Chuck Thinks Yellen Was Greasing The Tracks…

Rocktober 23, 2017

* Markets focus on tax reform and new Fed Chief
* Dollar finds its mighty hammer again…
* Abe wins re-election in Japan

Good day… And a Marvelous Monday to you! A later than usual start today for yours truly, as I just couldn’t answer the bell when it first went off this morning. But I eventually, pulled up the bootstraps and got going! I was in hog heaven yesterday, as I watched the director’s cut of Woodstock, which features Alvin Lee and 10 Years After doing: I’m Going Home. Alvin Lee was my fave guitar player back in the day, and we lost him way too early, when he checked into a French hospital for a normal procedure, and was gone… The Allman Brothers greet me this morning with their song: Revival…

Well, did you miss me on Friday? My infusion confusion wasn’t so bad this time, and I was out of it by noon on Friday, so I had that going for me. The dollar has recovered its lost hammer, and is swinging it at every currency and metal this morning. I find this to be quite amazing given the latest speech by Fed Chair, Janet Yellen, who basically was greasing the tracks for the coming to fruition of my call that the Fed would be discussing a reversal of rate hikes by year-end…

Yellen was talking and defending the Fed’s policies to bring back the economy from the Great Recession of 2007-08, and then she said, “Yellen said the Fed likely will have to turn to bond purchases again — even in a downturn that isn’t as bad as the 2007-2009 Great Recession, which was the worst since the 1930s.

She said that’s because economic forces have driven short-term interest rates to unusually low levels. That means the Fed will have less room to cut rates to spur economic growth in a recession, leaving few alternatives but to buy bonds again.”

Now, I look at this differently than the markets do, apparently… I see this as Yellen greasing the tracks for this to happen, as she knows in here heart of hearts that this economy is going nowhere, and that when it comes time to begin to reverse the rate hikes, she’ll be able to say, “I told you this could happen months ago”…

But the markets aren’t focusing on these words from Yellen… Instead, the markets are focusing on the thought that President Trump looks like he will get his tax reform through, which would give tax breaks to Corporations, and thus, supposedly, revive the economy… My money is on the idea that these Corporations will take the savings and use to buy more of their stock… What say you?

The other thing helping the dollar swing its mighty hammer this morning is the rumors that President Trump is about to name the new Fed Chairman, and it’s not Janet Yellen! And it’s not the old front runner, Kevin Warsh, but it looks like it will be John Taylor, a Stanford economist who is a hawk… Something that just doesn’t mesh with me folks… Trump loves easy money, and low interest rates, but he’s nominating a known hawk to the Fed Chair.. Oh well, no need to dwell on this for hours, I’m just pointing out the drastic differences here that don’t seem to matter to the markets at this point…

The U.S. Treasury 10-year’s yield is closing in on 2.40% (it’s at 2.38% this morning), and that has investors excited, about higher yields in the U.S. I was talking with a friend the other day about this, and I explained that the bond yields and bond prices move in opposite directions, so as the bond yield rises, the bond price goes down. And bond yields were so low for so long that they really had only one place to go… and that’s up… But let’s not get the idea that the 10-year’s yield is going to 4% or any other crazy idea like that, that’s circling the markets right now…

Remember, I told you that during the Presidential campaign last year, that Trump said that if interest rates went to 4% that we are in deep dookie… (he actually used different words that I didn’t think were appropriate for the Pfennig)…

And why did he say that? because of the costs to service the bonds, (pay interest on them) would rise to levels that would eat up all the tax revenues, and then there would be no money to pay for anything else…

Gold got whacked again on Friday by $9.70 and closed at $1,280 for the week.. With a whopping 300,000 contracts traded… I don’t care what anyone says, you can’t tell me that there were a ton of short Gold paper traders among those 300,000 trades… The shiny metal is down another $3.50 in the early morning trading today. Beep, Beep, Beep… What’s that you’re asking? it’s the warning signals that a large truck makes when it’s backing up… Get it? I knew you would!

The Central Bank of Russia (CBR) get’s it… they added 1.1 million troy ounces of physical Gold to their reserves last month! That’s equal to 3.4 Tonnes, in just one month! And on the other side of the coin, it would take 200 days of production in Silver to match the short positions that are out there, 110 days for Platinum, 100 days for Palladium and 90 days for Gold.. That’s just crazy folks… We’ve got Russia, China, India and other countries in the East, buying more physical Gold than is produced each year, and we also have more contracts that are shorting the metals than is above ground.. Something has to give here sooner or later…

Well, the negotiations for the independence of Catalonia came to halt this past weekend, and that’s another thing weighing on the euro this morning.. The Spanish Constitution Court called for new elections for leadership of Catalonia… Now that’s not going to sit well with the Catalans, folks… I sure hope this doesn’t turn into a U.S.-like civil war in Spain… The court didn’t say that the Catalans couldn’t have their own representatives in Gov’t, but they did say they couldn’t have the ones that are there now, that have called for the independence… More to come on this, I’m sure!

