September 2, 2020
* The dollar bugs fought back yesterday and overnight
* Chuck talks more about the Fed’s inflation averaging….
Good Day… And a Wonderful Wednesday to you! WOW! I don’t know what my beloved Cardinals had for lunch yesterday, but they came out swinging against one of the better pitchers in the league, last night and racked up 6 runs in the first inning! I can hear all of my friends, laughing and saying, “Hey Chuck, I thought you said the Cardinals couldn’t hit?” Ahhh grasshoppers, I said they couldn’t hit the ball consistently…. So, let’s see what they have up their sleeves in tonight’s game before we knight them as Murderer’s Row! Not much going on around here, I can’t even go out and sit in the sun to read during the day, as it’s been nothing but cloudy and rainy the last two days, and from the looks of it this morning, we could be in for more… UGH! David Bowie greets me this morning with his song: I’m Waiting For The Man….
Well, yesterday saw the dollar bugs fight back, and the dollar buying went on all day. It was a good morning, good afternoon, good night for the currencies and metals… But hey! A little profit taking does an asset class some good, as it cleans out the old longs and gets set to move higher…. Gold did eke out a $2.40 gain on the day, to close at $1,970, but… That was nearly $22 below the morning high of $1,991.90… I’m sure some short Gold paper trades made their way to the COMEX, but all in all it was a day when the dollar bugs fought back. That’s my story, and I’m sticking to it!
In the overnight markets… it was more of the same regarding dollar buying, so this morning we’re looking at much lower prices in both the currencies and metals…. Ed Steer of www.edsteergoldsilver.com says this morning that Silver was really sold in the after markets yesterday…. Now that’s something that really gets in my craw… After hours trading…. Seems they’re doing something illegal doesn’t it? In college after the bars closed they would go back to the house and have “after bars”… Nothing good came from that, and nothing good ever comes from after hours trading… It’s something that I think should be outlawed! And those choosing to continue to trade after hours, if caught would be publicly flogged and put on display for all to shame as they pass by!
OK… back to the markets…. So, get this…. I went online last night to see if there was any news regarding the dollar rally yesterday, and there were two back to back, belly to belly, articles from CNBC that had one saying: “The U.S. dollar will trend weaker on the Fed’s new strategy:” and then the next one right underneath the first one said: “A U.S. dollar rally might be in the cards.” Ok, got it?
Those poor investors that go to Google and find garbage like that and have to make heads or tails of it, when they could sign up to read the Pfennig, and find out what’s really happening! And I’m still sticking to my story of profit taking, and a little short paper Gold Trades thrown in to boot….
Yesterday, I talked briefly about how Russia was getting through with their economy with not only the COVID-19 virus slowing its economy, but also remember there are still economic sanctions on Russia from the U.S. and Europe…. I recall hearing people say that the pandemic would bring the Russian economy to its knees and cause the ouster of Putin…. But they were wrong weren’t they? And now from the RT I see this: www.rt.com: Russia on course to replace Germany as Europe’s leading economy & enter global top five this year – Putin’s economic advisor.
Now that’s a far cry from collapsing don’t you think? And last night, the ruble along with the Chinese renminbi were the only two currencies to rally VS the dollar… That’s quite significant to me, folks… but that’s a discussion for another day… That is, as long as I remember to talk about it! HA!
There’s a country that’s been stealth like with its moves VS the dollar…. And that’s India and its rupee…. Good friend, Dennis Miller, sent me a link to a video of a woman giving 5 reasons why India will pass up China and the U.S. to be the number 1 economy in the world…. Ok, we’re not talking about right this minute, month, year, or decade…. But it was interesting to say the least…. For instance did you know that a large number of the Tech giants are run by Indian CEO’s? if they could ever figure out how to unlock their consumer led economy…. I’m just saying…
But the rupee, which has lazed around and was happy with trading with a 74 handle VS the dollar, has recently been awaken and got itself on the rally tracks and last night it was trading with a 72 handle…. It’s nice to see the rupee moving without the sugar fed euphoria of a PM election…. The dollar buying in the overnight markets brought the rupee back to 73 this morning….
