BRELIEF Is Over!

* Risk Aversion takes hold.
* Safe havens continue to soar!.
* More on negative yields.
* And More on Silver!.

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And now. Today’s A Pfennig For Your Thoughts.

Good Day. And a Wonderful Wednesday to you! It was difficult for me to drag myself out of bed this morning, as I spent a good deal of time dealing with a bad stomach in the middle of the night. My buddies always ask me what do I mean by “middle of the night” since according to them, I already wake up for work in the middle of the night! HA! It’s all according to what you’re used to I tell them. But that sure is a habit that I’ll change in a heartbeat once I’m retired! The Spinners greet me this morning with their song: It’s A Shame. And yes, I have quite a few Spinners songs on my iPod! What? You don’t know them? The 70’s wouldn’t have been the same without them!

There’s more Risk Aversion this morning, adding to yesterday’s Risk Off Day. I had to laugh when I read one analyst call last week’s rally a “BRELIEF”. And before I go on about how the so-called Safe Havens have the conn again this morning, let me share with you this thought. I know that yesterday, I said that I didn’t think the BREXIT was going to cause a major meltdown, but it could be a symptom of it. And then I was reading something that made my head spin. From my favorite writer/ analyst, Grant Williams and his letter: Things that make you go Hmmm. “On Friday, September 12th (2008) The S&P 500 closed at 1,252. Lehman Brothers filed for bankruptcy early in the morning of the 15th and stocks sold off, but by Friday the 19th they had recovered all of the initial losses and then some, to close at 1,255. While it is convenient to remember a “Lehman Moment” it just isn’t true. The situation was much more complex than that. Things take time to play out.”

And history may be repeating itself right here before our eyes, given the huge selloff in stocks after the BREXIT results were known, and then the bounce back of stocks a few days later. Hmmm. And Grant is right, it was something that made me go Hmmm.

Two Fed members, Dudley and Williams spoke last night, with Dudley pointing to low inflation and saying that it allows the Fed to be patient, and Williams still keeping a light on for a rate hike this year. The Fed’s June Meeting Minutes will print this afternoon, and while it’s not a common occurrence to see the Minutes print different than the statement that followed the rate decision last month, we did have that exact thing happen with the May statement, being so dovish, remember Janet Yellen sounding as if she lost her puppy? , and then the minutes saying the Fed members are ready for a rate hike in June. So, that was the one-off event that caused a huge dollar rally last month, only to see it unwound after the Fed disappointed the markets once again, leaving rates unchanged in June.

Well, want some proof that the BRELEIF is over? The U.S. 10-year Treasury’s yield has fallen to 1.32%!!!!! OMG! Is it even possible that U.S. yields will go negative? Well, let’s see. As You know I follow the 10-year Treasury because it’s tied to the pricing of mortgages. But as I look at the U.S. Treasury yield curve, I see a distinct possibility it could happen here.. But I’ll let you decide, as here are the tenors and the associated yields.

The 3mo T-Bill yields 0.26%, 6mo 0.33%, 12mo 0.42%, 2 year note 0.54%, 5-year note 0.91%, and then the 10-year at 1.32%, and the 30-year bond at 2.11%…

Yesterday, I talked about all the stuff that people are beginning to grow fearful of, like negative yields on Bonds. To update those numbers, I saw yesterday that over $15 Trillion or 41% of the total bonds issued trade with negative yields. Across $37 Trillion of developed markets sovereign Gov’t bonds issued, 98% have a yield below the 30 year U.S. Treasury (2.11%), and 80% have a yield below 1%… How in the world does a bond salesman sell bonds these days? I know, I know, there are pensions, and other Governments and corporates that HAVE to buy Gov’t Bonds, but other than them. Aye, aye, aye.

My good friend, and the retirementor, Dennis Miller, sent me a note yesterday and asked me if the Swiss bonds that now have negative yields, would mean that the holder would have to pay the Swiss Gov’t each year while they held the bond, until maturity? And I said, “yes, isn’t this all amazing.. Negative Yields? What are people thinking?

I’ve got to move on, before I start talking about how the Japanese 20-year Gov’t bond’s yield went negative last night! Oooops! I guess I just did that! Oh well, I see all these negative yields, and countries with negative interest rates on bank deposits, and I ask myself, this. “Why the hell isn’t Gold trading up $50 each day?”.

