March 23, 2020
* Dollar bugs continue to hold the conn…
* Chuck’s spider sense is tingling….
Good Day… And a Marvelous Monday to you… Yes, I’m still here, writing to you from S. Florida, where we haven’t seen anything other than sunny, blue skies with temps in the 80’s for 10 days, and the forecast for the next 10 days, doesn’t change! Unfortunately, I may be going home sooner than I had planned (April 4). My wife is very concerned about me and my health right now and wants to get me home asap…. I’m fighting her tooth and nail, to remain here where the sun is raining down on us daily… But, I see her logic, as I don’t really have any doctors down here, other than the wound center doctor, and if I were to get sick with this virus, it would be better for me at home…. Neil Young and Crazy Horse greets me this morning with their song from the live at Filmore East album: Cowgirl In The Sand… On a sidebar I was singing this song to my darling granddaughter, Delaney Grace, last week, and she just gave me one of those, “ General, did you know you were singing out loud , looks”….
Another day, another dollar rally last Friday, and this morning the euro is trading with a 1.07 handle, barely that is, it hasn’t been this low since the days when it was going upward! The Dollar Index is trading with a 102 handle, and is looking like it will test the highs on the dollar index that were created during the last strong dollar trend, at 111! And in the 80’s during the strong dollar trend then, the Dollar Index climbed to 126! So… what I’m telling you folks, is that we could very well see this play out to those previous level, which if it did, would take the euro below parity to the dollar, something it hasn’t done in 20 years….
Has anyone that’s been buying dollars seen the Fed’s Balance Sheet lately? Remember the one everyone fretted about when it was $4.5 Trillion? Well, don’t look now but the Fed’s Balance Sheet is 4.67 Trillion, and the Fed just got started on buying bonds last week!
So everyone is on pins and needles this morning waiting for the announcements from Central Banks around the world, including the Fed, and their respective gov’t’s, regarding their plans to combat each country’s economy shutting down to combat the COVID-19 virus. What’s it gonna be boys? I’ll tell you right here, right now, that my spider sense is tingling, and we could very well see, in the next days to week, an announcement of a coordinated currency intervention, ala the Plaza Accord from 1985…
You see, the dollar’s strength right now is not a good thing for the countries of the world, and that’s a discussion for another day… but just be good with the idea that countries around the world are suffering greatly, with their respective economies in the dumps and the dollar soaring…. I’m just saying…
So, have you heard the news about the senators that sold stock right after being briefed on the Coronavirus, and therefore got out when the getting was good? That news just makes me madder than a wet hen, folks! The senators were being asked to step down… Step down? Shoot Rudy, in my book that’s what called “insider trading”, and they should be being fitted for an orange jumpsuit right now! But we all know that won’t happen in today’s world…. Just for grins I Googled Senators and Representatives that were sent to jail…. And the list is very, very long! But that was back in the day, before the swamp got so deep!
Last week I left you with my scratching my balding head over the rise in bond yields, when it looked for all intents and purposes that those yields would continue to drop, with a the flight to safety…. Well, scratch no more…. It didn’t take me long after hitting send on Wednesday, to figure out what’s going on…. I had a head slap V-8 moment! OUCH! (I slapped too hard!) Remember when I used to tell you all that the only way to get on top of all the debt the U.S. was accumulating, was to inflate the debt away? So, all I had to do was go back in time, and think about what I was saying back in the day… You know long before we hit $23 Trillion in National Debt, with our country’s contribution to the Debt pile most likely being over $2 Trillion this year, given the costs of the Covid-19 virus stimulation. So, first we’re going to go down the deflation rabbit hole, of which we’ve been in for some time now, and next, we’ll see inflation spiraling higher….
Why do I think that? Because that’s what it has to be! The Fed is going to be printing dollars at break-neck pace going forward, and while inflation (according to the gov’t, but proven otherwise by the folks at the Chapwood group) has stayed in control, this will be more than we’ve ever seen before, folks… Shoot Rudy… Former Fed Chairs, Big Ben Bernanke and Janet Yellen both sent an oped to the NYT last week calling for the Fed to begin to buy Corporate debt, and stocks….