In Japan this past weekend, the Japanese re-elected Shinzo Abe as Prime Minister, in a vote of confidence over how the country is being run… It was also a vote for his monetary policies, which have been mainly been to stimulate the economy (which hasn’t worked, but who’s counting?) and that thought sent the yen downward.

The U.S. Data Cupboard the last two days last week, saw Home Sales print better than expected, and the Leading Economic Indicators go negative for September, by -0.2… Folks, this data print, along with Capacity Utilization are about the only forward looking pieces of economic data that we see, and the Indicators for September aren’t telling us the economy is “strong and robust” like the Fed heads keep telling us!

There’s not much in the Data cupboard for today and tomorrow, and then on Wednesday, we’ll see the color of the latest Durable Goods Orders and Capital Goods Orders. Two pieces of real economic data… But that’s on Wednesday, a lot can happen between now and then!

For What It’s Worth… I’ve got a real treat for you today… My good friend, and Retirementor, Dennis Miller of www.milleronthemoney.com wrote a great article last week on Student loans.. And you can check it out here: https://milleronthemoney.com/government-backed-student-loans-deal-devil/

Or, here’s your snippet: “How’s this for a business proposition? I owe you $17,000. If you forgive my debt, I won’t use Uber or Lyft for my transportation needs. Or, how about I agree to give up texting and mobile messaging for a year in exchange for debt forgiveness? Doubt I’d get any takers.

I received an email about a recent survey, “Survey Reveals What Millennials Would Rather Deal With Than Paying Student Loans”. The sender suggested, “The insights would be a great fit with your audience.”

They questioned 500 millennials, age 18-34. At first, I thought it was a joke:
“We’ve … compiled some key findings:

A staggering 49.8% of all respondents said they would give up their right to vote in the next two presidential elections in order to have their debt forgiven Ride-sharing services like Uber or Lyft don’t seem to matter to millennials quite as much… According to the results,

43.6% were willing to give up these services forever in exchange for debt forgiveness

Interestingly, 42.4% of respondents would also give up traveling outside of the country for 5 years, while only 27.0% said they would be willing to move in with their parents for 5 years

Millennials seem to value texting more than the other options – only 13.2% reported being willing to give up texting and any mobile messaging equivalent for the next year in exchange for having their debt forgiven

Only 8.2% of respondents chose to select none of the above and said they would rather keep paying off their student debt”

Chuck again, I sure hope you check out this article for some real insight into the student loan debacle and how those that took our those loans, signing a contract, feel about the obligation they made… And while you’re on the website, you might as well sign up for his weekly letter!

Currencies today 10/23/17… American Style: A$ .7813, kiwi .6965, C$ .7915, euro 1.1745, sterling 1.3173, Swiss $.9876, … European Style: Rand 13.7175, krone 7.9960, SEK 8.2066, forint 262.32, zloty 3.5982, koruna 21.8398, RUB 57.45, yen 113.89, sing 1.3623, HKD 7.8031, INR 65.06, China 6.6219, peso 19, BRL 3.1911, Dollar Index 93.93, Oil $51.85, 10yr 2.38%, Silver $17.01, Platinum $917.82, Palladium $967.14, and Gold… $1,277.00

That’s it for today… I’m late, I’m late! Oh well, that just means you had time to grab another cup of coffee! HA! Most of our neighbor friends were all together Saturday night for the wedding of one of our neighbor’s son… And my Mizzou Tigers won on Saturday! OK, they didn’t play an SEC team, but they won! And the Mizzou Basketball team played an exhibition to benefit hurricane relief efforts, with old rival Kansas yesterday. The Mizzou Basketball team has the number 1 recruit this year, Michael Porter, Jr. He’ll only be there one year, so they better make hay this year! Another Sunday and I didn’t watch any NFL football… I’m finding that I don’t need them, and I don’t miss them! The Moody Blues takes us to the finish line today with their song: When You’re A Free Man.. And with that, it’s time to go! I hope you have a Marvelous Monday! Be Good To Yourself!

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


Chuck Butler recently joined the Aden Research Group, a research center led by writers and market analysts Pamela and Mary Anne Aden. The Aden Research Group publishes three newsletters:
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