U.K. Inflation Drops… Along With Sterling!

August 19, 2014 · by 

Good Day! …  And a Tom Terrific Tuesday to you! A nice 10th inning win for my beloved Cardinals, even if they blew the lead in the 9th inning.. UGH!  Of course, I was not up at that hour to see it, but the replay will be on while I eat my lunch today, so I’ll see it then, and know not to start throwing things around the room when the lead gets blown in the 9th!  Well, the Mo. Gov. called in the National Guard in an effort to protect the businesses and citizens of Ferguson, Mo, only to be met with more violence last night…

So… How was your day yesterday? Mine was good, that is after I slept through almost half of it! The currencies and metals remained stuck in the mud, as they slept through the entire day! This morning, it appears that we have more of the same-o, same-o, with a mixed bag-o-results, but none of the moves are large… Yesterday, I referred to watching the currencies as being like counting flowers on the wall, that don’t bother me at all, playing solitaire till dawn with a deck of 51… I don’t think I can come up with anything else that reminds me of this trading pattern, day, after day here in the middle of August, the Dog Days of Summer.

Yesterday, I kidded about how the markets must be getting all gussied up for today’s July print of CPI (consumer inflation)…  You know I’m being facetious here, because what in the world would anyone find in the CPI print? Nothing, absolutely nothing!  The experts are thinking that CPI in July rose .1%… But, I’m going to go out a big fat limb here and say it will be .2% HAHAHAHAHA! Now, that’s really being bold, Chuck! The BLS is not going to show “real inflation” folks… just get used to it… Instead, go to www.shadowstats.com to see what the “real inflation” rate is.  And while you’re there, I’m sure John Williams wouldn’t mind if you subscribed to his information, that is critical if you really want to know the “truth”… And like my old fave TV show, The X-Files, used to say… The Truth Is Out There…

The problem with most of us in the U.S. is that we don’t care! We don’t care if the BLS makes up the CPI number to keep rates down, so housing can continue to be affordable. We don’t care if the U.S. National Debt is now $17, 657,260,800,000 (it changes by the minute, so by the time I finish this letter we will be 10 Billion or more higher) We don’t care that the Unfunded liabilities, according to Professor Lawrence Kotlikoff are now greater than $200, 000,000,000,000 (for those of you not wanting to count the zeroes, that’s $200 Trillion, with a Capital “T”!)  It just doesn’t register with most Americans, so therefore they don’t care… But when they go to the store and see that their dollars don’t buy as much as they used to, they think, “It’s those darn greedy Corporations gouging us” But the truth is that it’s their Gov’t that has caused a weak dollar, which causes a loss of purchasing power with their deficit spending…

I have no idea I was going there today, but there you have it… The story of the dollar in one lesson by Chuck Butler… Oh, there are other chapters to this book, but in the end it all comes down to debt…  I was re-reading, (probably for the 3rd or 4th time now) Economics in One Lesson by Henry Hazlitt this past weekend and yesterday, and Henry highlights something that I’ve highlighted before and that is, that it has become trendy to call debt, “credit”… Like when they talk about Consumer Credit rising,  it’s really debt rising… But it sure sounds better to say “credit” than “debt”… Easy on the ears, right?

For those of you who promise to put away the sharp objects first, and want to see more “real numbers”, you can visit the U.S. Debt Clock here: http://www.usdebtclock.org/index.html

The Reserve Bank of Australia (RBA) printed their meeting minutes last night, and there was nothing new for the markets to see and if anything solidified the markets’ thought that the RBA is on hold with interest rates the rest of this year. And one would think that hearing that, the Aussie dollar (A$) would sink… But, as I’ve explained for many years now, with currencies, the “unknown” is more risky to currencies than knowing what to expect… And so the A$ has pushed higher overnight, although, like I said at above, the move is small…

This morning, we saw the U.K. July CPI, printed considerably lower than expected at 1.6% VS 1.8% expected… This drop in consumer inflation flashed “no rate hike” in bright lights to the markets (sometimes they need bright lights to catch their attention!) and the pound sterling got sold… The downward move in pound sterling is probably the largest move in the currencies this morning with pound sterling down 3/4?s of a cent…  I don’t like being right about things like the pound sterling, as it rose earlier this year, and everyone thought it would just keep going… But I kept telling you that I couldn’t get my arms around the pound’s rise, mainly because of what I knew what Bank of England Gov. Carney was doing, and two.. The U.K. still had a mountain of debt to deal with…

The Charts people say that pound sterling is oversold, and it will bounce back… You know, the routine… The pound loses 1% this month, and 3.2% since 7/15,  bringing it below its 200-day moving avg. (DMA) and therefore it is set to rise…  But if the pound does bounce back, ever so briefly, it will more of a direct result of the markets getting snookered again…  You see,  the Sunday Times had an article where Carney mentioned that interest could be lifted before Officials see a recovery in wages….  Memo to markets, don’t take that bait, it stinks!

In New Zealand overnight, a drop in dairy prices pushed the N.Z. dollar / kiwi down overnight. Remember what I always tell you about New Zealand’s commodities: Dairy, Wool, and Lumber, so when of the triumvirate has some problems, kiwi gets sent to the woodshed. Given the markets’ reaction to the drop in dairy prices, one would think that today’s Global Dairy Trade Price Index would be a key report to watch… There was also some political furniture rearranging going on in N.Z. overnight… An official report downgraded GDP, and growth forecasts… But this is not the end all here, and probably had more to do with the fact that the N.Z. elections are only a month away…  The N.Z. Treasury saw fit to counter this report and say that, “the outlook for the N.Z. economy has not changed significantly in the relatively short time since the Budget Update.” Recall the Budget Update was in June, and looked favorably toward growth…

So, some “point-counter point” discussions going on in N.Z.  The markets aren’t sure who to believe, and this puts the whole discussion in the “unknown” territory, which as I just explained is not good for the currency… It appears to me that this is an opportunity to buy at cheaper levels here, and pick up an interest rate differential… I’m just saying…

There was news from Russian overnight that didn’t concern Ukraine! The Russian Central Bank (RCB) widened the trading band that the ruble trades in, that has existed for the last 15 years!  The naysayers to the ruble will point to this and say, “What the heck is she thinking here? The ruble is the 2nd worst performing currency this year, and now she’s (RCB Gov. Elvira Nabiullina)  going to take away the Governor? Yes, she is… But I like this! Let the currency be valued by the markets, not a Central Bank!

The Swiss franc is weaker today… I did cause a couple of heart attacks yesterday with my reporting of the franc’s price in the currency roundup… Sorry about that! My fat fingers typed the franc price as $1.0160… When it should have been $1.1060!  Nothing like a 10% drop to start your day, eh? The franc’s weakness today is coming from a weaker euro, but also from a recent Bloomberg survey that showed three quarters of the 23 economists surveyed saying that the Swiss National Bank (SNB) will keep the floor VS the euro in place for another two years…

The floor, basically puts a cap on how strong the franc can get VS the euro… 1.20 was the level the SNB placed on the franc a couple of years ago now, and at that time there was talk that the SNB wanted to move the level to 1.35, thus causing a depreciation in the franc, like they did when they placed the 1.20 level. At least that “talk” has diminished for now…

The Japanese yen continues to trade around 102.50.. On any given day it might be a bit stronger, or a bit weaker, but nothing to speak of in the way of movement… Even when the “safe havens” get bought, yen rises, but not like it used to… My friend, and writer / publisher extraordinaire, Bill Bonner said a couple of things about Japan yesterday that I thought you should hear, but should you want to read Bill every day, go to: http://bonnerandpartners.com/category/parent/dre/ and you can subscribe!

“We are amazed because we have seen the international test results. On IQ tests, the Japanese score 10 points higher than the world average. And yet there they are… doing the stupidest things we can imagine.

We are grateful, because Japan has been leading the world in economic absurdity – bubbles in stocks and real estate… bailouts… ZIRP… and QE.

And there is no economic policy so ridiculous that US policymakers won’t give it a whirl. Whither thou goest, O, Nippon, we’re right behind you.”

Chuck again… Yes, like I’ve said for more than 10 years now… I think I’m turning Japanese, yes, I really think so!

So, the U.S. Data Cupboard has the stupid CPI for July print today.. But more importantly will be the Housing Starts and Building Permits for July…. No bad weather, so these two should be show that they were better than in June…

And Gold is up a couple of bucks this morning, again, no movement worth talking about… So I won’t spend a whole lot of time here, besides, I’ve got a real treat for you in the FWIW section today, that’s on Gold..  Palladium got to a multi-year high yesterday, and could almost reach out and touch $900 before it fell back on the day… Today, it’s up $3, and still within spittin’ distance of $900 at $896..

For What It’s Worth… Every two weeks I tell you how my latest “Things that make you go Hmmmm” is in my email box, and that I’m excited to get to read it, for the writer, Grant Williams is one of the best writers and minds in the markets today… Well, I found an interview with Grant Williams on kingworld.com so, I thought I would let you see what I’m talking about! Here are some snippets of the interview… Hope you like it!

“The German gold repatriation situation has been fascinating from Day 1 and continues to be.  I think the motives behind making that announcement have probably been overtaken by events.  From the moment Hugo Chavez repatriated the Venezuelan gold, I said this is the start of a game of musical chairs that is going to end very, very badly….

I think the Germans felt as though they had to say something about repatriating their gold, and we’ve seen a bunch of other countries in much smaller amounts do this as well.  I think the Bundesbank felt that with the focus the Germans have on monetary prudence, they felt they had to say something.

So they made the statement that they were going to get a portion of their gold back from the United States.  But since that time their repatriation has been overrun by a series of events, especially the fact that the gold that is supposed to be on deposit in the United States just isn’t there.  It’s not in the U.S. vaults because it’s gone.

So now there is this attempt to put the genie back in the bottle.  Well, it’s one thing to attempt to put the genie back in the bottle, but it’s another thing to do that.  So they have resorted to Play No. 1 of central banks, which is just to be quiet about the situation.  But there are now too many guys looking at this German situation and the announcement that they have gotten back only 5 tons of gold has left them with egg all over their faces.

But the problem the United States has is that with the gold the central banks and the agent bullion banks who have leased out that gold over the years, they all have a vested interest in not scaring foreign holders of gold that is supposed to be safely stored in the United States.  So if we do get to the point where gold can’t be delivered, as long as everybody keeps quiet about it, maybe nobody will panic.

But ultimately entities who are not in the ‘club’ will want their gold back and they are going to start making some noise about it.  At that point they will have to find the gold somewhere.  And if all that gold is in places where it’s tightly held, it will be an interesting situation to play out.” – Grant Williams

Cuck again… I think it would behoove everyone to hear out  a guy like Grant Williams, and although he doesn’t say it here, he obviously believes that buying physical Gold is the thing to do… not paper Gold… physical Gold. Again, that’s his opinion, and mine and we both could be wrong!

To recap… Another day, another flower counted on the wall, as the currencies are once again stuck in the mud trading mixed and in small moves. RBA meeting minutes solidified the thought that rates are not moving anywhere this year. N.Z. dairy prices moved downward, and other things led to kiwi dropping on the night. The SNB will keep the floor to the euro in place for another two years according to a Bloomberg survey, and Palladium remains within spittin’ distance of $900…

Currencies today 8/19/14… American Style: A$ .9340, kiwi .8460, C$ .9170, euro 1.3350, sterling 1.6640, Swiss $1.1030, … European Style: rand 10.6195, krone 6.1380, SEK 6.8540, forint 234.80, zloty 3.1390, koruna 20.9785, RUB 36.19, yen 102.70, sing 1.2450, HKD 7.7505, INR 60.68, China 6.1548, pesos 13.05, BRL 2.2565, Dollar Index 81.69, Oil $96.64, 10-year 2.37%, Silver $19.71, Platinum $1,448.13, Palladium $895.83, and Gold…. $1,302.08

That’s it for today… You know, I learned a long time ago, that when you are writing, and giving your opinions, which I used to be able to do more freely, you’re not going to make everyone happy… And I understand that… You should too, before you send off responses to me that are not nice… Neil Young is playing his song: The Needle and the Damage Done on the IPod this morning… I used to play that song on my guitar and sing it for people… I saw my fave guitar leaning up against the wall yesterday, and for a second I thought I would get it out and play it, and then the thought passed… If you’re an Oxford Club member, you should look into going to their meeting at Sea Island GA next month, for I’ll be there to speak! My beloved Cardinals have an opportunity to bury the Reds for this year in the next two games… I sure hope they can do it! Well, tomorrow will be my little girl’s birthday… I won’t spill the beans on how old she will be, I’ll just say when I say how old she is, it makes me feel really OLD!  And with that I’ll get out of your hair for today… Go out and make this a Tom Terrific Tuesday! — Please!

Chuck Butler


EverBank World Markets

Editor of A Pfennig For Your Thoughts



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Nuria Pujol