The Canary In The Coal Mine… Emerging Markets

June 28, 2018

* Currencies stop spinning and go into reverse!

*it’s Alex’s Birthday!

Good Day… And a Tub Thumpin’ Thursday to you! Today is my youngest son Alex’s birthday… So Happy Birthday, front and center this morning to the young man that 20 years ago, used to sit on my lap, during my first “retirement” and help me write the Pfennig… Yes, even though the bank that had bought the old Mark Twain Bank and then performed ethnic cleansing on the Mark Twain Employees, got rid of me… I still wrote the Pfennig from my home, much like I do these days. Except then I had two kids in college, and a 3 year old at home. At the time I thought it was the end of the world losing my job, but when one door closes another opens, and soon I was working with the group led by Frank Trotter, to start a new bank, which would become EverBank… Charlie Daniels Band (CDB) greets me this morning with their song: Long Haired Country Boy… Now that’s one song that will get the crowd singing along!

Well, the euro bears won the day again yesterday, pushing the euro below the 1.16 handle… Just two days ago, I remarked that the euro had climbed back above 1.17, so a chunk of change has been taken away from the single unit in the last two days. When the roosters come home to crow, those euro bears are going to be going into hiding… But then that’s what we’ll have to wait for, but I do believe it will come… the Fed Heads just need to show their hand, begin to reverse their rate hikes, or halt their balance sheet unwind, and out the window goes the remaining thread of credibility they have left..

I’ve put so much thought and work into this scenario that if it doesn’t come to fruition, then I’m going to wave the white flag, and become Puff the Magic Dragon, who went back into his cave, and ceased his mighty roar! I’m serious here folks… I will give up, and throw in the towel! No more analysis from me, no more conspiracy ideas, and no more Pfennig… For like the Fed Heads, I would have no more credibility… So, that’s a sobering thought this fine Tub Thumpin’ Thursday, now isn’t it?

So, while I still have a “job” being your Pfennig writer, I’ll continue to do my best to look forward, around corners, under hoods, and back alleys to find the information you need to make informed investment decisions…

And today, that means.. I have this to say… I’ve been telling you about the difficult time the Emerging Markets are going through right now… And well, they are the canary in the coal mine regarding the seizing up of the Credit Markets… It’s happening in the Emerging Markets right now, folks… so I’ll ask you this again… “Got Gold?”

Speaking of Gold… Once again the price manipulators took their pound of flesh from the price of Gold yesterday… Depending on what price you look at, Gold lost either $4 or $5 yesterday… Ed Steer tells me this morning that there were over 255,000 contracts traded yesterday… Have you heard of Ted Butler? I’ve mentioned him a time or two in the past. Ted Butler, has taken it upon himself to bring the price manipulation of Silver and taken further to Gold, to the masses, in hopes that one day the CFTC gets some intestinal fortitude and decides to really investigate the goings on with Silver and Gold… Remember the old CFTC member, Bart Chilton, telling us that he looked into it and found nothing? I remember responding to this back when he made that comment, that he couldn’t find his rear end with both hands! And now he’s got his own show on cable talking about economics!

I shake my head and wonder about how people that fail miserably in their previous jobs end up getting promoted? Man, am I ticked off this morning or what? And no it’s not because my beloved Cardinals’ winning streak came to an end last night! Or because it’s hotter than hades in St. Louis with humidity that you could cut with a knife! No, it’s because I keep hearing the Fed Heads telling us the economy is robust and strong… And they will all be dancing in the streets when the 4%+ 2nd QTR GDP prints in a month or so… But like I keep telling you, this is going to be a case of a star burning the brightest right before it flames out…

Oh, and I was going to talk about Ted Butler, and got sidetracked there! What a dolt I am sometimes! But there’s a real good piece on price manipulation by Ted Butler that appeared in Ed Steer’s letter the other day… that, in case your interested, is here:

[T]he allegations that JPMorgan has manipulated silver and gold prices for a decade are so serious that any proportionate fine would be too large to assign. And any fine would only precipitate a virtual landslide of public and private lawsuits from investors, producers and producing countries, so as to jeopardize JPMorgan’s existence as a going concern. Not that the CFTC could ever move against JPMorgan, since the agency has long been held captive to JPM’s lawyers and lobbyists. The CFTC has never enacted any policy or regulation that JPMorgan has opposed; starting with legitimate position limits.

The Commission can’t possibly ever admit that there is anything amiss in silver after denying any such manipulation for three decades. To do so now would be tantamount to formally ending the agency as an independent regulator. Besides, McDonald and company can’t even answer simple questions based upon the agency’s own data – it is completely incapable of ever seriously confronting the crooks at JPMorgan.

JPMorgan, in effect, regulates the CFTC — and not the other way around. — Silver analyst Ted Butler: 20 June 2018

Winning two out of three is not bad, especially to a team that was on a 7-game win streak, and were 16 games over .500 when the series began… But I digress here… back to work, Chuck!

I don’t know if you’ve been checking the currency roundup each day for the Chinese renminbi performance, but I’ll save you the trouble by telling you that the renminbi has been on the slippery slope downward for the last week… And this week’s performance has seen the renminbi’s slide turn to an all-out fall! I think I know what’s going through the minds of the folks at the People’s Bank of China (PBOC)… They see the Trade War boosting the prices of Chinese exports to the U.S. which could cause a real loss of trade income, because if an item costs more, maybe consumers will choose not to buy it… So, what can they do to offset this potential loss of trade income? Well, the easy thing that Central Banks turn to every time things het heated… They allow a depreciation (or sell their currency ) of their currency so that the exported items are cheaper…

This ploy rarely works folks… But that doesn’t stop Central Banks from debasing their currencies in an effort to increase trade… Debasing a currency then allows inflation to be imported and before you know it you have rising inflation, and you have to hike interest rates, and that causes the currency to rise thus wiping out your competitive ace in the hole…

So, I expect to see more rot on the renminbi’s vine in the coming weeks, unless calmer heads prevail with these Trade War fears. But like I explained yesterday, I think we’ve gone down this Trade War road too far, to turn back now… The Cornelius Brothers and sister Rose sang a song titled: It’s too late to turn back now, and here’s the link to the song in case you’re wondering how the song goes:

The U.S. Data Cupboard yesterday didn’t disappoint with its prints… Durable and Capital Goods Orders for May both printed negative, as I told you they would… Durables were a negative -.06%, and Capital Goods were a negative -.02%… These are pieces of real economic data folks, and they tell a story of an economy that’s struggling… Today’s Data Cupboard has the final revision of 1st QTR GDP, which should remain about 2.2%…

Are you scratching your heads too, and wondering just when did 2.2% GDP represent “a robust and strong economy”? But that’s what Fed Chairman Jerome Powell will have you believing if you trust him… And the parade of Fed Heads our on the speaking circuit this week has been busy, but all of them believe the same thing… Well, if you are thinking that this is all Mularky, then you’re in the same camp as me… So, should we make some s’mores with this campfire?

Oh, and one more thing before we head to the Big Finish… When I said yesterday that the currencies needed to apply their anti-skid brakes to stop all the spinning of their wheels, I didn’t mean for them to then put the car in reverse! UGH!

To recap…. The dollar bugs are winning this week… They have gotten the dollar up to a 95 handle in the Dollar Index.. The currencies got sold like funnel cakes at a State Fair yesterday and overnight, and Gold didn’t help offset the currency losses. The price of Oil, however, rose again and now trades with a $72 handle! The Chinese renminbi is taking a ride on the slippery slope, and Chuck explains his view on why this is happening right now… And the Data Cupboard had two more pieces of real economic data that paints a not so “robust and strong” economy…

For What It’s Worth… I’ve been talking about the rot on the vine in the Emerging Markets currencies lately, and I came across this article that seemed to explain the problems in plain English, which is my forte! So, you can find the article here:

Or, here’s your snippet: ” Are you an emerging market that’s wondering whether your currency is going to be the next to fall?

Well, if so, here’s a handy checklist to help you figure that out. Have you been borrowing a lot of dollars recently? Or relying on short-term debt that can leave the country at the macroeconomic equivalent of a moment’s notice? Or is your government either too strong, too weak or of otherwise questionable competence? If you answered yes to any of these questions, you should consult your currency market immediately. You might already be in trouble. And if it was more than one, well, you probably don’t need me to tell you that things aren’t looking great. You know.

Now, there are two stories here. The first is that a lot of the money that poured into emerging markets when the Federal Reserve was cutting interest rates down to zero is heading for the exits now that it’s raising them.

That’s why money is leaving emerging markets so fast that their currencies are starting to fall quite a bit now, at which point they either have to raise rates themselves to try to persuade investors to stay, or else see all their dollar debts suddenly become much harder to pay back. This, of course, is more of a problem the more they borrowed — those are the ones who are depending on foreign investors — but it’s still a significant head wind for countries that you wouldn’t necessarily think were that much at risk.”

Chuck Again… I think this line is especially important here: It’s still a significant head wind for countries that you wouldn’t necessarily think were that much at risk… He’s talking about the mature Emerging Markets currencies, like South African rand, Mexican peso, and even the Russian ruble…

Currencies today 6/28/18… American Style: A$ .7350, kiwi .6766, C$ .7525, euro 1.1590, sterling 1.3092, Swiss $1.0026, European Style: rand 13.83, krone 8.1670, SEK 8.9866, forint 282.95, zloty 3.7634, koruna 22.4320, RUB 63.13, yen 110.22, sing 1.3663, HKD 7.8479, INR 68.76, China 6.5973, peso 20.07, BRL 3.8224, Dollar Index 95.18, Oil $72.77, 10-year 2.83%, Silver $16.09, Platinum $852.68, Palladium $949.95, and Gold… $1,252,13

That’s it for today… Hot and muggy… That’s what we’ll have this weekend here in the Midwest… Alex is 23 today… 20 years ago, he sat on my lap while I wrote the Pfennig, his input would look something like this: 2o0u$(U&ldgul3y ! Happy Birthday little buddy! (he’s not so little any longer!) I have multiple pictures of Alex through the years, on my desk wall here… Little Delaney Grace was here yesterday, and looking through my books I’ve got stacked everywhere, for something to read… She liked the purple book, so when I pulled it out it was Surviving the Financial Crisis! She took it, but I don’t think she was very interested in it! Well, it’s time to go… Jimi Hendrix takes us to the finish line today with his song: Foxey Lady… I hope you have a Tub Thumpin’ Thursday today, and Fantastico Friday tomorrow… Be Good To Yourself! bye~

Chuck Butler


Nuria Pujol