And talk about a currency, that has been bruised and battered along with the other Petrol Currencies, the Norwegian krone, iwas finding solace and protection being associated with the euro…. that is until yesterday and last night! A few years ago the krone had the soaring price of oil and the lofty pricing of the euro going in its favor, but since those two bubbles burst, it’s been famine without the feast for the krone…. Hey, throw the krone a bone will ya, markets?
I told you longtime readers a long time ago that when the weak dollar trend was real, we would see the Euro-Wannabes, zloty, forint and koruna on the rally tracks…. And guess which three currencies were stealthily moving higher? You are so darn smart! Yes, the Euro-Wannabes…. How’d you figure that one out, did I give you too good of a hint? Oh, well, that’s what was going on, but it has to be sustained and not a false dawn, which we’ve seen a few times in the past couple of years….I want to say…. But for now, it’s game on Garth! Game on Wayne!
The other day I made a Big Deal out of the Ohio Fire & Police pension fund increasing their allocation to Gold by 5%…. And that got me thinking about how other pensions across the country will see this, and think that they should do the same thing? That could mean large purchases of Gold, coming in the future, folks…. And when push comes to shove, the bullion dealers will look to fill the large orders before they worry about the small ones…. So, why wait to get in line ahead of the big buyers?
This also plays well with what I’m talking about here : Billionaire investor Ray Dalio’s hedge fund (Bridgewater Assoc.) poured more than $400 million into gold in the second quarter of this year, as the price rallied towards record highs, luring in high-profile and amateur investors alike.
The Big Orders may just be coming fast and furious…. So again, I implore you to get your investments diversified with allocations to metals and currencies, ahead of the Big orders!
Well… talk about reacting to a speech…. There are people on both sides of the fence thinking that they understood Fed Chairman Powell’s speech last week for the virtual crowd at the Jackson Hole Fed Boondoggle…. But I think I laid it out for you in yesterday’s Pfennig, exactly how I view it, and so therefore, we’ll go with that…. That the Fed is going to a average inflation rate target of 2%, which means, if inflation is below the 2% level as it is now, then when it finally rises, the Fed will allow it to go higher than 2%, to average out the rate…. The thing I want to be able to see is them put the brakes on the rising inflation when or if it ever comes….
Paul Volcker tamed inflation with rate hike after rate hike all the way up to 18.39% in June 1980… Remember he even hiked rates out of meeting on a Saturday night? It was called Volcker’s Saturday Night Special…. But… the difference between then and now, was that the U.S. debt that had to be financed was chicken feed…. $900 Billion… And most of that had been already issued at lower rates…. For the Fed to go on the attack VS inflation with rate hikes, would increase the financing costs tremendously, folks…. So, they, the Fed, are stuck with jawboning rate hikes, and after the initial positive action to the jawboning, the markets will figure out that it was just that, Jawboning, with no rate hikes to follow…. And then inflation will have no predators…. Uh-oh!
The U.S. Data Cupboard yesterday, had the ISM (manufacturing Index) and Construction Spending with both of them coming in as expected…. Today’s Data Cupboard has the ADP Employment Report, which the experts say will show a 167,000 new jobs in August…. Sounds good, eh? Well, not when you consider how many people are still looking for jobs…. And tomorrow we’ll see just how many people filed for new unemployment claims last week….
To recap…. the two-day rally in the currencies and metals came to abrupt halt yesterday, and the dollar buying went into the overnight markets and came out this morning on the upside of most currencies, and especially the metals… Chuck thought the graceful downward move yesterday was just profit taking with a few short paper trades thrown in… but this morning this has a different taste to it than just profit taking…. And Chuck’s hoping that we were not witnessing another false dawn…
Before we head to the Big Finish today…. I’m getting gun-shy, about giving out my thoughts on things…. I know, I should just stick to the markets, but if you’ve read me long enough, you know that I have a difficult time keeping everything about the markets…. Because in the end, all things come back to center, and can be the root cause of a market reaction…. I’m just saying….
For What It’s Worth…. I saw this headline on Twitter, and it talked about how the Fed has bought $1 Trillion in Mortgage bonds since March…. It’s on Bloomberg.com, and it can be found here: https://www.bloomberg.com/news/articles/2020-09-01/fed-s-mortgage-buying-spree-at-1-trillion-with-no-end-in-sight
Or, here’s your snippet:” The Federal Reserve has snapped up $1 trillion of mortgage bonds since March, a record pace of purchasing, as the U.S. central bank tries to blunt the impact of the Covid-19 recession on American homeowners.
The Fed bought around $300 billion of the bonds in each of March and April, and since then has been buying about $100 billion a month. It now owns almost a third of bonds backed by home loans in the U.S. Buying the securities has pushed mortgage rates lower, with the average 30-year rate falling to 2.91% as of last week from 3.3% in early February.
That drop has allowed homeowners to refinance their mortgages, tantamount to giving them a raise by cutting their monthly loan payments. It’s also helped consumers buy homes. But the Fed’s efforts are causing its balance sheet to balloon, and with the central bank owning so many U.S. home loans, it has unusually high power over setting mortgage rates.
The latest statement from the Fed has promised to keep buying “at least at the current pace.” If the central bank does so, by year’s end it will have purchased about $1.4 trillion in mortgage bonds — and added around $900 billion net to its holdings.”
Chuck again…. You know the line that really caught my eye, don’t you? “with the Central bank owning so many U.S. home loans, it has unusually high power over setting mortgage rates”…. Yeah, that’s the one that kind of sticks in my craw…. Can you imagine this… Please make your mortgage payment check out to: the Federal Reserve…. That opens doors to all sort of things that’s not good…. think about it….
Market prices 9/2/20: American Style: A$ .7338, kiwi .6758, C$ .7651, euro 1.1860, sterling 1.3351, Swiss $1.0978, European Style: rand 16.8220, krone 8.7736, SEK 8.6776, forint 302.21, zloty 3.7245, koruna 22.2023, RUB 73.64, yen 106.25, sing 1.3675, HKD 7.7499, INR 73.08, China 6.8252, peso 21.83, BRL 5.4354, Dollar Index 92.59, Oil $43.01, 10-year .68%, Silver $27.63, Platinum $940.00, Palladium $2,290.00, and Gold… $1,962.00
That’s it for today…. Man, I had just finished watching the 16-2 bashing of the Reds by my beloved Cardinals last night, when I heard a hissing sound that kept going, and when I found where it was coming from, our hot water tank’s reserve tank had sprung a leak…. And our furnace room was soaked with water…. Good thing I was still awake to hear that, before it went on all night, and flooded our basement! Now, today, I have to call a plumber… UGH! It’s always something, right? Well, I hope the plumber comes soon…. Wink, wink…. This coming weekend is Labor Day Weekend, which means there’s a three day holiday, that for many will become a 4 day holiday…. I won’t be hosting the Annual Butler Labor Day BBQ & Pool Party this year, for the first time since 2001, when I began to do this. I’ll still be smoking some pork butts, and Turkey Breasts, but just not as much as usual, for it’ll only be my family that I’m feeding this weekend! Labor Day marks the end of summer, technically it doesn’t end for a couple of weeks, but when I was younger the day after Labor Day meant the first day of school…. I have two kids, Dawn and Andrew that are teachers, my heart goes out to them attempting to hold something like school these days…. Smokey Robinson and the Miracles take us to the finish line today with their song: Ooo Baby Baby… Which I’m told was the best “make-out” song…. I have no idea if that’s correct, but it’s what I was told…. I get it though with the silky soulful voice of Smokey Robinson singing to you! I hope you have a Wonderful Wednesday, and I ask you to please Be Good To Yourself!