Silver Coin Sales Have Record Year in 2015

And now… today’s Pfennig for your thoughts…

Good day, and a tub thumpin’ Thursday to you!

The European Central Bank (ECB) is meeting while my fat fingers go to work here this morning. As I told you yesterday, I don’t expect anything market moving out of the ECB at this meeting, and the traders feel that way too, because the euro has climbed above the 1.12 figure this morning. That’s what I call “pushing the currency envelope”, for these traders are pushing the euro higher, in while the ECB meets.

The Dollar Index, which hit a six-month high of 95.76 on Monday, had drifted lower the last two days, and sits at 95.26 this morning. I’ve told you before that the Dollar Index is heavily weighted with euros, so as the euro goes, usually the Dollar Index goes. It’s not a lock-step ratio, it’s more of a “back of the envelope” view of the Dollar Index.

The Aussie dollar (A$), which yesterday saw some better than expected first QTR GDP data, and rallied on the print all the way to 73-cents, is taking it on the chinny, chin, chin today, as Aussie Retail Sales fell short of expectations, and so it was a one-day in the sun for the A$, and then back in the box!

For those of you keeping score at home, Aussie April Retail Sales grew at 0.2% with the consensus at 0.3%. This was the first Retail Sales print of the second QTR, and since it was lackluster, it reminded traders that the Reserve Bank of Australia (RBA) still has rate cut arrows in its quiver.

The price of oil climbed back over the $49 handle in the past 24 hours. I don’t know what caused the slippage yesterday, probably just profit taking, or a shot of manipulation, but whatever it was, it had no legs. Someone asked me via email the other day, why it seemed that I was rooting for a higher oil price. That’s Easy, I said. I in no way want to pay for gas ever again that has an oil price of greater than $100. But since the U.S. consumer didn’t come out of their shell with the savings from the drop in gas prices, I thought that it would be good to not have the financial problems of the oil companies weighing on the economy. That’s all, I’m not really rooting for a higher oil price, just sort of happy to see the shale producers not jumping off the cliff like a bunch of lemmings.

So, with the price of oil higher this morning, the Russian ruble gets to pick itself off the mat and rally, alongside the Norwegian krone, Canadian dollar and Brazilian real.

Speaking of Brazil, the Olympics are almost here! On a serious note though, I was reading an article that talked about how the writer believed that the impeachment of Brazilian President Dilma Rousseff was an orchestrated event, and then pointed to the problems that S. African President Zima is experiencing and said that those problems are orchestrated too, by the powers that be who are undermining the BRICS countries. Hmmm, well, that seems too much like a James Bond movie right now, but at some time in the future we find out that there was some validity to it, I wouldn’t be surprised.

And speaking of the BRICS, the Big Dog, of the group, China, is on my mind this morning, so refill that cup of coffee and come back for this discussion on China and the renminbi. OK, ready? Let’s go!

Well, James Rickards believes the so-called Shanghai Accord is still in force, but I have to think twice about that, given the weakness in yen and euros since the start of May, and the renminbi slowly slipping on a daily basis. The Chinese are testing the frog in the boiling water thing if you ask me. Yes, you know the old thing about if you put a frog in a pot of boiling water, it will just jump right out. But if you put it in a pot of water and slowly increase the heat until the water reaches boiling point, the frog won’t jump out, and end up being cooked.

That’s what I think the Chinese are doing now instead of large devaluations. Knowing now what the last large devaluation did to the Global markets psyche, the Chinese have decided to slowly increase the heat and depreciate the renminbi on a slow heat setting. That way, no one will be the wise guy that sees what they are doing.

I don’t believe the Chinese are happy with the U.S. for 1. Allowing their debt to get so large that it has ruined the value of the dollar, of which the Chinese own boat loads of, and 2. For hiking interest rates while the rest of the globe deals with zero or negative rates (save for the Russians and Brazilians of the world) and putting the global economy at risk. So, what do they do to let the U.S know?  They devalue and depreciate their currency weaker when the U.S. wants the renminbi stronger. To that end, I wouldn’t be surprised to see the renminbi continue to depreciate the rest of the year.

So, that gives us some opportunities to take advantage of this frog in the boiling water scenario. One could see the coming depreciation as an opportunity to take a gain now, and then buy back when the price is even cheaper. That’s an idea, but one that has tax implications so be careful before you leap. But in the end, it’s just better to have the one currency that has the potential for a gold backing of some kind in the future, don’t you think? Of course that’s my opinion, and I could be wrong!

The price of gold gyrated yesterday, up a little, down a little, sideways for a while, and in the end the shiny metal was down $2.30.  But this morning, gold is up $3 in early morning trading. I had to smile yesterday, mid-morning, I walked out to the trading desk and asked our metals guru, Tim Smith, what gold was doing, and then he responded, sounding like the words came out of my mouth. “Well, gold was up until the NY Traders came in and took it back down”.  Ahhh, grasshopper, you have learned well, I thought.

I don’t know if you noticed or not, but silver had dropped below $16 yesterday morning, and I thought that was important as it had not been below $16 since late last year. But this morning silver is back above $16. The amount of silver purchased last year was amazing, but yet the price of silver remained low.

The GATA folks sent me a note that highlighted the fact that Global Mints recorded Global Investors buying 89.6 million 1-ounce silver coins in 2015, beating the previous year’s record amount of 77.9 million 1-ounce silver coins for 2014.  That’s a 14% increase year to year, folks. And would reason that silver would have gone higher in 2015, but nooo! Oh well, in my opinion, which could be wrong, silver certainly has the potential to eventually go higher in price.

Before I move on here I wanted share this quote with you from the great James Grant who said, “Gold isn’t a hedge against monetary disorder, it’s an investment in it.”

Well, as I told you on Tuesday, I did believe that Japanese PM Abe, would announce that he was delaying the increased VAT tax that was supposed to go into effect this spring.  This was part two of his new plan to stimulate the Japanese economy. Recall I told you on Tuesday that he announced a new 10-trillion yen stimulus package.

I don’t get the traders that were fooled by this again, do you? Yen traders have taken the currency from 111 on Tuesday morning to a 108 handle, because they think that “this time, it’ll be different”. Crazy, eh? But, that’s what we have to deal with when it comes to currency traders. I’ve always told you that they are a fickle group. And apparently yen traders are the sharpest tools in the shed!

The U.S. Data Cupboard yesterday was a mixed-bag-o-nuts. We had the ISM Manufacturing Index print at 50.7, vs. 50.8 in April, and I would just call that stuck in the mud. Construction Spending for April saw a big downturn of -1.5%. May vehicle sales remained steady at 17.4 million. And the Fed Beige Book showed little evidence of an economic pickup in the second QTR. Nothing here that would push the Fed to hike rates in two weeks.

Today’s Data Cupboard has the ADP Employment Report, which will be used to give an indication of tomorrow’s Jobs Jamboree. And the usual Thursday fare of the weekly Initial Jobless Claims. In the end though, there’s nothing here, and all focus will be shifted to tomorrow’s Jobs Jamboree.

For What it’s Worth. Well this is all me talking today about something that hasn’t gotten much press, but something that should be talked about at length, which is something I’m going to correct!

Well, tomorrow is the May Jobs Jamboree. Going into tomorrow we have a consensus forecast of +158,000. This jobs thing has really taken on a life of its own, in that it is viewed by some as a “judgement day”, and that the markets’ participants sit and wait for this number to print every first Friday of each month. I’ve always contended that the number of jobs “created”, with the word “created” used loosely here, was not important, as the kind of jobs created or what they are paying wasn’t available.

In a roundabout way they are now, but you have to be a good scavenge hunter to find them.. Instead I’ve always maintained that the Avg, Hourly Earnings and the Avg. Work Week Hours were more important, for the kind of inflation that the Fed fears would be found here first.

But there was something I spotted in the newspaper last week that I thought, would surely be a problem for those that get hung up on the number of jobs created each month going forward. And that is the new overtime rules that were passed by the Dept. of Labor. They take effect on December 1, 2016, so employers have six months to prepare for the change. According to the Department of Labor (DOL), employers can:

1.      Pay time and-a-half for overtime work over 40 hours

2.      Raise worker’s salaries above the new threshold ($47,476 per year)

3.      Limit worker’s hours to 40 per week

4.      Some combination of the above

So, here’s the skinny on all this. Employers have been able to skip paying overtime to workers that are deemed “salaried”, but going forward, an employer would have to either raise the “salaried” persons salary to the $47,476 per year, or take them off the “salaried” list and pay them for the hours over 40 they worked. 

Now if you are an employer, and you have 10 employees that are all making, let’s say.. $30,000 per year on a “salaried” basis.  You can give them all essentially $20K raises, or begin to pay them for overtime. Or, you can fire them, and hire new employees at a lower salary, and pay them the +40 hours overtime pay. Or, you could cut them back to hourly, and then make them part time, and save money! Now, I know that everyone out there acts ethically, and morally sound, but there will be someone out that that sees this new overtime pay rule as an opportunity not only cut salary, but to cut benefits costs.

Well, that’s that. I find that this new overtime rule is good in that workers that need the overtime pay and work the hours, will finally get it, but I’m really scared that employers will see this an opportunity to cut costs, with workers not benefitting from the new rule. I sure hope that doesn’t happen.

And with that I’ll get out of your hair for today, and send you on your way to a tub thumpin’ Thursday… be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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