Rocktober 8, 2019
* Currencies trade in tight ranges on Monday…
* Fed keeps pumping Billions into the repo market…
Good Day… And a Tom Terrific Tuesday to one and all! I’m a little giddy today, because my beloved Cardinals came back late, tied the game and then won it in the 10th, with a walk-off sac. Fly from their longest tenured player, Yadier Molina…. Who had tied the game in his previous at bat! It was a thrilling game back and forth, and I was able to watch it outside on an absolutely beautiful fall afternoon in St. Louis… A very high sky that was painted blue, with not a cloud in sight! And I got to share my outside viewing area with 3 good friends, and youngest son Alex… A great day indeed! Steely Dan greets me this morning with their song: My Old School…
Well, it was a nothing day for the currencies yesterday… And I’m still perplexed why the dollar bugs are so strong, when the U.S. economy is grinding to a halt. But be that as it may, life goes on… And yesterday, saw the currencies trade like they were stuck in the mud… And Gold lost $10 on the day to close below $1,500… I have to wonder just how long this using $1,500 as the new $1,300 will last, because I said that Gold would be $1,600 by year end, and every day we get closer to year end, is another day lost to that thought!
One of these days, Gold is going to be singing the old Nancy Sinatra song…. One of these days, these boots are going to walk all over you…. But they’ll be singing it to the dollar bugs… and the price manipulators, and all the people that call Gold a barbaric relic (Yes you heard me Warren Buffett), and so on… Maybe today is the day, although I doubt it… But in the early trading this morning Gold is up more than $12 to put it back above $1,500… back and forth, back and forth…
OK, back to the dollar bugs, and their reluctance to give up the conn to the currencies… I hear what a lot of readers reply to me in the Pfennig Replies Box, have to say about how the dollar is the dirtiest shirt in the laundry…. But… as I counter, that might be, but not all the countries out there are doing poorly, and in fact in Russia things are looking better there than here, at least they’re not heading to a recession! And China? Well, China has slowed down, but their economy is so strong, that they’re keeping their heads above water… I would also like to point out that in New Zealand, the economy remains pretty resilient and is not being dragged down by the slowness going on in Australia… But the Reserve Bank of New Zealand (RBNZ) is keeping a tight grip on interest rates, which makes sense for them being that they are an island nation, and they depend on imports for so much… They can’t afford to have kiwi soaring while their trading partner currencies are lagging…
Their imports would suffer, and their exports would become to overvalued… Remember, New Zealand exports, Wool, Dairy, and Lunber… All three Commodities, and why, kiwi is considered a commodity currency… So, think about that for a minute… Inflation around the world is somewhat subdued… But… how much longer can that go on? And a rising global inflation would get commodities up off the mat, and the Commodity Currencies as well!
In 2002, I was asked by a well known investment analyst, if our bank had an investment vehicle that would be like a hedge to inflation…. I said, yes! We have the Commodity Currency Index CD… And from that moment on, it was our most requested CD and it soon became the most profitable one, as the Commodity Currencies of: Australia, New Zealand, Canada, and S. Africa, would soon go the warpath VS the dollar, and rest, as they say, is history!
February 2002, is considered to be the start of the last weak dollar trend, and it lasted until 2010, when the debts of Greece and other Club Med Countries were uncovered, leading the European Central Bank (ECB) down this road of large debts, large amounts of stimulus, like negative rates and bond buying… But from 2002 to 2010, the Commodity Currencies that I highlighted above were the best performing of the currencies VS the dollar… Once the current strong dollar trend ends, we should look for these same currencies to outperform as they did just a few year ago during the last weak dollar trend…
The price of Oil slid further downward in the past 24 hours and this morning is trading with a $51 handle… this downward slide has really been a tough row to hoe for the Petrol Currencies, led by the Russian ruble… They say that the reason for this continuing drop in the price of Oil is lack of demand… Consumers have really cut back in their gas consumption… And it has nothing to do with the introduction of electric cars… They are so far down on the ownership scale they haven’t even registered yet! I saw a headline blurb the other day that I wish I had copied it, so I could use it, but the idea was that this country they were talking about had this very HUGE number of drivers, but only 8,000 of them were interested in an electric car…
I find it interesting that the markets can pinpoint the downward movement of Oil being caused by lack of demand, but the lack of demand isn’t hurting the dollar… And the Fed keeps pumping newly created dollars into the repo market…
I read a report last night that talked about the reasons the Fed is having to interject so much cash/ liquidity into the repo market… None of them made much sense to me, but add them all together and you might have something… The list included: 1. the Fed’s stopping to buy bonds from banks, and then stopping to buy more… 2. The Treasury’s massive Treasury bond sales to finance the deficit… You see, when foreign countries don’t show up at the auction window, the Primary Dealers, here in the U.S. have to step in to buy the bonds that don’t get sold… and that has reduced their working capital…. And some others ideas that didn’t make much sense to me… But add those two together you might have something…
I can tell you that this is a prime example of the Fed losing control over the price of money… They had to resort to injecting billions of dollars to keep rates from exploding higher… I’m just saying…
In the BREXIT negotiations, U.K. PM Boris Johnson has told the Eurozone that there could possibly be on deal…. Remember the deadline is 10/31… And it will be here before you know it… So, Johnson is probably correct!
