March 9, 2020
* Gold, bonds, and safe haven currencies rally…
* The Fed St. Louis talks about negative interest rates….
Good Day… And a Marvelous Monday to you! Well…. I’m back! Back from a great week of spending time with good friends, going to baseball games, and going out to dinner! My beloved Cardinals, which began spring training with the same no-hitting ability, they had last year, began to heat up as the weather did too… And there’s hope in Mudville! There’s also joy at the wound center, as I’m finally ready to have the soft cast removed for good (on Thursday this week) and have, what’s called an “Apligraph” applied… What all that means is there is finally major healing going on, and the pain has subsided greatly! YAHOO! But the greatest joy has been Gold’s best performing week since 2016, last week! WOW! The danger that appears to be spreading, is the Coronavirus… Keep safe and keep your hands washed! The band America greets me this morning with their song: Sandman…
So, the Coronavirus, is on everyone’s minds now, and on every news stations, tv and radio, and so on… There are even thoughts about major sports venues playing games without fans attending… I sure hope it doesn’t come to that, because if it does, it means the virus is out of control here in the U.S. Overseas travel is a no-go right now, and it seems to me that anyone coming home from overseas would be kept in quarantine until they can prove they’re not carrying the virus.
While gold had its best week since 2016, stocks did not… The roller coaster ride that is the stock market has really taken a deep dive with lots of selling…. The price of Oil didn’t have a good week either, as the price took a deep dive, and our friends at OPEC (NOT!) decided to make huge cuts in production, but even that announcement couldn’t help the price of Oil…
The Oil price drop has caused major collateral damage to the Petrol Currencies, led by the Russian ruble, who saw a muliti-figure drop last week to a 68 handle, and the Mexican peso fall to a 20 handle once again, and even the Canadian dollar/ loonie, which had seemed to be inoculated from this illness, gave up the 75-cent handle and trades this morning down two full cents from a week ago… And the Norwegian krone has weakened to a price that’s weaker than its kissin cousin, Swedish krona, which I really don’t every remember seeing in the past before now.
The other big winner, besides Gold last week, was the euro… And in a very different trading pattern than what we normally see, when the euro rallies it takes all the other currencies along for the ride… But not this time… Stranger than fiction folks, but it’s what is happening… But there are a few currencies going along with the euro for a ride higher VS the dollar. The “safe haven” currencies of Swiss francs, Japanese yen, and euros have been bought like funnel cakes at a state fair…
Everyone and their brother know the Fed cut rates ½ point or 50 Basis Points last week, as they pointed to the Coronavirus disrupting economic development around the world as their reason for the “emergency cut” Of course the POTUS didn’t think ½ point was enough, and once again pointed to countries with negative interest rates, as if they are doing well with them, while they are not!
While I was on vacation, I received an email from the Fed St. Louis, (they call it FRED) and it was an explanation of negative interest rates… My initial reaction to it was that they didn’t just “happen to write an article on negative rates” This has to be a planned action, as far as I’m concerned, and the Fed is greasing the tracks for negative rates right here in the good Old USA!
OH! and don’t look now but the 10-year Treasury’s yield has dropped to just 45 basis points! This is crazy folks… and Serious, and serious times call for serious people, of which I’m usually not one, but I can be as a serious as a heart attack when I need to be… So, serious it’ll be…
Remember a couple of weeks ago when I told you about how famous economist, David Rosenberg, had talked about (on Twitter) how bonds had outperformed stocks? He had said, ” Bonds have more fun”… Well, he was back on Twitter this past weekend talking about how bonds continue to outperform stocks… Oh, and this just flashed across my screen… Stock index futures are trading at max down this morning, indicating a very nasty start of the day and week for stocks…
I had a discussion with my wife last night about a person that had come from Italy back to St. Louis, and now she has the virus… I have some serious thoughts on this situation, that I’m not going to get into now, and the Butler patio is not open yet, but my deck down here is… so join me if you can and I’ll impart my opinions on this situation!
So, getting back to the negative interest rates discussion… I truly believe that negative interest rates will appear here in the U.S. during the next recession, that should be the recession of all recessions… I said that in an interview with Dennis Miller of: Milleronthemoney.com for his weekly letter a couple of months ago… Why did I think that then? Well, I’ve explained this all before folks… I see things that are coming for the markets… Sometimes I’m way ahead of the crowd or the event if you will, but eventually my calls are bang on… And I truly believe that my call for negative interest rates here in the U.S. will also be bang on…
Is there danger in negative interest rates? Ahhh grasshopper, I’m glad you asked, for the answer is a simple: Yes there are dangers in negative interest rates… Think about that for a minute, if the savings you have in the bank account, which aren’t getting paid diddley-squat, begin to have charges on these balances, thus reducing your savings holdings, would you continue to keep your funds there?
