Fed Heads No Longer Singing From The Same Song Sheet!

A Pfennig For Your Thoughts

Rockctober 22, 2018

* China is getting back at the U.S….
* Currencies & metals drift lower…

Marvelous Monday to you! The chilly, raw, gray days of last week, turned to sun filled, but still quite chilly days this weekend… I’m a sun worshiper, if you haven’t figured that one out yet, and anytime you have the sun shining it’s a good day… And a Good day was had at Mizzou’s Homecoming on Saturday. It was just last week that I was reminiscing about past glorious Mizzou Tiger Teams, and on Saturday they honored the 1978 team! My Tigers won the game too! We watched the game at a local establishment with friends, Kevin, Lisa, Denny and Nan… A good time was had by all! And I attended another soccer game with grandson Braden, playing this time… I always remember when I coached young boys in soccer… I don’t talk about soccer much, but I sure played it a lot when I was a young man in S. St. Louis, where soccer was king! Stevie Ray Vaughn greets me this morning with this song: Pride and Joy… Now that one will wake up the house!

They say, “Payback is a b&%#”… And that’s what China’s doing to the U.S. for the U.S.’s tariffs on Chinese exports… It was reported last week that China had sold a basketful of Treasuries for only the second time in their history of buying Treasuries. Reuters reported late last week that, “China has sold $3 billion of sovereign dollar bonds. This is only the third such move by Beijing in the last 14 years, and the first involving bonds with a 30-year maturity.

China sold $1.5 billion of five-year bonds at 3.25 percent, $1 billion of 10-year bonds at 3.5 percent, and $500 million of 30-year bonds at four percent.”

Reuters says that this info came courtesy of the Finance Ministry… Well, now this is a horse of a different color is it not? Oh, and that’s not all… China stopped buying U.S. Oil… No wonder, as I reported last Thursday, the U.S. supplies have grown… That was nearly 335,000 barrels per day, but that all stopped in September…

So, as I’ve said over and over again, this dance is gonna be a drag… no wait! I’ve said over and over again that no one wins in these Trade Wars… The U.S. is placing tariffs on everything Chinese, and the Chinese are hitting the U.S. back, and when it comes to Treasuries, and who’s buying them to finance the debt, that’s akin to hitting below the belt… But all’s fair in love and war, right? UGH!

And before we get to the currencies and metals, let me say that China selling Treasuries at this time when the U.S. is issuing more and more of them to finance our exploding debt, is not what the doctor ordered for the economy, folks… And the President sees it… he gave out homework assignments to his Cabinet members late last week, telling them to come back with 5% cuts to their budgets, he did say that the military was not included in this assignment…

Oh, and one more thing to discuss in depth this morning, and that is St. Louis Fed President, James Bullard, and his speech last week… Before we begin, something to remember here is that Bullard isn’t on the Fed’s rate setting committee, but will be come next year.

Remember when I told you that one of the reasons the dollar was still hanging around was that all the Fed members were singing from the same song sheet, and traders love it when there’s harmony at the Fed… Well, that all changed last Friday, when Bullard decided to speak the truth… He said that “unlike other Fed officials, he sees no reason to believe the underlying trend growth has risen beyond the range 1.7% to 2.1% that policymakers estimate as the economy’s current potential. As a result, Bussard said the Fed Fund Rate should stay where it is currently at a range between 2.0% and 2.25%, until something clearly changes for better or worse. Further rate increases would be taking somewhat more recession risk than otherwise, unless the economy continues to outperform.”

His talk didn’t gain much press, folks… Wonder why? Well, I have my thoughts, but I’ll keep them to myself… Bullard has been known to sway Fed members in the past, so when he gets back on the FOMC in January, things may change…

Dollar traders didn’t pay any attention to the Bullard speech, and the dollar continued to hold the hammer. But it was swinging the hammer too much on Friday, more just holding it over the currencies and metals with the threat that it could hammer away at any time. The euro remained just above 1.15, and the Aussie and kiwi dollars were sneaking up the ladder in the darkness… Shhh! Don’t make a scene otherwise their climb will be seen and that will be the end of that!

The overnight markets have ignored the Bullard speech also, and have gone about selling euros and anything that isn’t a green/peachback. The moves are huge or anything, but they are responsible for the euro dropping back below 1.15 this morning.

And after a day or two of profit taking in the Brazilian real, the currency has gotten back to rallying… The Political scene in Brazil continues to excite real traders… I’m just going to say this one more time… betting on politics in currencies can seem like a good way to invest, but I’ve seen that road strewn with land mines along the way too many times… So, be careful here…

Not that I’m patting myself on the back for this call, but my dad did always tell me to toot my own horn, because you can’t depend on someone else tooting it! Remember when the tax reform act went through, and I told you that it wouldn’t be for you and me, but more for Corporations, and In my opinion, it won’t get put to good use, as the Corporations will just use the extra cash to make more stock buybacks… Well, that’s exactly what’s taken place… And this caught one of my fave economists’ eyes…. Danielle Di Martino Booth’s decided that all these stock buybacks should have been used to correct underfunded pensions…She took it further and pointed out 5 BIG Companies that have been doing stock buybacks while their pensions remained underfunded… “Danielle DiMartino Booth of Quill Intelligence who picked out a few of the more standout firms whose “enthusiasm for funding pensions was subpar compared to buyback” include: American Airlines, Boeing, GE, Lockheed Martin, and AT&T…

