Rocktober 31, 2019
* Currencies & metals both rally on the rate cut news!
* Chinese PMI’s sink further into contraction territory…
Good Day… And a Tub Thumpin’ Thursday to you! And Boo! It’s Halloween! I remember quite a few years ago now, when I was in New Orleans for a Conference, and was having dinner at the Commander’s Palace with Frank Trotter, and David Galland, when we decided that we should join the partiers on Bourbon Street. The problem was the partiers would all have on costumes, and we had none… So, undaunted, we proceeded to walk down Bourbon Street with all the other crazily costumed partiers! Oh, what a night! So, I hope your little Trick-r-Treaters are ready to go tonight. Here it’s going to be cold, so we won’t actually get to see most of the costumes, and a lot of the real little ones will remain at home… The weather people were actually calling for snow this morning! YIKES! Carlos Santana greets me this morning with his song: Evil Ways, which is kind of apropos for today, eh?
I told you, I told you, I double, double told you! I told you that despite some dissenting voters in the FOMC, that the Fed would cut rates yesterday… The third rate cut this year, and brings our Fed Funds rate to 1.75%… The Fed did leave out some wording that led the Fed Watchers to believe that the Fed Heads will pause now with the rate cuts… Their announcement of a rate cut came less than a few hours after it was announced that the 3rd QTR GDP was 1.9%, as I reported yesterday… I think it’s wise at this point for the Fed to pause, because now the next meeting would come in the middle of December, and I don’t think they want to drive the markets further into bubble-land right before Christmas… Not that it won’t happen, I just think that pausing right now, and seeing what the previous 3 cuts have gotten you, is a wise thing to do…
The dollar bugs went and hid in the wall boards as soon as the rate cut was announced yesterday, but the upward movement, especially from the currencies that currently employ even lower rates than the U.S., saw a muted effort to rise… But rise they did, just not like it “used to be” when a country debased their currency… Of course back “in the day” fundamentals played a HUGE part in determining a currency’s value, and also back “in the day” the markets were not manipulated like they are today… So, given those things one doesn’t exist any longer and one does exist I was happy with the move the currencies made…
Somewhere along the line economists began being rock stars (in their own minds that is) and got the markets to believe that a rate cut was a “good thing”… It no longer was a signal to the markets that the economy was weakening, but rather that the economy just needed a new rocket launch stage if you will… And the markets with their gullibility bought it hook, line and sinker… And so here we are now with the Fed having cut rates at three consecutive meetings, and the dollar moves along as if nothing happened, and the stock jockeys are dancing in the streets…
Why wouldn’t the markets question the Fed’s announcement that the repo operations and liquidity operations will continue through the 2nd half of 2020? Wouldn’t that tell you that there’s something rotten in Denmark? Well, maybe I just have a sensitive nose, that can pick out the sour smells in an economy… The Fed Heads were actually slapping themselves on the back when the 3rd QTR initial print of GDP came out at 1.9%… The markets were expecting 1.6%… So, in a weird way, GDP outperformed its underperformance! HA!
And now, other than Personal Income and Spending and the ADP Employment report, we’ll wait a day for the Rocktober Jobs Jamboree… I told you earlier this week that the so-called experts have called for a print of just 75,000 jobs created in Rocktober… That would be below the 109,000 jobs needed each month to maintain the unemployment rate, according the Fed Atlanta…
I’m going to say that for today, Personal Income will be flat to unchanged, and Personal Spending will see a bump, due to the spending on Halloween costumes, candy, etc. But then Retail Sales last week showed that September was a negative print… Month to month, I guess we go, and when it will stop, no one knows!
Gold had a good day yesterday climbing $8 and is up another nearly $10 this morning, to trade right now at $1,505. The World Gold Council (WGC) issued a report yesterday on Gold, and said that “maybe it’s time to switch from bonds to Gold”… Their premise is that with more than $13 Trillion now outstanding in negative yielding Gov’t Bonds from around the world, that at least Gold competes with those bonds…
I was talking to someone the other day, who had a pile of cash and wanted to know where to put it… Do you know how many times through the years, that I’ve been asked that? I always cringe, but then I tell them what I do, that way, I won’t tell them to do something I won’t do… There are people out there in the investment world that get paid the big bucks to make those calls, and I would rather refer to them! For I’m just a country bumpkin, sitting in his basement at a writing desk… I’m just saying…
But you can bet your sweet bippie that I said, “you should look into allocating a portion of your investments into Gold or Silver or both. Not 100% of your cash, not 50% of your cash, just an allocation that feels right to you..”
OK… So, the Fed has cut rates at 3 consecutive meetings, but were quite adamant about pausing… So, what would the Fed need to see in the economy for them to continue the with the rate cuts? I guess we would need to ask them, but longtime readers know that I like to tap into the Fed Heads minds and tell you what they’re thinking, so let me get out my séance materials and get to work…
Spirit, will you talk to me? Good! I was wondering what the Fed Heads will need to see in the economy before cutting rates again, can you tap into their minds and tell me? Of course! “I see the Fed Heads needing to see Armageddon in the economy before cutting rates again, for their leader, Mr. Powell, is hell bound and whiskey bent to not be mentioned with the zero rate leaders, Bernanke and Yelllen:”
Oh thank you spirit… OK, so if they need to see Armageddon, then that’s what they’ll see! Yesterday, I said that I thought it was wise to pause the rate cuts right now, but come January, the Fed Heads need to get back on the rate cut horse and ride it fast! For Armageddon is coming folks… I know I sound like the boy who cried wolf… And I’ve been wrong before, but this is something that’s been building for a long time now, and with all the derivatives, debt, manipulation and whatever else causes ill wills it’s going to be a doozy!
