February 16, 2021
* Currencies & metals have a rough end of the week…
* But the overnight markets, last night, bring about dollar selling!
Good Day… And a Tom Terrific Tuesday to you! Well, I sure hope you had a nice weekend… I’ve heard from folks back in the MidWest, and they didn’t have a nice weekend, as frigid cold temps and multiple inches of snow put the kyboshes on most Valentine’s Day celebrations… My darling daughter Rachel was kidding when she asked me yesterday if I missed the weather there, and I replied, “yeah, I miss it like the plague”! It was sunny, a little breezy, and 80+ here yesterday… Now that, I can truly appreciate! I finished reading a book that I thoroughly enjoyed.. the book’s title is: The Spy and the Traitor, by Ben Macintyre… It’s nonfiction, but it kept me on the edge of my seat… One of my fave people in the world, Allison Baur, was given the name Allison Road, by me, when she was a young girl… And her smiling face always lights up a room… And The Gin Blossoms greets me this morning with their song: Allison Road… In honor of my favorite Allison!
Well, well, well, what do we have here? To start our day today, I have an interesting thought for you to consider… Do you recall the feel the day… the music died? That song is on my mind this morning, as I relate it to the news over the weekend from the good folks at GATA… So, here we go… remember when I told you that I had doubts about whether or not the Trust company that stores the physical Silver for the Silver ETF, actually had the physical Silver to back up the total ounces represented by the ETF’s? Ok, in case you forgot, there’s your reminder… Now keep that in mind as I tell you about how The silver exchange-traded fund SLV appears to have just amended its prospectus to acknowledge difficulty in sourcing metal for the fund.
The amendment warns that the fund now may be vulnerable to a “dramatic” short squeeze — like the recent short squeeze in GameStop shares that caused a worldwide sensation. – UH-oh…
So, bye, bye Miss American Pie… ETF holders of SLV now have to worry about whether or not the Trust Company has the physical Silver or not…. Questions 67 & 68!
Ok, now that’s a way to start a letter with a HUGE insinuation right from the get go! HA!
The currencies & metals didn’t have good days on Thursday and most of Friday… And the Dollar Index which on Thursday morning was 90.39, and on Friday at the close, the Index was 90.48… The euro held in there for the most part, and began to come back on Friday late in the trading day. Gold & Silver didn’t fare well either day… Gold lost $19 on Thursday, and 40-cents on Friday… Silver did better, but still lost on Thursday 5-cents, and on Friday Silver gained 20-cents… Gold Closed on Friday at $1,824, and Silver closed at $27.46
Friday’s price action in Gold was something to behold… At one point in the day it was down to $1,810, down $14, but then it came roaring back to close at $1,824, down just 40-cents on the day… One would have thought that this comeback in Gold would have carried over to Monday’s trading, but with the U.S. markets closed for the President’s Day / Mattress Sale Holiday, Gold lost $5.90 to close yesterday at $1,819.40 and Silver closed at $27.66
In the overnight markets, the dollar is back on the chopping block, with the Dollar Index falling to 90.14, the euro climbing, and dragging the other currencies along. Gold is down 80-cents in the early trading and Silver is up 6-cents… So, no real movements here with the Gold & Silver… Copper on the other hand is up to $3.81 this morning.. Another strong move higher for the base metal..
Ok, enough of that… I was sitting around the pool yesterday with some friends from our building, when of the ladies said, “Chuck can tell us about this”… She continued, “I read where China is attempting to take over the reserve status of the dollar”… I said, well, this all began in 2009, when China began signing currency swap agreements with its trading partners, removing the dollar from the middle of the terms of trade… I then explained that China works on 100 -year plans, so this is not something that’s going to happen overnight, but it is something that China has been working on .I then explained that China needed deeper currency markets for the renminbi, and larger more open bond markets, and once they have established those two things, they can work on easing investor’s minds that the currency is from a Communist nation…
Another currency that investors just can’t get warmed up to, is the Russian ruble… Russia gets blamed for everything, but… What they don’t get blamed for is the expertly way they’ve been able to grow their economy while the U.S. and Eurozone economic sanctions remain in place. But… if you can get past the fact that its Russia’s currency, then you would find one of the very few currencies that still pay interest on deposits… And you would also find a currency that’s so tightly tied to the price of Oil… As the countries of the world begin to spool up their respective economies, the price of Oil will, in my opinion, rise again, and that bodes well for the ruble..
