Trader Says: “It’s Lethal To Be Short Euros”!

 Chuck Butler’s: A Pfennig For Your Thoughts  

                          August 9, 2017

* A Flight To Safety picks up steam…
* Gold rallies nearly $11 in early morning trading…
* Currency Trader talks about the euro… 

 

Good day… And a Wonderful Wednesday to you! We had a relatively easy trip back to our home away from home yesterday, and all our bags are packed and we’re ready to go, to the airport this morning for a trip back to St. Louis. Key West was absolute fun for our group…. Me, Kathy, Alex and Molly, and we had to drag Alex away from the Florida straights to leave! I guess I’m ready to return to St. Louis and see my other grandkids, Delaney Grace and Everett… With all the saber rattling going on around the world these days, today’s greeting song plays nicely… It’s Cat Stevens singing his song: Peace Train…

The euro couldn’t hold it’s grip on the 1.18 figure yesterday, as the U.S. Jobs Postings showed a very strong labor market… The problem I see there is that the people looking for jobs, aren’t qualified to fill those openings… And training them is a very costly adventure, and sometimes ends up backfiring. But the dollar got some love from the traders for that strong print, and along with the Small Business Index, which increased surprisingly I might add, gave the dollar bugs enough to push the euro down on the day…

Yesterday I told you that the IMM Futures positions report showed that long euro positions grew / increased last week… But then we’ve seen it down, then up, then back down so far this week. And then I came across this quote from a trader on Bloomberg.com: “To be short euros here is absolutely lethal,” said Ulf Lindahl, chief executive officer of A.G. Bisset Associates, who manages about $1 billion from Norwalk, Connecticut. He expects the currency to rise to $1.30 by the end of the year, if not sooner. Even after its 3.6 percent rally in July, investors and analysts are predicting further gains.”

I agree with this guy wholeheartedly, and that’s all I’m saying about that today!  The Dollar index didn’t gain though even with the heavily weighted euro component not performing well. No, in a case of stranger than fiction, the Dollar Index drop was engineered by the Japanese yen rally… 

Yen has been rallying on the flight to safety, with all the saber rattling going on.. Why just this morning a couple of hours ago, U.S. President, Trump, issued new, harsh warning to N. Korea…

 And Gold has jumped higher with the flight to safety by nearly $11 ($10.80) in the early morning trading today, and the 10-year Treasury yield has dropped to 2.24%, after spending a couple of weeks around 2.30%…  let me remind you that bond pricing works like this: When the yield goes down, the price goes up, and vice versa… So, there have been lots of 10-year Treasury buying to move the yield to 2.24%… 

I mentioned yesterday that the IMM futures positions saw the Aussie dollar (A$) and Canadian dollar / loonie with increased long positions… I wonder why the New Zealand dollar / kiwi wasn’t a part of the list of currencies with increased long positions, as kiwi has basically outperformed the A$ so far this year.  And I would bet a dollar to a Krispy Kreme that interest rates will be hiked in New Zealand before they are in Australia…  Now, I’m not knocking the A$, as I like that currency too, but just wanted to point out kiwi as another currency that should be seeing increased long positions… 

One currency that shouldn’t be seeing increased long positions, is the U.S. dollar! There are too many dark clouds hanging over the dollar these days folks, and if any of the dark clouds have rain in them, well, as Bob Dylan once said, “A hard rain is gonna come”…  And here’s one of the dark clouds…  

Yesterday, I told you about Consumer Credit, and how the revolving credit component had risen once again… Well, the monthly update from the Federal Reserve confirmed that as of the end of June, total revolving (i.e. credit card) credit rose to $1,021.7 billion, an increase of $4.1 billion on the month, and a new all time high, taking out the previous record high set during the summer of 2008. Now doesn’t that make you shudder?

Remember when U.S. Consumers were supposedly “deleveraging their debt”? Well, not so much any longer, eh? I know that I carry on and on and on about debt, but debt is slavery, and as a country, we’re soon to find out exactly what that means!

I don’t have a crystal ball, nor do I use Tarot Cards, to make these statements, I use logic and common sense… I will admit that most times I’m months and sometimes even a year or so ahead of the call to come to fruition, but they normally do… My one exception is the popping of the Treasury Bubble… I was unaware that the Fed was about to become the biggest buyer of Treasuries in the bond market! But, the day will come… It’ll be too much time since I made the call, so no one will remember what I said at that time! UGH! 

Speaking of the Treasury Bubble… Big Al Greenspan had something to say about it yesterday… I thank Omar Ayales of Gold Charts “r Us for sending me this quote from Big Al… Omar does a fantastic job of charting Gold and we did feature his work here in the Pfennig, while I was on vacation. So, getting back to Big Al and the Treasury Bubble… You can find the whole article here: https://www.bloomberg.com/news/articles/2017-07-31/no-bubble-in-stocks-but-look-out-when-bonds-pop-greenspan-says

Or I’ll give you a line or two to whet your whistle… here goes… “Equity bears hunting for excess in the stock market might be better off worrying about bond prices, Alan Greenspan says. That’s where the actual bubble is, and when it pops, it’ll be bad for everyone.

“By any measure, real long-term interest rates are much too low and therefore unsustainable,” the former Federal Reserve chairman, 91, said in an interview. “When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.” – Alan Greenspan 

I already told you about yesterday’s data prints above, so let’s go directly to today’s prints, which are: Productivity, Unit Labor Costs, and Wholesale Inventories… Productivity has been a real problem for the U.S. and I don’t expect any miracles here… Unit Labor Costs could show an increase in wages, but I doubt it, and Wholesale Inventories play into GDP so, we have that going for us today! 

To recap… Another day of the dog days of summer yesterday, but overnight we’ve had some moves… U.S. President Trump, issued new harsh warnings to N. Korea, and that has a flight to safety going on overnight, with Gold, yen, and Treasuries all being bought…  The Dollar Index continues to drop, but instead of the euro being the driving force behind the drop, that job is now being done by the Japanese yen… I shudder when I say that, but it is what it is… 

For What It’s Worth… Well, I’ve spent a lot of time over the years talking about the Underfunded Pension Plans Problem here in the U.S., and when I saw this story on Bloomberg, well, it caught my eye, because it’s talking about something that might help the U.S. Corporations and their underfunded pension plans… People dying too young… Boy that sure sounds cold doesn’t it? But Corporations are looking at this situation and thinking they might see a light at the end of the tunnel… You can find the article here: https://www.bloomberg.com/news/articles/2017-08-08/americans-are-dying-younger-saving-corporations-billions

Or, here’s your snippet: “Steady improvements in American life expectancy have stalled, and more Americans are dying at younger ages. But for companies straining under the burden of their pension obligations, the distressing trend could have a grim upside: If people don’t end up living as long as they were projected to just a few years ago, their employers ultimately won’t have to pay them as much in pension and other lifelong retirement benefits.

In 2015, the American death rate—the age-adjusted share of Americans dying—rose slightly for the first time since 1999. And over the last two years, at least 12 large companies, from Verizon to General Motors, have said recent slips in mortality improvement have led them to reduce their estimates for how much they could owe retirees by upward of a combined $9.7 billion, according to a Bloomberg analysis of company filings.

“Revised assumptions indicating a shortened longevity,” for instance, led Lockheed Martin to adjust its estimated retirement obligations downward by a total of about $1.6 billion for 2015 and 2016, it said in its most recent annual report.”

Chuck again… I guess the opioid problem here in the U.S. is being blamed for a lot of these early deaths.. So, if I were a Pension Plan manager, which I wouldn’t take that job, period!, but if I were one, I wouldn’t bet that this opioid problem will continue! 

Currencies today 8/9/17… American Style: A$ .7893, kiwi .7328, C$ .7893, euro 1.1750, sterling 1.3018, Swiss $ .9641… European Style: rand 13.4448, krone 7.9499, SEK 8.1884, HUF 25927, zloty 3.6282, koruna 22.2365, RUB 59.88, yen 109.84, sing 1.3622, HKD 7.8146, INR 63.80, China 6.7057, peso 17.95, BRL 3.1254, Dollar Index 93.57, Oil $49.30, 10-year 2.24%, Silver $16.58, Platinum $975.66, Palladium $894.95, and Gold… $1,273.40  

That’s it for today… Well, how about that? My beloved Cardinals are finally above .500, with their win last night in K.C.  And they have a 4-game winning streak for the first time in what seems like eternity! Now the Cardinals come back to St. Louis to play two more games VS K.C…  In the old days on the trading desk, before Mike Meyer was married we would hear the song that’s taking us to the finish line today and say it was “Mike’s song”…  10CC singing their song: I’m Not In Love…  And with that, it’s time to gather up all my things and head to the airport… I’ll talk to you again tomorrow, if God allows, and we’ll see what comes of the latest Trump warnings… I hope you have a Wonderful Wednesday, and remember to Be Good To Yourself!

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

a)   The Daily Pfennig is no longer published by EverBank and it is now published by Aden Research Group.