Chuck Butler

Good day… Gold has really been sold off this past week and especially last night and this morning. I pretty much told you to expect it to be taken down again by the price manipulators, when the short positions were being added to by the truckload. But the other thing going against the shiny metal, this morning, is that the dollar seems to have a bias to buy, going for it. Wonder of wonders, eh? Friday, I told you that there seemed to be a return to risk sentiment on the drop in Weekly Jobless Claims. And then the U. of Michigan Consumer Confidence really surprised on the upside. And the markets decided that it was time to reward the dollar for these things.

I had it brought to my attention by more than a few dozen readers, that there was a state missing in the Weekly Jobless Claims data, which accounted for the 30,000 drop in claims that the government tried to float past us. The games people play now, every night and every day now… Most of the readers believed that the state that was missing was California. Now, doesn’t that all tie together in a neat bow? Just leave the largest state off the head count of jobless claims, and then wave the recovery flag for the drop in claims. I’m to where I don’t believe one report that comes from the US government. Isn’t that sad? My country resorts to these games.

OK. Move along, Chuck, you don’t want to go too far down that road, it leads to wrists getting slapped and visits to the red carpet!

So… As I said above, the markets changed on a dime Friday, and decided to reward the dollar, and the bias to buy dollars is weak, and looking like it has run its course, this morning. For instance, the euro (EUR), which fell nearly 1-cent from Friday, has rebounded 1/2-cent this morning. The Aussie dollar (AUD) is flat on the day, and the rest of the currencies are trying to get out of the dumps, as the weak dollar bias looks very vulnerable as I type away with my fat fingers.

The thing that appears to have turned the tide on the dollar bias was the surprisingly strong trade figures from China. Chinese exports rose 9.9% in September versus one year ago. The trade surplus rose by a large figure and the foreign reserves also gained ground. It appears that the Asian country economic growth that I’ve been talking about is showing its muscles as the Chinese exports were dominated by the Asian countries. This all looks good from my perspective, for global growth, even if that global growth is regional to Asia.

And that means the Aussie dollar and New Zealand dollar/kiwi (NZD), get to enjoy the sunshine, too! Now, China will be printing their third quarter GDP report on Wednesday this week. Look for a print of +7.7% versus last year. And then the forecast for the fourth quarter will be announced, and that will probably come in at +7.8%… So, the collapse of the Chinese economy has been greatly exaggerated, by many an economist. Moderating? Yes! Just like I said would happen. Not that I knew anything that the respected University-trained economists didn’t know. I just didn’t get caught up in all that hype. And, I recognized that China was a Communist country with a treasure chest of money to use to keep their economy afloat.

Oh… And Chinese inflation is falling back into line, rising only 1.9% from a year earlier in September. This is what gets the “China is going to introduce more stimulus crowd” all lathered up, folks. With inflation falling like this (earlier this year, it was rising at a +6% clip) the thoughts that more stimulus could be injected into the Chinese economy from the treasure chest of reserves, begin to get very loud. I hope the Chinese government doesn’t disappoint them.

Well, the US posted its fourth consecutive year of plus-trillion deficits. The final figures are in for the fiscal year that ended September, 30th. The 2012 budget deficit was $1.089 trillion, which is narrower from the $1.297 trillion posted the previous year. The deficit was equal to 7% of US economic output. Remember that back in 2001 we hit 4.5% and I said then that the dollar would enter into a multi-year decline, based on that 4.5% figure, which historically had indicated a country would experience a currency crisis. Economists, for some reason, believe that budget gaps versus GDP that are greater than 3% are unsustainable in the long term. Well, let’s see, we, as a country, are now on year 11 of the greater-than-3% gaps versus GDP.

But the country, and its citizens (for the most part… not you, me and the others that understand what’s going on) don’t understand these debts and deficits; and the numbers are so large that they have no comprehension as to what they mean. I’m not saying they’re not smart, I’m just saying that the numbers get so large, that people just don’t relate to them. And so, we become Comfortably Numb.

That’s why I always show a slide in my presentations that talks about a person/family, and use the same numbers as the US but take out a lot of zeroes. This way, each person can see just what an awful shape this family is (fiscal-wise). And then show them the numbers for the US by just adding those zeroes. So, don’t let yourself become “Comfortably Numb”!

The US data cupboard has September retail sales for us today, and the “experts” believe that the number will be a blowout +0.8%… I would have to think that this number is bloated by cars and gas, for when you take them out, the number will probably be +0.4%, which is more in line with what I’ve seen the Butler Household Index indicate. Nevertheless, retail sales are indicating that people are spending money again. Or least what they consider to be money. Could be running up the debt on the credit card.

The price of oil has been stuck around $91 for the past four trading days; and that’s fine with me! I just have to wonder how long we have to wait for the $40 for a barrel of oil that I heard guaranteed at our Global Currency Expo in May of 2011… Oh, that’s right, it was supposed to be within a year. Look, I would love for oil to be that cheap. It would make driving my car less expensive, not to mention everything else that is touched by oil (plastics, gas for trucks to deliver feed, etc.) But until the cost of getting the oil out of the ground becomes cheaper, I don’t see how the price of oil can drop like that… Even when the US economy was on the brink of collapse a couple of years ago, the demand for oil dropped, here in the US, but picked up somewhere else in the world.

With the price of oil stuck around $91, the support for the petrol currencies, including, Norway (NOK), Canada (CAD), Russia (RUB), Brazil (BRL), Mexico (MXN), and the UK (GBP) remains strong. The Russian ruble has seen the most support from the strong oil price. The Brazilian real, doesn’t really get to bask in the sun that the strong price of oil provides, because the Brazilian government is intervening to sell reals nearly every day.

The Canadian dollar/loonie continues its position above $1.02. One would think that the Chinese trade figures that printed this past weekend would carry over to the loonie and provide some breathing room on the global growth concerns that have held a grip on the loonie for the past few weeks. But, if the traders want to hold the loonie steady-Eddie above $1.02, that’s fine with me. I think that somewhere between parity and $1.05 is about where the Canadian dollar should be, and $1.02 is in that range! At least the last time I checked by statistics! HA!

Did you see the latest move by Singapore? This is pretty interesting stuff, folks. But before we start here, long time readers know my feelings toward Singapore, and how they use their currency’s strength to fight their inflation. Well, they have already become a hub for Chinese renminbi (CNY). And now they look to become the Asian metals hub. Here’s the skinny. Singapore repealed their 7% tax on investment grade gold and other precious metals, in hopes that repealing the tax would lure bullion refiners/mining companies to the country and that would lead to metals trading houses moving to Singapore, thus transforming Singapore to a metals pricing hub. Pretty forward thinking, don’t you think? Any questions on why Singapore continues to be on my hit parade?

A reader sent me a note this past weekend that was very telling on the economy, and not with all the fluff that the government adds. Here’s his take on this data… “If you look closely at the shipping numbers, the biggest decline is in the Eastern United States where a larger percentage of manufactured goods originate. Western shipments are either imports (loaded containers down 4%) or commodities (grain, coal, fertilizer, etc.).

“Here’s the scary number: Weekly carload volume on Eastern railroads was down 7.9 percent.

“Last time I saw such a huge plunge in rail shipments was in October 2008.”

Then There Was This… My friends over that The 5-Minute Forecast, had a great, short article on Friday…

“In his latest shareholder letter, Tocqueville Gold Fund chieftain John Hathaway bases that forecast on continued negative real interest rates: That is, as long as central banks push interest rates below the rate of inflation, gold performs well.

“‘Some suggest,’ Hathaway writes by way of answering the reader’s question, ‘that a Republican victory in November would be a game changer for gold. It could bring about the dismissal of Bernanke, the taming of fiscal deficits, the painless elimination of excess liquidity from bloated central bank balance sheets and the restoration of robust economic growth.’

“‘All of this,’ Mr. Hathaway goes on, ‘would need to occur within the four years allotted to a new administration while voters patiently awaited the magic to take effect. While this rosy scenario is possible, we believe it would be a long shot.

“‘Therefore, we regard any possible pre-election weakness in gold and mining stocks based on such a possibility as a buying opportunity.’”

Chuck again. You can look at the charts until your eyes are all watery and your sight blurry, but they all tell you the same thing. The prospects of a higher price of gold are good. But that’s the charts. You know me, I’m more of a fundamentalist, and for once the fundamentals and charts are singing from the same song sheet…

To recap. The Weekly Jobless Claims on Friday, and consumer optimism reaching a 5-year high, finally broke the bias to sell dollars. But that bias is weak this morning, and looks vulnerable to a reversal. Were games played with the Jobless Claims? I think so! China’s trade figures were better than expected, and we look to Wednesday’s print of third quarter GDP, which should be around 7.8%… And US retail sales dominate the data prints today.

Chuck Butler
for The Daily Reckoning

Chuck Butler

Chuck Butler is President of EverBank

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