Just What Heck Are The Chinese Up To?

In This Issue.

* Another mixed day for currencies and metals
* A Trader corrects, Chuck .
* Australia misses expectations on GDP.
* Oil gives back $4 won the day before .

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

Good day. And a Wonderful Wednesday to you! Well, how about that walk-off home run to win the game for the Cardinals last night? WOW! I’ve been having a lot of difficulty sleeping lately, so that was fun, sort of, to wake up, check the score, and then watch the video highlights somewhere around 1 in the morning. Charlie Daniels greets me this morning with his song: Long Haired Country Boy. Whenever my neighborhood buddies get together and this song plays, you sure hear a lot of voice singing out loud that you don’t normally hear! I watched an interview by Dan Rather with Charlie Daniels about a year ago. He’s quite the guy in my opinion.

Well, U.S. stocks got smoked yesterday, and the reason the traders reported that stocks were getting sold was that China missed their consensus for the Manufacturing Index, which indicated to the U.S. traders that there’s more rot on the vine in China, the world’s largest economy, by some measures. The Big Boss, Frank Trotter, used to show a slide in his Power Point presentation that showed the size of the two largest economies, the U.S. and China, and then would show how the U.S. economy would lag the Chinese going forward, as the U.S. has averaged just 1% in Final Sales (a form of GDP) since 2007, while the Chinese economy has been as high as 10% and as low as the current 7%… So, if you take “X” and multiply it by 1%, and then take the same “X” and multiply it by let’s say 8%, the “X” in the latter equation is going to be much larger going forward.

So. What’s all the fuss about here? If stocks are going to be sold, I can imagine traders could come up with a laundry list of things they should be sold for, that don’t include China’s economic slowdown problems. UGH! But not to worry, stock futures are up this morning. Again, I want to point out that I’m your last choice as a stock jockey, and the only reason I track this stuff for you is to point out why the dollar gets love some days, and some days it’s treated like a red-headed stepchild. (OK, no emails about a redheaded stepchild! It’s just a saying that my dad always used, and then stopped when I started dating Kathy, who used to have the most beautiful head of red hair you’ve ever seen!)

So, it’s another day of some winners and some losers. The dollar seems to be on top of most of the currencies & Gold this morning, but as we’ve seen in recent days, there are always some winners out there, and sometimes they even surprise you!

The price of Oil gave back the $4 it had gained on Monday during Tuesday trading. Once again, what is exactly going through these traders’ collective minds? Makes no sense to me, what they are doing.

The Aussie dollar (A$) actually fell below 70-cents overnight, but as I write the A$ is right at 70-cents. The Aussie 2nd QTR GDP printed and it missed the expectations for +0.4%, printing instead at +0.2%, and moving the annualized number at 2% down from the previous reading of 2.5%… This was a real spanner in the works for the Reserve Bank of Australia (RBA) who thought they had gone on cruise control, while their previous rate cuts worked their magic in the economy. But this report has made them sit up and take notice. The markets sure took notice. The A$ below 70-cents is scary folks. It’s telling us there is no, nada, nothing, zero, zilch, a big fat goose egg’s chance of there being any Global Growth. And in case you’re chest pumping and acting better than everyone else because you’re in the U.S., let me remind you that the U.S. is a part of Global Growth.

The New Zealand dollar / kiwi can’t find any terra firma boys and girls, and when the A$ gets whacked like it has this week, and the CRB (commodities index) continue to make new lows, there little to help kiwi. One thing to mention though is that July’s CRB Index, which was originally printed at -11.2%, was revised to -5.5%… That takes some of the sting out of the fall in the index, but it’s still bad.

The euro was trading above 1.13 at 1.1317 overnight, but the rug has been pulled from the single unit , and the currency is now showing a greater than 1/2-cent loss. The European Central Bank (ECB) meets tomorrow, and I think the markets are feeling like ECB President, Draghi, might try to pull a rabbit out of his hat, given all the black clouds building up over Global Growth. So with that thought, the euro gets sold. Hmmm.

The Chinese renminbi saw another large appreciation last night. I really don’t know or can figure out what the Chinese are doing right now. First they devalue/ depreciate their currency 4.6%, and then the next two weeks, see large appreciations to the currency. What, What? I read that the Chinese through the Peoples Bank of China (PBOC) are intervening like crazy, supporting the renminbi in hopes of wrapping a tourniquet around the bleeding coming from the Capital Flows out of China. I don’t think this is going to do the trick, and now I’m beginning to wonder if China has really given some the of the control of the currency to the markets after all. hmmm. something to ponder for sure!

Yesterday, I said that it had appeared that the euro had become a “safe haven”. And really questioned the so-called “safe havens” . I don’t think I made myself clear on the whole thing. I really was questioning the traders calling the euro a “safe haven”. A trader at FXCM sent me a note and said that when traders call something a safe haven, they’re just lazy. Hmmm. I wasn’t sure he was telling me I was lazy, or the “real traders”… HA!

