The Trade War Hits Home…

November 27, 2018 

*Currencies give back their gains… UGH!

* Lola says Commodities will soar in 2019… 

Good Day… And a Tom Terrific Tuesday to you! While I took a mini-vacation, I realized that I still wanted to write each day… So, it does feel good to be back in the saddle… At least that is until we get to my annual Christmas vacation! This is my weekly plead to the St. Louis Cardinals’ Front Office… Please sign Bryce Harper! The Hot Stove league is heating up, and the winter baseball meetings will take place in 2 weeks, where things are bound to get hot and heavy! So… get out the checkbooks, boys and girls, it’s time to play… How Many Millions Do We Pay This Guy! The late Great Leon Russell greets me this morning with his great song: Back To The Island… I wish I were going back to the island, for it’s getting quite cold here!

Alright, so for my first day back, the currencies saw some profit taking from the nice gains they made last week, but the damage wasn’t too awful… I continue to be amazed at how many people are jumping on my bandwagon, regarding the U.S. economy, and the dangers that the Corporate Leveraged Bond market are being recognized suddenly too! The euro lost about 1/4 cent, and Gold lost about $4 on the day. The Aussie dollar (A$) held on to its gains, as did the A$’s kissin’ cousin across the Tasman, kiwi… 

In the overnight markets there was more slippage, and now it appears that the rally last week has been reversed… I can’t believe that this new dollar buying is all about the thought of possible debt reduction… It’s not going to happen, folks… and the sooner the markets realize this, the better off we’ll all be! (well, those of us who have diversified our investment portfolios with currencies and metals that is!) 

Did you like my phone call-in show response to the President now calling for spending/ debt reductions? I did, so I guess that’s all that matters… If it weren’t for the responses I get daily to the things I write about, I would think there are days that I’m only writing the letter for my own amusement! So, keep those cards and letters coming… And if you feel up to it… send cash! HAHAHAHAHA!

There wasn’t much to speak of in the way of economic data around the world, and even here in the U.S. yesterday, so to me… the light selling was profit taking… For there was nothing else going on to move them downward like they moved yesterday…  We did however see a reduction in the Trade Deficit in New Zealand for last month, which is a good thing, for it was a sizeable chunk of change! 

I can’t for the life of me think that this week’s European Central Bank (ECB)’s Financial Stability Review will be a non-event… To me, this is akin to a Fed & Treasury summit here in the U.S., that is if we ever had one of those! And the euro is on the fence… it can either be allowed to move higher on the fence, or be taken down a rung on the fence…

I blame my fat fingers for any errors in reporting prices in the currency roundup…  Why am I bringing this up now? Because I had a major faux pas in the currency roundup yesterday. The price of Oil was $50.01 not the $60.01 I typed…  I read a report this past weekend from a writer who thought that the plunge in the price of Oil came about from the harsh words that President Trump had for the Saudi Prince about their decision to cut production of Oil… I laughed, and laughed, until I was being looked at like I was a madman… Madman across the Water, is one of my fave Elton John songs…

Gold is being bought in the early morning trading today, after losing a small amount of ground yesterday. This morning, the newswires are full of articles about how Lola, aka Goldman Sachs is telling their clients that they believe Commodities will soar in 2019…  If that’s their thought, then they must also believe that inflation is going to rise in 2019. I have to say that for once in a blue moon, I agree with Lola…  And we all know that what Lola wants, Lola gets, right?  

If Commodities are soaring in 2019, that will also mean that the Commodity Currencies of Australia, New Zealand, Canada, Russia, Brazil, Norway, and S. Africa to name a few, would be firmly on the rally tracks, and that means a weaker dollar…  I’m just saying… 

Yesterday I told you that the EU had sent their version of the BREXIT agreement to the U.K. for approval by the U.K…. And the reports were that it was believed that this version of an agreement would be rejected by the U.K.  Well, then President Trump decided to throw his two-cents into the negotiations, and told the U.K. that if they signed the agreement, that it would make dealing with the U.S. very difficult.  Well, the agreement has a snowball’s chance in hell of passing now!  (I’m not behind or against the agreement)

I’ve been talking about the lack of foreign participation at the U.S. Treasury auction window in recent months… And finally somebody besides me is seeing this as a major problem for the U.S.!  For what we have here is a failure to communicate! No, Wait, this is no time for reminiscing about Cool Hand Luke…  What we have here, is a problem, for the U.S. is increasing their Treasury Sales, due to the increases in deficit spending, and foreign participation is weakening…  That’s a recipe for disaster, folks… Something’s got to give here… Either Treasury yields get on their horse and begin to ride, or… the dollar’s got to get weaker to entice foreign participation!    

