Fun With Numbers!

* Gold attempts to recover.
* Kiwi surges on short squeeze .
* Pesos touch 16 overnight!…
* 10 year intervals for China ..

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

Good day. And a Tom Terrific Tuesday to you! More deluges of rain for us here in the St. Louis area yesterday. I actually like those stormy summer days when the daylight turns black as night and things get really scary looking, and then when it’s over, the sun comes back out and all is forgotten. We had one of those yesterday morning. I was really dragging the line this morning, and got sick on the way to work.. What a nice way to start the day, eh? Oh, well, I’m here now, and all should be right on the night. (at least I hope so!) The Cars greet me this morning with their song: Just What I Needed. The Cars were one of the handful of 80’s bands that I actually liked.

Well, no fireworks this morning in Gold. like yesterday’s major whacking. No 5 Tonnes sales on the SGE this morning, and no 7,600 short contracts on the COMEX. I had a dear reader send me a note yesterday, asking me who bought the 5 Tonnes of Gold that were sold, since there always has to be a buyer and a seller. Good question! And that my friends is the problem as I see it with Gold. It’s not transparent in its trading. Which is something that I pointed out in yesterday’s missive on the Chinese Gold announcement. The Chinese didn’t include their purchases of Gold, which they didn’t want to be public. So, looky there! Without the market moving trades, Gold is up $10 this morning. Hmmm. Would that be a bone the price manipulators are throwing us to make us forget yesterday happened? Sure appears that way to me!

The dollar overall is a bit softer this morning, and not swinging its mighty hammer. The currencies for the most part have a small gain and there are no Fed members scheduled to speak today, and raise everyone’s hopes that interest rates are rising to support the dollar, nor is there any data to support the dollar today. So we could see this drifting go on the rest of the day.

Well, for the second consecutive day, the New Zealand dollar/ kiwi is the best performing currency overnight. I’m told by a trader friend in New Zealand that this is the continuation of a short squeeze that began the night before, after PM Key, made the comments about how kiwi had dropped more than expected, and that the economy was still strong. I do have to remind you that the Reserve Bank of New Zealand (RBNZ) meets tomorrow night (Thursday morning for them) and most economists believe that the RBNZ will cut their OCR (Official Cash Rate) by 25 Basis Points (1/4%). So, all this euphoria in kiwi the past two nights could very well be wiped out in one fell swoop by the RBNZ tomorrow night.

Across the Tasman, the Aussie dollar (A$) isn’t faring as well as its kissin cousin, kiwi. The A$ is flat to up a small bit this morning, just like yesterday, as the pull from kiwi is strong and overcoming what was said in the Reserve Bank of Australia’s (RBA) last meeting minutes. Things like: The A$ is still too strong, and Growth has probably slowed in the last Quarter. And to follow that up, RBA Gov. Stevens will be speaking this evening in Sydney. We will see 2nd QTR GDP print in Australia today, and right now, it is expected to rise 0.8% VS 0.2% the previous QTR, and year on year to rise to 1.7% VS 1.3%… I don’t see those numbers “slowing down” as the RBA suggested in their meeting minutes, but they’re closer to the action than me. HA!

A currency that I don’t talk about much, because there’s not a lot to talk about, The Mexican peso, is touching a 16 handle this morning. In 1998, I was in Cancun Mexico, and the peso was 10. I have to say that the President that took over a couple of years ago, with much promise and renewed hope for the Mexican economy, has failed miserably. But then how did he know that the price of Oil would drop like it did, thus reducing the revenue for the Gov’t owned Oil sector? But you can’t place all the blame on the drop in the price of Oil, here. And besides one of the President’s (Nieto) reforms was to go public with the Oil sector, so the revenue would have been reduced to tax receipts any way.

The euro is a bit stronger this morning than yesterday morning. But it’s like removing a bucket of sand from the beach. Nobody notices. And apparently the Greek debacle still hasn’t gone away for now, as the Greek Parliament will vote tomorrow on civil procedures and bank resolution directive. In other things going on in Greece, the Greece Gov’t is working on a moratorium for foreclosures of private residences, and pension reforms and a whole host of other things that have to be worked out per their agreement. I found it interesting last week that friend, Bill Bonner, from the diary of a rogue economist letter,( said that he “wasn’t buying the Greek Austerity Myth”.

You can always depend on Bill to look at things differently. As everyone is looking at Greece’s inability to pay their loans, Bill says well, they aren’t going to carry through the Austerity measures any way!

On a sidebar. I saw this in this past weekend’s Daily Reckoning: and laughed out loud, so I thought I would share it with you. “The Greek debacle reminds me of a doctor that gave a patient six months to live. When the patient failed to pay the doctor’s bill, the doctor gave him another six months! HAHAHAHA!

The Chinese renminbi hasn’t been allowed to appreciate for a week now, but last night’s weaker move was very small. 2 ticks. WOW! Why even bother? I did want to mention that we are observing a 10 year anniversary for the renminbi.. Yes, it’s been 10 years since the Peoples Bank of China (PBOC) announced that they were dropping the peg to the U.S. dollar, revaluing the renminbi upward by 2%, and that the renminbi would now be pegged to a basket of currencies. No one ever really knew the true identity of the currencies in the basket, but most observers believed that the basket consisted of the SDR (special drawing rights) currencies of the dollar, yen, euro, and pound.. I find it now to be quite interesting that the Chinese thought to peg their currency against the SDR currencies 10 years ago. For 10 years later, they are optimistic that the renminbi will be added to the SDR currencies by the IMF in October.

The Chinese weren’t that good at seeing 10 years into the future were they? Well, you can either think that they are that good, or that it was just dumb luck. I think I’ll choose what’s behind door #1. Let’s go back 10 years and see what’s happened in China in the past 10 years. 1. The economy is 5 times larger than it was in 2005, 2. and has surpassed Japan and Germany to become the 2nd most used currency for trade finance. 3. The stock market has opened up to foreign investors 4. The bond market has opened up around the world.. 5. More currency swaps have been signed.. 6. The renminbi has appreciated 34% in the 10 years since the drop of the peg. And then a final observance, the Chinese are making big strides toward a floating currency system for the renminbi, and making good progress in my opinion.

You know, come to think of it, could it be this year? Think about that for a minute. It was 1995 when China first pegged the renminbi to the dollar. 10 years later in 2005, the Chinese dropped the peg to the dollar and pegged the renminbi to a basket of currencies. And 10 years later? Interesting don’t you agree?

I love to think about those kinds of rhymes. Here in the Court of the Crimson King. The keeper of the city keys, put shutters on the dreams. I wait outside the pilgrim’s door, with insufficient schemes. The black queen chants a funeral march. The cracked brass bells will ring to summon back the fire witch to the Court of the Crimson King. Only old rockers like me will recognize that song, so for all the rest of you, I apologize and should have told you at the top of the paragraph to go on and skip ahead.

Ahhh, yes, I gathered up my iPod from the docking station where I was backing it up this weekend, yesterday afternoon, and made sure to put it in my laptop bag! I resorted to listening to a CD by Art Pepper (jazz saxophone player) of his greatest works. the thing with those recordings is great music, but no lyrics to sing along with. UGH! So, I made up words! HA!

I just had a meltdown. A true meltdown. I was told by the person that puts together the Review & Focus after I’ve written it, that legal had a problem with something I wrote. You should have seen the email I wrote but then erased when I realized that it wasn’t the right thing to do. Man, have I mellowed through the years. When I was a young man, having a meltdown would have led to me going to DECON 5, and you had to hope you weren’t in my path. But these days, I just meltdown and then go on with life. My good friend, Dennis Miller, told me yesterday that we need to have the most fun we can with our RTA. (remaining time alive) I couldn’t agree more!

Well, we’re getting into the dog days of summer not only for baseball, but for the currencies. I can tell you that historically, this time of year going into and through August, is a very slow time for the currencies and metals given that most traders in Europe go on vacation. And looky here, that’s what I’m doing! But I’m no longer a trader. But I still act like one, and I’m going on vacation! But the most important thing here is to recognize that this will be a slow period for the currencies and maybe even the metals. The dog days of summer.. Those hazy, lazy, crazy days of summer. Those days of soda, pretzels and beer.

Well, the U.S. Data Cupboard is bare again today, but they do have something for us to kick around later this morning. First let me set this up. Those of you who have been keeping score know all too well how badly the U.S. Industrial Production and Capacity Utilization reports have been this year. Well, today, the U.S. accountants get to make revisions to those weak numbers. That’s right, this is officially, “Revisions to U.S. Industrial Production and Capacity Utilization, Day” So, we all know how weak those reports have been so far this year, so guess what the revision will tell us? Go ahead, you don’t have to wait for the actual print of revisions to tell you. They’ll find a way to revise them upward, that’s a given, right? If at first you don’t succeed, try again, right? Isn’t that what the U.S. Gov’t did for GDP last year? They didn’t like the results of the weak GDP, so they found a way to goose it higher? I call it Fun With Numbers!

And I said above that Gold was up $10 this morning.. A bone, I call it.. And regarding the whacking that Gold took yesterday that started with the relatively low total of Gold reserves that China said they had, compared to what observers that count the SGE withdrawals and production numbers thought China had, I saw this quote.David Marsh, from the monetary forum OMFIF, said “China would risk unsettling the world gold market if it revealed bullion reserves of 2,000 or 3,000 tonnes. This might be interpreted as an unfriendly move against the dollar at a “delicate time.”

