The U.S. Consumer Is Financially Fragile!

* Dollar drifts .
* Gold tries to bounce back this morning! .
* Aussie CAPEX is mixed.
* BOC leaves rates unchanged..

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

Good Day. And a Tub Thumpin’ Thursday to you! I’m really not in the mood to be Tub Thumpin’ right now, but who knows about later? Maybe I’ll make a comeback of sorts! Our Blues ended their season last night with a loss, and were bounced out of the Conference Championship, and the Stanley Cup. The Blues made a strong playoff run this year, that fell short. UGH! There’s always next year! Cat Stevens greets me this morning with his perfect song for the morning. Morning Has Broken.

Whew! There were no Fed speakers yesterday. I almost feel lost without them. NOT! And the dollar, without the Fed speakers spewing words about a rate hike couldn’t find any traction, and drifted throughout the day and in the overnight markets. A lot of the currencies look to be trading in the same clothes as yesterday, and then we have the Aussie and New Zealand dollars of the world booking gains in the face of not so good data. I know, things are getting very strange again, with the reasons for these rallies or selloffs.. I say, just take them for what they are and move along, for we all know that fundamentals haven’t been a part of the equation for a long time now, and when they return is anyone’s guess..

No wait! There was one Fed speaker, Kaplan, but his talk was the same-o, same-o, and I think the markets are getting tired of hearing it.. They want to hear from the “The Voice” (apologies to the TV show, but I think my use of it works out better!), Janet Yellen speaks tomorrow, and her speech is a highly anticipated one that could set the June Fed meeting in motion for a rate hike, or it could turn all the recent rhetoric to one hit wonders, and send them packing..

On a sidebar. My XM radio ran a special station recently for “one-hit wonders”. I was surprised at how many there were!

The price of Oil remains just a stone’s throw from $50, that’s on the West Texas Intermediate (WTI) that we follow. Brent crude has passed $50 for the first time in 6 months and the last time it was at $50 is was going down instead of going up! And the usual suspects of Russian rubles, Norwegian krone & Canadian dollars/ loonies, are all on the positive side of the ledger VS the dollar today.

Speaking of loonies. The Bank of Canada (BOC) met yesterday, and left everything unchanged, and BOC Gov. Poloz didn’t take the press conference as an opportunity to talk about how he was concerned about the strength of the loonie.. In fact, Poloz actually sounded a bit optimistic, saying that he sees an economic rebound on the horizon.. Of course, even if the Canadian economy remains stagnant it will show an improvement in the next quarter, because this quarter was affected by the Alberta wildfires.. So, I have to throw some cold water on his statements yesterday.

In Australia overnight, they printed their latest CAPEX (Capital Expenditures, the lifeblood of a rebounding economy) and it showed that that CAPEX had fallen at a pace that was greater than expected. That should have sent the A$ to the woodshed, but it didn’t and I’ll tell you why. (you knew I would! HA!) Overall, the report was balanced and had upward revisions to the previous reports, which bodes well for this current report to be revised upward in the future. And the non-mining CAPEX was good and solid, which is a good sign, given that we all know that mining is a in the dumps in Australia. But not so much that mining investment is drying up, and in fact mining investment is expected to reach pre-boom levels next year, and that would be HUGE for the A$…

No news from New Zealand overnight kiwi is rallying alongside the A$ this morning, so just go with it! (which was a very funny, and good movie! Just Go With It)

The Chinese renminbi was flat overnight. there was a smidgen of an appreciation booked at the fixing, but in reality, it was flat overnight. There has been some bad loan data printed in China recently, and the Chicken Littles were out in force, hollering for a collapse of the Chinese economy. Well, I’m going to borrow something from what I said to the Daily Reckoning (www.dailyreckoning.com) in a recent interview.

“I think China’s fine. They grew way too fast for too long and they have to go back and clean out those excesses. They have to take some lumps now and endure a period where they simply clean out the excesses. But they’ll work it out. I really do believe that they will and they’ve got a huge treasure chest of reserves, which I always remind people.

It has $3.4 trillion worth of reserves. It has decreased from over $4 trillion. But it’s still $3.4 trillion. And they can do a lot of things with that amount of money to correct problems in their economy.” – Chuck Butler, in the D.R. 5/25/16

In fact, if you want to read the interviews there were two parts. you can click on these links:

For Part I http://dailyreckoning.com/man-markets-and-manias-part-i/

For Part II http://dailyreckoning.com/markets-manias-cranks-part-ii/

Here in the U.S. where things just continue to go south with regards to the economy, but don’t let that get in the way of the Fed talking about a rate hike, and yesterday I came across some more data that should scare the bejeebers out of the Fed members, that is if they read stuff like this, and you dear reader.

Did you know that since 2013, the Fed has conducted a survey to monitor the financial and economic status of American consumers? Because. American consumers are sooooo very important to the U.S. economy. So look at something the Fed uncovered in their latest survey.

The Fed asked respondents how they would pay for a $400 emergency. The answer: 47% said that they would either cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.

Recall, that last week I told you about the Bankrate survey that found only 38% of Americans could cover a $1,000 emergency room visit or a $500 car repair with money they’ve saved. But this Fed survey indicates that the balance sheet of the American consumer is in deep dookie, and THAT my friend is why retailers are flat on their backs, and their inventories are going sky-high. I saw a graph yesterday that charted the Inventory to Sales ratio for apparel 1992-2016. the ratio is heading toward the moon folks. Which means inventories are piling up and sales are going down.

I know, I know, Walmart posted some good 1st QTR numbers, but the rest of the lot didn’t, so what does that tell you? That consumers are going out to find the least expensive things they need to survive. That what it tells me!

Have I told you how much a love the Grant Williams newsletter, Things That Go Hmmm? Of course I have, and Grant Williams is one of my fave writers. Well, in his latest letter, he takes the thought that the American Consumer accounts for 70% of the economy, and puts some numbers to the thought. Let’s listen in as he goes through these numbers. He refers to an article from the Atlantic that can be found here:
http://www.theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/
In which it states that “nearly half of American adults are financially fragile and living very close to the financial edge.”

“According to the OECD, as of March 2015, the working age population of the U.S. was, somehow, 204,026, 415.969 ( I have no idea who the .969 is!) The BLS says the Unemployment rate is 5%. So that means the simple back-of-the-envelope calculation is that the employed civilian workforce is roughly 193,825,095.17. (204,026, 416 * 5% and then minus) Now, assuming the studies cited in The Atlantic are correct, that means there are approximately 106,603,802.343 American Adults who are financially fragile and living very close to the financial edge. THAT means, assuming the U.S. economy is $16.77 Trillion, that the heavy lifting for 70% of it, or $11.74 Trillion is being done by 87,221,292.827 adults who will need to spend $134,000 each to do their part.”

Chuck again.. Now, by all means, these calculations are rough, but I think they do a very good job of showing why the U.S. economy continues to struggle. And to also point out just how silly some of these CEO’s and CFO’s sound when they talk about their horrible 1st QTR numbers, but how they will improve going forward. And that goes for the Fed too, as they continue to “see improvement in the future”. I have to laugh at that, because when did they start with that ” seeing improvement in the future” talk? Remember when they saw “green shoots”? If you just keep saying something over and over again, 1. People will begin to believe it, and 2. It just might eventually happen and you can say you were the first to say it!

The U.S. Data Cupboard has a real piece of economic data today. And for once in a Blue Moon this data has a chance of printing on the positive side of the ledger.. The April Durable Goods data , which reflects the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. The reason I explain that is this. Remember April? Not the weather, but the price action of the dollar? The dollar was getting sold like funnel cakes at a State Fair in April, so when the Durable Goods Orders prints today, and it is positive remember that it was from April. Month on month Durable Goods should rise 0.3% , but year on year, would show a decline of -2.5%… We’ll have to wait for the print to see the real numbers..

Gold closed down nearly $3 yesterday ($2.90), but is up $4 this morning in the early trading. I just don’t get this recent trading, other than the markets have swallowed the rate hike talk, hook, line and sinker. And even that has gone a little too far in my opinion. Did you see the news yesterday that Citigroup, Inc. will pay $425 Million to resolve the CFTC’s claims that the bank attempted to manipulate global benchmarks for interest rate products multiple times from 2007 to 2012? And that the bank is also on the hook for $175 Million because of their alleged ties to ISDA fix? I talk about this only because I want to put into the minds of all those naysayers out there that say the Gold & Silver prices aren’t manipulated. And point out that we’ve had manipulations in Treasuries, LIBOR, the fixings, and other markets, tell me again why Gold & Silver couldn’t also be on this roster of manipulated things?

For What it’s Worth. Back to Grant Williams’ Things That Go Hmmm. it sent me to an article on the Bloomberg, that can be found here: http://www.bloomberg.com/news/articles/2016-05-19/chicago-s-pension-fund-troubles-just-became-11-5-billion-bigger and is about the Pension funding problems that Chicago finds itself in.

Or here is the snippet. “Chicago’s pension-fund shortfall just got $11.5 billion bigger. Thanks to the defeat of the city’s retirement-fund overhaul by the Illinois Supreme Court and new accounting rules, Chicago’s so-called net pension liability to its Municipal Employees’ Annuity and Benefit Fund soared to $18.6 billion by the end of 2015 from $7.1 billion a year earlier, according to its annual report. The fund serves some 70,000 workers and retirees.

The new figure, a result of actuaries’ revised estimates for the value in today’s dollars of benefits due as long as decades from now, doesn’t change how much Chicago needs to contribute each year to make sure the promised checks arrive. But it highlights the long-term pressure on the city from shortchanging its retirement funds year after year — decisions that are now adding hundreds of millions of dollars to its annual bills and have left it with a lower credit rating than any big U.S. city but once-bankrupt Detroit.”

Chuck again. Everywhere you look, these Pension Plans are finding out that they are underfunded. And now with Chicago finding out they have an additional $11.5 Billion funding the pension will be even more in trouble.. You don’t think that this could be one of the unintended consequences of ZIRP do you? I do.

Currencies today 5/2616. American Style: A$ .7230, kiwi .6740, C$ .7725, euro 1.1180, sterling 1.4695, Swiss $1.0088, . European Style: rand 15.60, krone 8.2815, SEK 8.3075, forint 281.25, zloty 3.9424, koruna 24.1930, RUB 65.14, yen 110.10, sing 1.3768, HKD 7.7659, INR 67.17, China 6.5578, peso 18.39, BRL 3.5835, Dollar Index 95.24, Oil $48.88, 10-year 1.87%, Silver $16.47, Platinum $1,004.95, Palladium $542.55, and Gold. $1,228.30

That’s it for today. Well, I guess men all over St. Louis are shaving this morning, as it’s time for their playoff beards to come off, now that the Blues are out of the playoffs. OMG, the sky outside just turned black as night, and we’re about to get stormed on violently it appears! My beloved Cardinals lost again yesterday, but didn’t give up and kept plugging away and even had the tying run on second and winning run at first in the 9th, but couldn’t get them home. The Midwest sure has had its share of tornadoes this spring. Man those things are scary. AC/DC takes us to the finish line today with their song: Shook Me All Night Long. Love that song! Not much going on with me, so I’ll send you on your way to a Tub Thumpin’ Thursday, and remind you to Be Good To Yourself!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com