So, it’s all about the so-called Safe Havens again today, Gold is up $17 in early morning trading, Japanese yen is trading with a 100 handle, and on the opposite side: U.S. stock futures are down 100 points before the opening, and the euro had dropped below 1.11. I would be loading up on Gold & Silver right now, but I’m not going to chase them higher. The loading up should have already taken place on the dips. Practice what you preach, Chuck! I do, I just didn’t this time.

Speaking of Silver. I talked a lot about Silver yesterday, and I’m here to talk about it some more today, but first I want to talk about China and their Gold hoarding. The Shanghai Gold Exchange (SGE) Withdrawals have begun to slow down. Wait, what? Yes, that’s the latest from the SGE, but does that mean that China doesn’t want Gold any longer? No. What it probably means is that China’s Gold production has slowed, and the evidence in that can be found in the fact that Gold producers in China have begun to look outside of China for Gold mines to buy. And that leads me to Silver. A recent report reflected a huge shift in China to purchasing Silver as well as Gold. Does this mean that China views Silver as another metal that can help them achieve their backing of their currency with a monetary metal? Yes, I do think this.

OK.. so earlier last week I told you about Jeff Clark’s Gold chart that gave the percentage gains of Gold during Gold Bull Markets, and I had a dear reader ask me if he had the same data for Silver, and I knew he didn’t, but I asked our metals guru, Tim Smith, to give me some numbers that correlate to the Gold numbers (dates of bull markets, since we all know that Silver doesn’t have a bull market unless Gold has one too!) and this is what he came up with.

For the Bull market of 8/25/76 – 1/21/80 Silver gained 1,094%
2/25/85 – 12/14/87 Silver gained 29%
3/9/93 – 2/2/96 Silver gained 64%
4/2/01 – 3/14/08 Silver gained 378%
11/12/08- 9/5/11 Silver gained 359%

So, doing the same thing we did with Gold last week, if we go to the low, this time in Jan 2016, and calculated what the price of Silver would be if it were to enter into a Bull Silver Market (it may already be in one give it has gained 43% so far this year!) But the January 2016 low price was $13.74. So at 1,094% the price would be $150.31, at 64% the price would be: $22.48, at 378% the price would be $$51.94, and at 359% the price would be $49.33.

So, there.. now you have both Gold & Silver potential gains should they truly go into a long-term Bull Market. And of course past performance is no guarantee of future results, and we may not be within another long term Bull Market for Silver yet.

But boy is sure walks like one, talks like one, and smells like one, and my dad always told me if it quacks like a duck, and walks like a duck, it IS a duck! But markets are different than ducks, so take that into consideration.

Alrighty then. this is the reason you diversify your investment portfolio folks, and use currencies and metals as components of your diversification. Stocks go wild, currencies and metals suffer, stocks go to hell in a hand basket, and metals soar, and currencies struggle. And Bond soar in price, while stocks have problems. and the knee bone is connected to the shin bone, etc. I don’t know any other situation in the markets that illustrates the need to diversify than the ongoing one.

Well, the U.S. Data Cupboard had the May Factory Orders data for us yesterday, and I wonder where all the flag wavers for an economy that’s doing just fine went when the data printed? You see, May Factory orders here in the U.S. fell-1% in May, VS April, and -1.25% year on year. In 60 years of historical data the U.S. has never, ever suffered a 19-month stretch of consecutive annual declines. That’s right, that’s what I said, never, ever. So, how does one go about talking up the economy when they know this ditty about Factory Orders? Or better yet, how does the NBER not say that we’re in a recession? The answers to those questions won’t be answered here today, but stay tuned, same bat time, same bat channel, and I’m sure we’ll revisit them in future Pfennigs.

The U.S. Trade Balance for May will print today.. The April print was a $40 Billion Deficit. and I would expect to remain around that figure, given the dollar was stronger in May than in April.

The price of Oil continued to drop in the past 24 hours losing another buck from its price and is trading with a $46 handle this morning. I saw that the glut of gas supplies here in the U.S. was still strong last week, and this has reversed the short-lived trend that saw supplies drop here in the U.S.

