Counting The Pennies Of Our Tax Dollar.

* Currencies are mixed today.
* U.S. data come back on board! .
* Germany & Russia print GDP reports.
* What’s up with Gold?

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

Good Day. And a Happy Friday to one and all! Let’s try with all our might to make this a Fantastico Friday because. Yes, just because! I’m greeted this morning by Neil Young, singing his song: When You Dance, I Can Really Love. Since becoming a teenager, I have been a Neil Young fan. I used to play a ton of his songs on the guitar, but I don’t believe I recall how to play them now. UGH! Maybe when I retire, I’ll pick up the guitar again, and begin to play it. One of our compliance officers, Brendan Normile just came in (very early for anyone but me here) and said to me, “I couldn’t sleep”. I get it, I’ve been there, bought the T-Shirt, and did the wave.

Well, the currencies are pretty flat this morning, with some up, some down and some wearing the same clothes as yesterday. I think the traders, besides it being the dog days of summer in trading, are looking to the U.S. data today before going off on the weekend either long or short. The Data overseas hasn’t been much to look at either, and not because it’s bad, it’s because there just hasn’t been a much of it, period. There was a German 1st QTR GDP print this morning, really? Yes, 1st QTR GDP, but aren’t we already into the 3rd QTR? Yes, we are, and this data is really stale, but it’s what printed today, so the markets react to it. By the way, German 1st QTR GDP printed better than expected at 0.4% VS the previous quarter.

So, Germany, the Eurozone’s largest economy, is seeing modest growth. Very modest, Chuck! Yes, I agree. But it’s better than a sharp stick in the eye, right? (no one gets hurt here, it’s just the Big Boss, Frank Trotter’s favorite saying) Yes, it is. so, let’ move along for this data is so stale, you could stand it up in the corner of the room!

Russia also printed a GDP report, but at least theirs was from the 2nd QTR! And 2nd QTR GDP in Russia is improving. In the first QTR GDP was negative -1.2%, but in the 2nd QTR it improved to negative -0.6%… Imagine for a minute, if you will, that Russia didn’t have economic sanctions weighing the economy down. Their growth would be model for the world right now. I fully expect Russia to come out of their recession with or without sanctions, and post a 1% GDP next year. The thing to think about here is that the CBR (Central Bank Russia) has kept internal interest rates high to combat inflation, while the economy sank. What will the CBR do when the economy isn’t sinking? Well, contrary to what you would normally think a Central Bank to do when the economy begins to heat up, which is hike rates, the CBR will most likely use that time to attempt to get interest rates back to normal. The internal rate in Russia right now is 10.5%… That’s not normal. The Russian ruble doesn’t seem to react to interest rate moves as much as it does to moves in the price of Oil.

Speaking of the price of Oil. The EIA Supply figures this week showed good supply here in the U.S. and should have sent the price of Oil down, but it didn’t. Instead, the price of Oil rose yesterday to a $43 handle. I did read something that caught my attention in the report, and that is that demand from the refineries was down. That means that gas for cars, during the summer driving season, isn’t seeing strong demand. Uh-Oh.

In the monthly letter that’s now available online at I do a reoccurring piece titled: An Inconvenient Debt. And for next month’s letter I’m going to revisit that, and talk about a group that I belong to. I belong to a group called “The Citizens Against Waste”, (CAGW) which does a lot of work to reduce our debt. I said it did the work, I didn’t say it had any success! Any way. The CAGW sent me a note yesterday giving me the breakdown of a tax dollar. 42-cents goes to waste, 32-cents goes to services, and 26-cents pays the interest on our debt. The CAGW has identified 618 specific examples of deficit-producing government waste that if eliminated would save $644 Billion in the first year, and $2.6 Trillion over 5 years. Think about that for a minute folks. Didn’t the Congressional Budget Office (CBO) forecast a deficit this year of $590 Billion? So, if the CAGW’s cuts were put into place we would have had a balanced budget this year! Well, sort of, because there’s so much debt that is not on the balance sheet, folks. it’s scary the amount of stuff that’s kept off the balance sheet.. One of these days, I’ll list it all and the amounts, and you’ll be shocked. Simply shocked!

See that 26-cents that’s used to pay the interest on our debt, we all know that we use Treasuries to finance the debt, and those Treasuries have interest payments attached to them and thus the debt servicing, or interest payments that make up that 26-cents. Well, imagine, again, if you will, if interest rates were higher, that would mean more of our tax dollars went toward paying the interest on the debt. And that, my friend, is the reason I believe will could see the Fed continue to expand their balance sheet with more purchases of bonds to keep yields on the bonds low. A few years ago, I came up with an idea for a MarketSafe CD to be issued that was tied to rising interest rates. It was based on the idea that the Fed was talking about tapering their QE (ending the bond buying) and without the Fed participation in the bond auctions, bond yields would begin to rise. But there’s been no movement in bond yields, except to get even lower. Who’s buying the debt? I think you know. otherwise, as investors around the world search for yield, they would demand higher yields, and that’s not happening, so it’s not investors around the world buying.

Alrighty then. In New Zealand overnight, their 2nd QTR Retail Sales printed well ahead of the expectations at 2.3% (1% expected), but the kiwi traders didn’t take the ball and run with it like they did the night before. Maybe they were too tired from the move the night before, but in any case, kiwi failed to move on this most excellent report, Ted. Thank you Bill.

I mentioned the Oil price above, and seeing that rally, I thought for sure that the Petrol Currencies would show gains this morning, but nary one of them are on the rally tracks. UGH! Not rubles, not loonies, not krone, not real, not pesos, and so on. The Petrol Currencies aren’t down by large amounts, and basically I would say they are down as a whole, by a tiny bit, but down nonetheless, which is strange considering the rally in Oil. A sign of the times, right? Strange things happen in the markets just about every day now. UGH!

Well, Gold lost $7.50 yesterday and is down $6 in the early morning trading today. What the heck is going on here? I guess investors are looking around the world and see nothing but sunshine and lollipops everywhere, right? NOT! But what are they seeing that makes them not only not buy Gold but sell it instead? If you have an idea, let me know. for I just don’t see it. Interest rates are low, and in large parts of the world they are negative, uncertainty is everywhere you look, and don’t think for one minute that inflation is dead. Remember, the Fed printed Trillions of dollars, and just because they are not currently in the economy / market because banks are hoarding them doesn’t mean that once banks need the money to expand their businesses and consumer demand returns that these Trillions won’t get put into the economy in a heartbeat, and when they do. the velocity of money will soar as if overnight, and inflation will rear its ugly head once again.

In addition to why I don’t think investors should be selling Gold. I read a great article on the LinkedIn site yesterday from Frank Holmes. Frank is an old friend of ours at EverBank and he is the CEO and Chief Investment Officer at U.S. Global Investors. Frank has written about Gold for as long as I’ve known him, and probably long before that! Here’s a snippet of the piece that can be found in its entirety here:

After spending a brief part of the article talking about how rare Gold is. Frank gets into the meat of the article, let’s pick it up there: “despite the best efforts of alchemists, we can’t recreate its unique chemistry in a lab. The only way for us to acquire more is to dig.

But for how much longer?

Goldman Sachs analyst Eugene King took a stab at answering this question last year, estimating we have only “20 years of known mineable reserves of gold.”

The operative word here is “known.” If King’s projection turns out to be accurate, and the last “known” gold nugget is exhumed from the earth in 2035, that won’t necessarily spell the end of gold mining. Exploration will surely continue as it always has-though at a much higher cost.”

Chuck again.. So 20 years left. Hmmm. I wonder if I’ll see that.. I doubt it, but, who knows, they medicines they have these days do wonders! But the last known Gold nugget to be mined? WOW! I wonder what the price of Gold will be then?

