Back To Risk On, Risk Off!

A Pfennig For Your Thoughts
 
July 7, 2022
 
* dollar buying has the currencies & metals & oil on the run… 
* FOMC Meeting Minutes, cause a stall in the dollar buying… 
 
Good Day… And a Tub Thumpin’ Thursday to you! Well… I’m at a loss for words to describe what the heck is going on in the markets… I’ve never seen a market selloff like this, everything under the sun and moon is getting sold… Oh, well, that’s the gist of the letter today, but first, I stopped by the grocery store after my oncologist visit yesterday morning, and all the reports of empty shelves, wasn’t what I saw… Shelves stocked to the hilt with items… Now that’s not to say that this could last, but for now, the Armageddon hasn’t hit St. Louis… Journey greets me this morning with their song: Who’s Crying Now?
 
That’s a good question, who’s crying now? Well, anyone that bought stocks after the Covid caused losses in stocks… Anyone that has bought Gold or Silver in the last two years… Anyone that has bought a currency in the last, shoot I can’t count that high, of years… Do you recall the phrase that dominated the markets a few years ago… the markets would describe what happened by saying it was either a “Risk On Day, or a “Risk off Day”? 
 
It now appears that we’re right smack dab in the middle of a “risk off week”! Man, I was so glad when that whole business of risk on, risk off went away… But, it didn’t go away completely, and now it rears its ugly head once again! 
 
When i signed off on Tuesday, Gold & Silver were getting sold, but it hadn’t gotten out of control as yet… The dollar was taking no prisoners, and the euro was heading to parity… Well, Tuesday’s market action had the dollar continuing to soar, with the BBBDXY gaining index points, like Seth Curry adds to his point totals!  
 
But then all hell broke loose, and Gold ended the day down $42, and everything else not named “dollars and Treasuries” got sold, with a vengeance…  
 
And that was Tuesday… Wednesday had more selling of the risk assets… The euro has been labeled as “unbuyable”… Which means that it would be suicidal to buy it now… The BBDXY reached 1,281 during Wednesday’s trading. The price of Oil has fallen out of bed, and traded below $100 yesterday for the first time since last fall… And Gold along with Silver got sold like funnel cakes at a State Fair yesterday… 
 
Gold lost $26 on Wednesday to close the day at $1,738.70… And believe it or don’t, but Silver ended the day unchanged from Tuesday! Silver ended the day at $19.31… The BBDXY rose to 1,281.98, and there just is not stopping the runaway dollar right now…
 
In the overnight markets, we’ve seen some backing off of the high intensity dollar buying, and the BBDXY has given back 3 index points in the overnight trading. Gold is up $5 in the early trading today, and Silver is up 9-cents, to start the day… While I don’t think this backing off the high intensity dollar buying is going to last, for now… I was relieved to see that the dollar could get sold during this frenzied buying of the dollar… 
 
The price of Oil has slipped to a $98 handle to start the day today, and the 10-year Treasury is still the cat’s meow, with the yield on the bond trading at 2.94% this morning. 
 
I read this morning, that this backing off of the high intensity dollar buying was in response to the Fed’s Meeting Minutes from their June meeting where they hiked rates 75 Basis Points… Reuters has the skinny on the minutes here: “They got their latest data point on Wednesday afternoon, when the minutes of the June 14-15 policy meeting detailed how the U.S. central bank was prompted to make an outsized interest rate increase. The minutes were a firm restatement of the Fed’s intent to get prices under control to address stubborn inflation and concern about lost faith in the central bank’s power. 
 
The 0.75 percentage-point rate increase which came out of the meeting was the first of that size since 1994. According to the minutes, participants judged that an increase of 50 or 75 basis points would likely be appropriate at the policy meeting later this month.”
 
Now, what in those words would lead the markets to back off is beyond me, but that’s what those that follow the markets believe caused the backing off of the dollar buying… I mean, other than, the thought that the Fed is going to continue to hike rates, and that means that the fears that the rate hikes could kill the economy, could have been the reason… But, man, that’s stretching it a bit… There’s lots of words there to that reason, that just gets a garbled up for Traders… I’m just saying…
 
And if I thought the dollar was akin to a burning out star, that shines the brightest right before it dies out, before… I really think that now! 
 
The “risk off” trading has brought the Russian ruble back from its rise to star currency status… The ruble is still trading with the best performer VS the dollar sticker, but that sticker is looking a bit worn…  
 
In a case of: How in the world did that happen?  CNBC reported yesterday, that: “Inflation in Turkey rose close to 79% last month, the highest the country has seen in a quarter of a century.
 
The annual inflation rate was 78.62% for June, according to the Turkish Statistical Institute, surpassing forecasts. That’s the country’s highest annual inflation reading in 24 years. The monthly increase was 4.95%.
 
Soaring consumer prices have hit the population of 84 million hard, with little hope for improvement in the near term as a result of the Russia-Ukraine war, high energy and food prices, and a sharply depreciated lira, the national currency.”
 
Chuck again… Well, I’ll tell you how that happened, and then I’ll ask you if that sound familiar?  Ok, this happened because the President of Turkey continued to put pressure on the not so independent Central Bank to cut rates back in 2020 & 21, and print currency, when inflation was rising…  
 
Well, does that sound familiar? Now, I’m not suggesting that inflation in the U.S. could rise to 79%, like in Turkey, but what I am suggesting is that maybe Central Banks will finally get it… that printing currency and maintaining low interest rates sends inflation soaring… Hello? Jerome Powell, James Bullard, and all the other Fed Heads, are you paying attention in class here? There will be a quick quiz at the end of class to see how much you have retained… 
 
The U.S. Data Cupboard had the Job Openings and Job Quits data for May yesterday… There are still over 11 Million job openings here in the U.S., and still the great resignation continues with 4.3 Million job quits printing every month! Annualized, that would be 51.6 Million people quitting their jobs in a year! That would be nearly 15% of the population! Something has to give here… this can’t continue to print like this each and every month! 
 
Today’s Data Cupboard has the Weekly Initial Jobless Claims, that printed at +230,000 last week… I would suspect that this data would get worse soon… I guess we’ll see, eh? Tomorrow will be the Jobs Jamboree for June… As of now, the experts think that the total will be 250,000 jobs created… if you compare the jobs created to the job quits, then you see what I’m fearful of… There’s definitely a disconnect here, and that’s not going to be a good thing for the economy…
 
Businesses are suffering with this “nobody wants to work” scenario, and that will lead them to shut down, eventually… 
 
To recap… There’s been some major dollar buying this week, and everything not named, dollars and Treasuries, has been sold, Gold, Silver, Oil, currencies, cryptos, stocks… the bloodletting has gotten really bad, and there’s nothing to stop it… The Fed’s Meeting Minutes caused a bit of a stall in the dollar buying, but that’s all… a bit of a stall… Turkey reports 79% inflation, and Chuck says that the reason they got that high, sounds familiar… 
 
For What It’s Worth… Ok, I know I won’t do Dennis Miller’s letter justice by not printing the whole thing in the snippet, but you’ll have to check out the link if you want more, and I’m thinking you should want more! You can find Dennis Miller’s letter here: www.milleronthemoney.com 
 
Or, here’s your snippet: ” The Fed destroyed free market interest rates, creating hot spots everywhere. Corporations borrowed on a massive scale, not to improve production, or increase sales – but to use the easy money to pay dividends, buy back stock and pay themselves nice bonuses. The stock market skyrocketed, not based on a booming economy, but the “free money” used to induce investors to hype their stock prices. The correction has now begun.
 
 
Tech companies, many still unprofitable, find their companies valued at billions. Much like the roaring 20’s, “Happy Days are here again”, until they are not.
 
 
The Fed, creating trillions out of thin air, has created an inflation disaster. The Fed ignored it, trying to hoodwink the public. People are no longer fooled; but angry and afraid.
 
Richard continues:
“Politicians and bureaucrats eventually become concerned about prices rising due to the fall in value of the money, so they “tighten” the money supply.
 
The flow of money to the hot spots slow, and the correction of malinvestment begins. Businesses go broke and workers lose their jobs.
That’s a depression – the correction period, the “shakeout” following inflation. It lasts until the assets of the businesses are sold off and the workers find new jobs.
 
Usually, when a depression begins, officials panic and reinflate.
That stops the correction. This incomplete correction is a recession.
A recession is a depression that has been cut short by resumption of inflation.
 
This disorganization of firms and employees can be called the “injection effect.” Firms are created and expanded, and employees are hired, in areas where they otherwise would not be. These mistakes are malinvestment.
…. As malinvestment grows, so does the amount of dollars needed to prop it up.
 
The Fed’s maneuvering room eventually disappears. Any injection big enough to avert a depression is also big enough to trigger a runaway inflation.
 
…. I think that is where America is now. I think there is an 80% probability the malinvestment from the last few years of spectacular inflation of the money supply “
 
Chuck again… I too have met Richard Mayberry many years ago, at a Money Show, and I too have the utmost respect for his thoughts… 
 
Market prices 7/7/2022: American Style: A$ .6835, kiwi .6177, C$ .7714, euro 1.0186, sterling 1.1987, Swiss $102.80, European Style: rand 16.7532, krone 10.1051, SEK 10.5352, forint 403.45, zloty 4.6895, koruna 24.3253, RUB 63.55, yen 135.80, sing 1.4006, HKD 7.8479, INR 79.17, China 6.7025, peso 20.54, BRL 5.4291, BBDXY 1,279.19, Dollar Index 106.89, Oil $98.31, 10-year 2.94%, Silver $19.40, Platinum $877.00, Palladium $1,965.00, Copper $3.58, and Gold… $1,743.58
 
That’s it for today… I have a big announcement, so pay attention here… My annual summer vacation is approaching rapidly! I begin my two weeks on July 18 and won’t be back until August 1. I know, I know, two weeks is along time to be away at this time, but… you know me… habits, and tradition, and all that, is what I live by… And when the hot summer comes around it’s time for my summer vacation, period! My beloved Cardinals are so darn frustrating! First it was the lack of staring pitching, and now they can’t find any hits in their bats! UGH!  We go way back in the classic rock history today for the song to take us to the finish line today… Deep Purple takes us there, with their classic rock song: Smoke On The Water… I hope you have a Tub Thumpin’ Thursday today, and will remember to Be Good To Yourself!
 
Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts