Dollar Bugs Use Currencies Like A Punching Bag…

June 17, 2019

*Data in U.S. is so-so, certainly not great!

* Fed’s FOMC meets this week… get out the gameboards! 

Good Day… And a Marvelous Monday to you! Yesterday was Father’s Day… I hope all the Dads out there had a Grand Day… It looked like it was going to be a rain filled day here, but then the sun came out, I fired up the Big Green Egg and watched the Cardinals play the Metropolitans. A beautiful day! Son Andrew was in Indianapolis with his club water polo team qualifying for the Junior Olympics. Son Alex is still in Montgomery, Alabama, doing clinical work. From the pictures he’s sending home, he’s become quite the fisherman while away! Daughter Dawn was here, along with her family, and daughter Rachel was here… I always get a little misty eyed when it comes to Father’s Day, for it’s when I feel a deep pang and think about my dad… He’s been gone for 24 years now… Seems like an eternity to me… The Beatles greet me this morning with their song: A Day In The Life, from the Sgt. Pepper’s Album.

Well, last Friday wasn’t kind to the currencies… As the recent runup in the currencies VS the dollar has been all wiped away… it’s like it never happened, as the cleanup company’s crew advertises…  The dollar bugs used the currencies like a punching bag all day… The U.S. Data on Friday was interesting and looked like this: Retail Sales were up, but didn’t meet expectations, Industrial Production was up 0.4%, but all that did was recover the negative -0/4% in April, so flat for the last two months, And Consumer Sentiment lost 3 points to 97… But the dollar bugs figured it was all good enough, and went to work on buying dollars and selling non-dollars…

And of all things they took the uptick in Retail Sales and claimed it was strong print! See? These guys can take anything and put the spin on it to make it sound amazing… the Spin Doctors I call them, and not the ones that sang: Two Princes!  

After a good day on Thursday for Gold, when it climbed $8.80, it was subjected to a ton of short Gold paper trade on Friday, and lost 80-cents on the day… So, not as bad as it could have been, but certainly not as good as it should have been, without the short Gold paper trades. I had a different way of thinking about the price manipulating the other day… A dear reader sent me a note and said, “I don’t mind the price manipulation, while I’m buying Gold”… And I thought… Yes! The price manipulators are doing us a Big Favor, by giving investors one buying opportunity after another, and after another, and after another! So, now, I’m happy the price manipulators are there, because they’re keeping the price of Gold down for investors to buy in… For once you have your Gold, it’s there, it’s your store of wealth, and you’re not going to sell it… Like the old commercial used to say…. Set it and forget it… Well, with Gold, you buy it and forget it!

The shiny metal is getting sold this morning to the tune of down $5 in the early trading…  And the euro, which fell to 1.1205 on Friday, is attempting to recover some of its lost ground this morning…   The Big thing on the calendar this week is the Fed’s FOMC meeting on Wednesday…  Let’s face it, the dollar bugs don’t know what the Fed is going to do or say, but they went out on a limb and bought dollars like funnel cakes at a State Fair!  

Seems like putting cart before the horse…   Because while I don’t think the Fed will cut rates this week, they could very well, begin to grease the tracks for the next meeting to cut rates…  And that wording will be important to the markets, for like I said the other day… If the Fed hints at a future rate cut, it’s about as good as an actual rate cut… And then what are the dollar bugs going to do with all those dollars they bought on Friday? 

Speaking of the euro… last week President Trump said that the euro was undervalued. And I agree with him… But… let’s not stop there… The euro VS the dollar is over 22% undervalued, when you use the Purchasing power parity model that the OECD uses… For a very long time, years ago, people would use what they called: The Big Mac Index, which priced a Big Mac in every country’s currency, and compared the cost VS a dollar. Well, even using the Big Mac Index, the euro is still undervalued… not as much undervalued as the OECD model, but still about 15%…

So, just for grins… let’s take a price that somewhere between the two PPP models, and say the euro is undervalued by 20%… At 1.13 (round price) adding 20% to the price would move the euro to be around 1.35… now that would be more like it in my book! An old colleague of mine, used to use the Big Mac Index to help him forecast currency movements. The thinking here is that eventually a currency will rise to or fall to its purchasing Power Parity..

