Trade War Drums Beat Louder, and Louder!

June 25, 2018 

* Currencies rally on the Trade War news… 

* David Rosenberg visits the Pfennig again! 

Good Day, and a Marvelous Monday to you! Well, my oncologist gave me a high 5 last Thursday, and lowered the dosage on my chemo… It’s a start to being chemo free… At least that’s my hope!  Last Thursday night, I watched, probably the worst played game of baseball by my beloved Cardinals that I had ever seen! I was so disgusted with them at that point, but by Sunday, they were back to playing baseball the right way… Strange team, folks… a very strange team, and again I lay that all at the feet of the manager…  Today is World Beatles Day… So, with that in mind, I’ll be playing Beatles music all day, and in the car I’ll have it on the Beatles station on Sirius XM… So, the Beatles greeted me today with their song: And I Love Her…   (one of my fave Beatles song, YAY!)

Friday saw the currencies rebound a bit, with the Big Dog, euro, gaining a full cent on the day… The Trade War Drums are beating louder and louder and coming from all corners of the globe, and traders don’t like the feeling of what this might do to the economy, and so, they sold dollars on Friday.  And to the euro’s credit, European Central Bank (ECB) President, Mario Draghi, didn’t speak on Friday or over the weekend, thus keeping the euro out of the path of the bus!

In the overnight markets last night the currencies held their gains, but didn’t add much to the them. I mentioned above that most of the currencies had gained, but I was remiss in not mentioning that the Asian currencies are getting whacked once again, as those Trade War drums beating louder, and louder are taking their toll on the Asian currencies. 

In fact, as I looked at the currency prices on Friday afternoon, I saw that most of them were up about 1-cent on the day, including: sterling, francs, A$’s, and some others… One currency that didn’t join the rally party, was the Canadian dollar / loonie…  The loonie, which has always been a fave currency of mine, due to their ability to sell raw materials to countries that need them, has seen better days, for sure, than what it has experienced in the last week… First it had to deal with the war of words between the leaders of Canada and the U.S., and then they had weak Retail Sales, and inflation data (CPI), and suddenly all the euphoria over the Bank of Canada’s rate hike outlook, was gone! Went up in smoke, adios, ciao, and see ya later alligator… Loonie holders are going to either have to batten down the hatches, or well, let’s just say batten down the hatches… 

Gold was able to eke out a $2 gain on Friday, nothing to write home about, but still a gain, so we can celebrate little victories, eh?  In Saturday’s letter from Ed Steer ( he highlighted, as he always does in his Saturday letter, the number of days of production it would take to cover the ounces sold short in paper trades… Yes, in case you’re new to class, these criminals (in my opinion) are allowed to have more short trades on the books than there is metal above ground… I just hope they get their you know what handed to them one day… Anyway, in Ed Steer’s letter, he highlighted the fact that the number of days of production of Silver would take nearly 240 days of production! Remember when it used to be 180 days? Those short Silver trades are really piling up… And the number of days of production it would take to cover the short positions in Gold is 60… I’ve talked about this for a number of years, and even the naysayers of Gold & Silver manipulation, can’t answer why there’s more short paper trades than actual metal is above ground.  

And The Big OPEC meeting this past weekend left Oil traders with the feeling that supply is going to grow, but a funny thing happened (not funny ha-ha!) to that feeling that supply is going to grow, the price of Oil rallied… I know, I know, strange, eh? I even read this morning that traders were selling Oil, but from the looks of the price I just pulled from the Bloomberg… That’s not what’s really happening!

I’m in the mood to really go at the Fed Heads calling this economy “strong” this morning, so if this discussion isn’t your bag, baby, then skip ahead…    Well, once again we are being bombarded with the Fed Heads telling us the “economy is strong”… HOGWASH I say… There’s a laundry list of things that point to a weaker, than the Fed is telling us, economy, and I won’t get into them all today.. But, one of the scariest items is the fact that mortgage owners are spending a very large portion of their income on their mortgage… Bloomberg reported this as follows: “Americans Devote Biggest Share of Income to Mortgages Since 2009…  “

I tell you… It gets more difficult every day to find the information I need to write a daily, and for that matter weekly letter… Recently, went through changes, and you no longer can pull up articles and read them through, without signing up and paying for that information… UGH! That really ticks me off… First my former employer took my Bloomberg unit away from me, and told me I could still pull articles, not data like I could with my Bloomberg unit, from the internet… Well, that’s come to an end too… I can get the headlines, which will work in some cases, but to highlight an article is gone with the wind… I guess I’ll have to depend more on the Russian Times (RT)… Think about that for a moment, and let that sink in, as to what has happened in this country…

I read a great quote from David Rosenberg again late last week. This one was printed on the Bloomberg… And Rosenberg said, “economic cycles die, and do you know how they die? The Fed puts a bullet in its forehead.” Now isn’t that great? I wish I had come up with that one! I would have put it on Twitter, and announced it to the world! HA!

Rosenberg went on to say that he believes the U.S. will be in a recession within the next 12 months… I believe the current economy to be on a much shorter leash, but we’ll see, eh?   As long as we’re on a David Rosenberg kick here, I’ve got some more juicy tid bits from him… Check this out:

As we enter the last week of June, I’m reminded that the Fed’s Quantitative Tightening (QT) will be increased from the current $90 Billion in bonds each month to $120 Billion on July 1… Did the markets forget about this increase? Apparently so, but soon it will hit them like a forehead slap!

The reason I make a BIG Deal out of this QT is that, as I’ve explained previously, with each $500 Billion that the Fed doesn’t renew, it’s like a ¼% rate hike… In a recent DTL piece, I focused on the Fed’s QT, and just what will it mean for interest rates… And it’s not a good thing, unless that is, you’re looking for higher rates for your deposits… You see, I’ve explained all this before, but, it bears repeating here… Fed Rate hike cycles haven’t always been the actual cause of a recession, but they sure seem to be at the scene of the crime.

Last week I had David Rosenberg, give his two cents on a subject, and I’m going back to the well this morning, where I found another priceless quote by Rosenberg on Twitter… Here we go… “If the Fed raises rates and shrinks the balance sheet as much as it says it will, the cumulative de facto tightening by the end of 2019 will have totaled 525 basis points. If you don’t think this is enough to cause a recession, take note that the Fed tightened 425 bps from 2004 to 2006, by 350 basis points prior to the 2000 downturn, and by nearly 400 basis points in the lead up to the 1990 pullback.” – David Rosenberg on Twitter

And therefore, it’s my opinion, and always has been since the first rate hike in December 2015, (yes, that’s almost 3 years ago!) that the Fed will rate hike the U.S. economy right into a recession, because, well history shows us, it’s what they do! 

I love it when great minds, like David Rosenberg’s, talk in the same circles as I do… Not that I’m a great mind, but…  the fact that I’ve been talking about this QT phenomenon for some time now, and the rate hike effect it’s going to have on the economy, and David Rosenberg is too, well, that puts some starch in my collar!  And make me sit up straight! 

While we’re in this vein… The U.S Data Cupboard on Thursday & Friday, didn’t exactly spell out a strong economy… First we had the Philly Fed Index, (manufacturing index for the Philly region) fall from a 34.4 index number to a 19.9 index number in May… Then the Leading Indicator data showed a drop from .4% to .2% in May, and finally on Friday the Markit PMI (manufacturing index) fell from 56.4 in May to 54.6 this month… The index is obviously still well above the 50 level that determines the difference between expansion and contraction, but, the direction is not good…   

I had a dear reader ask me last week to discuss the idea of China selling all of their Treasuries…  Well, while that would be really bad for the Treasury market, it wouldn’t be so good for China either, as they would experience huge losses in the bonds, and if that much supply is getting sold, along with dollars, they would experience a loss in the dollar component of the trade too…   

It has long been thought in certain circles and by me, that the reason that China is accumulating physical Gold by the boat load is to have something to offset their losses when they do sell their Treasuries…  But selling their Treasuries would be the “nuclear option”, and I doubt we’ll see that happen, instead I believe we’ll see China continue to be absent at the Treasury Auction window… And that’s a bad thing for the U.S. because we finance our debt with Treasury bond issuance, and with the amount of debt were booking now and in the future, the total bond issuance is going to do nothing but grow larger, and larger, which then begs the question, “who’s going to buy all those bonds?” 

To recap… The currencies rallied on late last week, as the trade war drums are beating louder and louder from all corners of the globe. Have you ever wondered about that statement, if we’re talking about Globe, how can it have any corners? Food for thought I guess…  And Chuck goes to extremes to prove the U.S. economy isn’t strong, and it’s a good thing he stopped when he did, or else the laundry list of items would break a camel’s back! 

Before I head to the Big Finish today, I was reading my fave letter last night, Grant Williams’ Things That Make You Go Hmmmm….  And in it I read about a guy that owes more than $1 Million dollars on his student loan… His monthly payments don’t even cover the interest on the loan, and therefore $130 are added to the balance every day!   If nothing changes in two decades his balance will be $2 Million! And he’s not the only guy with that kind of a student loan balance… This from TTMYGH…  “Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.”

I just don’t know what to say or think about that… How in the world could that happen? Somebody is going to eat those loans… and guess who that will be? That’s right you, me and anyone else that pays taxes…

For What It’s Worth… I came across this article and it played so well with everything I was thinking about and writing about today, that I thought it would be good for a FWIW article… It’s about a guy that believes the next recession is going to be a doozy, and you can find it here:   

Let me set this up… This is Paul Tudor Jones, a hedge-fund luminary  speaking… 

Or, here’s your snippet: “The next recession is really frightening because we don’t have any stabilizers.

We’ll have monetary policy, which will exhaust really quickly, but we don’t have any fiscal stabilizers.

The billionaire investor said the dynamic created by the Federal Reserve, as it attempts to normalize interest-rate policy from the 2007-‘09 financial crisis, is unsustainable, referring to valuations for stocks that many on Wall Street view as pricey. “

Chuck Again… Yes, this is the same stuff I’ve been telling you for some time now… Maybe now that Mr. Jones is saying it, people will listen! 

Currencies today 6/25/18… American Style: A$ .7427, kiwi .69, C$ .7521, euro 1.1668, sterling 1.3263, Swiss $1.0124, … European Style: rand 13.5267, krone 8.1170, SEK 8.8786, forint 278.77, zloty 3.7122, koruna 22.1641, RUB 62.96, yen 109.62, sing 1.3628, HKD 7.8469, INR 68.01, China 6.5027, peso 20.08, BRL 3.7853, Dollar Index 94.52, Oil $68.48, 10yr 2.89%, Silver $16.48, Platinum $872.29, Palladium $953.65, and Gold… $1,268.21 

That’s it for today… The heat here did break this past weekend, which was a relief, it was still warm, just not so darn hot! But the high temps are expected to return in time for this weekend…  Next week is the 4th of July! Can you believe that one? Where does the time go? Braden Charles stayed with us Saturday night. What a character! And he’s only 7! Next week’s schedule is going to be whacky with a holiday in the middle of the week, but I’ll deal with it… Long letter today, sorry, I was really loaded for bear, or better said, loaded for strong economy bunk!  The Beatles takes us to the finish line today with their song: A Day In The Life…     Alright, I hope you have a Marvelous Monday, enjoy World Beatles Day, and remember to Be Good To Yourself!   

Chuck Butler