On Second Thought, Maybe A Trade War Isn’t A Good Idea!

June 26, 2018

* Currencies rally, then fall back…

* More warnings that a recession in near…

Good Day… And a Tom Terrific Tuesday to you! How was your World Beatles Day? Mine was fine… not much going on, lots of reading. Had a nice phone conversation with good friend, Dennis Miller, who told me that 191 of you dear Pfennig Readers signed up for his letter and the special report I highlighted last week! Way to go! Of course in my mind, I would have thought tens of thousands should have signed up… But what do I know? HA! The Big Bad Cleveland Indians came to town last night and well, Cardinals’ pitchers shut them out! YAHOO! Triumph greets me this morning with their song: Lay It On The Line…

I sure would like to see these currency rallies move as fast going up and they do going down! Yesterday, saw the euro gain from 1.1668 to 1.1705 on the day, not a huge move, but at least the euro has a 1.17 handle again, is what I thought when I turned the currency screen yesterday afternoon!

In the overnight markets… the currencies continued to inch forward, at least those currencies from countries not in Asia! But then suddenly, things turned in the middle of the night, and the selling began, and the euro lost the 1.17 handle, and is trading right now (early morning for us) at the same level it was yesterday! 1.1668… And the Dollar Index yesterday was 94.52, and this morning it’s 94.50.. So, a day and night of gyrations, but we’re in the same clothes as yesterday…

China’s Shanghai stock index got whacked yesterday, and the Peoples Bank of China took a pound of flesh from the renminbi last night… With all the saber rattling going on between the U.S. and China, things for both countries are going awry… People are battening down the hatches, and there are some in China that are having second thoughts of an all-out Trade War with the U.S.

And here in the U.S. those same thoughts but only from a U.S. point of view are evident… White House trade adviser Peter Navarro said that a Treasury Department report later this week on American restrictions on foreign investment won’t be as broad as investors fear as he sought to allay a trade standoff.

Gold didn’t have a good day, which has been the norm lately… but at least this was only a $3 loss on the day… Right now, in the early morning trading, Gold is down over $8! These Trade War drums that were getting quite loud, have done a number on the shiny metal… Here’s the skinny on that.. So, if the countries of the world go all-in on a Trade War, that will halt the global growth that we began to see last year, and without global growth, there’s no inflation, and with no inflation, Gold gets whacked…

Speaking of economic growth… I keep reading stuff about how the 2nd QTR’s GDP is going to be north of 4%… And that makes me think of the old saying about how star burns the brightest right before it burns out… I’m just saying…

From my view in the cheap seats, it appears to me that this month’s downward move in the euro, was brought about by Europe, and not people buying dollars because they think the economy is doing so well… First we had the Italian election, where the anti-euro party won a majority of seats, and will get to form a government there… Then we had the European Central Bank (ECB) issue dovish comments, and those were followed up a couple days later by ECB President Draghi, who spoke in Portugal and threw the euro under the bus again. All the while, the only good piece of data that has printed in a month of Sundays in the U.S. was the May Retail Sales print… So, I don’t know much, but I do know that Europe has been the cause of the euro’s drop, and not people lining up to buy dollars!

Of course, as I’ve said many times in the past, the euro is the offset currency to the dollar, so when the euro gets sold, mostly likely investors are buying dollars, but they are doing so, because that’s the trade… They are selling euros, and just happen to get stuck with dollars…

The Eurozone left their recession they were in, many months ago, while the U.S. is headed to recessionville… All ahead, turbines to speed Batman! I’ve told you in the past that I read Jared Dillion’s letter, The 10th Man… And he believes that the Trade War is going to be dollar positive, and therefore he believes the dollar is going to go on a strong run… So, there you have it an opposite view of mine… fair and balance, right?

I wonder what the 10th Man thinks about this… Well… I know a lot of you haven’t seen this quote, so here goes… Bridgewater Associates, the largest hedge fund in the world, recently said, “2019 is setting up to be a dangerous period for the economy… for investors the danger is already here.”

Uh-oh!… Add that to the many other warnings economists and analysts, and country bumpkins like me, have been issuing about what the Fed Rate Hikes at the same time they are unwinding their balance sheet, with QT, and now Trade Wars are going to do the economy. It’s beginning to look a lot like a depression… (can you hear the choir singing?)

Yesterday’s U.S. Data Cupboard didn’t have much to show us, and today’s is throwing all its eggs in the Case/Shiller Home Price Index for May… I’m sure it will show an increase, and the housing bubble just keeps getting more air blown into it… Tomorrow’s Data Cupboard will finally have some real economic data with Durable Good and Capital Goods orders for May… I’ll be you a dollar to a Krispy Kreme that these two data prints will be negative… Any takers? HA!

To recap… There’s been some backing off of the Trade War drum beating but that hasn’t helped the stocks, metals, or currencies which have all been seen as liabilities in this Trade War… The Asian currencies are hardest hit, as their gravy train of exports are seen to be getting caught in the mud of this Trade War. The euro tried like the Dickens to trade above 1.17 and remain there, but like all the plans of mice and men…

For What It’s Worth… Well you don’t get much more All-American than Harley-Davidson, and well, that’s about to change… Seeing that the Tariffs of the Trade War will cost them more than $100 Million per year in profits, the Company has decided to move some operations overseas… This article can be found here: https://www.upi.com/Top_News/US/2018/06/25/Harley-Davidson-to-build-motorcycles-destined-for-EU-outside-of-US/1221529934709/?nll=1

Or, here’s your snippet… “Harley-Davidson said Monday it will move production of its motorcycles headed for European Union customers outside the United States to avoid a new tariff.

The action comes in response to tariffs the E.U. imposed on U.S.-made motorcycles.

The tariffs, which took effect Friday, are retaliation for taxes President Donald Trump imposed on E.U. shipments of steel and aluminum.
In a Securities and Exchange Commission filing, Harley-Davidson said the 31 percent tariff, up from 6 percent, would add about $2,200 to the cost of each motorcycle — and the impact could reach $100 million per year.

About 16 percent of the Milwaukee-based company’s revenue comes from European sales, which reached nearly 40,000 units in 2017. There, it competes with European and Japanese-made motorcycles which are not subject to the new tariff.”

Chuck Again… thanks to Ed Steer (www.edsteergoldsilver.com) for highlighting this article this morning, so I could pick it up and have it for you!

Currencies today 6/26/18… American Style: A$ .7402, kiwi .6871, C$ .7510, euro 1.1668, sterling 1.3240, Swiss $1.0105, … European Style: rand 13.5567, krone 8.1210, SEK 8.8629, forint 279.20, zloty 3.7186, koruna 22.1940, RUB 62.90, yen 109.65, sing 1.3616, HKD 7.8479, INR 68.11, China 6. 5314, peso 19.92, BRL 3.7795, Dollar Index 95.50, Oil $68.08, 10yr 2.88%, Silver $16.23, Platinum $862.78, Palladium $934.48, and Gold… $1,257.55

That’s it for today… Quite a bit shorter than yesterday’s letter, eh? Some days I have a lot to say, and some days I don’t! Baseball is a tough game to predict what’s going to happen… The Indians came to town with a 7-game winning streak and are one of the best hitting teams in Baseball, and a rookie pitcher shut them out for his 7 inning stint! I get to go see one of my fave people today… My dentist… Yes, I have a crush on my dentist… HA! Seriously… She’s great, and always so nice to me… The thunderstorm that ripped through this area in the wee hours of the night were very strong, with winds, heavy rain and a lightening show. It woke me up and then I couldn’t go back to sleep, so here I am… Rock you like a Hurricane! HA! The Gin Blossoms take us to the finish line today with their song: Follow You Down… 90’s music… I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!

Chuck Butler


Nuria Pujol