May The 4th Be With You!

May 4, 2020

* Currencies rally on Friday, but give back some gains

* Gold rallies back to $1,700, which Chuck thinks is the new $1,300… 

Good day… And a Marvelous Monday to you! May the 4th Be With You…. HA! Well, it finally warmed up here! And our spring lasted 2 days, before it turned to summer heat! Oh, come on Chuck, it’s only the beginning of May… Calm down…. I decided last Friday that I needed to see my friends, and since it was a beautiful day, I thought we could sit outside, 6-feet apart, and swap stories, face to face, and not on a Zoom screen… It turned out to be a great night! My iPod and Bose revolve speaker got a great workout! And the grandkids came over to swim so I finally got to see them again too… Now, this 6-feet thing has got to go soon! I miss my hugs from my Delaney Grace! OK… The great band, Yes, greets me this morning with their song: Owner of a Lonely Heart….

Speaking of my iPod… I had a dear reader ask me if I could share my song library with her…. And then came up with an idea, that I could charge for it, but the money would go to the charity of my choice, which would be the MS people…. I’m not even sharpest tool in the tool box, when it comes to technology, and that means I have no idea how to go about all that, but I’m going to look into it… for sure!

OK… The currencies finally had a upward run VS the dollar on Friday, with the euro trading over the 1.10 level, briefly… The dollar bugs fought back at the end of the day, brining the euro back below 1.10, but the upward move in the euro was strong and kept the dollar bugs from making too big of a stride… And Gold had a good day as it tried to reverse the engineered take down from Thursday, when it lost $29 bringing it back below $1,700… But on Friday, Gold found a way to move higher by nearly $18, and closed Friday at $1,702.90….

In reading Ed Steer’s Saturday letter ( He explained that the short contracts in Gold had dropped last week… The drop wasn’t a HUGE number, but was significant enough to be highlighted by Ed….

It appears to me that $1,700 is the new $1,300 for Gold… Recall last year, when Gold would move up through $1,300 and then be brought back down? This happened so many times that I was beginning to think we wouldn’t see higher prices for a while in Gold, and then suddenly, it all stopped, and Gold headed higher, and went through $1,400, $1,500, and $1,600 in the last 9 months! But not it has stalled out around $1,700…. I do believe that we’ll see this trading pattern for a short time, before the next upward move comes…. This gives the procrastinators the opportunity to jump in before the next upward move, in my opinion…

Speaking of Gold…. I told you all last week that Scotiabank had announced that they were going to close their metals business soon… That got me thinking of the reasons why a 300 year old business decided to close their metals business doors…. And then I came across this from Gata Folks…

Read this over and over again to get gist of price manipulation… “In the past, it was often a profitable venture to manipulate the price of gold with an avalanche of paper gold contracts dumped into the futures markets. When those contracts came due, ample gold was readily available at lower prices, for the bank to satisfy their obligations to deliver gold. But in the last couple of years, there has been a shortage of gold available (at the paper price) to meet delivery obligations. Gold is still available, mind you, but at a price independent from, and often higher than, the manipulated paper price.

If you can sell something for $1500 on the one hand, and manipulate/purchase it tomorrow for $1400 – to deliver to those who purchased it for $1500 yesterday, that is a business model that is hard to beat. But when gold ignores the manipulation, and you have to pay $1600 to deliver what you sold yesterday for $1500, it is no longer fun or profitable. This is a simplified explanation about why some that have played the precious metals manipulation game for over 300 years are now exiting the business. It is no longer fun, and no longer profitable.”

I found this here:

And I think this answers the question as to why Scotiabank had to close their metals business…  But like I said the other day, it in essence represents one less dealer with an arm full of short paper trades at the COMEX…. 

OK… last week I said I would go back through my Dow Theory Letters and find the one where I talk about how stocks perform during a recession…. This conversation was centered on the Swiss National Bank buying so many stocks, and the BOJ, but mostly about the SNB…. So, get this…. It’s from June of 2017! And here it is….

6/27/17… Dow Theory Letters… “Now, what could be the cause of this stock market momentum that appears to be like the Energizer Bunny, and keep going and going, and going? Ahhh, again grasshoppers, come sit… You see stocks don’t like recessions… And fund managers don’t sell stocks just because a recession is on the horizon, but they do begin to unload stocks when they see other institutions doing so. And if I’m aware of this fact then I’m sure institutions are too… The average drawdown in U.S. equities since 1980 during a recession has been 37%, and none of those recessions started the equities at extreme valuation levels such as we have now!

