Chuck’s Back, So The Currencies Back Off!

A Pfennig For Your Thoughts

November 26, 2018

* More economists are jumping Chuck’s bandwagon!
* ECB will have their FSR this week… Chuck thinks this is BIG!

Good Day… And a Marvelous Monday to you! I had a grand week, last week, with traveling back to cold St. Louis, Thanksgiving, and a great Mizzou victory on Friday! I don’t know where my Tigers will play their bowl game, but I’m sure they’ll put on a great show for the local crowds! I’m saying nice things to start the day, because I’m loaded for bear today, and it won’t be pretty, for all those who think this economic so-called strength is going to be like the Energizer Bunny, and go on, and on, and on… So, I hope you had a grand Black Friday day, and shopped ‘till you dropped… And it brought you joy and happiness… I doubt you’ll feel so joyous when the credit card bill arrives… I’m just saying… Kansas greets me this morning with their song: Hold On…

I sent out a Tweet on Friday, and said, “they used to have a saying on the trading desk where I worked, that when Chuck was away, the currencies rallied” So, I guess that still holds true, since I was unofficially away last week, and the currencies and metals rallied. There was one day where they didn’t rally, but then made up for it the next day, and at the end of the week, they were on the rally tracks!

But not so much today… Gold lost a couple of bucks on Friday, but like the currencies it ended up for the week… And when you get down to it, weekly gains or losses are what make up trends, not daily bumps and grinds… I once had a dear reader ask me, why I wrote a daily letter, when all I talked about were long sweeping trends for the currencies and metals? I told him that I was here for the reader that just picked the Pfennig up and read it for the first time, and I was here for those that needed to keep abreast of what happened the day before, overnight and prospects for today… So they could make an informed decision to buy or sell…

Boy, a lot of writers, economists, and observers are jumping on my bandwagon these days with calls that the economy is near its demise, the dollar is too, and Gold’s about to rally, big time… I welcome them aboard, and say to those naysayers, there’s still room for you, whenever it is that you get your head screwed on straight, and see what’s going on in front of you, not in back of you!

The week has a lot in store for us, so strap yourself in, keep all arms and legs inside as we attempt to maneuver around this week. I want to start off today with the headlines from this past weekend regarding the U.S. economy…

Here are the headlines from this past weekend that are playing nicely in the sand box with my previous thoughts about the economy…

From Danielle Di Martino Booth’s Twitter feed: “The Economic Cycle Has Turned “We are officially calling the bottom in initial jobless claims; the current cycle, the second longest economic expansion in U.S. postwar history, has turned”

From David Rosenberg’s Twitter feed: “The credit contraction is starting and recession follows. See “Rates Roil Small Mortgage Firms” on the front page of the WSJ. The # of U.S. nonbank mortgage lenders has shrunk 3.5% from a year ago; over half of the $1.26 tln of mtg originations came from this group this year.

Also from David Rosenberg: “capex orders decline at a 2.9% annual rate in the three months to October.”

Alright, first things first… Capex stands for Capital Expenditures… and when Companies aren’t putting money into expansion or improvments and labor increases then that’s a tell tale sign that the economy is in deep dookie… Now throw on top of that the fact that Credit is contracting… Uh-Oh! When I say credit you say debt… Credit… Debt… good, you’ve got it!

The rot on Housing’s vine is getting more exposed every day, and finally the economic expansion is either near an end, or already having put in its last quarter of somewhat strong growth… Of course I do have to throw something in here… Gov’t Spending has been a HUGE piece of GDP… So, the GDP number in this country will probably hold on longer than one would think, given the amount of Gov’t Spending!

What’s an investor to do? Well, if you haven’t done so already, I would certainly make sure my stop losses are in place on my stock holdings, or, at least, up to date. Bond yields aren’t going to help you much and in fact may have reached a high for now, as I continue to believe that the Fed will reach for another round of QE / bond buying, and their buying will manipulate yields downward once again.

In 2007/ 08… we saw major stock selling, Gold selling, and currencies selling… It was a complete washout for what became known as the “Risk On Assets”… These three all decoupled a while back, but will once again be lumped together… This is how it all played out in 2007/08… Stocks began to tumble and those investors that bought stocks on margin (loans) began to receive margin calls because their respective accounts had fallen below the minimum margin (30% in most cases)… They were strapped for cash, so they had to find something to sell to come up with the cash… So, they sold their Gold and bonds, whatever, get that persistent margin clerk from calling them in the middle of the night and threatening to sell all their account to pay for their margin call… It got ugly… And will again, just wait-n-see…

I think I’ve told you longtime readers that I used to be the head of the margin Dept. at a regional brokerage house back in the mid-70’s, and we had some very interesting calls to investors who had their margin fall below the minimum…

A couple of weeks ago, publishing guru, Bill Bonner, wrote in his letter about Stagflation… And that reminded me that I said that was what I saw coming to the U.S. economy, and a lot of readers disagreed with me… But now, Big Al Greenspan is in agreement with me, along with Bill Bonner.

This was from Bill’s letter 11/15/18… “Asked whether the tax cut might ignite enough extra growth to raise federal revenues and reduce deficits, Mr. Greenspan was uncharacteristically direct:
“No… there is no chance,” we heard him say. “You get a little ‘bounce’ at the beginning, but that is just about over. After that, a tax cut makes no sense unless you are willing to ‘fund’ it… that is, to cut spending.”
“You can’t get something for nothing,” he might have said, providing a handy epithet for the whole Fin de Bubble Age.

You’re getting into a system now that has no outcome that’s in equilibrium other than inflation and no productivity growth.” -Alan Greenspan 11/15/18

And what’s the technical definition of Stagflation? Well, here you go… Stagflation :persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.

So we have that going for us… Whoopee! Where do I sign up? Please sir, may I have another? And all those other sayings that go with asking for more! But only I say it facetiously!

Last night, I saw a blurb on my laptop telling me that President Trump has now switched his focus on the spiraling upward debt, and he wants deficit reductions… Ahem… let me clear my voice for this… Hello? Yes, I’m a longtime listener, first time caller, and but I wanted to point out that tax cuts without spending cuts, creates deficits… Thank you, I’ll hang up and listen to your response….

On Thursday this week, The ECB’s Financial Stability Review will make their statement, which I feel will go a long way toward either pushing the ECB to remove stimulus, or keep it in place should the review be negative…

Since 2004 the European Central Bank has published twice a year the Financial Stability Review which provides an overview of the possible sources of risk and vulnerability to financial stability in the Eurozone.
We’ll see some other data prints from countries around the world this week, but the ECB FSR is the most important of the lot… Because… The ECB is associated with the Big Dog, euro… when the euro is allowed to get off the porch and chase the dollar down the street, then the other currencies (little dogs) get to run with the Big Dog…

Well, I received an email blurb yesterday telling me that:
E.U. leaders approve Brexit plan, setting up December vote in British Parliament, where it faces stiff opposition. Hmmm…
The British Parliament is against this plan per the article, so why submit it? You’ve got to wonder, right?

Unfortunately for pound sterling I think it’s going to be caught in the crosshairs of this vote and it won’t be good for the pound… And I think Traders are already trading ahead of the vote, betting on a bad outcome and selling pound sterling… Darn fickle traders! HA!

