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A Pfennig For Your Thoughts

August 28, 2018

* Currencies & metals continue to gain VS the dollar!
* U.S. & Mexico reach a “tentative agreement”…

Good Day… And a Tom Terrific Tuesday to you! Well, I hit the proverbial wall yesterday, and all I could do was sleep the day away… The chemo I’m on is making me lethargic and has me dragging the line most days. I meet with my oncologist today, and I’m going to lobby for a break… I told my good friend, Dennis Miller, yesterday that I like her a lot, but… she’s a stickler for staying the course, which means I doubt my request is going to be met with approval, but I’m going to try anyway! No baseball last night for me, so I spent the night getting caught up with the new season of Suits… Cheap Trick greets me this morning with their song: The Flame…

The currencies and metals continued to move positively VS the dollar yesterday with the euro moving higher and closing in on a return to 1.17, and Gold adding $5 on the day. The BIG NEWS yesterday was about the “tentative agreement” with Mexico… But here’s something that seems to be a reoccurring theme… There was no signed agreement… And Where’s Canada with this “tentative agreement”? Is this “NAFTA Light”?

But the media was excited to report the agreement, and make it sound like it was in a signed agreement, but we now know that it wasn’t… But a country’s word is supposed to mean something, right? I just can’t help but think that this goes the way of N. Korea’s denuclearization… Recall that was an agreement by N. Korea to denuclearize but nothing was ever signed… And have we heard any word about this denuclearization since the meeting of the leaders from the U.S. and N. Korea in Singapore earlier this year? I’m just saying…

But let’s just say the agreement is in stone, and the U.S. is good with it. That means the U.S. received some wins in trade… And that’s a good thing, right?

So, getting back to the currencies and metals, the traders of these asset classes didn’t seem to care what was happening, and continued to focus on Fed Chairman Jerome Powell’s Jackson Hole speech where he turned from a hawk to a dove… Well, at least he sounded dovish, and that was all the traders needed to change their sentiment from buying dollars to selling dollars.

The Dollar Index, fell to a level that it hadn’t seen in 3 weeks, and hit it’s 50 day moving avg. (DMA),,, Will we ever see a long trading trend again?

As I’ve explained many times in the past, but will do so again here for new readers… Currencies, historically, traded in long sweeping trends… for instance when Nixon took the dollar off the Gold standard in August 1971, the dollar began a weak trend that lasted 7 years, and then a strong dollar trend began, and ended with the Plaza Accord in 1985. And so on… The last strong dollar trend began with the uncovering of debts in Greece in 2011, and appeared to have ended last June when the currencies began to put together an impressive move VS the dollar..

That led me to believe that a new weak dollar trend was beginning, which would have meant that the dollar would be weak for anywhere from 7 to 10 years… Now, a trend can have volatility, and that’s what I thought we were seeing a couple of months ago, but historically these bouts of volatility never lasted for more than a few weeks… And then the weak underlying trend would return. There was one exception, but it had extenuating circumstances. In 2002, a weak dollar trend began, but in 2005, there was a tax amnesty signed that allowed U.S. corporations doing business overseas to return their profits at a reduced tax rate, and that supported a dollar rebound that last the whole year, but once the deadline for the tax amnesty ended on 12/31/05, the dollar strength ended, and the dollar returned to the underlying weak trend that lasted until 2011…

Well, that was how things went… the dollar would enter a trend based on a FUNDAMENTAL reason, and wouldn’t end the trend until the FUNDAMENTAL reason was corrected, or there was a sea change of events… So, I don’t believe I can be blamed for calling for a weak dollar trend last year, when FUNDAMENTALS no longer are used in determining trends… Not that I’m afraid to say I was wrong… I’m wrong a lot… But… oh well, you get what I’m saying here, right?

Now that was a long-winded explanation of what I’m talking about when I say when I say that FUNDAMENTALS are by-products of currency evaluation these days, it’s all about trader sentiment… with some Fundamentals thrown in to help explain their sentiment…

Over in Singapore this morning, the Monetary Authority of Singapore (MAS) has signaled a stronger Singapore dollar (S$) because inflation is rising. Singapore is one of the countries I have always liked especially because of the way they deal with fighting inflation. They use their currency. You see, currency strength goes a long way toward calming rising inflation, and I admire the MAS for their work in keeping price stability in their country!

And looky there! The Bank of England (BOE)has extended an invitation to BOE Gov. Mark Carney to extend his contract one year. I’m not sure I get what they see in this guy to run a central bank, but then that’s just me, and I’ve watched him do his thing at the Bank of Canada, and now the BOE, and quite frankly, I’m not impressed… But the folks at the BOE are, and so the U.K. economy can continue to have the Mark Carney and his bag-o-promises at the helm for another year.

The pound sterling has gained VS the dollar the last two days, but it’s not because of the BOE’s announcement. The gains have more to do with the dollar sell off that I’ve talked about…

Gold was allowed to gain $5.50 yesterday, and is up another $4 in the early morning trading today. There hasn’t been a boat load of contracts traded in recent days, which tells me the short Gold paper traders aren’t generating another takedown of Gold. Contracts traded yesterday was 211,000… A strong number, but not the 300,000 plus we see on days when the price movement is greater.