And in our own Trade War negotiations… Yesterday I said that I did not believe that the upcoming China / U.S. Trade War negotiations would yield anything… And last night I saw this on Bloomberg: “Chinese officials signaled they’re increasingly reluctant to agree to a broad trade deal with the U.S. ahead of negotiations this week.”….
I wonder who was reading whom?
And now the Trade War the U.S. is waging is expanding from China to the Eurozone… As tariffs were announced last week on Eurozone imports… Well there goes the deal you thought you had for that Beemer! HA!
Not much happening today in the U.S. Data Cupboard… We will see the color of PPI (wholesale inflation) but other than that… zippo! So, the markets are on their own…. But… I would caution the stock jockeys that the news that GE is going to freeze the pensions on 20,000 employees might not be shaken off so easily, like the disappointing jobs number last Friday! I’m just saying…
To recap… The currencies are trading in a tight range, and yesterday saw Gold lose $10, but is up more than $12 in early trading today… Back and forth through the $1,500 figure, how much longer this will last is anybody’s guess, but Chuck still believes Gold will be $1,600 by year end… The Fed is still pumping Billions of dollars into the repo market, and the price of Oil continues to move downward…
For What It’s Worth…. thanks to Ed Steer who highlighted this article in his daily letter today… If Ed thinks its worthy, then I do too! It’s an article about how the recession is beginning to see the large dollar items going for sale, and it can be found here: https://internationalman.com/articles/following-the-greater-depression-on-ebay/
Or, here’s your snippet: “Although careful research into an economy can result in a relatively accurate prognostication, the timing is always the most difficult aspect to pinpoint.
However, a good indicator is to track how others within the economy are surviving the situation. This tells us much more than their questionable claims that they’re doing just fine.
One very telling way to do this is to follow their extravagances. In prosperous times, they’re likely to buy expensive toys. Then, as they increasingly feel the pinch, they’ll sell off those toys first, before resorting to selling their more essential possessions. For example, someone will sell off his beloved sports car before he sells the more essential family SUV. Or he’ll get rid of the vacation house before he puts his primary home on the market.
Therefore, an early warning that a people are facing financial difficulty is that they begin to offer such big toys for sale in order to continue to pay the bills. And an early warning that an entire economy is in trouble is when tens of thousands of people engage in such a sell-off. This is particularly true for those who bought their big toys with a bank loan.
Yachts are the first toy that most people will sell, since it’s pure luxury and a liability. A yacht has been defined as “a hole in the ocean that you shovel money into.” Quite so. They’re costly to maintain. And, of course, that’s why it’s prestigious to own one. Many people buy them to impress others, even if they can’t really afford them.”
Chuck again… Yes, I thought this was a very good way to show that even the high money people are experiencing cash problems, and when the selling of other items hits the main street… Then… Houston, we’ll have a problem!
Currencies today 10/8/19 American Style: A$.6745, kiwi .6320, C$ .7510, euro 1.0987, sterling 1.2221, Swiss $1.0087, European Style: rand 15.2758, krone 9.1387, SEK 9.8913, forint 304.29, zloty 3.9403, koruna 23.5734, RUB 64.82, yen 106.88, sing 1.3805, HKD 7.8444, INR 70.83, China 7.1475, peso 19.57, BRL 4.0537, Dollar Index 98.84, Oil $51.98, 10-year 1.53%, Silver $17.57, Platinum $886.01, Palladium $1,650.50, and Gold… $1,505.72
That’s it for today… A little later than usual, sorry… I slept through the alarm… I have to say that when I get up at 4 am to take my chemo, on an empty stomach, that when I go back to sleep, I really sleep… So, that’s my story, and I’m sticking to it! Like my first wife was a young Elizabeth Taylor, yeah, that’s the ticket! HA! So, my beloved Cardinals go to a deciding Game 5 on Wednesday… I like our chances… but it’s baseball, you never know! Our Blues won again last night, this time in Toronto, which is a big deal, if you ask me! The Dodgers and Nats are going to a Game 5 too, which is surprising to me, as I picked the Dodgers and Astros to play in the World Series…. OK… today were treated with a song to take us to the finish line from Mr. Excitement, Jackie Wilson, who sings: Your Love Keeps Lifting Me Higher… I hope you have a Tom Terrific Tuesday, and please Be Good To Yourself!
Chuck Butler