Broad Based Dollar Buying.

* Dollar reverses last week’s losses.
* Aussie Consumer Confidence soars higher.
* Chuck talks Chinese and U.S. debt.
* China to add to Gold accumulation.

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

Good day.. And a Wonderful Wednesday to you! Well.. that certainly was a good way to bounce back from the previous night where my beloved Cardinals could only scrounge up 1 run in 14 innings, as they scored 10 last night! Dobie Gray greets me this morning with his song: Drift Away, another nice mellow song to start the day! A one-hit wonder was Dobie Gray, but what a hit it was! The Fed lets us all in on their FOMC Meeting Minutes this afternoon. I’ll probably be napping when they print, but like I said the other day, the markets are going to be looking for a Hawk, and I think that all they are going to see is a dove.

Well, there’s broad based dollar buying going on again this morning, an exact opposite of the broad based dollar selling we saw last week. April was a month of broad based dollar selling, and May began to unwind that selling, but soon turned on all the weak economic data that began piling up on the dollar’s door step again. But with a lack of economic data to print this week, the dollar bugs are coming out of the walls and running all around again.

The U.S. Data Cupboard did have some very strong Housing numbers for us yesterday. The Housing numbers were so strong, they did move the markets, they did move the markets, they did move the markets! I think I saw a putty tat, I did, I did! So, U.S. Housing Starts for April surged by 20.2% from March, to the highest level of starts since November 2007. And the number of Building Permits jumped 10.1 in April from March. Hmmm, So, let me take a step back and take a good long look at this data. What does a construction company have to pay for a construction loan these days? I’m told by a credit union on the internet that a Primary Residence loan has an APR of 2.61%, Rental property has an APR of 3.2%, and buying land has an APR of 4.69%… Now none of those APR’s are offers or solicitations to make a construction loan at those rates, I’m just using this for illustration of what I’m saying here.

And that is with Construction rates so low, why wouldn’t Housing Starts and Building Permits be soaring? Of course I have to take issue with how this was all put together.. You see why was March so bad, and April so rip-roaring good? Was it all in a plan to illustrate the Fed’s “transitory” story? But anyway if I go any further with that, it’ll be time wasted because it will get cut and dropped to the reviewer’s floor! But the major point I’m making is interest rates are low, and there are rumors going around that they won’t remain this low for much longer, so there’s a rush to “get-r-done” as Larry The Cable Guy says!

And then that brings me something that a dear reader brought to my attention the other day, telling me that someone that he reads was alerting readers that China’s debt was out of control. So, I sat down, and replied in a very calm manner, no banging on the keys, no spitting at the screen as I fume about this, and wrote about.why not run up their debt in a low rate environment? The key differences here folks, are 1. that China has a treasure chest of reserves that would go a long way toward reducing their debt, should it come to that, which I don’t think it will. And 2. They were building infrastructure.. You know roads, bridges, and buildings, things that people use?

Moving over to the U.S. debt, that people should be concerned about, and not the Chinese debt. The U.S. has no fallback, unless the Fed wants to print $18 Trillion to pay down the current debt or nearly $200 Trillion to pay the unfunded liabilities that professor Lawrence Kotlikoff says is the “real U.S. debt number”. Just print, and save it, and when bonds come due, pay them off. That would take care of everything wouldn’t it?

Not today, not yesterday, and not tomorrow folks. Printing money doesn’t increase economic output, it merely causes inflation. And try unleashing that massive inflation problem on the overwhelming drivers of the long-term deficits. you know, Medicare and Medicaid, and of course Social Security. And then factor in the cost of living increases the seniors receive on their checks. Where would this massive inflation come from? Well, it would come from the pumping of dollars into the system. We’ve been playing with chump change when compared to the $18 Trillion or the $200 Trillion, choose your poison. And don’t forget the damage to the U.S.’s credibility? The psychological damage to the U.S. isn’t exactly a measurable thing, but I would have to think it would be and totally non-repairable.

I could go on.. and there are examples of governments funding themselves. Ever heard of Zimbabwe?, How about 1920’s Germany? Or Italy in the 1970’s. How’d those experiments work out? So, let’s just assume that the Fed and the U.S. Gov’t, which don’t tell me they aren’t in cahoots, and that the Fed is “independent”. (check out the 70’s and then Fed Chairman, Arthur Burns who kowtowed to Nixon’s demands for a rise in inflation) But anyway, I digress. But let’s just assume that those two entities are smarter than the average bear, and they steer clear of this scenario.. Then we’re back to square one, and the U.S. has nothing to fall back on, no treasure chest of reserves. No wait! They do supposedly have 8,000+ tonnes of Gold they could sell.

I did the math on that a couple of years ago, when Gold was greater than $1,600, and don’t laugh, I know sometimes my numbers get funky. And selling the Gold then wasn’t going to make a major dent in the Debt. Selling it now when it’s $400 an oz. cheaper, sure isn’t going to help either!

Man. I’ve had a ton to say this morning, eh? Well, sometimes it goes like that, and sometimes, I have to search as though I’m on a scavenger hunt for stuff to talk about.

Speaking of Gold. And again, I’m really upset with the article where someone said I’m wrong on why China is accumulating Gold. Well, he didn’t actually call me out, but what he did say was that those that think that China is accumulating Gold so they can attach some percentage of the hard asset to their currency, are wrong. Well, as I said yesterday, I’m not going to concede that I’m wrong, until proven to be. And that might not happen for years, so I think it’s a little premature to say I’m wrong!

Oh, and get this. China is not satisfied with being the # 1 Gold Producer. they aren’t satisfied with being the # 1 Gold importer. and they aren’t satisfied with being the #1 user of Gold. So, to augment their Gold producing numbers, it was reported on my one of my GATA dispatches yesterday, that China is now purchasing mining properties around the world. WOW! That’s impressive, eh? So, now China can accumulate even more gold!

But guess what Gold is doing this morning? It’s flat. So, the news that China is buying mining properties all over the globe isn’t good enough to get Gold moving higher. You can really tell when an asset is not in a bull market and searches for tid bits on the ground every day, for they struggle to advance even with news that should advance them. But, that doesn’t mean this scenario won’t change sooner or later.

So. I told you at the top that the dollar is seeing broad based buying this morning. I have to make note that all those economists, pundits, etc. that were calling for the euro to fall to parity with the dollar when the euro had fallen to 1.05 have returned to the airwaves. Yes, they went and hid when the euro showed some resiliency and rebounded from 1.05 to 1.13. But during this week of “no data equals no weak data” for the U.S. the dollar has rebounded, and the euro is back to getting sold, and starts today with a 1.11 handle. And now the calls for the euro to fall to parity are being made again. Hey! Where were you guys when the euro was rising from 1.05 to 1.13? Nowhere to be found, that’s where! Hiding under rocks? Signing up to appear on Dancing With the Stars? It just shows to go ya, that it’s easy to kick a currency when it’s down.

The one currency that is carving out gains VS the dollar this morning is the British pound sterling. And here I have to wonder why? The Bank of England printed their last meeting minutes this morning, and in them it was revealed that the vote to keep rates unchanged, was unanimous. I would think that this kind of news would deep six the pound. Apparently not! You see, there were 2 BOE members that kept voting for rates to be hiked in the previous meetings and this time they dropped that call to hike rates, and voted to keep them unchanged. So rates are not going higher in the U.K., as I’ve told you for over 6 months now! And yet the pound carves out a gain on a day when the dollar is swinging its mighty hammer. Isn’t Life Strange, the Moody Blues sang. It’s quite apropos here, eh?

In Japan overnight, the 1st QTR Japanese GDP printed, and even though it was better than expected (0.6% VS 0.4% expected) the details of the report were not so good, with most of the growth in domestic demand coming from inventories and net trade contribution. Yen dropped lower on the print, and I’ve got to say that while I’ve thought for a long time now that yen would eventually be moved weaker, it now appears that yen is stuck in the mud. Why do things to make the markets want to weaken yen further at this point? The current weakness in the currency sure hasn’t helped exporters that much.

I was reading a piece from one of my fave economy writers; William Pesek, who you can normally find on Bloomberg.com, and in the piece, Mr. Pesek says that he believes that China has been taking some small steps in dealing with the slowing economy, and by doing so, he fears that China is going to repeat the steps that Japan took in the 90’s. Pesek believes that China needs to step up the pace of rate cuts, and other monetary moves that could help right now, and to not delay. Pretty interesting comparison between Japan of the 90’s and China of now. I would think the Chinese know all too well the history, and what they are doing here. But maybe this nudge by Pesek will make them think a little more?

