Daily Pfennig: He’s Baaaccckkk!

A Pfennig For Your Thoughts
 
August 1, 2022
 
* the dollar turns around… 
* Recession or Depression? 
 
Good Day… A Marvelous Monday to you! And welcome to August! The dog days of summer are upon us now… I can say that I had a totally enjoyable summer vacation, where our weather was ideal and better than it was back home! That rarely happens this time of year, but it did this year! Baseball’s trade deadline is also upon us, and it will be interesting to see what teams are brave enough to better their teams now using prospects. My beloved Cardinals are usually not in that mix of teams, but there’s always a first time, eh? I saw the currencies and metals rally while I was gone, also as usual… I’ll remind everyone again that if you all want to take up a donation for me to go away forever, I will be glad to do that! HA! The Climax Blues Band greets me this morning with their song: Couldn’t Get It Right
 
Where to start? For there’s been a ton of stuff that I would have liked to have commented on in the last two weeks, but most of that is just old news now, and it’s time to move forward…  
 
On Friday, last week, the dollar continued to weaken from its high in mid-July. And Gold gained $9.70 and ended the week on an up note at $1,767.50. Silver also gained on Friday, with a 33% gain on the day that equaled 33-cents! Silver closed the week, back above 20-cents, at 20.45-cents… 
 
The price of Oil bumped back above $100 briefly on Friday, but ended the week trading with a $98 handle. Bonds are back on the rally tracks and defeating the bond bear market that had developed earlier this year. The 10-year trades with a 2.66% yield! Somethings awry here, folks, and this is going to end up in tears… That’s my story and I’m sticking to it! 
 
In the overnight markets last night, the dollar got sold again, and lost 5 index points, leaving the BBDXY trading at 1,262 this morning… The fact that the U.S. is in a recession, even though our leaders say “no it isn’t!”, and the rotten data, including rising inflation, have got the dollar bulls on the run, folks… Now we have to wait-n-see if the PPT (plunge protection team) is going to spend some of those Exchange Stabilization Funds, that they have stockpiled, or will they let this play out?  
 
I for the life of me, can’t imagine a world where there is not dollar manipulation, and an effort to prop it up… So there’s that… but for now the dollar is weaker and getting weaker by the day. 
 
The price of Oil has lost another $2 in overnight trading and trades this morning with a $96 handle… 
 
The one thing that I heard while on vacation, was that the POTUS and other leaders deny that the U.S. in in a recession… But here is the fact: The U.S. economy shrank for a second quarter in a row—a common definition of recession—as businesses trimmed their inventories, the housing market buckled under rising interest rates, and high inflation took steam out of consumer spending. 
 
The leaders of this country want you to play stupid, and believe them when they say, “This time it’s different”… Well, I’ve never liked that phrase, and still don’t… Yeah, it’s different in the fact that a usual recession touts a large unemployment number, and this time we have a large open jobs number… That’s the only difference, I see… 
 
Longtime readers may recall me talking about how the U.S. economy was really in depression, and has been since the mortage meltdown… I know, those pictures of the last depression in the U.S. of soup lines and downtrodden people are your picture of a depression… Well, I explained this years ago and will do so again now… There are no soup lines because these people get their money each month in a debit card from the U.S. Gov’t, and then they can buy a new cell phone, and whatever else they need to get by… 
 
But let me ask you this, if the U.S. was in such great shape, why then did the Fed need to continue with zero interest rates, and currency printing, and stimy checks from the Gov’t? Hey! maybe the leaders of this country are technically correct that it isn’t a recession, because it’s really a depression? HA! As if they had arranged the box of rocks that is their brain to organize a thought like that! 
 
Well, either way, it’s not a good thing for the dollar, the economy, your investment portfolio, etc.  
 
And there was the Weekly Initial Jobless Claims last week throwing cold water on the leaders claim that “it’s not a recession because job growth is strong” claim… Initial Claims rose to 256,000 last week, and the 4-week average of initial claims is now at its worst level since November 2021. I would think that this number would continue to get bad… And when that gets so bad, the Fed will pivot and stop hiking rates… 
 
James Rickards called for another stock collapse last week, calling it the 4th Horseman… I really thought that maybe he was onto something but it all turned out to be nothing… Again pointing out that saying the stock market will collapse on “x” day, at “x” time, is very risky, and crazy if you ask me… I do believe that this move in stocks is simply what they call “a bear market rally”… And that usually leads to what they call a “Bear Trap”, so be extra careful out there folks, update your stop losses, and stay ahead of the markets… 
 
As I always tell you, I’m not a stock jockey, and don’t play one on TV or stay at a Holiday Inn Express… But I did sink my teeth into the stock business when I started this long journey through markets back in 1973, so I do have some knowledge of its inner workings… 
 
I mentioned above that the U.S. Data recently had been awful… So, I guess I need to prove that statement: Well, let’s see here… How about Home prices dropping? Or the number of continuing claims of unemployment remaining high, or the PCE rising to 4.8% (the Fed’s preferred inflation data) , or Disposable consumer income going negative?  And one of the bright spots had some rot on the vine exposed, when Personal Spending came in at 1.1%, but when you look close you see that most of that spending gain was because of the higher prices that are being paid for everything! And we can’t forget that last week the 2nd QTR GDP report said that we had two quarters of negative growth…  
 
