U.S. Economic Data Continues To Show The Rot On The Vine!

November 18, 2019

* Currencies rally on Friday, and remain well bid… 

* Gold gets sold on Friday and in the early morning today… 

Good day… And a Marvelous Monday to you! This will be a short week for yours truly, as it will get cut down to 3 days. I have my monthly oncologist visit bright and early on Wednesday. So this is your early alert of no Pfennig that day! Well, our Blues had their unbeaten streak stopped and now they’re on a losing streak… What in the world has happened to my beloved Missouri Tigers football team? They were 5-1 and number 23 in the country, and the wheels fell off. They are now 5-5 with two games left to at least make it a respectful season… UGH! A former colleague of mine, Dave Conway, is Florida grad, and he had bet me the last two years on the Florida/ Mizzou game, of which I had won… This year I told him he could have a double or nothing bet. So, I guess now we’re all even… Otis Redding greets me this morning with his live from the Whiskey A Go-Go album, and the song: I’ve Been Loving You…

Well, before I get into what happened in the currency and metals markets on Friday, and last night in the overnight markets, I first have to tell you that yet… ANOTHER JPMorgan metals Trader has been indicted by the federal prosecutor… The list of things he did are long, folks… But once again, we see traders from JPMorgan getting ensnared by the Federal Prosecutor’s web… And in my opinion, it couldn’t happen to… no wait! I’m going to take the high road here, and say he’s innocent until proven guilty… And that’s that!

OK… Well, the currencies did rally on Friday VS the dollar, and it could have been the news that the Chinese have balked at some of the items in the trade negotiations… So, apparently this is not the layup the markets were led to believe it was, eh? Of course had they just listened to me, and waited for their euphoria until the eggs were hatched, they might not look so silly now with those broken eggs all over their collective faces!

Or, it could have been the Rocktober print of Industrial Production, Capacity Utilization, and Business Inventories… IP was a negative -0.8%, which was double negative of what was forecast… Capacity Utilization saw a drop from 77.5% in Sept. to 76.7% in Rocktober… That’s a significant drop for this set of data folks… And then there was the Business Inventories, which were flat… 0% growth, which taken with the previous month’s negative -0.1% is telling us something folks… Do you want to know that might be? OK… if you really want me to get into my economist chair and tell you… First of all on the outside it would be a good thing for a business to have zero inventory, for the cost savings and benefits such as improved cash flow, reduced carrying costs and inventory waste from maintaining large, unnecessary levels of inventory stock, will be a good thing, but… Is this a signal that the businesses know what’s coming and they don’t want to be caught with their pants down, I mean,  long with a boatload of their inventory that can’t be sold?

I believe it is a sign, folks… And the other thing that happens when inventories go stagnant like this is that they give no benefit to GDP… Yes, that’s a silly thing that happens in the GDP calculation, and that’s business inventories get added in… Stranger than fiction, I know… But it is what it is… And the 3rd QTR GDP isn’t going to get a lift from Business Inventories… 3rd QTR GDP is already thought to be on the slide… I’m just saying.. .

Longtime readers know that I don’t like to begin the letter with all this talk of data, but it was unavoidable today… So, we carry on… But before I get back to the markets I first wanted to apologize for a couple of errors lately… First, I understand the link to the Grant Williams presentation didn’t work for some folks… And second, that I didn’t put the currency roundup in the letter last Thursday… I could swear I did! I even have the notepad here where I write them all down before I put them on the screen! Oh well, sorry that it got missed!

The overnight markets haven’t moved the currencies much, and so they begin the week with a bid, and the dollar looking a little tired.  Gold on the other hand is down $9 in the early trading today… I have to think that Gold’s downward movement is nothing but paper short Gold trades… But then we still haven’t gone back to $1,425 like the techie guys said we would, so a $9 downward move, isn’t that big of thing, and gives investors thinking of diversifying their investment portfolios with Gold or Silver the opportunity to buy at cheaper prices… 

Oh, and last week, some readers thought I was taking a shot at Al Gore… I really wasn’t, I was just saying what anyone that was outside in St. Louis and it was 14 degrees early in November, would say to him…  Especially if they were a smart- alec like me! I completely understand weather patterns, etc. I’ve been a fan of weather for a long time… I’m just saying…

OK… Well as I said above, Friday was a good day for the currencies… However, Gold couldn’t break free of the short Gold paper trades, and ended the day at $1.467 down $3 on the day… I had a dear reader send me a note last week, and asked me to explain the huge price differences between Gold and Platinum and Palladium… OK, I’ll give my best college try… Gold is most traded of the three, but Platinum and Palladium are more industrialized metals than investment metals, and having that as their moniker, they don’t get the amount of short paper trades placed on them by the price Manipulators… Silver, for instance has short positions on it that would be equal to 215 days of production, and Gold’s number of days of production is 95… But the industrial use is important to Platinum & Palladium… 

I’m not sure I did that explanation justice, but I do need to move on, because there are bigger fish to fry this morning…

Did you hear the news from the Fed NY who told reporters that it will be 2 years before they know who has needed the help in the repo markets… Wait! What? We have to wait 2 years before they’ll tell us?… Where’s the truth and transparency that the Fed promised us? This really ticks me off folks, and should you too, so much that a letter, email, call to my representative is being made! I can see the gate keepers of that correspondence saying, “It’s that Chuck Butler again, he’s going to ask more uncomfortable questions that we can’t answer!”

Speaking of those repos… The guy with the utmost respect in the business than anyone I’ve ever crossed, James Grant, had this to say about the repos… “the Fed has embarked on one of the most aggressive monetary policy re-accommodation regimes in history.” He points out that the Fed has done $3 Trillion in repos in the past two months… That’s crazy folks, and still no word for 2 years on who gets this money! And in my mind I can’t believe that this isn’t the top item on the list of subjects each day by the Fed! Last week, for instance there were only two questions posed to Fed Chairman Powell, one question each day, about the repos… The lawmakers asking the questions got what everyone else got… It’ll be 2 years, blah, blah, blah…

I would bet a dollar to a Krispy Kreme that most people outside of Pfennig Readers, even are aware that this is going on each day, and what it signals….

Oh, well, the sheeple will be led to, the poor farm… Remember the “poor farm”? Or ‘debtors prison”? Things of the past…

I have to give kudos to CNBC for their admittance yesterday that owning GLD (the ETF) doesn’t constitute owning Gold… I received this from the GATA folks, and it goes on to tell CNBC’s thoughts on GLD… “GLD “tracks one of the world’s most popular commodities,” provides “an easy and particularly cost-effective way to get indirect exposure to gold,” and is a device for “having exposure to movements in the gold price.”

The Folks at GATA had this to say… “Of course it would have been nice for CNBC to note that the custodian of the vault holding GLD’s gold is the investment bank HSBC, perhaps the biggest short in the gold market; that the bank is the beneficiary of a new New York Commodities Exchange rule apparently allowing the bank to inject more “paper gold” into the futures market —— that GLD itself facilitates the shorting of real metal through the borrowing and conversion to metal of its shares and the sale or lease of that metal by enormously well-funded brokers executing central bank market-rigging policy; and that anyone buying “paper gold” might as well flush his money down the toilet.

But then if CNBC or anyone else covering the gold market ever undertook journalism that serious, nobody would need GATA anymore.”

Chuck here… very interesting indeed… and the thing I always point out as the biggest difference between ETF’s and actual physical Gold… Try to get the physical Gold from your ETF…

The U.S. Data Cupboard was busy last Friday, and we’ve already talked about those numbers…. And this week’s Cupboard will have a bunch of housing data numbers for us, which doesn’t do much for move markets per say, unless there’s a collapse there somewhere, and I don’t see that… On Wednesday this week, the FOMC’s Meeting Minutes from their last meeting when they cut rates but said that was it for now, will print… it will be interesting to see how many no-votes there were to cut rates… And IF the minutes leave the door open for more rate cuts sooner than later, then and only then will the markets react accordingly…

Before I head to the Big Finish I can’t let this go another day without getting if off my chest… Well, well, well, what do we have here? Former Fed Chairman, Big Ben Bernanke, gave an interview to promote a new book he’s authored, and in it he came clean and said that “some Wall Street executives should have gone to jail for their roles in the financial crisis that gripped the country in 2008.” Really? Where, may I ask, Big Ben, was all this tough talk back in 2008 or 2009, or even 2010? Weren’t you in charge then of the Fed? And wasn’t The Fed NY’s responsibility to regulate the banks that you now claim that besides fines, their leaders should have gone to jail? You know, as a PHD you should know better than to bring stuff up from the past, that might have the focus switched to you!

Too much, too little, too late, Big Ben… I’m just saying!

To recap… The currencies rallied on Friday, and remained well bid in the overnight markets last night. Gold hasn’t seen the love the currencies have though, and closed down $3 on Friday, and is down another $9 early this morning. The economic Data in the U.S. was downright awful on Friday, and the Chinese are balking at the requests of the trade negotiators, so apparently it’s not the layup we were all told it was going to be, eh?

For What It’s Worth… Well, another sign of the economy grinding to a halt came my way on Saturday when I saw this “Cass Freight Index collapses in Rocktober -5.9%, the index has been negative since springtime, folks… “ So, then I saw that the 4th QTR GDP is being forecast to collapse, I had to include it here… So this is the article on the 4th QTR GDP and it can be found here: https://www.zerohedge.com/economics/q4-gdp-crashes-us-economy-growing-slowest-pace-4-years

Or, here’s your snippet: “Following a burst of poor U.S. economic data, including today’s disappointing retail sales and dismal industrial production, the U.S. economic surprise index has slipped back into the negative after peaking in late September.

This slowdown in high frequency economic indicators has not been lost on strategists, and in just the past week, tracking estimates for Q4 GDP have tumbled by over 0.4% in just the past week, with both the Atlanta Fed and New York Fed now expecting a sub-0.40% GDP print in the current quarter.

U.S. GDP in Q4 is set to print at the lowest level in 4 years at around 0.35%, and would be only the fifth time in 42 quarter since the Q3 2009 exit from recession when U.S. growth has risen by less than 0.5% Q/Q.

We only bring this up to point out that the S&P500, which is printing at all time highs well above 3,100, is clearly no longer reliant on the U.S. economic outlook, even if U.S. GDP is now expected to print dangerously close to contraction due to a sharp slowdown in household spending, capex, residential investment and inventories.

So what does matter, if it’s not the market, or earnings which as we pointed out previously are not only negative for Q3 but also just turned negative for the 4th quarter according to consensus sellside estimates, suggesting a technical earnings recession awaits?

The answer: the Fed’s balance sheet, which has increased by $288 billion in the past two months, a faster rate of increase than that observed during QE3.”

Chuck again… Wait, Zerohedge.com didn’t you get the memo from the Fed, that we can’t call what they’re doing QE? Better clean up your act, or you’ll be in deep dookie with Jerome Powell! HAHAHAHA!

Currencies today 11/18/19 American Style: A$.6810, kiwi .6405, C$ .7565, euro 1.1060, sterling 1.2950, Swiss $1.0094, European Style: rand 14.7689, krone 9.1065, SEK 9.6408, forint 302.89, zloty 3.8778,  koruna 23.1344, RUB 63.70, yen 109.06, sing 1.3602, HKD 7.8284, INR 71.65, China 7.0074, peso 19.24, BRL 4.1947, Dollar Index 97.94, Oil $57.59, 10-year 1.85%, Silver $16.82, Platinum $882.41, Palladium $1,716.35, and Gold… $1,459.22

That’s it for today… Quite a long one I might add, but I had a lot to say today about the ridiculousness of the things that people say!  One of these days I’ll get it right… Last week I said my granddaughter, Delaney would be in the production of Madeline, but it’s actually Matilda!  What a dolt sometimes, eh? We attended a fund raiser for a fallen police officer last Friday night. It was a Trivia night, and the subject was the 90’s…  I said, well there goes out chances, because I tell you all about the 60’s, but not the 90’s!  OK…  Styx takes us to the finish line today with their ballad song: Lady…  And with that I hope you have a Marvelous Monday, and please Be Good To Yourself!

Chuck Butler