Retail Sales Rebound!

A Pfennig for your thoughts…

The U.S. dollar has taken its seat at the front of the class once again, and the teacher is only calling on the dollar. The Norwegian krone is the lone wolf currency that’s carved out a gain versus the dollar this morning.

Neither the Chinese renminbi, Russian ruble, or Canadian dollar/ loonie, the three that have at least pushed the currency envelope more than once this week, have been able to muster a rally versus the dollar. The Norwegian krone is getting some love from the news that Norway’s Oil and Gas Investments printed a larger than expected CAPEX (Capital Expenditures). That’s a good fundamental to rally on!

I’ve explained this to Pfennig readers plenty of times before, but for the new kids to class, Capital Expenditures are a very good indicator that a country’s economy is either 1. Strong already, or 2. Getting stronger, and businesses feel good about putting money back into the infrastructure of their company. So, that’s what has krone on the rise today.

Now, should I take an aluminum bat to the BHI?

For those of you new to class, the BHI is the Butler Household Index, and I’ve used this for probably 15 years to give me a better indication of what the U.S. Retail Sales would show when printed. The BHI basically was my mental count of the shopping bags or other items that I would see coming through the door during a month.

I always thought that it was a little oversold, in that my wife was a good U.S. consumer, and did her best to support the economy. But be that as it may, the BHI, has been right 90% of the time over the years. And that’s a better percentage of “hits” than most fund managers, stock jockeys, and even Fed economists.

So, now that I’ve gone through that… yesterday, May retail sales printed at a 1.2% gain. That was bang on expectations but probably much higher than I expected per what I had gotten from the BHI.

Apparently, 1.2% and hitting the expectations was not somewhat disappointing to the markets, so the BHI let me down. So, now I ask again, should I take an aluminum bat to the BHI?   Probably not? Like I said, its track record is better than the average bear’s track record, so I guess I’ll keep it. It’s pretty obscure, you have to go to the 2nd page of results on Google to find any mention of what the Butler Household Index is. UGH!

The news headlines were flying left and right yesterday touting that the U.S. Consumer was back! Hmmm. There was one component of the spending data that was soft. Guess what it was?

If you said, “spending at gas stations” you would be correct!

So, I guess U.S. Consumers were too busy buying new cars, which were a very strong component of the data, than filling the gas tanks! When everyone has a new car, will there be turnover to continue the strong new car sales?

I don’t know about you, but at the Butler house, we keep cars for a very long time! I still have the Honda Pilot we bought in 2002. I still have the Navigator I bought in 2005 and the other two cars were bought in 2012, and we will drive them until they die. I’m just saying.

Last week we had the trumped up BLS jobs report that got the dollar bugs dancing in the street. They got to continue their dancing yesterday, with the Retail Sales report. As the dollar bugs see it, these two reports will grease the tracks for the Fed to hike rates.

That has the dollar at the front of the class today, folks. Now, I have to say that all this dancing is giving me a rash. There’s not going to be a rate hike, period. Not here, not now. Well, I guess this is where I have to say, that’s my opinion and I could be wrong.

Well, have you heard the news, there’s good rockin’ and midnight! Well, maybe there is, but the news I’m talking about is that the IMF (International Monetary Fund) has halted bailout talks with Greece after the failure to make progress in negotiations.

An IMF spokesman said, “There are major differences between us in most key areas and there has been no progress in narrowing these differences recently. Thus we are well away from an agreement, and our negotiating team has been pulled out of Brussels, where talks had been occurring.”

Leaving a parting shot at Greece, the spokesman said, “the ball is very much in Greece’s court right now.”

This news shook the euro bulls’ confidence in an agreement being ironed out, which then whacked the euro a good one on the behind, with that wooden paddle that has holes in it, so the air wouldn’t slow down the swing! Now that was something that made you think twice about EVER doing something bad again.

OK, I didn’t mean to get into all that, I really just wanted to talk about the kind of hit the euro took yesterday. It was a double whammy on the euro, with Retail Sales in the U.S. meeting expectations, and the IMF announcement. This morning, the euro has sunk further down the slippery slope with another double whammy hitting it.

First, we had a softer than expected Industrial Production (IP) print from the Eurozone. IP gained just 0.1% versus the previous month, which isn’t bad for a region that’s trying to exit a recession, but it was softer than expected, with expectations at 0.4%. And then to ice the double whammy cake, German Chancellor Angela Merkel decided to talk down the euro, by telling reporters that “a strong single currency (the euro) makes it harder for nations like Spain and Portugal to benefit from reforms.” Way to go Angela! Open mouth, insert foot! Well, that’s how I feel about this, I’m sure she did it on purpose.

Last week, it was all about the Jobs Jamboree on Friday. This week was all about Retail Sales, and next week it will be all about the Fed’s FOMC Meeting June 16, 17.

I really don’t know what all the fuss is about going into next week’s FOMC Meeting, as I said above, I don’t believe there will be a rate hike. The Fed is going to attempt to sooth the feathers of the markets that they made believe that the first rate hike would come in June, by talking about how the economy is showing signs of recovery. Did we see this last year?

The 1st QTR was awful, the 2nd QTR was better, the 3rd QTR was strong, and the 4th QTR fell back again. So, far, we’re on target for a repeat. Although, I would have to say that unless the economic data here in the U.S. does an about face in the 2nd QTR, that the 2nd QTR GDP will strain to beat the 1st QTR’s -0.7% print!

The U.S. Data Cupboard today has PPI (Wholesale inflation) which is expected to rise 0.4%, which would offset the -0.4% drop last month. But if this is a turn-around, we’ll have to wait-n-see what next month’s PPI prints.

We’ll also see the U. of Michigan Consumer Confidence for this month, which is expected to show a pickup of Confidence in the index number. Hmmm, I guess the people surveyed for this data, were happy that the BLS added 213,000 jobs out of thin air to the totals to make 280,000 jobs “created” in May.   Whatever makes you happy, right?

And Gold. Well, it’s down again today, well only a buck or two, so we could be the glass is half full kind of people and say gold is flat today after giving up the gains it booked on Wednesday.

The other day I mentioned to Pfennig readers that the DOJ is going to investigate U.S. Treasury trading, and the trading of gold & silver for possible manipulation. Their investigation isn’t going to be limited to gold & silver, as other precious metals will also be included.

Do you think the DOJ is going to interview Bill Murphy, the head of GATA?   Or Eric Sprott of Sprott Resources? Or how about Ted Butler the Silver guru? If I were the DOJ, and Lord help us if I were!, I would start with these three gentlemen and scholars, for they know a thing or two about price manipulation in gold & silver.

To Recap. The dollar is at the head of the class today, joined only by the Norwegian krone, which saw CAPEX data print stronger than expected, which I pointed out is a good fundamental for a country / currency!

U.S. Retail Sales were bang on expectations of a 1.2% rise, and I question the continued use of the BHI. The euro received a double whammy yesterday, which was followed up with another double whammy this morning, with IP not meeting expectations, and Angela Merkel complaining about a strong euro.

Gold is flat today, after giving back Wednesday’s gains, on Thursday, but the DOJ is going to investigate possible price manipulation of gold and silver, so the metals are saved, right? HA! As IF the DOJ would find anything!

For What It’s Worth.   I receive a letter each week from a guy named Jared Dillian, who writes for the John Mauldin Economics group. Jared’s letter is called “the 10th Man” and you can find it at Mauldin Economics. Jared talked about owning Gold, let’s listen in…

“There are people who say gold should be x percent of your portfolio in all weather. I get it. It tends to be negatively correlated with other stuff, so it reduces the volatility of a portfolio.

And as long as central banks are doing what they’re doing, the long-term case for gold is pretty much intact, recent price action notwithstanding.

But let me tell you this. If central banks ever got religion and pulled a Volcker and hiked rates to the moon, it would be a remarkably bad time to hold gold.

On the other hand, throughout history, there have been times where people were very sad that they didn’t own gold.

It’s very real, and the history of fiat currencies is also quite sad.

I am the furthest thing from an alarmist. I don’t think the dollar, or the euro, or any other currency is going to collapse, at least not imminently.

But I also think the Fed doesn’t want to raise interest rates, possibly ever.”

Chuck again. The only thing I would point out here is that in 1980, gold reach $800 from a very low point in 1979, and what were interest rates then? 18, 19%.

So, gold can exist and flourish in price with high interest rates, but I do get it, that with interest rates so high, things would have to be out of hand, inflation-wise, for Gold to find terra firma.

But why else would interest rates be so high, other than to combat high inflation?


Chuck Butler

for the Daily Reckoning

The Daily Pfennig is first published everyday, right here.

P.S. Be sure to sign up for The Daily Reckoning — a free and entertaining look at the world of finance and politics from every possible angle. The articles you find here on our website are only a snippet of what you receive in The Daily Reckoning email edition. Click here now to sign up for FREE to see what you’re missing.

The Daily Reckoning