In yesterday’s Pfennig, I told you how the U.S. National ISM (manufacturing index) had fallen from 58 a year ago, to 52.7, but yet, no one talks about that except me. Hmmm. Well, the Manufacturing Index saw more rot on its vine yesterday, when it printed for August at 51.5, from 52.7 in July, and the 51.5 print was the lowest number for the index in 2 years! That marks a fall from 58 to 51.5 in 12 months. And the media and Gov’t and Fed would have you believe that the economy is strong enough for a rate hike? Well, not according to this data set! I just don’t see how manufacturing recovers the rest of this year either! In addition, Capex is in the circular bin, so tell me just where all this economic strength is. Housing, I hear you saying.. Yes, let’s see how strong that is once rates do begin to rise here. Labor says the economy is strong I hear you saying. Really? After all these years of explaining the hedonic adjustments and the problems with the BLS surveys, you really think Labor is good? I’ll admit it’s better than it was a few years ago, but certainly not at the level it needs to be 6 years removed from a recession. And that’s one of the reasons I believe a recession is in our near future. First of all the last two recessions were not allowed to go through the full cleaning out of the excesses of the previous boom, and second, we’ve had 6 years to build toward another boom, but it just has never materialized, and eventually the efforts will peter out. And, no wait, Chuck, you’ve gone way off the beaten path, it’s time you took a breather, and came up for air.

Whew! You wind me up and I’ll get on a roll, and the next thing you know, it’s time to get the letter out! And I never got around to the other things I wanted to say! So, in an effort to achieve that goal of saying the other things I wanted to say, I’ll shift gears here, and go to something else.

Longtime readers know all too well that I love it when someone else out in the world jumps on my bandwagon. This bandwagon is the one where I told you a year ago, that by the end of summer, the Fed would be re-examining their forecasts, and realizing that they’ll need to come back to the Quantitative Easing table. This time, I saw an analyst with MacroMavens, quoted in Barrons, named Stephanie Pomboy, who said,” she believes the current lack of buying by U.S. and Foreign Central Banks inevitably will force the Fed to return to QE4 to fill the gap.” This info was sent to me by a dear reader named Lawrence, who is also a doctor! So, thank you Doc! And welcome to my bandwagon Stephanie!

And looky here! Another well respected analyst jumping on my bandwagon too! Tony Sagami, whom I’ve quoted here before, writes for: www.mauldineconomics.com, and I really enjoy reading his notes every week, called: Connecting The Dots. And this is what he had to say yesterday. “The recent weakness is the painful process of deflating that bubble, but the Federal Reserve refuses to learn from its mistakes. It won’t be long until we hear about QE4 and/or a delay to the overpromised interest rate liftoff.

Former US Treasury Secretary Larry Summers had this to say yesterday: “A reasonable assessment of current conditions suggests that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives; price stability, full employment and financial stability.”

Honestly, I don’t know what the Federal Reserve will do next. Heck, I bet they don’t know what to do either. but they will do something.

Central bankers are arrogant know-it-alls who think they can fix the world’s financial problems with a couple of pulls of a monetary lever.

So pull they will.” – Tony Sagami

I love it when people come out to play with me! You know, I was talking to the darling Diane Bloodsworth the other day, who’s from our Jacksonville office, and she mentioned that she missed the trade shows. (She loved the customer contact) I told her that it just got to be too expensive for the bang we got out the shows/ conferences. Only the regulars wanted to come to listen to me talk any longer, no one wanted to come out to play with me!

Well, the U.S. Data Cupboard will attempt to recover this morning after yesterday devastating ISM print, and after the ADP Employment Change prints, we’ll have a short break and then U.S. July Factory Orders will print. You know, if the Fed can take out food and energy from CPI (consumer inflation), then I want to take Transportation out of Factory Orders! This afternoon, the Fed’s Beige Book will print, and in it I’m sure we’ll read some more blah, blah, blah, the economy is continuing to grow moderately, blah, blah, blah. It’s all talk, because in 15 days, we’ll get the real Kahuna and see what the Fed really thinks when they meet to discuss rates!

Gold is flat to down a buck or two this morning. Yesterday, I told you all about the physical demand for Gold & Silver coins at the U.S. Mint in August. And I totally forgot to tell you about the demand for physical Gold & Silver here on our Trading desk. Now, some of you may have seen the “Word from the sponsor” that I had up at the top of the Pfennig last week, with an announcement of a Gold & Silver coins and bars sale. Well, I had to take the announcement down after 1 week, because we sold out of our promotion. Wow! Now, I would like to think that Pfennig Readers saw the announcement and grabbed all the coins and bars they could at the special prices offered. So, thank you! But, the most important thing here is that physical demand for the metals is still very strong. And one of these days, Alice. You know the rest.

In addition to all the demand in physical Gold & Silver, I read an article that was sent to me by the GATA folks, regarding Platinum. And I thought, since I don’t talk about Platinum that often, this looks quite interesting. So this came from Reuters and can be found here: http://www.reuters.com/article/2015/08/26/us-safrica-mining-idUSKCN0QV0W220150826

“South Africa’s mining industry, unions, and the government have committed to a broad plan to stem job losses, including boosting platinum by promoting the metal as a Central Bank reserve asset. The draft agreement, which will be signed into law next Monday, lays out 10 wide interventions including getting the BRICS group of emerging nations to hold platinum as a reserve asset.”

So, there you go! Another good reason to belong to the BRICS. Sort of like bringing a candy or cookie signup / selling sheet to the office!

To recap. It’s more of the same mixed trading in the currencies and metals this morning, but this morning, the dollar seems to be on top of most of the currencies, with only a handful of currencies gaining VS the dollar. Aussie GDP missed the expectations, and only grew 0.2%, and the A$ got whacked and traded briefly below 70-cents. U.S. ISM missed expectations and fell by more than expected to 51.5. A year ago this index was 58 and change, and now it’s 51.5, and someone was saying this is a strong economy? NOT! What the heck is China doing with the renminbi? Chuck is confused by the interventions now, after the devaluations two weeks ago. And Chuck gives big kudos to those that took advantage of our sale prices on Gold & Silver coins and bars. But it’s all over now, baby blue.

For What It’s Worth. Last year, when I spoke in Vancouver, I talked about how, “according to report by the International Energy Agency (IEA) in which they state that “U.S. tight oil production, which draws largely from the Bakken in N. Dakota, and the Eagle Ford in Texas, will peak around 2020 before declining.” And then the rug was pulled from under the Shale Oil producers. Ahhh, but it’s not just the Shale Oil Producers that are being affected by 1. The lack of demand, and 2. The drop in the price of Oil. I want to thank Ed Steer, for he pointed me to this story that appeared on Zerohedge.com and can be found here. http://www.zerohedge.com/news/2015-09-01/conocophillips-fires-10-global-workforce-warns-dramatic-downturn-oil-industry

“As the Houston Chronicle’s FuelFix blog writes, “Daren Beaudo, a company spokesman, confirmed that an internal communication was sent to employees earlier this week informing them of the upcoming staff reductions. Most of those affected workers will receive layoff notifications next month.”

But don’t worry: the great(ly fabricated) U.S. jobs recovery myth will not be impaired: all these formerly highly-paid engineers, technicians, drillers and chemists will find minimum wage jobs flipping burgers at their local recently IPOed Shake Shack.

FuelFix adds that “the largest portion of the job cuts will come from North America, he said, where the Houston oil producer drills for crude from the oil sands in northern Canada to the shale plays in South Texas. The firm will also trim about 1,000 core contractors from its workforce.”

Chuck again. What I still get lathered up about, was all the talk last year, about how the low price of Oil was going to be such a wonderful thing for U.S. consumers and the economy, and then that turned into either a lie or something that was completely misunderstood. I’ll leave it at that, because I don’t want to do all the typing and have it cut on the reviewer’s floor! HA!

Currencies today 9/2/15. American Style: A$ .7010, kiwi .6335, C$ .7545, euro 1.1265, sterling 1.5275, Swiss $1.0365, . European Style: rand 13.4530, krone 8.2680, SEK 8.4420, forint 278.70, zloty 3.7620, koruna 23.9840, RUB 67.50, yen 120.10, sing 1.4160, HKD 7.7500, INR 66.18, China 6.3619, pesos 16.92, BRL 3.6975, Dollar Index 96.71, Oil $44.40, 10-year 2.16%, Silver $14.57, Platinum $1,006.38, Palladium $572.75, and Gold. $1,139.57

That’s it for today. Dusty Springfield is singing to me right now, so excuse for a minute as I sit back and listen to Dusty sing. OK, I’m back now. Thanks for your patience! HA! Man, I turned the Cardinals game off last night when they fell behind 3-5. That walk off home run is something in baseball, such finality very quickly. like a Sudden Death goal. And now my beloved Cardinals get to face the two teams chasing them. The Pirates for 3 games and then the Cubs for 3 games. All HUGE games at this time of year! I have two friends that are Cubs fans, and have been their whole lives. I imagine they’ve got to be frustrated as their Cubs have had their best year in a While, and would be leading almost every other division in baseball, but find themselves 10 games out of first place behind the Cardinals. I feel for them, I really do, that has to be so frustrating! For once though, Cubs fans calls for “wait till next year” will probably have a lot promise to them! Same goes fo
r the Pirates, but to a lesser degree, because they’ve made the playoffs the last two years.. I saw a cartoon that made me LOL this morning. It’s man and wife looking at a newspaper dispenser, where the headlines show through the plexi-glass front, and the headline said, “2016 GOP Candidates”, and the man said to the woman, “Are they up to that many now?” HAHAHAHAHA! I hope you have a Wonderful Wednesday!

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