The Trade War Begins…

A Pfennig For Your Thoughts

May 13, 2019

* The dollar bugs finally retreat…
* FX traders on trial, but as usual no one will go to jail…

Good Day… And a Marvelous Monday to you! I trust all the mothers out there had a grand day… I texted Alex yesterday morning (he’s in Montgomery Al. ) and asked him if he had talked to his mother yet… He finally called last night after all the other kids and grandkids left… You don’t know what you’ve got until it’s gone… Just remember that… An awful weekend for my beloved Cardinals, when they hit, they don’t pitch, and when they pitch they don’t hit… That’s a bad combination for a baseball team, for sure! And Our Blues got the Western Conference Finals started on the wrong foot, on Saturday… UGH! 10CC greets me this morning with their song: The Things We Do For Love… Like walking in the rain and the snow and there’s no place to go…

Well, Friday, came and went, and there was no Trade Agreement with China ironed out, and so a new phase of tariffs went into effect at midnight, Friday night… Have I mentioned before how much I dislike tariffs? Now, I’m not the sharpest tool in the shed, and neither are the knuckleheads at the Fed, but at least they know that tariffs aren’t good for an economy, and there were reports all over the news wires on Friday & Saturday about how the Fed will now be forced to cut rates to help offset the bad stuff that will happen to our economy…

China has already announced their retaliation and that’s tariffs on $60 Billion of U.S. goods starting June 1….

Have I told you lately how Sanctions don’t work either? All you do, as a country, is tick off people in other countries, that you might need to help you at some point in the future… Good luck with that!

So… the dollar finally gave up the conn on Friday, after the news of a non-agreement, and the stupid CPI printed… CPI (consumer inflation) only gained 0.3% in April, and it was forecast to grow at a 0.4% clip… So, another one bites the dust! And that’s not all! Core CPI, which takes out food and energy (as if we don’t use them every single day of our lives!) only grew at 0.1% and was expected to grow at 0.2%… The Fed Heads aren’t dumb enough to use CPI as their main inflation tool… For that they use the PCE (Personal Consumption Expenditures), which, I’m pretty sure is going to show that inflation is no longer at DEFCON 4, here in the U.S. and that will also give the dollar bugs reason to go hide…

My good Friend, Mike, always gives me trouble about how I make a big deal out of small moves in Currencies… I tell him all the time that the currency markets is a $5 Trillion a-day market, and that there are very large sums of money that can make even larger sums of money in the Currencies if they move just a few cents, much less the types of moves we’ve seen in the past where the dollar was in the middle of a weak dollar trend…

So, with that thought in mind… The euro gained about ½-cent on Friday… The move brought the euro back above the 1.12 handle. And the Aussie dollar (A$) gained back to 70-cents on the day… And all the currencies fell in behind these two leaders… We’re following the leader, the leader, the leader….

In the overnight markets there was some change though, as traders rethought their buying of A$’s with China ready to receive more tariffs, and the they reversed the buying and brought the A$ back to .6968 this morning.

Speaking of China… Remember when their leader stated that the Chinese wouldn’t use the renminbi as a tool to offset the tariffs? Well, even at that time of his talk, I questioned it, and was sure he was speaking with his fingers crossed behind his back… The renminbi this morning is the weakest it has been since the last time China wanted to shock the world, and allowed the renminbi to weaken to 6.81… that was 2016… And of course now… No wonder the A$ got taken to the woodshed in the overnight markets, after China posted this price for their currency!

Gold was allowed to book at $2.40 gain on Friday… to close at $1,285.80… I had a dear reader write me last week, and ask me this: “if there were no price manipulators, what do you see as the price of Gold today, and where would it go?” Well, IF there were no price games played with Gold, I would think it would be around $2,000… And once there, who knows how high it could go?! Silver would be in the same boat… Silver should be trading around $50 and once there, who knows?

I’m just one of those people that believe “the powers that be” in our country, which excludes the White House, would prefer to print money like there’s no tomorrow, deficit spend until it hurts, and basically allow the dollar to go to hell in a hand basket… At which time, Gold (&Silver) would certainly be better alternatives to the dollar, right?

And you know how I always tell you to “follow the money”? Well, since the beginning of 2018, Central Banks around the world (not the U.S. though) have been picking up large chunks of Gold, so much so that in the first QTR of this year, the buying of physical Gold by Central Banks has reached a level not seen since 2013! These wily Central Bankers know that they need something solid for their reserves, and owning dollars doesn’t seem to be what’s on their minds… I’m just saying…

OK… onto other things… The British pound sterling rose above the 1.30 level on Friday, after an upbeat GDP report, albeit very stale, printed… 4th QTR 2018 GDP grew at 1.8%, VS 1.4% in the 3rd QTR… I read a report that talked about how U.K. GDP got a boost in the 4th QTR because people thought there would be a BREXIT deal… But seeing no sign of a deal, I would have to think that the 4th QTR boost will be reversed… Be careful here…

I told you last week that the Japanese yen was seeing some so-called safe haven buying that brought yen from near 112 to just below 110 last week… Well, yen is still below 110 which is a good thing for yen holders, as it’s called a European Priced currency… It takes less of the currency to make up a dollar… These Safe haven trades are usually fleeting and don’t have the legs for a long run, so I wouldn’t put too much into the positive move that yen has made recently… Remember they have Debt up to their eyeballs, a HUGE demographics problem, and a stock market that has been in a fund for 25 years!