I saw an article come across my screen that talked about Russia using Gold to back their ruble, thus making it the most attractive currency on the earth. Now, this is the scenario I’ve always imagined China pulling off, but if Russia wants to go first, be my guest, be my guest, put our service to the test… HA!

The ruble sure could use some help these days, as the economic sanctions on anything Russian, has begun to weigh on the ruble… That and the overall drop in Emerging Markets Currencies that we saw begin last month with the Tariff war going on between the two largest countries, economy size-wise, haven’t been kind to the ruble..

Remember a week or so ago, I told you about the political turmoil going on in Australia? Well, it came to a head in the last couple of days, and last night a new Prime Minister was named. Now, maybe the Aussie dollar (A$) can join in with the other currencies rising VS the green/peachback…

And in China overnight, the renminbi saw the first mark down in over a week. I guess the Chinese were feeling Left Out since the U.S. and Mexico came to a “tentative agreement” on trade, and the discussions between the U.S. and China have gone nowhere. Basically, I don’t believe in my heart of hearts that the U.S. wants a trade agreement with China… I believe they want to push China to the brink of collapse, to teach them a lesson about intellectual property theft… This won’t be good for China, but it also won’t be good for the U.S. nobody wins, folks… I’m just saying…

The U.S. Data Cupboard will see something in the way of a data today, when the Case/Shiller Home Price Index prints for June… In addition, we’ll also see the color of the stupid Consumer Confidence Index. With the U.S. stock market reaching new heights and setting new records for length of time in a bull market, I doubt we’ll see Consumer Confidence wane…

To recap… The currencies and metals continue to move positively VS the dollar with the euro nearing 1.17 and Gold back above $1,200. Yesterday’s BIG NEWS was all about the “tentative agreement” with Mexico that will replace NAFTA… Nothing was signed, and that’s all I’m saying about that! Singapore’s MAS sees inflation rising, so the S$ will also be allowed to rise. Australia has a new Prime Minister, and China’s consecutive days of appreciation in the renminbi came to an end last night.

For What It’s Worth… The GATA folks sent me this article and it talks about how the anti-dollar awakening could come sooner than most realize and can be found here: https://www.cnbc.com/2018/08/27/the-anti-dollar-awakening-could-be-ruder-and-sooner-than-most-economists-predict.html

Or, here’s your snippet: “The United States is currently waging economic warfare against one tenth of the world’s countries with cumulative population of nearly 2 billion people and combined gross domestic product (GDP) of more than $15 trillion.

These include Russia, Iran, Venezuela, Cuba, Sudan, Zimbabwe, Myanmar, the Democratic Republic of Congo, North Korea and others on which Washington has imposed sanctions over the years, but also countries like China, Pakistan and Turkey which are not under full sanctions but rather targets of other punitive economic measures.

From a U.S. perspective, each one of the economic entities is targeted for a good reason be it human rights violations, terrorism, crime, nuclear trade, corruption or in the case of China, unfair trade practices and intellectual property theft.

But in recent months it seems that America’s unwavering commitment to fight all of the world’s scourges has brought all those governments and the wealthy individuals who support them to a critical mass, joining forces to create a parallel financial system which would be out of reach of America’s long arm. Should they succeed, the impact on America’s global posture would be transformational.”

Chuck Again… Yes, those payment systems that are outside the control of the U.S. are the rage these days… I dove deep into that subject of this week’s DTL piece..

Currencies today 8/28/18… American Style: A$ .7350, kiwi .6708, C$ .7755, euro 1.1698, sterling 1.2896, Swiss $1.0242, European Style: rand 14.1668, krone 8.3160, SEK 9.1135, forint 276.72, zloty 3.6515, koruna 21.9860, RUB 67.29, yen 111.06, sing 1.3627, HKD 7.8497, INR 70.12, China 6.8132, peso 18.75, BRL 4.0902, Dollar Index 94.66, Oil $68.97, 10-year 2.85%, Silver $ 15.05, Platinum $806.42, Palladium $950.67, and Gold… $1,213.33

That’s it for today… Looks like we’re going to get rained on for the next few days… As long as it stops before Saturday! It doesn’t appear that we’ll have as many folks this year for the BBQ, but no worries on my part, that just means more leftovers! Good friend, Duane, always lends a hand in the cooking and that’s much appreciated, and the folks that come bring a dish, and there’s more food than you can imagine… I always say, that’s enough food to feed a boat family! Alrighty then, my Cardinals get back on the field tonight… Gotta keep winning… Remember what I said back in April and May when they were losing so many games? Games you win in the spring are games that you don’t HAVE to win down the stretch… But they didn’t win in the spring, and so, now the HAVE to win to remain in the playoff race… Soft Cell takes us to the finish line today with their song: Tainted Love… Another 80’s song for Rick! I hope you have a Tom Terrific Tuesday and remember to Be Good To Yourself!

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