December 10, 2018
* Currencies and metals rally for the most part
* RBI Gov. steps down, leaving unknowns for the rupee…
Good Day… And a Marvelous Monday to you! One week down, 3 more until Christmas, and then a few days after that I head south for the winter, to get out of these dreary, cold days! Friday was December 7th, Pearl Harbor Day… I few years ago, Kathy and I traveled to Hawaii, and visited the Pearl Harbor Museum and the things there… I was moved by the whole scenario… I sure hope the younger generations don’t forget… But then it’s probably history that isn’t taught in school any longer, and if it is, they probably tell the kids to feel for the enemy… I’m just saying… And I had better stop there… Johnny Mathis greets me this morning with his version of: Blue Christmas… Nobody sings that song like Elvis… I’m just saying…
Well, the markets are finally figuring out that “no new tariffs”, doesn’t mean “no tariffs” and stocks lost about $1 Trillion of wealth last week… OUCH! That’s going to leave a mark! I’m not being flippant about that, but you can’t say I didn’t tell you to make sure your stop losses are updated and in place! The other thing that weighed heavily on the stocks was a drop in the number of Jobs created in November to 155,000, and the news that should have put shudders down everyone’s collective spines… and that is that Consumer Debt in November exploded by $25.4 Billion! That’s a record folks, and annualized total Consumer Debt has reached $3.963 Trillion, a 7.7% increase from a year earlier… I made a comment about spending for Christmas last week, and it sure holds true, because credit card debt is rising quickly… Hmmm…
Gold gained more than $10 on the day on Friday, and Bond yields continued to drop, as more and more people jump on my bandwagon… You know the one that I started some time ago that featured highlighting weakening data, and a call for a recession earlier than most people believe it will come. Palladium fought back to gain $16 on the day, after losing a HUGE chunk of its recent gains on Thursday, losing $33 for the day, but was down $55 at one point of the day…
The currencies found some terra firma after the Jobs Jamboree, and the euro headed toward 1.14 once again… that was Friday, and by the time I looked at the currencies screen on Sunday night, the euro had rallied past 1.14! The markets are beginning to believe that the dollar is going to get pummeled.. We’ll have to see about that as there could very well lead to the Plunge Protection Team come in to save the dollar…
Ok, in news from overseas this morning… UK PM May, decided to cancel the vote on her BREXIT proposal. She cancelled it because she didn’t have the votes to pass it, and this news sent shock waves through pound sterling causing it to slide downward on the day, even with the dollar losing ground.
Further south India saw their Central Bank Gov. Pajit step down unexpectedly… The rupee has been under a lot of pressure after another revalue last week, and speculation is that the Gov. had had enough… I guess he needed a pep talk like the one from Animal House about not giving up… “What? Over? Did you say ‘over’? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!…
It ain’t over now, ’cause when the goin’ gets tough, the tough get goin’. Who’s with me? Let’s go!” – Blut0, from Animal House…
So, I think you all know that this kind of news from a Central Bank leaves questions and unknowns, and if I’ve talked about things that move a currency I’ve talked about unknowns more than anything else through the years… And so, with the unknown… the rupee is getting sold like funnel cakes at a State Fair…
There’s not much in the way of data from the foreign countries this week, but… We will have a European Central Bank (ECB) Policy meeting on Thursday this week… Ok, let me lay this one out for you… Previously, the ECB said that they would end their bond buying on 12/31 this year. So, with that in mind, I’m a little leery of the meeting this week, as it will be the last one before 12/31, and this is the meeting where the ECB could announce a delay to the end of bond buying… So, there’s risk at this meeting, let’s hope it doesn’t come to that!
As I said above, Gold had a good day on Friday, and a good week, after an awful performance the previous week. The storm clouds are gathering for economies around the world, and that could end up being a real bugaboo for the dollar, and the main beneficiary will be Gold… At least that’s how I view it…
Another thing that seems to be heading toward a good thing for Gold is interest rates here in the U.S. I’ve done this math for you for before folks, but let me go through it again… The average Fed Funds Rate (FFR) that was in place before recessions, on average, was 6.5%… We are currently at 2.25%, and will end the year at 2.50%… that’s nowhere near where the FFR needs to be if we are going to enter into a recession next year… And here’s the other piece of math for you… The average total of rate cuts that have been made during recession in the past, on average, was 4%… Again, we don’t have 4% of interest rates to cut, now do we?
And the in demand economist, Danielle Di Martino Booth, had this to say about the interest rate math we just went through on her Twitter feed, “My concern is that we don’t have enough dry powder to combat what is to come.”
