Pardon Me Mr. Kaplan, But Didn’t The Fed Cause This Problem?

A Pfennig For Your Thoughts

March 7, 2019

* Despite tariffs, The Trade Deficit explodes higher!
* Currencies and metals trade in very tight ranges on Wednesday…

Good Day… And a Tub Thumpin’ Thursday to you! Well, it looks as though we will get to have spring-like weather another day here today, before the heat returns for the weekend, and the coming week. My beloved Cardinals beat the evil empire, the Yankees yesterday in Spring Training in Tampa. I kid about the Yankees being the evil empire, because, well, that’s what I was taught as a kid… That the “coast teams” were never to be trusted and always rooted against! My dad was a Midwestern farm boy, who never trusted anyone that wasn’t from Missouri! So, he was no fan of the Yankees, and therefore I wasn’t either! HA! Jack Johnson greets me this morning with his song: Drink The Water…

Well, after Tuesday’s whacking, the currencies traded in tight ranges yesterday, with the euro remaining above 1.13 as the day went along. I told you yesterday that Australia had received some softer than expected growth numbers, and the Aussie dollar (A$) was getting whacked, but the A$ staged a comeback of sorts yesterday, when the U.S. data didn’t look so hot… In fact there were a couple of bricks added to the wall yesterday, so let’s stray from our normal pattern and get right to the data yesterday, because well, it sure doesn’t print a pretty picture…

Front and center, we had the ADP Employment report for February, and it showed that 183,000 jobs were added during the month… Now, in my book, this is the employment data that we should use and NOT the data that the BLS serves us each month… So, is 183,000 jobs created in February good or bad? Well, it’s certainly not the 300,000 jobs ADP said it created in January, now is it? So, it’s not bad, but it’s not good… Moving on we find the Trade Deficit…

Here’s where the going gets sticky, folks… Remember that we started a trade war with China because the Trade Deficit had been out of control for decades now… Well, even with the tariffs added to Chinese goods, the December Trade Deficit was more than $59 Billion dollars! And for the year 2018, the Trade Deficit soared to a $891.2 billion merchandise trade deficit, the largest in the nation’s 243-year history. The trade gap with China also hit a record $419 billion….

As you can imagine, and not very long either, the media is not allowing this data to slip under the covers of darkness, because it makes the President, who uses the Trade Deficit as a guage to tell how American exports are being treated in other countries, look bad… I’m just saying… That’s what I’ve viewed and that’s how I see it… no excuses from me!

The President tried to head this news, about the Trade Deficit, off at the pass this last weekend by talking about how the strong dollar is hurting exports… While he’s correct in that statement, it’s not all that plays into the Trade Deficit… The playing field is not even, folks… Here in the U.S. workers demand higher wages, with benefits and pensions, etc. So, it should come as no surprise that American Goods cost more… And that plays more into what causes the Trade Deficit than most people even stop to think about…

But look at Germany… Here we have a country that has to deal with high wages, benefits, etc. like U.S. workers, and they have to deal with a currency that’s even stronger than the dollar, but… They lead the Eurozone and most of the world in exports… Why? Value of their goods… If you make something of value, that other people want and demand, you can get away with charging higher prices… I would say, that’s a lesson we could learn, but… I would need to schedule a flight on a pig over town if we did!

And finally, Factory Orders for January gave us a head fake, and refused to print yesterday, so we wait for the January report to be massaged by the bean counters, before being presented to the public…

I read on Bloomberg last night that the recent data from the Oil reserves showed a glut of reserves, and the headline title on Bloomberg.com said, “Oil weakens on supplies worries” So, I went to check the price of Oil to see just how badly the price of Oil had weakened… And when I got to the screen that showed the price, I found that the price of Oil had not weakened at all, and in fact it was up about 40-cents in the past 24 hours! Those wild and crazy guys at Bloomberg, throwing me a curve!

All in all it’s just another brick in the wall… Family Tree, which owns Family Dollar stores announced yesterday that they were closing 390 Family Dollar stores here in the U.S. OK, this is significant folks, think about this for a minute before you shrug this off… When the economy slows, consumers usually switch to the Walmarts, and dollar stores… But what is the economy telling us when the dollar stores are closing? Uh-oh! Better call Maaco!

So, speaking of the slower than expected Aussie GDP, for those of you keeping score at home, the figure was 1% growth… But it’s not just Australia having problems, folks… Yesterday the OECD joined the IMF in slashing its 2019 global GDP forecasts from 1.8% to just 1% and warning the “outcome could be weaker still if downside risks materialize or interact.”.

I’ll just point something out here… 1% global growth means that there will be countries with negative growth… (did I just say the U.S. out loud?) Oh, and one more thing… 1.2% is the growth rate of the population of the world, which means that economic global growth will be less than the population growth… Can you say, that’s unsustainable? I knew you could!

OK, this next paragraph is going to get my dander up Big time! Fed Head Kaplan, was out on the road again, speaking to whomever would listen to him, and this is what has me up in arms… Kaplan said that the reason the Fed Heads are pausing the rate hike cycle is because of the concerns with Corporate Debt… Well, Mr. Kaplan, would you like to take any of the blame for Corporate Debt being so large and uncontrollable? Why not? For it was the Fed that cut rates to zero, held them there for nearly a decade, and implemented 3 rounds of bond buying, and 1 round of something called Operation Twist and Shout! THIS is why Corporate Debt is so large and uncontrollable! You set the table and invited the Corporations to dinner, Mr. Kaplan, and the Corporations came to eat dinner, now you can’t complain about the mess they made at the table!
I’m so mad, right now… To think that this guy takes no blame for this mess just gets my goat! UGH!

Today’s U.S. Data Cupboard, has the stupid 4th QTR Productivity report, which will show us that Productivity dropped in the quarter to 1.8% from 2.2%… We’ll also Unit Labor Costs for the 4th QTR, which given all the reports that wages have grown recently, should show an increase in Labor Costs, which is a good and bad thing… Good for the worker, bad for the inflation numbers.

Tomorrow, we’ll see the February Jobs report at the Jobs Jamboree thrown by the BLS… (Bureau of Labor Statistics) I prefer to leave out the “L”, when I refer to them! HA! And for once in a blue moon, I think the ADP report will be in line with the BLS report, which will mean a large reduction in jobs created from month to month…

I know, at this point, you’re wondering if I’m ever going to talk about Gold today… Well, wonder no more! Gold lost $1.90 yesterday, in a ho-hum day of trading that saw less than 200,000 contracts traded… The $1.90 loss brought Gold to a low price for this round, which could be significant…

What I’m saying is the price manipulators take Gold & Silver down to a level, the cash in their shorts, and then allow the metals to move higher until they reach a point that the manipulators enter the market with their arms full of short paper trades, and then systematically take the price back down so they can collect their profits… But, yesterday, I told you that the GATA folks had a memo that explained how the COMEX and the LBMA were out of physical metals, and therefore they wouldn’t accept anymore paper trades… Hmmm… So, if yesterday was the low… wink, wink…

A dear reader asked me to talk about the old ratio of 16:1 for Gold to Silver… this figure was blasted out a few years ago, and I just don’t see it as relevant going forward… However, I do believe that once the metals get on their rally horses for a long ride, that Silver will outperform Gold on a percentage basis… And that ratio might come back into play, but by no means will it be the anchor it once was…

To recap… Still no Trade Agreement, Still no traction with tariffs, as witnessed by the December Trade Deficit that was a “blown out of the water” number! The yearly Deficit in Trade was a record! Global Growth is faltering as we watch… Chuck takes the paddle to a Fed Head, and the currencies and metals trade in very tight ranges on Wednesday.

For What It’s Worth… In perusing Bloomberg last night, I came across an article that was FWIW worthy, that plays well with the debt reports in the sandbox, and can be found on Bloomberg.com

Or, here’s your snippet: ” U.S. credit card debt hit $870 billion — the largest amount ever — as of December 2018, according to the data from the Federal Reserve. Credit card balances rose by $26 billion from the prior quarter.

“The increase in credit card balances is consistent with seasonal patterns but marks the first time credit card balances re-touched the 2008 nominal peak,” according to the report.

Nearly 480 million credit cards are now in circulation — up by more than 100 million since hitting bottom after the recession a decade ago.

At the end of last year, credit cards were the fourth-largest portion of consumer debt in the U.S. after mortgage, student loan and auto debt. But the quarterly increase in credit card debt was faster than the other categories. Overall debt reached a record $13.5 trillion.

About 37 million credit card accounts had a 90+ days delinquent mark added to their credit report last quarter, an increase of about two million from the fourth quarter of 2017. These 37 million accounts hold roughly $68 billion in debt that is 90-plus days delinquent.

In aggregate, credit card limits rose for the 24th consecutive quarter, with a 1.5% increase in the fourth quarter of 2018.”

Chuck Again… Debt is everywhere folks… The problem with credit card debt is that it is so darn difficult to pay off, and eventually the holder just cuts up the card, or one day the cashier doesn’t give it back and that debt gets written off, causing the next person to apply for a card to pay even higher interest rates to pay for the debt that was written off… It’s a vicious circle folks…

Currencies today 3/7/19 American Style: A$.7048, kiwi .6790, C$ .7478, euro 1.1315, sterling 1.3150, Swiss $.9960, European Style: rand 14.3340, krone 8.6648, SEK 9.3315, forint 278.74, zloty 3.8005, koruna 22.6233, RUB 65.85, yen 111.70, sing 1.3571, HKD 7.8495, INR 69.91, China 6.7078, peso 19.30, BRL 3.7918, Dollar Index 96.82, Oil $56.66, 10-year 2.66%, Silver $15.11, Platinum $826.11, Palladium $1,545.59, and Gold… $1,286.62

That’s it for today, tomorrow, and this week… The Sunrise this morning has sun’s rays coming through the clouds, and looks very cool… OK, visitors begin to arrive and the weekend will be filled with baseball games and conversations! Not much going on today though… no baseball, but the weather will be warmer… In 9 days, Delaney Grace and Everett will be here, along with their parents of course! I miss their hugs! Saturday, I do believe is my good friend, Martini Gus’s, birthday! Happy Birthday Gus! Drink a martini for me! The Beatles takes us to the finish line today with a song from their acclaimed album, Sgt. Peppers Lonely Hearts Club Band, titled: With A Little Help From My Friends, which Joe Cocker redid at Woodstock, and people fell in love with the song all over again! I hope you have a Tub Thumpin’ Thursday, and continue to Be Good To Yourself!

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