So-Called Safe Havens Return!

Rocktober 15, 2018

* Gold soars on Thursday, is the bottom in?

* Stocks get stomped last week… 

Good Day… And a Marvelous Monday to you!… The pictures of the devastation from Hurricane Mathew are not stuff you really want to see any time… I hope everyone evacuated and were safe… I guess the weather people weren’t kidding around last week when they said that it would cool down by the weekend! It was downright chilly! And you know me, here I go again, complaining about colder weather! HA! I hear you saying, Oh no, here he goes again!.. My beloved Missouri Tigers football team, didn’t fare too well playing Alabama on Saturday, but then I don’t think anyone expected them to! UGH! The Band, Missouri, greets me this morning with their one hit wonder song: Movin’ On… That one and Blackfoot’s song: Highway Song, are two of my faves to play when I’m driving long distances…

Well! How about that move in Gold on Thursday? Up nearly $30 at $29.20… to close at $1,223.60, and at one point in the day it was as high as $1,230! I was having lunch with good friend Duane, when he checked his phone and said “the stock market is getting hammered again today, does that mean Gold should be going higher?” I said, well, yes, theoretically, but we’ll have to see… Well, it didn’t take long before I checked my phone and saw Gold ratcheting higher and higher on the day… And I immediately thought… “Short Squeeze”… And then went back to enjoying my lunch!

But that’s what it appeared to be on Thursday, a major short squeeze… The good news for Gold holders, is that this short squeeze has pushed Gold above its 50-day moving avg. and is bringing it near a Fibonacci replacement figure… that would be HUGE, for the price of Gold, and would play well in the sand box of what I kept telling you last spring that Gold was set for a major upward move by the end of summer…

But then along came Friday… And Gold’s luck looked to have run out, but… the daily downward move wasn’t enough to wipe out the fact that Gold has had two consecutive weeks of being on the rally tracks! And in the overnight markets last night and early morning trading today, Gold is up almost $8, to $1,230… So, it’s game on Garth, game on Wayne, for Gold… 

And guess what other asset class was the beneficiary of the stock rout? Treasuries… bond were bought at a brisk place, and pushed the yield on the 10-year downward to 3.14%… Early last week the yield has risen to 3.24%… I know you’re not a bond guy/ girl, but 10 Basis Points move in bonds is a big move,

You can’t say that I haven’t been telling you that all this was going to happen… I could see it in my mind, in my dreams, and feel it in my heart, and all my years of experience… Sure, most times I’m way ahead of the actual goings on, but… I don’t need to say anymore!

The currencies saw some love as we finished the week last week, and looked  healthier than they were a week ago. A quick glance at the Dollar Index shows us that last Monday the Dollar Index was trading at 96.12, and this morning, one week later, it’s trading at 95.01…  So, put that in your coffee and take a sip, because it doesn’t taste good for the dollar bugs, but it’s sweet for the non-dollar campers. 

The euro is trading toward the 1.16 handle this morning, which is upward…  A couple of weeks ago, I stated that the so-called safe havens were getting sold and wondered what the heck was going on there? Well, I don’t have to wonder any longer, because the so-called safe havens are back! Japanese yen, Swiss francs, the euro, Gold, and Treasuries, have all rebounded and appear to have turned the corner… 

The U.S. Data Cupboard was pretty lame last week, and I called it a dead air week… But this week starts off with a bang! Today we’ll see Sept. Retail Sales… Now, recall that August was OK, and that had back to school spending, so I’m expecting September’s report to show Retail Sales weak… At least that’s what the BHI indicates it will be! Then on our Tom Terrific Tuesday, we’ll see two of my faves… Industrial Production and Capacity Utilization… Again, I expect them both to be weaker than the August prints. And then the Data Cupboard takes a break on Wednesday, with only the Fed’s Meeting Minutes printing, and on our Tub Thumpin’ Thursday, we get back to real data, and the leading Indicators for the economy will print… So, if all goes as I suspect, this week for the Data Cupboard, the dollar won’t be getting any love, because of weaker data. 