What would happen to banks if there were runs on deposits? Armegeddon, that’s what! And the Fed would begin with helicopter money and attempt to head off the depositors before they reach the bank, and then the whole shooting match, the big enchilada, the economy comes to screeching halt, and the financial system collapses, and new system has to be thought of…
Now, how’s that for being serious? Wouldn’t you rather have fun-loving, Chuck back?
The U.S. Data Cupboard last week had us looking at a negative print for Factory Orders in January, and a Markit ISM (manufacturing index) print below 50 at 49.4, and finally a Jobs Jamboree where the BLS claims that 273,000 jobs were created in February… Nevermind that 143,000 jobs were added out of thin air by the BLS after the surveys were received!
There’s not much for us to see in the Data Cupboard this week, so the markets will be on their own, which doesn’t bode well for the dollar, Oil, the Petrol Currencies and stocks….
To recap… It was a wild trading week last week, as the Coronavirus has taken over the minds of traders, who have exited dollars, bought the safe haven currencies, led by the euro, and bonds, and have sold stocks, Oil and Petrol Currencies… Oil saw its largest 1week drop since 1991… The 10-year Treasury’s yield has dropped by a HUGE margin to just 45 basis points folks… That alone should tell you just how serious this virus has become…
For What It’s Worth…. Longtime readers of this letter will recall me going ballistic on Janet Yellen a few years ago, when I said she was greasing the tracks for the Fed to buy stocks… Well, here we are a few years later, and the Fed’s Rosengren believes that the Fed will have to buy stocks… That article can be found hehttps://www.zerohedge.com/markets/boston-feds-rosengren-says-fed-may-soon-have-buy-stocksre:
Or, here’s your snippet: “Three weeks ago, former Fed Chair Janet Yellen incepted the idea that during the next crisis, the Fed should consider expanding the range of assets it would purchase, most notably buying stocks. Our comment to this was that “thanks to Janet Yellen, we now we know that before the current fiat regime of central banks finally ends and before stocks go limits up as the revolution starts, the Fed will order a POMO of, well, everything in one final, last ditch effort to keep social stability by creating the impression that stocks are stable and rising even as society implodes.”
Well, thanks to experiments conducted in a Chinese P-4 bio-lab, the next crisis appears to have arrived in the form of the coronavirus pandemic, and the idea of the Fed buying stocks is now on the agenda, case in point Boston President Eric Rosengren, who echoed Yellen, and said the Fed should be allowed to buy a broader range of assets – either by change of mandate or through a facility that allows it to buy stocks – if it lacks sufficient ammunition to fight off a recession with interest-rate cuts and bond purchases. In such a scenario, the U.S. Treasury should indemnify the Fed against losses, Rosengren said in the text of remarks scheduled for delivery Friday in New York.
“In a situation where both short-term interest rates and 10-year Treasury rates approach the zero lower bound, allowing the Federal Reserve to purchase a broader range of assets could be important.”
Excerpt: “In such a case, as Marvin highlighted in his 1999 article, we should allow the central bank to purchase a broader range of securities or assets. Such a policy, however, would require a change in the Federal Reserve Act. … Alternatively, the Federal Reserve could consider a facility that could buy a broader set of assets, provided the Treasury agreed to provide indemnification.”
Rosengren also warned the Fed would face greater challenge than in 2008 crisis when Fed’s benchmark rate was cut to nearly zero, because yields on longer-run Treasuries have fallen below 1%.
Chuck Again… Ask the Japanese and Swiss just how great it is that their Central Banks own a majority percentage of their stock markets…. I’m just saying…
Currencies today 3/9/20 American Style: A$.6604, kiwi .6334, C$ .7341, euro 1.1415, sterling 1.3090, Swiss $1.0780, European Style: rand 15.9330, krone 9.5232, SEK 9.3730, forint 294.57, zloty 3.7828, koruna 22.3650, RUB 68.77, yen 102.40, sing 1.3829, HKD 7.7690, INR 74.35, China 6.9310, peso 21.53, BRL 4.6249, Dollar Index 95.21, Oil $32.55, 10-year 0.45%, Silver $16.96, Platinum $875.54, Palladium $2, 425.45, and Gold… $1,.677.65
That’s it for today…. I’m heading north again this morning, so I’ve got to get this out the door and get on the road! Our Blues won a good game in Chicago last night VS the Blackhawks! Always a “good game” when the Blues beat the Blackhawks! And the NCAA major conference championships will go on later this week, with “selection Sunday” scheduled for this coming Sunday, and then the brackets get printed and office production goes to the wayside… HA! Thanks to good friends Kevin, Lisa, Gus, Diane, Duane and Rick for their visits down here these past couple of weeks… We love to have company! And with that, I’ve got to go, so The Searchers take us to the finish line today with their song: Love Potion #9… I hope you have a Marvelous Monday, and will be Good To Yourself!
Chuck Butler