Cold Hard Facts Of The Problems With A Trade War

A Pfennig For Your Thoughts

May 28, 2019

* Currencies rebound on Friday, but give back some gains yesterday!
* Durable and Capital Good Orders both print negative in April…

Good Day… And a Tom Terrific Tuesday to you! I hope you all had a wonderful weekend, that ended yesterday with our Memorial Day… Andrew, Rachel and Braden spent the day with us yesterday, and I had both the Big Green Egg, and my Weber smoking up a plethora of pork steaks… Yummmm… Sunday, we attended the River City Rascals game in O’Fallon, Mo. Not for the baseball, but for my granddaughter, Delaney Grace, who sang the national anthem before the game. I heart swelled with pride, as she belted out a very good rendition of the song, which because I sing it at every game I go to, out loud, I know it’s very difficult song to sing… Our Blues got off on the wrong foot in the Stanley Cup Finals last night, after leading 2-0, they lost 4-2… UGH… The Steve Miller Band greets me this morning with their song: Serenade…

Well, my broken record was pulled from the turntable on Friday, as the currencies fought back… The euro traded above 1.12, (but is back below it this morning) and the Aussie dollar (A$) found some life… It appeared to me that the icing is on the recession cake that will be served soon, as the real pieces of economic data, Durable & Capital Goods Orders for April printed… Both Durable & Capital Goods Orders were negative in April… I’ve been through the Capital Orders or CAPEX before, so I won’t go down that rabbit hole here again, but this makes two consecutive months of negative growth in CAPEX… That’s not a good sign for the economy folks… Businesses are NOT putting money back into their operations… Uh-Oh!

The other thing weighing on the dollar on Friday was the stone cold facts that the Trade War is really beginning to put the hurt on the U.S. economy… There was an article in our local paper, the Post Dispatch, over the weekend siting how a furniture maker here in Missouri, was feeling the pinch of tariffs on Chinese imports… And then there was a report last week the Beer makers are blaming the tariffs for the beer industry losing thousands of jobs… I tell you these two completely different sectors because I wanted to illustrate how wide ranging the Trade War is going to hurt…

Speaking of economic data… There isn’t much on the Data Cupboard’s docket for this week, until we get to Friday, where Personal Income and Spending will print… The foreign data calendar doesn’t look very promising either, with the IFO Business Sentiment and other things scheduled as the high point this week… So, it’s going to be more of the same old rhetoric between Trump and Xi… The U.S. & China…

When the Trade War began a year ago, I wrote about how there would be no clear winners, and that both countries would end up ruing the day they signed up for a Trade War… A year later, and Bloomberg did report on who’s winning the Trade War… And the result? No clear winners, with China ahead in some areas, and the U.S. ahead in others… Tom Orlik, Bloomberg Chief Economist, had this to say… “In terms of economic growth, no one wins in a Trade War. In terms of geographical rivalry, what matters is who loses more… The U.S. is betting that will be China, and China is betting the U.S. won’t have the stomach for the fight.”

The key in all of that is that there are no clear winners, a year after the Trade War began, and as we go along, it’s my feeling that the losers will begin piling up…

And remember that old saying that “When the U.S. sneezes, the rest of the world catches a cold?” I do believe it’s going to come to pass that the Global Economy goes to hell in a handbasket too… One country that could be setting itself up to insolate itself from this cold that will be going around, is Russia… But I’ve gone down that road before telling you all the reasons why this is happening, with not the least being their Central Bank Gov., who’s one sharp tool in the shed…

How many of you read Dennis Miller’s letter www.milleronthemoney.com ? Last week, he used the game of Monopoly to illustrate how the banks are taking over the game from us… And then on Friday, Ed Steer, from www.edsteergoldandsilver.com had this picture in his letter… It was a picture of the Monopoly board looking down on it, and in the middle it said this: You’re playing Monopoly… And every trip around the board you pass Go. If you’re the leader, you must pass one piece of property to the player with the least property. Same goes for Houses, Hotels, etc. Instead of collecting $200 for passing Go, you must pay 35% tax to be split among the other players. Soon, no one is buying property, Houses, Hotels. Eventually everyone quits trying and just waits for their handout when someone else passes Go… Socialism in a nutshell…

I found the relationship of the two articles in the same week to be quite interesting…

On a sidebar, I’ve really got a bone to pick with this guy… Billionaire, Robert Smith, pledged to a group of graduates that he just gave a commencement speech to, that he would pay for their college expenses… OK… Mr. Smith… how about reimbursing all the people, like me, that paid for their kids’ college expenses? Yes, I know nothing in life is free, or fair… But that really gets my dander up… Sure it’s his money and he can do with it what he wants… but I worked my tail off for years so that my kids weren’t saddled with large college debts when they started out in the world, and shouldn’t I get reimbursed if someone else is going to pay?

To follow up… I feel like it’s a slap in the face to the people took the burden of paying the tuition without loans, makes me feel as if my efforts were in vain… And that’s all I have to say about that!

OK, quit your beehiveing Chuck! It is what it is… let’s get back tot he markets… Gold had an interesting day on Friday, moving higher by $10, and then with the U.S. Markets closed, there was no movement whatsoever in the price of Gold, and it remained at $1,284… this morning, in the early trading, Gold is down a buck or two… I think the participants had it right on Friday… The saber rattling is building in volume between the U.S. and Iran, The Trade War is beginning to show up on everyone’s doorstep, and the U.S. economy took another hit from negative data… What these knuckleheads are doing this morning, beats me… Because it’s not as if all those things just went away…

The downward cycle for the price of Oil continues… I’ve gone through this before, but for new readers… The price of oil is price range bound, and every time it ticks higher, the shale producers jump in with both feet and begin pumping, and with that the supply increases, which brings the price of Oil back down, causing the shale producers to get back out because it’s too costly to keep pumping… The price of Oil is on the downside of that cycle, right now, which is strange given that we’re heading into the summer driving season!

I already gave you the skinny on the U.S. Data Cupboard this week… But I did skip over a few non-important pieces of data that will print before Friday, and they are: The Case/Shiller Home Price Index for March… this data has been showing consecutive months of downward pressure on Houses… But it’s from March! That’s today… And tomorrow there’s not much, but on Thursday we’ll get the final revision of 1st QTR GDP, and Pending Home Sales for April… See? Not really too much to see here, but sometimes you get a wild and wacky print that sends us all for a walk around the corner…

To recap… The Currencies had a good day last Friday, along with the price of Gold, and yesterday, with the U.S. out on holiday, nothing much happened, but this morning, the dollar seems to be back to pushing the non-dollar assets around. Durable and Capital Goods Orders printed negative (April), last Friday, and that sent the dollar to the woodshed for the day, along with hard facts that the Trade War is beginning to show up on everyone’s doorstep.

For What It’s Worth… The good folks at GATA sent me this article and link last week and I thought it to be very FWIW worthy… And no, it’s not about price manipulation! So, it’s safe to read, and can be found on the WSJ and here: https://www.wsj.com/articles/the-dollar-may-be-knocked-off-its-pedestal-11558565449

Or, here’s your snippet: “Will the U.S. dollar soon lose its status as the world’s pre-eminent currency? The consensus is no—it’s said that any move away from the dollar would take decades. This view is too complacent.

Developments in foreign-exchange markets during the past 18 months point toward dedollarization. Consider that Chinese “petroyuan” crude-oil futures, launched last year in Shanghai, now sit right behind Brent and West Texas Intermediate in trade volume. The world’s central banks bought more gold last year than at any time since President Nixon took the U.S. off the gold standard in 1971. Markets recently learned that China added gold to its reserves for the fifth month in a row. Earlier this year, the U.K., France and Germany created a new payment-processing system to permit payments to Iran. It will begin quietly with humanitarian aid, then move to other goods and services, potentially competing with the American-influenced Swift system.

The increasing use of economic sanctions under Presidents Obama and Trump is the immediate cause of dedollarization. In European finance, few have forgotten the $8.9 billion fine meted out to French bank BNP Paribas in 2014 for violating U.S. economic sanctions against Iran. It’s not that surprising, or even that significant, when Russia shifts $100 billion of dollar-denominated reserves into Chinese yuan, euros and Japanese yen, as it did last year. But the change in posture among the trans-Atlantic democracies is noteworthy. At his final European State of the Union address, European Commission President Jean-Claude Juncker said: “It is absurd that European companies buy European planes in dollars instead of euros.”

Chuck Again… As always, I hope you get to read the entire article, for it lays out the things I’ve been trying to get across to everyone..

Currencies today 5/28/19 American Style: A$.6923, kiwi .6550, C$ .7422, euro 1.1190, sterling 1.2670, Swiss $.9956, European Style: rand 14.6170, krone 8.6914, SEK 9.5540, forint 292.00, zloty 3.8373, koruna 23.1020, RUB 64.40, yen 109.40, sing 1.3776, HKD 7.8485, INR 69.60, China 6.8965, peso 19.11, BRL 4.0264, Dollar Index 97.766, Oil $59.19, 10-year 2.29%, Silver $14.47, Platinum $808.25, Palladium $1,340.21, and Gold… $1,283.56

That’s it for today… What a rotten weekend for my beloved Cardinals… Things had better change quickly, or the season will have been a bust once again, and that’s not going to sit well with the fans… I really had my hopes up when the Blues went up 2-0 last night… Only to have them quashed! Oh, well, that’s just one game… At least the Blues finally scored a goal in a Stanley Cup Final Game, after having been shut out in their previous 12 SCF Games… Little Delaney was so good on Sunday, singing the national anthem at the ballpark… I had a reader send me a note asking me to video it and post it online with a link so everyone could see her… I’m working on that… I’ll let you know… OK… Soft Cell takes us to the finish line today with their song: Tainted Love… I hope you have a Tom Terrific Tuesday, and will Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts