Rocktober 31, 2022
* Currencies & metals get sold on Friday last week…
* New leaders for the Banana Republics…
Good Day… And a Marvelous Monday to you! Boo! It’s Halloween! One of my fave holidays, I have nothing but fond memories of trick-or-treating as a young boy, and then the fun I had with my kids as they grew to like Halloween too! Normally, my kids, all grown up now with families of their own, used to dress up their kids in their costumes and bring them over the weekend before Halloween… And this would be great family time… But not this year, Hmmm… Oh, well, life goes on… My beloved Mizzou Tigers won on Saturday in S. Carolina, an upset for sure, and S. Carolina was ranked! Probably not any longer, but they were before the game! Fight Tigers fight for ole Mizzou! Kansas greets me this morning with their mega hit song: Dust In The Wind…
Well, when I left you on Thursday, the dollar was rallying, and Gold was getting sold… Well, that trade sequence continued through Friday, with the BBDXY gaining 4 index points, to end the week at 1,325, and Gold was attacked once again, and lost $18 to close the week at $1,646.70, and Silver didn’t fare any better, losing 35-cents on the day, Friday, to close the week at $19.34… I know, I sound like a broken record here, but… These are the days that investors should be buying Gold & Silver, because with all the things wrong in the U.S. and I’ll get to some of them in a minute, Gold will eventually finds a bid, and run with it… Then it will be too late… I’m just saying…
The euro fell back below parity, with the dollar rally, and all the other currencies fell in place… There was a bit of news in the currencies this past weekend, and that is that China’s renminbi has become the 5th largest/ most traded currency… That’s HUGE folks, as the so-called experts have said all along that there is no liquidity in renminbi, there aren’t enough traders dealing in the currency… Well, there may not be that many traders dealing in the currency in this country, but overseas, apparently it has become the currency du-jour…
The price of Oil remained steady Eddie to end the week training with an $88 handle… While Bonds, well, bonds are a mystery to me right now… I had thought, and so written that the bond boys had finally has the light bulb over their collective heads, and see that the Fed was not going to pivot, now at least, and that they should be behind a yield rise… This was going along OK, until this past week… This past week, traders and investors have been buying bonds… They obviously feel that yields won’t go higher, as the Fed hikes rates on Wednesday of this week and again in December. Any-old-way, I’ve got something for you on the Treasuries in the FWIW section today, you won’t want to miss that one!
Not that I want to talk about stocks, but the tech stocks sure got hammered with their poor earnings last week… And this will continue with other sectors too, as inflation has hit these companies hard, right between the eyes, and they are seeing their costs to operate explode higher, and it’s not because they are paying workers higher wages… In fact, wages have not kept up with in inflation, so not only is the Company seeing losses so too are their employees…
In The overnight markets last night… The dollar buying continued, with the BBDXY gaining 7 index points overnight. I would think that the pending rate hike from the FOMC is the cause of this dollar buying, but then if traders were really thinking it through, they would come to my thought, that even though the Fed is hiking rates, inflation is still strong… Gold has lost $8 more overnight, and the price of Oil has lost $2 overnight. I have a feeling that this week will bring about a lot more dollar buying, as those that are still hanging on to their hopes of a Fed Pivot, capitulate, and throw in the towel…
On Friday last week, we saw Consumer Spending rise 3.8%… And the economy was being lauded for having such resilient consumers… Here’s the thing that these knuckleheads didn’t take into consideration… It’s not that consumers were buying more goods, it’s simply a factor of Consumers paying more for those same goods! It’s inflation, doh! I can’t believe that not one economist talking about the rise in Consumer Spending associated the rise with inflation being so high… I guess they didn’t have my lessons in economics that I took many years ago, when they still taught you about Adam Smith, and the invisible hand of the economy…
So, the dollar rallied on Friday, on the data, apparently, or so I’m told in articles that I read this past weekend. You know for sure when a currency rallies on both good data and bad data that it’s in a bull market trend… This bull market trend for the dollar is getting a little long in the tooth, and there will come a time, when everyone says, “no mas”, on buying dollars.. . And the bear market trend for the dollar will emerge… But not until then… So, we have to be patient and wait…
Well, I read this past weekend that mortgage rates have hit 7%… I’m convinced that the younger crowd of people have never seen mortgage rates this high, and years ago, this 7% rate would have been thought to be accommodating… Not it is thought to be strangling housing… 7% is still 1/2 of the rate I paid on my first mortgage!
OK… The U.K. has their 3rd Prime Minister in the last 3 months! This has really kind of made me think of things that happen in a Banana Republic! Despite all the problems that exist in the U.K. right now, the pound sterling isn’t being affected by it… Sterling is trading with a 1.15 handle, and has been for a couple of weeks now. Yes, it’s weaker than it was last year, but it’s stronger than it was a month ago! I had a dear reader ask me if I liked GBP (sterling) and I said, “no… they have too much debt, too high inflation, and too low of interest rates right now” And they just acted like a Banana Republic!
As far as things that I fearful of going on right now, number 1. Is all the saber rattling going on between the U.S. and Russia… 2. The economy slowing to a snail’s pace, worse than the last 10 years of just 2.1 % growth. 3. Runaway inflation 4. The country’s debt, Gov’t, State, Corp, and individual… 5. That we’re not the only country with a debt problem… The DEBT to GDP worldwide is 350%!!!!!!! Here in the U.S. it’s 140%… In 1985, the countries of the world came together and decided that the U.S.’s Current Account Deficit / GDP ratio, which was 2.5%, was too high, and that the world would begin to sell dollars… this was known as the Plaza Accord, because the meeting took place at the Plaza Hotel in NYC. The U.S.’s Current Account Deficit is unknow any longer, because they don’t report it… Don’t want people to worry about it? Don’t report it, out of sight, out of mind… But given the Debt of the Gov’t, I would think that the Current Account Deficit is much larger than the 2.5%, the Finance Ministers were so worried about back in 1985…
The issuance of Treasuries is how the Gov’t finances their deficit spending boondoggles. And by and by in the past couple of years, we’ve had Russia, China, India, and now Japan not show up at the Treasury Auction window… Uh-Oh… When push comes to shove, and there’s no one to buy our Treasuries in the truck load amounts that we sell them in, The Gov’t will 2 choices… Behind door number 1 is… greatly reduce deficit spending so that so many Treasuries don’t have to be sold… or 2. Raise the interest rates of the bonds/ yield, to attract buyers…
But if you raise interest rates too much, you go broke, servicing the debt… Well, we as a country are broke already, so what the problem going more broke? Ahhh Grasshopper… You’ve asked a very good question… When the Gov’t taxes people, the taxes they receive fund the Gov’t. But when they’ve spent more than they took in, this has to be financed, and the bonds you sell will have an interest rate that you have to pay, which becomes a part of your deficit spending.
Onto other things rather than dwell on our pending economic collapse… Brazil has a new leader, but he’s an old leader, who once ran the country, but has returned, with a twist that is… Here’s the USA Today on the subject: “Twenty years after first winning the Brazilian presidency, Luiz Inácio Lula da Silva defeated incumbent Jair Bolsonaro on Sunday in an extremely tight election that marks an about-face for the country after four years of far-right politics. It is a stunning reversal for da Silva, 77, whose 2018 imprisonment over a corruption scandal sidelined him from the 2018 election that brought Bolsonaro, a defender of conservative social values, to power.”
Chuck again… another Banana Republic for you…
And finally, the FOMC will meet this week… It’s one of those two-day meetings, so all the board games will be out on Tuesday… By Jerome! You’ve sunk my battleship! Pretty good association there, eh? Since Jerome is sinking the economy… But I digress… There still are folks out there convinced that the Fed Heads will pivot and begin to cut rates again… Well, there’s that little thing called inflation that’s stopping them from doing that right now… So… in my humble country boy opinion, I expect the Fed Heads to hike rates 75 Basis Points on Wednesday, and then in 6 week, (middle of Dec) I expect them to come back with yet another 75 Basis Points rate hike, to end the year at 4.75%… Still way below the inflation rate, but in the eyes of the Fed heads… That will be enough, and as we turn the page on the calendar to 2023, all the talk will be about the next Fed meeting, and how they will be ending their rate hikes… That’s how I see it playing out, so there!
The U.S. Data Cupboard doesn’t have much for us today, just a regional (Chicago) manufacturing index… Last Friday was datapalooza! The PCE (Personal Consumption Expenditures) the Fed Heads’ preferred inflation calculator, remained high, with the year-on-year rate staying at 6.2%… The Employment Cost Index for the 3rd QTR actually fell from 5.4% to 5.1%… This ties into what I was talking about earlier that wages aren’t rising, causing wage inflation. We already talked about the Consumer Spending print… In addition to those prints on Friday, we also had the U. of Michigan Consumer Confidence index for Sept, and it remained the same at 59.9… And finally, we had the pending home sales that collapsed in Sept, falling 10.2%! This is just another brick in the wall (Pink Floyd) that’s adding up to a housing bubble bursting…
To recap… The dollar selling that was going on last week, hit a snag as we headed into the weekend, and dollar buying had replaced what was going on earlier in the week. The BBDXY gained 4 Index points on Friday, and there was yet another engineered takedown of Gold, which lost $18 on Friday. The euro fell back below parity, the U.K. has a new PM, and Brazil has a new President…. Chuck goes through his list of things he’s concerned about right now…And the FOMC meets this week to hike rates once again…
For What It’s Worth… This article came to me from a dear reader, (Kevin) and I thought it to be quite FWIW worthy, it’s about a potential coming crisis in Treasury liquidity, and it can be found here: Stocks Could Sink 25% As Treasury Liquidity Crisis Risks Spillover (businessinsider.com)
Or, here’s your snippet: “A liquidity crisis is brewing within the $24 trillion US Treasury market, and the turmoil has the potential to sink stocks as well as cripple financial markets more broadly, according to analysts.
Bond yields have seen big swings as a lack of liquidity has widened the price gaps between investors buying and selling Treasuries. That means trades that didn’t move the market before are now creating more volatility. Rate-sensitive growth stocks are especially vulnerable as borrowing costs are already rising on Fed rate hikes.
In fact, Treasury liquidity is showing signs of weakness not seen since the Great Financial Crisis, warned James Demmert, founder and managing principal at Main Street Research.
“One has simply to look back at 2008 or the pandemic to understand the seriousness of a liquidity freeze — particularly in the US Treasury market — which is deemed to be the most liquid market in the world,” he said. “A liquidity crisis would most likely extend the current bear market in stocks to much deeper levels in the range of a further 20-25% or total of 50% for the year.”
The liquidity crunch comes as the biggest buyers of US Treasuries are pulling back. For example, Japan has historically been a top buyer of US debt but has sold dollar-denominated assets recently to prop up the slumping yen as the dollar surges. Meanwhile, the Federal Reserve stopped buying bonds is now shrinking its balance sheet.”
Chuck again… yes, I’ve told you, dear reader, time and again, how countries were stepping away from the Treasury auction window… This article describes that very thing… Uh-Oh! Liquidity is important, and it’s not a liquidity crisis, until it is, so this is putting the cart in front of the horse a bit, but still, it’s important to know this is going on and the potential for it to happen…
Market Prices 10/31/2022: American Style: A$ .6388, kiwi .5801, C$ .7325, euro .9930, sterling 1.1533, Swiss $1.0003, European Style: rand 18.3596, krone 10.3842, SEK 10.9959, forint 413.99, zloty 4.7484, koruna 24.6794, RUB 61.71, yen 148.68, sing 1.4151, HKD 7.8492, INR 82.77, China 7.2999, peso 19.89, BRL 5.3312, BBDXY 1,332.32, Dollar Index 111.19, Oil $86.55, 10-year 4.04%, Silver $19.16, Platinum $926.00, Palladium $1,887.00, Copper $3.42, and Gold… $1,648.65
That’s it for today… Boo! What an ugly day yesterday, with rain and dreary skies all day… The rain is supposed to end early today, and then just be chilly for tonight’s trick or treaters… What’s going on with our Blues? 4 game losing streak will be on display tonight when they play the Kings… I kept waiting for that “Mizzou Moment” when they shoot themselves in the foot, to cause them to lose the game on Saturday, but it never came, and I was so happy for all their fans, which includes me! This coming Saturday, they take on a team that has been their kryptonite… Kentucky… Time to put that to an end! All right, now, got to get the firepit out, dry some wood, and get ready for the Trick-or-Treaters… I hope you have a Happy Halloween… The Allman Brothers take us to the finish line today with their song, which is also my favorite Allman Brothers song: Melissa… Be sure to have a Marvelous Monday today, and please remember to Be Good To Yourself!
Chuck Butler