The U.S. Data Cupboard today will have the Case/Shiller Home Price Index (HPI) for September, and I suspect that the September print will show a lower average price than August did. And if you recall, August was lower than July… And the hip bone is connected to the knee bone, and so on… I don’t like this sign and the problem is I don’t think the Fed gives two hoots about lower home prices… For if they did they would be signaling a pause for rate hikes next month… And they are NOT doing that, instead it’s been all-steam ahead for rate hikes from this bunch… (you don’t know how badly I wanted to add: of dolts, to that last line, but in this season of Christmas, I’ll be kind and not do that! )

We’ll also see what the first two weeks of November looked like to Consumers, when Consumer Confidence for that period prints today… Since this is really a reading of how stocks are doing, one would think that Confidence would take a hit in this report… But, I don’t call this report “stupid” for no reason…

The Big News last night was that Government Motors, I mean General Motors is going to layoff 14,000 workers and shutter 7 plants… See? Didn’t I tell you over and over again, that this dance is gonna be a drag? And that neither side of a Trade War wins?  This wouldn’t be happening right now without the Trade War, folks… 

To recap… Chuck’s first day back wasn’t good for the currencies and metals, but the real downward move came in the overnight markets. Lola is saying that Commodities will soar in 2019… Chuck is in agreement for once in a blue moon with Lola, and we all know that what Lola wants, Lola gets! The Trade Deficit in New Zealand saw a narrowing last month, and that was about the only data worldwide worthy of being the Pfennig! HA! 

For What it’s Worth… I know a lot of you don’t like it when I quote James Rickards, but I find him most of the time to be in line with my thinking on what’s happening in the markets, and so with that, here’s Rickards with his thoughts on the next crisis, and it can be found here:

Or, here’s your snippet: “Now a new loan loss crisis is unfolding. The new crisis is not in mortgages but in student loans.

Total student loans today at $1.6 trillion are larger than the amount of junk mortgages in late 2007 of about $1.0 trillion. Default rates on student loans are already higher than mortgage default rates in 2007. This time the loan losses are falling not on the banks and hedge funds but on the Treasury itself because of government guarantees.

Not only are student loan defaults soaring, but household debt has hit another all-time high. Student loans and household debt are just the tip of the debt iceberg that also includes junk bonds (again, as I explained yesterday), corporate debt and even sovereign debt, all at or near record highs around the world.

Meanwhile, the trade war remains a great risk to markets.
When the trade wars erupted in early 2018 I said that the trade wars would be long-lasting and difficult to resolve and would have significant negative economic impacts.

Wall Street took the opposite view and estimated that the trade war threats were mostly for show, the impact would be minimal and that Trump and China’s President Xi Jinping would resolve their differences quickly. As usual, Wall Street was wrong.

Chuck Again… Crazy that Student loans are greater than the Corporate Loans that became problems back in 2007… And that the defaults of Student Loans are greater than the default rates of mortgages in 2007… Think about that, and then tell me again that both Rickards and Chuck are dolts…

Currencies today 11/27/18… American Style: A$.7242, kiwi .6796, C$ .7548, euro 1.1320, sterling 1.2745, Swiss $1.0006, European Style: rand 13.8266, krone 8.5873, SEK 9.0770, forint 286.07, zloty 3.7890, koruna 22.9126, RUB 66.82, yen 113.60, sing 1.3757, HKD 7.8280, INR 70.64, China 6.9389, peso 20.51, BRL 3.8439, Dollar Index 97.16, Oil $51.70, 10-year 3.06%, Silver $14.37, Platinum $842.47, Palladium $1,147.17, and Gold… $1,223.75

That’s it for today… Except… drum roll please… It’s grandson Everett’s Birthday today! Happy Birthday E! He’s 8 today! I hear it’s your birthday, well happy birthday to you! Well, my wife, (I know I’m not supposed to talk about her in the Pfennig, but this is good…) she is having a ball laughing at me right now, because… Well, at the end of the year, my Cobra insurance runs out… and I have 1.5 years until I reach 65… And with my pre-existing condition, I had no other choice but to use the ACA, which I have complained about since the first sign that this was going to be shoved down our throats years ago… I guess I learned a lesson here, to not bad mouth something because you may have to use it later… UGH!  Oh well, it’s better than a sharp stick in your eye, as my good friend and former boss used to say… Jane’s Addiction takes us to the finish line today with their song: Been Caught Stealing…  And with that it’s time to go… I hope you have a Tom Terrific Tuesday! And that you continue to Be Good To Yourself!

Chuck Butler