The U.S. Data Cupboard will have some meaty data for us today.July Retail Sales will print this morning, and the BHI tells me that the report should be OK. as the back-to-school buying had begun in July. This won’t be a blow it out of the water Retail Sales report, just a good, decent report, that the U.S. economy could really use right now. We’ll also see the Consumer Sentiment / Confidence report, which is always a sign of how the stock market is doing, and it’s doing well, so expect the Confidence index number to rise! All-in-all, this data could be dollar positive today, going into the weekend, so watch for that.

To recap. Not much going on in the markets again this morning, as traders act like they are waiting for U.S. Data, which will bring us Retail Sales and Consumer Confidence. Germany printed a stale GDP report which was better than expected, and Russia printed a more up-to-date GDP report that showed much improvement for the Russian economy that is still weighed down by sanctions. New Zealand printed a most excellent Retail Sales for the 2nd QTR report, but kiwi traders were too tired from the night before to run with the ball on this one.

For What It’s Worth. Thanks to Ed Steer, for highlighting this article for me. it can be found on Bloomberg and is about what Oil drillers need in the price of Oil for a strong recovery, and can be found here:

Or Here’s Your Snippet. “While shale drilling in the U.S. is on the rise again, prices need to climb nearer to $60 a barrel for U.S. producers to have a “substantial” boost in activity, the International Energy Agency said.

Producers remain “cautious on outlook,” and further drilling increases this year may be “limited,” the IEA said in its monthly report.

Drillers hired more rigs this year as U.S. oil prices staged a rally that saw futures close at $51.23 a barrel in June, the highest so far this year. There were 381 active rigs as of August 5, the highest number since March 18, according to Baker Hughes Inc. data. That number remains more than 75 percent below the October 2014 peak, the IEA said.

Despite the gains in the rig count, the IEA reiterated its view that shale oil production will decline by half a million barrels a day this year with a further drop of 200,000 barrels a day next year. The number of completed wells will drop by half this year compared with last year, it said.

U.S. oil production has dropped 12 percent to 8.445 million barrels a day from a record 9.61 million barrels a day in June last year, according to data from the Energy Information Administration.”

Chuck again. Well, next month OPEC plans to hold a summit with hopes that they can get the members to freeze output.. Any agreement to do so, would most likely propel the price of Oil higher. But the chances of any agreement to freeze output are slim. And Slim just left town!

Currencies today 8/12/16. American Style: A$ .7680, kiwi .7195, C$ .7710, euro 1.1155, sterling 1.2960, Swiss $1.0247, . European Style: rand 13.4352, krone 8.2195, SEK 8.4567, forint 277.95, zloty 3.8173, koruna 24.2255, RUB 64.67, yen 102.15, sing 1.3465, HKD 7.7564, INR 66.86, China 6.6467, peso 18.26, BRL 3.1444, Dollar Index 96.87, Oil $43.53, 10-year 1.54%, Silver $19.88, Platinum $1,135.23, Palladium $ 689.32, and Gold. $1,343.90

That’s it for today, and this week! The fantasy football league I participate in has our draft tonight, and I’ve not looked at any pre-draft reports! UGH! Oh well, I figure in past years I was all prepared and my teams sucked eggs (except 1 year I won, but that long ago!) so I might as well go into the draft without any preparation, can’t hurt! So, why does everyone have to have a label placed on them these days? What happened to being unique? I ask this because I was called a nonconformist the other day. Why? Because I don’t have a Facebook account, therefore I don’t follow the fads or follow blindly into things. Oh the Humanity! I don’t use Facebook! I don’t also use Twitter! So. sue me! And you can call me names, but sticks and stones may break my bones but words will never hurt me! HA! Cardinals blow the 1st game of 4 with the Cubs last night. The home plate umpire (from St. Louis no less!) was awful and gave the game to the Cubs in the 11th inning. UGH! The best they can do now is win 3 of 4, which would still send a message. The Great Otis Redding takes us to the finish line today with his song: I’ve Been Loving You.. It’s the live version from Whiskey A Go-Go. And with that, I need to get off this bus today, and send you on your way to a Fantastico Friday! Be Good To Yourself!

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