Have You Ever Heard Of A Debt Bomb?

A Pfennig For Your Thoughts

December 4, 2019

* Currencies drift with no data on Tuesday…
* Talking with Elvira, makes Chuck smile…

Good day… And a Wonderful Wednesday to you! I was reminded yesterday by our local newspaper that it was the day to look back to December 3, 1990, when a man named Iben Browning predicted that we would experience an earthquake that would devastate the St. Louis region, with seismic shifts that would equal 1811-12… We were prepared, with lots of canned goods, bottles of water, large bottles not the kind they sell today for $4 a piece! We had backup plans and the whole shootin’ match, and the earthquake never came… I don’t believe anyone has heard from Iben Browning since… but it was a good thing, in reality, for companies and individuals all had to come up with backup plans… Disaster Recover Plans… I was responsible for coming up with the one we would use at our location… An interesting time no less, for sure! Chicago greets me this morning with their song: In The Country… the 4th song on the 1st side of the Chicago ii double album, which featured the Ballad for a girl in Buchannon… I still recall the day I first put this album on my old record player, and music, and sound coming from it blew me away! That was 1972… the album cost me around $12… Today, if you wanted to buy it you would fork out more than $44 for it!

OK… A long intro with little news in it… but I always have a story to tell about something, and once it gets in my head, it filters down to my fat fingers, and voila! Here we are!

The currencies didn’t give back their Monday gains on Tuesday, as there was little disappointing data in the U.S. to print… Vehicle Sales were supposed to print, but I never saw them! With nothing to move traders to sell more dollars, the currencies drifted, higher albeit, on the day… Gold, got a real nice booster shot in the arm and rallied as much as $17 on the day, but settled in for a $15 gain and close at $1,477 on the day… No need for safe havens, behind the refrigerator was a piece of glass, I sat upon and broke my little, ask me no more questions, I’ll tell you no lies…. HA!

Neener, neener, neener… I told you traders that you would rue the day that you sold your safe havens! Shoot Rudy, even the one safe haven that I don’t believe should be called on, Japanese yen, has recovered its losses it took when traders thought safe havens weren’t needed!

OK, along with all the disappointing data prints we’ve seen the last couple of months, now comes word that the potato crop was really bad this year, due to cold, wet weather all spring and summer… That means we’re going to experience a French fry shortage… And you will recall what I’ve told you for years that my dad taught me… There’s no such thing as a shortage, only something that’s in need of a price adjustment… So, with that in mind, what we’ll experience is more expensive French fries! Oh, the Humanity!

I read a report yesterday in the Russian Times (RT.com) that talked about how the cold war between Russia and Europe was ending, with Europe being quite impressed with the way Russia handled the economic sanctions that both the U.S. and Europe had place on Russia. And while the economy is still not up to snuff in Russia, it is positive, inflation is down, and they keep accumulating physical Gold… Imagine there’s no country… It isn’t hard to do… and so on… If the article is on to something it could mean the end of the European sanctions for Russia…

Now…. If only that pesky price of Oil would move higher, so that the Russian ruble can spread its wings…

We’re getting back to the price level in Oil that pushes all the Shale producers out of the drilling market for awhile… We’ve seen this game with the price of Oil going on for years now… the price rises, the Shale producers hit it hot and heavy, flood the market with supplies, and that causes the price to fall, and the Shale producers get back out… What goes up, must come down… Spinning Wheel, to go around… Ahhh, a little BS&T for me this morning

Speaking of going up but not coming down… The stock jockeys must be dancing in the street, these days, every day is a new record high…. I don’t know, maybe it’s just me, but does this scenario remind you of another period of time when stocks didn’t seem like they would ever lose again? We had just turned over to a new century… hint, hint… The dot.com collapse, which made sense because the majority of those dot.com companies had never earned a dime during their existence, but had unbelievable prices attached to them… Well, at least for a short-while they did… And then one day they didn’t, and they didn’t, and they didn’t, until very few of them were left standing…

The companies today at least have some earnings… But their price to earnings ratios are very skewered and out of control, so while it’s not really “the same scenario”, the current one in in the ballpark of the dot.com rise to fame and then the fall… I’m just saying…

OK… many of you have commented to me in the past about my insistence on talking about Russia and the ruble… And yesterday, I had the pleasure of reading a short interview with the Central Bank of Russia (CBR) Gov. Elvira Nabiullina… I’ve long said that she was a Central Banker that did what Central Bankers used to do… Be prudent, control inflation, and promote economic growth, but knowing all too well that their policies don’t guarantee economic growth… I liked the article so much that I have it featured in the For What It’s Section today… But there was one comment in the article that she (Nabiullina) was quoted saying that sounded like it came out of my mouth! Check this out and tell me if you haven’t heard me explain inflation like this many times in the past… Here’s the CBR Gov. Elvira Nabiullina:

When asked about inflation, she replied, “ Indeed, everyone has their own kind of inflation. Different families consume different sets of products. There are the kinds of products and services by which people primarily judge the increase in prices in stores. We pay special attention to such kinds of products and goods: gasoline, housing and public utility services, foodstuff, and everyday products. People react very quickly to these products.”

