be weak, and they were only gaining 0.1%, and losing -0.1% when you take out car sales… The Spin Doctors and not the ones that sang Two Princes, immediately began to spin a yarn about how hurricane Florence skewed the data… I always refer to economist guru, David Rosenberg, for the official take on this… and this is what he had to say on his Twitter feed yesterday…

“Some pundits are blaming Florence for the slide in food sales. We went back to all the 8 big hurricanes back to Hugo in ’89 and nothing came close to a 1.8% plunge; 7 actually saw gains in restaurant sales, & the avg was +0.5%.”

OK, that puts that attempt to spin the data to bed! Thank you David Rosenberg! My longtime readers believe me when I tell them things, but there are quite a few new readers to the letter, that want more proof when I say something, and when I get the opportunity to pull out a BIG GUN like David Rosenberg, then that goes a long way to showing them I can be trusted!

Well, the currencies didn’t exactly take liberties with the dollar on that weak Retail Sales print yesterday, and if anything they gave an inch back… But the moves were small… Nothing to write home about, and so we start today with the euro having rallied to close to 1.16 yesterday, only to give back most of that move in the overnight trading, and start today trading 1.1530… UGH! Tug and push, tug and push, and do it some more!  Where’s the trend? 

I got to thinking yesterday, when I was waiting for my turn in “the room” to be scanned… Retail Sales have now been soft for two consecutive months… And the Fed’s take? We’re going to keep hiking rates… Well soft Retail Sales now, will really be helped out a lot in the future, with 4 more rate hikes, eh?  NOT! I get it though… The Fed believes inflation is going to go to the moon, and they’ll be behind the inflation 8-ball unless they keep hiking rates… Well, my point is that the Fed is already behind the inflation 8-ball, and have been for some time, as inflation continues to push against the Fed Fund rate, and normally, I’m told, the Fed keeps rates about 130-150 Basis Points above inflation… Hmmm… Hello? Houston? We May have a problem! 

The Big mover in the currencies overnight has been the Russian ruble… It was reported there yesterday that more than $40 Billion will be invested into the Russian economy… And then Lola… you remember Lola, the girl that gets whatever she wants, and is my nickname for Goldman Sachs, because they always seem to get what they want too, issued a report calling out the U.S. Sanctions on Russia…  Better be careful Lola… Oh, that’s right, you can’t be fired! HA! 

Just when I was prepared to talk about how the Chinese looked like they were readying the renminbi for a 7 handle… It was reported by the GATA folks yesterday that — China’s top central banker today pledged to keep the yuan currency’s value “broadly stable,” a sign that Beijing may be trying to prevent a bruising trade dispute with the United States from spilling over into a currency war.”

Well, we’ll see about that, because it was just a month ago that the Chinese declared that they weren’t doing what they’re doing to the renminbi… And for a few days the currency remained steady Eddie… But then the Trade War numberbs began to come in, and soon the renminbi was back to daily depreciations by the PBOC… (Peoples Bank of China)… And at last look on Monday the renminbi had fallen from 6.29 last Feb. to 6.92… And to narrow that range a bit, a month ago the renminbi was 6.84… So, the rot is quite evident on the vine of the renminbi, but we can thank our lucky stars that the daily depreciations have stopped… Or so says the PBOC… I guess we’ll have to wait-n-see, eh? 

Well, I was wrong, it took too long, I got caught in the rush hour… No wait! I was wrong about the Sept. Industrial Production print yesterday… While it WAS weaker than August, it was still better than I expected it to be at +0.3%… And Last week’s dumping of stocks, seems to have rebounded a bit, so the stock jockeys have that going for them! There’s not much in the data cupboard for today, unless you get goose bumps with Housing Data, or Fed Meeting Minutes…  We won’t see real data until Friday when we’ll see the color of the latest Leading Indicators, which along with Capacity Utilization, are the only two “looking forward” pieces of data we look at, the rest are all viewed in the read view mirror. 

To recap… The Data was mixed yesterday… and the dollar got sold for awhile, until the dollar bugs realized the stock market was rallying, and in the overnight markets the currencies lost their gains… Tug and push, tug and push, where’s the trend? That’s Chuck’s dilemma this morning, and every morning these days! Chuck gets David Rosenberg to debunk some claims about Hurricane Florence’s affect on the economy… And the Russian ruble was the best performer overnight. 

For What It’s Worth… I really dropped the ball on Monday when I completely forgot to talk about the announcement that Sears had filed bankruptcy… Sears… Let me repeat that, the once almighty Sears has file bankruptcy… And this was the story in our local paper that described the problem, and it can be found here: https://www.stltoday.com/business/national-and-international/sears-files-for-chapter-amid-plunging-sales-massive-debt/article_c976773e-c613-5a25-a3e1-65cddba516d0.html#utm_source=stltoday.com&utm_campaign=BreakingNewsNewsletter&utm_medium=email&utm_content=A12874506A3B5805DDED6C95AF30D7173DF7C77A

Or, here’s your snippet: Sears filed for Chapter 11 bankruptcy protection Monday, buckling under its massive debt load and staggering losses.
The question now is whether a smaller version of the company that once towered over the American retail landscape can remain viable or whether the iconic brand will be forced out of business.

Sears, which started as a mail order catalog in the 1880s, has been on a slow march toward extinction as it lagged far behind its peers and incurred huge losses over the years.

“This is a company that in the 1950s stood like a colossus over the American retail landscape,” said Craig Johnson, president of Customer Growth Partners, a retail consultancy.”

Chuck Again… Debt… See? It even negatively affects the BIG Guys, when it’s never paid back and continues to pile up! I’m just saying… 

On a sidebar Sears was BIG part of my life as a young man, as my parents had a revolving credit card at Sears, (long before Visa and Master Charge youngsters!) and that meant everything we owned, wore, played with was bought at Sears! There was a HUGE Sears building about 1/2 mile from the house, and we would walk there to get new jeans, etc. I thought that Sears owned the world back then… 

Currencies today 10/17/18…American Style: A$ .7120, kiwi .6565, C$ .7704, euro 1.1530, sterling 1.3112, Swiss $1.0068, European Style: rand 14.2629, krone 8.1768, SEK 8.9456, forint 279.67, zloty 3.7237, koruna 22.4160, RUB 65.42, yen 112.25, sing 1.3762, HKD 7.8376, INR 73.43, China 6.9139, peso 18.84, BRL 3.7216, Dollar Index 95.40, Oil $71.55, 10-year 3.16%, Silver $14.68, Platinum $838.95, Palladium $1,080.34, and Gold… $1,226.00

That’s it for today… Ok, let’s get this out of the way…  My oncologist called me yesterday afternoon, to tell me that the scans revealed that there was no sign of active cancer in my body!  The new Chemo I’m on, has really done the trick, but for how long before my body adjusts to it? And there is a spot that they’re concerned with, right now, that’s so small… so if they aren’t going to worry about neither will I!  I thank all you dear Pfennig Readers that have had me in your thoughts through the years that I’ve been battling this awful disease… And I thank the Good Lord, for allowing me to live all these years…  Ok… out the door to listen to the hear doc complain about my weight…  I hope you have a Wonderful Wednesday, and remember to Be Good To Yourself!

Chuck Butler

Rocktober 15, 2018

* Gold soars on Thursday, is the bottom in?