This is why I keep talking about a return to Quantitative Easing, thus ending the Fed’s Great Unwind of their balance sheet. And if the recession is as deep as I believe it will be, I would be a shiny quarter that we end up seeing negative interest rates… And any trader worth his salt would be looking ahead at this, and figuring out that Gold would be in great demand during a run like this… I’m just saying…
The U.S. Data Cupboard is pretty empty for most of this week, until we finally see a real piece of economic data in the form of Retail Sales on Friday this week. Until then, we’ll see PPI (wholesale inflation) and the stupid CPI (consumer inflation)… So, the dollar will be on its own most of this week, and usually that doesn’t bode well for the green/peachback…
To recap… The Jobs Jamboree was disappointing last week, stocks are getting sold by the truck load these days, and Gold made a comeback during the week. More folks are jumping on Chuck’s bandwagon, and there’s still some room! The U.K. cancelled their vote on BREXIT, which is not a good thing for pound sterling, and the RBI Gov. stepped down, and Chuck gives him the Bluto pep talk, but I guess it’s too late…
For What It’s Worth… Well, I’ve been writing about the liquidity crunch, and the leveraged loans held by Corporations for months now, and whenever I see an article that brings this up to date, it catches my eye… And so here it is here: https://www.zerohedge.com/news/2018-12-07/credit-death-spiral-accelerates-loan-etf-sees-record-outflow-primary-market-freezes
Or, here’s your snippet: “One week after even the IMF joined the chorus of warnings sounding the alarm over the unconstrained, unregulated growth of leveraged loans, and which as of November included the Fed, BIS, JPMorgan, Guggenheim, Jeff Gundlach, Howard Marks and countless others, we reported that investors had finally also joined the bandwagon and are now fleeing an ETF tracking an index of low-grade debt as credit spreads blow out and cracks appeared across virtually all credit products.
Specifically, we noted that not only had the $6.4 billion Invesco BKLN Senior Loan ETF seen seven straight days of outflows to close out November, with investors pulling $129 million in one day alone and reducing the fund’s assets by 2% to the lowest level in more than two years, but over $800 million has been pulled in last current month, the biggest monthly outflow ever as investors are packing it in.
Fast forward to today, when another major loan ETF, the Blackstone $2.9BN leverage-loan ETF, SRLN, just suffered its largest ever one-day outflow since its 2013 inception.
Year-to-date, the shares of this ETF backed by the risky debt have dropped 2.6%, hitting their lowest level since February 2016; the ETF’s underlying benchmark, the S&P/LSTA Leveraged Loan Index, has also been hit recently and is down 2.3% YTD, effectively wiping out all the cash interest carry generated YTD and then some.
With the leveraged loan market freezing up – and potentially entering a death spiral – the recent weakness has raised concerns that other debt sales currently in the works may be sold at discounts that are so deep underwriters may have to book a loss, if they can be sold at all. This is precisely what happened in late 2007 and early 2008 when underwriters found themselves with pipelines of debt sales that sudden got blocked, and were forced to take massive haircuts to keep the credit flowing.”
Chuck Again… With an article title like: Credit “Death Spiral” Accelerates as Loan ETF Sees Record Outflow, Primary Market Freezes… You can see why it caught my eye!
Currencies today 12/10/18: American Style: $.7220, kiwi .6896, C$ .7512, euro 1.1425, sterling 1.2663, Swiss $1.0117, European Style: rand 14.2745, krone 8.4788, SEK 9.0427, forint 282.27, zloty 3.7568, koruna 22.6530, RUB 66.39, yen 112.70, sing 1.3709, HKD 7.8145, INR 72.40, China 6.8731, peso 20.23, BRL 3.9014, Dollar Index 96.62, Oil $51.94, 10-year 2.85%, Silver $14.55, Platinum $790.52, Palladium $1,230.75, and Gold… $1,246.90
That’s it for today… A little later than usual this morning, sorry… Had a great day yesterday, attending the Billikens basketball game VS Oregon St. And the Billikens won which made it even better! Well, it was Allison Road’s birthday on Saturday, I hope her day was grand! Well, I’m a week away from my annual Christmas vacation! Of course I always have something up my sleeve for Christmas for you dear Pfennig Readers, and this year will be no different! I always start my vacation on Jen Mclean’s birthday, and end it the day after Kathy’s birthday… So, there you go! Oh, I guess you need to know those dates! HAHAHAHAHA! You’ll figure it out! HA! OK… The Allman Brothers take us to the finish line today with my fave Allman Brothers song: Melissa… I hope you have a Marvelous Monday, and Be Good To Yourself!
Chuck Butler