August 27, 2018
* Powell sound dovish at Jackson Hole
* Russia talks about retaliatory measures…
Good Day… And a Marvelous Monday to you! Whew! A whirlwind weekend of a little car traveling, and some time with friends.. Thanks to good friends, Lisa and Kevin for their hospitality! I know I left you last Wednesday with some ominous words… Something along the line of. “we have some serious things to talk about next week”… But… I’ve decided to push that back another week, as there are some balls still up in the air… As Johnny Rivers sang in Summer Rain, Let tomorrow be… I have a busy week, that leads into a day and a half of cooking ahead of our Annual Butler Labor Day BBQ this coming weekend. Donnie Iris greets me this morning with his song: Ah! Leah! It’s a read good one, for those of you that don’t recognize that song or artist!
Well, the currencies continued to fight back VS the dollar as we went into the weekend last week, and with little to no data during the week, it left the dollar vulnerable, and that vulnerability came to a front, when the markets got a whiff of what Fed Chairman Jerome Powell was saying at the Fed’s annual boondoggle in Jackson Hole, Wy. First, though, remember a couple of weeks ago, when Powell was asked about interest rate hikes and he sounded a bit dovish about them? Well, this time he was certainly sounding a lot dovish with his comments about rate hikes being gradual…
Now, that doesn’t mean that he’s put his tail between his legs after being called out by President Trump a couple of times in recent tweets, and the rate hikes are going to stall… It just means that I don’t think the markets can bank on a rate hikes every 3 months like they’ve been being made.
The euro moved above the 1.16 handle and the other currencies fell in behing the Big Dog… The Chinese renminbi was the best performing currency last week, as they turned the tables on their daily whacking of the currency, to a daily celebration of the currency! The Chinese have me confused as to what it is they are attempting to do with the renminbi. I pride myself on being able to pinpoint what the Chinese are up to, usually, (it’s easy, just don’t listen to everyone’s else’s opinion on China!) But this has me scratching my bald head… But, as long as the Chinese keep their hands out of Gold’s cookie jar, they can do whatever it is that floats their boat with the renminbi…
While we’re on the dollar… Remember when I said that I was surprised that Russia hadn’t announced any retaliatory measures against the U.S. after the U.S. had placed even more sanctions on anything that’s Russian? Well, I’m no longer waiting for those retaliatory measures… Just last week it was reported in the RT that Deputy Foreign Minister Sergei Ryabkov, had this to say:
“The time has come when we need to go from words to actions, and get rid of the dollar as a means of mutual settlements, and look for other alternatives,” he said in an interview with International Affairs magazine.
Wasn’t it just last week that I highlighted an article that talked about Germany wanting to create their own payments system outside of U.S. control? Why, yes, Chuck, it was just last week, so it now appears that China has a new payment system, Russia is working on one, and Germany is in the planning stages of one… Eventually, these countries will no longer need as many dollars in their reserves!
As I’ve said over and over again, this dance is gonna be a drag, no wait… What I’ve said before is that this is all our own fault with a deficit spending and debt accumulation… Get this… The President’s new $1.3 Trillion spending bill has passed…
A jaw-dropping $100 million will be paid out every hour of every day – for the next year. And that’s just the beginning of more $1 Trillion plus annual deficits, folks… And the Fed is still unloading their Treasuries, while more and more Treasuries will need to be issued to finance these rising deficits… Does anyone else see where this is not going to turn out just peachy?
Meanwhile, back at the ranch… The economic data from around the world last week, was very upbeat… While here at home, we printed just one piece of economic data… The Durables… And Durable Goods Orders for July were a NEGATIVE -1.7%!!! This 3rd QTR for the economy is digging itself a hole, folks… I’m just saying…
This week’s U.S Data Cupboard will be off and on with data prints with the highlights coming on Tuesday with the Case/Shiller Home Price Index from June… Wednesday we’ll see a revision to the 2nd QTR GDP… And Thursday two of my fave prints… Personal Income and Spending… this time for July… I don’t believe that these data prints will be anything to upset the dollar selling applecart this week, so we should continue to see the dollar under pressure… Like Queen used to sing… Under Pressure…
After seeing a sell off on Thursday in Gold… Friday reversed that sell off and added some rising over $20 on the day, to close at $,205… You gotta love it when the physical Gold buyers out bid the short Gold paper traders…
A couple of years ago, I wrote in the now defunct, Review & Focus, that there were reports of a shortage in physical Silver, and with the new focus on solar panels, that use Silver, that Silver should be looking upward and onward, as my old boss and good friend Frank Trotter used to say.
But the paper short trades have kept that shortage from pushing the price of Silver higher. In Ed Steer’s Saturday letter (www.edsteergoldsilver.com) he points out that it would take 181 days of physical Silver production to match the total amount of short positions that are out there… 181 freakin days folks! Doesn’t that get your dander up? Move along here Chuck, no need to get your blood pressure rising!
It’s a holiday in the U.K. today, as they celebrate their Summer Holiday… And in Germany, I’m waiting for the color of the latest IFO Business Sentiment results… While in the U.S. Data Cupboard, we don’t have much in the way of data today, but the U.S. will be auctioning a boat load of Treasuries with 3&6 month T-Bills and 2-year Notes for sale at the auction window today…
It will be interesting to see just how much interest there is in these auctions… Hey! I’ve been talking about how the U.S. Treasury yield curve has been flattening out, right? Well get this… the U.S. yield curve has tumbled back below the Japanese yield curve for the first time since Nov 2007… And the yield spread between 2 year notes and 10-year notes is now in the teens… What’s this telling us?
It’s telling us that the bond guys don’t believe in this economy, and don’t believe the Fed is going to be able to increase interest rates as much as they say they will. It’s that simple folks… And as I’ve said for many a year, the bond guys “know”…
The price of Oil has recovered some lost ground from last month, and trades with a $68 handle this morning… The latest news from the U.S. producers is that Oil rig counts have dropped at the fastest rate here in the U.S. since 2016.. Hmmm….
Commodities sure did take a hit in the past month, as China drove the price of Gold down, and that meant that the Commodity Currencies like the Aussie dollar (A$) and kiwi have had a difficult time in recent weeks… But as I said last week, the Chinese contend they have not done any dirty deeds to Commodities, so maybe that will take the heat from Commodity currencies…
One currency that just keeps exposing more rot on its vine is the Brazilian real… The real has really dropped like a rock from a cliff in the past couple of months, and this morning is trading with a 4 handle! Ouch! Now that’s going to leave a mark! Political turmoil, started the real on this ride on the Slippery Slope, and now, just about every and any thing that the markets can nit pick on, they do, and that just feeds the selling in the real… At some point it will makes sense to swim against the tide here, but not yet, doing so now would be like catching a falling knife!
To recap… It was a good week for the currencies and metals, as the dollar has had to deal with 1. Trump dissing the Fed and rate hikes, and 2. Jerome Powell talking dovish at the Jackson Hole Boondoggle. Gold is back above $1,200 and Chuck wants to know why the shortage in physical Silver hasn’t helped the metal to higher levels?
For What It’s Worth… Well, I’ve long said that the 2nd QTR GDP print of 4.1% would be a one and done, and so far the July data prints are bearing that out to be the case… But I saw this on the Daily Reckoning, and thought it’s good for people to hear other minds talk about this besides just me all the time… And so this is an article by Nomi Prins is about just that, and it can be found here: https://dailyreckoning.com/the-fed-will-not-give-up-dark-money/
Or, here’s your snippet: “Also concerning is the record amount of household debt. Consumers are using it to spend and that is partially responsible for that 4.1% GDP growth, as I noted on Fox Business recently. But it’s not sustainable.
Add it all up and there’s considerable reason to believe that the 4.1% growth rate is only temporary.
It will not represent the full GDP growth figure over all of 2018, nor will it be the growth figure in 2019 or 2020. Even the Fed admits growth will slacken over the next couple of years.
I don’t often agree with the Fed. But on this point, I agree with the Fed’s forecast for slower growth to come. That outlook presents options for the Fed to create more credit, or what I call dark money to support the markets, to confront inevitable periods of volatility ahead.”
Chuck Again… It’s a good article and goes into explaining “dark money”… so take some time to get through it if you can…
Currencies today 8/27/18… American Style: A$ .7315, kiwi .6675, C$.7660, euro 1.1618, sterling 1.2850, Swiss $1.0172, … European Style: rand 14.3113, krone 8.3502, SEK 9.1270, forint 278.72, zloty 3.6784, koruna 22.1650, RUB 67.14, yen 111.10, sing 1.3660, HKD 7.8497, INR 70.11, China 6.8039, peso 18.80, BRL 4.1025, Dollar Index 95.23, Oil $68.40, 10-year 2.82%, Silver $14.84, Platinum $789.01, Palladium $938.62, and Gold… $1,204.26
That’s it for today… Well, my beloved Cardinals are still on a roll having won 9 consecutive series, and finishing a road trip out west at 5-1… But the Cubs are winning now too, so we haven’t been able to make up any ground against them… UGH! I’m very busy this week, and that’s a good thing, compared to my time in S. Florida, where I’ll be heading again next week, but that’s next week! College Football begins in earnest this coming weekend, and my beloved Missouri Tigers will take the field on Saturday! Good luck to the Tigers! Jimmy Buffett takes us to the finish line today with a very apropos song… Come Monday… Alrighty then, I hope you have a Marvelous Monday, and remember to Be Good To Yourself!
Chuck Butler