BIS Sends Out Warning… Anyone Listening?

A Pfennig For Your Thoughts

December 9, 2020

* Currencies trade in a tight range on Tuesday
* Gold gains $8 on Tuesday, and gives it right back today… 

Good Day… And a Wonderful Wednesday to you! Before I go any further, I have to question the sanity of the folks at the Olympics who approve and remove sports… I read yesterday, that the Olympics have sanctioned the approval of “breakdancing” as an Olympic sport… Are you kidding me? That’s where you say, “no we wouldn’t kid you, you’re our favorite goat!” HA! Well, I for one, can’t wait until the next Olympics to watch me some breakdancing… NOT! Well, I had to go out yesterday for a bit to a store, and had to wear my face rosary… There’s no scientific proof that wearing a mask keeps you from getting the virus… As I say, the virus gonna virus… And the powers that be know that the way to get people to comply with the wearing of face masks, they get the businesses to require customers to wear one… I go three places… The hospital, my doctor’s offices, and the cleaners… And all three won’t let you in the door without a mask… I find this to be a real attack on my civil liberties… But, it is what it is, and life goes on, right? Robin Trower greets me this morning with his song: Bridge of Sighs… Robin Trower was the lead guitar player in Procol Harum…

OK… I know I’m going to see hundreds of people tell me I’m full of B.S. for what I said in the intro today, but so be it… I’ve never, in my life been afraid to say what’s on my mind… And to me, that’s what makes this letter so good to read… You get another point of view that you don’t get from everyone else…  

It was really a nothing happened day in the currencies yesterday… The Dollar Index fell to 90.85, from 90.93 in the morning… But the euro at the end of the day was trading in the same clothes it had on early on Tuesday morning. (1.2120)… Gold gained $8.30 on the day to close at $1,871.30, and Silver gained a wooden nickel, no wait, just a plain nickel, to close at $24.63… I’m of the opinion that these two metals would have gained more on the day, if not for “sellers”… I thought I would be nice to the price manipulators today, and just call them “sellers”… 

You could get me to really go off on the CFTC (commodities regulator) if you egged me on… Ok, that’s enough, I’ll do it! Why on earth do we have a commodities regulator that doesn’t regulate? Isn’t this what got us into some deep dookie with mortgage bonds, that were rated AAA and shouldn’t have been? The ratings agencies fell down on the job, and we really didn’t need a ratings agency to tell us a bond was AAA when it should have been A at best… The CFTC is about as useful as a pay toilet in a diarrhea ward… And I’m being nice about that description! I could have said, that they were as useful as mudguards on a turtle…  Ok, now that’s funny… And this isn’t a funny subject, Chuck, so try to stick with the program will you?

In the overnight markets last night and early this morning, there’s some slippage going on… The euro is weaker, but still above 1.21, and Gold is getting sold by $10.90, and Silver is getting sold by 10-cents… I have to say that I’m somewhat surprised at this move in the metals… Sure there’s never a one-way street of rallies… There’s got to be some rain to make the sunny days even more enjoyable. But… in my mind, I think that these two metals should be firmly on the rally tracks now, with nothing to bring them down…  

Think about that for a moment… We have vaccines… We have refrigerated places to store the vaccines in each location… All we need is the green light from the FDA, and then we start getting back to, I’m not going to say normal, because that will never happen, but back to spending money, and when that happens, inflation will begin to rise… And when inflation is rising, what asset class do you want to own? Precious Metals… i.e. Gold & Silver… 

Ok… I had a few readers send me a note asking me to explain the scenario I presented last week as the reason for the smashing of Gold’s price… OK, it’s like this… please take notes, because I won’t explain it again… Investors buy futures contracts to buy Gold at a specific price and expiration date… And so it was for the December expiration date…

But the problem for the COMEX was that I don’t think they had the stock of Gold it would take to make good delivery on all those contracts that had piled up for the December expiry. So… basically it was a signal to the price manipulators to “do their thing”, and bring the price of Gold down dramatically, to get all those buy contracts to sell, and give up getting Gold at their specified price… And it worked…. There, I hope that explains everything, other than the fact that the smashing of the Gold price should never have been allowed, but that’s a different story…

Alrighty then… The BIS (Bank for International Settlements), the central bank of Central Banks, if you will, issued a very interesting statement late last week… Let’s listen in to what’s on their minds, eh?

“BIS from continuing this trend of warnings, and today the Basel-based organization did just that when in its Quarterly Review publication it cautioned that the surge in financial markets following COVID-19 vaccine breakthroughs and the U.S. election has left asset prices increasingly stretched.

Sounding surprisingly similar to Goldman, which as we reported earlier today issued an almost identical warning, when it observed that its sentiment indicator is now +2.0 standard deviations above average… …which has left positioning extremely stretched and represents a 98th percentile reading since 2009.

The BIS’ quarterly report on Monday noted how credit markets and some of world’s biggest stock markets had surpassed their pre-pandemic levels despite the significant degree of uncertainty that still remains over the pandemic as it continues to spread.”

Will anyone listen to them? Nah… why would stock jockeys pay attention to this bank that’s in Switzerland? They don’t have the pulse of the Robinhood traders… Or for that matter, anyone else, but I thought it was interesting enough to see that there is an institution out there that thinks that stocks have gotten out of control…  Oh, and JPMorgan says that stocks will get a $1.1 Trillion boost next year….  So, you’ve got Goldman and the BIS saying “be careful”, and JPMorgan saying “drive fast and take chances!” 

I don’t know if you’ve noticed or not, but the recent performance of the Russian ruble has been quite impressive… I think back to a FWIW I had a month or so ago, where I quoted the Fin Min, from Russia, saying that the ruble would come back from the then level of 77 to today’s level of 73.90… And the ruble still pays interest! The price of Oil hasn’t budged since I told you that I thought it had gone about as high as it was going to go, for now, a couple of weeks ago. So, the ruble, krone, real, peso, and even sterling has been getting a lot of love from traders lately, and one would immediately think that the price of Oil has to be going upward, right? But it isn’t… So, these rallies are all about selling dollars, folks… selling dollars… selling dollars… 

The U.S. Data Cupboard yesterday had the 3rd QTR Productivity, and it showed that productivity had weakened in the 3rd QTR from 4.9% in the previous quarter, to 4.6% in the 3rd QTR… I had said yesterday that I just didn’t think that the working from home crowds are being very productive, but then I don’t know, really…  But the data confirms that…  We also saw the Unit Labor Costs, for the 3rd QTR… And while they remained negative at -6.6%, labor costs were increased during the quarter, as the 2nd QTR Costs were negative -8.9%… But as with everything else these days, I truly expect this to get worse again in the 4th QTR…

The Data Cupboard today is pretty barren, with only a couple of lower tiered reports to print, that I doubt anyone even notices… And then tomorrow, we get back to the regular fare, of the Weekly Initial Jobless Claims, which might be skewed to the upside, given the previous week only had 3 days to file in it…

For What It’s Worth… This is something that a dear reader sent me that he received and thought I should see it, and I in turn, thought you should see it… Remember last fall 2019, when I kept harping about how the Casino Banks were being bailed out daily by the Fed in the repo markets? Well, this article addresses that, and more, and it can be found here: Trump regulators leave a warning for the Biden team | NewsChannel 3-12 (keyt.com)

Or, here’s your snippet: BIS Sends Out Warning… Anyone Listening?

That’s what happened during the 2008 financial crisis — and the pandemic caused it to collapse again.

Alarmingly, the short-term funding market imploded late last year and then again in March when the pandemic erupted — forcing the Federal Reserve to come to the rescue by pledging hundreds of billions of dollars of support.

“Recent events, including the financial fallout from the pandemic, have confirmed that potentially significant structural vulnerabilities remain” in short-term funding markets, the Trump-led Financial Stability Oversight Council (FSOC) warned late last week in its final annual report.

FSOC, created by the 2010 Dodd-Frank law, is a team of regulators from the SEC, Fed, FDIC and other agencies charged with identifying risks to the financial system. It’s chaired by Treasury Secretary Steven Mnuchin. Next year, assuming she’s confirmed by the US Senate, the council will be led by Janet Yellen, whom President-elect Joe Biden tapped as Mnuchin’s successor.

 The FSOC is concerned enough about the liquidity issue that it called on regulators to study the short-term funding market and, “if warranted,” take “appropriate measures to mitigate these vulnerabilities.”

The council did not offer any potential solutions, however — leaving that task up to the incoming team.

“Our short-term markets don’t seem to be able to function without a very significant government backstop. We need to fix it,” said Jeremy Kress, a University of Michigan professor who researches financial regulation.

That won’t be easy, because regulators and experts don’t seem to know exactly why this corner of the financial market keeps breaking down.

“There is still so much we don’t know about these markets and how they work,” said Kress. “That’s a big part of the problem,”

But there’s little doubt short-term markets are vulnerable to bouts of market stress.”

Chuck again… Now doesn’t that just give you a nice warm and fuzzy feeling that the regulators don’t understand how the markets work? I’m beside myself on this one folks… Shaking my head in disbelief, for sure!

Market Prices 12/9/20: American Style: A$ .7482, kiwi .7o80, C$ .7826, euro 1.2109, sterling 1.3456, Swiss $1.1250, European Style: rand 14.9293, krone 8.7328, SEK 8.4829, forint 294.34, zloty 3.6532,  koruna 21.6606, RUB 73.47, yen 104.10, sing 1.3355, HKD 7.7515, INR 73.63, China 6.5300, peso 19.75, BRL 5.1022, Dollar Index 90.85, Oil $45.77, 10-year .94%, Silver $24.46, Platinum $1,026.00, Palladium $2,360.00, and Gold… $1,860.40

That’s it for today… Wanna get into the Christmas Spirit? The next time they show the movie: The Grinch That Stole Christmas, with Jim Carrey, make sure you tune in! I sat there laughing and getting filled with goo thoughts while watching it, again… When my kids were young, every year around this time, we would take to to the movies to see the newest Christmas themed movie… I remember Dawn repeating the line from Prancer, over and over… “Prancer is in the shed by my house”… Ok… I’ve got to go pick up the groceries I ordered 2 days ago! I just pull up and they load my car and I go home… Don’t have to wear a mask! Del Shannon takes us to the finish line today with his song: Runaway…  Now, there’s a great 60’s song! I hope you have a Wonderful Wednesday, and will please Be Good To Yourself! 

Chuck Butler

Creator & Editor of:

A Pfennig For Your Thoughts