Oil Price Rises Past $51!

Good day… And a Wonderful Wednesday to you! I was invited to dinner last night to celebrate Braden Charles Butler’s birthday, and of course I accepted! He wore a shirt that had in big letters: Birth
And that bowl of vanilla ice cream he had along with his cousin, Everett, didn’t stand a chance with Braden shoveling it in his mouth so fast… I laughed and laughed… I will host a birthday party for Braden on Saturday here at the house, so all his friends can go swimming. Hopefully it will heat up by then! Kansas greets me this morning with their song: Song For America… Man, in the 70’s, Kansas was BIG!

Front and center this morning, I want to talk about something that I listened to last night when I received a Tweet from CNBC… it was an interview with Ashton Edelman, legendary investor, and he was explaining the Plunge Protection Team… He pointed out first that when Reagan created this team in 1987, that no records of the trades or positions ever be made… Mr. Edelman was explaining that he believed the Plunge Protection Team (PPT) made up of the Fed, the Treasury, the CFTC, and the SEC… it’s actual name is the President’s Working Group on Financial Markets, and they take their instructions from the President to enter the markets to shore up the stock markets to maintain investor confidence in those markets… When Mr. Edelman was asked if he thought the turnaround in stocks this week was the work of the PPT, and he responded that he had no doubts…

Now, doesn’t that give you a warm and fuzzy to start the day, that the PPT has your back with your stock investments? Isn’t this a manipulation of the stock market? Of course it is! But we’ve known about the PPT for many years… But if the PPT can manipulate stocks, and the Fed manipulate bond yields with zero interest rates and bond buyer, why is it then that so many educated people still don’t believe that the precious metals are manipulated? Just a question to start the day… And this is going to be a busy day…

I’ve got a doctor’s appt. right out of the starting blocks today, and that’s followed by an infusion… But then the market will get some action from the Data Cupboard, and that should set us on a direction that’s yet to be seen, for the rest of the week.

The dollar fought back yesterday, and recovered a bit of lost ground to the currencies and metals… And this morning it’s trading sideways from yesterday’s close. Except the A$, which I’ll explain in a minute. As the day went along yesterday, and into last night’s trading in Asia, the euro continued to lose ground, first giving up the 1.12 handle that it so proudly traded above the day before, and then leveling off in the high 1.11 handle… I’m not giving up on my thought that this might be the beginning of the end of the strong dollar trend… I recall, and I have to really put on my “remembering hat” to do so, that when the euro began to move higher VS the dollar at the end of the last strong dollar trend, that it had setbacks… And not just one or two, it took a while for Traders to come to the realization that the strong dollar trend was over… And once they did, well, you’d have to recall the while paper I wrote in 2001 called the “Decline of the dollar” and then the follow up white paper that was written late in 2002, called 2003: The year of the euro…

I have to say that a trader long ago told me that an asset moves into a trend because of a fundamental reason, and it won’t leave that trend until the fundamental reason has corrected or gone away… The Great Richard Russell, took it one step further and said that a trend doesn’t end until the asset or asset class has completely exhausted its run…

Of course back then (2002-2003) I was trading currencies and managing the bank’s risk in currency deposits every day, so I had daily conversations with traders, and saw where the money was going every day, to make it easier to make those calls… But then, once the call was made, investors came to us in droves, all wanting to learn about diversification using currencies and metals as asset classes in one’s investment portfolio. It was a fun time on the old Trading Desk… We stayed late into the night, ordered pizza and other food for our dinners as we kept up with the onslaught of new business… 13-14 hour days were the norm for me back “in the day” So, I guess what I ‘m trying to get across here is that, the change in trends can come stealth-like, and you don’t know it until it’s on you, and you find it embarrassing to recall that your main objective was to drain the swamp, when you’re up to your, you know what, in alligators! So, why wait until the alligators are knocking at your door? Diversify now, and if this isn’t the beginning of the end of the strong dollar trend, then I’m of the opinion that it won’t be too much longer before we are there.. of course that’s just my opinion and I could be wrong!

Yesterday, I talked about whether we should consider this the end of the weak dollar trend… Hmmm, I thought to myself, as I prepared the back of my SUV for luggage that those traveling with Kathy to the airport would be bringing along… (Kathy only takes a backpack… everyone else packs suitcases that look like they are going on a safari, and won’t be near civilization again for weeks! ) , this beginning of the end has to have started a while ago… and sure enough, there in Bill Bonner’s Diary, (www.bonnerandpartners.com ) was the info… The Dollar Index has fallen 6% since December… But the euro, has only begun to move positively VS the dollar since last week… Ahhh, but remember when yen was doing all the heavy lifting VS the dollar? So, if you’re like me, I don’t count yen in the equation! Since the euro is the largest component weighting wise in the Dollar Index, and the offset currency to the dollar, I always prefer to look at the euro to tell me if the dollar is weak or strong…

In Germany yesterday, German Business Sentiment as measured by the think tank IFO, printed and surprised most observers of the data, gaining 1.6 points to 114.6 from a revised upward April figure of 113. The Business expectations component was strong, as well as the Current Situation component, so overall, a very good print for Germany… Because it’s businesses giving the data, of whether things are good now, or not, and whether or not they think the future is looking good. I really don’t know what the European Central Bank (ECB) thinks of these think tank reports from IFO, and ZEW… But, if I was Mario Draghi, president of the ECB, I would pay close attention to them! For they are reports from the people, by the people, to the people… No hedonic adjustments, or seasonal adjustments, or weightings adjustments…

In the Eurozone yesterday, their flash print of the composite PMI (manufacturing & services index) remained steady Eddie in May… The expectations were for this index to see a pullback from the April figure of 56.8. The so-called experts thought the pullback would be around 56.6, but instead it printed at 56.8, which is a very strong number for the Composites data… The euro, which had bumped higher to 1.1240 yesterday morning just couldn’t get much traction from either the PMI data or the IFO data…

The Big Boss, Frank Trotter, sent me an email with a couple of graphs from the Fed St. Louis, and said, “since you mentioned the Swiss franc”… Well, the first graph showed that the Swiss National Bank (SNB) has a larger balance sheet than Japan! Wait! What? Yes that’s right, and a good portion of the balance sheet is held in euros… So, I guess they’re happier than a lark that the euro is rallying… The other graph just shows the amount of the balance sheet that’s held in foreign currencies… But the balance sheet is larger than Japan’s? I found that very difficult to believe, but there it was right before my eye! No wonder the franc is finding it a tough row to hoe VS the dollar these days, but more important to the SNB VS the euro…

Thanks Frank! I’m meeting Frank for lunch today after my infusion… I don’t normally eat anything before my infusion, so afterwards I’m hungrier than a bear! Now, back to our regularly scheduled programming…

Overnight, Moodys threw a cat among the pigeons with a downgrade of China’s debt. The first downgrade that China has seen in 3 decades! But, in reality, China does have too much debt, and Moodys put them on notice with a downgrade to negative back in March 2016, so, we’ve been waiting for the actual cut since then… The Chinese authorities called the cut “absolutely groundless”, which I found to be kind of funny… Sorry Chinese authorities, but I know that your goal is to grow the economy out of this debt… But the growth hasn’t been there in recent years. In recent years China has grown at 6.5% to 7%, but back in the go-go days China’s growth rates were 10%+ So, get your economy on a roll, and you can then call the ratings cut “groundless”… And then let’s not get too upset here, China’s debt rating is still A1… So, certainly not junk!

The Aussie dollar (A$) lost ground on the China debt rating cut, but strangely enough, the renminbi hardly moved… Shouldn’t those roles be reversed here? Well, this scenario just shows to go ya, what happens when you have one semi-managed currency, and one currency that the markets move…

Also overnight, the latest poll in the U.K. show the conservatives’ lead narrowing, to single digits… Uh-Oh… Remember what I said when PM May called for this election? I said I thought she was taking a risk that she didn’t have to… All this could prove to make the BREXIT move very difficult, and pressure the economy… I just shake my head in wonderment of how PM May was able to win the election in the first place!

