Chuck Butler

Good day. What a quick week! Next week, I’ll be in Las Vegas — not my kind of city, but it is what it is, and I’ll be there to speak on two different days, so if you’re in the area, drop by. The MoneyShow is free!

That little mini-rally, which a handful of currencies saw yesterday, faded overnight, and those currencies are all back to the levels of Wednesday. UGH! The handful, in case you were wondering, included the Australian dollar (AUD), euro (EUR), Brazilian real (BRL), Norwegian krone (NOK), Swedish krona (SEK), Singapore dollar (SGD) and a couple of others.

Yesterday, we saw the U.S. trade deficit widen from $45.4 billion in March to $51.88 billion in April. It’s not all with China, folks — the majority is with OPEC. Remember, the price of oil in April was well over $100 all month!

We also saw the initial weekly jobless claims, which was flat versus the previous week, at 367,000. The continuing claims remain a problem, folks. I know I talked yesterday about jobs, etc,. and I received a few emails from very disgruntled folks that have been looking for jobs, and don’t believe there are any out there to be found.

That brings me to the thing that I’ve said since 2008 — that a lot of the jobs that were lost were not going to come back, and the jobs that did open up were going to be completely different than what the unemployed person was trained to do. I’m not insensitive to this, folks. I just tried to get it out there a few years ago so that people could begin to make changes.

OK, did you see that the monthly budget statement, which had been a deficit each and every month for so long that I had begun to call it the monthly budget deficit, actually stopped the bleeding in April? The government posted a $59.1 billion surplus in April. WOW!

OK, hold on a minute there. Isn’t April the month that all taxes owed are collected (for the most part, anyway)? The key here is to see where this balance goes the next couple of months. My bet is that it will go right back to the monster deficits that were seen every month prior to April.

Today, we’ll see wholesale inflation (PPI) for April, and the University of Michigan confidence index.

Overnight, we heard that the Greeks were having second thoughts about electing an anti-euro government, and now it appears that the government that will be elected will keep the euro, no questions asked. That’s nice of them! Obviously, calmer, smarter heads prevailed here, because I don’t believe that the Greeks want to see what life is like for them outside of the euro!

Euro traders are kind of lost between two lovers here. They just can’t figure out whether they want Greece to leave or stay.

The Aussie dollar (A$) had climbed back above $1.01 yesterday, but is right back to Wednesday’s level of $1.0050 this morning — losing half a cent overnight. The other day, I talked about the forecast Aussie budget surplus for next year. While that would be great for them, should they achieve that surplus, it won’t really be known if that’s going to be a reality until September.

I also told you, a couple of weeks ago, that I thought bond buyers of Aussie government bonds were behind the resiliency of the A$ in the face of a rate cut. Of course, back then, I thought that the Reserve Bank of Australia (RBA) was going to cut only 25 basis points, and they surprised the markets with a 50 basis point rate cut. That severely inhibited the resiliency of the A$.

And I talked about how it is believed that if Australia does achieve a budget surplus, the supply of Aussie bonds would drop by a large margin. So if that were true, that underpinning that the A$ enjoyed from bond buyers would be damaged. But as I told a small group the other day, “Even if the A$ falls to 95 cents, it’s still a strong currency; just 10 years ago, it was trading around 50 cents.”

As far as today’s prospects for a risk-on day go, I think the chances are slim to none. All the overnight bourses are down, and U.S. stock futures are down.

Everyone is running for the hills after a story in The Wall Street Journal hit the streets last night. According to the WSJ report, “JPMorgan Chase has taken $2 billion in trading losses in the past six weeks and could face an additional $1 billion in second-quarter losses due to market volatility.”

Most of you all know how I would have reacted to this report in “the old days.” So this is your chance to “be like Chuck” and give me your version of what Chuck would have said in the old days. (You don’t really have to send it to me unless you think you have really nailed it!)

I think I’ll talk about silver now (wink, wink). Did you see that China had introduced silver futures contracts that will trade in renminbi/yuan (CNY) on the Shanghai Futures Exchange? The contracts will not be allowed to fluctuate more than 7% per day. I have to wonder how the Chinese are going to take seeing the price of silver brought down in after-hours trading.

And did you know that China is now the world’s leading producer of silver? No, it’s not Mexico, and no it’s not Peru. It’s China. And that’s good because China is the world’s second leading consumer of silver, behind the U.S.

Have you been following the news on Scotland contemplating leaving the U.K.? That would be a HUGE blow to the U.K., not only prestigewise, but monetarily. Scotland’s economy is second in contribution to the U.K. economy, coming behind the southeast part of England.

The pound sterling, which has defied gravity recently, is beginning to feel the weight of doing a double dip in the recession pool, and everything else that’s going on badly there. Like this morning, they reported that March construction output was very disappointing, which points to a downward revision to first-quarter GDP, which already showed that the U.K. economy was going for a double dip.

Gold enjoyed a day in the sun yesterday, but it’s raining on the shiny metal again this morning. It seems that we’ve returned to the days around 2008 and early 2009, where the dollar is rewarded with bad data. Dollar bugs will tell you that this is how it should be, as the only true safe haven is the U.S. dollar and Treasuries. I want to hit these dollar bugs over the head with a gold bar! Maybe then they would find the true safe haven!

Speaking of gold, I did some math about a year ago and ran it here, and with all the talk about the U.S. paying off its debts by selling its gold holdings, I thought it best to pull this back out:

There are 5,046 tons of gold at Fort Knox
There are 7,716 tons of gold at the N.Y. Fed
Total = 12,762 tons.

There are 32,000 ounces in a ton
12,762 tons x 32,000 = 408,384,000

Price of gold is $1,590
408,384,000 x $1,590 = $649,330,560,000

Sorry, but $650 billion doesn’t pay for even the stimulus that was thrown at us a couple of years ago! But if the price of gold were to be pushed up to let’s say $5,000, then we would be talking about making some inroads to the debt! And if the price were pushed to $10,000, then we’re getting somewhere. But we would still be left with a very large national debt.

You see that’s the problem with deficit spending. At some point, the numbers become so HUGE that you can’t make a difference in total unless you come in with both guns blazing! And then keep those guns blazing! Doing one-off corrections are only chinks in the armor.

For longtime readers, do you remember a few years ago when I tried to show the knuckleheads at CNBC that the markets were being manipulated in the after-hours trading and they laughed and told me to take the story to Hollywood? Well, CNBC has come a long way, I guess, for they allowed Eric Sprott to talk freely about manipulation the other day. Of course, maybe not that long a way, as I wanted to include the link to the video here, but it’s not working. And the folks at CNBC did attempt to ridicule him. But he would have none of it!

Maybe CNBC will have it fixed later. Just Google Eric Sprott at CNBC and look for the most-recent video.

Anyway, Eric Sprott, Ted Butler and others, including me, have done our best to inform the public of what’s going on. Maybe one day, We the People will get the message and exercise our right to contact our representatives and discuss this with them.

Then I saw this on Reuters:

“Financial advisers increasingly warn that U.S. Treasury bonds are close to a bubble and suggest that clients look elsewhere for stable and safe returns. Alternatives recommended include investment-grade corporate and emerging-market bonds, master limited partnerships and preferred stocks.”

I liked that they had finally come around to noticing the Treasury bubble, but nowhere on their list of alternatives do I see gold.

To recap: The mini-rally in a handful of currencies yesterday was wiped out in the overnight markets. And the currencies and gold are back to Wednesday’s levels. The Greeks agree to elect a government that keeps Greece in the euro. The U.S. posted a monthly surplus for the first time a very long time in April, but tax collections are made in April, so one would think that if they can’t book a surplus in April, when can they? And JP Morgan has really thrown a spanner in the works for a risk-on day with their after-market announcement yesterday.

Chuck Butler
for The Daily Reckoning

Chuck Butler

Chuck Butler is President of EverBank

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