As I said above, Gold finished the week better than the previous week, and that’s a baby step, folks… This week needs to finish higher than last week, and then we go to the third week, and so on, until we find we’re in the middle of a commodity bull market! Well, at least that’s how I think things will go, but then no body really knows what’s going on and if they say they do, they’re full of baloney… The Shadow knows… but that’s a horse of a different color to discuss and I’m not ready to talk about that…

I said above that we have a lot going on this week, and it starts tomorrow in the U.S. Data Cupboard, where we will see the Sept. S&P Case/ Shiller Home Price index, which for the previous two month, we had seen drops, I suspect that will continue when this data prints tomorrow… And the stupid Consumer Confidence for the first two weeks of this month will also print… With stocks teetering, circling the bowl, I doubt Confidence will be high…

On Wednesday, we’ll see the latest revision of 3rd QTR GDP… And New Home Sales… I’ve begun to really watch these housing data prints, for they are telling us in the tea leaves that trouble is brewing…

Thursday will bring us two of my fave data prints… Personal Spending and Income from Rocktober… Core Inflation will also print, and then finally the Fed’s FOMC Meeting Minutes from their last meeting will print. So, all things that could move the dollar and if I had my educated and knowledgeable guess, I would say the dollar will get moved in a downward direction…

To recap… Last week, while Chuck was gone, the currencies and metals rallied… He’s back, so they get sold overnight… OK, if I received enough checks paying me to stay away permanently, I’ll gladly accept your offer! The economist, etc. are beginning to see things Chuck’s way regarding this economy, and he prints some quotes from well-known economists, proving his point. The ECB will have their Financial Stability Review this week… This is BIG folks… so watch for that!

For What it’s Worth… Well, I’ve been mentioning the leveraged Corporate Debt problem for quite some time, and so it was good to see the folks at Bloomberg, finally realize this is a ticking time bomb… So, that’s what this is all about today, and you can find it here: https://www.bloomberg.com/graphics/2018-almost-junk-credit-ratings/

Or, here’s your snippet: “ They were once models of financial strength—corporate giants like AT&T Inc., Bayer AG and British American Tobacco Plc.

Then came a decade of weak sales growth and rock-bottom interest rates, a dangerous cocktail that left many companies feeling like they had just one easy way to grow: by borrowing heaps of cash to buy competitors. The resulting acquisition binge left an unprecedented number of major corporations just a rung or two from junk credit ratings, bringing them closer to a designation that historically has made it much more expensive to fund daily business and harder to navigate economic downturns.

In fact, a lot of these companies might be rated junk already if not for leniency from credit raters. To avoid tipping over the edge now, they will have to deliver on lofty promises to cut costs and pay down borrowings quickly, before the easy money ends.”

Chuck Again… Well… this should scare your boots off you in a heart beat… Check out this little ditty: BBB segment of the investment grade bond market…about 3 trillion of bonds that are… susceptible to being downgraded to junk. That happens to be the same size as subprime loans at their peak in 2007…

And so, I’ll ask this question that always seems appropriate…. Got Gold?
Currencies today 11/26/2018: American Style: A$.7260, kiwi .6802, C$.7570, euro 1.1365, sterling 1.2850, Swiss $1.0031, European Style: rand 13.8210, krone 8.5568, SEK 9.0567, forint 284.05, zloty 3.7748, koruna 22.7993, RUB 66.20, yen 113.22, sing 1.3728, HKD 7.8239, INR 70.61, China 6.9472, peso 20.43, BRL 3.8198, Dollar Index 96.77, Oil $60.01, 10-year 3.06%, Silver $14.38, Platinum $850.00, Platinum $1,141.00 and Gold… $1,226.00

That’s it for today… I was asked to do another interview for Dennis Miller’s Milleronthemoney newsletter, that will appear the first week of December, so If you don’t want to miss that, sign up early! Simply go to: www.milleronthemoney.com Man, our Blues are in a rut, and don’t seem to be able to skate out of it… UGH! My Mizzou Tigers ended up 8-4, and with a little luck of the Irish, we could have been 10-2… College Basketball, doesn’t hold my attention like it used to. It’ll come back when the tournament begins though… The family got together to get our Christmas trees yesterday… As usual we got a very pretty one… Jack Johnson takes us to the finish line today with his song: Drink The Water… And with that, it’s time to go… I hope you have a Marvelous Monday, and be sure to Be Good To Yourself!

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