China Turns Back U.S. Cargo Ships….

June 1, 2020

* Currencies add another day of advancement VS the dollar..

* Silver trades above $18!!!  After a  strong move late last week! 

Good Day… And a Marvelous Monday to you! And Welcome to June! What a wonderful weekend it was here, as the rain finally went away, and we were left with warm days, blue skies and plenty of sunshine! We had another driveway happy hour with my friends, on Friday. And yes, we kept safe distancing from each other! Today, is my darling daughter, Dawn’s husband, Jerry’s birthday! So, happy birthday to Jerry… He turns 40 today, so it’s a big one to him…. I’m sure his mom is thinking, “how’d he get to 40?” It just means we all keep getting older… Pfennig tradition calls for this: June is busting out all over, all over the meadow and meadow and the hill Buds’re bustin’ outa bushes, And the rompin’ river pushes. Ev’ry little wheel that wheels beside the mill… From the great musical, Carousel… There’s nothing in my iPod that can beat that song, so I’ll say that it greeted me today! Longtime readers know that I’m not must a “rocker”, that I love a wide range of music…

Well, just when I talked about how the currencies that we know would no longer be around in future years, they’ve begun their march higher VS the dollar… The euro is trading with a 1.11 handle this morning, and it doesn’t make a hill of beans of sense to me, and the Eurozone has as many debt problems as the U.S. but right now the sentiment is against the dollar, and we’ve seen this before. The sentiment goes sour VS the dollar, and then right when it looks like the dollar will fall in value, it rebounds and the sentiment changes…

Shoot Rudy, even the Proxies for Global growth have turned the tables and rallied VS the dollar… Of course I’m talking about Australian and New Zealand dollars. I’m mean, come’on traders! What the hell is going on here? There is no Global Growth, and there wont be any for some time… But my dad always told me, “Chuck, don’t look a gift horse in the mouth”… And so I won’t and I’ll just say the currencies are rising VS the dollar, even thought their respective fundamentals are no better than that of the U.S. they are rallying….

It’s not that I’m not rooting for the currencies to rally, it’s just that things don’t appear to be in their favor right now, and it’s the last thing that exporting countries need right now is for thei currencies to be rallying…

One asset class that should be rallying is doing just that! Gold & Silver both had monster days to end last week… Take Silver… On Thursday morning when I left you, Silver was trading at $17.34… Silver ended the week on Friday afternoon at $17.84, up 50 cents! That’s a BIG move for Silver folks, and shoot, Silver actually traded as high at $18.04 during the day, before profit taking set in and moved it back to $17.84… But is back above $18 this morning! 

And Gold joined in on Silver’s new found love, and closed the week at @$1,728, and was as high as $1.740 at one point in the day… To me, folks, I see $1,750, as the level that the will finally break out of the back and forth around $1,700… I see Gold reaching $1750 and then flying higher, and leaving the $1,700 level in its rear view mirror!

Of course I could be wrong… it’s just my opinion…. In the old EverBank days, no matter what I said, I had to say, “it’s my opinion, and I could be wrong”… Man I’m I glad that I don’t have to say that all the time now, as I used to tell them… “Come on, these are all adults reading this letter, and they know it’s my opinion and they don’t need be to remind of them of that”, but that fell on deaf ears… Basically the folks in Jacksonville thought I was a loony toons, and that I made stuff up, and thought that I shot from the hip… But as longtime readers you know better, right? I really disliked being treated or thought of like that… if they had ever stayed at my side for a day they would know of all the conversations I had with traders, and the amount of reading I did… But no one ever bothered… it was far easier to just call and label me with names… And that’s all I have to say about that!

OK, I’m back now… Thanks to my good friend, Frank Trotter, for standing up for me all those years… And in this corner… HA!

The stock jockeys keep pushing the stock market higher, on the thoughts that everying is going to be just hunky dory… In my opinion they are going to get their you know what’s handed to them when the bears finally get control of this market….

Regarding the stock market… My publishers, Mary Anne and Pamela Aden, had this to say in their Aden Forecast on Thursday last week, so let’s listen in… “The stock market is surging. The general feeling is that the worst is over and the health and economic situations are going to improve from here. And while that may prove to be true, we’re not that optimistic.

