March 17, 2020
* The Coronavirus has basically shut down the Chinese economy!
* Another engineered price takedown of Gold yesterday…
Good Day… And a Tom Terrific Tuesday to you! And a Top o’ the mornin’ to ya, as it’s St. Patrick’s Day! I was talked down from the ledge yesterday, but I’m still of the opinion that the National Guard is going to have to mobilized in order to keep us in our houses to stop the spread of this disease. I’m down in S. Florida, and have the feeling that domestic travel is going to be out of the question as I am scheduled to go home to St. Louis on April 4… At that time we’ll have to make a family decision on whether we want to remain here, or drive home. I do keep a car here all the time, so we wouldn’t have to rent one to drive back. But that decision doesn’t need to be made today… But staying away from people is the main thing, along with washing your hands over and over again during a day, and sunshine… I’m thinking that in my current health situation, that should I get infected, it would be deadly for me… So… there’s a lot to think about in the next days… OK… now back to our regularly scheduled programing… The Eagles greet me this morning with their song: On The Border…
I would talk about the near 3,000 point loss in the Dow yesterday, but since I’m not a stock jockey, it’s not my bag baby! But all those losses in stocks is causing a real problem for Gold, as Gold is getting sold to cover all the margin calls that are being made… Remember when I used to tell you about the size of the margin loans that kept growing? I did that to point out that when the stock market turned, these margin accounts are the first ones to feel the pain… And the holders of these margin accounts begin to receive calls from the Margin Dept. telling them their min. requirement of equity has been breached and they need to deposit fulling paid for stock, or cash to bring it up to the Min. And then the stock market loses nearly 3,000 points, and another margin call goes out, and margin account holder needs liquid assets to sell to get cash… Enter Gold…
Speaking of Gold…. Well there was yet another “engineered price takedown of Gold” of Gold yesterday… Gold has gained quite a bit on the day, only to have the trap door sprung on it once again, and end up losing $20 on the day, which was more than $80 off its high of the day… UGH!, I guess as long as the regulators and the Gov’t continue to look the other way, when these engineered price takedowns happen, there’s nothing we can do about them, but make things difficult by buying more physical Gold!
A quick look at the currencies this morning tells me that while the euro saw a little love, yesterday, not much, but a little, the rest of the currencies continues to have sand kicked in their collective faces by the dollar bugs…
In the overnight markets, the euro gave back what it gained yesterday, and more as it now trades with a 1.10 handle…. And former stalwarts in gov’t. finance like Norway, just can’t find a bid… Australia seems to be in a complete fall and taking its kissin’ cousin across the Tasman with it. And the Poor Russian ruble, just keeps getting stomped on by the dollar bugs, rather than the other way around…
One has to wonder just how much longer this can be, given what the Fed has been up to the last two week, with their back-to-back, belly-to-belly, out of meeting “emergency” rate cuts, that have brought short term rates to near zero… I looked at a 3 month TBill last night and the yield on it was just 14 Basis Points or 0.14%… That’s about as close to zero as you can get!
A couple of months ago, I was interviewed by good friend, Dennis Miller, at www.milleronthemoney.com and was asked whether the U.S. would see negative rates….
At that time I said, “yes, we will see negative deposit rates, but I doubt that our Treasuries will carry negative yields” There’s more Government debt out there from around the world that have negative yields, and I just didn’t think we would be that stupid… All the elementary kids would be pointing at me and saying, “we’re not supposed to say the “s” word”…. And when my grandkids do that to me, I tell them, “I’m the General, and I can say anything I want!” So there! So, any way, I’m going to change my answer now, given what I now know… I mean when times change, opinions change, that’s a given… And when the 10-year Treasury’s yield dropped by 100 basis points last week, in one fell swoop… I did my best Bob Dylan impression, and said, “The times they are a changin’”
Longtime readers know that I don’t get into the regional manufacturing indexes because they normally don’t give us a heads up to what the national ISM manufacturing index will be… However, yesterday, the Empire Region (NY) manufacturing index for March printed at it showed the largest one-month drop ever, falling to negative =21.5 , from a previous reading of 12.9… This regional HAS to be an indication of how far the national ISM Index will fall when it prints for the same period…
Yesterday, I said that an economic analysts had called for U.S. GDP to drop 5% in the 2nd QTR. A dear reader sent in a note telling me that he didn’t know what the economic analyst was smoking but if the U.S. economy only lost 5% in the 2nd QTR, he was a monkey’s uncle! And I tend to agree with him, the way everything is getting shut down, and I mean everything, with the only things still open for business are grocery stores, and Pharmacies… Restaurants can only have 10 customers down here, so they’re just closing… Big Box items for GDP down here are Disney World and Universal, and they’ve been shut down almost a week now… We even have a curfew down here now… Wait! What? Did I hear that right? Has Marshal Law been declared and I didn’t hear about it? No… not yet, but the Florida Gov’t decided on its own to impose a curfew… We can be out from 6am to 9pm….
OK… enough on that… I think I probably scared ½ of my readers yesterday! But in reality, they need to be scared into staying home and away from crowds of people… Shoot Rudy, I heard that the city of Palm Beach closed their public beaches yesterday! The Beach had become quite the popular place to go, given 1. The weather is beautiful, and 2. There’s no place else to go…. And in the Gov’t’s defense whatever gov’t it is, state, local, national, the more alluring places they remove from people having the ability to go to the more chance they have of having people stay home! But the beach? Really? I sure hope they don’t close my beach… But if they do I still have our deck, where I can go to get my daily dose of vitamin D….
I can’t believe that I allow myself to get caught up in all of this virus stuff… But one minute I’m thinking about economies, and markets, and the next thing I’m typing is about a beach getting closed! UGH! Well, hopefully, everyone is taking steps to remain healthy… And staying home and reading the Pfennig is a great way to pass the time while staying at home! HA!