Way to go guys… leave those pensions underfunded for you’ll be long gone before that comes to a head… I shake my head in disgust…

OK… Gold eked out a $1.20 gain on Friday, but has given that back and a couple of bucks more this morning as the shiny metal is looking at a loss this morning of $3.50, as I write… That’s easily wiped out though, so, come you Gold Traders! Gold finished last week on the positive side of the ledger for the week, and that made two consecutive weeks that Gold has boked weekly gains VS the dollar. I saw some graphs this past weekend that pointed out that the huge day that Gold had 13 days ago, was indeed, what I thought it looked like, a short squeeze…

There are still more shorts in Gold & Silver than you can shake a stick at, and so that leaves us with the potential that we could see more days like that going forward. I’m just saying…

The U.S. Data Cupboard left the country wondering if Housing is about to take a dive here in the U.S. after last week’s housing data proved to be yet another month of weaker data… But that didn’t bother the dollar bugs… And this week, there’s really no real economic data until Thursday, when Durable Goods Orders and Capital Goods orders will print for September… Remember what I’ve always said about this data and have told you for years on years, that Capital expenditures or CAPEX is the most important piece of this data… When an economy is going strong, CAPEX is strong, companies are spending money on their plants, equipment, space, etc. That’s what helps a strong economy along, for it puts so many people to work…

But we wont see that until Thursday, which means the dollar should be subjected to selling, but since that’s not happening already this morning, there’s another sign that fundamentals still don’t amount to a hill of beans when valuing a currency… Wait! What am I saying here? The U.S. economy is strong and robust and will continue to be that way for the time being… Isn’t that what the Fed Heads keep telling us? The markets get their clues about the future from the Fed… Which brings me back to the Bullard speech last Friday, I still can’t figure out why the speech got no media coverage, and traders ignored it… Hmm…

To recap… Friday was a day for drifting in the currencies and metals, but the overnight markets last night has seen the dollar swinging the hammer once again. China is beginning to do things to offset the tariffs, as the Trade War escalates! Fed St. Louis, President, James Bullard, spoke on Friday, and basically said he didn’t think the Fed should hike rates any more. But the markets ignored it…

For What It’s Worth… I’ve long been telling you about how Russia was building an alternative to SWIFT, which is the international money delivery system… Well, it’s finished now, and Russian companies are using it, and soon it will open up to International clients… This was sent to me from longtime reader Bob, and he found it on zerohedge.com and can be found here: https://www.zerohedge.com/news/2018-10-19/foreign-banks-are-embracing-russias-alternative-swift-moscow-says

Or, here’s your snippet: “On Friday, one day after Russia and China pledged to reduce their reliance on the dollar by increasing the amount of bilateral trade conducted in rubles and yuan (a goal toward which much progress has already been made over the past three years), Russia’s Central Bank provided the latest update on Moscow’s alternative to US-dominated international payments network SWIFT.

Moscow started working on the project back in 2014, when international sanctions over Russia’s annexation of Crimea inspired fears that the country’s largest banks would soon be cut off from SWIFT which, though it’s based in Belgium and claims to be politically neutral, is effectively controlled by the US Treasury.

Today, the Russian alternative, known as the System for Transfer of Financial Messages, has attracted a modest amount of support within the Russian business community, with 416 Russian companies having joined as of September, including the Russian Federal Treasury and large state corporations like Gazprom Neft and Rosneft.

And now, eight months after a senior Russian official advised that “our banks are ready to turn off SWIFT,” it appears the system has reached another milestone in its development: It’s ready to take on international partners in the quest to de-dollarize and end the US’s leverage over the international financial system. A Russian official advised that non-residents will begin joining the system “this year,” according to RT.

“Non-residents will start connecting to us this year. People are already turning to us,” said First Deputy Governor of the Central Bank of Russia Olga Skorobogatova. Earlier, the official said that by using the alternative payment system foreign firms would be able to do business with sanctioned Russian companies.”

Chuck Again… I know this snippet was long, but I think it’s THAT important for you to know that the dollar’s days of being the reserve currency of the world is nearing an end… And don’t think for one minute that I want to see this happen… I’m just one of the few people in the world that will tell you that it’s happening…

Currencies today 10/22/18… American Style: A$ .7101, kiwi .6577, C$ .7680, euro 1.1488, sterling 1.2996, Swiss $1.0030, European Style: rand 14.3186, krone 8.2340, SEK 8.9840, forint 280.87, zloty 3.7297, koruna 22.3765, RUB 65.48, yen 112.82, sing 1.3791, HKD 7.8392, INR 73.42, China 6.9287, peso 19.31, BRL 3.7095, Dollar Index 95.79, Oil $69.22, 10-year 3.19%, Silver $14.62, Platinum $833.83, Palladium $1,090.89, and Gold… $1,223.01

That’s it for today… A long one today, but I had lots to say, so you got your money’s worth today. HA! And tomorrow’s will be shorter, as I have a doctor’s appt. early in the day that I’ll have to get to… Last week, heart doctor, this week oncologist… But the oncologist appt. should be a good one, given my scans results last week… The TV Execs. got their wish, and the World Series will be the Red Sox and Dodgers, and I doubt I’ll pay much attention to the games, because I can’t bring myself to root for either team! They are “coast teams”… And my dad taught me that coast teams have an advantage, so to never root for them… I taught the same thing to my sons! Depeche Mode takes us to the finish line today with their song: Policy of Truth… I hope you have a Marvelous Monday, and remember to Be Good To Yourself!

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