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A Pfennig For Your Thoughts

June 20, 2019

* Fed signals a rate cut is coming…
* Currencies & metals soar on the Fed announcement…

Good Day… And a Tub Thumpin’ Thursday to you! As Gomer Pyle would say…. Surprise, Surprise, Surprise! Yes, I told you I had something to do this morning, but… I got my signals crossed and it’s next Thursday that I’ll not be writing… So, here I am… Surprise, Surprise, Surprise… (in my best Gomer voice!) I watched our young pitcher, Daniel Ponce de Leon pitch his arm off last night, only to have the bullpen blow the lead… UGH Still no hitting for my beloved Cardinals though… UGH! Chicago greets me this morning with their song: Make Me Smile… I can tell you this, back in 1972, I sat there totally awestruck by the wall of sound coming from my record player, as I played the Chicago album that this song was from… I still get goosebumps when I hear something from that album…

The currencies continued to fight back yesterday, with the euro leading the way. The single unit moved steadily upward through the 1.12 handle yesterday, and guess what it was that had the dollar bulls running for the cover of the wallboards? The Fed’s FOMC Meeting came to an end, and Fed Chairman Powell spoke… And he gave the markets what they wanted to hear… That the Fed was basically greasing the tracks for a rate cut soon… Remember, I went out on a big fat limb, earlier this week and said the first rate cut will come in the July meeting… I sure hope I’m not proved wrong/ early… But if I am, it only feeds the other thing I’ve said about the Fed for years now, and that is they are always behind the curve…

And don’t look now, but the 10-year Treasury’s yield has fallen below 2%! The yield has recovered a bit and it sits at 2.01%, but for most of yesterday it was 1.98%…. Remember when the world was still wondering if Quantitative Easing (QE) was going to help the economy after the Financial Meltdown, and the 10-year’s yield fell to 1.38%? Well, if you ask me, I would think the 10-year will revisit that low in yield within the next year… I’m just saying…

I guess at this point, because of the quick reversal of the Fed, (It wasn’t that long ago, that they were telling us the U.S. economy was strong and robust) , the question now, and until the next FOMC Meeting in July, is… Will the first rate cut be 25 or 50 Basis Points? Well, since I’ve already gone on record as saying that I think there will be 2 more rate cuts after the July cut, before year-end, that I’ll have to stick with 25 Basis Points (1/4%)… Otherwise, the other 2 rate cuts that I’ve called for wouldn’t be necessary by year end…

The Big Celebration though, and I’ve been holding back on this, as I didn’t want to spend all my wad early… For there would be nothing else to need to read about! HAHAHHA! But the Big Celebration should be for Gold, which soared through the Maginot Line of $1,350 yesterday as it closed up nearly $20 on the day! When I looked at Gold last night to get a feel for how much of a strong move it had made during the day, given the Fed’s announcement, and it was up to $1,379.00 at 10pm last night, and it brought a smile to my face… For it was me who said yesterday, that I thought that Gold would find its way through the Maginot Line soon… And did so because I knew in my heart of hearts that the Fed was going to do a reversal on us yesterday…

And Silver traded above $15 for the first time in a month of Sundays! Silver, because of all the short positions that are on record (it would take 185 days of Silver production to match the ounces that are sold short right now) lags the types of moves that Gold can put on display… But I’m a big fan of Silver… So, to see it move above $15 also made me smile… I was smiling like the Cheshire Cat for sure! And my recent poetic waxing about Silver sure seems to be bang on now, eh?

OK… now I’m going to calm down a bit, and come back to talking about things that are bothering me… Remember earlier this week when I talked about how President Trump was upset with European Central Bank President, Mario Draghi, because Trump felt that the ECB was keeping the euro undervalued to help them with exports? And then we did the whole two-step with Purchasing Power Parity? Ok… here’s my problem… Recently, the President chided Fed Chairman Powell about the dollar being so strong, and that it was hurting exports… Wait! What? Didn’t he just bang on Draghi for his weak euro, and wanted the euro to be stronger, and in the same breath (not really, but for my freedom of expression), he banged on Powell for keeping the dollar stronger?

Do you see the problem with this folks? As opposed to what Bob Dylan sang in his song: Lay Lady Lay, you CANT have your cake and eat it too!

OK… The currency that I’ve been highlighting for months now, the Russian Ruble, has moved stealth-like to stronger levels lately, and the upward move isn’t tied to the price of Oil, which was talked about the last time I highlighted the ruble… But think about this for a minute folks… The ruble has been steady Eddie with some upward moves, and it has the highest deposit rate among established countries… Now, you’re never going to hear me say that the ruble can’t weaken… Sure it could… But as long as there are more and more people move their funds in to rubles to pick up yield, it’s not going to weaken… So, for now, the ruble seems to be the currency that depositors around the world are looking to… But keep it liquid folks… For we never know when the Russians might invade another country, now do we?

It certainly doesn’t hurt the ruble or any of the other Petrol Currencies that the price of Oil has rebounded to $55…

I just thought of something that I used to bang on the Fed about… Remember when the Fed began their rate hike cycle over 3 years ago, and the Fed Heads talked about wanting to get inflation to rise to 2%? I would so eloquently explain how that’s not how you invite inflation to rise… You cut rates to accomplish that feat. So the Fed was fighting themselves with regards to getting inflation to rise as long as they were hiking rates… Now, the Fed says, “inflation is under control” so we’re going to cut rates… Well, it won’t be under control too much longer!

Well, as I look across the desk at the currencies this morning, I see that nearly every one of them is on the rally tracks VS the dollar… the one that sticks out like a sore thumb, and isn’t on the rally tracks is the Swiss franc… A couple of days ago, the franc was touching parity with the dollar, and fast forward to today, and the franc has slide to .9860… I bet you’re wondering why? Well, I could say that the need for safe haven currencies has dissipated… but that wouldn’t explain why the Japanese yen is still strong… So, it has to be something else, and I’m sure it has something to do with the Swiss National Bank (SNB)… Those guys, led by Gov. Jordan, are a suspicious bunch for sure… I’m just saying…

The U.S. Data cupboard has some 2nd and 3rd Tier data reports today… The Weekly Jobless Numbers have been moved to the 2nd team, and rarely gets a chance to play… But there’s one piece of data today that’s forward looking, and it’s Leading Indicators, and we’ll see the color of that data for May this morning… Leading Indicators aren’t market moving, but they can make for some interesting headlines…

And one more thing before we head to the Big Finish today… I was going to write about this yesterday, and forgot… But not today… Gold, which for trading purposes is priced in dollars (except on the Chinese Shanghai Gold platform) But when you look at Gold in other currencies… It was really shining… It recently hit an all-time high VS the Aussie dollar (A$), and kiwi… And that was one of the reasons I kept thinking that Gold was going to take off VS the dollar soon…

To recap… The Fed’s FOMC Meeting ended with no rate move, but… Shoot Rudy, let’s make that a BIG BUT… Fed Chairman Powell, gave the wink and nod to the markets that a rate cut is coming, and all hell broke loose in the currencies and metals… The euro shot through the 1.12 handle on its way higher, and Gold soared through the Maginot Line! Nearly all the currencies are on the rally tracks today VS the dollar, and Gold continues to march higher in the early trading…

For What It’s Worth… OK… Debt here in the U.S. continues to pile up, thus necessitating the need for more Treasuries to be issued to finance the debt, and I’ve been telling you that countries like Russia and China are dumping Treasuries… This article talks about Russia’s latest dump of Treasuries and can be found here: https://sputniknews.com/business/201906181075934481-russia-chips-away-at-us-debt-holdings-dumping-another-16-bln-in-treasuries/

Or, here’s your snippet: “The targeted selloff brings Russian holdings of U.S. Treasuries to a 12-year-low; total holdings have fallen by over $150 billion over the last decade.

The Russian Central Bank dumped $1.58 billion in U.S. Treasuries in April, freshly released data from the US Treasury indicate.

According to the figures, Russia’s Treasury holdings dropped from $13.716 billion in March to $12.136 billion in April. The sell-off brought Russia’s US debt holdings to their lowest level since mid-2007.

Russia, once one of the most dependable investors in T-bills, has gradually shaved its holdings amid a worsening in relations with the U.S., dropping out of the top 33 holders last year in a sell-off worth tens of billions of dollars. Less than two years ago, in late 2017, Russian Treasuries holdings stood at over $92 billion. In 2010, when bilateral relations were better, Russia owned over $170 billion in U.S. Treasuries.
The April data also showed that China and Japan dropped some of their (much more sizable) Treasury holdings. China dropped its investment by some $8 billion, from$1.121 trillion in March to $1.113 trillion in April, with the figure Beijing’s lowest in nearly two years.

Japan, the second-largest holder of U.S. debt after China, similarly reduced its T-bill holdings, from $1.078 trillion in February to $1.064 in April, indicating a drop of $13 billion.”

Chuck Again… this is not going to be a pretty picture to look at as we go forward folks… I’m just saying…

Currencies today 6/20/19 American Style: A$.6925, kiwi .6589, C$ .7583, euro 1.1306, sterling 1.2700, Swiss $.9860, European Style: rand 14.2374, krone 8.5577, SEK 9.4123, forint 286.55, zloty 3.7628, koruna 22.6643, RUB 63.90, yen 107.77, sing 1.3563, HKD 7.8163, INR 69.45, China 6.9026, peso 18.91, BRL 3.8581, Dollar Index 96.65, Oil $55.54, 10-year 2.01%, Silver $15.35, Platinum $817.74, Palladium $1,518.77, and Gold… $1,380.91

That’s it for today… Well it took 11 innings but my beloved Cardinals finally pulled out a winner, but only had 6 hits in the game… It’s a reoccurring problem for them… Well, my oncologist asked me yesterday if I had watched the Blues last week… And I had the same reaction I had last week, when they won the Stanley Cup, I teared up and chills went down my spine… Day 2, alone was fine once again… I was upset a bit at the doctor’s office yesterday, because I had gained back a lot of the weight I had recently lost… UGH! A vicious cycle with me, for sure! The Moody Blues take us to the finish line today and this week, with their song from the Seventh Sojourn album (one of my faves!): Isn’t Life Strange? I hope you have a Tub Thumpin’ Thursday, and Fantastico Friday tomorrow, and will Be Good To Yourself!

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