Already the ruble has in the past 10 days rallied alongside the rise in the price of Oil… And speaking of the price of Oil, it has risen to trade with a $59 handle this morning… Talk about looking forward when trading…
Ok, remember me saying that I wasn’t jumping on the pound sterling bandwagon? For those of you who aren’t following me here… A couple of weeks ago, I talked about how the pound sterling was rallying, and really outperforming most other currencies, and I questioned the reason for the rally, saying to be careful out there…. And then over the weekend this blurb showed up in my email box…
“The U.K. economy contracted by 9.9 percent in 2020, initial estimates from the Office for National Statistics showed on February 12, 2021. A study of historical data by the Bank of England shows that recession to be the worst since 1709, the year known as the Great Frost, an extraordinarily cold winter in Europe, what was then a largely agricultural economy”
Ok, so markets look forward, and not backwards, so they don’t care about the economy contracting 9.9% last year… But when you come from that low of a figure for economic growth, and the reasons for the contraction are two-fold, with 1. Being the pandemic, and 2. Being the U.K.’s debt levels, and neither of those two have gone away… One has to wonder what the markets are looking at in the future to warrant this rally in sterling… I’m just saying…
Inflation fears are rising folks… I talked a lot about inflation and the fears of inflation last Thursday, so if you missed that discussion, simply go to www.dailypfennig.com and read it there… One of the key indicators that inflation fears are rising is the performance of the base metal, Copper… And Copper, of which I’ve only very recently been reporting the price each day, has gone from 3.62, to 3.81 in price in the past few weeks… Now, you might think that this move higher for Copper isn’t much compared to Bitcoin’s latest move, you would be right, unless of course you remembered, with my help of course, that copper is bought in HUGE quantities… So, to buy a Ton of Copper for wiring etc. this move in price would be very damaging to your bottom line…
And to add further on these inflation fears… The yield on the 10-year Treasury is on the move to higher ground, and this morning it trades with a 1.26% yield.. That’s nearly double the yield it traded at a few months ago… The Bond Boys are telling us something, and I think it’s all about inflation…
Did you hear the news late last week that the U.S. is moving along with their own version of a digital currency? Just remember when one day you wake up to find that your dollars in the bank are now digits, that I warned you in the summer of 2020…
And speaking of digital currencies, China has moved along with the implementation of their own digital currency, testing it in a few cities in the mainland… So, far, so good, but then you wouldn’t expect to hear anything other than things were fine, from the Chinese, right?
The U.S. Data Cupboard was guilty of non-performance last week, but it will redeem itself with this week’s fare of economic reports, and it all gets started tomorrow, with January reports of Retail Sales, Industrial Production and Capacity Utilization… So, the dollar gets to trade without burden of weak data another day today…
To Recap… The currencies & metals ended last week on a down note, but in the overnight markets the dollar is back on the chopping block and all the anti dollar asset classes are on the rally tracks… The U.K. just printed its worst economic performance since the “cold winter” and still pound sterling rallies… And Chuck points out that the bond boys are telling us that inflation is rising with the rise of bond yields…
For What It’s Worth… I have to say that, while I’ve heard this speech before, it really lit the lightbulb over my head to bright! This is James Rickards, talking about a method used by FDR back in the 30’s to spur inflation, and how it should be used today… And it can be found here: The Only Way Out of the Death Trap – The Daily Reckoning
Or, here’s your snippet: “I’ve said the U.S. is caught in a debt death trap. Monetary policy won’t get us out because the velocity of money, the rate at which money changes hands, is dropping.
Printing more money alone will not change that.
Fiscal policy won’t work either because of high debt ratios. At current debt-to-GDP ratios, each additional dollar spent yields less than a dollar of growth. But because it must be borrowed, it does add a dollar to the debt. Debt becomes an actual drag on growth.
The ratio gets higher, and the situation grows more desperate. The economy barely grows at all while the debt mounts. You basically become Japan.
I’ve written about it before, but it bears revisiting, especially since there are newer readers who may be unfamiliar with it. Here’s how they can do it:
The Fed can call a board meeting, vote on a new policy, walk outside and announce to the world that effective immediately, the price of gold is $5,000 per ounce. They could make that new price stick by using the Treasury’s gold in Fort Knox and the major U.S. bank gold dealers to conduct “open market operations” in gold.
The Fed will be a buyer if the price hits $4,950 per ounce or less and a seller if the price hits $5,050 per ounce or higher. They will print money when they buy and reduce the money supply when they sell via the banks.
The Fed would target the gold price rather than interest rates.
The point is to cause a generalized increase in the price level. A rise in the price of gold from $1,900 per ounce to $5,000 per ounce is a massive devaluation of the dollar when measured in the quantity of gold that one dollar can buy.
There it is — massive inflation in 15 minutes: the time it takes to vote on the new policy.”
Chuck Again… Yes, it would create inflation and yes it would help with the debt levels, but… it would massively reduce the buying power of your dollars… So… it would behoove you to have at least a 20% allocation of physical Gold in your investment portfolio… So, when your dollars get whacked, your Gold will be there to offset the losses in the dollar… I’m just saying…
Market Price 2/16/21: American Style: A$ .7796, kiwi .7260, C$ .7918, euro 1.2166, sterling 1.3928, Swiss $1.1265, European Style: rand 14.4520, krone 8.3661, SEK 8.2594, forint 293.87, zloty 3.6907, koruna 21. 1378, RUB 73.36, yen 105.37, sing 1.3229, HKD 7.7523, INR 72.71, China 6.4568, peso 19.99, BRL 5.3684, Dollar Index 90.14, Oil $59.80, 10-year 1.26%, Silver $27.72, Platinum $1,299.00, Palladium $2,460, Copper $3.81, and Gold… $1,818.60
That’s it for today… man am I ever getting bad at remembering birthdays! I need to implement a calendar and record them and have them pop up each day to remind me to mention them! Last week, for instance, I forgot to mention the birthday of one of my fave people, Lisa Yanker… I sure hope her day was grand! My computer still thinks I’m in St. Louis, and it gives me the weather each day when I turn it on… And this morning it said the temp was 0…. YIKES! Winters like I remember them being, Cold, and full of snow! Hmmm… You don’t think that, no, it couldn’t be a return to the weather cycle of nasty winters… Something to think about! The great guitar player, Elvin Bishop takes us to the finish line today with his song: Traveling Shoes… I hope you have a Tom Terrific Tuesday, and Please Be Good To Yourself!
Chuck Butler