April 20, 2020
* dollar bugs win back the conn, what gives?
* Gold see another engineered takedown on Friday….
Good day… And a Marvelous Monday to you! Another week in the books on staying at home…. I did venture out to my scans and oncologist visit last week, but I practiced personal distancing, except with my oncologist, who had to examine me…. I’m telling you this now, so maybe you’ll listen to me later, but I still can’t believe Americans are abiding by the stay at home rule…. One has to think that sooner or later, they will spill out into the streets, and when they do, what will be on their minds? The news at night is all about COVID-19, so I’m not going any further on that right now…. I do want to point out that last week I made a bad judgement call on something, and 100’s of readers let me know about it. I had already made my mea culpa on the error, but still…. It was interesting to see so many readers let me know I had errored! Again, sorry, for that…. The great band Chicago, greets me this morning with their song: Feeling Stronger Every Day…. (from 1973!)
Well the data is awful, the news is awful, and the prospects for the future look awful, but the brazen boys in the band decided on an engineered takedown of both Gold & SILVER ON Friday, with Gold being brought down by $34, and Silver by 35-cents…. I have to tell you, that I really thought that these engineered takedowns were going to the curbside, but I guess I was wrong about that…. You would think that the regulators would be looking into this price drop, as suspicious, given all the things Gold has going for it right now…. But everyone’s mind is focused on the COVID-19 virus, and they’ve taken their eyes off the ball regarding regulation!
And don’t look now, but…. The price of Oil has dropped to an $11 handle! That’s right! I said $11!!!! Lack of demand (like I told you ) and too much supply that hasn’t seen the effects of the production cuts yet, have Oil traders scrambling this morning to find a bid for the Black Gold, Texas Tea…. Don’t rush out to fill up your car, because it will take a day or two before the gas stations get the wink and nod from the refineries to drop the price of petrol….
And…. If the metals were getting sold on Friday, guess what else was getting sold? Well, since this is an economics / currencies/ metals letter, you probably already know that the currencies got sold on Friday too…. I’ll go through the data prints from Wednesday last week, and they were just down-right awful, and you’ll be just like me, scratching my head wondering how that can be? But like a conversation I heard this weekend between Grant Williams and Peter Atwater on the Hummmminars… Fundamentals are no longer used to figure price discovery…. It’s all about sentiment… And so using that thought, we must then think that traders think that everything bad in the U.S. is not going to last very long, and so they are just pushing it aside, like you would a bad poker hand!
This is where I could really make today’s letter very, very long, with all my reasons for a short lived recession not having a snowball’s chance in hell of happening, so I’ll just stick to a couple of thoughts…. I’m going on record now that we won’t be filling stadiums, music festivals, movie houses for another year or so…. Think about that for a minute folks, how important those things are to the economy, and will you go and trust that the person sitting next to you is not carrying the virus? It’ll be a looooooonnnngggg time before all that becomes the norm again….
My good friend, Sharon, sent me a link to a YOUTUBE featuring a 1.5 hour interview with one of my fave economists, Danielle di Martino Booth…. I sat there listening to her, and I swear, she’s been reading the Pfennig! She talked about things I’ve said over and over again, about debt…. How the economy won’t come back the same, jobs will be lost, businesses will collapse, etc. Then she said something that I’ve alluded to but not outright said, so here it goes…. I told you all for the last couple of years that Corporate debt was too high, and leveraged…. So, when the Fed looked at these Corporations, they decided that them shutting down was not their fault, so they would get bailed out…. But basically what has happened here folks, is that these Corporations were in deep dookie with loads of debt, and the Fed didn’t allow them to fail, they simply kicked the debt can down the road, and allowed these bad corporations to continue to be in business! This really ticks me off folks…. Really ticks me off…. Did I tell you that this really ticks me off?
OK…. Quick Quiz…. True or False…. The Federal Reserve’s bylaws prohibit them from buying Corporate debt? OK… if you said True, then why on earth is the Fed buying Corporate debt? I’m besides myself right now thinking about this, illegal act…. The Mises org. said it best on Twitter this past weekend: “The Fed is, in effect, a lawless economic government unto itself. It is the lender of first resort, a kind of reverse pawnshop that pays top dollar for rapidly declining assets.”
I’m on a roll this morning folks, so don’t stop me…. Did you stop the Germans when they decided to bomb Pearl Harbor? HA! (from Animal House, folks, I know all too well the Germans didn’t bomb Pearl Harbor!)
Remember when I kept telling you last fall that the Fed Reserve wasn’t telling us the whole truth, and nothing but the truth about why these supposedly, “strong banks” needed to be lent money in the repo markets daily? I kept telling you that something was awry…. And then we found out that we wouldn’t get to know who was borrowing these funds daily, for years! And that news got my spider sense really tingling…. Who was it? Well…. After a few months of investigating, the folks at Wallstreetonparade.com found out that JPMorgan Chase, from September 30 of last year to September 30 of this year, the bank reduced its cash position that was predominantly held at Federal Reserve banks by $145 billion from $344.66 billion to $199.8 billion.
