This Is The Point Where The Warts Are Exposed…

May 8, 2018  

* Today, Trump will announce his position on the Iran Nuclear Deal   

* WTO meeting today featuring U.S. VS China… 


Good Day… And a Tom Terrific Tuesday to you! Well, my cold isn’t much better today, and all I’ve really done the last two days is sleep. When I’m awake I’m coughing, which is “special”….  So, I’ll get through this again today and then climb back into either the bed or my recliner. The selling of the currencies is really becoming a rout, and now I’m worried that this engineered rally by the dollar is going to last much longer than originally thought… So, I’ll talk about that, and some other things today this 8th day of May, where Cat Stevens greets me with his song: Wild World…  

So, once you knock an asset to the ground, you begin to dig in and find other things that were there, but didn’t seem important, become important, and that’s what’s going on with the euro and sterling and other currencies as we start our day today.  

The dollar trading has really become a rout on the euro, and now that it’s down and out, the warts are showing…  In this case it’s the elections in Italy that are coming up. We talked about these elections maybe weighing on the euro about 9 months ago, but when the euro went into rally mode, everyone forgot about the elections. But now that the euro is getting sold like funnel cakes at a State Fair, the Italian elections get shoved into the faces of euro bulls.. 

Sterling is in the same boat…  Pound sterling was going along nicely, and I kept saying I didn’t get it, because of the problems with the BREXIT negotiations, but as long as sterling was on the rally tracks, those problems were pushed to the side… That is until sterling begins to get sold and then everyone and their brother is talking about PM May’s problems with the BREXIT negotiations…  Go figure…  

So, that’s what we have going on today… Another rout in the currencies. And there are no signs that it’s going to stop in the next day or two. Today, there’s just all these unknowns about what’s going to happen, after President Trump pulls the U.S. out of the Iran Nuclear Deal. And longtime readers know that I’ve always said that markets don’t like “unknowns” and when they occur, there’s always a flight to safety… 

And that usually means dollars, Treasuries, euros, yen, francs and Gold… But when the currencies are getting sold, the safe haven list get whittled down to dollars and Treasuries…    The 10-year Treasury’s yield has held steady Eddie at 2.95% for two consecutive days, and we all know what the dollar is doing.   

The “unknowns” of the pulling out of the U.S. from the Iran Nuclear Deal, even carried over to the price of Oil, which slipped back below $70 in the past 24 hours.  Nothing fundamental in the trading of these assets, just “unknowns” pulling them down.  

Also going on today we have an WTO meeting, which in this day of Tariffs should be interesting… The World Trade Organization holds a general council meeting in Geneva, Switzerland today, I have to think that there will be a clash between the delegations of the world’s two largest economic powers. Chinese Ambassador Zhang Xiangchen will criticize the Trump administration’s proposed tariffs, while his U.S. counterpart will find fault with China’s retaliation. 

Treasury Sec. Mnuchin just left China  with little to no progress on Trade Talks, so this WTO meeting could have some fireworks. But the thing I keep coming back to here is that I believe that President Trump wants a trade war with China to prove his point that China’s Trade Surplus is too much… And the markets aren’t on board with that thought, (they never are on board with my thoughts until it’s too late!) and that’s why the markets are trading the way they are right now.   

I sent off my Dow Theory Letters piece for this week last night, this week I talk about the price of Oil, and how all these goings on remind of the 70’s, and the return of Stagflation… I got some real response to my inclusion of a May 1997, Pfennig in last week’s DTL piece, and that was fun! So, to join us in our fun each week, simply go to and sign up. It does cost, but doesn’t everything these days? And you get a different person’s perspective on the markets 5 days a week!   

Gold lost a whopping $1.40 yesterday and is down a buck or two this morning in the early trading. Gold should be front and center leading the way for the save havens with all that’s going on right now, but it’s not, and that causes me to scratch my balding head, and wonder why…   

The U.S. Data Cupboard  today is basically empty with only a couple of 3rd tier data reports. Yesterday’s Cupboard had the Consumer Credit (read Debt) for March and it was $12 Billion, down from Feb’s $14 Billion…  has the U.S. consumer gotten to the point of no more loans for them! Like the Soup Nazi on Steinfeld, The consumer goes to the bank to get another home equity loan and the banker says, “so loan for you”!  Maybe I shouldn’t make a joke of it, but it sure could be what’s happening with consumers, don’t you think?   