Not that I want to get into the stock jockey business of writing about stocks, but that selloff last week was pretty ugly, and Friday saw a bounce back, and all I read about this weekend was that “things were going to get back to normal for stocks”… But then in the overnight markets the Asian markets got sold off by more than 1%, and that case a dark cloud this way…  

In a previously written Dow Theory Letters piece, I went through the rot on the vine that stocks incur when the country goes into a recession… Are stocks just getting a head start on the recession, or is the recession already here?  I think it’s a case of the former right now… And that’s all I have to say about that! 

The price of Oil, saw a pullback in its rally last week, and now attempts to rally back. The goings on with Saudi Arabia, and the missing journalist, are playing into the price of Oil, folks, don’t kid yourself on iota… President Trump is making harsh warnings to Saudi Arabia, and they continue to deny any wrong doing. 

I read an interesting article this past weekend that talked about how the economic sanctions on Iran could turn into a 1970’s like, oil crisis…  A very interesting take on what’s going on in Oil…  I don’t recall where I read it, but if you want to find out more, I’m sure you can Google 1970’s-like oil crisis and find it… 

To recap…  Gold soared on Thursday last week, saw some profit taking on Friday, and is back on the rally tracks today. Has the bottom been put in for the shiny metal? The dollar is under attack from the return of the so-called safe havens… The euro is moving upward toward 1.16 again, and all the other currencies have fallen in line behind the euro, as usual.  

For What It’s Worth… The euro continues to be held hostage by the goings on in Italy. We’ve discussed this previously, and when I saw this on I thought it played well with what I’ve been talking about, and you can find it all here:

Or, here’s your snippet: “Reuters reported that the ECB won’t come to Italy’s rescue if its government or banks run out of cash unless the Italian government first secures a bailout from the European Union. Of course, this would almost certainly require that the populist coalition end its ongoing game of fiscal chicken with Brussels and abandon its dreams of lowering the retirement age and extending a basic income to the Italian people – policies that would effectively secure a political future for M5S and the League.

In effect, the ECB’s latest trial balloon is tantamount to blackmail: Either the Italians agree to fall back in line and obey European budgetary guidelines, or the central bank will sit back and watch as bond yields surge, providing the ratings agencies even more ammunition to cut Italian debt to junk – effectively guaranteeing a Greece-style banking crisis as the liquidity taps are turned off.

And to eliminate any lingering doubts that this was a deliberate coordinated leak, Reuters cited “five senior sources familiar with the ECB’s thinking,” many of whom were “present at the economic summit in Indonesia.” Of course, the ECB sources explained that they are merely acting in the best interest of the monetary union. Because if Italy is allowed to shake off the yoke of European austerity and re-assert its sovereignty, then what would stop Spain or Portugal from doing the same?

Now, if Italy instead embraced the path of fiscal discipline, the ECB would be more than happy to backstop the country’s debt via Outright Monetary Transactions (the never-used program adopted by the ECB in 2012 to restore confidence in the euro and euro-area debt amid a burgeoning debt crisis).

Chuck Again… As the article points out… Even if the Italians won’t back off their ill-advised plans to pass their budget through, the ECB can strongarm them into submission…  

Currencies today 10/15/18… American Style: A$ .7135, kiwi .6535, C$ .7682, euro 1.1593, sterling 1.3017, Swiss $1.0143, European Style: rand 14.4393, krone 8.1527, SEK 8.9583, forint 279.03, zloty 3.7040, koruna 22.23.95, RUB 66.01, yen 111.83, sing 1.3764, HKD 7.8375, INR 73.71, China 6.9173, peso 18.82, BRL 3.7817, Dollar Index 95.01, Oil $71.84, 10-year 3.15%, Silver $14.81, Platinum $851.00, Palladium $1,090.00, and Gold… $1,230.40

That’s it for today… No Pfennig tomorrow… I have to show up at the hospital for a scan very early in the morning… I always ask for these first thing in the morning appointments, for I know that there won’t be any delays, and backups… I thought that the actions of one Alabama football player were despicable on Saturday night, and why he wasn’t ejected from the game and suspended for games, is a mystery to me…  This coming Saturday is Homecoming for my Missouri Tigers… I loved it when my older kids were at the U. of Missouri… For it gave me the push to go to games, etc. The Turtles takes us to the finish line today with their song: Happy Together…  I hope you have a Marvelous Monday and remember to Be Good To Yourself!

Chuck Butler