Using Smoke And Mirrors…

Rocktober 30, 2017

* 3rd QTR U.S. GDP hits 3%?
* Huge data week with FOMC on Wednesday!
* Short positions in metals continue to be HUGE!

Good day… And a Marvelous Monday to you! I’m not “feeling it” right now, but who knows how that will go by the end of the letter! The “Big Chill” came over the St. Louis area this past weekend, and when we came home last night after eating out, you could smell the fires that had been built in fireplaces in the neighborhood… Our Blues are on a winning streak, and my beloved Missouri Tigers have won two in a row! WOW! (of course they weren’t playing SEC teams)… Rod Stewart greets me this morning with his song: Every Picture Tells A Story… And Ain’t that the truth!

The dollar had a fair day on Friday, after the first print of 3rd QTR GDP showed that the economy grew at a 3% clip… I’m telling you right here, right now, that 3% was only achieved using smoke and mirrors! But that’s what the Gov’t tells us, and the markets used that print as an excuse to buy dollars.

But along the way on Friday, the dollar buying stopped, and as the news wires described it… The dollar pared its gains for the week Friday afternoon. However, the dollar still posted its 2nd best week of the year, last week… It sure seems as though just when the dollar was ready to drop through psychological figures against a handful of currencies and metals that “all this stuff” came along to save it… Let’s count the “stuff” that’s happened to reverse the dollar’s direction of a few weeks ago…

First, we had all the saber rattling between the U.S. and N. Korea, which has quietly moved to the back burner, but to pick up where the saber rattling left off, we had Political uncertainty from both Germany and New Zealand on the same weekend, where new coalition governments had to be formed. Then the vote in Catalonia started the state down the road of independence from Spain, and Spain doesn’t want that to happen. Everyday there’s something going on here that cuts off a slice of the euro’s value..

And I’m not finished! Then we had the U.S. President announce his tax reform plan, that now has a chance to live given the fact that Congress finally passed a budget bill. And then on top of all those things was the announcement that the President was close to naming a new Fed Chairman to replace Janet Yellen, when her term expires in February 2018. And the person rumored to be named Fed Chairman was John Taylor, a hawk. That got the markets thinking of additional rate hikes and bought more dollars!

So, let’s see… As I said above the saber rattling is sitting on a back burner right now, New Zealand has dealt with their political uncertainty, and has formed a coalition government. Catalonia is Catalonia, in the end there will be a diplomatic conclusion here… The Tax reform is still up in the air, and now the new rumor has shifted and the new Fed Chairman could be former Fed member, Jerome Powell… And don’t forget the dark horse here, is Kevin Warsh… Both Powell and Warsh would be better fits for President Trump, as the President is all about cheap money..

So, what I’m saying here is that this run for the dollar might be getting near an end… And soon we’ll be returning to the underlying weak dollar trend, which even writing that right now, seems a little strange, given the strength of the dollar right now.

And the U.S. Data could very well play the part of deciding which way the dollar goes this week… The Fed meets this week on Wednesday, and will keep things unchanged, but I expect Janet Yellen to give it the old “strong and robust” description to the U.S. economy once again.. And while the House may be ready to announce the tax reform that is supposed to remake the U.S. economy, the Treasury will be issuing more debt to make up for the lack of participation from the Fed (recall the Fed us unloading Treasuries not buying new ones!)

Of course the markets will focus on the Tax reform, and not the fact that more debt is being issued… Don’t get me wrong here, I love a tax break when I can get one, but this tax reform is not about me, you and the guy down the street that hold a garage sale every Saturday… It’s about Corporate tax reform…

As long as we’re on the subject of economic data, we might as well take a peek at the U.S. Data Cupboard this week, which is going to be hot and heavy all week long, starting with two of my fave data prints today, Personal Income and Spending… And ending Friday with the Rocktober Jobs Jamboree… And with the Fed meeting in the middle of the week, we have other reports sprinkled in and that makes for a hot and heavy week of data this week!

One of my fave economists/ analysts; Danielle DiMartino Booth, tweeted a note the other day that “Some Americans are already showing signs of maxing out on debt…Household debt — in aggregate — is above levels last seen just before the economic calamity” I’ll have more on this in the FWIW section today… So, be sure to stick around for that!

The price of Oil has pushed through to the $53 handle since Friday, as Oil traders take Saudi Arabia at its word that they cut production of Oil even further… However, the Petrol Currencies haven’t been able to rally alongside the price of Oil, as the dollar surge has been too much to overcome…

Gold finally found a bid on Friday, and gained $7 on the day to close the week at $1,273.20, which was down on the week. UGH! The weekly chart that Ed Steer posts in his Saturday letter (www.edsteergoldandsilver.com) didn’t show any changes in the short positions that are greater in total than the amount of metals that are above ground… For those of you keeping score at home today, for Silver, the number of days of production it would take just to match the short positions in the metal remains at 210… For Gold it’s 95…

I continue to find this to be allowed to go on is preposterous.. And one day, something will break, and when it does…. wink, wink… I’m hoping that the recent ruling against a HSBC FX trader for rigging the price of a currency, would give whatever number of investigative journalists out there a thought to look into metals… But it is what it is, for now that is…

Before I head to the Big Finish today, I wanted to talk about something that I’m highlighting in my next Dow Theory Letters article… and that is this changing of the horses in the middle of the stream that the U.S. is apparently doing, regarding pointing the blame finger at Iran for 9/11, and taking it away from Saudi Arabia… If you’re interested in my take on this and how it plays into the dollar’s value, you should go to www.dowtheoryletters.com and sign up (it costs, but just read my thoughts on something every week is worth the price of admission! HA!)

To recap… The U.S. 3rd QTR GDP printed Friday at 3% and that pushed the dollar further until Friday afternoon came along and then the dollar pared its gains, and has lost a little ground since.. Chuck goes through the list of things that suddenly appeared to help the dollar from going on a long ride on the slippery slope, and how they could all be coming to and end soon, which would put the dollar back on the underlying weak trend… Gold gained $7 on Friday..

For What it’s Worth… Ok, the Danielle DiMartino Book tweet on Friday got me following a link to an article on Household debt, and that article can be found here:http://www.businessinsider.com/us-consumer-debt-is-a-problem-for-the-poor-2017-10

Or, here’s your snippet: “Rising US household net worth and lower debt levels relative to income mask sharp underlying inequalities.

“Balance sheets have become more fragile for the lower part of the income distribution,” Deutsche Bank says.

All parts of the income distribution have seen their net-worth-to-income ratio decrease — except for the wealthiest 10%.

How can the following two things be true at the same time?

Household debt — in aggregate — is above levels last seen just before the economic calamity that hit America a decade ago.

Everything is fine.

That’s a line you’ll hear from Wall Street economists, who are noticing the high debt but also telling their clients it won’t hurt.”

Chuck again… Some measures of income growth have slowed; the saving rate has fallen to near record-low-levels; and consumer debt continues to rise… I don’t see how this all works out favorably, do you?

Currencies today 10/30/ 17… American Style: A$ .7677, kiwi .6855, C$ .7793, euro 1.1632, sterling 1.3157, Swiss $.9980, … European Style: rand 14.1117, krone 8.1508, SEK 8.3457, forint 266.83, zloty 3.6450, koruna 22.0471, RUB 58.02, yen 113.60, sing 1.3633, HKD 7.7997, INR 64.88, China 6.6503, peso 19.12, BRL 3.2444, Dollar Index 94.67, Oil $53.84, 10yr 2.40%, Silver $16.76, Platinum $920.04, Palladium $968.88, and Gold… $1,272.30

That’s it for today… WOW! How about that World Series Game last night? 13-12 in 10 innings! The Astros won and lead the series 3-2, as they head back to L.A. I watched my beloved Mizzou Tigers win at U-Conn Saturday evening… All by myself! The Tigers come home to play Florida this coming Saturday. And how about those Blues? they really played a good game Saturday night, and are off to one of their best starts of all time! Danielle, Dane, and Chris all stopped by my local watering hole on Friday to say hi! it was good to see them all… I sat in the cold on Saturday and Sunday at the grandkids’ soccer games… And it was cold Saturday! I leave for a mini-visit to S. Florida this Friday, to get away from the cold and November… And with that it’s time to go… The Beatles take us to the finish line today with their song: Let It Be… I hope you have a Marvelous Monday, and Be Good To Yourself!

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

 

Chuck Butler recently joined the Aden Research Group, a research center led by writers and market analysts Pamela and Mary Anne Aden. The Aden Research Group publishes three newsletters:
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