I feel like the guy in the Big Short, who went short the housing market long before the collapse, for he saw the rot on the vine in housing, but he did it so soon, that everyone just about walked out on him, but then the collapse came, and he walked away with billions of dollars of profit… OK, I won’t walk away with anything but the two nickels I rub together in my pocket, I’m talking about how he was out in front of the housing collapse, just I’ve been out in front of this awful recession that’s coming…
The Chinese PMI’s printed last night, and they fell for the 6th consecutive month, and now sit at 49.3… I told you, I told you, I double double told you that the Trade War would end up hurting both the U.S. and China… Here in the U.S. it was reported last night that U.S. Farm bankruptcies surged 24% in their latest report. And the Trade war was blamed for these bankruptcies…
So, remember months ago, when economists were taking sides with some saying that the U.S. would in the Trade War, and others saying China would win the Trade War, and Chuck said, they’ll both lose the Trade War!
I already talked about the Data Cupboard today… So, To Recap, the Fed Heads cut rates for a 3rd consecutive meeting, but indicated that they will pause now… The currencies and metals both rallied on the rate cut news, but the currency moves were held back by “the new trading” , and not the way things used to be… Chuck talks to a spirit, since it’s Halloween, and found out what the Fed Heads will need to see in the economy before they cut rates again… You won’t want to have missed that!
Errors and omissions… Yesterday, I said that Amazon and Facebook would announce earnings, but I meant to say Apple, not Amazon… My mistake… And I also said that the BREXIT extension was to December 12, but it’s really January 31st. Silly me… sorry for those errors…
For What It’s Worth… Well, the timing on this couldn’t be worse, but it’s here and we get to deal with it… The “it” I’m talking about is a Trucking slowdown… It’s all in the article on zerohedge.com and can be found here: https://www.zerohedge.com/economics/trucking-slowdown-ahead-holiday-season-suggests-consumer-faltering
Or, here’s your snippet: “The trucking industry continues to decelerate into year-end at a time when it should be rocketing higher ahead of the holiday season.
Old Dominion Freight Line reported 3Q/19 earnings last Thursday and warned the domestic economy is slowing. The freight company reported revenue declines Y/Y for the quarter, which was the first drop since 2016.
The rare decline in revenue from Old Dominion is a sign that the domestic economy is faltering, and it’s likely being led lower by deteriorating consumer demand. This means the manufacturing recession has successfully transmitted weakness into the consumer segment of the economy, which accounts for 70% of GDP.
This comes at a time when Wall Street is betting on Federal Reserve easing and a healthy consumer to rebound the economy between 4Q/19 and 1Q/20.
FreightWaves published a new report Thursday that detailed how trucking “load volumes continue to decelerate into the peak holiday shopping season.”
The DHL Supply Chain/FreightWaves Pricing Power Index, a real-time demand and supply indicator of the trucking industry, recorded 25 late last week, less than 50 means demand is lackluster and overcapacity plagues the industry. A score above 50 means demand is higher than capacity.
And for more color on consumer trends, not just in the U.S. but perhaps on a global view, the global shipping container industry is sounding an alarm.
Shipping rates for 40′ containers have taken another leg lower in the last several months. This means retailers are ordering fewer consumer goods from China and other emerging markets, a clear indication the consumer is weakening.
Last week, Amazon guided its forecast for the holiday season lower. Analysts were absolutely shocked, but it marks the beginning of a new trend where the consumer is expected to come under financial stress, pull back on spending, and could start saving as the next recession nears.
Tracking freight rates and volumes of various forms of transportation in domestic and global supply chains have given us perhaps an idea of what’s to come, that is, an underwhelming holiday season for retailers.”
Chuck again… Capital Expenditures haven’t grown in years, and now a Trucking slowdown? Got Gold?
Currencies today 10/31/19 American Style: A$.6897, kiwi .6405, C$ .7595, euro 1.1162, sterling 1.2952, Swiss $1.0124, European Style: rand 15.0882, krone 9.1957, SEK 9.6490, forint 294.97, zloty 3.8155, koruna 22.8556, RUB 63.88, yen 108.27, sing 1.3613, HKD 7.8356, INR 70.76, China 7.0571, peso 19.13, BRL 4.0001, Dollar Index 97.26, Oil $54.94, 10-year 1.74%, Silver $18.05.31, Platinum $928.76, Palladium $1,805.31, and Gold… $1,505.50
That’s it for today, and tomorrow… Boo! OK, what did the fish say when he swam into a wall? Dam! I remember when my older kids would always come to me before Halloween and ask me for jokes that they could tell while Trick-r-Treating… Sometimes I got in trouble, because the jokes were a little in the gray… All in good fun! Congratulations to the Washington Nationals, who won their franchise’s first World Series! No home team won on their own turf during this Series, which was very strange! But St. Louisan and former Mizzou pitcher, Max Scherzer is now a World Series Champion! I laughed last night when Joe Buck said, “the Astros and Nationals share their spring training complex” I laughed because my spring training buddies talked about this 10 days ago, and the TV guys just got wind of it! HA! OK… all good things must come to an end, and so it is with this Pfennig! Looking Glass takes us to the finish line today with their song: Brandy…. got that song in your head now? HA! I hope you have a Tub Thumpin’ Thursday, and a Fantastico Friday tomorrow, and will Be Good To Yourself!
Chuck Butler