May 20, 2020
* Currencies defy the odds and rally VS the dollar…
* And after an engineered takedown, Gold fights back!
Good Day… And a Wonderful Wednesday to you! Well… in a brief poll, it looks like: Thoughts From The Butler Patio is the winning new name for my letter… And I want to apologize for a pricing error in yesterday’s letter…. My darn fat fingers struck again, and had the Mexican peso with a 13 handle instead of a 23 handle… I’m very excited to get to this afternoon, when one of my fave economists, David Rosenberg, will be Grant Williams’ guest for an hour long discussion. David or Rosey, as he’s known to be called, is a lot like me, in that he doesn’t pull punches, and can’t understand why people can’t see what he’s seing…. It was the David Freese World Series Game 6 of 2011 on ESPN last night… It was still nerve wracking to me and I knew my beloved Cardinals had won the game! The Guess Who greets me this morning with their song: No Time…. I’ve long said that the singer for the Guess Who, Burton Cummings had golden pipes….
Well, not much in the way of movement in the currencies yesterday, Gold tried to win back friends and influence enemies by gaining $12 on the day, to close at $1,744…. That’s a 7 year high for Gold, and I don’t believe in my heart of hearts that Gold is stopping here…. Those brief engineered takedowns by the price manipulators certainly takes some of the starch out of Gold’s collar, for a day, but by early next morning, Gold is taking steps to regain the lost ground from the previous day. What I’m saying here is that their engineered takedowns, don’t have any lasting power any longer…. Could this be nearing the end for the price manipulators? Man I hope so, these guys gave given me rashes that won’t go away! HA!
Fed Chairman Powell spoke again yesterday, and this time to members of Congress, who were in no mood to hear any “fed speak”… he was expected to say, “All of us are affected, but the burdens are falling most heavily on those least able to carry them,” And he would have a recent Fed study that indicated that almost 40% of the households making less than $40,000 a year lost a job during the first month of the pandemic. And just like all the millennials that can’t ever seem to think they had anything to do with what went wrong, and are always looking to blame someone…. Powell, didn’t exactly blame Congress, but was quite adamant about the fact that they need to do more to help the economy…
What he should have said if he had the intestinal fortitude was, “ We tried, at the Fed, but all we seemed to do was run up our balance sheet, and keep the Casino Banks in business longer so they can continue to ratchet up the derivatives and sketchy lending practices… Now the general public needs help, and that’s not our bag, baby”
I’m really at a loss as to what to follow that up with…. I smacked around the Fed Chairman, and Congress in one fell swoop! Yes, it’s only words, that they’ll never see or read, but it made me feel better saying it out loud! HA!
Man, did the housing starts in April take a hit or what? Yikes! On an annualize basis, the Housing Starts for April fell to 891,000 from 1.276 Million in March! I guess construction workers find it difficult to stay 6 feet apart! Hey! If we don’t need all those new houses, why build them? I’m just saying…
My, my, my…. What have we here? Venezuela’s central bank has made a legal claim to try to force the Bank of England to hand over E930 million ($1.02 billion) of gold so President Nicolas Maduro’s government can fund its coronavirus response, according to the document submitted in a London court. I got that from the GATA folks… I find this interesting in that, there are a ton of rumors and innuendo out there right now that the COMEX and the LBMA don’t have enough Gold on hand to make these kinds of transfers…. I think that was quite evident when Venezuela first made this request and were turned down… Remember when Germany wanted their Gold back from the U.S. and they were told it would take 7 years for that to happen? It’s all a mirage folks, that these clearing houses for bullion have what they say they have… At least that’s how I see it given these two examples….
So, does that mean that the U.S. doesn’t have more than 8,000 tons of Gold? Well, if they do, they sure are going about things the wrong way…. And if they don’t… Well… I’m sure they’ve leased it out, and they hold a piece of paper saying just that, but…. Just like beauty is only skin-deep, holding paper just isn’t as good as holding the actual Gold…
Another one bites the dust…. Another one bites the dust… And another one does, and another one does…. (Queen)…. Well, the Bank of England (BOE) announced yesterday that they too will entertain the idea of implementing negative rates…. There used to be a thing that I watched several years ago, and it went like this: Just about everything that happened in the U.K.., would show up here in the U.S. about 6 months later…. So… when, because it’s no longer a question of if, the BOE cuts rates into negative territory, I’m going to go out on a limb and say that within 6 months, we too shall see negative rates in the U.S. So… now go back to my playbook from Monday, and see where we are in the playbook.
And yesterday it was announced that Germany and France had agreed on a Stimulus package for the Eurozone…. Basically, here, Germany has taken on the biggest share of this package, and it’s Germany that is attempting to keep the Eurozone afloat, (read the Club Med countries of Spain, Italy, and Greece) Just another example of good money being spent on bad things…. I’ve long thought that the Eurozone would be much healthier, economy wise, if they cut the reins that tie the Club Med countries to the Eurozone charter… Or, even better…. if Germany would just say, forget you guys, we tried, and tried, but you just don’t get it, and so we’re leaving! But if raindrops were gumdrops….
And I mean to mention yesterday, but forgot, as usual… To point out that the Norwegian krone has dropped below 10 for the first time in a month of Sundays… Remember the krone is a European price currency so as the number that reflects its exchange rate, goes down, that represents gains VS the dollar as it takes less currency to make a dollar. Man if I had a shiny quarter for every time I’ve explained that through the last 28 years….
