In This Issue.

*  Currencies remain mixed but…
*  The bias to buy dollars remains.
*  N.Z. Retail Sales are strong!
*  Rickards talks about Gold reserves

And Now. Today's A Pfennig For Your Thoughts.

U.S. Retail Sales Disappoint. Again!

Good Day! .  And a Tub Thumpin' Thursday to you! Geez Louise, I think I slept wrong the night before, because as yesterday went on, my neck and shoulder began to tighten up. Do the tighten up, everybody's doin' now. Hello, I'm Archie Bell and the Drells and we're from Houston Texas. Ahhh, remember that one? Do the tighten up. Anyway, what I'm saying is it is painful to just sit here and attempt to type! UGH! No worries, I'm not going to bag the Pfennig today because of some tightness and soreness in my neck and shoulder. But brother does it hurt, when I type! Doc, it hurts when I do this. Then don't do that!

It's hurting the euro to be associated with Eurozone GDP this morning. Specifically, German GDP, which for the 2nd QTR, printed negative. OUCH! Now that's going to leave a mark! Remember the other day when I told you that I thought that the reason the German GDP report was delayed in printing was because something was wrong? Well, I would think that German 2nd QTR GDP printing at a negative -.2%, would qualify as something wrong, eh? France's 2nd QTR GDP report was flat, so the euro had to get in bed with these two GDP reports and guess what happened? The euro got sold. once again.

The forecasts for German GDP did have it printing negative, but at -.1%, the negative -.2% was worse than expected and when that happens, the associated currency, which in this case is the euro, gets taken to the woodshed. Yesterday, after the rotten U.S. Retail Sales report (more on that later) the euro rallied all the way up to 1.3415. But just as fast as it rose, it fell back. I'm not sure what traders were doing there. But, it does show to go ya, that the euro still has the ability to rise quickly!

The dollar is mixed again this morning, with the Aussie dollar (A$), kiwi, loonie, franc and rupee all booking gains VS the dollar. Pound sterling, which got whacked yesterday after Bank of England (BOE) Gov. Carney commented that interest rates will not rise this year (another case of, see I told you!), is still spending time on the selling blocks this morning. I really think that the selling in pound sterling might be a bit overdone, but then the rise in the currency was quite significant and was all based on the belief that Carney would hike rates sooner than later.

Kiwi is pushing higher for the first time this week after a strong 2nd QTR Retail Sales report printed in New Zealand. The S. Korean Central Bank cut interest rates last night. This is a very illiquid currency, but I wanted to make note of the rate cut in Asia. And the Russian ruble finally saw some love overnight, getting back below 36 for the first time in a couple of weeks. I was reading James Grant's Interest Rate Observer, and while I can't quote him from the letter, I will say that he had kind things to say about values in Russia.

Well, two Asian “powers” reported some reserves data last night. Front and Center, China's Trade Surplus grew at a rapid pace in July to $47.3 Billion. Exports were very strong is an understatement, given they grew at a pace that was the fastest in 15 months!  I would have to think that given the China's nearly $4 Trillion in reserves is waiting for something to do, and the economy seems to have troughed, that the People's Bank of China (PBOC) will begin to allow appreciation in the renminbi / yuan at a regular pace to the end of the year.

The other “Asian Power” to report reserves. India reported that their reserves have grown by 26 Billion  this year, putting the total at an all-time high of $320 Billion. Given the fact that India's Current Account Deficit, which was at the center of attention last year, is really on 2% of GDP, and the reserves are strong, the rupee maybe can get back to rallying like it did the first 1/2- of this year.

Notice that I said, “Maybe”? Well, that's the way it has to be these days, folks. You see, fundamentals haven't been used exclusively since pre-2008. And Central Banks have taken the reins from the markets on the currencies, just like they did on stocks and bonds. It is believed by many people that the markets are bigger than any Central Bank. But not when that Central Bank has a printing press, like the one that former Fed Chairman, Big Ben Bernanke, reminded us that was in the Fed's possession. Of course that's using old terminology since money isn't really printed, for mass use like QE, any longer. It's simply an entry on a computer.  Now, doesn't that make you feel better? HA!

That's right! An entry on a computer, and Billions are created. But what's behind them to support them, to guarantee the holder that the currency they hold won't lose purchasing power?  Well, as Edwin Starr sang. Nothing, absolutely nothing, say it again! And since the U.S. Fed has made more computer entries in the past 6 years than anyone else, that should give you a nice warm and fuzzy about holding dollars, eh?

