August 29, 2022
* Jerome Powell’s 7-minute talk, sends the dollar higher
* Is more fiscal irresponsibility in our future?
Good Day… And a Marvelous Monday to you! A strange weekend of sorts for yours truly.. It started out great, sitting outside watching my beloved Cardinals play on Friday night. Saturday was a blur to me, I have no idea what I did all day, and suddenly it was night and the Cardinals were back on TV! Saturday night had grandkids, Braden and little Evie stay with us… I woke up Sunday morning to the sound of little feat running through the house, and thought… I love that sound! And silently wished I could wake up every morning to that sound! My beloved Cardinals had to play the dreaded Sunday night game last night on ESPN… I do NOT LIKE SUNDAY NIGHT GAMES! Sundays are for day games, and an end to the week… Neil Young greets me this morning with his song: After The Gold Rush…
Well, after the Gold rush, and it’s coming one of these days, there will be no physical Gold for one to buy, unless they want to pay astronomical prices for it…It’ll be too late baby, now it’s too late, because we really didn’t listen to Chuck…
7 Minutes… That’s all it took for Fed Head Chairman, Jerome Powell, to way lay stocks on Friday… His speech only lasted 7 minutes, and he told us all that we are going to have to suffer some pain… Ahem, memo to Jerome, but we have already suffered pain! Interest rates are going higher…
Here’s a snippet of what he said, ““There will very likely be some softening of labor market conditions, while higher interest rates, slower growth, and softer labor market conditions will bring down inflation. They will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation.” – Jerome Powell at Jackson Hole, Wyoming
So, Jerome is being the only adult in the room.. It’s difficult to believe, but there he is, trying to tell everyone that the Fed Heads are going to continue to hike rates until they get inflation under control… Europe’s not doing that, China’s not doing that, and Russia is fighting a war, they can’t have their attention taken away with fighting inflation!
But I’ll stop my sticking up for Powell right there… Just because he’s acting like an adult now, doesn’t excuse him or give him credit for growing up late… Besides, what’s going to happen when the Gov’t’s new deficit spending bill starts sending the bills to be paid, and the preposterous Student Loan forgiveness idea bills come, and there’s no money to pay them? The Treasury will have to issue new Bonds, and the more fiscal irresponsibility will be printing more dollars to pay for them, and that, my friends, is what got us in the pickle to begin with… Excess Money Supply!
Now, if Powell had said all that about hiking rates and people having to suffer and added that the Fed would not be party to any new money supply, well, then we would have something to write home about!
It’s the first time that a Central Bank will have raised rates during a recession… Think about that for a minute, and then tell me the genius of buying dollars… Because that’s what happened on Friday, the dollar got bought by the bushelful and it was all about rate differentials… Obviously, not “net rate differentials, because if that were the case, the Fed Heads are still over 6% in the red when inflation is taken into account. Stocks got sold, Oil got sold, currencies got sold, bonds got bought (?) and dollars got bought… Stocks saw a 1,000 point drop in the Dow… That’s crazy, and in the past it would have caused major hand wringing and chicken littles running around screaming the sky is falling! But these days, it’s just a drop in the bucket? Oh, I’m sure a lot of people got burned on Friday, but, as my friend said at our local watering hole Friday afternoon, “I’m not worried, stocks always come back”… I shook my head and tried to explain how it could take years, and was he willing to hold during all that time, but he would not listen…
Gold lost $19.80 on Friday… higher dollar rates, and price manipulators make for a bad scene for Gold, folks.. Now Gold has to pick up the pieces again… Silver lost 35-cents, but remained above $19, barely, but above it nonetheless. Gold finished the week at $1,740.10, and Silver at $19.02… India, China, Russia, and other countries have Central Banks buying physical Gold by the truck load. You don’t think they know something that we don’t, do you? Well, I do! Follow the money… I’m just saying…
In The overnight markets last night… The dollar got bought some more and sits this morning near a 20-year high for the green/peachback. The BBDXY has gained over 2 index points and sit this morning at 1,294… OUCH, now that’s going to leave a mark! The currencies look so sickly this morning, and Gold is getting sold in the early markets this morning. Gold is down $14, and Silver has dropped below $19.
Bonds slipped and the 10-year is trading with a 3.10% yield this morning. I still don’t get what happened on Friday with bonds… But it looks as if saner heads have prevailed today… The price of Oil slipped from last Thursday’s figure and trades this morning with a $93 handle.
If the dollar continues on this path, it will hit a 20-year high… And that brings me back to 2002, and everyone was buying dollars like funnel cakes at a State Fair, and I saw cracks in the veneer of the dollar, and wrote a white paper, Titled: The Declin Of The Dollar… The press lit into me like I was a leper, and my white paper was not worthy of printing.