Well, how about that? Or Bust my buttons! But, the U.S. actually booked a surplus for the month of April! WOW! Well, shouldn’t they book one that month? (Taxes are due in April) There have been some years recently where we wouldn’t even book a surplus in April! But we did this year, but don’t let that go to your heads, Congress… it doesn’t mean that you get to add more pork and fat to the next spending bill!

On Wednesday of this week, we’re be treated to 3 real pieces of economics … April Retail Sales , and Industrial Production with Capacity Utilization… I’ll bet a dollar to a Krispy Kreme that April Retail Sales will disappoint big time, VS the blow out in March… The Butler Household Index (BHI) indicated that to me…

Until then (Wednesday that is) There’s not much in the gas tank of the U.S. Data Cupboard… So, let’s all take tomorrow off and come back on Wednesday! Sounds like a plan… And you know me… I love it when a plan comes together! HA!

To recap… No Trade Agreement means more tariffs, and the markets are backing off their feeling that an agreement was going to take place. That means the dollar is weaker this morning, as witnessed by the Dollar Index, which on Thursday last week was 97.62, and this morning it’s 97.29…

Before I head to the Big Finish today, I wanted to talk about this email I received from the GATA folks, telling me that the mega banks that had been caught with their hands in the cookie jar, regarding FX manipulation were going to trial…

I remember when this story first hit the streets a few years ago, I was still the President of EverBank World Markets, and our legal guy, Tom, called and wanted to talk to Frank and Chuck about this story that the foreign exchange (FX) markets were rigged… We assured him that we were free and clear of this, and since the FX market was a $5 Trillion a day market, we doubted that the rigging would turn out to be much… Well… skip forward to yesterday, when the GATA folks sent me this clip from a news story: BRUSSELS, Belgium — Barclays, Citigroup, HSBC, JPMorgan, and three other banks are set to be fined by European Union antitrust regulators in coming weeks for rigging the multi-trillion dollar foreign exchange market, two people familiar with the matter said.

The other three lenders are Royal Bank of Scotland, UBS, and a small Japanese bank, the people said. The banks will see a 10 percent cut in their fines for admitting wrongdoing.

WOW! And then not wow! Wow that they got caught and will have to pay a fine, but not wow, because no one, and I repeat no one, will go to jail… Shame, shame, shame…

For What It’s Worth… Well, I’ve been the boy who called wolf many times, only to eventually see that wolf… In this case it’s the leveraged Corp loans that I’ve been pounding on the desk about for over a year. And now, the guy that was made famous by the movie: The Big Short, Steve Eisman, was heard talking about these leveraged loans, and you should here what he has to say about them. And you can read it here: https://www.marketwatch.com/story/a-us-recession-will-knock-this-asset-class-hard-says-steve-eisman-of-the-big-short-fame-2019-05-09?mod=MW_section_top_stories

Or, here’s your snippet: “We’re switching gears this morning with our call of the day, from Steve Eisman, a hedge-fund trader who gained prominence for his successful mortgage bets during the 2008 financial crisis. He’s back with more advice in a Bloomberg interview where he pounds the table over corporate debt, which has been a popular subject lately.

In the interview, Eisman says the center of pain for the next U.S. recession will trigger “massive losses” for high-yield or junk bonds, and those rated triple-BBB corporate bonds — just one step higher from those low-grade bonds.

Eisman says the problem is there isn’t enough liquidity — that is, how fast an investor can sell that bond and at a decent price. Traditionally, high-yield bonds tend to be less liquid because they are a riskier securities, with fewer investors willing to take on that risk.”

Chuck again… Do you know how many people thought this guys was nuts, leading up to the housing debacle of 2007/08? No one would listen to him that the mortgage backed bonds were not as solvent as the ratings agencies would have you believe they were, and he was eventually proven to be correct… He also made Semi Truck loads of profits on the shorts he placed on the housing industry…

Currencies today 5/13/19 American Style: A$.6968, kiwi .6580, C$ .7437, euro 1.1233, sterling 1.3015, Swiss $.9923, European Style: rand 14.2815, krone 8.7317, SEK 9.6390, forint 288.09, zloty 3.8315, koruna 22.9417, RUB 65.04, yen 109.63, sing 1.3685, HKD 7.8486, INR 70.60, China 6.8183, peso 19.20, BRL 3.9557, Dollar Index 97.29, Oil $62.33, 10-year 2.41%, Silver $14.66, Platinum $855.10, Palladium $1,3333.55, and Gold… $1,286.00

That’s it for today… A real nasty weather-wise weekend here in the St. Louis area, nothing but chilly air that was full of rain! UGH! Braden spent the night with us Saturday night. He’s into playing chess… But he wants to play it by himself… You’ve got to be pretty sharp to do that! Braden is very excited that he’s going to be a Big Brother in Rocktober… We’ll find out the gender in two weeks, as the new way to find these things out is a gender reveal party… Hey, I’m just the messenger here! Our Blues are back on the ice tonight, hopefully they find their skates in time for the game, because in Game in, they sure didn’t have them on! The Electric Light Orchestra (ELO) takes us to the finish line today with their song: Can’t Get It Out Of My Head… I hope you have a Marvelous Monday, and please Be Good To Yourself! Let’s Go Blues!

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