Sure the Eurozone is suffering through a recession, but that's all it is. The U.S. has been in a depression for 6 years, the officials just won't admit it!  There are no soup lines like the ones in the “great depression”, but that's no longer necessary. The Gov't mails checks, credit cards, or makes automatic deposit into accounts so they can pull the wool over our eyes, for when the Gov't is questioned about the economy, they can say, “There are no soup lines”.

OK.. I had better stop there! This could have really become a Butler Patio discussion in a heartbeat, but see how the new “kinder, gentler, Chuck, is in the Pfennig? Yes, I've been successfully spayed and neutered. But every once in a while I have a reoccurrence of the former Chuck. HAHAHAHAHAHA! I'm just playing around here, I sure hope you didn't think I was serious!

The Norwegian krone is still garnering the love of traders 3 days after their CPI report stunned the crowds. To me, I think this is way overdue, for there's no reason the krone and the krona for that matter, should be dealing with the weakness they have this year. The euro has gained VS the dollar, what the heck was going on in Norway and Sweden, for they used to be able to run faster than the Big Dog euro.

There's been no follow up to the Chicken Little story that surfaced last week and I talked about, regarding the dropping of the Hong Kong Dollar / honkers peg to the dollar. I told you all when the honker was under so much pressure that the Hong Kong Monetary Authority (HKMA) had the firepower to defend the peg, and apparently they did so this time without major angst. The honker peg to the dollar will eventually fall, I truly believe that to be the case, but it wasn't time this time. But I have to say that I think those that are looking at this as an opportunity to buy honkers while the peg is still in place, thus limiting their downside exposure, and holding it for a drop of the peg, are quite astute to what I've been saying. 

This reminds me of 12 years ago, when the rumors swirled daily about how China was going to drop their peg to the dollar. And there were writers and analysts that went out on a limb saying it was going to happen on “X”, and then “X” came and went without any drop of the peg. 3 years later in July of 2005, when everyone had given up on the drop of the peg, The Chinese dropped the peg to the dollar, and moved to peg to a basket of currencies. (supposedly, Chuck thinks that the Chinese just manage the currency to the level they want and just use the basket of currencies as a “prop”).  I kept telling people in 2002,& 2003, that it just wasn't time for the peg to be dropped yet. And now we have the honker peg. history may not repeat itself, but it does rhyme.

The price of Gold rose a bit yesterday after the rotten Retail Sales report in the U.S. But is down a couple of bucks this morning. Silver, Platinum and Palladium are all flat to up by pennies. So, basically flat this morning.  I have more on Gold in the FWIW section today, which I found on Ed Steer's letter, so I won't get into Gold here.

Well, looky there! The BHI hit the Retail Sales bang on, now didn't it?  For all of you who have missed class recently, I told you last week that the BHI suggested to me that the July Retail  Sales for the U.S. would be disappointing. And that's exactly what we had! July Retail Sales printed at no growth, zero, zilch, nada, nothing, and so on, following a .2% gain in June. Uh-Oh.  You don't think the lack of liquidity in the markets, is starting to rear its ugly head do you?  That's a difficult call to make, so I won't go out on a limb and say it's a lack of liquidity that's already beginning to show up in the economy. But worry not, for the lack of liquidity is still on its way!  Instead I would like to focus on this piece of data that a dear readers sent me yesterday.

The types of jobs lost the last 6 years paid nearly $62,000 per year, on average. The jobs gained during the past six years pay only about $47,000. That is a 23% shortfall that adds up to about $93 billion in lost wages per year – money not being spent because it vanished from the economy. Aye, aye, aye! YIKES! Heavens to Murgatroyd! And so on. That was reported on Yahoo Finance, should you want to make sure I have those numbers correct! HA!

The Yahoo Finance article also has this to say: “This is a pernicious problem that can't be easily fixed by policy prescriptions or Federal Reserve maneuvers. The Fed has said repeatedly it sees “slack in the economy”, and the income shortfall could be a prime example of what the Fed means by “slack”. Yet even the Fed continues to hold interest rates at super-low levels, it's not clear that would help boost pay or living standard for ordinary people.” 

You know the great economist: Henry Hazlitt said it best when he said that “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” Notice he says for “all groups”.  The ZIRP (zero interest rate policy) certainly hasn't helped “all groups” now has it?

But, let's get back to the Rot on the Vine in Retail Sales. This marks the 3rd Consecutive month of disappointing Retail Sales in the U.S. So, apparently, the weak Retail Sales reports in January & Feb were disappointing because of bad weather. So, what's the excuse now?  There certainly is no “pent up demand” is there?

Before I head to the Big Finish, I have a funny for you, well, it was funny to me. Did you hear what the President in Ecuador said when he was questioned about Ecuador's exports of agricultural products to Russia?  Here it is: “I want to immediately say that we don't need to get anybody's permission to sell products to friendly countries: as far as we know, Latin America isn't a part of the European Union.”  

That's right! You tell 'em!

For What It's Worth. While I surfing Ed Steer's letter this morning, I found something that I thought was interesting. He found it on Goldseek.com, and it's an interview of James Rickards, who is always a good read (I'm currently reading his book: The Death of Money)  the interview was a video, so I had to take snippets from it.

So, when asked about The U.S. Gold Reserve, Rickards said, “The U.S. Gold Reserve has been leased out but has not left its vaults. The leased gold consists of certificates of title that have been hypothecated many times, creating a vast supply of imaginary Gold that is undeliverable.

If called for delivery, those certificates will be nullified by a bullion bank's claim of “force majeure” and settled with yesterday's now-much discounted cash price. The Gold exchange traded fund was essentially looted of 500 tonnes last year to smash the Gold Price down but this cannot be done again because that Gold is gone too. The Gold and the Gold Market are moving to Asia.”

Chuck again. So, that's all scary stuff, and you might be wondering how James Rickards would know all this about the U.S.'s Gold holdings/ reserves. Well, he explains how connected he is to Washington, the Fed, the markets, and so on in his book: Currency Wars. In the end, of the interview, Rickards talks about owning physical Gold. Which plays well in the sandbox with what I'm always telling you!

To recap. The dollar is mixed again this morning, with the A$, kiwi, loonie, krone, and rupee among the few that are gaining VS the dollar. The euro leads the other side down as German GDP contracted in the 2nd QTR, more than expected, and France's was flat, so the 2 largest economies of the Eurozone printed weak GDP reports and the euro was taken to the woodshed. China reported their Trade Surplus for July, which was off the charts again, and Chuck thinks that the Chinese will get back to a more frequent appreciation of the renminbi to the end of the year.

Currencies today 8/14/14. American Style: A$ .9315, kiwi .8498, C$ .9175, euro 1.3375, sterling 1.6680, Swiss $1.1035, . European Style: rand 10.5620, krone 6.1465, SEK 6.8680, forint 233.50, zloty 3.1240, koruna 20.7990, RUB 35.93, yen 102.45, sing 1.2460, HKD 7.7510, INR 60.76, China 6.1545, pesos 13.11, BRL 2.2810, Dollar Index 81.54, Oil $97.33, 10-year 2.41%, Silver $19.88, Platinum $1,468.06, Palladium $880.50, and Gold. $1,310.17

That's it for today. Man this “thing” in my neck and shoulder is a pain! If it's not one thing it's another with me, eh? I sure wish that wasn't the case! The Allman Bros. are singing their song: Statesboro Blues on the IPod right now, and it seems very apropos  to me. That's me. I woke up this morning, I had those Statesboro Blues. The Cardinals got out of Miami with a win (finally!) last night and return home where they had better wake up and realize there are only about 43 games left! Or they'll be hitting the golf courses in October. Have you seen the newest craze? The Ice bucket challenge? It's all to help ALS, which is fine, but I told Mike yesterday morning, it sure is better than the last craze where young kids were setting themselves on fire for giggles. Crazy!  Glad that's something that Alex and his friends didn't try. I would like to think that they are smarter than that, but then I have these flashbacks to when I was his age, and the stuff I did. Lucky is the word for him and me!  My second quarter dept. review went well yesterday, those things give me the willies going into them! Well, I just put the finishing touches on our newest product, it has gotten legal approval, and it's almost ready to be brought out of the bag. Are you ready for it? I gave you a hint in this month's Review & Focus. Be sure to stay tuned for our big announcement! And with that, I thinks it's time. I hope you have a Tub Thumpin' Thursday! Now, where's the ice pack I keep here?

Chuck Butler
President
EverBank World Markets