This week’s U.S. Data Cupboard doesn’t have much in the way of real economic data for us to see… There will be one or two real economic data prints this week, but that’s it!  So, the dollar has nothing to prop it up this week, I’m just saying… 
 
To recap… the dollar weakened while Chuck was gone, and once again, he’s offered to go on permanent vacation, for the right price! HA! The U.S. is in a recession, don’t believe what you hear on TV from the POTUS or any other leader! Stocks are in a bear market rally… The price of Oil bumped higher last week but has since given up about $4… And weak data is fueling the dollar’s weakness… 
 
Before I head to the Big Finish today, I wanted to note the passing of the great Bill Russell this past week… After the Hawks left St. Louis for Atlanta, back in the day, I turned my sights to the Boston Celtics as my new fave team, and the leader of that team was Bill Russell… We also lost Tony Dow, last week, Wally on Leave It To Beaver… RIP Bill, and Tony… 
 
For What It’s Worth….  So, what’s causing the dollar to rally and then turn around and get sold? Maybe this article from the FT will straighten things out for you… The article can be found here: Is the dollar about to take a turn? | Financial Times (ft.com)
 
Or, here’s your snippet: “The U.S. dollar has had a spectacular run, having risen more than 10 per cent against other major currencies since the start of the year.
 
Actually, not a few governments and central banks would prefer the adjective “disastrous” to “spectacular”. For developing countries, from Sri Lanka to Argentina, the greenback’s rise has made servicing dollar-denominated debts, already a difficult task, essentially impossible.
 
For emerging markets such as Chile that are not heavily saddled with debts, it has raised inflation by increasing the local-currency equivalent of dollar-denominated food and energy prices. Inflation and the fall in its currency have forced the Bank of Chile to raise its policy interest rate an extraordinary nine times in the past year and now to deploy its reserves in support of the peso exchange rate.
 
For the European Central Bank, there has been the embarrassment of seeing the euro fall to parity against the dollar. For the Bank of Japan, there is the fact that the yen has been the worst-performing advanced-country currency on the planet this year.
 
Why the dollar has strengthened is no mystery. Seeing both high inflation and strong growth, the Federal Reserve has been raising interest rates faster than other big central banks, drawing capital flows toward the U.S.
 
The ECB, despite having cautiously kicked off its tightening cycle last week, is moving noticeably more slowly. The curtailment of Russian energy supplies is already weighing on European growth, and higher interest rates would send a fragile Italian debt market reeling, given the ill-timed rise in political uncertainty in that country.
 
The Bank of Japan, meanwhile, has no immediate reason for thinking that the country’s “lowflation” problem has been solved, and is not inclined to abandon its “yield-control” policy to keep interest rates down. Neither the BoJ nor the ECB will be matching the Fed by raising policy rates in 75 or 100 basis-point increments.
 
The idea that, in these recessionary circumstances, inflation will remain in the high single digits and the Fed will therefore be forced to continue its tightening cycle, is quite daft.
 
As Fed chair, Paul Volcker kept raising rates in the face of a recession — and the dollar kept soaring — because inflation remained stubbornly high for several years. There is little sign of similar inflation inertia today.
 
So if the economy and inflation weaken, the Fed will pause, and the dollar will reverse direction. This is no longer a risk that can be dismissed.”
 
Chuck Again… Didn’t I continue to say over and over again during the Dolar’s rise that it reminded me of a star? A star burns the brightest right before it burns out? I think the FT was too soft with its final comment, here… I’m just saying… 
 
Market Prices 8/1/2022: American Style: A$ .7042, kiwi .6332, C$ .7830, euro 1.0251, sterling 1.2244, Swiss $1.0532, European Style: rand 16.4711, krone 9.6394, SEK 10.1356, forint 390.34, zloty 4.6243, koruna 24.0207, RUB 62.45, yen 132.17, sing 1.3759, HKD 7.8499, INR 79.02, China 6.7526, peso 20.29, BRL 5.1729, BBDXY 1,262.06, Dollar Index 105.90, Oil $96.94, 10-year 2.66%, Silver $ 20.45, Platinum $910.00, Palladium $2,272.00, Copper $3.53, and Gold… $1,772.12
 
That’s it for today… It’s good to be back in the saddle again… I told good friend, Dennis Miller, last week, while on vacation, that, “I like waking up when normal people wake up, and I could get used to this!” Baseball nuts like me will be glued to the MLB station, waiting on Trade news today and tomorrow… For once in a Blue Moon, I don’t have to skip a day of writing for a doctor’s appt, and it will be on Friday this week! I hear you saying, Why don’t you just always get them on a Friday? Ahh, grasshopper, you take what you get when it comes to these oncologists! Ok, the trio of songs that take us to the finish line today comes from Robert Palmer, and the three songs are: Put On Your Sailing Shoes, Hey Julia, and Sneaking Sally Though the Alley…  You’ve got to play them in that order! I hope you have a Marvelous Monday today, and please Be Good To Yourself! 
 
Chuck Butler
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A Pfennig For Your Thoughts