China & The U.S. Rethink Their Heated Exchange Of Words!

June 27, 2018 

* Currencies spin their wheels yesterday, but get sold overnight

* Gold gets whacked again… But Oil jumps higher!

Good Day… And a Wonderful Wednesday to you!  Crazy weather day yesterday, with wild storms in the early morning, sun and warm weather midday, and then followed by wild storms again to end the day. Robert Plant and the Honeydrippers greet me this morning with their song: Sea of Love..  I’ve always appreciated Robert Plant’s singing, whether he was with Led Zeppelin, the Honeydrippers, going solo, or even his duets with Alison Krauss… 

It was a day of spinning wheels on the wet pavement, yesterday, in the currencies, little movement up or down in the euro, and the other major currencies. The Asian currencies are still under siege, as traders feel that they will be hurt badly by the Trade War.  On the outside of the Trade War, the Emerging Markets are still getting whacked for their lack of liquidity, and the rising costs of their dollar denominated debt, because of the Fed’s rate hikes.

I was surprised to see the euro hang so tough yesterday. For once it wasn’t European Central Bank (ECB) President, Mario Draghi, doing the honors of throwing the euro under a bus, but his partner Luigi, no wait,   ECB official Peter Praet told reporters that  the central bank remains in no rush to normalize monetary policy,  as the board member pledges to retain the zero-interest rate policy (ZIRP) ‘as long as necessary to ensure that inflation developments remain in line with current expectations of a sustained adjustment path.   Ahh, those pesky Central Bankers, always making life difficult for their base currency… 

In the overnight markets though, the euro sellers gained control and found a weak spot, and drove through it, to bring the euro down 1/2-cent…  So, maybe the words of Praet did do the trick…  You see, the leaders in the Eurozone aren’t country bumpkins like me, they see this Trade War as something that’s going to raise prices in the Eurozone, and slow the nascent economy, and so they’re doing everything they can to keep the euro from rising in price, thus making their exports more expensive too… 

There’s a great discussion on the Bloomberg this morning about how President Trump is the first president to point out the imbalances with European trade… I’ve talked about this for years, how Germany has a such a HUGE trade surplus, and I wished we could just buy Germany…  But we can’t… The Eurozone is like that bundle of mortgage loans that get put in a bond… There are some mortgages in that bundle that you would like to “cherry pick” as they say, and some mortgages you wished they hadn’t put into the bundle..  

I told you yesterday that the leaders of the China and the U.S. were having second thoughts about their plans to enter a Global Trade War… And yesterday, president Trump got into acquiescing going on by saying that may take a less confrontational approach, and that any measures would not just target China. The Senate, meanwhile, is considering options to limit the president’s authority to unilaterally impose tariffs on national security grounds.   

Have you ever had an argument with someone and the words get really heated, and when it’s over you realize that there were some words spoken that should have been spoken?  This is what the U.S. and China are going through right now. It doesn’t mean they will kiss and make up, it just means that the harshness of the tariff threats will be watered down some after the two parties go back to their rooms and think about what they said…  I don’t think anyone said anything like, “your mother wears army boots”, which was a real doozy of a put-down back in the day, but these days the kids would probably look at you and say, So?

Gold didn’t get an opportunity to rally back yesterday, after starting off down $8 in the early morning trading, the shiny metal spun its wheels too all day long…  And ended the day down $6…  All this spinning wheels, has me thinking of Blood Sweat & Tears, Spinning Wheel… here’s a link to hear that song if you’re interested… 

OK, I’m not the sharpest tool in the tool box when it comes to technology, and how to use it… It took me a number of years to find out that I can listen to just about any song on record by pulling up the YouTube link… A dear reader sent me a note last week with a link to YouTube to watch a young lady play the guitar, after I listed my fave guitar players… She was very good! 

Alright nice try to hijack this letter from currencies, economies, and dolts, Chuck but it won’t work! People come here for information on those things not your latest YouTube finding! 

The price of Oil sure has rebounded… And all this move coming after Saudi Arabia announced that they were increasing production… So, what’s up with Oil? Well, I’m glad you asked!  The price of Oil has rebounded to the $71 handle on fears that the Iranian Oil production is going to suffer severe disruptions, based on a head count of the countries that are considering following President Trump’s request that they not buy Oil from Iran… 

On the local newscast last night, they ran a story about how gas prices had fallen and it was just in time for the summer driving season… OOPS! Better pull that video and talk before someone other than Chuck sees it and points a finger at the TV and says, “You morons!” See, how that was done? I got the people watching TV to call the news people morons, I didn’t do it, for this is the kinder, gentler Chuck! HAHAHAHAHAHA!

Yesterday I went on and on about how I view the Fed Heads saying this is a robust and strong economy as FAKE NEWS!   But all that data that shows it’s FAKE NEWS, doesn’t mean as much as what the bond guys are doing… And the Bond guys are telling us that things aren’t as robust as the Fed Heads keep saying it is. The Yield on the 10-year Treasury has dropped to 2.86%…   At the beginning of the month it was 3.08% and had its eyes on higher levels…  I’m just saying… 

The U.S. Data Cupboard had the Case/Shiller Home Price Index print yesterday, and it showed that home prices had slipped in May from 6.5% to 6.4%, no big deal, but slippage, could this be the start of a fall? Most slippages are the cause of a fall, we had better watch this… The stupid Consumer Confidence report also printed, and bust my buttons, Confidence is falling this month… I guess a week of stock market losses will do that, eh? 

Today’s Cupboard has the real economic prints of Durable and Capital Goods Orders, and like I told you yesterday, I believe they will both be negative prints for May, so put that in your pipe, you Fed Heads, and smoke that one! 

To recap… The currencies held Steady Eddie throughout the day yesterday, but saw some slippage in the overnight markets once again. Traders were feeling better about the dollar when president Trump indicated that he isn’t planning on going after Chinese goods with so much vigor…  I’m telling you this now, so hear me now and listen to me later, this whole Trade War thing is getting out of hand, and someone with a calmer head needs to step in and stop it all before it ruins the world’s economy!  Gold had another bad day yesterday, but the price of Oil is jumping higher… 

For What It’s Worth… Man, there are so many article out there that could qualify for a FWIW article today… Everything from Universal Basic Income, and Gold Manipulation, to this article that I’m highlighting for you that appeared on Paul Craig Roberts website. For those of you new to Paul Craig Roberts, he is best known as a journalist specializing in economic affairs from an anti-establishment, liberal conservative perspective. And today he’s talking about the Trade War, and how it should be dealt with, this is a very interesting take, folks… and can be found here:   

Or, here’s your snippet: ” When are America’s global corporations and Wall Street going to sit down with President Trump and explain to him that his trade war is not with China but with them? The biggest chunk of America’s trade deficit with China is the offshored production of America’s global corporations. When the corporations bring the products that they produce in China to the U.S. consumer market, the products are classified as imports from China.
Six years ago when I was writing The Failure of Laissez Faire Capitalism, I concluded on the evidence that half of U.S. imports from China consist of the off-shored production of U.S. corporations. Offshoring is a substantial benefit to U.S. corporations because of much lower labor and compliance costs. Profits, executive bonuses, and shareholders’ capital gains receive a large boost from offshoring. The costs of these benefits for a few fall on the many-the former American employees who formerly had a middle class income and expectations for their children.

In other words, to put it in the most simple and clear terms, millions of Americans lost their middle class jobs not because China played unfairly, but because American corporations betrayed the American people and exported their jobs. “Making America great again” means dealing with these corporations, not with China. When Trump learns this, assuming anyone will tell him, will he back off China and take on the American global corporations?”   

Chuck Again… Pretty interesting take, eh? 

Currencies today 6/27/18… American Style: A$ .7405, kiwi .6830, C$ .7523, euro 1.1630, sterling 1.3190, Swiss $1.0075, European Style: rand 13.6855, krone 8.1525, SEK 8.8987, forint 280.91, zloty 3.7276, koruna 22.1663, RUB 62.93, yen 110.17, sing 1.3623, HKD 7.8476, INR 68.52, China 6.5618, peso 19.93, BRL 3.7790, Dollar Index 94.80, Oil $71.16, 10-year 2.86%, Silver $16.32, Platinum $863.44, Palladium $957.08, and Gold… $1,258.09

That’s it for today… The markets need some anti-skid brakes, to stop all this spinning in one place! Man, somebody woke up the bats for the Cardinals, as they scored 11 runs last night! It got started late because of a rain delay, and so I didn’t see all of the game, but saw 8 of the runs scored! Winning the first two games of three that will be played with the Cleveland Indians, just backs up my thought that the Cardinals play to the level of their competition… my trip to the dentist went just fine, and made my day! I’m lucky to have such a nice dentist… She’s great! The Allman Brothers take us to the finish line today with their song: Dreams…  And with that I’ll send you on you way to a Wonderful Wednesday, and remember to Be Good To Yourself!

Chuck Butler