ECB’s Draghi Shines A Light On Next Summer

A Pfennig For Your Thoughts

September 17, 2018

* Currencies trade sideways…
* Who’s buying all those Treasuries being issued?

Good Day… And a Marvelous Monday to you! Well, I had a nasty fall on Saturday night, in a restaurant, I took out a couple’s table, and ended up beaten and battered on the floor! It was not a pretty sight, and certainly not full of grace! It’s no fun being partially handicapped, and there are times I forget that I am, and when I do… Well, I end up on the floor! OUCH! That’s going to leave a mark! What in the world happened to my beloved Cardinals this past weekend? 10 days ago they went to LA and swept the Dodgers, then the Dodgers came to St. Louis, and nearly returned the favor! UGH! But my Missouri Tigers won on the road at Purdue, so that was fun to watch Saturday night, as I tended to my wounds… Steely Dan greets me this morning with their song: Peg…

For those of you who follow me on Twitter (I have to say that I don’t tweet very much) read on Thursday afternoon, well, shoot, why don’t I just copy and paste what I said? Here you go! ECB’s Draghi says that current negative deposit rates will remain until at least next summer… The markets didn’t punish the euro though, as at least there’s something to look forward to now…

And so it was for the currencies on Friday too… The euro traded in the same clothes as Thursday, and nobody seemed to want to deal with the rot on the vine that was exposed when the U.S. Data Cupboard took front and center.

I’ve told you over and over again that this dance is gonna be a drag, no wait! What I’ve told you is that the 3rd QTR data just keeps printing weaker and showing cracks in the economy’s foundation… On Friday, it was Retail Sales, for August, and they were supposed to have gained 0.3% but only mustered a 0.1% gain… So much for that blowout 0.7% gain in July, right? I told you it was goosed up by back to school spending…

We also saw Industrial Production was bang on expectations of 0.4% growth, and Capacity Utilization didn’t meet expectations of 78.2%… But… But… But… Consumer Sentiment increased to 100.2 from 96.8 in July.. WOW! The Sheeple are gathering steam… They’re all following the leader to their demise… I’m just saying…

Gold on the other hand did not have a “do nothing” Friday, as it was sold to the tune of $7.80, to close, once again, back below $1,200, at $1,193. The shiny metal is up $2.50 in the early morning trade today though, as once again the Gold Bugs attempt to pull Gold off the canvas and back into its corner to get revived.

In reviewing what I was reading this past weekend, I noticed a theme… More and more economists, and observers are getting scared about what’s going on here, and abroad. The usual suspects that call for this stuff, like Peter Schiff, and James Rickards, were front and center, and then there were the others with their thoughts on how this is going to get really ugly, folks… 2008 on steroids, like scenarios… That’s scary stuff… I have a sample of this stuff in the FWIW section today… And in my latest Dow Theory letters piece, I dive into all the derivatives.. Talk about some scary!

Among the best articles I read this past weekend was something that Ed Steer printed, that was a reprint of the great James Grant article… We’re not privy to a lot of what James Grant says, because, well, his letter is a “paid subscriber letter”… So, when stuff is out there for free, I take advantage of it… And in this quote, James Grant is talking about how the Treasury is going to have to issue tons of Treasuries this year… let’s listen in now on something I pulled from: www.edsteergoldandsilver.com

“This year… the government will issue… the most government securities as a percentage of GDP since the end of World War II. So the supply of government securities in relation to national production is the highest since the mid 1940s. Although this country is under arms in some degree, but it’s not waging a world war, so this is a very different fiscal picture than what we have been used to.”

Chuck again… yes, I’ve been talking about this for months now… The debt is exploding above $1 Trillion per year again, which means more and more Treasuries need to be sold to finance the debt, but… the major players, like China, Japan, Russia and others have been backing away from the Treasury auction window… So, that leaves us with the question… All this issuance, but who’s doing the buying of these Treasuries?…

When a country has a problem with financing its debt, it has a couple of choices… It can allow a general depreciation of its currency to allow the bonds to become cheaper to buy… Or, it can aggressively raise rates, and get the bond boys to go along, to make the bonds more attractive… Or, heaven forbid, the country implements an austerity plan to reduce debt, and debt issuance… yeah, pigs will fly before that happens here in this country folks… I know, I’ve gone through these options several times through the years, but it’s always good, especially right now, with the U.S. debt exploding higher, to remind everyone the problems that go along with attempting to figure out how to repay the debt…

So… getting back to the ECB and Eurozone, and Mario Draghi for a moment before we head to the Big Finish… I’m not sure what to make of his speech last week… While he sounded a bit hawkish, his comments were laced with dovish remarks, and traders got what they wanted, in a sense, that is, as Draghi, told them that rates wouldn’t be hiked until next summer… Traders have a definitive time period in their collective minds now, and that’s usually a good thing…

But the thing that I’ve found through the years, and brother have I been doing this for very long time, is that traders grow tired of waiting for a move, and then all the good that was gathered up is thrown to the curb, and things get messy again… So, it will be up to Draghi, to remind the markets over and over again that there is a rate hike coming… And then do NOT pull a Mark Carney, and disappoint next summer!

So, we could very well see the euro bump along a bit higher in the near term, and then depending on what’s being said and done at the ECB, the euro will either make a strong move higher, or get sold…

Of course, I’m just talking about “euro ” moves… If the dollar bugs decide to look around at what’s going on in this country instead of being myopic with their view of interest rates, and the dollar begins to move downward, the offset currency to the dollar’s downward move would be the euro… And the euro could rise on that merit, and not a “euro” merit… I’m just saying…

The U.S. Data Cupboard has a week to take a breather, with only some regional manufacturing indexes, like today’s Empire (NY region) print, and some housing data as we go through the week… So, as I look at it, it sure looks like a good week for me to take a mini-vacation…

To recap… The ECB meeting last Thursday brought about a time-line that traders can put their arms around, and decided not to punish the euro for the ECB’s call that rates won’t be raised until next summer… Debt is exploding higher here in the U.S. and James Grant chimes in with a comment about Treasury Issuance… And then Chuck goes all in on the euro’s prospects…

For What It’s Worth… Well, I pre-billed this is a an article about how the next problem for the U.S. will be worse than 2008… So, if you promise to put the sharp objects away first, you can find it here: https://news.sky.com/story/next-financial-crisis-has-begun-and-will-be-worse-than-2008-crash-economists-warn-11497433

Or, here’s your snippet: “The beginnings of another financial crisis are already in motion – and it will be worse than the global meltdown of 2008.
That’s the opinion of one of the select band of economists who predicted the 2008 economic collapse, which started with the bankruptcy of Lehman Brothers bank a decade ago and ended up affecting every country in the world.

Ann Pettifor predicted that crisis in 2006, more than two years before it actually struck.

Now she thinks the global economy is in danger once more thanks to huge corporate debt, and the prospect of rising interest rates in the United States.”

Chuck Again… And all those derivatives… I know they are an unknown as far as the normal investor is concerned, but they were not the cause of the 2008 meltdown, but they were in the vicinity folks.. just be aware of that…

Currencies today 9/17/18… American Style: A$ .7177, kiwi .6570, C$.7680, euro 1.1660, sterling 1.3098, Swiss $1.0364, European Style: rand 14.9887, krone 8.2126, SEK 8.9784, forint 278.58, zloty 3.6890, koruna 21.8467, RUB 68.07, yen 111.98, sing 1.3736, HKD 7.8475, INR 72.40, China 6.8675, peso 18.86, BRL 4.1704, Dollar Index 94.77, Oil $69.55, 10-year 3.00%, Silver $14.20, Platinum $789.21, Palladium $981.72, and Gold… $1,197.28

That’s it for today… Yeah, it was a nasty fall… I think I had a bit of a concussion, and a bad cut on my arm… My head and shoulder hit the table next to me and the couple sitting there had their drinks and stuff flying it was a mess! Now, when I go to the doc next week, and they ask me if I’ve fallen, I’ll have to tell them yes… The fall reminded me of when I took out the first row of pews at a church when little Everett was baptized! Good thing I have all this padding on me! HA! Ok… I’m heading up east for a few days, and then finally back home… The band Yes, takes us to the finish line today with their classic rock song: Roundabout… I hope you have a Marvelous Monday and a Wonderful Week… Be Good To Yourself!

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