As Dollar Weakens, You’re Buying Power does too!

A Pfennig For Your Thoughts

June 3, 2021

* Currencies & metals rally on Wednesday… 
* But give back those gains in the overnight markets last night… 

Good Day… And a Tub Thumpin’ Thursday to one and all! What an awful game last night for my beloved Cardinals… The starting pitcher gave up 11 runs in the first inning, and only recorded 2 outs before leaving the game… I don’t ever remember seeing a game start like that before… UGH! That was a long 10 game road trip, and as I write, so early in the morning, the Cardinals players are probably just arriving back in St. Louis. Gotta go home, rest, and back to the ballpark this afternoon… I don’t feel badly for them, they get paid millions of dollars to deal with that stuff… I recall, when I used to travel so much to speak, I took quite a few “red eyes” on Sunday night to arrive in time to get to my desk and start a new day… Unshaven, and probably looking like death warmed over, but I was there! After a few of those, I made an executive decision to always take Monday off if I was traveling on Sunday… Our best pitcher is on the IL, and now we don’t have an ace to go into a series with… My Cardinals are in trouble! They are probably singing along with the song that greets me this morning, it’s the Allman Brothers and their song: Statesboro Blues… I know that I’ve been there many times too!

Ok, well just to prove to the PPT and the price manipulators that you can’t keep Gold under your thumb… Gold rallied on Wednesday gaining $8.70 to close back above $1,900 at $1,909.20, and silver climbed back above $28, gaining 28-cents to close at $28.26… And the euro rallied back above the 1.22 level yesterday, towing all the other currencies along for ride…

In the overnight markets last night… it got ugly once again, as traders overseas bought dollars and sold the currencies… The euro dipped below 1.22 overnight, but is hanging on to the 1.22 level by the skin of its teeth this morning. Gold is down $12 in the early morning trading, and Silver is down 30-cents, with both of them falling back below $1,900 and $28 respectively…  

This selling makes no sense to me… The U.S. is talking about an infrastructure deficit spending spree that the Democrats will do with or without Republican support… That means more debasement of the dollar, and traders overseas bought dollars? I used to talk to these guys and get the skinny on what they were thinking, but no longer, as I have no contacts any longer… I sure would like to know what they are thinking here… Because it makes no sense to me! 

The price of Oil was trading with a $69 handle overnight but has fallen back below that figure this morning… As the price of Oil continues to move higher this year… Do you remember the chaos last year about this time when the price of Oil when negative? That was a one day phenomenon to say the least. But since that time the price of Oil has steadily moved higher and higher, with the next stop at $70… Oh, and you can thank our President for some of that increase at the gas pump you’ve been paying for recently, since he shut down the keystone pipeline and put 52,000 oil workers out of jobs… That’s not a political statement, it’s just a statement of one of the reasons for the price of Oil to be rising, that’s all, nothing more… 

Look, I know that there are scientists that believe that the fossil fuels are causing all this weird weather… But do you have any idea how much the world runs on fossil fuels? I don’t just mean for cars and trucks, I mean for plastics, and fuel to run the solar wind mils, and there are thousands of things that are made that depend on fossil fuels… I told Dennis Miller the other day that by 2035, I don’t think I’ll be around and I’ll be glad to not have to drive an electric car… I know, I know, they are pretty cool to have now, but until they get the long term battery issues figured out, I’m not one to have to recharge every 300 miles… I’m just saying

We used to be, at least for a short time, energy independent as a country, with all the shale Oil being pumped out… But the other day I told you that Russia reported a record amount of Oil being shipped to the U.S. so far this year… Better be careful who you tick off here… Wouldn’t it be nice to live together in the kind of world where we belong? (Beach Boys)

Ok, let’s talk about something else… OK… I’ve spent a lot of time over the years, tracking the Dollar Index… And to my knowledge, the highest the index has been was during the previous strong dollar trend when it reached 119.55 on 1/1/02. Our research back at EverBank showed that the next weak dollar trend began in Feb 2002, and at the peak of the dollar weakness the Dollar Index had fallen to 71.31 on 3/1/2008… Last April, I said, “Let’s watch the Dollar Index’s direction, for I believe it’s about to go downward. At that time the index was 98.52… So, today’s index number of 89.90 represents a 10% downward move in the dollar since April 2020… Now, I don’t think most of you have considered that a 10% drop in the dollar represents 10% loss of buying power… So, as items that you buy, no matter what it is, go up in price, you know where that’s coming from… 

Inflation can be shown in dollar weakness folks… and a weak dollar invites inflation to be imported into the country from other countries.. So, with inflation soaring right now, and the dollar losing buying power, you’re receiving a double whammy… Joker, Joker, Joker! (remember that game on tv?) The move in the dollar, downward, has been very methodical, sloth-like, but here we are, and like I said last year, that we were seeing the beginning of a new weak dollar trend, it’s here among us now, and I just have one question for you…. Got Gold?

Speaking of Gold… Recently there was news that in India, one the world’s largest consumers of Gold, they were setting up an Gold Exchange, that wouldn’t allow paper trades, only spot transactions in an attempt to put their foot in the door on the pricing of Gold… Yesterday, the good folks at GATA sent me this note they reprinted from Bloomberg.com : “India is moving closer toward setting up spot contracts for gold, finalizing rules for trading and providing the world’s second-biggest consumer a firmer grasp over setting the price of bullion.

The gifting of gold at weddings and festivals, and its purchase as a store of value are deeply held traditions in India, and the country has been trying to overhaul its fragmented gems and jewelry industry to make supply more transparent, help enforce purity standards and bolster confidence among consumers.”