And before I head to the Big Finish, I wanted to talk about British pound sterling. or the pound. The pound has really dropped by a large amount in the past few trading sessions. Last week I was fretting over the pound losing ground down to a 30-year low of 1.32. Well, this morning the pound is trading at 1.2987. OMG! Have you booked your travel to London? Things sure are cheaper there now for tourists than they were a year ago when the pound was trading around 1.53! This is all BREXIT driven folks. Yes, I told you yesterday, that Bank of England (BOE) Gov. Mark Carney had mentioned that he might need to cut rates and that has helped take the pound lower, but that rate cut talk all came about because of BREXIT. I read a report this morning on Ed Steer’s letter, that talked about how the Brits are buying Gold and Silver by the truckload.

To recap. It’s another Risk Aversion Day, as the BRELIEF seems to be fading quickly, with U.S. stock futures down 100 points before the open, the U.S. 10-year Treasury yield at 1.32%, Gold up $17, and yen trading with a 100 handle this morning. If that doesn’t scream Risk Aversion, I don’t know what does! Chuck takes on negative yields this morning, and has more to tell you about Silver. U.S. Factory Orders print negative, and have a negative year on year print that marks the 19th consecutive month of annual declines, which has never, ever happened in the U.S. before, and still economists say the economy is just fine?

For What It’s Worth. I began talking about the financialization of the Oil sector over a year ago, in fact I was out on the trading desk when I began to talk about the problems that the Oil producers were going to be experiencing with the plunge in the price of Oil, and that’s right at 1.5 years ago that I was out there! (I wonder if all the folks on that desk that I hired, miss me? HA!) And well, this article that was in USA Today, follows up on this discussion, and can be found here : http://www.usatoday.com/story/money/columnist/2016/06/28/deloitte-oil-industry-could-fall-2-trillion-short-cash/86471836/

Or here’s your snippet: It’s been two years now since oil prices began one of their worst declines ever, and the cost of recovering from the slump is mounting.

A new report from the consulting firm Deloitte warns that the oil and gas industry may come up $2 trillion short of the cash it will need to replace proved reserves and meet other obligations over the next five years, following huge cuts that companies are making in capital spending to offset lower prices for their commodities.

“It takes significant capital for the industry to just remain flat. Actual and announced capital expenditure cuts suggest that even remaining flat could be a challenge for the industry, let alone meeting any expected growth,” John England, a vice chairman with Deloitte, said in a statement accompanying the release of his firm’s report.”

Chuck again. The low oil price is now in its third year, and the resulting stress on the exploration and production companies and independent drillers begins to take its toll on the stress they must be feeling. 77 exploration and production companies in N. America have filed for bankruptcy as of mid-May, with several on the brink of default, and companies throughout the sector finding it difficult to work their way through this crisis.

Currencies today 7/6/16. American Style: A$ .7465, kiwi .7115, C$ .7685, euro 1.1065, sterling 1.2987, Swiss $1.0223, . European Style: rand 14.8588, krone 8.4555, SEK 8.5510, forint 286.05, zloty 4.0218, koruna 24.4675, RUB 64.73, yen 100.50, sing 1.3525, HKD 7.7585, INR 67.45, China 6.69, peso 18.88, BRL 3.3035, Dollar Index 96.09, Oil $46.06, 10-year 1.32%, Silver $20.47, Platinum $1,069, Palladium $594.90, and Gold. $1,376.20

That’s it for today. What the heck is going on with by beloved Cardinals? They play like world beaters for 3 days, then play like they forgot how to play the game for 2 days. There’s no consistency to this team, and I blame the manager for this for these are the same players that he had last year when they won 100 games! Congrats to Cardinals 2nd Baseman Matt Carpenter on being named an All-Star, the only Cardinals player to so named. The Searchers take us to the finish line today with their 60’s song: Love Potion #9. She bent down and turned around and gave me a wink, she said she would make it up right here in the sink. My buddies always look at me strangely when that song comes up on the iPod. I guess they don’t have a love of the 60’s music that I do! Late again! UGH! Oh well, if late again becomes the norm, then it won’t be late again! HA! I hope you have a Wonderful Wednesday, and Be Good To Yourself!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com