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PPI Surges Higher In January…

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A Pfennig For Your Thoughts February 18, 2021 * Currencies & metals continued to get sold on Wed.* Since the PPI print yesterday, the dollar is getting sold…  Good day.. And a Tub Thumpin’ Thursday to you! With no games for me to want to watch last night, I began a hunt for something in my email archives… Believe it don’t, but I’ve been asked by the folks at Asset Strategy International to be on a virtual panel that they host quarterly… And of course I said “yes, I would be honored to be on that panel” When it gets close, I’ll be sure to give you all the link to watch it. I’ll be on with my publishers, and good friends, Mary Anne, and Pamela Aden. Kind of reminds me of when I used to get requests to speak all the time… Any way, they wanted a picture of me and a bio! Wait! What? I haven’t

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A Pfennig For Your Thoughts

February 18, 2021

* Currencies & metals continued to get sold on Wed.
* Since the PPI print yesterday, the dollar is getting sold… 

Good day.. And a Tub Thumpin’ Thursday to you! With no games for me to want to watch last night, I began a hunt for something in my email archives… Believe it don’t, but I’ve been asked by the folks at Asset Strategy International to be on a virtual panel that they host quarterly… And of course I said “yes, I would be honored to be on that panel” When it gets close, I’ll be sure to give you all the link to watch it. I’ll be on with my publishers, and good friends, Mary Anne, and Pamela Aden. Kind of reminds me of when I used to get requests to speak all the time… Any way, they wanted a picture of me and a bio! Wait! What? I haven’t written a bio in 15 years! Well, I did find what I was looking for after an extensive search, through my archives… An old bio… I updated it, made some changes, and doctored it up as best I could, and sent it off with a dated picture of me, but I don’t think that matters… The only difference in the picture and now is that now I’m completely bald, and wear different glasses… The Guess Who greet me this morning with their song: Undone… “She climbed a mountain that was far too high, and when she found out she couldn’t fly, it was too late”…

I know that I’ve expressed my adoration for the singing voice of Burton Cummings the lead singer for the Guess Who, in the past, but in case you missed class that day, now you know!

Well, there was more selling of Gold yesterday, the markets were not kind to the shiny metal, but… There’s always a silver lining, right? And in Gold’s corner, there was a late day rally that brought the downward movement in Gold, which at one point in the day was negative $25, to a negative $17.60, to close at $1,776.90… Silver which is enjoying this renewed interest in the metal, and causing major supply problems, gained on the day, -13 cents, to close at $27.45…

In yesterday’s Data Cupboard, there was the January PPI (wholesale index) or Producers Price Index, which would indicate the early stages of inflation down the line as measure by CPI (consumer inflation)

Well… PPI has been benign for quite a few years now, as deflation as gripped the economy, and brought non-existent pricing pressures… Well, yesterday, that all changed… And PPI posted a gain of 1.3% in January… This is the largest 1 month move in PPI since…. the government changed the way the inflation metric is calculated in December 2009!!! 

Now, remember me telling you that inflation fears at the consumer level, were rising, and helping to push the yields of Treasuries higher? Well, I did… Any way, this huge jump higher in PPI will eventually spill over the CPI, and when it does… I wouldn’t want to be the guy that signs the stimulus bill!

I say that because…. Drum roll please…. Most economists that are smarter than the average bear, have said that the $1.9 Trillion Stimulus bill would cause inflation to rise….. Well, it’s already rising and that’s before the Gov’t prints the $1.9 Trillion in new currency!

So, I believe that this surprise in PPI was the reason that Gold finally found a bid later yesterday, and is up in the early trading this morning… Oh, and another surprise in yesterday’s Data Cupboard saw January Retail Sales soar 5.3%!!!!! After 3 months of wallowing in the mud, this data set finally made a move higher, and taken with the increase of PPI, things are looking like CPI will be quite high when it prints next Tuesday 2/23…

Currency printing alone won’t move the inflation needle too much… But supply chain problems causing wholesale price increases that carry down to consumer price increases, will move the inflation needle… About a week or so ago, I wrote about the two ways that inflation can arise… I think it would behoove me to repeat that explanation, provided by Bill Bonner…

“Either the economy heats up (cyclical inflation)… and businesses need more labor and raw materials to keep up with the demand. Shortages then arise. Everyone tries to keep up with the whirlwind of getting and spending, leading to higher prices…

Or… the other possibility (systemic inflation) is that the economy cools down. Fake money, false price signals, regulation, bubbles, giveaways, and COVID-19 shutdowns could simply cause a cutback in buyable output… while the supply of available money continues to rise.”

Yes, the latter of the two ways is what we’re seeing these days… And that, my friends is the reason I think the recent bout of Gold selling has been about… These traders all know that when inflation does start to rise here in the U.S. that Gold will rise alongside it… Or at least historically it has done that, so they knocked the price of Gold down so that it starts its rise from a lower base…. I know, I know, you have to stick with me through the end of that discussion to get what I’m talking about, but you did it, and you get a Gold star for doing so! HA!

Oh, and a funny thing happened on the way to the Forum… The Cartel’s Meeting Minutes from the last meeting were printed yesterday, and guess what the Cartel members had to say about inflation fears…. “they were not concerned about inflation, with “most” officials saying that inflation risks were weighted towards too low” Hmmm… I wonder if anyone showed them the PPI print yesterday? These guys and gals can’t find pin for a room full of bubbles, how would they know if they saw inflation rising? …  I’m just saying…

The Currencies yesterday, floundered about like a fish on the dock…But in the end, they gave back a bit more in value to the dollar bugs… The Dollar Index, which yesterday morning was 90.84, ended the day at 90.91… Obviously not as large an increase in the Dollar Index as the day before when it rose 84 bps… But a day that the currencies aren’t proud of, for sure! 

In the overnight markets there’s been some dollar selling, as the currencies are a little higher VS the dollar this morning. Gold is up $3.70 in the early trading, while Silver is down -28 cents… A reversal of the recent trend for these two metals. Pound sterling continues to rise, as does the price of Oil, which added another whole figure to its price in the past 24 hours, and now trades with a $61 handle… 

Yesterday, I made a BIG Deal out of the fact that China passed the U.S. as Europe’s top trading partner in 2020… And that got me thinking about something that I had written a couple of years ago, when then President Trump announced the trade tariffs on China… I said that no good would come of that, and asked him to reconsider the tariffs… Remember? These tariffs were supposed to narrow the Trade Deficit that the U.S. had built over the years…  Well here are the facts on that… “The US last year posted its biggest annual trade deficit since 2008 as the global health crisis depressed export markets for American companies.

The gap in trade of goods and services widened to US$678.7 billion in 2020 from US$576.9 billion in 2019, according to Commerce Department data.”

Look who was right…. Neener, neener, neener! The dollar was too strong for the past 6 years, and that has weighed heavily on our inability to make inroads in overseas exports… I read a report last year that made the hair on the back of my neck stand up… (I really don’t have hair on the back of my neck, but if I did, it would have been standing up!) The report was written by an economist who said that the Trade Deficit was not important… OK, smarty pants, what happens when you need to import a particular item from a country that you desperately need (like face masks), and through the years you have racked up a very sizeable trade deficit with this country… And the Country balks at giving you any more credit? Well, in the old days, those would be fightin’ words… But in today’s world, everyone major country has the capability of wiping out the other countries, so it’s a Mexican Standoff, if you will when it comes to wars…

Then comes the scary part… What happens IF the leader of the country in debt, decides that the only way out of this is by waging war? Uh-Oh…

I rest my case… And besides, what’s another $678 Billion in red ink? It all comes from the Magic Money Tree, right? I shake my head in disgust that these things are even thought of this way by some people….

The U.S. Data Cupboard yesterday had more than the data prints we’ve already talked about this morning… In addition, to retail sales, & PPI, we also saw Jan. Industrial Production, which was positive .9%, but down from Dec’s 1.3% figure… And Capacity Utilization surprised with an upward move to 75.6 from 74.9…  That one is quite interesting, but one print doesn’t make a rally, for businesses, so we’ll circle back in March when February CAPU prints…

Today’s Data Cupboard has the Weekly Initial Jobless Claims, and while we’re talking about inflation fears and trade problems, the Import Prices data will print today too…

To recap… The currencies and metals got sold again on Wednesday, this time the selling wasn’t as harsh as Tuesday’s selling, but then it was still selling. Nonetheless…. In the overnight markets the dollar has gotten sold a little, so we’ll see if it carries over to today’s trading… Chuck talks at length about the rise in PPI, and points out the two ways inflation can rise. Chuck also spends some time talking about the U.S.’s trade problems… Chuck gloats about who was right about those tariffs!

For What It’s Worth… Ok, to end the week, I have a very long FWIW article for you today… it’s title is in the link below… this is a very important discussion folks, and that’s why I chose it for the FWIW article today, so grab a cup of coffee, and get comfortable… And it can be found here: Who Bought the $4.5 Trillion Added in One Year to the Incredibly Spiking US National Debt, Now at $27.9 Trillion? | Wolf Street

Or, here’s your snippet: “Driven by stimulus and bailouts, and fired up by the tax cuts and by grease and pork, the Incredibly Spiking US National Debt has skyrocketed by $4.55 trillion in 12 months, to $27.86 trillion, after having already spiked by $1.4 trillion in the prior 12 months, which had been the Good Times. These trillions are all Treasury securities that form the US national debt, and someone had to buy every single one of these securities:   

Tuesday afternoon, the Treasury Department released the Treasury International Capital data through December 31 which shows the foreign holders of the US debt. From the Fed’s balance sheet, we can see what the Fed bought. From the Federal Reserve Board of Governors bank balance-sheet data, we can see what the banks bought. And from the Treasury Department’s data on Treasury securities, we can see what US government entities bought.

Share of foreign holders falls to 25% for first time since 2007:

In the fourth quarter, foreign central banks, foreign government entities, and foreign private-sector entities such as companies, banks, bond funds, and individuals, reduced their holdings by $35 billion from the third quarter, to $7.04 trillion. This was still up from a year ago by $192 billion (blue line, right scale in the chart below). But their share of the Incredibly Spiking US National Debt fell to 25.4%, the lowest since 2007.

The Fed added $253 billion to its Treasury holdings in Q4, bringing the pile to $4.7 trillion by the end of December, a record share of 17.5% of the Incredibly Spiking US National Debt . Over the 12-month period, the Fed added $2.37 trillion in Treasuries to its holdings, more than doubling its pile:

Chuck Again… I can’t get all of the article here so you’ll have to go to the link to read it all… It’s quite interesting seeing the distribution of Treasuries, and the increase that the Cartel, I mean the Fed, has taken on, which to me is nothing more than demonetizing the debt… For which if the markets ever woke up and realized what the Fed was doing, would not be good for the dollar… 

Market Prices 2/18/21: American Style: A$ .7771, kiwi .7206, C$ .7880, euro 1.2064, sterling 1.3932, Swiss $1.1140, European Style: rand 14.5860, krone 8.4696, SEK 8.3170, forint 297.25,  zloty 3.7202,  koruna 21.4186, RUB 73.77, yen 105.75, sing 1.3274, HKD 7.7425, INR 72.56, China 6.4561, peso 20.21, BRL 5.3827,  Dollar Index 90.72, Oil $61.38, 10-year 1.29%, Silver $27.16, Platinum $1,263.00, Palladium $2,400.00, Copper $3.88, and Gold… $1,780.60

That’s it for today… and of course this week… Remember last winter, when I had to make 2 trips a week an hour north of where I stay, to the wound center in Port St. Lucie? And this year, no such trips! Tomorrow I’m going to be getting a visitor! My good friend, Walt is coming to visit me. He says he needs a dose of Chuck’s thoughts… I said, “buy me lunch and I’ll talk all day!”  Tomorrow is also the day when I’ll be ordering my spring training baseball game tickets! YAHOO… Pitchers and Catchers reported to Jupiter yesterday, so it’s all systems go, right now, subject to change at any time! Feb. 28 is the first game for me… I’m already as excited about going to the stadium as a kid at Christmas! And with the Cardinal’s new 3rd Baseman, Nolan Arenado, the lineup will have a different look to it this year, which was badly needed for a bland offense last year… I don’t think I’ve missed any birthdays this week, so I’ll see what’s playing to take us to the finish line today… Ahh, it’s Brewer & Shipley with their rock classic song: One Toke Over The Line… Now there’s an oldie for you! And with that, I hope you have a Tub Thumpin’ Thursday, and will Be Good To Yourself!

Chuck Butler

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A Pfennig For Your Thoughts

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