Chuck again… That would make the 2nd country outside of England and the U.S. to start their own Gold exchange, with the other being the Shanghai Gold Exchange… these two didn’t start their own Gold Exchanges because they liked the way things were getting done in London and NYC. As these things go on, they don’t seem to be major news items, but a few years down the line when most of the gold trading is done outside of the U.S. people will stop and say, “When did that take place, or How did that occur?”

I think about this a lot these days… Wouldn’t it be cool if as individuals we could start our own Gold Exchange? And bypass the price manipulators and all their short paper trades? But we’re stuck with what we have, and I don’t like it one iota! But it is what it is… let’s move on to something else… 

The U.S. Data Cupboard today has the ADP Employment Report for May, and the experts are calling for 680,000 jobs to have been created in May… We’ll also see the Weekly Initial Jobless Claims, along with first QTR Productivity… 

Yesterday’s Cupboard has the Fed’s Beige Book, and in it the regional Fed offices reported that the economy is growing but not at the break neck speed that was forecast, and that the recovery is very uneven… they didn’t mention about the latest setback for the shipping industry…

Yesterday, Dave Gonigam reported in his letter The 5-Minute Forecast, that a shipping port in China had to shut down because of an outbreak of Covid… this will cause major pipeline disruptions in shipping folks… more problems down the road for sure!

To recap… The Currencies and metals fought back on Wednesday and regained the ground they lost on Tuesday, thus kicking sand in the face of the PPT and price manipulators… The price of Oil is trading higher again and on its way to $70… How much did you pay for gas recently at the pump? I believe that gas prices are back to pre-Covid levels… Chuck talks about how we can see the weakness in the dollar from a year ago in the Dollar Index… And India is opening a Gold Exchange that will only deal in spot transactions, no paper trades… Good for them!

Ok… on a sidebar this morning, I thought this news was interesting… It was announced yesterday that Anheuser Busch is going to buy a round of beer for all once the U.S. reached 70% vaccinated… Ok, now I’ve got a reason to tell people to get vaccinated! HAHAHAHAHA! I’ve always said that there’s nothing like “free beer”!

For What It’s Worth… Ok… well, there is a shortage of FWIW worthy articles out there this morning folks… I searched and searched and finally gave in to this article on Reuters that talks about the flood of cash that’s out there that causing rates to fall even lower, and it can be found here: Analysis: A ‘tsunami’ of cash is driving rates ever lower. What will the Fed do? | Reuters

Or, here’s your snippet: “Banks have too much cash on their hands – and they’re running out of places to put it.

Nowhere is this more evident than in the rising popularity of a Federal Reserve program that lets firms stash their cash overnight with the U.S. central bank in exchange for at best a small return. The payout these days: Zero percent.

But usage is soaring to record highs as money market funds and other eligible firms cope with what some analysts are calling a “tsunami” of cash.

The banking system is swimming in nearly $4 trillion of reserves, thanks in part to the Fed’s asset purchases, a fall off in Treasury bill issuance and a rapid drawdown in the government’s store of funds at the Fed. The Treasury General Account, or TGA, has dropped by nearly $1 trillion since last fall, mirrored by the surge in bank reserves.

All that cash is pushing down short-term rates and increasing expectations the Fed will need to respond with a technical adjustment at its June 15-16 meeting, if not earlier, in order to keep its key policy rate from sliding further.

The situation is also a headache for money market funds, which are absorbing much of the money and finding fewer options for investing it, a dynamic the Fed is watching closely.”

Chuck again…that last part of the snippet really interests me, as these money market funds take in cash, they have nowhere to go to invest it and get a return on their investment… Sort of like what individuals have faced these past 10 years! So, don’t cry for the money market funds… 

Market prices 6/3/2021: American Style: A$ .7730, kiwi .7220, C$ .8292, euro 1.2205, sterling 1.4197, Swiss $1,1119, European Style: rand 13.5389, krone 8.2950, SEK 8.2732, forint 283.36, zloty 3.6512, koruna 20.8468, RUB 73.35, yen 109.71, sing 1.3231, HKD 7.7575, INR 72.75, China 6.3820, peso 19.91, BRL 5.1222, BBDXY 1,117.38, Dollar Index 89.90, Oil $68.87, 10-year 1.60%, Silver $27.96, Platinum $1,193.00, Palladium $2,893.00, Copper $4.58, and Gold… $1,896.20

That’s it for today and this week… Like I said yesterday, I sure do like those Holiday shortened weeks! I still can’t get over how badly the Cardinals starting pitcher pitched last night! UGH! I foresee the Cardinals having to make a trade for a starter, out of necessity… I hope they don’t give away the store! Last week I went to have a new prosthetic made for my eye, but she couldn’t make one for me until the infection in my eye was healed… Well, I do believe that after a week of dealing with the medicine for the eye, that the infection is gone… So, it’ll be back to the oculist next week… The rectus hematoma on my abdomen is getting better. The pain is gone, and the swelling seems to be abating, which is good with me! I’ve seemed to have lost my appetite… My oncologist always asks me about my appetite and I’ve always said no problem… I wish the loss of appetite came with weight loss! I could stand to lose quite a few more pounds, that don’t seem to want to come off! Ok… no weddings, no holidays, nothing for this weekend… I think I’ll take ride in my car and go west, and see where it takes me… I’ll report on that on Monday… For now, The Moody Blues take us to the finish line today with their song: Story In Your Eyes… “And the sounds we make together. Is the music to the story in your eyes.” I hope you have a Tub Thumpin’ Thursday, and Please Be Good To Yourself!

Chuck Butler

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A Pfennig For Your Thoughts