Blog Single

July 24, 2018

* Currencies and metals give back most of their Friday gains

* A check on Russian fundamentals on the docket today…

Good day… And a Tom Terrific Tuesday to you! At this point, we’re going to have to hope for a turn-around Tuesday to take the starch of the dollar’s collar. I sat outside with good friend Duane last night to watch the Cardinals blow yet another game late… Our rookie pitcher, making his major league debut, pitched 7 no-hit innings, but the bullpen blew the leas and he was not awarded a win, nor were the Cardinals… I said to Duane, “well, that’s what happens when you only score 1 run, you lose 2-1”… UGH! I’m about to wave the white flag on the Cardinals’ season, folks… The Beatles greet me this morning with their classic rock song: The Long & Winding Road…

Well, the overnight selling of the currencies from Sunday night, continued throughout the day on Monday… Why on earth, would investors/ traders/ hedge fund managers, be thinking that the dollar is the place to be when 1. We’re about to set a new record for length of an expansionary period. 2. The Fed has decided to hike rates late in this cycle, which has me about as confounded as can be, and 3. We as a country are ticking off our allies, and making enemies of the two countries that have said they was to change the dollar reserve status?

I posed that question to my long time friend, and former Boss, Frank Trotter, yesterday when we talked for about an hour on the phone. He seems to think that the Fed needs to be hiking rates right now… I meant to ask him if he meant, so that they have interest rates to cut in the next recession? But forgot, as I was once again mesmerized by the Jedi mind tricks of Frank Trotter! HA!

But with things all cockamamie these days, and what’s up is down, and what’s down is up, who knows where this will all go? I surely don’t… And quite frankly, I’m beginning to not give a damn, either, because if investors / traders and hedge fund managers, want to keep this circus going then I’m not going to keep telling them it’s all being done with smoke and mirrors. I’ll give them the rope, and let them hang themselves…

Yesterday in the Eurozone, we saw that Consumer Confidence fell this month -0.6%… Nothing that would have led to the euro getting sold… And this morning, July PMI (manufacturing index) ticked higher from 54.9 to 55.1 this month, led by an strong month from Germany. And yet, the euro can’t find a bid, even with this strong data print.

I have to make an announcement here, so sit down… The Pfennig Replies mail server has basically crashed, and isn’t working, so all of you who sent me ugly emails yesterday about my position on the Russian economy and currency, aren’t going to see my response, because, well, I can’t see them!

But, I realized yesterday that I talked about economic fundamentals that were superior to other countries, and then didn’t really get into them, so here we go…

On July 12th, Russia announced that Russia’s trade surplus widened by 75.5 percent to USD 15.15 billion in May 2018 from USD 8.63 billion in the same month a year earlier, but still below market expectations of a USD 18.06 billion surplus.

Longtime readers know that I love surpluses! But that’s not all! The unemployment rate in Russia went down to 4.7 percent in May of 2018 from 5.2 percent in the corresponding month of the previous year, below market expectations of 4.9 percent. It was the lowest jobless rate since at least October 1992.

And just when you think this is over, there’s one more piece of fundamentals data here that you need to see and that is: Russia’s gross domestic product advanced by 1.3 percent year-on-year in the first quarter of 2018, matching the preliminary estimate and following a 0.9 percent growth in the previous period.

And the icing on the cake is that inflation in Russia fell to 2.3% last month! Now, I challenge you to find another country in this world that’s putting up these kinds of fundamentals… And that’s all I’m going to say about that!

My longtime friend, and former colleague, Chris Gaffney, sent me a note yesterday, and said that he had just done a presentation in Vancouver, and he had listed Russia’s economy as one of the best in the world, according to the back pages of the Economist…

But in this day and age, fundamentals will only get you a cup of plain black coffee, that’s not even hot! I remember when currency valuations were all about fundamentals. These days I sit on cornerstones and count the time in quarter tones to ten… No wait! These days, it’s all about trader sentiment… For instance if traders went out for dinner, and went to a Mexican restaurant, only to have Montezuma’s revenge on their digestive systems overnight, they’re probably going to sell pesos the next day…

Ok, I exaggerated there, but you get the picture, right? Alrighty then, we move along… You can’t have a discussion about Russian without talking about Gold… And well, the shiny metal is just not favored by the paper traders… On Friday, we saw Gold gain $9 but yesterday the shiny metal gave just about all of that gain back by dropping $7.50… I know you all are getting tired of, or have already grown tired of me harping about the short Gold paper trades, so I’m not going to go there today…

I mentioned to Frank Trotter yesterday that there seems to be a tinder box ready to go up in flames all over the world these days, and in my simple way of thinking of things, I just can’t put my finger on why Gold is being held back in these times… But, it is, and well, if it is anything these days, it’s much cheaper than it was a month ago, and a month before that!

