Is It Commodities’ Time To Rally?

May 22, 2018  

* Dollar rally hits a roadblock 

* Oil rises to a $72 handle! 


Good Day…  And a Tom Terrific Tuesday to you! One more day alone… Actually, while I miss Kathy, I’m getting quite used to be alone here. Do we have a new Bo Hart in St. Louis? HA!  Young Tyler O’Neil is taking the city and baseball by storm! We can only hope that he doesn’t flame out like Bo Hart did oh, so many years ago! As a baseball fan, I understand that it can get really exciting when a young player comes up and makes a Big Splash, but you have to back off the excitement just a bit, and see if his Big Splash can be sustained. The Allan Parson’s Project greets me this morning with their song: Time…   “Who knows when we shall meet again…  If ever…
But time Keeps flowing like a river (on and on)… To the sea

I quoted the lyrics to that song, because they make abundant sense to me, given all the former colleagues and friends that I no longer see or even hear from.  But time does keep flowing on and on..  

Well, the dollar rally ran into a road block yesterday, and the currencies were allowed to book some small gains. The Best performer of the day was the Aussie dollar (A$) which received some love after traders watched commodities rebound on the day.  For any of you who are new readers, the A$ is considered a “commodity currency” as it relies on shipments of raw materials to not only China but other countries in the South Pacific.

In 2003, I created what we called the Commodity Currency Basket CD, and it included the A$, kiwi, South African rand, and Canadian dollars/ loonies. And from 2003, through 2010, Commodities kicked tails and took names later, and those currencies booked some of the best performances VS the dollar. 

With inflation inching higher and higher, it’s time for Commodities to make a comeback, as they are the anti-inflation assets. And if Commodities make a sustained comeback, then the commodity currencies will follow, because as countries buy commodities, they have to buy the currency of the country that’s selling them the commodity…  Well, in a roundabout way that is, since commodities are priced in dollars… But here’s were things for the dollar could get ugly… 

You see, we keep hearing about how the Oil producing countries outside of the U.S. are becoming more willing to accept the purchaser’s currency for their Oil and not dollars… More and more this is becoming something to be concerned about for dollar holders, and if then this spreads further, and spills over to the rest of the commodities, then “Houston, we have a problem”, will be heard by dollar holders. 

But like I said above, we need for this commodity rally to become sustained and not a false dawn.  The euro has climbed back above 1.18 this morning, and all the rest of the currencies fall in behind the Big Dog. And when I say “the rest of the currencies” I mean the whole enchilada of currencies, all of them! I can’t find one currency that is weaker this morning than it was yesterday morning. So, we have that going for us today… 

The price of Oil has climbed higher yet again, and trades with a $72 handle today.. of course I use the West Texas Intermediate (WTI) price, the Brent Crude price is above $80!   Either price is an indication to me that commodities are telling us something… And we should all know what tha is, right? (I just told you above! HA!) 

I was doing some reading last night while Cardinals pitcher Miles Mikolas pitched a 4-hit complete game shutout VS the Royals, and I came across an article about Stagflation… In my Dow Theory Letters ( piece a couple of weeks ago, I talked about how I was getting the feeling that we’re about to revisit the 70’s, and come to think of that, I may have already talked about this in the Pfennig too! But I just wanted to point out that in the FWIW section today is a very smart man talking about the chance of Stagflation here in the U.S. and that it would not be a very good thing for the dollar…  So, you won’t want to miss that this morning… 

With every year that I defy the odds, and add another number to my age, I become eligible to receive Social Security. You know all that money that was taxed from my wages and deposited into an account that would just wait for me to begin to withdraw the funds in my retirement…  (Boy wouldn’t that be the great IF that was really the process?) But do you know what really ticks me off royally? The fact that once I begin to receive those payments from my Social Security fictional account, they get taxed again! Wait! What? Well, not everyone’s Soc. Security payments are taxed, but most are… 

In yesterday’s Daily Reckoning:, their guy, Nilus Mattive, was talking about Social Security, and how in 1983 the lawmakers chose  $32,000 as the point where you begin to get your Soc. Sec. payments taxed… Let’s listen in: It is now 34 years later and they haven’t been adjusted. And as you know, $32,000 a year isn’t all that much money these days. So what was initially designed to target a small segment of the population now blankets a large swath.

