The Real Trade War Begins!
June 18, 2018
* Euro has biggest one day drop!
* Gold gets whacked by $23 drop!
Good Day, and a Marvelous Monday to you! I sure hope that all the “dads” had a fantastico Father’s Day yesterday… I know I did… It sure was hot here though… 98 degrees and the humidity was tough! We spent most of the day in the pool… I was pleasantly surprised when I walked into my usual Friday afternoon watering hole last week, and saw two of my fave former colleagues waiting for me to arrive! My little Christine, and Danielle, or former office manager, stopped by to say hi! I can’t tell you how much I enjoyed seeing them again! I hired Christine when she was a young 20-something, and taught her the business from the ground floor up. I used to make her come in on the weekends to help me with preparations for the next week’s trading. I don’t think she liked me much back then… But through the years we worked things out, and she was my assistant for over 15 years! OK… enough of that… I don’t want to get sappy here… The Blue Jays, who were two members of the Moody Blues, Justin Haywood, and John Lodge, greet me this morning with their song: Maybe…
In the song, there’s a line that I’ve used for many years… Maybe, maybe I’m wrong… I have no qualms about saying when I’ve been wrong about something through the years… I even incorporated the line: It’s my opinion, and I could be wrong, to make the “reviewers of the letter” happy every time I spouted off about something… I’m not telling you anything new here… I know I was so wrong about the Treasury Bond bull market ending, and the Fed’s first rate hike, and a few other things through the years… But through it all, I’ve always laid out my reasons that I think this or that is gong to happen or not happen, and all the cards are on the table, for everyone to see, pick apart, or agree with…
My dad used to tell me that if I said something now, but it didn’t happen for some time down the road, that I wasn’t “right”… That timing was everything… So, I began to talk about things in the future that I saw happening, so that there was no time deadline… But last week, I went rogue, and said that Gold would have a huge breakout to the upside from the recent ranges, this summer… Now, I’ve locked myself in on that, and from the looks of trading on Friday, I should have kept my mouth shut! The price manipulators went at Gold’s price with both barrels blazin’… 407,000 contracts traded in Gold and after all the slicing of the salami (as Ed Steer calls it) Gold finished the day down $23!!!!
There’s no reason whatsoever that this should have happened, folks… And don’t let them point to higher interest rates as their reason for slicing the salami… The Fed Funds rate is only 2%!!!!!! So, here’s where I am with all this talk about a Gold breakout to the upside… I think the price manipulators are seeing the same thing, and they wanted to get Gold’s price lower, so they could buy at much cheaper prices and then be long at those cheaper prices when Gold takes off later this summer! I also have to go back to something I wrote about a couple of weeks ago, when I told you that the Dow Theory Letter’s Gold guru, Omar Ayales, pointed out that Gold could drop to $1,278, before making its move higher… Well, guess where Gold closed on Friday? That’s right… $1,278… beep, beep, beep, what’s that sound I hear you asking? It’s the sound of the truck backing up… wink, wink…
The Currencies also got whacked on Thursday, and I mean whacked good! And then on Friday the currencies attempted to heal some, and wrap a tourniquet around their bleeding… Just for those of you keeping score at home… The euro was trading at 1.1825 on Thursday morning, and we were waiting for the ECB and Mario Draghi, to announce an end of stimulus, which he did… And then the selling began, and at the end of the day on Thursday the euro had dropped into the 1.15 handle! Folks, that’s a HUGE one-day move in a currency! What on earth happened to cause this Huge move?
Well, let’s take a step back to review just what Mario Draghi had to say, because this is where the body is buried here, folks… Draghi, did announce an end to the bond buying program, which was good… But then he stepped in the dookie, by emphasizing a more cautious than predicted approach to rolling back its easy money policies… The ECB will begin tapering their bond purchases in Rocktober, by $15 Billion per month. They currently buy $30 Billion per month, and end the purchases altogether by the end of the year, which is all good, but here’s where things got messy… He then emphasized that the ultra-low interest rates will remain for most of the next year, giving trades the idea that they wouldn’t see the Eurozone leave negative rates behind until 2019, and that deep sixed the euro!
I told you earlier last week that I thought that if Draghi dropped the ball on what the markets wanted to hear, that the euro was get whacked… And that’s exactly what happened… I certainly didn’t believe that Draghi would disappoint once again, but he did…
This was the worst 1-day performance for the euro is some time, and begs the question… “Should we buy at these cheaper prices?” You’ll have to answer that one yourself, but for me… I would think that the worst has been absorbed by the euro, and things should get better from here… But then that’s just my opinion, and I could be wrong!
Well, President Trump had his trade people announce more tariffs on Chinese goods on Friday, and this morning the Bloomberg is reporting that China’s Xi, is saying that he will match Trump’s tariffs one for one, and thus the Trade War begins… the previous stuff was just small conflicts here and there, but now… The real Trade War begins… And Gold got whacked because of this? Wait, What? No, what I’m saying here is that there is no reason on earth that Gold should have gotten sold when the two largest economies of the world are duking it out in the Trade ring. UGH!
The Bloomberg article also had XI saying that China would outlast the U.S. with the devastation that this Trade War is going to do to each country’s respective economy… Well, hang on to your hats, people… This is going to get really interesting, and if you ask me, it’s also going to hurt the U.S. in regards to foreigners buying Treasuries to finance our deficit spending…
And here’s an example of what I’m thinking here… The GATA folks sent me a note on Saturday, and I have it for you here, but first let me repeat something that I’ve said about Russia several times through the years… And that is that they are doing everything they can to promote a “drop the dollar” stance… the dreaded “dedollarization” So, here’s the GATA note…
“Russia has held a major selloff of U.S. Treasury bonds, dumping some $47 billion worth of papers and momentarily dropping six places on a list of major foreign holders of U.S. securities, recently released statistics for April have shown.
In just one month Russia proceeded to sell $47.4 billion out of the $96.1 billion the country had in U.S. Treasury bonds in March. The latest statistics released by the U.S. Treasury Department on Friday showed that, in April, Russia had only $48.7 billion in American assets, occupying 22nd place on the list of “major foreign holders of Treasury securities.”
Chuck Again… Selling Treasuries and buying Gold, I’m quite sure that’s the trade that Russia is trying to show the world that it needs to get done…
A couple of weeks ago, in my weekly Dow Theory Letters piece, I wrote about “what did we do to deserve this?” And then I went back to my very early days of writing a daily letter, when I would talk about how debt is slavery, and deficit spending if allowed to be added on to instead of paying off each year, would become a real problem here in the U.S. And that’s exactly what has happened… We were not good stewards of the reserve currency in the world, and now, other countries have the wherewithal to do something about it… I’m just saying…
On Thursday morning, all three anti-dollar assets, Gold, euros, and Oil were pounding their respective chests… And then the dollar bugs kicked sand in their faces… And like the old ad for Charles Atlas’s work out, the currencies need to go “bulk up” and then come back and confront the big bad bully, dollar…
So, I was reading one of my fave writers, Bill Bonner, the other day, and he was feeling the knife in his back like I am these days, and the fact that the markets believe the Fed is winning this economy… So, he said if this is true… , “We’re finished. We’re done. This is not a world we know. Up is down. Down is up. Time goes backward. Suckers are given better-than-even odds. And fools are reunited with their money.
If so… we will recant, insincerely, and slip off our little stage like a drop of rain off a windshield.”
I doubt he’ll have to do any of those things… But I feel the same way… (Maybe this is my way of actually retiring! HAHAHAHAHAHA!)
Before we begin to head to the Big Finish I have a fun thought for today… This past weekend, was the 51st anniversary of the famous Monterey Pop Festival that Jimi Hendrix showed off his guitar playing to the crowd. I was a young man just learning to play the guitar in 1967 (I taught myself to play), and I remember thinking that Jim Hendrix was the greatest guitar player of all time back then… He still ranks pretty high, but through the years, I’ve heard even better guitar players… My all-time fave guitar player was Terry Kath, of Chicago… Jimi Hendrix once told a member of Chicago that Kath was better than he was… Carlos Santana, Alvin Lee, Duane Allman, David Gilmore, Eric Clapton, are some of the greatest, in my humble opinion…
Friday’s Data Cupboard had two real pieces of economic data in Industrial Production (IP), and Capacity Utilization (CAPU) for May… Well, these two pieces of data told a different story than the strong Retail Sales report told on Wednesday last week.. IP for May printed a negative -0.1%, and CAPU dropped from 78.1 to 77.9… Not huge drops for these two, but drops nonetheless, and that tells a different story about the economy than the rogue Retail Sales figure…
To recap… Trump announces additional tariffs to China and China responds with the same to the U.S. The Trade War is for real folks… Gold got whacked badly on Friday, by $23! And Chuck has his thoughts on why the price manipulators did that on Friday… The euro fell out of bed on Thursday and has spent the last two trading sessions trying to get up off the floor… Mario Draghi was responsible for kicking the dollar out of bed, as he has done a several occasions these past couple of years…
For What It’s Worth… It’s been quite some time since I highlighted John Mauldin’s letter here… John and Chuck have been friends for some times now, but since I don’t travel to conferences any longer, I haven’t seen John in a few years. I read all his stuff, eventually that is, and this one is one that dear reader Bob, sent me a note and said I should read this article… It’s about the pension problem and as usual John goes through it with a fine toothed comb… and it can be found here: http://www.mauldineconomics.com/frontlinethoughts/archive
Or, here’s your snippet: “Unlike actual trains, we as individuals don’t have the option of choosing a different economy. We’re stuck with the one we have, and it’s barreling forward in a decidedly unsafe manner, on tracks designed and built a century ago. Today, we’ll review yet another way this train will probably veer off the tracks as we discuss the numerous public pension defaults I think are coming.
Last week, I described the massive global debt problem. As you read on, remember promises are a kind of debt, too. Public worker pension plans are massive promises. They don’t always show up on the state and local balance sheets correctly (or directly!), but they have a similar effect. Governments worldwide promised to pay certain workers certain benefits at certain times. That is debt, for all practical purposes.
If it’s debt, who are the lenders? The workers. They extended “credit” with their labor. The agreed-upon pension benefits are the interest they rightly expect to receive for lending years of their lives. Some were perhaps unwise loans (particularly from the taxpayers’ perspective), but they’re not illegitimate. As with any other debt, the borrower is obligated to pay. What if the borrower simply can’t repay? Then the choices narrow to default and bankruptcy.”
Chuck Again… It’s a long read so make sure you allot enough time for it, but once you do get through it, you’ll see what I’ve been warning people about since 2003…
Currencies today 6/18/18… American Style: A$ .7442, kiwi .6941, C$ .7592, euro 1.1620, sterling 1.3250, Swiss $1.0050, …. European Style: rand 13.4685, krone 8.1243, SEK 8.8185, forint 277.70, zloty 3.69, koruna 21.1475, RUB 63.10, yen 110.50, sing 1.3503, HKD 7.8495, INR 68.03, China 6.4382, peso 20.69, BRL 3.7288, Dollar Index 94.72, Oil $64.78, 10yr 2.91%, Silver $16.59, Platinum $885.02, Palladium $988.04, and Gold… $1,283.70
That’s it for today… A lot to get through today, I know… sorry, but I had a lot on my mind today! The Cubs sure put the heat on the Cardinals this past weekend, winning 2 of 3… The Cardinals sure aren’t playing “Cardinals baseball” these days, and I blame the manager for that! Another “hottie” today here… “Extreme Heat” is what my weather advisory is telling me right now… OK, are you ready for a health update? I had new scans taken on Friday… And besides something on my lung that they’re not sure what it is and it hasn’t grown, all the other spots where cancer existed are gone or nearly gone… And the extreme pain in my hip, from the infection there last Nov. is pretty much gone too… In other words, I’m a happy camper! So, how about that? Ok, time to go… Chicago takes us to the finish line today with their song: Does Anybody Know What Time It Is? Great 70’s music for sure! And so, I hope you have a Marvelous Monday, and Be Good To Yourself!
Chuck Butler