Season’s Greetings As Only Chuck Butler Can

As Gomer Pyle used to say: “Surprise, Surprise, Surprise!” Yes, it’s me! The powers that be have asked that I be your editor for the Daily Pfennig® newsletter today, which is the Sunday before Christmas. So, grab a cup of hot coffee or hot chocolate and settle down for a not-so-long winter’s tale from me.

When I was a young boy, Christmas was a magical time for me, when all the troubles of growing up in a large family (I had 6 siblings) in a low- to middle-class neighborhood, and wearing hand-me-downs and cramped living arrangements became a thing of the past – at least for a few days. As I grew older, I realized that the magic was my dad working even longer hours than he already worked to provide a wonderful Christmas for his family. My dad was a truck driver, as well as the union steward for the Teamsters 500 in St. Louis. Growing up, there were so many times that the union would be on strike that we had to rely on food stamps. That’s right; I was once a food stamps beneficiary.

It was then that I decided that I would never again be on the receiving end of food stamps – ever. To me, it signaled weakness. Now, I understand completely how many people today have to be on this program, but I also understand that many do not and I wonder if they ever were embarrassed like I was to go to the store with my mother and have her pull out the food stamps. So much so, I started refusing to go with her. It turned out to be my loss because my mom would always make sure I got to pick out a piece of candy for helping her carry the bags home.

The Many Faces Of Change

Times have really changed from those days on Wyoming Street in South St. Louis. The world around me was dangerous: first the Cold War, the Cuban Missile Crisis, JFK’s assassination, riots, the union strikes and, eventually, the Vietnam War. But, from my front porch, where on nearly every summer night, I would sit with my dad and siblings or friends from the neighborhood and listen to our beloved Cardinals games on a transistor radio, I thought I was safe and there was nothing that could upset my applecart. For the most part, I was unaware that these things were going on. And, if I was aware, I refused to allow them to dominate my thoughts, which were, instead, dominated by baseball, riding my bike, playing football, and playing with my friends.

Today’s world is very much like those days of my childhood. As a country, we are still fighting wars, a new Cold War is developing, Iran is developing nuclear weapons, the U.S. has gone from a creditor nation to a debtor nation in a very big way, the Middle East is kindling waiting for a match, the government could be shut down at any time, identity theft continues to rise, and so on and so forth. The biggest problem facing U.S. citizens is the debt we’ve accumulated, and the debt we will accumulate as more and more wars are fought and people grow older.

And, like that young boy who felt so secure sitting on his front porch or basking in the magic of Christmas at the Butler house, many people today – young and old – feel secure, not because they are unaware of what’s going on around them, but, instead, because they refuse to read the tarot cards any longer and put two and two together.

It’s all there in Technicolor as they used to say: the debt, the unfunded liabilities, the 10,000 “Baby Boomers” retiring every day for the next 15 years, and so on, but do investors heed the warnings? No. Instead, they choose to throw caution to the wind with their investments and choose not to diversify.

Of course, you dear readers of the Daily Pfennig® newsletter choose to diversify. Otherwise, you wouldn’t be reading this letter. But, could you do more? And, by that, I don’t necessarily mean buy more, but talk to people and relate to what I’ve said about how the dollar has lost purchasing power, and a loss of purchasing power is like a tax, and that one of the best ways to potentially offset this loss is to diversify with currencies and metals.

And, yes, I realize that right here, right now, it just doesn’t seem like it’s worth it to diversify, given both U.S. stocks and the dollar’s strength. The Dollar Index, which is a pulse of the dollar’s international value versus six major currencies, has the euro holding the largest weighting at 57%, yen 13.6%, sterling 11.9%, Canadian $/loonie 9.1%, Swedish krona 4.2%, and Swiss franc 3.6%, has reached a level of 100 a couple of times, after spending most of the last 12 years in the mid-80 range.

Tick, Tock Goes The U.S. Debt Clock

But we’ve seen these bouts of dollar strength quite a few times in the past 13 years of the current underlying weak dollar trend. And, this bout of dollar strength may very well live up to the calls that it was a strong dollar trend that began four years ago. With the debt levels the way they are in the U.S., and the unfunded liabilities being what they are with all the baby boomers retiring at the rate of 10,000 every day, one would think that the current dollar strength would be short-lived. In essence, what it does is give investors of currencies and metals cheaper levels to buy. Take a quick look at the U.S. Debt Clock. Look at those unfunded liabilities and ask yourself, “How are we going to pay for that?”

Source: The above chart is for illustrative purposes only and shows the national debt as of 12/18/2015. For an up-to-the-minute amount of the national debt, go to the website.

So, that’s my gift for you this year – lower currency and metals prices! HA! Hey, I was beating my brain to a pulp trying to figure out what to get you this year! And, then I saw this Dollar Index thing, and I did the V-8 forehead slap. I do realize that most of you already have some currencies and metals and are questioning why I would think you would want more. But, think of it this way: It’s a dollar cost averaging thing.

I actually would like to give everyone I know some gold this year, but heavens to murgatroid, we all know that is financially impossible. But, that’s what the U.S. is doing, sort of. Countries around the world are repatriating their gold from the U.S. vaults. During World War II, many European countries and countries around the world shipped their gold reserves to the U.S. to hold in safekeeping away from the Nazi army. Now, after all these years, countries like Germany, The Netherlands, Venezuela, and Belgium have either begun to repatriate, or have repatriated their gold from the U.S. I believe this will continue to take shape with other countries joining in with their requests to repatriate.

Why would they do this now? Well, perhaps they see things disintegrating in the financial world and want to make certain they know where their gold is. In the Daily Pfennig® newsletter, I’ve chronicled the amounts of gold that countries like China, Russia and India have added to their reserve. China, for instance, is now thought to have over 11,000 tonnes of gold in reserves. That’s more than the amount the U.S. is reported to hold. Central Banks are diversifying with metals holdings; do they know something we don’t? Even if they don’t, they have become more prudent in increasing their gold holdings. But, are they telling us something? I do believe they are, for those of us that prefer to listen.

The Gift Of Diversification

So, back to the other things I have to say before we begin to unwrap presents and go to midnight services! Getting together with family & friends at this time of year is always very special to me. Also special are traditions like going to my darling daughter Dawn’s school room and reading the classic “T’was the Night Before Christmas” to her class, or gathering the kids, and now grandkids, on Christmas Eve and reading that same story to them. These were things that were important to me, but as everyone gets older, they seem to fade away.

And, I think that the need to diversify by some individuals seems to fade away, too. But, like those old friends whom we cherish and love to share a Peppermint Mocha Latte with or enjoy an adult beverage and talk to about life, they come back into focus quickly and the need to keep them close to you is important once again.

And, so this brings me to the end of this winter’s tale. It was a tale of how we as consumers here in the U.S. have become so sure of this economy and have returned to our youth, when all the things going on around us meant nothing to us at the time. It’s a tale of how we can’t let go of that need to diversify, just like we can’t let go of cherished family and friends. I hope you like your gift this year; I really went out of my way to think of the perfect gift for so many people. And, don’t lose sight of the ball, folks.

As I explain every year, I celebrate Christmas. And, in doing so, I talk about it with hopes that I do not offend anyone. I’m not a “Happy Holidays” kind of guy. I’m a “Merry Christmas” kind of guy and, if someone replies to me, “Happy Hanukkah,” I say, “Thank you!” So, I leave you with some lyrics to the famous song by Johnny Mathis, and repeated by everyone and their brother this time of year:

“And so I’m offering this simple phrase to kids from 1 to 92, although it’s been said many times, many ways, Merry Christmas, to you.”

And, a Happy New Year, too!

Until the next Daily Pfennig® edition…

Chuck Butler
Managing Director
EverBank Global Markets Group