The lack of inflation adjustment is the primary reason more and more retirees are getting snagged every year.”   Nilus Mattive for the Daily Reckoning…    

Well, I know I’m not telling a lot of you anything new, but for those that are nearing the age of retirement and will begin to receive their payments, maybe I shed some light on this for them.   OK, getting back to the markets… 

Gold recovered the dip it saw in the early morning trading on Monday (recall it was down $7), and ended the day up a whopping 30-cents! Whoa, there Nellie! We don’t want to get this Gold price too high! HA! Gold’s price activity yesterday saw it drop a couple more bucks to down $9, before turning around. I don’t know if this had anything to do with the turnaround in Gold’s price, but if I were a Gold trader, it sure would have… 

What I’m talking about is a report in the website that stated that Demand for physical Gold is still strong as China, Russia, Turkey, Switzerland, and others are busy adding to their reserves with physical Gold.  In fact, I read in Ed Steer’s letter last week that Russia added a huge amount of physical Gold last month… The numbers get all mangled and forgotten about so I don’t want to get into that, just know that the amount they added is bigger than a breadbox!   

The U.S. Data Cupboard continues today with no offerings, and quite frankly, this is one of those weeks when the markets will be searching and digging deep to find a data print to trade off of, because there just isn’t much, not only here, but abroad too!  The Biggest deal of the week comes tomorrow (Wednesday) when the Fed’s last Meeting Minutes print… And even that seems to me to be a non-event, given the Fed didn’t hike rates, and probably won’t until June.  The Minutes will probably contain the usual blabber about how the economy is strong, employment is strong, and so on…  I’m thinking of Pink Floyd’s Us and them song, that goes, It’s a battle of words and most of them are lies…  I’m just saying…  

To Recap… The dollar’s rally hit a roadblock yesterday, and the currencies have continued to rally throughout the overnight markets. Overbought, seems to be the compelling reason for the dollar’s drop yesterday… Commodities rallied yesterday, propping up the A$ to be the best performing currency overnight. Chuck talks about inflation and commodities in today’s letter, you won’t want to miss that! 

For What It’s Worth…  Peter Bookvar is someone that I follow, and when he talks I listen, sort of like that old E.F. Hutton commercial! Well, he’s talking about stagflation, and that makes me feel all warm and fuzzy inside, because I talked about stagflation a couple of weeks ago! You can find his words here:  

Let me set this up for you… I found this in Ed Steer’s letter last week (5/18)and he pulled it from John Mauldin’s letter, so this is John Mauldin talking at the beginning of this snippet: “Last week, I mentioned an insightful comment my friend Peter Boockvar-CIO of Bleakley Advisory Group-made at dinner in New York: “We now have credit cycles instead of economic cycles.”

That one sentence provoked numerous phone calls and e-mails, all seeking elaboration. What did Peter mean by that statement?

In an old-style economic cycle, recessions triggered bear markets. Economic contraction slowed consumer spending, corporate earnings fell, and stock prices dropped. That’s not how it works when the credit cycle is in control.

Lower asset prices aren’t the result of a recession. They cause the recession. That’s because access to credit drives consumer spending and business investment.

Take it away and they decline. Recession follows.”  

Chuck again… I haven’t talked about John Mauldin for some time, but I was looking for a picture in my phone last week, and I came across this picture of John and Chuck in Vancouver… I guess that since I don’t travel to conferences any longer, our paths will never touch again… That’s too bad, because I always enjoyed our talks..   

Currencies today 5/22/18… American Style: A$ .7592, kiwi .6947, C$ .7830, euro 1.1818, sterling 1.3460, Swiss $1.0045, … European Style: rand 12.5665, krone 8.0323, SEK 8.6460, forint 268.65, zloty 3.6234, koruna 21.7665, RUB 62.02, yen 110.95, sing 1.3376, HKD 7.8490, INR 68.09, China 6.3833, peso 19.78, BRL 3.7156, Dollar Index 93.35, Oil $72.51, 10yr 3.08%, Silver $16.61, Platinum $908, Palladium $1,003, and Gold… $1,294.10 

That’s it for today… I actually got a good night’s sleep last night… YAHOO! Maybe that means I won’t need an afternoon nap today! OK, here’s the schedule on the Pfennig for this week… No Pfennig on Thursday, as I’ll be in a dentist’s chair early Thursday morning! That’ll make this coming Holiday weekend even longer for yours truly!  Memorial Day! already! WOW! Time keeps flowing like a river to the sea… And since school will be out soon, and it will be summertime, I have the perfect song to take us to the finish line today… It’s Billy Stewart, with his song: Summertime… Now that one will get your heart pumping! I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!  

Chuck Butler