OK, it’s against the law for the Fed to begin those projects without Congressional approval… But what’s going to stop them from asking for that? And what’s going to stop the lawmakers from saying NO!? Nothing, absolutely nothing, say it again!
In other news, I’m going to lay this off to the folks at Wall Street On Parade… Who had this to say, “The Federal Reserve Board of Governors announced at 6 P.M. last evening that it is following the direction of Steve Mnuchin, the former foreclosure king who now serves as U.S. Treasury Secretary, and authorizing the reinstatement of a hideously operated, multi-trillion dollar bailout program for Wall Street’s trading houses known as the Primary Dealer Credit Facility (PDCF). Veterans on Wall Street think of it as the cash-for-trash facility, where Wall Street’s toxic waste from a decade of irresponsible trading and lending, will be purged from the balance sheets of the Wall Street firms and handed over to the balance sheet of the Federal Reserve – just as it was during the last financial crisis on Wall Street.” – Wallstreetonparade.com
Cash-for-Trash Oh boy, I can’t wait for my Central Bank to begin this program! I think you should call your representative and tell him/ her, that you do NOT approve of this program! And then be prepared for a list of B.S. from your lawmaker!
I also like this passage from the folks at wallstreetonparade.com, “Only in some alternative universe from hell that exists in the likes of the brains of Lloyd Blankfein (the former CEO of Goldman Sachs who famously said he thought he was doing “God’s work”) could funneling $5.7 trillion to Citigroup, Morgan Stanley and Merrill Lynch be construed as helping American workers and businesses. During the financial crisis Citigroup was foreclosing on families using an alias and illegally holding homes off the market; Merrill Lynch, a retail brokerage firm and investment bank, was such a basket case that it had to be taken over by Bank of America; and Morgan Stanley was leveraged 40 to 1 “meaning for every $40 in assets, there was only $1 in capital to cover losses. Less than a 3% drop in asset values could wipe out a firm,” according to the Financial Crisis Inquiry Commission report that investigated the crash for Congress.”
Chuck Again… Yes, and only in some alternative universe from hell could the U.S. be handing over the reins of the watchdog to the Fed NY, once again…. I shudder from this news, folks… I really do… I feel for our kids and grandkids more than ever before, and longtime readers know that I’ve been shuddering for them for years as the debt grew and grew and grew!
The U.S. Data Cupboard last week had some very disheartening data. Last week I told you about how the Empire region (manufacturing index) had fallen out of bed, and then to follow that regional up, the Philly Index also saw a HUGE drop to -12.7 from 36.7! And then Leading Indicators for February, which was before the COVID-19 breakout here in the U.S., dropped from .7 to just .1%…. Obviously, things were looking pretty shaky to the boys and girls that compile this data before the virus breakout!
The U.S. Data Cupboard this week will have a couple of real economic prints to look at as we go through the week starting Wednesday with Industrial Production….
Get this! Goldman’s Jan Hatzius now sees 2Q US GDP decline of -24% but then two large GDP gains in Q3 and Q4. They now see: qtr-on-qtr annualized growth rates —
Q1: -6% —
Q2: -24% —
Q3: +12% and —
Q4: +10%
So full-yr growth at -3.8% annual avg, -3.1% on Q4/Q4.”
I’m going to go out on a limb right here, right now, and say there’s no way the economy will turn around that fast in the 3rd QTR…. Restaurants and bars might not ever be able to rebound, in my opinion! So, don’t get all loopy with this forecast of 12% 3rd QTR Growth, folks… I’m not buying it!
I do understand economics folks…. It’s been my bag for a long time, and in saying that I want you to feel comfortable with the idea that I fully understand that once this virus gets burned out, the inventories will have to be restocked, and that will created some strong economic winds, but I’m afraid that they won’t be as strong as they would normally be, because of…. All the debt that was created to combat this virus’s effect on the economy…
This debt creation is going to be the biggest we’ve ever seen in the U.S. folks… Inflation will finally take off to higher ground, and Commodities will recover…. But that will take awhile to work itself through, so batten down the hatches, and hold on…
Gold finally had a good day on Friday, climbing $27 back to $1,500 but it’s down $5 in the early trading today, so it looks as if this was a one and done for Gold… So, how many of you were paying attention when I mentioned above that Commodities will recover? I’m of the opinion that the inflation spriraling higher will be the catalyst for Gold to soar higher once again, just like it did in 2009, when the first round of QE was announced…
To recap…. The dollar continued to kick sand in the face of the currencies, and it’s beginning to look very, very ugly out there for the currencies, which has Chuck thinking that we could be seeing some sort of coordinated currency intervention ala the Plaza Accord in 1985… We’ll have to wait-n-see…. Chuck is all upset about what’s going on with the casino banks, which will have their old friend, Fed NY, watching them once again…. UGH!
For What It’s Worth…. Well there’s more bad news for the U.S. economy folks, get ready for this one, it’s an article about bonds in distress increasing and it can be found here: https://www.zerohedge.com/markets/distressed-debt-us-doubles-2-weeks-500bn-bofa-expects-surge-defaults
Or, here’s your snippet: “Last week, in the aftermath of the historic oil price collapse, we warned that the long-awaited “fallen angel” day has arrived, as $140 billion in oil producer (and up to $360 if one includes the mid-stream companies) investment grade debt was on the verge of being downgraded to junk and throwing the entire high yield market in turmoil.
Fast forward to today when Bloomberg calculates that since we published out article, the amount of distressed debt – a term that describes borrowings likely to default – in the U.S. alone has doubled to a half-trillion dollars as the collapse of oil prices and the fallout from the coronavirus shutters entire industries.
While rating agencies have been slow to respond to the total collapse in cash flow generation across most US industries as long as the US economy remains paralyzed due to the spreading lock downs across the nation, markets have been far faster, and the result has been a plunge in the price of countless bonds. As a result, corporate bonds – which according to BofA are no longer properly functioning – that yield at least 10% points above Treasuries, as well as loans that trade for less than 80 cents on the dollar, have swelled to $533 billion. This is more than double from the March 6 total of only $214 billion. And, according to UBS, if one adds across all company debt globally, including loans to small- and mid-sized companies that rarely if ever trade, the distressed pile could top $1 trillion.
And yes, that number is only going to surge.
An analysis via Trace shows that the amount of distressed bonds has surged to the highest level since the financial crisis, surpassing the oil/manufacturing recession of 2016.”
Chuck again…. Corporate debt problems, distressed bond problems, where does a person that wants some return on their money go? I bet you all know how I would answer that question….
Currencies today 3/23/20 American style: A$ .5735, kiwi .5630, C$ .6903, euro 1.0700, sterling 1.1568, Swiss $1.0134, European Style: rand 17.7510, krone 11.6107, SEK 10.4344, forint 329.43, zloty 4.2819, koruna 25.8348, RUB 79.94, yen 110.60, sing 1.4634, HKD 7.7556, INR 76.18, China 7.0948, peso 24.94, BRL 5.0613, Dollar Index 102.58, Oil $22.34, 10-year .81%, Silver $12.59, Platinum $621.84, Palladium $1,625.61, and Gold…. $1,494.60
That’s it for today…. Well, yesterday was the absolute most beautiful day I’ve ever experienced down here… I sat outside on our deck reading a book for over 3 hours. It’s very eerie down here, as there is no one on the beach, no one in the ocean… It’s very quiet, and peaceful… I just watched the sun rise up out of the ocean…. It appears to be another day today like yesterday… My grandkids went home on Saturday… Yesterday, had to be the most subdued Birthday I’ve ever had… But, I need to get this out the door and get on down the road… I had my Apligraph on Thursday, and today they will see how it worked…. Chicago takes us to the finish line today with their song: Stay The Night…. I hope you have a Marvelous Monday, and please Be Good To Yourself!
Chuck Butler