Silver Bursts Through $21. Briefly That Is.

* It’s a Risk Off Day.
* Safe havens are bought.
* Chuck talks Chilean pesos?.
* Chuck does some deep thinking.

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

Good Day. And a Tom Terrific Tuesday to you! Before we get started on this journey today through the markets, it’s Pfennig Tradition to start July with Uriah Heep. There I was on a July morning, I was looking for love. With the strength of a new day dawning, and the beautiful sun. I hope you all had a grand Independence Day Holiday Weekend! Ours here in the St. Louis area was a complete washout. But that didn’t stop me from stepping outside yesterday to sing out loud, (I don’t care who hears me!): My country tis of thee, sweet land of liberty, of thee I sing. Land where my fathers die, Land of the Pilgrims pride, from every mountain side, Let Freedom Ring. This year, being an election year, brings out the Patriot in me even more. So, now, let’s move along.

Well, while I was dodging the raindrops, and seeing the sun for about a total of 10 minutes yesterday, the rest of the world wasn’t celebrating our Independence Day Holiday, so the markets, including the commodities were open around the world. And what day it was for Silver! As the loveable Harry Cary used to say, “Holy Cow”! Silver saw a short squeeze that catapulted the metal’s price past $21 yesterday! But hold on, don’t start salivating, the price manipulators saw to it that Silver didn’t keep driving higher in price, and soon Silver was looking for a way it could lock in a gain VS the close on Friday! And it did, gaining 55.5 cents from Friday, but not nearly as strong as it could have been if the selloff wasn’t so harsh. You should see a graph of the price action on Friday, and the moment the price manipulators decided that $21 was enough!

So, that was the shenanigans that were played with Silver yesterday. Copper also had a grand day, and as I look at the currencies this morning, I see yen, and Chilean pesos as the only currencies booking gains VS the dollar! Yes, now that has to be a first for me. Talking about the Chilean peso (CLP) but the currency is so driven by the price of copper, so the rally in copper was responsible for this CLP rally. As far as yen is concerned, well, it’s another of those Risk Off Days, where there is a flight to what some traders believe is safety. And Japanese yen, is still considered a stalwart for the so-called Safe Havens. Hey, stranger things have happened over time, but not much stranger in my book than Japanese yen being considered a “safe haven”..

The flight to safety is quite evident in the 10-year U.S. Treasury yield, which fell back to its all-time record low yield overnight, of 1.375%… The 10-year Treasury’s yield had touched that level on Friday only to be see it not last, but here we are again today, with the traders of the world thinking bad things about what’s going on in the world, and Bank of England (BOE) Gov. Mark Carney, throwing gas on the fire, by saying out loud that he might have to cut rates to help the U.K. economy. Remember a couple of summers ago, when pound sterling was rallying and it was all about Carney talking about rate hikes, and I said then, and am patting myself on the back now, so bear with me here, that he was NOT going to hike rates, and his next move would be downward. So, like I’ve always said, I may not always have the exact timing of stuff, but what I say, and call for usually comes around to being fact. I just thought I would throw that out there this morning and see if sticks!

So, it’s a Risk Off Day, and the usual suspects are in the rally seats, dollars, yen, Treasuries, and Gold make up that group. Swiss francs are flat this morning to down, so they aren’t included in this group that normally includes francs. The Reserve Bank of Australia (RBA) left rates unchanged at their meeting last night, but had some cautious tone to the statement that has pinned a lot on the future developments of the economic data, which last night wasn’t very strong. Not only did Aussie Retail Sales miss their target, but the Aussie Trade Deficit widened in May posting a deficit of A$ 2.2 Billion.. So, it was a mixed day for the Aussie dollar (A$), with the markets happy with the unchanged rates, but unhappy with the data.

The euro is weaker this morning, but did you happen to see the data that has come from Spain lately? The Spanish Labor market is firming, their PMI’s (manufacturing) keeping getting stronger, and the overall confidence in the country is stronger. Hmmm, wasn’t Spain one of the countries (like Ireland) that took their austerity programs without whining and throwing a tantrums, and moved on? Why, yes they were!

Did you hear that Lois Lane died? Yes, the lady that played the part of Lois Lane, Noel Neill, died overnight at 95. As a young boy, I was in love with Lois Lane, and wanted to be Clark Kent so badly! My first crush.

OK. Back to the task at hand. The Eurozone June final Composite PMI’s were better than the flash prints and came in at the finish line at 53.1, well above the 50 level that markets the difference between expansion and contraction. The Composites are the combination of the manufacturing and Services indexes. In Germany, the Eurozone’s largest economy, the Composite PMI was 54.4. So, other countries like France, brought the aggregate Eurozone number down.. But like I just said above with Spain, their PMI’s are strong, so it wasn’t Spain that brought the average down!

The Chinese renminbi saw a larger than usual depreciation last night. Things in China have not responded like I previously thought they were. And so the Chinese recession grows longer in the tooth, and the rest of the world feels it, that’s for sure.

I tried to do some reading this weekend, while it rained and rained here, and did come across something that was quite interesting to me. And that is that I think the people of the world are finally coming around to realize that debt is bad, when it is allowed to accumulate with no way to pay it back. We have counties that have debt up to their eyeballs, Negative yields on more than $11 Trillion in Gov’t Bonds, and either ZIRP or NIRP all over the world, and let’s not forget the Trillions of dollars’ worth of derivatives out there. And it’s all going to come crashing down when the Minsky Moment hits the markets. I don’t think BREXIT was the going to be that Minsky Moment, but it could very well be a contributor. No, it’s going to come from a default, a bankruptcy, a war, something like that, and when it comes, Katy-bar-the-door, as my dad used to say.

And right on cue, a dear reader sent me an article from that talks about how Something Big is going to come from Japan. But as you read this next bit, I know that you’ll be thinking I’m talking about the U.S. and I could very well be, but I’m not, I’m talking about Japan. check this out. “Pretend, for a minute, that your country responds to the bursting of a credit bubble by borrowing unprecedented amounts of money and using it to prop up banks and construction companies. This doesn’t work, so you create record amounts of new money and push interest rates into negative territory in an attempt to devalue your currency. But this – amazingly – doesn’t work either. Your currency soars and the inflation you’d hoped to generate never materializes.

Now what? Is there even anything left to try, or is it simply time to stand back and let the current system melt down? Those are the questions facing Japan, and the answers are not obvious. Here, for instance, is its inflation rate two years into the largest major-country money creation binge since Weimar Germany.”

Crazy, I’m crazy for trying, and I’m crazy for crying, and I’m crazy for. Well, we could just about put anything there at the end of that great song, sung by Patsy Cline and written by Willie Nelson. But thinking that all this Debt, money printing, ZIRP & NIRP, and derivatives is going to all work itself out just fine, without problems, would qualify as one of those crazy ideas.

And now I read that credit from shadow lenders is drying up here in the U.S. The article was in the WSJ and talked about how the value of bonds backed by corporate, real estate, and personal loans has fallen by $98 Billion since the first half of 2015, and that has sent the U.S. shadow-banking system into a slump, with consumers, mall owners, and main street businesses having difficulty refinancing debt. Uh-oh..

OK, Chuck, come out of that rabbit hole you just fell into! Whew, back on top with the daises! I had to come out of there, I was getting all depressed and that’s no-way to start the week! Hey! Did you see the Bald Eagle that was supposed to be trained and was going to come flying in from the top of Dodger stadium, and instead just flew off and was gone? Freedom, Freedom, it even goes for Bald Eagles!

Well, Gold also climbed higher yesterday alongside Silver, gaining $8, and this morning in the early morning trading Gold is up another $8. Did you see the report that 500 Tonnes of physical Gold have been added to Gold holding since bottoming in January of this year, over rising concerns about slowing growth, no rate hikes, negative rates, and BREXIT. I think it goes even further than that. I think people like you and me, are either losing trust in the system or have already lost it, and want a different path to do down with regards to investment vehicles. When the U.S. Gov’t has control of the Treasury market like it has had since 2009, when it began its bond buying (QE) programs, and stocks looking more and more stretched, Gold gives us what we’re looking for. And with all the negative yields, and interest rates around the world Gold has never had a negative yield or interest rate!

We’ll see the color of Factory Orders for May today from the U.S. Data Cupboard, and I expect that this print will be negative. And then we go into a data-void couple of days with just 2nd and 3rd Tier data reports to print, but that all changes on Friday, when we will have a Jobs Jamboree Friday. I told you months ago that I just don’t care about this data any longer, as long as the BLS is able to make hedonic adjustment to the data. But for those of you at home that like to see what shenanigans the BLS is playing these days, the forecast for this data is a gain of 180,000 jobs in June. let’s see, school was out, and all the graduates that had to find a job, probably pushed the job gains higher in June. But remember the trend that I pointed out last month that saw the last 4 months with lower job gains each month than the previous month. Hmmm. I wonder what this month will have in store for us?

To recap. It’s a Risk Off Day, and the flight to safety is quite evident in U.S. Treasuries which have seen their yield fall to an all-time record low. Japanese yen is also being bought, which just makes Chuck want to yell at the walls, but it is what it is, and Japan is still thought to be a so-called “safe haven”. The Reserve Bank of Australia left rates unchanged last night, but added some cautious tone to the statement, and the A$ has dropped in value overnight. The Eurozone Composite PMI’s were stronger with Germany and Spain leading the way. Silver saw a short squeeze yesterday and rose above $21 briefly, before the price manipulators got ahold of the metal and brought it back down to below $20. UGH!

For What It’s Worth. Well, one of the better newspaper writers in the world today is Ambrose Evans-Pritchard, who writes for the U.K. Telegraph. And since I talked about how I didn’t think BREXIT would be the cause of the Minsky Moment appearing today, I thought that this article was a good one to follow that up, and can be found here:

Or, here’s your Snippet: “Let us separate matters. We face a political upheaval of the first order, but this is a necessary catharsis. Governments come and go. So do political parties.

We face a much more serious constitutional crisis. It is why some of us want a national unity government, keenly alert to the interests of Scotland and Northern Ireland.

As Professor Kevin O’Rourke from All Souls College argues here, most Leavers waltzed into Brexit with scarcely a moment’s thought for trauma inflicted on both sides of the Irish border. This carelessness must be rectified immediately.

What we do not yet face is a global financial crisis or a “Lehman moment”. The world’s central banks were ready for Brexit and have acted in unison.”

Chuck again. The main point of the article was to point out that while the market turmoil after the actual BREXIT result may have been overdone, it’s too soon to say whether this is the calm before the storm or not, but one thing to remember is that the U.K. while leaving the European Union, economy is intertwined with that of the EU, and so if the U.K. struggles going forward, and I believe they will, the EU will also struggle.

Currencies today 7/5/16. American Style: A$ .7477, kiwi .72, C$ .7748, euro 1.1150, sterling 1.3160, Swiss $1.0293, . European Style: rand 14.7125, krone 8.3275, SEK 8.4510, forint 284.15, zloty 3.9850, koruna 24.2760, RUB 64.20, yen 101.65, sing 1.3492, HKD 7.7577, INR 67.50, China 6.5715, peso 18.66, BRL 3.2695, Dollar Index 95.59, Oil $47.67, 10-year 1.375%, Silver $19.71, Platinum $1,057.55, Palladium $600, and Gold. $1,347.00

That’s it for today. Late again, I know! My hands have been tied though, and that’s all I can say about that! Well, we had a nice time at Alex’s 21st birthday celebration. Andrew and I attended the Cards/ Brewers game Sunday in the rain. We had our rain ponchos on, but it still was a wet one! Can you believe we’re into July and already past the 4th? WOW! Summer seems to fly by, eh? Thanks to the “team” for taking the conn on the Pfennig on Friday. That was a rough morning for me, and I’m glad I didn’t have to think until around noon! The rain finally stopped around 2 pm yesterday, and I was able to fire of the Weber and grill up some yummy chicken breasts, and Alex went home with the leftovers. Oh well, I’m not one for leftovers, for the most part. Well, it’s July, and that means at the end of this month, 3 weeks exactly, I’ll be heading out for my annual summer vacation. The Pfennig is going to be tricky at that time since Frank and Chris will be in Vancouver first, a nd then Frank heads to France, but Frank assures me it’ll be no problem. All I know is all be on a beach, with a bloody Mary in my hand and my ear buds stuck in my ears. Ok.. time to go! I hope you have a Tom Terrific Tuesday, and Be Good To Yourself!

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