Chuck Explains The Fed’s Great Balance Sheet Unwind…

A Pfennig For Your Thoughts

January 15, 2019

* Dollar buying returns…
* Chuck makes a call on the upcoming BREXIT vote…

Good Day… And a Tom Terrific Tuesday to you! Well, the news back home wasn’t uplifting weather-wise, as a follow up snow storm might be on the docket for this weekend. That’s the way we used to get them in our area, back to back… But as far as things down in the deep south where I am, there was no snow, only sunshine and 75 degrees! I’m nearing the end of my latest C.B. Strike novel, and wondering what will I read next! This is the 4th of the series that Robert Galbraith has written. Galbraith is really J.K. Rowling, but I really don’t care, I love the books, and can’t wait for the next one! I saw on TV last night that the Championship Clemson football team visited the White House, and were served fast food hamburgers and pizza… How great is that for men that eat like horses? I doubt there was much left when they had finished! OK, the great Johnny Rivers greets me this morning with his song from the 60’s: Secret Agent Man…

Well, first off I want to thank all that sent me notes about my announcement yesterday… I wasn’t completely upfront though… I said I had no tumors in me for the first time in 11 years, and that’s true, but I failed to mention that I do still have a lesion in my jaw, that could come back at any time. So, I still take a chemo pill each day to keep the wolves at the door! But it’s still all good! And thank you to all who sent me notes!

Yesterday, I told you that China’s December Trade numbers were very weak… But then later in the day I received an email from the Russian Times (RT) and they had an article on how Trade between China and Russia had oared by nearly 30% in 2018, reaching a record number of $107.06 billion, according to the latest report released by China’s General Administration of Customs. So, while trade with the U.S. is being held ransom on tariffs, China is finding new avenues for their goods… So, not all is lost here, as previously thought by the naysayers of China!

Meanwhile back at the ranch, Grandma is holding off the Indians! That’s an old saying that we used to say in South St. Louis… So, anyway, the currencies drifted on the day on Monday, the euro did gain a bit, but not much, and most of the currencies remained in tight trading ranges… I would have thought that after last Thursday’s price action in the dollar, that we would have headed right back to that after a day of revision… But nooooooooo!

The overnight markets have brought us more dollar buying, and the euro has slipped again, while still holding the 1.14 handle, it has really backed off of its high last Thursday of 1.1581… This morning, all the news overseas is about the upcoming BREXIT vote in the U.K…. I’m going to go out on a big fat limb here (to support me!) and say that U.K. PM May, will suffer a crushing defeat, and the mess in the U.K. will start circling the bowl…

In other words, get the hell out of Dodge, with regards to pound sterling, or not… It is all based on my opinion, which could end up being wrong!
The price of Oil was as high as $52 last week, and yesterday it traded with a $50 handle, and this morning it’s back up to $51… But the way I see things with the price of Oil, this is going to be the pattern as we go through the rest of this month… Up a bit, down a bit, and settling in-between. That won’t help the Petrol Currencies any…

I have to stop and give a shout out to the Brazilian real, which saw a strong move before the country’s vote for President, only to see profit taking once the vote was confirmed. But now, things are looking brighter in Brazil, as the new president is kicking tail and taking names later, and real traders have noticed, and begun to move real higher once again…

This is such a volatile currency, and has taken over on the volatility scale, the number one position from the S. African rand… So, I would tread carefully, with real… Longtime readers will recall me saying that I wouldn’t touch S. African rand with Your ten foot pole! It’s not that bad for real, but close, as the volatility is just something I can’t stomach…

Gold found a way to hold onto its early morning $4 gain yesterday. The shiny metal is flat to down a buck in early trading today. Yesterday, a dear reader sent me a link to an article from an analyst who tried to prove that there was no manipulation of Gold and Silver prices. I put this down as Gov’t propaganda… My good friend, and former Big Boss, Frank, didn’t believe in price manipulation… And I would plead with him to have an open mind, for years ago, no one would have thought that LIBOR was manipulated, but that was proved wrong. No one would have thought that currencies were manipulated, but that was proved wrong…. And so on… to no avail, as the naysayers of manipulation are as dug in as the believers of manipulation…

