The rally in copper, indicates inflation to continue

• Currencies get sold on Tuesday... 

• Metals find a way to rally on Tuesday... 

Good day… And a Wonderful Wednesday to you! Another day, another day toward being rid of this nasty cold. I feel much better this morning, and haven’t coughed yet… So, there’s progress! Our Blues actually looked like a hockey team that belonged on the ice with the other team last night, and won on Longisland. (that’s how they pronounce it!). My Billikens lost in NYC to Iona. UGH! My beloved Mizzou Tigers will play long time rival Kansas this Saturday in CoMo… That should be a barn burner! Where’s Norm Stewart, Jon Sundvold, Steve Stipanovich, Doug Smith? We could use them in that game! The Ramsey Lewis Trio greets me this morning with their version of the song: Santa Claus Is Coming to Town…

Well, I had planned to wake up earlier this morning, as I had failed to look into the markets yesterday, and make notes for this morning’s letter, but, the best laid plans of mice and men, prevented me from my goal, and so this is later this morning…And most likely will be short-n-sweet… So, you’ve got that going for you this morning! HA!

Well, the dollar continued its rebound from last week’s trip to the woodshed. The BBDXY gained 7 index points yesterday, to close the day at 1,270. The euro remained above 1.05, but just doesn’t seem to have the same oomph behind it that it had late last week. I do believe though that the euro has seen the worst of its days for now. The European Central Bank (ECB) is whiskey bent and hell bound to get inflation under control… Of course they were a day late and a dollar short when it came to addressing rising inflation in time, but I’ll let that one slide for now.

They were just following the lead of the Fed Heads… At least the ECB had gotten over their love affair with negative rates… Stupid, just plain stupid policy if you ask me!

Gold found a way to gain $2 yesterday, after being up $9 in the early trading… Apparently, the price manipulators couldn’t allow that to be something that catches investors’ eyes, so they chopped it down with their short Gold paper trades, and that was that! Silver lost 7-cents on the day. So, Gold closed the day at $1,772.20, and Silver at $22.27… Not the lofty figures of last Friday, but still one step at a time, even if they are baby steps…

The price of Oil continues to get slammed and ended the day yesterday with a $74 handle. I read the other day about how the West has come up with a price cap on Russian Oil… And so, Russia responded with the statement that they will not sell their Oil to any country that accepts the price cap. So, who’s the mental giant that came up with a price cap idea? Cost controls never work, period! They end up causing shortages and gloom, despair, and agony on the economy… I’m just saying…

I read a piece on Copper yesterday that got me thinking… The Copper miners are all saying that there is going to be a colossal short in Copper…And that had me going to the prices and noticing that the price of Copper had really recovered lately… Copper trades this morning at $3.79, and a month ago it was 20-cents lower… that’s quite a move upward, and tells me that inflation is not over with by any stretch of the imagination… 

In The overnight markets last night… the dollar saw a bit of slippage, same as the night before, but that selling of the dollar overseas, doesn’t get any traction in the U.S. market hours. At least that’s how it worked yesterday, and probably again today, if this trading pattern holds.

I’m very concerned about something that I’ve talked about for years now and that is the derivatives that are amassing among us… I have something on that in the FWIW section this morning, so stay tuned, don’t touch that dial!

Well, there’s something about a strong currency that has pros and cons… The pros are it announces that the currency’s country is strong, and robust, and that it will not allow other countries’ inflation to be imported. The cons get a little longer in the list, but the main one is that the currency’s country’ exports get too expensive, and causes the Trade Deficit to grow larger than it should be. I wrote about a guy who claimed that we shouldn’t get concerned about a rising Trade Deficit, and I pointed him out as a dolt! This Trade Deficit plays games with our GDP folks…

I found this on zerohedge.com and it explains the Trade Deficit numbers yesterday: “The value of imports increased and exports declined, which may weigh on economic growth in the fourth quarter.

Imports rose 0.6% in October to $334.79b from $332.64b in September.

Exports fell 0.7% in October to $256.63b from $258.51b in September.

Services trade balance rose to a $21.4 billion surplus - the most since December 2021...

Under the hood, the U.S. exported $2.259 billion more petroleum products than it imported in October, just shy of September's record high...

We look forward to the Atlanta Fed's GDPNOW model's adjustment to this weaker trade balance data... which appears to line up with the dismal ISM/PMI data.”

Chuck again… yes, I pointed that out on Monday, that the ISM (manufacturing index) had fallen below the line in the sand figure of 50, which indicates that manufacturing is contracting… This is all building toward a deep recession in 2023… But then, the gov’t has proclaimed that the “R-word” is not to be used anymore.. So, we’ve got that going for us, eh? NOT!

And here’s something that I think everyone darn one of us should be concerned about, and that is the Chinese leader Xi’s visit to Saudi Arabia… I’ll leave that there for you to ponder…

The U.S. Data Cupboard today, just has a couple of prints for us… First up is the stupid Productivity for the 3rd QTR… And then the Unit Labor Costs for the 3rd QTR, and finally the Consumer Credit (read debt) report for Rocktober.. .The Consumer Credit report is the one report that I think needs to be gone over with a fine tooth comb when it prints, because the most recent reports showed that credit card debt was soaring, and another sign of that will tell us that consumers have used their savings and now are using their credit cards to purchase their Big Screen TV’s and BMW’s… 

To recap… The dollar continued to rebound in the U.S. Market yesterday, The dollar seems to be getting sold in the overnight markets, and then turns around and gets bought during the day… Strange, but I think this is case of the foreign markets relieving themselves of their dollars… 

For What It’s Worth… Well being strapped for time this morning, I turned to Old Faithful, Ed Steer’s Gold & Silver letter this morning to find a FWIW article, and there right before my eye, was an article about derivatives, so it naturally, had to be the FWIW article today… 

Here’s your snippet: “In a paper with the title “huge, missing and growing,” the BIS said a lack of information is making it harder for policy makers to anticipate the next financial crisis. In particular, they raised concern with the fact that the debt is going unrecorded on balance sheets because of accounting conventions on how to track derivative positions.

The findings, based on data from a survey of global currency markets earlier this year, offer a rare insight into the scale of hidden leverage. Foreign-exchange swaps were a flashpoint during the global financial crisis of 2008 and pandemic of 2020, when dollar funding stress forced central banks to step in to help struggling borrowers.

To be sure, the debt is backed by an equivalent amount of hard currency. To understand how the system works, consider a Dutch pension fund buying assets in the US. As part of the transaction, it will often use a foreign-currency swap to exchange euros for dollars. Then, when it’s closed out, the fund will repay dollars and receives euros. For the length of the trade, the payment obligation is recorded off-balance sheet, which the BIS calls a “blind spot” in the financial system.

It’s that opacity that puts policymakers at a disadvantage, according to BIS researchers Claudio Borio, Robert McCauley and Patrick McGuire.

“It is not even clear how many analysts are aware of the existence of the large off-balance sheet obligations,” they wrote. “In times of crises, policies to restore the smooth flow of short-term dollars in the financial system -- for instance, central bank swap lines -- are set in a fog.”

Chuck Again… off balance sheet accounting is the thing that almost brought the economy to collapse in 2008… I’m just saying… The mortgage meltdown, was key, the Lehman Brothers collapse was key, but the derivatives that almost collapsed many a firm were hanging over us like the Sword of Damocles…

Market Prices 12/7/2022: American Style: A$ .6687, kiwi .6343, C$ .7312, euro 1.0520, sterling 1.2176, Swiss $1.0633, European Style: rand 17.2758, krone 10.0175, SEK 10.3924, forint 389.20, zloty 4.4672, koruna 23.1212, RUB 63.06, yen 137.65, sing 1.3572, HKD 7.878, INR 82.48, China 6.9784, peso 19.70, BRL 5.2300, BBDXY 1,268.26, Dollar Index 105.27, Oil $74.46, 10-year 3.68%, Silver $22.39, Platinum $996.00, Palladium $1,863.00, Copper $3.79, and Gold… $1,775.20.

That’s it for today… Today is our first day of infamy… Pearl Harbor Day… I know I’ve told you this before, but when I visited the Pearl Harbor Memorial in Oahu, I was moved… I felt a connection to these lost heroes, and wanted so badly to know them… Strange, I know, but it is what it is… I don’t think the young people of this country would ever understand Pearl Harbor, other than it’s a nice place to visit… Maybe I’m wrong about that, and I hope I am! Friday this week I go for my 6-month scans… I don’t believe they’ll find anything, but then I never expected to hear the words, “You’ve Got Cancer” 15 years ago! Biggie Adams is playing my fave Christmas song this morning. She is playing her version of the: Christmas Waltz, to take us to the finish line this morning… I hope you have a Wonderful Wednesday today, and please Be Good To Yourself!