But who had the last laugh? It was me for in Feb of 2003, the dollar began a long decent that lasted 10 years… Back in 2002, the rest of the currencies looked sickly too, but… they had all been on a recent trend of getting their ducks in order, while the U.S. was spending money they didn’t have, and getting into a war they didn’t need to fight, and eventually, the dollar collapsed, in price that is. Gold soared and was a run-away train…
So, what’s different this time? Well, the currencies of the countries abroad, aren’t getting their ducks in a row this time… They’re still messing with ultra-low interest rates and bond buying, and run-away inflation. Shoot Rudy, is there any wonder why the Japanese yen is trading with a 138 handle this morning, as their interest rates remain negative?
I’ve said this before, so get ready for more of it… The dollar is burning very bright right now… And like a star, it’s going to burn the brightest before it burns out… Russia, India and China are making claims that they have rid themselves of dollars, or last least nearing that feat. So, if China doesn’t show up at the Auction window to buy all those Treasuries that are coming from all the deficit spending, who’s going to pick up the bonds that don’t get sold?
Well, when this occurs, the only thing the Fed, and Treasury will have up their respective sleeves is to buy the bonds themselves… I just don’t see any other way… They will be self-financing, and history tells us that this will bring about a drop in the dollar…
The U.S. Data Cupboard last week was very disappointing to say the least… Consumer Spending was up only .2% in July, and Consumer Income was only up .3%, 2nd QTR GDP was revised up but it still remained negative, and the rest of the housing data was awful, Industrial Production was disappointing, and the whole Data Cupboard was a rotten mess last week, but the dollar rallied… Go figure…
To recap… the dollar is driving higher to near a 20-year high this morning, after Jerome Powell, spent just 7 minutes telling the audience at the Jackson Hole Boondoggle, that the Fed Heads are going to continue to fight inflation with interest rate hikes and there will be some suffering… Chuck pointed out that we had already suffered… But it was important for the markets to hear that, and stocks lost 1,000 points, hearing that.
For What It’s Worth… Well, it’s long been thought that to combat inflation you need to have interest rates higher than the inflation rate… And I contend that the Fed Heads waited too long to start hiking rates to combat inflation. This article refutes that contention, and so in an effort to be “fair and balanced”, this article talks about raising interest rates isn’t going to fight inflation and it can be found here: Fed Can’t Fix Fiscal-Driven Inflation: Jackson Hole Paper – Bloomberg
Or, here’s your snippet: “The Federal Reserve won’t be able to curb inflationary pressures because they are rooted in expansionary fiscal policy, according to a paper presented at the central bank’s annual Jackson Hole conference on Saturday.
“The fact that approximately half of the recent increase in inflation has fiscal roots poses some specific challenges for policy makers today. Not only fiscal inflation tends to be highly persistent but it also requires a different policy response,” the paper’s authors, Francesco Bianchi of Johns Hopkins University and Leonardo Melosi of the Chicago Fed, wrote.
The US central bank began raising interest rates in March, and many officials have since said they were too slow to begin doing so. Bianchi and Melosi argued that beginning to tighten sooner wouldn’t have made much difference for inflation, however.
“When inflation has a fiscal nature, monetary policy alone may not provide an effective response. To show this, we ask whether tightening monetary policy earlier on could have prevented the post-pandemic increase in US inflation,” they wrote.
“The increase in rates would have resulted in only a modest reduction in inflation, at the cost of a large reduction in output. This large sacrifice ratio arises because when inflation has a fiscal nature, the central bank is not uniquely responsible for its reduction.”
Chuck Again… Phooey! I didn’t attend night school and ace my economics classes to have to listen to junk like this…
Market Prices 8/29/2022: American Style: A$ .6869, kiwi .6120, C$ .7665, euro .9995, sterling 1.1697, Swiss $1.0328, European Style: rand 16.9044, krone 9.7750, SEK 10.6365, forint 410.20, zloty 4.7456, koruna 24.6069, RUB 60.98, yen 138.53, sing 1.3966, HKD 7.8477, INR 79.65, China 6.9167, peso 20.04, BRL 5.0640, BBDXY 1,292.54, Dollar Index 108.85, Oil $93.46, 10-year 3.10%, Silver $18.67, Platinum $860.00, Palladium $2,133.00, Copper $3.72, and Gold… $1,726.91
That’s it for today… Man, my iPod has been playing some great songs this morning while my fat fingers flew across the keyboard! Cardinals win 2 of 3 from the defending Champion, Braves this past weekend, winning their two games with late inning rallies… We received Biblical proportions of rain yesterday evening… The creek behind my property, was raging! I started getting ready for this coming weekend’s Labor Day BBQ yesterday… Lots to do… but I’ve got plenty of time, as long as I don’t procrastinate, which was never my bag, but in retirement, I’ve gotten soft… Oh well… Ian Gomm takes us to the finish line today with his song: Hold On… Don’t know that one? YouTube it, I think you’ll like it! I hope you have a Marvelous Monday today, and please remember to Be Good To Yourself!