In keeping with the thought from Monday, the U.S. Data Cupboard just doesn’t have much in the way of reports this week…. We already talked about the Housing Starts collapse above, so all that’s left for today is to bring to everyone’s attention that we’ll see the color of the Fed’s Meeting Minutes from their last meeting. I wonder if they will reveal any discussions of the need to move rates into negative territory? I’ll be looking for any signs of that… for sure!
To recap…. Well, since Monday when I announced that I thought the currencies were dead men walking, they have rallied…. The Dollar Index, on Monday morning was 100.34, and this morning its 99.31… Not the largest move we’ve seen, but, a move nonetheless. Gold got back on the rally tracks after being taken down by the price manipulators on Monday, and Chuck thinks this is quite significant… The BOE is going to entertain discussions on negative rates…. And Chuck thinks that after the BOE goes negative, it will be within 6 months before the Fed goes negative…
For What It’s Worth… I think after what I said on Monday, that today’s FWIW article was well timed! In times of darkness because of unknowns, it’s always good to refer to publishing guru, Bill Bonner. In his recent letter, he talked about losing our memory of what it took to get us to be the best country, and more and it can be found here: https://www.rogueeconomics.com/bill-bonner-diary/the-u-s-is-in-a-generational-economic-cycle/
Or, here’s your snippet: ““No pure-paper money has ever survived a complete interest rate cycle.”
We wrote that about 20 years ago. Now, we will see it put to the test.
In the Panic of 1857, the yield on the U.S. 10-Year Treasury Note rose to 6.6%. It took a lifetime for it to reach the next top, in 1920. Then, another 61 years passed before the next top came along.
In other words, these are generational trends. One generation learns. The next forgets. In a week, we can forget where we left the car keys. A couple weeks later, and we’ve forgotten where we left the car.
Forty years on, and we can scarcely remember – or even imagine – the 15% mortgage rates of 1980. And what has happened to the “bond vigilantes” who used to sell U.S. Treasury bonds at the first sign of runaway deficits? Surely, they are in wheelchairs, unable to recall their own names, much less how they lost their fortunes betting against the bond bubble.
And if the pattern holds, in a few years, we’ll regret not having locked in today’s low mortgage rates… if we can remember them!
After this downdraft has flattened the economy, interest rates (and consumer price inflation) should begin to rise. In another 20 years or so, rates should be reaching for another generational top. Perhaps you’ll have to pay 15% for a mortgage. Or maybe it will be more like 50%.
Or mortgage lenders could be almost out of business, as they already are in Argentina. If you want to buy a house there, you’ll have to pay cash.
Relearning the Lesson
Yes, it’s back to school. Now, we learn – again – why, for 180 years, U.S. dollars were linked to gold, rather than simply to promises from the U.S. government.
In a nutshell, it’s because the generation of 1791 (when the U.S. dollar first appeared) knew something the generation of 2020 has forgotten: Power corrupts. And the power to create “money” is so irresistible that no race, no nation, no genius, and no government official has ever resisted it for long.
Sooner or later, a “necessity” arrives… Usually, it is a “war”… or the threat of insurrection. (Rudolf von Havenstein, in charge of German money-printing in the Weimar Republic, said he had to do it to head off a Bolshevik Revolution. Instead, he got the Nazis!)
And now, it’s Rudolf von Powell who’s cranking hard on the printing press. In April, the federal government ran a deficit of more than $730 billion. That’s $1 billion every hour, Saturdays and Sundays, too.”
Chuck again… not much I can add to whatever Bill says whenever he says it, that’s for sure! Back in the day, of the wild west, Bill used to have conversations with the Great Mogambo Guru… Now that was interesting reading for sure!
Prices today 5/20/20 American Style: A$.6575, kiwi .6133, C$ .7200, euro 1.0950, sterling 1.2254, Swiss $1.0353, European Style: rand 18.0165, krone 9.9504, SEK 9.6350, forint 319.66, zloty 4.1470, koruna 25.0435, RUB 72.47, yen 107.58, sing 1.4150, HKD 7.7500, INR 75.15, China 7.1031, peso 23.41, BRL 5.7256, Dollar Index 99.31, Oil $32.56, 10-year .69%, Silver $17.36, Platinum $836.86, Palladium $2,042.00, and Gold… $1,746.57
That’s it for today and this week… Yes, I forgot to mention with all the goings on this week that I have a wound center appt. tomorrow morning, the last skin graft worked for the majority of the wound, but left one small opening that will need another graft, and hopefully this time it’s closed for good, and I don’t have to mess with that any longer! Saturday, this week, will be grandson Braden’s birthday… He will turn 9 on Saturday…. Usually, we have a pool party here for his birthday, but not this year… UGH! So Happy Birthday, buddy! And then next week we’ll be heading into Memorial Day Weekend, the unofficial start of summer, and we can’t get out of the 60’s temp wise here…. Something is amiss here…. As 60’s with no sun is not warm! And as I’ve always told you dear readers, I need to go where it’s warm! Styx takes us to the finish line today with their song: Too Much Time On My Hands, which is pretty much the anthem for people stuck at home these days…. I hope you have a Wonderful Wednesday, and rest of the week, and will Be Good To Yourself!
Chuck Butler