And the U.S. Fed? Well, we don’t really know for sure if they buy equities, but just because equities don’t show up on their balance sheet, doesn’t mean they wouldn’t / couldn’t have a secret account at say, Goldman, where the equities are held… I’m not saying that’s for real, I’m just asking, what if they did?

Here’s a snippet of Fed Chair Janet Yellen talking about this very subject… “Well, the Federal Reserve is not permitted to purchase equities. We can only purchase U.S. Treasuries and agency securities. I did mention in a speech in Jackson Hole, though, where I discussed longer term issues and difficulties we could have in providing adequate monetary policy . Accomodation may be somewhere in the future, down the line that this is the kind of thing that Congress might consider, but if you were to do so, it’s not something the Federal Reserve is asking for”

OK, that pretty much rules out my scenario, but, opens Pandora’s Box of ideas that I had reading this quote… With the main one as “did the Fed just give Congress a hint that they could keep the stock market propped up with a wink and a nod from Congress?” Oh, well, I digress here…

Because in the end what I want to say above everything else is that Central Banks around the world including our own Fed, have gotten out of control… The folks over at Zero Hedge said it best when they said, “Being able to print your own money, and buy stocks at any price sure can be fun” And in the U.S. we printed money to buy bonds during our 3 tours of QE…

If things begin to unravel in stocks, remember, the SNB & will have to unwind their trades, which means they sell dollars and buy francs to bring the money home… That, and watch Gold, because everyone will be scrambling for safe havens, which means Gold, Treasuries, yen, euros and francs…

OK, back to 2020…. Well that was quite a ramble wasn’t it… While I was looking through the DTL’s I also found this from 9/28/17, I said this in the Dow theory Letters….

“And when the recession finally kicks in, we could very well see Negative Rates here in the U.S… We most certainly, would see another round of QE… So much for their Quantitative Tightening, eh? Of course this is all my opinion and I could be wrong… In fact it would be good if I were wrong, because we certainly don’t want to see negative rates or another round of QE here in the U.S. !”

Man, did I nail that on the head or what? OK., what do I see now that all this stuff has happened? Well, it goes without saying that the tax revenues of the Gov’t and States, and cities are going to be taking a HUGE hit from this economic shutdown…. But… Wanna know what I saw looking under the hood? I saw Social Security also taking a HUGE hit because of the payroll deductions that go to fill the coffers of Social Security are not happening folks…. So, you know that I’m going to tell you how this will all get fixed right?

It’s the same-o, same-o…. Higher taxes… You want something for free? Well, you may get it for free, but then have to pay 50% taxes the rest of your life, so how free was that? And for Social Security…. Well, it was fun while it lasted! There will be changes to it, for sure…

Alrighty then, my good friend Mike, chastised me on Friday night that on Mondays I get too wordy. I said, “well of course, I’ve had all weekend to read and think of things to talk about” But that got me thinking that maybe I should lighten the load on Monday and spread it out during the week…. Oh well, it is what it is….

The U.S. Data Cupboard last week on Thursday had the awaited for, Weekly Jobless Claims report for the previous week… The number of applications were down from the previous week, but were still 3.8 Million, thus bringing the total of unemployment applications filed in the last 6 weeks to…. 30.3 Million…. OK, my long time friend, Dave Gonigam of the 5 Minute Forecast, at Agora Financial, gave me this stat that I think really brings home the rot on employment’s vine…. “That’s 30.3 million claims over the last six weeks, out of a labor force of 162.9 million. That translates loosely to an unemployment rate of 18.6%.” -Dave Gonigam

We had more damaging data print last week, so let’s not stop with the Jobs data…. I told you on Thursday last week that there were two important prints on Thursday, Jobs data, and the ISM (manufacturing index) for April, which was an awful 41.5 down from 49.0 in March, and get this…. A year ago, the index at this same time stood at 52.8… April’s figure was a drop of 21% from a year ago…. We also saw the stupid CPI (consumer inflation) which fell to negative -.1% , can you say deflationary? I knew you could!