The Chinese are back to weakening the renminbi almost nightly again. A couple of weeks ago, it appeared that the Peoples Bank of China (PBOC) had weakened the renminbi enough, but that was before President Trump announced tariffs on an additional $200 Billion of Chinese exports to the U.S. Since the renminbi is a “managed currency”, the Chinese are able to move it wherever they please, and their thinking is straightforward, if you increase the price of my goods, I’ll lower the transaction costs… to even out the price…

Now, the Chinese have added tariffs to U.S. goods coming into China, but here, we have the dollar rising, which is going to make the U.S. goods even more expensive… Who’s plan is going to work here? I’ll give you a moment to think about that…

Ok… Data-wise, this seems to be PMI Day around the world, as countries report their latest reports on the pulse of their respective manufacturing sector… For instance Japan already printed their latest PMI and it fell to the lowest level it has seen since Nov. 2016. At 51.6 the index remains above the important line in the sand figure of 50, but it’s going the wrong way…

I mentioned the Eurozone PMI above, but there was something else going on in their PMI… In Europe, there are signs protectionism is already starting to weigh on output, with survey respondents reporting rising prices for raw materials and delivery delays. There’s trouble brewing with the global trade war folks… And this is just the tip of the iceberg… and each country’s economy is the Titanic…

The U.S. Data Cupboard will have it’s own PMI for June to print today. This will be the Markit version of the PMI, which is different from the national ISM (of course we have to be different, right?). I expect to see our PMI show signs of fatigue, but I’ll have to wait-n-see…

To recap… The currencies and metals need for today to be a Turn-around Tuesday, after Monday’s trading just about wiped out all their gains from Friday. Chuck goes on and on about Russia’s economy this morning. Hey! don’t blame him, he was on a roll! Gold lost most of Friday’s gain yesterday, but is up $2 in the early trading today, and it’s PMI Day around the world today…

For What it’s Worth… more years ago than I care to admit, I met Thom Calandra, who at that time started the CBS MarketWatch, and he liked our products so much that he wrote about them, which was a good thing for our products, and his letter, because soon the dollar was dropping like a rock and he looked like a superstar! Thom ran into some problems with the authorities years later, and he was penalized, But now he’s back, and writing a letter again, and yesterday, the GATA folks sent me a note about an article he posted on Gold, that can be found here: thomcalandra.com/cook-islands-marries-gold-royal-note/

Or, here’s your snippet: “Gold is back in circulation in small denominations as official government currency issued by the small South Pacific country of the Cook Islands, whose gold-containing bills are manufactured by the Valaurum company in Portland, Oregon.

The bills were publicized today by Thom Calandra of The Calandra Report as a reminder that there are entirely practical ways of putting gold into circulation in amounts usable for ordinary daily transactions.

Of course since the Cook Islands are too remote for a shopping trip for anyone who doesn’t live there already, the bills most likely will find use as curiosities and collector’s items. But they demonstrate that technology easily will remonetize gold as soon as governments get out of the way of free markets, which may be another reason why governments fear and undermine gold so. ”

Chuck again… Pretty interesting don’t you think? Sure it’s a tiny little island economy, but you have to start somewhere right? I’m telling you this now, so hear me now and listen to me later, the world is in need of a Gold standard, period.

Currencies today 7/24/18… American Style: A$ .7406, kiwi .6806, C$ .7602, euro 1.1705, sterling 1.3130, Swiss $1.0068, European Style: rand 13.3177, krone 8.1654, SEK 8.8250, forint 279.20, zloty 3.6910, koruna 22.0130, RUB 63.16, yen 111.05, sing 1.3638, HKD 7.8458, INR 68.80, China 6.7752, peso 18.82, BRL 3.7766, Dollar Index 94.49, Oil $68.22, 10-year 2.95%, Silver $15.53, Platinum $841.36, Palladium $924.78, and Gold… $1,226.56, and the SGE Gold Price $1,233.55

That’s it for today… What a great pitched game by the rookie last night, only to have the bullpen blow it… It’s a very frustrating season for me with these Cardinals… But they’re my team… All three grandkids were here yesterday, they play together so well, but they sure are loud! I found that my noise cancelling head phones come in handy! Well this Pfennig is in the books, and only one more to go before I head out the door for two weeks… I’ve talked about this enough that you are probably tired of hearing about it, but I always get a few emails asking where I’ve been when I’m on vacation… Frank Sinatra takes us to the finish line today with his song: Fly Me To The Moon… I hope you have a Tom Terrific Tuesday, and that you continue to Be Good To Yourself!

Chuck Butler