September 3, 2019
* But dollar bugs won’t be distracted, they keep buying dollars!
* Chuck takes us back to his days as a cashier in Des Moines, Iowa!
Good Day… And a Tom Terrific Tuesday to you! What a great weekend here in my home town… The rain stayed away for the BBQ on Saturday, after coming down in buckets on Friday night, and then Sunday and Monday were just absolutely beautiful… I know that’s not fair, to the folks in the SouthEast, getting hammered by wind and rain from the hurricane Dorian. But, as Annie sang… The sun will come out tomorrow… So, hang in there, be careful, and don’t take any chances with mother nature! We ended the week yesterday with our neighbors, Paul and Lenore, sitting out back watching the Cardinals win again, and then had a wonderful dinner out on the deck… Marvin Gaye greets me this morning with his song: Inner City Blues… “makes you wanna holler, the way they do my life”…
Well, another round of tariffs went through on Chinese goods this past weekend… They had had been held back awaiting for any signs of progress in the negotiations, but since that didn’t happen, the tariffs went into place, and the stock jockeys, who last week bought tons of stocks on the thought that the Trade War might end, are not so much thinking that today, as stock futures are down big this morning…
And through all of these gyrations with stocks, the dollar continues to be bought… The dollar has now pushed the euro down below the 1.10 level, and it’s falling fast folks… (my English teacher would be proud of me using that alliteration! ) But that’s not going to save the euro… And right now I don’t know what can, besides a fall in the dollar, which doesn’t appear to be on anyone’s docket right now…
Longtime readers know that when the euro is getting sold, there’s not a currency in the world that can survive not being sold too… The Chinese kept the renminbi steady Eddie during the 2007-2008 financial meltdown, but once the first round of Quantitative Easing was announced, in March 2009, the Chinese let the dogs out to run VS the dollar… And soon the dollar was getting sold like Funnel Cakes at a State Fair! But… that’s not happening now… so we have to live with a stronger dollar… And that’s bound to make the President madder than a we hen! But so far, the dollar bugs have given the President the deaf ear treatment…
In addition, longtime readers, know that I believe the next recession is going to be a doozy! The Fed normally cuts 5% in interest rate cuts during a recession… We’re not even 1/2 the way to 5%… So, where will the extra arrows come from to stop the recession this time? Negative rates? More Quantitative Easing? Or how about both? That’s what I’m betting a shiny quarter on… Both of those being used by the Fed to stop the recession… But, by the time the Fed gets around to admitting they were wrong about the economy, and begin to deal with the recession, it’ll be too late, baby, now, it’s too late, though we really did try and make it!
Will the recession come still this year, or will it come in 2020? I doubt that it’ll be stubborn and wait any longer than 2020… And at the end of last year, I told you that by the end of this year, we would be in a recession… So, I’m still keeping a light on for that forecast!
Oh, and don’t look now, but there are some glaring signs that a recession is closer than we think… 1. The Bond curve inverted, 2. GDP is shrinking, 3. Corporate Earnings growth has slowed to 2.3% (was above 7%) 4. Remember last month when I told you that the Manufacturing Index was very close to going below 50, which would mean manufacturing is contracting? Well, the August ISM (manufacturing index ) will print today, and I expect it to fall below 50 at 49.9… 5. About a month ago I told you that Cass Freight shipments were dropping like flies, well, May they were down 6%, June they were down 5.3%, and now July they were down another 5.9%… Do you see a trend here? I thought you would! 6. CAPEX (capital expenditures) are way down, folks… There’s no economic recovery without CAPEX rising… So, there you go… I’m sure there are more… like the economic data, even the data that’s hedonically adjusted, continues to look weaker with every print…
Not that I want to see another financial meltdown… But a recession is something that should be welcomed by economies, for they clear out the excesses, and allow economies to come back stronger than ever… But the Fed has insisted on making sure we all know that they are smarter than the rest of us, and have tried to limit the effects of a recession, before the excesses were cleared out, and we’ve kicked that can down the road, since the Big Al Greenspan days!
Well, I got to see former colleagues, Jen and Chris at the BBQ last Saturday, and we all agreed that this current situation is bad, and can’t keep going like it is… But does that mean the economy will collapse today? No! Tomorrow? No! Next week? No! I think you get the picture… There’s not one person on the God’s green earth that can pinpoint exactly when the economy will collapse… I call events that could lead to the beginning of a collapse, snowflakes… You know like a snowflake can be the final snowflake on a mountain of snow that causes an avalanche… We’ll have our “snowflake moment”, but by the time we wake up or come back to work one day after a 3-day weekend, or whatever, it’ll be too late… Sorry, game over, take your ball and go home, stuff… I’m just saying…
My neighbor asked me if he could still buy Gold… I said, why not? I asked him, does your bank pay you much on your deposits, whether they be demand deposits, savings deposits or CD’s? So, let’s look at it this way… At least with Gold, you may not receive interest, but… You have a store of wealth, that has never gone to zero! The dollar has lost 95% of its value since the Fed took over in 1913… I just thought I would throw that tidbit out there… to compare…
Gold was getting any love on Thursday and Friday last week, but it’s difficult to keep a good currency/ metal down… And It recovered by $7, yesterday, as the Trade War ratchets upward… Just so you know… Central Banks around the world, sans the U.S., U.K., Japan, and Europe, are buying physical Gold by the truck loads each month… Are the Central Banks in Russia and China smarter than those in the U.S, U.K. Japan and Europe? Well, I do believe they are! Sorry Jerome Powell, Mario Draghi, Mark Carney, and Mr. Kuroda, with all respect, I would have to put my money on the Central Bankers of Russia and China… But then I would think that most people that read this letter would know that by now!
While on the subject of Gold & silver, Ed Steer printed his latest graph showing the number of days of production it would take to equal the amount of ounces of Gold & silver that are sold short… The reason I bring this up, is that Silver has now moved to 200 days of production needed, and Gold 130 days… As these two metals rise, don’t you think things get a little hairy for those bullion banks holding all those short positions? I personally hope that it gets so hairy that a few of them have to go into receivership! That would teach them!
Wouldn’t that drive you crazy? knowing you held all these short positions while the asset was moving higher each week? I’ll tell you a story that relates to this… A long time ago, I was working in a brokerage/ commodity house in Des Moines, Iowa, And we had broker that made huge bets with commodity trades on something I won’t talk about… I being the cashier, kept issuing his clients margin calls, but he persuaded the management team that he was right, and it would be be right on the night, eventually… Well, one Monday morning, I arrived to hear that the project had fallen through, and the broker had checked himself into a mental facility… I then had to make all these calls to the clients telling them their positions were being sold out, and they needed to supply additional funds…
That led to SEC investigations and depositions being taken… I had an SEC regulator, take me into a hallway, and start poking me in the chest, and telling me to start remembering the events better… I told him to keep his hands off me, and that I would never forget the events! And I still haven’t!
So will we hear about some Bullion Bank traders checking themselves into mental facilities? Now, that would make this whole thing go full circle wouldn’t it?
OK, the U.S. Data Cupboard today has the ISM manufacturing index that I’ve said would go below 50… Then we’ll go along through the week with some various data prints tht don’t mean too much, until we get to Friday’s Jobs Jamboree for August… I had a little back and forth with a writer last week that sent me a note that said, Chuck, you’re wrong about the U.S. consumer being tapped out, did you see how strong Personal Spending was In July? (it printed last week) … I responded it, Haven’t we already talked about this before? July Retail Sales were strong, because of the back-to-school sales, and therefore Personal Spending would also be strong in July for the sale reason! Besides, it wasn’t cash being spent, it was for the most part credit card purchases!
To Recap… The Trade Ward kicking into a higher gear this past weekend, as a new round of tariffs began… The Southeast it getting whipped around by Hurricane Dorian. The dollar continues to get bought, despite all the goings on… Chuck talks about the next recession, and has a flashback to the 70’s and a situation in Des Moines…
For What It’s Worth… Last week, I received an email from my longtime friend, and former boss, Frank Trotter… He sent me a link to an article that I think I could have written… It’s about the Budget Deficits and how no one seem to care about them any longer (except me of course!) and it an be found here: https://www.washingtonpost.com/opinions/were-making-a-high-stakes-gamble-on-the-deficit/2019/08/25/82b0494e-c5c5-11e9-b5e4-54aa56d5b7ce_story.html?noredirect=on
Or, here’s your snippet: “It’s getting harder and harder to write these budget columns, because it must be obvious to almost everyone by now that hardly anyone in Washington (or perhaps any place) cares about the budget deficits. The assumption is that we can raise spending and cut taxes forever — or until some crisis occurs that forces us to do involuntarily what we won’t do voluntarily.
There is a bipartisan consensus of sorts that the presumed discipline of balancing the budget — discarding the least useful programs and increasing the least burdensome taxes — has been overtaken by expediency. Why bother to curb budget deficits when there seem to have been few, if any, damaging consequences in letting them continue? Worse, deficit reduction now might raise the risk of recession.
Just for the record, it’s worth reciting the basic facts in the latest report from the Congressional Budget Office. It demonstrates the nonchalance with which the budget is now treated by both parties.
According to CBO estimates, massive deficits stretch as far as the eye can see. Between 2020 and 2029, the projected deficits total $12.2 trillion, which is nearly $1 trillion more than was estimated in May. In every year after 2020, the deficit exceeds $1 trillion and is more than 4 percent of gross domestic product (GDP). By 2028, the projected deficit will be 5 percent of GDP.”
Chuck, and here’s the important part… The writer goes on to say: “This is a high-stakes gamble. The possible ways in which a world sated with dollar securities could trigger a financial or economic crisis are many. The consequences of a run on the dollar — the currency most held by multinational firms, international banks, investors and traders — would clearly destabilize the world economy. A prudent society would recognize this and take preventive steps.
We are not prudent. We are just raising the risks, seemingly determined to learn how much we can test the bounds of our ignorance.”
W have become… Perfectly Numb…
Currencies today 9/3/19 American Style: A$.6732, kiwi .6293, C$ .7483, euro 1.0933, sterling 1.2037, Swiss $.9906, European Style: rand 15.1340, krone 9.1554, SEK 9.8823, forint 302.55, zloty 3.9940, koruna 23.6838, RUB 66.71, yen 106.12, sing 1.3929, HKD 7.8435, INR 72.36, China 7.1666, peso 20.09, BRL 4.1567, Dollar Index 99.28, Oil $54.07, 10-year 1.48%, Silver $18.46, Platinum $940.06, Palladium $1,545.87, and Gold… $1,529.88
That’s it for today… I really don’t want to place the kiss of death on my beloved Cardinals, so I’ll just say they had a good 3 day weekend of 5 games! We had a blast at the Annual Butler Labor Day BBQ & Pool Party! A great time was had by all (I think!) I guess I estimated the amount of meat to cook as there was very little leftover, after everyone had eaten… Good job Chuck! I really didn’t want to wake up this morning… But I did, and then I thought to myself… Chuck you don’t get any gold stars for waking up early! HA! Emerson, Lake & Palmer (ELP) take us to the finish line today with their song: Lucky Man… Hey! they must be talking about me! Whenever I meet a new nurse, who wants to know my medical history, even though she could look it up, I tell her the history, and then add… And my friends call me “Lucky”! HAHAHAHAHA I hope you have a Tom Terrific Tuesday, and please Be Good To Yourself!
Chuck Butler