Well. I opened my Daily Wealth (www.dailywealth.com) email yesterday, and what did I see? Well, I saw these words in bold type, “It’s Time to Back Up The Truck and Buy Emerging Markets” – Steve Sjuggerud So, I quickly perused the letter to see what the good doctor Steve, had to say about the Emerging Markets, for this would play very nicely in the sandbox with our Future Economies MarketSafe CD, that’s available to June 11th (see above sponsor ad for more info and click on link for terms sheet)!

Dr. Steve went on to talk about his True Wealth Systems and how both of them had signaled a buy for the Emerging Markets. This is the kind of stuff that makes me happy, folks. We saw the Emerging Markets as a buy, and went about creating a MarketSafe CD, and now the good doctor agrees with us! YAHOO!

And the Aussie dollar (A$) just can’t seem to catch a break this week. The Reserve Bank of Australia (RBA) meeting minutes weren’t dovish, but the markets saw them that way, and now last night Consumer Confidence for this month Vs April jumped higher by 6.4%, and yet the A$ is weaker this morning. UGH! Where have all the Fundamentals gone? Long time ago.

To recap. Broad Based dollar buying this week continues, after the Broad Based dollar selling last week. No data in the U.S. means no weak data, and that has fueled the dollar’s buying this week. OK. I have to stop here, and sing along, out loud I might add, to a 70’s song: England Dan and John Ford Coley singing: Nights Are Forever About You. Chuck talks about debt in China, and the U.S. China is buying mining properties all around the globe to increase their Gold accumulation, and Gold can’t get wind for its sails. U.S. Housing Starts and Building Permits were strong in April, and reached a level that hadn’t been seen since November 2007. Hmmm, I just now thought of how that was just before the financial meltdown that was caused by the housing bubble pop.

For What It’s Worth. For the years 2002 through 2011, I would have readers and clients (who should have been readers!) ask me what book would I suggest to anyone just learning about currencies. I would always suggest among a few others, Richard Duncan’s book: The Dollar Crisis. Richard Duncan also wrote: The Corruption of Capitalism, in 2009, which is also a good read, but now he’s written a new book titled: The New Depression. And from that I have an excerpt just to wet your whistle..

“The global recession is in danger of becoming another Great Depression, and how we can stop it when the United States stopped backing dollars with gold in 1968? The nature of money changed. All previous constraints on money and credit creation were removed and a new economic paradigm took shape. Economic growth ceased to be driven by capital accumulation and investment as it had been since before the Industrial Revolution. Instead, credit creation and consumption began to drive the economic dynamic.” – Richard Duncan

Chuck again. Yes, I’ve already sent for the book from Amazon. And I can’t wait to read about the analytical framework , the Quantity Theory of Credit that explains all aspects of the calamity now unfolding. But even more, Duncan will talk about how we can restore stability. Now THAT I’ve got to read!

Currencies today 5/20/15. American Style: A$ .7890, kiwi .7330, C$ .8180, euro 1.1105, sterling 1.5515, Swiss $1.0650, . European Style: rand 11.9435, krone 7.5670, SEK 8.3695, forint 276.00, zloty 3.6525, koruna 24.6140, RUB 49.99, yen 120.95, sing 1.3370, HKD 7.7525, INR 63.82, China 6.1125, pesos 15.19, BRL 3.0368, Dollar Index 95.53, Oil $58.58, 10-year 2.26%, Silver $17.13, Platinum $1,155.75, Palladium $783.30, and Gold. $1,209.13

That’s it for today. So, I told you at the top about the offensive breakout by my beloved Cardinals last night. if only they could take half the runs they scored last night and apply them to tonight’s game. After a night when they had to scratch to get one run on the scoreboard, they scored at will on Tuesday night. Baseball is strange like that. Well, do you have Big Plans for this upcoming Memorial Day Holiday Weekend? We’ll be hoping to hold off the rain on Saturday, as we celebrate Braden Charles Butler’s 4th birthday with a party. But the rest of the weekend looks like it will be washed out by rain. When the weather person says, “you should find alternate plans to your outside activities” then you know. I usually have something on the Big Green Egg for hours, letting the smoke fill the air with good aromas, watching the baseball game while the kids play in the pool. But with this rain, I think I’ll have to find something else to do. UGH! Maybe the forecast will change? I think the chances of that are slim and none, and Slim left town! OK. Thank you for reading the Pfennig today, I hope you have a Wonderful Wednesday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
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