So… it was JPMorgan that withdrew the funds that other banks were using…. And now we have two questions 1. Still who are the banks that need the cash daily?, and 2. Why did JPM need to withdraw all that cash? In the FOIA (freedom of information act) Wall Street on Parade filed a petition for information, and received this… “It acknowledges that it has 233 documents that might shed light on why JPMorgan Chase was allowed to dramatically draw down its cash reserves at the Fed, but says it will not provide them to Wall Street On Parade.”
So much for the FOIA, eh? Oh… and in the Wallstreetonparade.com letter of last week, they pointed out that they obtained information that had JPMorgan Chase CEO Jamie Dimon and his CFO attending a meeting at the Eccles Building in Washington, D.C. with Fed Chairman Jerome Powell on February 19, 2020….
The reason I make a big deal out of all this folks, is look at the dates above…. JPM withdrew $145 Billion in September and the next thing we know is that the repo market has no liquidity, and the Fed has to step in to provide liquidity to the repo market…. And then JPM CEO Dimon is summoned to the Eccles Building on 2/19/20, long before the COVID-19 virus was becoming a problem here in the U.S. Which brings me back to my original thought back in September of last year…. Houston, we have a problem…. The Banks were having troubles long before the COVID-19 virus showed up, but not to worry…. They’ll all be bailed out by you and me folks….
And all you folks that follow the stocks… Have you looked at the stock performance of U.S. banks? Uh-oh…. I’m smelling something that’s cooking, and it’s sour….
What has happened to the American Revolution spirit? There was once upon a time when Americans wouldn’t take this information and let it slide off their backs, like water off a duck’s back….
So, before I go any further here with this… JPM has filed for two “mixed shelf offerings” totaling $210 Billion…. A “mixed shelf offering” per Google is: The mixed shelf will include securities warrants, debt securities and purchase contracts. Under a shelf registration, a company may sell securities in one or more separate offerings with the size, price and terms to be determined at the time of sale.
Now, I wonder why the bank has to resort to something like this? Oh, and it just so happens that my fave (NOT!) bank Wells Fargo, filed for a mixed shelf offering of $66 Billion on Jan 29, 2020…. This after the CEO of Wells Fargo, announced that the bank had put aside $1.5 Billion for legal costs, in response to the scandals that Wells Fargo has been guilty of…
Don’t tell me that they will use these new found funds to purchase their respective stocks, to support them with the current rot on the vine in bank stocks? Well, that’s what they’ve done with their excess cash and tax savings the past two years, so why would now be any different?
And once again…. I’ll ask you this question….. Got Gold?
And still…. Fed Chairman Powell, continues to tell Americans that U.S. Banks are strong…. Yeah, I’ll believe that one when Pigs fly!
The U.S. Data Calendar for this week is pretty barren… There will be some housing reports, but those are behind in time, so they haven’t seen the rot on the vine from the COVID-19 yet…. And we’ll have to wait until mid-week to later to see anything really worth going through…. Last week was an awful week for U.S. Data…. First, Retail Sales for March were negative -8.7%, Industrial Production was negative – 5.4% in March, and Capacity Utilization fell out of bed in March seeing a drop from 77% to 72.7%…. Then the piece de’ resistance, of the week was the Weekly Jobless Claims, that added another 5.2 Million, bringing the total of Americans filing for unemployment in the past 4 weeks to 22 Million…. Oh, and that, along with the data prints we just talked about will be much worse in April…. I’m just saying….
On Thursday and Friday last week, we had Leading Indicators drop the most in one month than ever before going from -.2% to – 6.7%… But let me point something out, the forecasters were already negative before the COVID-19 virus… In addition last week, we saw two regional manufacturing Indexes print, The Empire (NY region) and Philly indexes both dropped out of the sky folks… Their numbers were so negative, it’s embarrassing to them to print them! But for those of you who twist my arm…. With both of these prints being for April, they are COVID-19 virus related, but for those of you who are keeping score at home, the Empire was negative -78.2% (from -2.1% in March) and the Philly was negative -56.6% (from -12.7% in March)….
I keep hearing people that should know better say that once the all-clear horn is sounded that the economy will get bank to normal in no time…. I disagree…. I believe being shutdown for so long, now, is going to keep some businesses from reopening, and some reopening but having a different business model… I also don’t believe that all jobs that were there when the shut down started will be recalled…. I’m not hoping for these things folks, but you need to hear someone else’s opinion on all of this….
And keep in the back of your minds, that in 2001 I called the drop in the dollar, when everyone and their brother was saying that the king dollar would go on forever…. And in 2003, I said it would be the Year of the Euro, and that was exactly what it was! In 2003, I talked about a housing bubble before anyone even knew there could be such a thing, and in 2007, I called for the successive rate cuts by the Fed before they made them, causing people at my bank to question my sanity…. Well, we all know how all that turned out, now don’t we?
To recap…. Gold got taken down by the boys in the band on Friday, and the currencies didn’t fare any better, and all because the U.S. Data was about as awful as it could be…. Trader sentiment has to be that they don’t see this lasting…. I think they have a Day of Reckoning coming…. Chuck goes all-in on the JPMorgan/ Chase sage with the repo market problems, and doesn’t hold back any punches for the bank that’s plead guilty to three criminal felony counts….. And then it takes some time to go through all the awful data prints….
And before I head to the Big Finish… I received a text yesterday from a friend in the business, that sounded like he was depressed, or ready to throw in the towel…. So, I wrote him back this….
What happened to all those people that claimed the dinar was going to be revalued upward?
What happened to all those people that claimed the Amero was real and our next currency?
I’m sure that cheered him up!
For What It’s Worth…. Have you ever heard of a “dead cat bounce”? (no cats were hurt!) A couple of weeks ago, in a letter that my friend, Dennis Miller of www.milleronthemoney.com sent out he asked me to explain this…. So, you can either go to the website and read it, or suffer through it here…. Basically, a DCB (dead cat bounce) is when the markets rebound in the midst of a bear market…. Think about it like this… you drop a tennis ball off a high rise building, the ball will bounce really high once it hits the ground, but then, it falls again, and we repeat this until there is no more bounce…. I tell you all this because that’s the nature of today’s FWIW, which comes to us from the land down under…. And you can find it here: https://www.smh.com.au/business/markets/delusional-investors-are-underestimating-the-economic-shock-the-world-is-facing-20200416-p54kc3.html
Or, here’s your snippet: “Investors are repeating the mistake they made all through February and early March. They are again underestimating the immense economic shock of COVID-19.
Can there be any parallel in market history to the surreal clash of narratives we saw this week? Global bourses soared even as the International Monetary Fund painted a series of scenarios ranging from dire – the most violent slump since the Great Depression – to catastrophic, with all the potenti Yet Goldman Sachs tells us that COVID-19 is under control and the worst is over. “The number of new active cases looks to be peaking globally, projections of cumulative fatalities and peak healthcare usage are coming down,” it says.
From this breathtaking premise, Wall Street’s fashion leader argues that we should “look through” the Great Lockdown to sunlit uplands ahead, anticipating a further 8 per cent rise in the S&P 500 index by the end of the year.
We can disregard normal bear market rules. This time we will avoid the textbook sequence of events in recessions: a swift crash followed by a torrid buy-the-dip rebound, and then a slow downward grind over months as reality hits home, ending only in capitulation at far lower level. “
Authorities have spared us such a fate by rescuing everything immediately. “The Fed and Congress have precluded the prospect of a complete economic collapse,” it says.”
Chuck Again… I tell you think because I’m not short any stocks, or that I want the stock market to drop, but come on! This move has to be so obvious to everyone, but I see investors saying, “but this time will be different”…. I so dislike that phrase….
They say history repeats itself, or at least it’s very near to the scene of the crime…. And with that, I’ll move one…
Currencies today 4/20/20 American Style: A$.6358, kiwi .6050, C$ .7086, euro 1.0855, sterling 1.2444, Swiss $1.0323, European Style: rand 18.7625, krone 10.3776, SEK 10.0006, forint 326.54, zloty 4.1692, koruna 25.1834, RUB 73.91, yen 107.80, sing 1.4231, HKD 7.7501, INR 75.96, China 7.0722, peso 24.11, BRL 5.2328, Dollar Index 99.96, Oil $11.88, 10-year .63%, Silver $15.22, Platinum $783.70, Palladium $2,172.09 and Gold…. $1,686.31
That’s it for today…. When will it warm up again here? I’m sick and tired of this chilly weather, we’re almost to May, and we’ve had two warm days since I returned from Florida! A couple of years ago, we came home for Easter, and it was cold here, so we got right back on the plane and went back to Florida until mid-May! But we can’t do that this year… Well, I guess we could if we wanted to risk our health! Did another Zoom meeting with my happy hour friends on Friday afternoon, and I have another Zoom meeting with my primary doc this morning! Medicine in this day of personal distancing…. I went on a little too long this morning so I’ll end this here, and tell you that today, my good friend, Frank Trotter, celebrates his birthday! Happy Birthday Frank! You’re one year older than me again! HA! And for Frank’s Birthday, one of his fave artists, Jethro Tull takes us to the finish line with his song: Aqualung….. I hope you have a Marvelous Monday, and please Be Good To Yourself!
Chuck Butler