The “Trading Shutdown” Gets Uprooted!

A Pfennig For Your Thoughts
October 28, 2020
* No movements yesterday, but major moves overnight
* Chuck does some math for you… Better check his work! HA 
Good Day… And a Manfred The Wonder Dog Wednesday to you! Man what a treat yesterday, having little Evie here with us for the day! We played “I see you”, and she was all over the place now that she walks… She has the cutest smile, that she can show off, whenever, you least expect it! Now, I guess, I’ll have to wait until she begins to talk… I can always get her laughing when she picks up her monkey, and I make monkey noises… Now, she does her own monkey noises… So funny! The O’Jays greet me this morning with their song: Back Stabbers… Whenever I hear this song, I’m reminded of the one back stabber I ran into in my life in business… Grudges never die!
And neither do old rivalries… Ok, to set this up, Roosevelt H.S. (my school) and Southwest H.S. were about 5 miles about, and we were like Mizzou/ Kansas in the dislike we had for each other… So, a few years ago, I came out of the grocery store and there was a man sitting at a table full of cook books, and he said, “ Would you like to buy a cook book written by the mothers of Southwest H.S.?” I said, “I wouldn’t touch that with your ten foot pole!” and he yelled, “You went to Roosevelt didn’t you?” Old rivalries never die…
OK… Well, that supposed “Trading shutdown” disappeared in the overnight markets last night… The European Central Bank (ECB) got things started by announcing more stimulus for the Eurozone economy, but held interest rates at their current negative level. This news sent the euro to the woodshed, and the rest of the currencies got sold too. Gold has given back over $20 this morning, and things just look like there’s something else going on that’s not fundamentals trading… 
According to Kitco, this morning, Gold’s $20 loss so far today consists of $9 of loss due to dollar strength, and that leaves $11 of loss to “sellers”… And we are expected to believe that Gold owners lined up this morning to sell their Gold because the ECB left rates unchanged? Give me a Break! This smells like, walks like, talks like and looks like a classic example of the price manipulators piling on to Gold’s losses, with short sales, to make it look as though the whole shootin’ match of losses is because of dollar strength… 
In yesterday’s trading, the dollar got sold, the euro rose, and Gold did gain about $5 on the day to close at $1,908… I went to bed last night, after watching the World Series come to an end with the Dodgers victorious, and everything was looking good… But then came the news, early this morning, that the dollar bugs were buying dollars, because the ECB left rates unchanged… My goodness, what the heck happened here? 
I’m just not buying the thought that because the ECB left rates unchanged that everything but dollars is getting sold? Come on… I didn’t just fall off the turnip truck! I’m going to stop talking about this because I’m really getting all keyed up, and I might say something that gets me into trouble with you dear readers! 
There was one piece of news yesterday that really had me taken back on it’s content… Seems, the Chinese are getting very sticky with who they’ll do trade business with… Remember when China’s boom was going on, and they took any and all exports of raw materials from Australia? Well… the news yesterday is that the 3 major Chinese ports were instructed to Not Accept Any Australian Coal shipments, even if the trade has been previously concluded… There has to be a reason for this change of horses in the middle of the stream for the Chinese…
Seems the Australian recently called for an investigation regarding where the COVID-19 virus originated… And The Chinese went all Tump on the Aussies, boycotting all Australian imports by China… Yowsa! Are you kidding me? Ok, Chinese you’ve got to learn that “sticks and stones may break my bones, but words can never hurt me!” I’m just saying.. .
The news didn’t faze the Aussie dollar (A$), as it remained above 71-cents throughout the day , but has gotten caught up in the dollar buying this morning., and has lost about 1/2 cent… One would think that it would hurt the A$ in some way… 
Ever since our Marvelous Monday, when I listed the economic prints due this week, and mentioned the 3rd QTR GDP, I’ve been thinking about how to talk about this when it happens tomorrow… You see, what I’m talking about is the idea that 3rd QTR GDP will have gained 30%… I know that the dollar bugs will react as though things are getting better, and the economy is out of the woods… But, cooler heads should prevail here… And realize that when something goes down 30%, when it comes back 30%, it doesn’t bring the something back to the original point… 
Here’s the math… Say you own a stock that you bought for $100, and it loses 30%, that brings the stock’s value down to $70… but then it reverses and comes back 30%… You’re still down… Because 30% of $70 is $21, which makes your stock now $91… See? See how this works? 
Well, transferring this math over to GDP… Even if the 3rd QTR GDP does come back 30%, it will still be more than 4% below its level at the end of 2019… And that would be more than the farthest the economy ever was from its prior peak in the Great Recession.  
So, will traders take the time to do the math, so to speak? Nah… they think that they don’t have time for that, and 30% is 30%, and that’s good! Well, it is “good”, but does not totally reverse the rot on the vine …  I got some of this information from the Brookings Institute, which you can Google and go to… So, are you going to argue with the Brookings Institute? I didn’t think so… 
The U.S. Data Cupboard had some surprises for us yesterday… Sept. Durable Goods and Capital Goods Orders were stronger than expected, and that surprised me… Of course, the CAPEX (Capital expenditures) was not as strong as it should be, but it was stronger than expected, so I’ll give it 1/2-credit…  The Case/ Shiller Home Price Index, shot higher in August to a 5.75% increase VS 4.8% increase in July… This one didn’t surprise me, one iota… And the Stupid Consumer Confidence Index slipped a tiny bit from 101.3 to 100.9… 
To recap… The supposed “Trading shutdown” got uprooted in the overnight markets last night.. The ECB left their negative rates unchanged, and that sent the euro to the woodshed, where it dragged all the other currencies, and Gold is getting sold this morning by more than $20… Chuck isn’t buying the thought that the ECB leaving rates unchanged caused all this damage… The Chinese are boycotting Aussie coal imports, and Chuck does the math, on GDP… You won’t want to miss that! 
For What It’s Worth… Talk about timing! Yesterday I talked about China’s renminbi/ yuan and how I viewed it as a currency to be reckoned with going forward. And lo and behold, the Good Folks at GATA sent me a link to an article about how the renminbi is not ready for prime time… And it can be found here:
Or, here’s your snippet: “The yuan is higher than it has been in more than two years, and foreigners are suddenly showing interest again in holding the Chinese currency.
Earlier in the decade Beijing brought the yuan into the spotlight through an aggressive effort to take the currency overseas through swap agreements with foreign central banks and offshore bond issuances denominated in the currency.
This time foreigners are coming to China to get yuan. Chinese assets stand out at a time interest rates in much of the world are at zero or below and many currencies are sagging. Beijing has meanwhile been making access easier for foreign buyers.
Yet for all Beijing’s ambitions of cracking the hegemony of the U.S. dollar in the face of Trump administration sanctions, the yuan still has a long way to go. While this week’s meeting of the Communist Party Central Committee looks likely to take up the cause of yuan internationalization, the currency will not be taking the greenback’s place on the world scene any time soon. …
What all this seems to imply is that China is indeed fully aware of the risk of conducting most of its international trade and investment transactions in dollars and of holding most of its foreign assets in dollars. The way to reduce this dependence, beyond diversifying into use of other foreign currencies as has also been happening, is to boost the yuan. …
Available data suggests that after plunging abruptly in 2015, international use of the yuan started to recover just last year. This year, foreigners have been snapping up yuan to put into domestic Chinese bonds and stocks, with holdings of such bonds alone rising by more than a quarter to 2.8 trillion yuan ($419.3 billion).
It goes without saying that the general weakness of the dollar since the COVID-19 pandemic began pounding the U.S. economy in March has been a blessing for the Chinese authorities’ attempts to attract inflows, boosted by the juicy interest rate differential between the two nations’ benchmark government bonds.
Looking deeper into current international use of the yuan, trade settlements in the Chinese currency have slightly picked up since last year, especially in services transactions.”
Chuck Again… So… I was wrong about the timing… But will I be wrong about the ultimate goal for the renminbi? Only Time will tell… eh?
Market Prices 10/28/20: American Style: A$ .7075, kiwi .6658, C$ .7536, euro 1.1725, sterling 1.2952, Swiss $1.0971, European Style: rand 16.3853, krone 9.3480, SEK 8.8415, forint 313.03, zloty 3.9453,  koruna 23.3827, RUB 76.72, yen 104.36, sing 1.3647, HKD 7.7499, INR 73.72, China 6.7051, peso 21.31, BRL 5.5447, Dollar Index 93.50, Oil $37.72, 10-year .76%, Silver $23.93, Platinum $868.00, Palladium $2,289.00, and Gold… $1,888.10
That’s it for today… Congrats to the Dodgers for winning the World Series… It just shows to go ya, that Money Can Buy You Love, I mean a World Series! So, LA has the baseball and basketball champs… Money, money, money… Ok, enough of that! I got a decent night’s sleep last night, so I’m back to normal… Thanks to all you dear readers for listening, and not filling my Pfennigs Replies box with emails telling me how awful a person I am regarding my take on the virus testing. I did get a reader who asked me what “that” had to do with markets and economies… Oh well, maybe from now on I’ll keep this letter to just about markets and economies…. Nah! it’s my letter, and I’ll talk about what I want to talk about! George Harrison takes us to the finish line today with his song: While My Guitar Gently Weeps… For those of you who don’t know, Eric Clapton did most of the guitar work on that song… This of course was before Eric began courting George’s wife… And so on….  I hope you have a Manfred The Wonder Dog Day today… And will continue to Be Good To Yourself!
Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts