March 27, 2019
* Currencies finally move, but go downward…
* It appears that the bloom is off Palladium’s rose…
Good Day… And a Wonderful Wednesday to you! I watched the movie Hidden Figures last night, and it sure was a good one! I love it when history is told the way it actually happened… It went late last night, so… I’m dragging the line today… I’m currently reading Tom Woods’ book the Politically Incorrect history of the U.S. It make me feel like I’m back in history while these things happened! I’m being rocked out this morning, as Humble Pie greets me with their rock legend song: I Don’t Need No Doctor…
We finally saw some movement in the currencies yesterday, but unfortunately, they went the opposite way of what I’m thinking they should be going, given the Fed’s about face, Treasury Bond yields continuing to decline, and the mounting evidence of an economic problem here in the U.S. sooner than later… Oh, and let’s not forget the stupid Consumer Confidence Index which actually showed a drop from 131.4 to 124.1… That’s the largest one-month drop since 2008… Traders just aren’t seeing the writing on the wall, that the bond guys are putting up there as warning signs…
And my fave topic (not!) The Federal Budget Deficit just set a record and now the it appears the border wall is going to go through, so more deficit spending on the way… Way back in the 90’s when I began writing a daily letter, I wrote about debt accumulation and how we weren’t paying any of it back, and probably wouldn’t be… I talked yesterday about how the cost of such deficit accumulation was increasing… This is something that everyone should be wary of, folks… Even if the currency traders aren’t making themselves aware of it… You should!
Last night, the Reserve Bank of New Zealand (RBNZ) met, and left their OCR (official Cash Rate) unchanged… The RBNZ acknowledged that employment was strong, and in fact, they said, “Employment is near its maximum sustainable level”… But wage inflation isn’t gearing up and their core “key” inflation rate of 2% isn’t being challenged… So, the OCR remained the same… UGH! And just like I said yesterday when I talked about how kiwi had popped above a significant level but I worried that it wouldn’t be able to hold it… And it wasn’t able… and lost almost 1 full cent… UGH!
In the U.K., PM May admitted yesterday that she doesn’t think she has the votes to get her BREXIT Deal passed… Sterling took it on the chin after hearing this news… I read this morning that in the dark smoke filled rooms that if she wants to get this BREXIT plan passed, she might have to fall on a sword… And that would take us back to our old thought that currency traders don’t like “unknowns”…
The euro took some heat yesterday, when the think tank IFO issued their consumer confidence report and it showed a big decline… I would have thought that by now fundamentals would be back in charge of currency direction but nooooooooo! Currency direction is still ruled by trader sentiment… And right now Traders are turning a blind eye on the U.S.’s warts… and only concentrating on those around the world…
The old thought of the dollar being the cleanest shirt in the dirty laundry basket, just doesn’t hold water with me…. for there are currencies out there with cleaner shirts, than the one dollar is sporting… Currencies like the Russian ruble, Swiss franc, and so on…
Well… Gold started the day yesterday down nearly $8, and ended the day down $6… But today, in the early morning trading, Gold is back to being bought, and is up a couple shekels… China has come back to the Gold window in a BIG way, Russia has been a constant there the past 5 years, and other foreign Central Banks are getting in on the Gold accumulation, instead of dollars… This fact alone should be worth a couple hundred dollars of gains in my humble opinion… But for now, the price manipulators are still flexing their muscles… For how much longer, is the $64 question…
The other day I pointed out that maybe the correction in Palladium was beginning and since then its been 3 down days for the metal, and just like when it was gaping higher, the drops are large…
The U.S. Data Cupboard yesterday had the Case/Shiller Home Price Index (HPI) for January, and yesterday, I told you that it would be interesting to see if the recent trend of falling home prices continued… And it did, with the HPI falling to 4.3% from 4.6%… That represents a 6.5-year low folks, so we’re going backward with home prices… Actually, that could be a good thing if it doesn’t get out of hand, as home prices had gotten ridiculously high, and didn’t represent value… The problem with these prices swings though is that the pendulum always goes too far the other direction when correcting, thus causing problems…
Today’s Data Cupboard has the January Trade Deficit, which should be interesting, given the tariffs and such going on… And we’ll also see the 4th QTR Current Account Deficit… In the 3rd QTR the data showed it at 2.4% of GDP… 2.5% is the line in the sane folks… Back in 2001, when I wrote the white paper, Decline of the dollar, I explained that the U.S. Current Account Deficit has exceeded 2.5%, and historically speaking, any country that reached that level of indebtedness experiences a currency crisis…
And sure as the sun rises in the East, that’s what the dollar began to experience in 2002, and lasted until 2011… So, watch for this data to see if we are on the brink of a dollar crisis…
On a sidebar… I have a very interesting FWIW this morning, that talks about what the U.S. should do to alleviate their debt load… I think you’ll not want to miss this one!
To Recap… The movement in currencies finally took place yesterday, but they went in a different direction that Chuck was thinking was in their future, as currency traders continue to turn a blind eye toward the warts the U.S. is showing… Yesterday, it was Consumer Confidence falling with the largest one-month drop since 2008… Remember 2008? It was not a good year, financially… I’m just saying… Gold lost $6 yesterday, as the price manipulators continue to keep Gold under wraps… for now that is… And UK PM May, may have a BREXIT plan that gets passed, but will she have to fall on a sword to get passed?
For What It’s Worth… I wonder how many people recall or read about how FDR devalued the dollar back when things were getting pretty ugly here in the U.S? First FDR confiscated Gold from the people at $25 an ounce and then once he had it all, he repriced Gold to $35 an ounce, thus devaluing the dollar… Well, that old thought is behind this article that the GATA folks sent me and can be found here: https://www.foxbusiness.com/economy/the-federal-government-should-default-on-its-debt
Or, here’s your snippet: “Dramatically hiking taxes, or drastically cutting Social Security and Medicare benefits in the late 2020s or early 2030s when entitlement trust funds run dry, would send the economy into a depression. Ignoring the debt and indefinitely printing more money, as proponents of “modern monetary theory” effectively advocate, would lead to uncontrolled hyperinflation.
Our leaders have dug us into a hole. And the best way out is a “soft” default on the national debt.
A hard default, where the government simply refuses to pay its debts, would cause a global economic meltdown. Dollar-denominated Treasuries and federal reserve notes are the lifeblood of the global financial system. But a soft default — a one-time devaluation of the dollar which enables the government to pay back its debts in full, albeit at a lower intrinsic value — needn’t be catastrophic.
Here’s how a soft default would work.
The Treasury would peg the dollar to gold, oil Opens a New Window.
, natural gas or silver — or perhaps a basket of those commodities. By choosing a weak valuation, for instance, $10,000 per ounce of gold, compared to the current market price of roughly $1,290 per ounce, much of the debt could be paid down thanks to a much weaker dollar.”
Chuck Again… Well, it’s not that too far fetched, as I explained above, it’s happened before… And it could very well happen again…
Currencies today 3/27/19 American Style: A$.7098, kiwi .6810, C$ .7463, euro 1.1285, sterling 1.3210, Swiss $1.0080, European Style: rand 14.5370, krone 8.5763, SEK 9.2417, forint 283.75, zloty 3.8085, koruna 22.8380, RUB 64.21, yen 110.35, sing 1.3538, HKD 7.8491, INR 68.94, China 6.7111, peso 19.22, BRL 3.8604, Dollar Index 96.73, Oil $59.49, 10-year 2.37%, Silver $15.46, Platinum $862.67, Palladium $1,517.28, and Gold… $1,318.57
That’s it for today… The ocean looks so calm this morning… But apparently that won’t last too much longer given the cold front that’s supposed to move through here this afternoon, and bring a very windy day… Another day passed by, where I questioned where it had gone at the end of the day, yesterday… UGH! Tomorrow is Opening Day for baseball… I contend that it should be a national holiday, and one day I hope to see that happen! Good luck to my beloved Cardinals… OK. the Cure takes us to the finish line today with their song: Close To Me… I hope you have a Wonderful Wednesday, and continue to Be Good To Yourself!
Chuck Butler