When Is A Trade Surplus A Bad Thing?

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

February 8, 2018

* Another wild ride in the assets yesterday…
* BOE meeting this morning, nothing expected…

Good Day… And a Tub Thumpin’ Thursday to you! Would Mother Nature, please slow down the wind? Another breezy day yesterday, but we found protection sitting around the pool, and so we spent the afternoon, with our friends, kibitzing, and eating snacks. Every time someone went inside, the came back with a different snack. This went on for hours, and once Happy Hour arrived, well, I made the martinis and Jack made the other drinks… A good day with friends, and the wind finally died down, and the sun came out, and well… I thoroughly enjoyed the day. The Eagles greet me this morning with their song: Victim of Love…

Well, hold onto your hats folks, we’re still taking a ride on Mr. Toad’s Wild Ride, in all the assets, but the one asset that’s really benefitted from the PPT and James Bullard’s speech the other day is the U.S. dollar. On Monday this week, the dollar looked as if it was ready to drop like a rock, as the Dollar Index traded 89.16… And this morning the Dollar index has improved to 90.43!

For newcomers to the letter, and the foreign exchange (FX) markets, the Dollar Index is an index made up of currencies from countries that used to be BIG trading partners to the U.S. And currency traders have used this Index for many years to determine the value of the dollar. I used to laugh out loud about this when the Chinese were becoming our largest trading partner and the renminbi was not a part of the Dollar Index…

The Dollar Index is heavily weighted with euros, so to me, to really look at the value of the dollar, all you have to do is check out the euro’s price, because the euro is the offset currency to the dollar, which means it’s the 2nd most heavily traded currency in the world, behind the dollar. OK, enough for the new class today, make sure you took notes, because you’ll be quizzed on this at some time in the future!

OK, speaking of China like I did above, the Chinese got a BIG Surprise this morning after the fixing. The Chinese renminbi had been fixed with an appreciation from yesterday’s price, but then the Gov’t reported that the Chinese Trade Surplus for January had fallen from the month prior, by a larger amount than anticipated… Now. let’s keep this all in line, with the thought that China still booked a SURPLUS folks… In all the days that I’ve written the Pfennig (since 1992) I don’t believe I ever reported a Trade Surplus for the U.S.

O.K., now that we’ve laid that groundwork and have that thought in our heads… The Chinese Trade Surplus was $20.34 Billion last month, VS $54.69 Billion the previous month. And the renminbi got whacked after the data printed. Hmmm… Calmer heads will have to come around here soon, because don’t they realize that a lot of the drop in the Surplus can be attributed to the Chinese New Year holiday week? And let’s not forget the fact that Commodity Prices have rallied this year, thus making Chinese imports of those Commodities more expensive…

But, the traders and investors don’t care about those things right now, and until calmer heads present themselves on the scene, this is what happens, to good currencies…

The Bank of England (BOE) is meeting while my fat fingers fly across the keyboard, putting this letter together. The BOE Gov. Mark Carney, he of the bag-0-promises that never gets opened, will most likely tell the reporters that the BOE left rates unchanged because there are just too many unknowns of the monetary effects of the BREXIT negotiations…

But in reality, that’s been a known, unknown, for a long time now, what he really should say is that the U.S. economy hasn’t gathered enough steam to garner the rate hike he has hinted at a couple of times in the past 5 years. But that won’t happen, because, he has to keep the happy face on to lure the sheeple into believing that everything is going to be peachy, when in his heart of hearts he knows darn well they won’t!
So, don’t look for any love for pound sterling, as it trades alongside the euro on the downside of some lofty figures from last week.

The Price of Oil dropped by $2 in the last 24 hours… Remember the old Chevrolet commercials about the great American pastime of driving? Well, we’re sure doing a lot of that lately… U.S. oil output topped 10 million barrels a day for the first time yesterday… That computes to a lot of gasoline, which is where I got the thought that we are doing a lot of driving these days, and not just little smart cars…

I was driving up from Fort Lauderdale about 10 days ago after taking Kathy to the airport there, and I noticed that either a Big honking SUV or a sporty race car was passing me all the way back (people drive really fast down here) And I thought at the time, look at all that gas that’s being used…

And I could kick myself, if my leg moved sideways, which it no longer will do, but as usual my timing was awful, as I filled up our car yesterday, at much higher prices than would be available today… UGH! Oh well, the price of gas is what it is, to me… I can’t go anywhere without my car, so whatever I have to pay, I’ll adjust my driving habits to deal with it.

So, with the price of Oil dropping $2, the Petrol Currencies also saw some slippage in their values. The Brazilian real though bucked the trend overnight and gained at the fixing this morning to trade stronger than yesterday’s fixing. The Russian ruble lost just a handful of shekels, and the Norwegian krone and Canadian dollar / loonie saw larger downward moves.

The prices of Gold, Silver, Platinum and Palladium all got whacked again yesterday, and all 4 precious metals reached new lows for this cycle yesterday. Gold had over 325,000 contracts traded, and lost $5 on the day, and is down a buck or two this morning. But Silver, saw a fat cut of the hog taken from its price, as did Platinum and Palladium… I would have to think that these are all blue light special prices… I’m just saying, and maybe you get the hint, wink, wink…

The U.S. Data Cupboard today is basically empty with the usual Tub Thumpin’ Thursday fare of the Weekly Initial Jobless Claims, which have become a second tier data print. Yesterday’s Data Cupboard had the long awaited Consumer Credit (read debt) for December. And it surprised me with a print of $18 Billion, VS the $31 Billion in November. I guess the majority of shoppers did their Christmas shopping in November… No wonder the profit figures from the retailers in December were so weak!

To recap… The wild ride in all the assets continued yesterday with stocks rebounding, Gold getting sold again, U.S. Treasuries getting sold, and Commodities getting sold… The BOE is meeting this morning, nothing exciting expected here. China’s Trade Surplus saw a larger than expected drop, but Chuck want’s everyone to keep this in perspective, it was still a SURPLUS, something the U.S. hasn’t seen in all his years of writing the Pfennig…

For What It’s Worth… This is an article about Gold production for the last 9 years and can be found here:http://www.mining.com/gold-price-9-straight-years-record-annual-mine-production/

Or, here’s your snippet: “According to the World Gold Council’s Gold Demand Trends report released Tuesday primary gold production hit another record in 2017 after nine years of annual growth in output.

Overall mine production totalled 3,268.7 tonnes or just over 105 million troy ounces in 2017 which was only slightly higher than in 2016 as new mine starts in recent years have mostly served to fill the gap left by production losses elsewhere according to the WGC report. Compared to 2010, global gold output has surged by 525 tonnes or nearly 17m ounces.

The WGC, an industry body, estimates that output in China – the world’s top producer – fell 9% last year, only the second annual drop in production since 1980. China, which overtook South Africa as the number one miner of the metal in 2007, produced 455 tonnes of the yellow metal in 2016 according to U.S. government figures.”

Chuck again… Folks, listen to me now and hear me later, that the World Gold Council (WGC) doesn’t have a clue to how much Gold the Chinese have accumulated, produced, and added to their holdings, because the Chinese don’t want anyone to know! They report false numbers to the WGC, and that’s that!

Currencies today 2/8/18… American Style: A$ .7838, kiwi .7278, C$ .7968, euro 1.2276, sterling 1.3870, Swiss $1.0595, … European Style: rand 11.9832, krone 7.8823, SEK 8.0430, forint 252.79, zloty 3.3896, koruna 20.5564, RUB 57.20, yen 109.48, sing 1.3237, HKD 7.8180, INR 64.22, China 6.2644, peso 18.64, BRL 3.2482, Dollar Index 90.43, Oil $61.43, 10yr 2.83%, Silver $16.25, Platinum $972.02, Palladium $983.20, and Gold… $1,313.40

That’s it for today… Well, I have to get moving this morning, for I have a date with my Florida oncologist this morning. I’ll hear about any new plan of attack today, that is if the 3 oncologists that I have all got together like I requested they would do. The SLU Billikens played tough last night but lost their game with St. Bonaventure. That St. John’s basketball team is on a roll, beating Duke last weekend, and then beating number 1 Villanova last night… WOW It’s supposed to be another day in paradise today, so when I get home from the doctor, I’ll be heading outside to soak up some vitamin D! The Moody Blues take us to the finish line today with their song: The Voice… Which has nothing to do with the TV show, as the song was released in the 80’s! OK, let’s go out and make this a Tub Thumpin’ Thursday, and remember to always Be Good To Yourself!

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

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

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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