* Stocks get stomped last week… 

Good Day… And a Marvelous Monday to you!… The pictures of the devastation from Hurricane Mathew are not stuff you really want to see any time… I hope everyone evacuated and were safe… I guess the weather people weren’t kidding around last week when they said that it would cool down by the weekend! It was downright chilly! And you know me, here I go again, complaining about colder weather! HA! I hear you saying, Oh no, here he goes again!.. My beloved Missouri Tigers football team, didn’t fare too well playing Alabama on Saturday, but then I don’t think anyone expected them to! UGH! The Band, Missouri, greets me this morning with their one hit wonder song: Movin’ On… That one and Blackfoot’s song: Highway Song, are two of my faves to play when I’m driving long distances…

Well! How about that move in Gold on Thursday? Up nearly $30 at $29.20… to close at $1,223.60, and at one point in the day it was as high as $1,230! I was having lunch with good friend Duane, when he checked his phone and said “the stock market is getting hammered again today, does that mean Gold should be going higher?” I said, well, yes, theoretically, but we’ll have to see… Well, it didn’t take long before I checked my phone and saw Gold ratcheting higher and higher on the day… And I immediately thought… “Short Squeeze”… And then went back to enjoying my lunch!

But that’s what it appeared to be on Thursday, a major short squeeze… The good news for Gold holders, is that this short squeeze has pushed Gold above its 50-day moving avg. and is bringing it near a Fibonacci replacement figure… that would be HUGE, for the price of Gold, and would play well in the sand box of what I kept telling you last spring that Gold was set for a major upward move by the end of summer…

But then along came Friday… And Gold’s luck looked to have run out, but… the daily downward move wasn’t enough to wipe out the fact that Gold has had two consecutive weeks of being on the rally tracks! And in the overnight markets last night and early morning trading today, Gold is up almost $8, to $1,230… So, it’s game on Garth, game on Wayne, for Gold… 

And guess what other asset class was the beneficiary of the stock rout? Treasuries… bond were bought at a brisk place, and pushed the yield on the 10-year downward to 3.14%… Early last week the yield has risen to 3.24%… I know you’re not a bond guy/ girl, but 10 Basis Points move in bonds is a big move,

You can’t say that I haven’t been telling you that all this was going to happen… I could see it in my mind, in my dreams, and feel it in my heart, and all my years of experience… Sure, most times I’m way ahead of the actual goings on, but… I don’t need to say anymore!

The currencies saw some love as we finished the week last week, and looked  healthier than they were a week ago. A quick glance at the Dollar Index shows us that last Monday the Dollar Index was trading at 96.12, and this morning, one week later, it’s trading at 95.01…  So, put that in your coffee and take a sip, because it doesn’t taste good for the dollar bugs, but it’s sweet for the non-dollar campers. 

The euro is trading toward the 1.16 handle this morning, which is upward…  A couple of weeks ago, I stated that the so-called safe havens were getting sold and wondered what the heck was going on there? Well, I don’t have to wonder any longer, because the so-called safe havens are back! Japanese yen, Swiss francs, the euro, Gold, and Treasuries, have all rebounded and appear to have turned the corner… 

The U.S. Data Cupboard was pretty lame last week, and I called it a dead air week… But this week starts off with a bang! Today we’ll see Sept. Retail Sales… Now, recall that August was OK, and that had back to school spending, so I’m expecting September’s report to show Retail Sales weak… At least that’s what the BHI indicates it will be! Then on our Tom Terrific Tuesday, we’ll see two of my faves… Industrial Production and Capacity Utilization… Again, I expect them both to be weaker than the August prints. And then the Data Cupboard takes a break on Wednesday, with only the Fed’s Meeting Minutes printing, and on our Tub Thumpin’ Thursday, we get back to real data, and the leading Indicators for the economy will print… So, if all goes as I suspect, this week for the Data Cupboard, the dollar won’t be getting any love, because of weaker data. 

Not that I want to get into the stock jockey business of writing about stocks, but that selloff last week was pretty ugly, and Friday saw a bounce back, and all I read about this weekend was that “things were going to get back to normal for stocks”… But then in the overnight markets the Asian markets got sold off by more than 1%, and that case a dark cloud this way…  

In a previously written Dow Theory Letters piece, I went through the rot on the vine that stocks incur when the country goes into a recession… Are stocks just getting a head start on the recession, or is the recession already here?  I think it’s a case of the former right now… And that’s all I have to say about that! 

The price of Oil, saw a pullback in its rally last week, and now attempts to rally back. The goings on with Saudi Arabia, and the missing journalist, are playing into the price of Oil, folks, don’t kid yourself on iota… President Trump is making harsh warnings to Saudi Arabia, and they continue to deny any wrong doing. 

I read an interesting article this past weekend that talked about how the economic sanctions on Iran could turn into a 1970’s like, oil crisis…  A very interesting take on what’s going on in Oil…  I don’t recall where I read it, but if you want to find out more, I’m sure you can Google 1970’s-like oil crisis and find it… 

To recap…  Gold soared on Thursday last week, saw some profit taking on Friday, and is back on the rally tracks today. Has the bottom been put in for the shiny metal? The dollar is under attack from the return of the so-called safe havens… The euro is moving upward toward 1.16 again, and all the other currencies have fallen in line behind the euro, as usual.  

For What It’s Worth… The euro continues to be held hostage by the goings on in Italy. We’ve discussed this previously, and when I saw this on zerohedge.com I thought it played well with what I’ve been talking about, and you can find it all here: https://www.zerohedge.com/news/2018-10-11/ecb-blackmails-italy-obey-eu-budget-rules-or-we-wont-save-you

Or, here’s your snippet: “Reuters reported that the ECB won’t come to Italy’s rescue if its government or banks run out of cash unless the Italian government first secures a bailout from the European Union. Of course, this would almost certainly require that the populist coalition end its ongoing game of fiscal chicken with Brussels and abandon its dreams of lowering the retirement age and extending a basic income to the Italian people – policies that would effectively secure a political future for M5S and the League.

In effect, the ECB’s latest trial balloon is tantamount to blackmail: Either the Italians agree to fall back in line and obey European budgetary guidelines, or the central bank will sit back and watch as bond yields surge, providing the ratings agencies even more ammunition to cut Italian debt to junk – effectively guaranteeing a Greece-style banking crisis as the liquidity taps are turned off.

And to eliminate any lingering doubts that this was a deliberate coordinated leak, Reuters cited “five senior sources familiar with the ECB’s thinking,” many of whom were “present at the economic summit in Indonesia.” Of course, the ECB sources explained that they are merely acting in the best interest of the monetary union. Because if Italy is allowed to shake off the yoke of European austerity and re-assert its sovereignty, then what would stop Spain or Portugal from doing the same?

Now, if Italy instead embraced the path of fiscal discipline, the ECB would be more than happy to backstop the country’s debt via Outright Monetary Transactions (the never-used program adopted by the ECB in 2012 to restore confidence in the euro and euro-area debt amid a burgeoning debt crisis).

Chuck Again… As the article points out… Even if the Italians won’t back off their ill-advised plans to pass their budget through, the ECB can strongarm them into submission…  

Currencies today 10/15/18… American Style: A$ .7135, kiwi .6535, C$ .7682, euro 1.1593, sterling 1.3017, Swiss $1.0143, European Style: rand 14.4393, krone 8.1527, SEK 8.9583, forint 279.03, zloty 3.7040, koruna 22.23.95, RUB 66.01, yen 111.83, sing 1.3764, HKD 7.8375, INR 73.71, China 6.9173, peso 18.82, BRL 3.7817, Dollar Index 95.01, Oil $71.84, 10-year 3.15%, Silver $14.81, Platinum $851.00, Palladium $1,090.00, and Gold… $1,230.40

That’s it for today… No Pfennig tomorrow… I have to show up at the hospital for a scan very early in the morning… I always ask for these first thing in the morning appointments, for I know that there won’t be any delays, and backups… I thought that the actions of one Alabama football player were despicable on Saturday night, and why he wasn’t ejected from the game and suspended for games, is a mystery to me…  This coming Saturday is Homecoming for my Missouri Tigers… I loved it when my older kids were at the U. of Missouri… For it gave me the push to go to games, etc. The Turtles takes us to the finish line today with their song: Happy Together…  I hope you have a Marvelous Monday and remember to Be Good To Yourself!

Chuck Butler