The U.S. Data Cupboard was empty yesterday, and today has the PPI (wholesale inflation) for December, which I would be a bag of donuts that it will not be strong! And here will lay the thing I kept harping about when the Fed began their rate hike cycle 3 years ago… dododododododododododo… we just went back in time 3 years ago, and the Fed is telling us that they want to see inflation rise… But, they are going to begin hiking rates… I called them out on that and said, that’s not what you do when you want to see inflation rise! And guess what’s happened those 3 years of rate hikes? Inflation has stopped rising! I shake my head in disgust, for they’ve got to be smarter than some country bumpkin like me in the Midwest…

And physical rate hikes aren’t all that’s fighting the economy and inflation… Don’t forget we have the Fed’s Great Balance Sheet Unwind… Again, dododododododododododododo, we went back in time to when the Fed’s Balance Sheet was $4.5 Trillion of Treasuries and mortgages (that no bank wanted to hold by the way) And they began to allow bonds that matured to run off the books, and not reinvest them. It was calculated them that every $200 Billion that comes off the books is equal to a 25 BPS rate hike… The Fed moved to $50 Billion per month last year, so that means every 4 months (see that new math I used?) we’ve been getting an additional 25 BPS rate hike, and will continue to do so, as long as the Fed keeps unwinding…

This is important folks… That we keep this unwinding in mind, otherwise it becomes difficult to explain why the economy is teetering on a recession, with Fed Funds rates at 2.5%… When you factor in the unwinding rate hikes, we’re well over 4%… Now put that in your coffee and drink it! HA!

To recap… The currencies tried to rally VS the dollar yesterday, but their moves, while quite small on the day, turned to selling in the overnight markets, as the dollar was bought once again. Gold gained $4 yesterday, but just doesn’t seem to have the energy it had last week… Chuck makes a call on the upcoming BREXIT vote, and explains the Fed’s Great Balance Sheet Unwind…

For What It’s Worth… We’ll do this a little differently this morning, as I’ve got to make certain you read this, and don’t want to just give you a link and think you’ll do that! OK…. Here goes….

I want to thank a dear reader for sending me a link to a YouTube that is a report on GM…

You know, the company that was bailed out using TAXPAYER MONEY back in 2007…

In the report it highlights that 70% of the automobiles that have been made by GM since the bailout have taken place outside of the U.S. … Wait! What? OMG! Is this what we had in mind when we decided to bail them out? Oh, that’s right, we weren’t given that choice by then President at that time! And now, years later, we find out that GM has turned its back on the U.S.

You know, doesn’t this remind you of all those times through the years that the U.S. military would help out a country, only to have them turn and bite the hand that feeds them later? I’m was so saddened watching this video, and got my blood pressure moving higher, and then I remembered that since 2007, I wouldn’t have touched a GM made car or truck if someone gave me one, was that premonition? I hardly think so… But still…

Oh, and I almost forgot to give you the link to watch it yourself, should you want to really get ticked off today… here you go! https://www.youtube.com/embed/Lvl5Gan69Wo

Currencies today 1/15/19 American Style: A$.7195, kiwi .6817, C$.7536, euro 1.1420, sterling 1.2858, Swiss $1.0135, European Style: rand 13.8190, krone 8.5490, SEK 8.9670, forint 282.36, zloty 3.7588, koruna 22.3736, RUB 67.03, yen 108.40, sing 1.3540, HKD 7.8425, INR 70.95, China 6.7615, peso 19.03, BRL 3.7083, Dollar Index 95.83, Oil $51.15, 10-year 2.69%, Silver $15.85, Platinum $802.26, Palladium $1,333.29, and Gold… $1,291.08

That’s it for today… Well, I almost bagged today, as I was up a lot last night with a bad stomach… But then the sun was coming through the California shutters we have, and I thought, oh, what the heck! I used to get paid to write this letter… But no more… So once wonders what it would be like to just shuck it one day? Since I’m not that kind of person it would have to be an out of body experience for me to do that! Well… our Blues have won 3 games in a row! Clear the streets! It’s time to plan a parade! No? Oh well, 3 in a row for this team seems as though they won the Stanley Cup! This is my weekly plead to the St. Louis Cardinals to sign Bryce Harper… How’s this for a potential top of the lineup… Carpenter, Goldschmidt, Harper, Big Bear Ozuna? I would pay to watch them play… no wait, I already pay to watch them play! HA! Speaking of which it’s just about time for my spring training tickets to be ready to be picked up… Pitchers and catchers report in a month! And with that, Todd Rundgren takes us to the finish line today with his song: I Saw The Light… I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!

Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts