Don’t Bother Asking Ben

Well, who would have thought it?

Yes, who would have thought that the U. of Michigan Consumer Confidence could turn the markets upside down and spoil the party?

Well, it happened on Friday! The U. of Michigan Confidence Survey for August unexpectedly dropped to 63.2, from the previous month’s 66 level. The real drop though was from the forecast for this month, which was 69! The drop brought the index to a five-month low.

CPI printed at 0%, Industrial Production rose and so did Capacity Utilization in July. But none of that positive data could get the taste of the U. of Michigan Consumer Confidence numbers off the market makers’ mouths.

It was the Humpty Dumpty economy once again. All the king’s men couldn’t erase the drop of Consumer Confidence.

And, the return of the risk aversion campers swamped the markets. And all day Friday, we saw losses in value of stocks, commodities and currencies. In the overnight markets, the return of risk aversion got even stronger.

“Thanks China” – Falling Commodities

As I understand it, China’s largest steel makers announced that they were going to see iron ore prices at 35% below the benchmark. This sent shockwaves through the commodities, and that has carried over to further losses in the currencies…

The euro has just fallen through the 1.41 handle, and is taking all the other currencies with it to the woodshed. That is, except of course, the Japanese yen.

I’ve gone through this so many times in the past, I think you all know exactly what I’m going to say, before I say it. But, for those of you new to class, when the risk aversion crowds fill the markets, investors head for the hills and sell their “risk assets.”

Risk assets include commodities, key foreign currencies, stocks…pretty much everything except what the mental giants in the markets still call “safe havens,” a.k.a. the dollar and Japanese yen.

STILL Not Safe Havens…

One pick is ridiculous, and the other one is even more ridiculous as “safe havens.” But you can’t fight the markets, and they deem the Japanese yen and U.S. dollars as “safe havens.”

Me? Personally? I deem one to be a currency that should be circling the bowl! And the other? It’s iffy for sure… I don’t think you need me to tell you which one is which!

Of course, the Japanese yen has its moments. And one of those came last night in the form of their 2nd QTR GDP. The Japanese economy grew 3.7% in the 2nd QTR, thus ending their recession… But just like the Australian economy that we talked about last week, and needing to see if it can maintain this growth after the removal of “fiscal candy”, the same is true for Japan. But Hey! 3.7% growth is still pretty impressive, for Japan!

Oh Ben, Where Has That $500 Billion Gone?

Today, we’ll see the June TIC Flows data from the Untied States. I must say these TIC flows just don’t get the attention I believe they should. TIC Flows are simply, the net security purchases by foreigners. In my opinion, everyone should be watching these.

Here’s why: The U.S. has to sell its Treasuries to finance the ever-expanding deficit. And supposedly, these TIC Flows tell us whether that’s happening or not. But given the games that people (the Fed and Treasury) play these days, who knows what is real or not? Only the shadow knows!

Don’t ask Big Ben Bernanke, he’ll tell you he doesn’t know. That’s what he said when a senator asked where $500 Billion went that disappeared from the Fed’s books. Big Ben replied, “I don’t know.”

Ahem… Big Ben? IF YOU DON’T KNOW… WHO SHOULD WE ASK?

Okay, back to TIC flows…Last month, for instance, the data showed a negative figure, which meant that we did NOT finance our deficit in May. I’ll be back with the June prints tomorrow.

Speaking of the cartel, I mean the Fed Reserve… I saw this quote by Bill Bonner the other day, and just knew it would fit nicely in with any discussion of the cartel, I mean the Fed, and Big Ben Bernanke. Here’s Bill…

“And remember, too, the feds don’t really have any money to hand out. They can only get money by taking it from its rightful owners – either in taxation or loans. Or, they can print it up themselves. In any case, the money adds nothing real or extra to the economy. It merely distorts the economy…twists it…misleads it…and makes it a bigger mess than it was already.”

Yes, that’s exactly right, Bill! And something that I’ve tried to tell my dear readers for some time now. A lot of people don’t agree with that. That’s all fine and dandy but my research tells me otherwise… Quite a bit otherwise!

That’s it for today… Well, this past weekend we hosted a surprise 30th birthday for my darling daughter, Dawn, on Saturday night. Friends and family successfully pulled off a surprise for her! Dawn’s actual birthday is this Thursday, but I’ll be flying to San Francisco, and I wanted to be able to celebrate with her! I’m taking this a little strangely, having a daughter that’s 30! WOW!

Okay gotta go…I hope your Monday is Marvelous!
Chuck Butler