U.S. & China Sitting In a Tree, K-i-s-s-i-n-g!

May 21, 2018  

* Dollar rally continues..    

* Italian elections throw the euro under a bus! 

Good Day… And a Marvelous Monday to you! Another Monday morning, and I’m still by myself…  But that’s OK, because as I told my good friend Duane, who invited me to eat at his house last night, I don’t have a problem with all the times Kathy goes away. Think about what she’s had to deal with, with not only me, but her dad a few years ago for the last 11 years!  But she’ll be home tonight (I think!) and things will get back to normal around here…  Our Pool gets opened up today, that’s a sign that spring has finally begun around here! Kansas greets me this morning with their song: The Wall. In the 70’s I was a HUGE fan of band Kansas… 

In an example of how quickly things can change, the euro’s gains in the past few months have disappeared… And we can blame that all on a couple of things that have happened in the past month… 1st, we had the short squeeze that happened, and the short positions on the dollar got reversed, and then we had the European Central Bank (ECB) sit on their hands when it came time for them to announce an end to their stimulus, and finally this past weekend we had the election in Italy, where the anti-euro parties won, and will rule Italy for the next few years…    

This election results shouldn’t have come as a surprise to the markets, for the anti-euro parties were leading in the polls for the last couple of months… I wrote and already sent my Dow Theory Letters piece for this week this past weekend once I heard about the election results… In it I tell people that the euro’s 13% gains since the start of 2017, are going to be subjected to some selling with these election results, and that it’s time to batten down the hatches, and to look for bargain basement prices to add to positions the next few months…    

Did you hear about some of the new Italian governing party’s requests to the ECB? They want the ECB to write off over $200 Billion of loans that the ECB has made to Italy…   You know, this all takes me back 20 something years, when Italy was always a basket case when it came to politics and prudent governing of their economy… Remember Silvio Berlusconi?   It was one government scam, scandal, or mess every time the Italians held another election…    I used to wonder, who wrote the book of love, no wait, I would wonder how in the world did Italy meet the Maastricht Treaty requirements of joining the euro?   

But they did, and just like the Eurozone had to deal with the pulling back of the curtains on the Greek Debt 7 years ago, now they’ll have to deal with this rogue Gov’t in Italy… 

OK, I’ve got to move along here before I say something that ticks off half my readers!  But there’s more…  Over the weekend, the U.S. and China had some negotiations and China has begun to buy more U.S. stuff, which should ease the tensions of a Trade War with China… But then to follow up that that news came this news: officials said Mr. Trump told German Chancellor Angela Merkel in April that Germany should drop support for Nord Stream 2, an offshore pipeline that would bring gas directly from Russia via the Baltic Sea. This would be in exchange for the U.S. starting talks with the European Union on a new trade deal.  Uh-oh… now a trade war could begin with the European Union?  YIKES!  

But before everyone thinks that something is going awry with the President, I saw a CNN (yes, I said CNN, which makes this poll even more enlightening) Poll this weekend, that showed 57% approval rating for the President and his move to make American Great Again…   Can you believe CNN aired that?   I’m not here to talk about politics, but when the American people think that starting trade wars with our allies, is good for America, I have to point it out! 

And now…  I’m switching gears to Argentina… Have you been checking out their latest debacle? i had a dear reader ask me last week , if I would talk about Argentina…  Well, I’m just not that close or familiar with what’s going on there, other than what the major media will tell us.. So.. I sent a note off to my good friend, and former boss, Frank Trotter, who spends some time there each year to give us some thoughts on what’s going on..  And as soon as he responds I’ll give you the skinny from my “man on the street”!    

All this current dollar strength is really interesting to me, given the dollar’s fundamentals sure haven’t been in play here as the reason for the dollar to rally… It’s all about sentiment these days folks… But, in my humble opinion, this dollar strength is not going to last forever… or at least 6 months… which could seem like forever for a non-dollar investor! Sooner or later, love is gonna get ya, no… wait! Man, you’re feeling a little spirited this morning, Chuck!  

But… what I’m attempting to say here is that sooner or later the dollar’s fundamentals will be focused on again, like there were from Jan. 2017 until this month, and things like Debts in both the national account and the Trade Balance account will come back into play. But, until that happens, dollar strength will prevail, so find a price you’ve been longing to buy a currency or metal at, and do some Blue Light Special buying… 

That’s the beauty of a dollar rally, as the currencies get cheaper, you are able to buy more of them with your dollars than you could before! 

Everything I read these days is about the demand of physical Gold by the Central Banks around the world minus the U.S. According to the World Gold Council (WGC) Russia has surpassed China as the number 2 holder of Gold in the world… That sounds impressive for Russia, and it is, but I take issue with the WGC’s reporting of the Gold totals in China… I do believe they are way off, and under reported, but when China doesn’t really give anyone the true information of their Gold holdings these things happen… 

The thing that really drives home the point here that I’m trying to get at is the fact that physical demand for Gold is up, and supply is down, and getting harder to find, which should mean the price of Gold is soaring, but that’s not what’s happening, but in time this will all change for the better in Gold & Silver… 

Gold as able to gain a whopping $1.70 on Friday, but is down more than $7 in the early morning trading today. OK, boys in the band, you can stop playing now, Gold buyers are itching around the collar to buy more Gold but want to wait until your finished whacking the shiny metal…  Remember a couple of weeks ago, when I posted a quote by Gold Charts-R-Us guru, Omar Ayles, who said that Gold could drop to $1,278 before turning around… Well, we’re almost there with Gold trading this morning at $1,283…   

The U.S. Data Cupboard had the Leading Indicators data print for April last Thursday, and they were flat to the previous month at 0.4%… I always find this data to be funny… in that it’s called the Leading Economic Indicators but it’s a month behind…  after you stop laughing, you’ll want to know that the Data Cupboard today and tomorrow is empty…  So, we’re going to hear a lot about how the U.S. and China has kissed and made up, for now that is, and how the rift between the U.S. and the European Union is getting hot and heavy… Oh boy, where do I sign up for more of this? I just can’t get enough! NOT!  

To recap…  The dollar rally continues, but Chuck is seeing an end, but it might be as much as 6 months out… UGH!  The Italian elections have thrown the euro under the bus, and a Trade War with the European Union may be in the cards, while the Trade War with China has seen the combatants kiss and make up, for now…  Gold continues to fall in price, there’s got to be a stopping point here somewhere, so we can back up the truck and buy some more Gold!    

For What It’s Worth…  Since I talked about increased debt levels here in the U.S. eventually coming back into focus, this article plays nicely in the sandbox with that thought, and can be found here: https://www.newyorkfed.org/microeconomics/hhdc.html  

Or, here’s your snippet: “The CMD’s (Center for Microeconomic Data) Quarterly Report on Household Debt and Credit reveals that total household debt reached a new peak in the first quarter of 2018, rising $63 billion to reach $13.21 trillion. Balances climbed 0.6 percent on mortgages, 0.7 percent on auto loans, and 2.1 percent on student loans this past quarter, while they declined by 2.3 percent on credit cards.

Aggregate household debt balances increased in the first quarter of 2018, for the fifteenth consecutive quarter, and are now $526 billion higher than the previous (2008:Q3) peak of $12.68 trillion. As of March 31, 2018, total household indebtedness was $13.21 trillion, a $63 billion (0.5 percent) increase from the fourth quarter of 2017. Overall household debt is now 18.5 percent above the 2013:Q2 trough.

Mortgage balances, the largest component of household debt, increased somewhat during the first quarter. Mortgage balances shown on consumer credit reports on March 31 stood at $8.94 trillion, an increase of $57 billion from the fourth quarter of 2017.” 

Chuck again… I know, there will be those that say with a greater population that these debt levels aren’t that bad… I say,  hogwash! 

Currencies today 5/21/18… American Style: A$ .7526, kiwi .6898, C$ .7770, euro 1.1747, sterling 1.34, Swiss $ 1.00, … European Style: rand 12.83, krone 8.1038, SEK 8.75, forint 271.50, zloty 3.6630, koruna 21.8365, RUB 62.33, yen 111.35, sing 1.3450, HKD 7.8495, INR 68.18, China 6.3775, peso 19.96, BRL 3.7355, Dollar Index 93.86, Oil $71.45, 10-year 3.07%, Silver $16.35, Platinum $879.90, Palladium $974.21, and Gold… $1,283.70  

That’s it for today… After a rainy morning yesterday, the sun came out and it was an absolutely beautiful day. Some of my good friends came over to watch the Cardinals game outside with me, so that was fun. Friday night I got to see some of my former colleagues at a Happy Hour. Thanks to Michelle, my latte’ buddy, for getting that together! There were some former colleagues “missing”…  I guess I’ve become out of sight, out of mind for them…  Well, I survived another period of time alone, once again!  Day game VS the Royals on Wednesday, and I’m going! YAHOO! 3 doctor appts this week.. UGH! But afterward I’ll be set free to move about the country! HA!  Poco takes us to the finish line today with their song: You Better Think Twice…  About 20 years ago, I would listen to Poco’s music all day long… Hmmm…    So, how about we go out and make this a Marvelous Monday, and remember to Be Good To Yourself!  

Chuck Butler