To recap. the dollar, overall, is softer today, and not swinging its mighty hammer, as there are no Fed speakers to prop up the dollar with talk of a rate hike, nor is there any data to help, so a drifting of the dollar today is expected by Chuck. Kiwi is the best performer again overnight this morning, as a short squeeze pushes kiwi higher. But as Chuck has told you two days in a row now, the RBNZ meets tomorrow night, and will most likely announce a rate cut that will pull the rug from underneath kiwi’s gains. The RBA’s Stevens will speak today in Sydney, and follow up the RBA’s meeting minutes saying that the A$ is still too strong. The Mexican peso hit 16 overnight. And the renminbi is observing its 10-year anniversary of dropping the peg to the U.S. dollar, which came 10 years after fixing the renminbi to the dollar with a peg. Now it’s 10 years later, what can we expect from the Chinese this year?

For What It’s Worth. I received this from the GATA Folks. And I thank Ed Steer for making that happen for me.. I want to make certain everyone knows that Ed is well, and still posting a daily letter on metals. You can find Ed here:

Here’s Tocqueville Asset Management’s senior portfolio manager, John Hathaway, as he writes. “We and others have commented at length about the contradictions between the markets for paper (synthetic) and physical gold. The declining price of paper gold quotes in NY and London doesn’t square with worldwide physical flows that reflect demand far in excess of mine production. It appears to us that gold positions traded in London and New York among bullion banks, high-frequency traders, hedge funds, and commodity traders constitute highly levered derivatives with only distant and notional relationships to the physical substance. The power of synthetic gold markets (COMEX in New York and over-the-counter in London, in conjunction with the London Bullion Market Association fix) to determine gold prices could start to ebb as physical gold migrates to Asian financial centers.

A bit of history is instructive here: The collapse of the 1960s Gold Pool, the aforementioned secret and collusive effort by seven central banks to keep a lid on the gold price, preceded a most difficult decade for financial assets. A lesson to be learned from the 1960s is the unpredictability of government actions, their inherently anti-free-market nature, and the unintended consequences that can arise from them.

“The Gold Pool was, in retrospect, a clumsy attempt by Western democracies to disguise the deteriorating fundamentals of the U.S. dollar stemming from the Vietnam War, rising inflation, and the weakening balance of payments. The dollar had been pegged to gold at $35/ounce since the end of World War II, a number that proved too low in light of the changing fiscal realities for U.S. sovereign credit caused by the escalation of the Vietnam War and the introduction of large scale welfare policies under the umbrella of the Johnson administration’s ‘Great Society’ initiative.

“In retrospect, the scheme was clumsy because the manipulation of the gold price was accomplished by the exchange of physical gold for dollars held by foreign creditors who saw the writing on the wall. The objective of the Gold Pool was to disguise reality. In the long run, that price-suppression scheme did not work. The failure of the Gold Pool of course was resolved by the suspension of dollar/gold convertibility in 1971. When free-market gold trading resumed in 1974, the gold price rose by nearly 20 fold over the next eight years.” – John Hathaway

Chuck again. Love those history lessons when it comes to this stuff, because you know what they say about how if you don’t learn from history you’re doomed to repeat it. I love these guys that have just about everything to lose that come out and talk about the distortions in the pricing of Gold. You’ve just gotta love ’em!

Currencies today 7/21/15. American Style: A$ .7375, kiwi .6605, C$ .7705, euro 1.0875, sterling 1.5560, Swiss $1.0415, . European Style: rand 12.3810, krone 8.2145, SEK 8.6145, forint 284.10, zloty 3.7825, koruna 24.8830, RUB 56.95, yen 124.40, sing 1.3655, HKD 7.7510, INR 63.55, China 6.1199, pesos 15.96, BRL 3.1885, Dollar Index 97.79, Oil $50.02, 10-year 2.37%, Silver $14.83, Platinum $986.05, Palladium $616.35, and Gold. $1,106.11

That’s it for today. And for the next two weeks for me! OK, so I heard today that lightning strikes as a cause of death are on the rise this year. The reason I tell you that, is that I’ve always heard that you’re more likely to be hit by lightning than to be attacked by a shark, and I’m headed to the beach. UGH! I’ve got to get my stomach settled down for I get on a plane tonight, so I asked our little Christine to stop and get donuts, I sure hope she got the message in time. I’m very bad about not checking my phone for texts in the morning, once I get typing on this letter, I’ve got a one track mind! Before I leave, I wanted to thank everyone that has sent along a pledge to the Iron Phi fund raiser that Alex is working on. In case you missed the days I posted the link here it is again.

I really want to go off the charts with the amount of money we can raise for ALS. Especially now. as my older sister, Barbara’s, doctors believe she has ALS.. This would devastating news for our family that has been devastated with cancer. So, let’s get on the ball here, folks.

Well, that’s it. I hope you have a Tom Terrific Tuesday. I’ll miss talking to you each day, but even I have to take a break from this every now and then! Recharge my batteries, and come back stronger! Bye.

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