In times like this, it’s best to stand back and look at the big picture in perspective…

Most important, the overall situation remains uncertain and unprecedented. We’re in uncharted territory and this alone means we have to stay cautious. No one knows what’s going to happen next, but we can make some assumptions…”

Chuck again… I love the Aden sisters, and their Aden forecast, which you can find at where you can subscribe to their letter!

OK… This is what I was going to talk about last week, but ran out of time…. I’m really worried about the status of the petro-dollar… Besides all the debt, and Fed shenanigans, and the yellow-bellied leaders, weighing on the dollar, now there is this potential risk out there that the petro-dollar may be nearing an end… For those of you not familiar with how the dollar became the petro-dollar, let me take you back to the early 70’s, and Nixon had just removed the Gold backing from the dollar, and the dollar was sinking like a rock… Nixon sent Henry Kissinger to Saudi Arabia to broker a deal… Basically, it went like this: You promise to price all Oil sales in dollars, and we promise to protect you, militarily. And take a percentage of your profits and buy U.S. Treasuries….

That’s the history in a nutshell, and now let’s fast forward to today… 1. The U.S. doesn’t need Saudi oil any longer.. 2. The Saudis aren’t happy about that, and have made them look elsewhere for the love they used to receive from the U.S. 3. Enter China…. Now, remember back in 2009, when I first told you about the currency swap agreements that China was signing with everyone? And in my presentations I would say, “And when the Oil Producing Countries sign a currency swap agreement with China, that will signal the end of the dollar’s reserve status….

Well, guess what’s going on? China is taking steps to take the dollar away from Oil sales, and replace it with renminbi or yuan (their both the same). Shoot Rudy, they could be in the midst of getting this done as I write! This would throw the whole shootin’ match in the trash, folks… .the chaos would be frightening! I’m reminded of this line: Hell hath no fury like a woman scorned. And Saudi Arabia would be the woman scorned here…. Will the Saudis do something to upset the applecart? No one knows the answer to that… but the Saudis sure do sound like they are quite upset….

I had a dear reader ask me to give some highlights from the book I’m reading, by Peter Zeihan, Dis United Nations…. Well, in a nutshell, he believes that the U.S. also brokered a “new Order” deal that would protect every country safe passages through the open seas, and that now that “new Order” may be teetering… Trump has made it clear that he’s all about America First… And I’m all about that, but at what cost? Putting shipments from China to the U.S. at risk? Or How about shipments of pharmaceuticals from Singapore at risk? That’s as far as I’ve gotten, so more later, but that’s enough to make you feel leery about the future, eh?

The news this morning is that China, in retaliation for Trump’s comments on Hong Kong, have refused ships with cargo from the U.S….  I’m really concerned about this, as if you recall when the Trade Agreement Phase 1 was first announced, I said then that there are no guarantees that China will honor this agreement, and there’s nothing we can do about it… And here we are… Hmmmm….. 

The Data Cupboard at the end of last week was quite busy… First of all we had the 1st QTR GDP 2nd revision, and it got worse moving to -5.0% (from -4.8%) And let me remind you that the 1st QTR only had 1 week fo shutdown… So, things were already going south before the pandemic… Then we had Durable and Capital Goods Orders… the Durables were negative -17.2% for April, and the CAPEX was negative -5.8%… Personal Income was up +10.5%, but that was all those government checks going out… And Personal Spending was negative -13.6%…

So, it appears to me that consumers are back to saving once again like they did after the 2007-08 financial meltdown. Of course that didn’t last too long as U. S. consumers are born to spend… But for now, it appears that savings rates are higher… That’s good for the consumer, but bad for the economy, folks… The U.S. economy is centered on Consumption/ consumer spending… And without it… Well, things don’t look so good for the corporations that the stock jockeys are buying up their stocks, and it won’t bode well for the economy and the Fed’s wishes for rising inflation… no major spending, means deflation will remain with us for now… 

This is when the Fed looks to go negative with interest rates in an effort to get consumers to spend… And when that doesn’t happen… Well, I gave you the playbook a couple of weeks ago…

OK… One more thought before we head to the Big Finish…  Get your calculators out and follow along with me…. HA!   Well, last Thursday we had the Weekly Jobless claims for the week ending 5/16… Last month I learned that the BLS cuts off each month in the middle of the month… So… I said, don’t try and fool me, with these shenanigans…. So, I did my figures from 4/15 to 5/16…. And that total of unemployment claims was 13,000.262 Million… then add the previous month from 3/21 to 4/15, (20,108, 957 Million) and you get the total of unemployment claims during the pandemic, and that total is… drum roll please…. 33,118,219, Million…. Now divide that number by the total American workers 120,000,000  Million and you get a 27% Unemployment Rate…. The BLS will print their 4/15 to 5/16 jobs report this Friday, Do you want to bet me that their number isn’t anywhere close to my number?

And did you know that there is a different total that’s being reported these days? It’s called the NSA version, which is “non-seasonally adjusted” and the difference between the two is significant, with the NSA version much higher each week… But the official number is the seasonally adjusted number. Now doesn’t that just make you want to go yell at a wall? Why, in this country, can we NOT, deal with any kind of data without adding hedonic adjustments? This just gets me so riled up, I can’t speak… so, let me calm down and I’ll be back in a minute….

The Jeopardy Final music plays…. And… OK, I’m back! 

To recap… the currencies continue to inch higher with the euro now trading with a 1.11 handle, Norwegian krone sinking deeper into the 9 handle, and Silver trading above $18! The economic data last week was just awful…  I have a quick comment from my publishers The Aden sisters, and China seems to be reneging on the Trade Agreement, just like Chuck feared they would do when the Agreement was signed… 

For What It’s Worth…  While we’re still revising 1st QTR GDP numbers, the folks at the Fed Atlanta, are busy forecasting the current QTR, and that’s what I have for you today, in the FWIW section… You’re going to be shocked when you see what the Fed Atlanta says GPD will fall to in the 2nd QTR, and you can find it here:

Or, here’s your snippet: “Two months ago, St. Louis Fed president James Bullard triggered a market plunge when he predicted that unemployment may soar to 30% and GDP plunge by an unprecedented 50%, vastly eclipsing the collapse observed during the Great Depression.

Sure enough, moments ago the Atlanta Fed’s closely followed GDPNow tracker confirmed this worst case scenario, when the latest model estimate for real GDP growth in the second quarter of 2020 crashed to -51.2% on May 29, down from -40.4% on May 28, which would be the biggest drop on record.

How did the U.S. just lose 10% (annualized) in GDP growth in 1 day? Here is the explanation:

“After this morning’s Advance Economic Indicators report from the U.S. Census Bureau and personal income and outlays release from the U.S. Bureau of Economic Analysis, the nowcast of second-quarter real personal consumption expenditures growth decreased from -43.3 percent to -56.5 percent and the nowcast of the contribution of change in real net exports to second-quarter real GDP growth decreased from 2.07 percentage points to 0.73 percentage points.”

Chuck again…  But don’t worry about that very deep hole the economy will have fallen into, because as soon as we open the economy fully, all will be wine and roses, right?  NOT!  I don’t see it that way, not one iota of evidence has come across my desk that makes me think otherwise! 

Prices today 6/1/20: American Style: A$ .6735, kiwi .6234, C$ .7295, euro 1.1111, sterling 1.2386, Swiss 1.0403, European Style:   rand 17.4570, krone 9.6993, SEK 9.4212, forint 310.41, zloty 3.9792,  koruna 24.1845, RUB 70.13 , yen 107.75, sing 1.4095, HKD 7.7511, INR 75.16, China 7.1363, peso 22.02, BRL 5.3361, Dollar Index 98.16,  Oil $35.36,   10-year .66%, Silver $18.12, Platinum $844.35, Palladium $1,956.95, and Gold… $1,732.29

That’s it for today… Quite a few things to think about today, as we start the week and month of June…. And there will be more as the days go by… Hey! I heard that a Money Market fund is waiving their fees, so that the depositors aren’t seeing their balances go down, since there’s no interest to be added….  A brief sight of things to come….  Little Evie came to see me yesterday, with her big brother Braden… I was talking on the phone with my longtime good friend, Mike, and he asked me if the grandkids still called me General, and I said, yes, but this little girl is going to be able to call me whatever she wants!  So… Happy Birthday, Jerry! I hope your day is grand! Neil Young takes us to the finish line today with his song: The Needle and the Damage… I used to play this song, but I don’t think I remember how any longer! UGH! I hope you have a Marvelous Monday, and please remember to Be Good To Yourself!   

Chuck Butler