And finally, Personal Income was down -2.0% in March, and Personal Spending was down -7.5%, and this was for March! We were only closed down for the last week of March, you can imagine, if you want to that is, what the rotting numbers will be for April… Alcoholic beverages are the only things selling like hotcakes at a State Fair these days… (besides T.P. which you can’t find, along with hand sanitizers)

So… a long winded U.S. Data Cupboard recap… There sure were a bag o’ bones last week, in the Data Cupboard last week, eh?

This week’s Data Cupboard starts today with March Factory Orders, then begins to build for the end of the week when the Job Jamboree for April will print… Remember the unemployment rate that was rougly figured above? What will the BLS do to soften the blow?  Before we get to Friday, we’ll also see the monthly Trade Deficits, which should be the lowest it’s been in a month of Sundays, because, well, nobody is importing anything! And the ADP Employment Report will also print this week…  Enough on Data! 

To recap…. The currencies went hog wild on the dollar bugs on Friday, but since around midday on Friday, the tables have been turned, and the currencies had to give back some of their earlier gains…. Gold has a good day on Friday, and climbed back above $1,700 and is up another $7 in the early trading today.  The data last week was just downright awful, and the ISM Index indicated that we are already in a recession.  And Chuck pulls out some DTL’s that he wrote 3 years ago, and they are quite interesting in today’s environment! So, you won’t want to miss that! 

For What It’s Worth….  I went on record a month ago when I said that when this economic shutdown was over, we would be looking at a different financial system…. And this article that I found on Ed Steer’s letter on Saturday is from and talks about how the system is already broken, and can be found here:  

Or, here’s your snippet: “The Fed poisons everything, and I mean everything. From markets, the economy, and I will even go as far as politics. Sounds far fetched? Let me make my case below. But as much as the Fed poisons everything, this crisis here again reveals a larger issue: The system is completely broken, it can’t sustain itself without the Fed’s ever more monumental interventions.

These interventions are absolutely necessary or the system collapses under its own broken facade. And this conflict, a Fed poisoning the economy’s growth prospects on the one hand, and its needed presence and actions to keep the broken system afloat on the other, has the economy and society on a mission to circle a perpetual drain.

So how does the Fed poison everything?

Let’s start with the Fed actual process of working towards its stated mission: Full employment and price stability.

How does it do that? Well, for the last 20 years mainly by extremely low interest rates and balance sheet expansion sprinkled with an enormous amount of jawboning. The principle effect: Asset price inflation.

It’s not a side effect, it’s the true mission. The Fed has been managing the economy via asset prices even though Jay Powell again insisted on saying the Fed is not targeting asset prices.”

Chuck again….  Yes, that darn old Fed Reserve…  As I went through my list of Dow Theory Letters last week, I came across a cartoon I had on one of the letters about the Fed… It was the three blind mice with their shades on and carrying canes, with shirts that said Fed Reserve…. Pretty funny, if it weren’t true!

Currencies today 5/4/20 American Style: A$.6415, kiwi .6046, C$ .7095, euro 1.0940, sterling 1.2431, Swiss $1.0369, European Style: rand 18.7058, krone 10.3857, SEK 9.8917, forint 322.81, zloty 4.1763,   koruna 24.7702, RUB 75.31, yen 106.82, sing 1.4164, HKD 7.7533, INR 75.01, China 7.0613, pesos 24.73, BRL 5.4858, Dollar Index 99.38,   Oil $18.78,  10-year .60%, Silver $15.00, Platinum $769.83, Palladium $1,911.51, and Gold… $1,707.50

That’s it for today….  Well, I finally got to see the baby that’s now 6 months old on Saturday… I didn’t get to hold her, but I saw her in person, which was better than on a Zoom screen! Little Evie, is so darn cute! It was good to see the other grandkids too, Little d (Delaney Grace), Everett, and Braden… Everett is already 9, and Braden will turn 9 this month, while my darling Delaney will be 13 in August. How did that happen?  Oh my goodness! OK… gotta go…  The Youngbloods, with Jesse Colin Young, take us to the finish line today with their song: Let’s Get Together…  which is something everybody is thinking of doing! HA   I hope you have a Marvelous Monday, and May the 4th Be With You!  I guess today is a day to watch all those Star Wars Movies! Please Be Good To Yourself! 

Chuck Butler