To recap…   The rout on the currencies is on, and now the warts are being exposed!  Today is the day that President Trump will announce that he’s pulling the U.S. out of the Iran Nuclear Deal, and unknowns are seeping into the minds of Traders in all assets. The WTO also meets today, and the main event will feature the U.S. VS China…   

For What It’s Worth…  this piece today is out there, but that’s what this section is all about… So, it’s about how 4 corporations own everything…  and it can be found here:   

Or, here’s your snippet: “According to the 2011 annual factbook from the Investment Company Institute, there is $24.7 trillion in all the mutual funds in the world (a little less than half from the US). Based on data from the ICI, $1.24 trillion of this is directly invested in index funds, plus another $992 billion in assets beyond that $24.7 trillion in Exchange Traded Funds, which aren’t mutual funds but are index funds. That means the bulk of that money is in “active” managed funds or fund of funds.
But then consider this: the chief of hedge funds at a very large asset manager told me last week (alas, I cannot identify either) that an internal study his firm recently performed found that the vast majority of mutual funds defined as actively managed see 95% of the assets they hold determined by an index. That means just 5% of actively managed funds really are driven by the active manager’s judgment.

This less-than-active management is for two reasons: one is to maintain the fund in a style box (i.e. large value stock, medium value stocks) and comply with the reality all mutual funds are required to have a benchmark index they compare their relative performance to. The other reason is to adhere to risk metrics to which most of the fund industry is beholden. This second point is partly due to Modern Portfolio Theory (a complex topic we won’t debate here) and to the human nature that active managers tend to build portfolios close to the indexes they benchmark against to avoid really awful downward relative performance years that ends up costing them their jobs.

So of the $25.69 trillion in worldwide assets we’ve identified, $2.23 trillion are directly in indexes (ETFs and index mutual funds) with another $22.3 trillion indirectly beholden to indexes (that 95% of actively managed fund holdings said to be determined by an index).

You can see where I’m headed here. That means the real power to control the world lies with four companies: McGraw-Hill, which owns Standard & Poor’s, Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000, CME Group which owns 90% of Dow Jones Indexes, and Barclay’s, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index. Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world’s money.”  

Chuck Again…  And that brings the writer of that article to 4 big names that control 147 corporations..  Pretty interesting read in my opinion…  

Currencies today 5/8/17… American Style: A$ .7460, kiwi .6978, C$ .7744, euro 1.1871, sterling 1.3510, Swiss $.9978, … European Style: rand 12.5374, krone 8.1088, SEK 8.8212, forint 265.23, zloty 3.6065, koruna 21,4943, RUB 62.75, yen 109, sing 1.3376, HKD 7.8495, INR 67.05, China 6.3610, peso 19.54, BRL 3.5372, Dollar Index 93.11, Oil $69.89, 10-year 2.95%, Silver $16.49, Platinum $912.43, Palladium $974.60, and Gold… $1,310.40  

That’s it for today…  My beloved Cardinals 6-game winning streak came to abrupt halt last night, oh well, ,time to start a new win streak! Day baseball at Busch today, but I won’t be attending due to the death cold I have…  My little Delaney Grace or little d as I call her, is going to be in the Muny production of Annie this summer. She’s a real natural on stage, so this will be a big deal for her… I got to see all my neighborhood friends on Saturday night at a wedding reception. We all look older and move a lot slower than we did when we moved in almost 30 years ago…   Really? our “new house” is almost 30 years old? Where o where did the time go? When I moved in here, I was working at Mark Twain Bank!  Oh well, time goes on and waits for no one…  The Eagles take us to the finish line today with their iconic rock song: Hotel California…   Now, go out and make this a Tom Terrific Tuesday and Be Good To Yourself!   

Chuck Butler