So, the dollar has fought back and we’ll have to see what happens this afternoon when the FOMC Meeting Minutes are printed… Will there be hints, or clues as to what the Fed is thinking, or will the markets find that Mr. Green murdered Miss Scarlet in the library with the rope? I love it when my mind slips away like that!

The price of Oil rebounded and won back that ½-cent and more that it has lost yesterday morning in the past 24 hours… I told you yesterday that it appeared to me that the selling was simply profit taking, and so it was, as the price of Oil pushed well above the $51 handle. So much is being put on the shoulders of the OPEC meeting later this week… But the Petrol Currencies are having a grand old time with the price of Oil moving higher!

Gold lost $9.70 yesterday… Just the other day, it appeared that Gold was ready to go on a run, and then along came 206,000 contracts yesterday, that most likely contained quite a few short Gold contracts, and that’s all I’m going to say about that! Gold closed at $1,250.50 on Tuesday, and is down another $4 in the early morning trading… What? Has all the Political Pressures/ risks gone away? Have the problems in the Middle East gone away? And what about all our debt around the world, but right here in the U.S. where we live, and buy gas, groceries and giggles? Has the debt gone away? I just don’t get traders’ minds when it comes to Gold… But then I probably shouldn’t bang on them too much..

The U.S. Data Cupboard today has the FOMC Meeting Minutes, and Existing Home Sales, which are expected to be weaker than the March print… Yesterday, we saw the color of the New Home Sales for April, and I told you that I expected them to be weaker than the March print, and weaker they were! March’s New Home Sales were 642,000, and were expected to weaken to 605,000, but actually printed even weaker at 569,000! I expect the same results for Existing Home Sales today.

We’ve seen quite a few Fed speakers already this week, and yesterday was no exception with Kashkari, and Harker speaking. Today, Kashkari goes to the podium again, and this time Kaplan will be the other speaker, and on and on like this all week, and the reason I haven’t made a bigger deal out the Fed speakers lineup, is that quite frankly, I really don’t think the markets or you should pay attention to anyone at the Fed, unless their name is Yellen, Dudley, Brainard, or Fischer… I’ve gone through all this with you before, explaining that while there are other members that vote, these 4 are the “clique” if you will at the Fed, and all rate decisions are made by these 4 members… Oh, looky there! Brainard is on the speaking docket for tomorrow!

To recap… The dollar fought back and won some lost ground yesterday, but overnight, the dollar has traded sideways, except for the A$, which lost some ground, when it was announced that Moodys had downgraded China’s debt rating to A1… But other than that move in the A$ most currencies are trading sideways from yesterday afternoon’s levels. The markets are waiting for the FOMC Meeting Minutes that will print this afternoon. And Chuck has some fun with that… Gold lost nearly $10 bucks yesterday, but the price of Oil bumped higher to well above the $51 handle.

For What It’s Worth… Well, I have something different today, it’s all me, talking about things, so grab that coffee refill and come back, I’ll wait for you! Ok, ready? Here we go!

Under the heading of: Be Careful What You Wish For… I’m going to talk a bit about bond yields, and what the Fed is attempting to do with them… The Fed would like a normal yield curve, with short term yields, lower than long term yields, and a nice spread between the two. The Fed has raised interest rates 3 times or 75 Basis Points so far, and so far, they’ve only gotten a dime’s worth of rise out of yields in Treasuries. But what would happen if yields did move higher as the Fed wishes they would? Well, they would take losses on the unwinding of their balance sheet, for one… And isn’t that what all the buzz is about these days at the Fed? The unwinding of their balance sheet? The economy, on shaky terra, right now, would seem to fall under the pressure of higher yields… Example: When an economy is running hot, what does a Central Bank do to cool things off? They hike rates… But if an economy is teetering and the Central Bank hikes rates to raise yields, the same thing happens, the economy cools off, but it was ready to weaken to begin with! Uh-oh!

Let’s back up a bit here first… Remember how long ago I began using the Vapors’ 80’s song, Turning Japanese, yes I really think so, to describe what was going on here in the U.S.? I’m talking about the early 2000’s… I remember sitting with Chris Lissner, a bond guru, and we were comparing yield curve movements of the Japanese Gov’t Bonds, and Treasuries, and I said, “we’re just following them”… And over the years, we continue to follow them… let me count the ways…

A decline in savings rates to extremely low levels
An aging demographic that is top heavy and drawing on social benefits very quickly
A heavily indebted economy with debt/GDP ratios above 100%.
A decline in exports due to a stronger currency, and Global slowdown
Slowing domestic economic growth rates, U.S. 1st QTR GDP at 0.7%!
An underemployed younger demographic. Millennials moving back home!
Weak industrial production
Dependence on productivity increases…

Do you see the resemblance? Well, now that we’ve gone back in time, let’s come up to date, and see where Japan is today… Oh, that’s right, they’re still in a 30 year deflationary funk, and believe me they’ve tried everything under the sun and moon to get a rise out of inflation, but nothing has worked, (for any period of time) and bond yields refuse to rise… Hmmm…

Now, few years later (circa 2009) when I was writing for the now defunct Currency Capitalist, published by the Sovereign Society, I wrote about how the U.S. could avoid “turning Japanese” The U.S. consumer was different than the Japanese consumer, in that here in the U.S. we spend, spend, spend, and in Japan they save, save, save, but something happened along the way to the U.S. consumer, it has “tapped out” … And now the spend, spend, spend, scenario is a pay the interest on the loans scenario, but still different than the save, save, save mantra for the Japanese. Unfortunately, this scenario for the U.S. consumer is far worse than the Japanese scenario, which is save, save, save. And so now I believe we’re turning into the cousin Eddy to the Japanese…

But like everything else… the end result is up in the air until… well, we get to the end! So, we could sit here and do nothing and wait for the end to happen, or we could diversify our investment portfolios using currencies and metals, and then sit back and do nothing! I’m turning Japanese, I think I’m turning Japanese, I really think so… – The Vapors, circa 1980…

Chuck here… I hope you enjoyed that trip to the soapbox for me… I just had all that on my chest and had to get it off of me!

Currencies today 5/24/17… American Style: A$ .7475, kiwi .7030, C$ .7405, euro 1.1188, sterling 1.2970, Swiss $ .9764, … European Style: rand 12.9760, krone 8.39, SEK 8.6980, forint 275.68, zloty 3.7470, koruna 23.6332, RUB 56.46, yen 111.78, sing 1.3884, HKD 7.7887, INR 64.80, China 6.8883, peso 18.60, BRL 3.2659, Dollar Index 97.33, Oil $51.55, 10yr 2.28%, Silver $17.03, Platinum $943.85, Palladium $774.51, Gold $1,252.10, and SGE Gold… $1,270.89

That’s it for today… My beloved Cardinals lost another extra inning game, after an epic-pitching showdown last night. Of course I didn’t see it the game started as I went to bed! Had to switch my normal infusion day of Thursday to Wednesday this week, as I had made an appt. for tomorrow prior to starting my infusions again. So, I get to go to the hear doc tomorrow with “infusion confusion”, I wonder if he’ll cut me any slack? The nurses in the infusion room will be all confused when I show up today! But that’s me, always keeping things interesting, eh? And then I head west for lunch with the Big Boss, Frank Trotter, at one of my fave pizza places on earth! I’ll order a large pizza and then take a lot of it home for dinner! YAHOO! At least when Alex lived here, we could split a pizza, but now it’s just lonesome old me here… That reminds me of a song my dad used to sing by Hank Williams… Deep Purple takes us to the finish line today with their song: Highway Star… and with that I’ll send you on your way to having a Wonderful Wednesday… Be Good To Yourself!

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


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