Well, as I’ve long said now (since 2009), that these kinds of fundamentals are no longer used to value currencies… These days, it’s all about Trader Sentiment… Now a trader might be leaning toward a currency and sees that it’s undervalued in PPP, and he might make a call for that currency, or he may not… What’s he really feeling?

Feelings… nothing more than feelings… no wonder everyone is so darn scared of hurting someone’s feelings these days! But I digress and need to move along to something else now… 

Well, the U.S. Data Cupboard doesn’t have much for us to see this week, a couple of Housing reports, is about it… So, the Fed’s FOMC Meeting on Wednesday will be the big Kahuna this week… It’s one of those two-day meetings, so the Fed Heads will have to open the closets and get out the board games to fill the time between Tuesday morning and Wednesday afternoon…  

To recap… The currencies got whacked on Friday…  And Chuck’s not seeing the reason for the whacking either! The dollar bugs pointed to a pick up in Retail Sales, but the actual print didn’t meet expectations, but that didn’t stop the dollar bugs from buying dollars!  Gold held onto to its gains from Thursday on Friday ending down just 80-cents, but the shiny metal is down $5 today so far…  The Fed’s FOMC meets this week… Get ready to listen to what they have to say!

For What It’s Worth….  Well, I was so glad to see this in my email box this weekend… It’s a note from about how the Bond Guy, Gundlach is buying Gold… and it can be found here:

Or, here’s your snippet:”Trade tensions are also one reason DoubleLine Capital Chief Executive Officer Jeffrey Gundlach now sees a bigger chance of a recession hitting U.S. shores in the not-too-distant future.

Providing our call of the day, Gundlach predicted a 40% to 50% chance of a U.S. recession within the next six months and a 65% chance of that happening in the next 12 months, in a webcast to clients late Thursday, according to a roundup of his comments from Reuters and other media outlets. He said signs of a slowdown on the global economic front are also a worry.

No doubt, the calls for the Federal Reserve to head off a downturn are growing louder by the day. Gundlach is not expecting an interest-rate cut when the Fed meets next week. Instead, he notes the bond market is tipping two or three cuts by the end of the year.

As for where Gundlach is putting his money, he said he is “certainly long gold,” given expectations the dollar, which stands to take a hit if the Fed lowers interest rates, will close the year weaker.”

Chuck Again… Good call Mr. Gundlach!  But I’m putting higher percentages on the recession calls…  That’s all… 

Currencies today 6/17/19 American Style: A$.6870, kiwi .6508, C$ .7457, euro 1.1233, sterling 1.2591, Swiss $.9984, European Style: rand 14.8105, krone 8.7178, SEK 9.4797, forint 286.91, zloty 3.7929, koruna 22.7560, RUB 64.35, yen 108.68, sing 1.3705, HKD 7.8294, INR 69.91, China 6.9244, peso 19.16, BRL 3.8971, Dollar Index 97.46, Oil $51.94, 10-year 2.09%, Silver $14.80, Platinum $794.03, Palladium $1,455.69, and Gold… $1,336.40

That’s it for today…  Well, that was some turnout for the parade to honor the Stanley Cup Champion Blues on Saturday… Everywhere the camera spanned it was full of people…  I had this thought the other day about the Blues players… “It feels good to wake up a champion, doesn’t it?”
Perhaps the best part is realizing it was not a dream.
 Cardinals come home after 10-game road trip 5-5, which isn’t bad. My dad told me as a young man that if a team plays .500 on the road, and .750 at home they should be near the top of the standings…  So, OK, the Cardinals were .500 on the road, now let’s see them go .750 at home!  The great Albert Pujols will be coming back to St. Louis at the end of this week…  The first time since his departure after the 2011 Championship…  If he had stayed in St. Louis, they would be fitting him for a statue opposite Stan Musial’s statue right now… But, he didn’t… and the game goes on…   Supertramp takes us to the finish line today with their song: Even In The Quietest Moments…  I hope you have a Marvelous Monday, and will Be Good To Yourself!

Chuck Butler