September 16, 2019
* Saudi Oil supplies take a hit from a drone attack!
* Oil soars, the Petrol Currencies follow, and Gold soars…
Good day… And a Marvelous Monday to you! What started out to be a great weekend for my beloved Cardinals turned into a dud… UGH! But the weather here was absolutely fantabulous, with plenty of warm sunshine to go around to everyone! My Missouri Tigers won their 2nd of 3 games so far this year on Saturday, with a win over an early season cupcake… The BIG News from this weekend, is the report from Saudi Arabia that drones attacked their pipeline and knocked out a huge chunk of the Saudi’s Oil supply… So, more on that, and other things as we start the week today with the Allman Brothers greeting me with their song: Ramblin’ Man… This was the Allman Brothers first hit song, that got played on the radio… Of course FM listeners like I was back then had heard plenty of Allman Brothers songs by the time this song was a hit!
OK… Well, I can tell you that there are lots of blame fingers being pointed at the perpetrators of the drone attack… I can also tell you that the Saudi’s are thinking about asking the U.S. to release some of their reserves so that the Saudi’s can make deliveries… So, it’s a BIG deal folks… And the price of Oil has soared to a $61 handle, after trading last Thursday morning with a $55 handle! Now, the Saudi’s calmed things down a bit, by saying they could have their production back on line by Monday, and the price of Oil slide back to a $59 handle, but still a strong move since last week!
And the thing that I really care about, is the Petrol Currencies, led by the Russian ruble and followed up the ladder by the Norwegian krone, Brazilian real, and a few more… The Canadian dollar/ loonie didn’t see any gains on the day Friday, as the recent data from Canada is beginning to become iffy…
But I don’t see how this jump in the price of Oil won’t eventually help all the Petrol Currencies gains VS the dollar… I just don’t’ see it as something that won’t happen… Not with the price of Oil spiking, and fears of an all out war in the Middle East, that could disrupt Oil production , could come of all of this… I did say “could come” Maybe calmer heads will prevail… But since when does that get in the way of a reason to fire guns, drop bombs, etc. ? Got Gold?
I left you last Thursday morning, right after Mario Draghi, European Central Bank (ECB) President made his announcement that the ECB was going deeper into negative rates, and opening up the coffers once again to buy bonds… Boy, did he tick off the Germans with these announcements! I have a good article on the reaction by the Germans in the FWIW section today, so you won’t want to miss that!
After all that on last Thursday, the euro rallied… Wait! What? Oh, yeah, the euro traders began to mark up the euro as soon as Draghi announced that more stimulus would be needed for the Eurozone economy. I don’t get it… and probably never will, why a currency would rally when their interest rate has been debased into negative territory, and the bond buying program you ended at the end of 2018, is back on the table… But, it is what it is…
You know the Fed is going down the same road is the ECB… First the Fed announced their Quantitative Tightening (QT) And even laid out how much they would be allowing to mature each month and not replace the bonds that matured… But then, things got sticky… And they, just like their kissin cousins over at the ECB, stopped the QT…. You, me, and guy down the street know that the next step, folks is for the Fed to announce they were back in the bond business too…
Now this won’t come until we hit the recession that’s looming… But I do believe in my heart of hearts that interest rates will go back to zero, and maybe even negative, and QE, or bond buying will resume… Talk about losing the rest of the credibility that the Fed has when this happens!
Gold got sold by $10.80 on Friday, but is up almost $16 in the overnight trading… And it’s back to being above $1,500… Of course now the question arises and asks when do the price manipulators show up with an armful of short Gold paper trades again? It was fun while it lasted this summer as Gold ratcheted higher and higher every day, without any interference from the boys in the band… But all that stopped being so lovey, dovey, pumpkin pie, smoochie, smoochie, once Gold traded past $1,500… I don’t know what it’s going to take for Gold to move forward to $1,600, but I do believe it will be there before year-end…
Usually the key to a good move in Gold is geopolitical problems, like we have in the middleeast right now… I heard that U.S. President Trump told reporters that, “the U.S. is locked and loaded, if it was Iran behind the Saudi Oil attacks”… YIKES! , but as I asked above and will also do here for it does seem appropriate! Got Gold?
So, the Eurozone is already in recession… it’s not official yet, but trust me on this one, they are in a recession… But as I’ve explained many times in the past… It matters, not too much, what the Eurozone does… It matters what the dollar’s doing… We can go back to the turn of the century, when the euro was introduced at 51.14, and it traded as high as $1.17, and then fell through the floor all the way down to 92-cents… but then problems with the U.S. and the dollar began to take shape, the euro rebounded… while they were in a recession, no less! And didn’t stop until it reached $1.50 a few years later… The euro is the offset currency to the dollar, so when the dollar gets sold, the euro will benefit from those dollar sales… It’s just the way it is, folks…
Negative rates around the world seem to be the “thing to do” for central banks… And they’re probably on their way here too… Negative yielding Gov’t Bonds… Negative yielding mortgages… It’s all the rage… You see, these inept gov’t officials just don’t get it… Taking your yield curve into negative territory is NOT the way to get people to spend money… You see, the people are smarter than you think they are… And if you as a Central Bank are taking rates negative, it tells the people that things are really bad, and we had better hunker down…
If negative rates were so darn good, why then is Japan, who’s had them for several years now, is still mired in an economic abyss? And why hasn’t the Swedes gotten their economic growth going again? Or the Swiss? And negative rates aren’t helping the Eurozone econmy either, so what does Draghi do? He goes deeper! What’s the old saying about digging a ditch?
The writing is on the wall folks… So, let’s hope and cross our fingers that the U.S. Fed doesn’t go this route… I doubt seriously if that’s going to stop them, but Shoot Rudy! It’s worth a try! And this just in… The Japanese want to play a game of “How Low Can You Go?” and are contemplating going even deeper negative with rates!
Damn the savers! Right? That’s what a Central Bank is telling people like me that have saved all my life and now get little to no income from those savings… to hell with the savers! They’ve punished the Senior circuit of savers for years now, and now they’re punishing the likes of me! But they can’t make me spend, I don’t care how badly, the rates go negative!
Now, here’s where the rubber meets the road folks… IF the U.S. implements negative rates, they most likey would institute a penalty for withdrawing cash… And if that didn’t work, they would then outlaw cash! I wrote a very long article on the coming cashless society here in the U.S., for the now defunct, Dow Theory Letters a year or so ago… One of these days I should pull that out and post it as a Pfennig article… It’s scary, and If I do decide to print it again, I’ll give you a warning up front to remove all the sharp objects from your reading area!
The U.S. Data Cupboard last Friday had a better than the average bear August Retail Sales print… U.S. August Retail Sales were up 0.5% and like I had told you last week, there had to be some more back to school sales in there for the states that wait until after Labor Day to go back to school. After looking under the hood here, I came away with two thoughts… 1. When you took out the vehicle sales, Retail Sales were flat, with no growth at all, and 2. now this gets really technical so stay with me here… Dining out… Restaruants showed a decline in August of -1.2%, which brought the Year on year figure to a cycle low… This indicator is usually a Bellweather for disposable income spending… Doesn’t look too good for this does it?
Now that’s a completely different spin on the Retail Sales than what you heard or read about isn’t it? Well, as usual, you can depend on me to show you the real numbers…
What the heck happened to the bond rally? One day it looked like bond yields were going to keep falling toward their record lows, and then the next day they weren’t falling any longer, and now are rising again… Stranger than fiction, is this bond market folks… but let’s not get too upset here the 10-year Treasury’s yield is still well below 2% at 1.83%…
The bond guys are still telling us that the economy is in bad shape, they’re just not so sure of it being so bad right now! Of course this Wednesday, the Fed’s FOMC will meet to discuss rates… I was previously on board with the idea that while rates would get cut again this year, that a back-to-back rate cut wouldn’t be in the cards… And I’m still of that opinion, while I think that there’s more of a chance of another rate cut than I had previously thought…
Fed Chairman, Jerome Powell, the guy that no one wishes they were in his shoes, will hold a press conference after the rate announcement, whatever it may be… And the markets will have their collective ears on the ground, hoping to hear news of more rate cuts… The markets are wierd folks… but then if savers have nowhere else to go to earn a little yield, then they will be forced to resort to buying stocks with hopes of more upward movement in stocks… And that’s why the markets want to see more rate cuts…
The U.S. Data Cupboard has more for us this week than it did last week, with Industrial Production and Capacity Utilization on the docket for tomorrow, to highlight the week, for me that is… I’m not going to be sitting by the radio or my laptop on Wednesday afternoon, to check what the Fed did… In fact, I’ll be at the ballpark on Wednesday afternoon! The last “businessman’s special” And I’ll be with some of my best buds! And the last thing on my mind will be what the hell the Fed is doing! HA!
To recap… The Saudi Oil supplies took a BIG hit from a drone attack late last week, and the price of Oil is soaring, while the Petrol Currencies react favorably. Gold is also soaring once again on this geopolitical news, which isn’t good folks.. It could be the snowflake that causes WWIII, or it could be dealt with by calmer heads… But just in case… Got Gold?
OK, here’s the aforementioned article about how the Germans aren’t too happy with outgoing ECB President Mario Draghi… I love the name the Germans have for him, so with no further adieu…
For What It’s Worth… Well, I got the title for today’s Pfennig, from this article that showed up on Zerohedge.com, late last week… The Germans are not too enamored with outgoing European Central Bank (ECB) President, Mario Draghi… The Germans, for the record book, experienced runaway inflation in their history, and each generation since has pledged to be inflation hawks… What Mario Draghi introduced last week wasn’t even in the ballpark’s parking lot of an inflation hawk… So, here’s the article: https://www.zerohedge.com/economics/count-draghila-furious-germany-reacts-draghis-monetary-horror
Or, here’s your snippet: “When it comes to Mario Draghi’s relationship with Germany’s notoriously fiscally (and monetarily) conservative public, it tends to be a love-hate affair. Actually, scrap the love part.
Back in March 2016, when the ECB cut rates and expanded its QE (in an operation that just like Thursday left market’s underwhelmed, and sent the EUR surging), Germany’s press responded not too kindly to Draghi’s monetary largesse with Handelsblatt, in an article titled “The dangerous game with the money of the German savers”
Fast forward three and a half years later, when Mario Draghi, one foot out of the ECB’s Frankfurt HQ on his way to retirement, doubled down in what appeared to be the final push in European monetary policy, when the central banker cut interest rates deeper into negative territory and promised bond purchases with no end-date to push borrowing costs even lower.
The fact that it was left open-ended (or until the ECB starts raising rates) was perhaps the biggest takeaway, and as Deutsche Bank’s Jim Reid noted “QE infinity is back if that’s not an oxymoron.” That said, there were some complications when Bloomberg reported that Europe’s top central bankers – the French, German and Dutch governors – all opposed more QE, as did Coeure and Lautenschlaeger and a couple of others. “So this was a contentious move and rightly so.”
But an even bigger surprise was Draghi’s veiled admission that the ECB is now out of ammo and that to boost the economy, Europe will need fiscal stimulus, i.e., issue more debt.
Specifically, Draghi referred being “very concerned about the pension industry” and also suggested that the answer to speeding up positive side effects was fiscal policy. As Reid concluded, “it’s hard to therefore get away from feeling that even the ECB feel we’re nearing the end game in terms of the limits of monetary policy. Something that has been obvious to the outside world for sometime.”
And nowhere was this mood represented better than by Germany’s most popular tabloid, Bild, which on Friday accused Draghi of “sucking dry” the bank accounts of Germany’s savers, a day after the ECB cut interest rates deeper into negative territory. Next to a Dracula photomontage of Draghi, Bild’s headline read: “Count Draghila is sucking our accounts dry.”
“The horror for German savers goes on and on,” Bild wrote.”
Chuck Again… Like I said last Thursday… Don’t laugh at these shenanigans that the ECB is pulling once again, for the U.S. Fed is right behind them… They’ve been greasing the tracks for negative rates for sometime now, even drafting Big Al Greenspan to say that negative rates is no big deal… The next recession, will bring them about folks… Remember I’ve said this many times, but to make sure you hear me now and listen to me later… Historically, in the U.S., the Fed Funds rate was 6% when we entered a recession, and it would take at least 4% of rate cuts to end the recession… Our current Fed Funds rate is 2.25%… See where that’s going to lead us? I’m just saying…
Currencies today 9/16/19 American Style: A$.6880, kiwi .6385, C$ .7540, euro 1.1050, sterling 1.2455, Swiss $1.0095, European Style: rand 14.6617, krone 8.9775, SEK 9.6509, forint 300.45, zloty 3.9176, koruna 23.4295, RUB 64.34, yen 107.75, sing 1.3735, HKD 7.8206, INR 71.46, China 7.0785, peso 19.43, BRL 4.0804, Dollar Index 98.32, Oil $59.45, 10-year 1.83%, Silver $17.85, Platinum $1,627.10, Palladium $1,627.10, and Gold… $1,503.85
That’s it for today… Well some sad news came across the screens yesterday, when it was announced that Rick Ocasek, the former lead singer for the Cars had died at 75… There was a period in the 80’s when the Cars were HUGE… OK.. Things have settled down here, after the Big Labor Day BBQ, and it’s about time to start thinking about closing the pool for the year… When the trees start dropping leaves by the boat load, it’s time to close the pool… UGH!, I just don’t like the cover on the pool! Robert Plant takes us to the finish line today with his song: Big Log…. a really haunting guitar lick to start the song is really good… I hope you have a Marvelous Monday, and please Be Good To Yourself! Whew! that was a long one today!
Chuck Butler