OK… The U.S. Data Cupboard is finally getting back in business today with prints of Retail Sales, Industrial Production, and Capacity Utilization today. All three will be for February, which was before the Armageddon began here in the U.S. I don’t say that lightly folks, as this is what it all feels like to me… So, as I said yesterday, Retail Sales should be OK, not great, but OK, with the other two continuing to drop. The March prints of all U.S. Data should end up dropping a lot… I’m just saying…
I think we can look to China’s mess of economics since they’ve been fighting the virus longer than we have… And yesterday this is what the Chinese economic data looked like:
• Chinese Retail Sales crashed 20.5% YTD YoY – the first annual drop on record and four times worse than the -4.0% expectation
• Chinese Industrial Production collapsed 13.5% YTD YOY – the first annual drop on record and more than four times worse than the -3.0% expectation
• Fixed Asset Investment plunged 24.5% YTD YoY – the first annual drop and more than twelve times worse than the expected 2.% contraction.
OH boy! Can’t wait for that to happen here! NOT! but I think it’s a very good indication of what will happen here as this to our economy, as this virus continues to spread….
To recap…. Sand continues to get kicked in the face of the currencies and metals by the dollar bugs, folks… it’s getting very ugly out there! Why on earth would investors look to dollars, when interest rates here are getting ready to drop to negative territory, along with Treasury yields? But they are, and as long as the Gov’t continues to look the other way, when the price manipulators engineer another major take down of Gold, we have to deal with cheaper Gold prices every day….
On a sidebar, I know that inquiring minds are wanting to know what’s going on with me, so in the vein…. Last week, I was supposed to be getting an “apligraph” on my leg wound, but the doctor decided that he would give it one more week with collagen, so this Thursday… That is if the Wound Center is still open, I’m supposed to get my apligraph…. Patience is a virtue, and if that’s the case, then I should have my picture beside the word “virtue” in the dictionary, because it’s now been 1 year since my leg opened up, and I’m still dealing with this!
For What It’s Worth…. Since I spent some time talking about negative rates today, this article from longtime reader Bernard, really hit a nerve, and seemed to FWIW worthy for sure! It’s well respected analyst, Ray Dalio, talking about negative rates… You’ll want to click the link and read the whole article, as I won’t be able to give it all to you in the snippet! You can find it here: https://www.linkedin.com/pulse/implications-hitting-hard-0-interest-rate-floor-ray-dalio/
Or, here’s your snippet: “While I’m going to pass along my thoughts to you, I want to emphasize that I wasn’t, and still am not, able to anticipate the most important things happening in the markets because of the extremely rare nature of the circumstances. While what I don’t know is much greater than what I know, I will tell you what I think for you to take or leave as you like.
As you know, for some time now I have been concerned that when the next economic downturn would come it would lead to hitting the 0% interest rate floor with a lot of debt outstanding and big wealth and political gaps in the same way that configuration of events happened in the 1930s. The coronavirus was the thing to cause the downturn, which surprised me. While it is an extremely serious infectious disease that will produce many harmful economic impacts, these things alone don’t scare me; however, when combined with long-term interest rates hitting the 0% floor, it really worries me.
Long-term interest rates hitting the hard 0% floor means that virtually all asset classes go down because the positive effects of interest rates falling won’t exist (at least not much). Hitting this 0% floor also means that virtually all the reserve country central banks’ interest rate stimulation tools (including cutting rates and yield curve guidance) won’t work. The printing of money and buying of debt assets that central banks are now allowed to buy almost certainly won’t work much (because bonds can’t be pushed much higher and they are also less likely to be sold to buy other assets of entities that are in financial trouble). Further, with this hard 0% interest rate floor, real interest rates will likely rise because there will be disinflation or deflation resulting from lower oil and other commodity prices, economic weakness, and more credit problems. If that plays out in the typical way, rising credit spreads will raise debt service payments to weaker credits at the same time as credit lending shrinks, which will intensify the credit tightening, deflationary pressures, and negative growth forces. God help those countries that have these things and a rising currency, too.”
Chuck again, this snippet is just an appetizer to what the whole article talks about, be sure to click the link above… Hey! we’re stuck inside, what else is there to do? HA! (sort of!)
Currencies today 3/17/20 American Style: A$.6001, kiwi .5952, C$ .7086, euro 1.1010, sterling 1.2086, Swiss $1.0402, European Style: rand 16.6456, krone 10.4020, SEK 9.9392, forint 315.02, zloty 3.9396, koruna 24.6995, RUB 74.05, yen 107.09, sing 1.4279, HKD 7.7661, INR 74.10, China 7.0051, peso 22.98, BRL 4.9185, Dollar Index 99.21, Oil $29.28, 10-year 0.81%, Silver $12.20, Platinum $631.64, Palladium $1,582.80, and Gold… $1,471.33
That’s it for today… Yesterday, was one of those days where I just can’t stay awake… After going north for a nurse visit to change my dressing, I came home ate some lunch and retired to my chair, and then proceeded to sleep all day! Maybe it was my body telling me to rest up for today, which is St. Patrick’s Day! I think I’ll start the day with some Bailey’s in my coffee and see where the day takes me! HA! We couldn’t really find anything interesting to watch on TV as a family last night, so Delaney was not a happy camper! The boys ended up watching American Ninja Warrior! UGH! Ok, it’s time to go… Be careful out there today, for there will be lots of Irish people celebrating, and lots of non-Irish people celebrating! Happy St. Patrick’s Day to you! The Buckinghams take us to the finish line today with their song: Don’t You Care…. I hope you have a Tom Terrific Tuesday, and St. Patrick’s Day, and will Be Good To Yourself!
Chuck Butler