And people wonder why I call her the best Central Bank Gov. around….

I know I’m getting quite wordy these days… I’m using up all my thoughts and research now, since my annual winter vacation is just around the corner! So, with that in mind, here’s another scary thing that’s going on here in the U.S. Everyone knows that the low interest rate environment has brought on Borrowing from individuals, to Corporations, to Gov’ts… Well, the Corporations have gone quite overboard with their borrowing, and in an article that longtime reader Bob, sent me, the amount of Corporate debt is detailed… The article can be found at www.themostimportantnews.com

Corporate debt in the U.S. is almost $10 Billion, which is 47% of our GDP! And here’s the really scary part of this… Defaults on the riskiest class of Corporate Debt are on pace to hit their highest level since 2008… And we all remember what happened in 2008, when Lehman Brothers couldn’t meet their debt liabilities, now don’t we? Longtime analyst, Michael Snyder, calls this a “debt bomb”… And I wouldn’t argue with him one bit…

The U.S. Data Cupboard opens up for business again today, with the ADP Employment report, which at this time is forecasting a total of 125,000 jobs created in November… I keep saying this and sooner or later it will stick, and actually be true, but the ADP report is supposed to be a harbinger for the BLS Jobs Jamboree which will print Friday this week… And the ADP print probably would be each month, IF the BLS didn’t go adding jobs from thin air to the surveys they receive… And that’s all I’ll say about all of this, because, as I’ve said before, I really don’t care how many jobs are created.

You see, the jobs that have been created since 2008, have been mostly min. wage, or low wage jobs, that can’t support the economic growth that an Unemployment Rate like we supposedly have, would bring… And the low wages don’t bring on wage inflation, which is what the Fed Heads are waiting for…

We’ll also see the services indexes from Markit and the ISM for last month… These data prints don’t really move markets… unless they go rouge either way…

I haven’t been very prudent about reviewing the Pfennig Replies email box, lately… Sorry about that! If you sent me a question, I’ll attempt to get to it soon… I know that we’re only promised today… But I’m betting a dollar to a Krispy Kreme, that we’ll all be here tomorrow…. I’m just saying…

And speaking of weak data, wait! what? I wasn’t speaking of weak data, but I should be, each and every day! But what I’m getting at is that last week the 10-year Treasury’s yield had bumped higher to 1.83%, but after the weak ISM earlier this week, the bond boys have the 10-year’s yield back down to 1.74%… Just to repeat what I had said previously to today, The 10-year’s yield is destined to revisit it’s low from a few years ago at 1.38%…

To recap… The currencies held their gains yesterday, and drifted a little higher as the day went along. Gold had a good day, closing up $15 on the day, and is flat in the early trading today. Ever hear about a “debt bomb”? Well, Chuck talks about one today! Along with a glowing review of the CBR’s Gov. Elvira Nabiullina… The ADP Employment Report prints today, but other than that there isn’t much in the Data Cupboard today…

For What It’s Worth…. OK, as aforementioned, this is an article that is about an interview with Elvira Nabiullina the Central Bank of Russia’s Gov. And if you don’t come away with a stronger opinion, liking her, well… I don’t know what else I can do to cure your “Russia phobia”… Ok, the article can be found here: https://www.vesti.ru/doc.html?id=3216440&cid=4441

Or, here’s your snippet: “Could Russia face a crisis in the near future?
Elvira Nabiullina, head of the Central Bank of Russia: Well, Russia could be affected, but we have laid the foundations for stability. We worked a lot to make the internal development of Russia less dependent on any external shocks and fluctuations. External shocks are primarily sanctions.

– Russia has been living under them for five years. The United States is threatening to impose new restrictions, first of all, against banks. Is our financial system ready for this?

– We got used to living under sanctions as well as in the context of constant discussions about new sanctions. That’s why we’re getting ready for this. We always calculate risk scenarios in order to best withstand the possible pressure of sanctions. We look at different aspects of financial stability to be ready for anything at any time.

– Despite sanctions, the ruble has even grown against both the dollar and the euro this year.

We did a lot to ensure long-term confidence in low inflation among people. We wanted to convince them that this is not a short-term period, that we’ll always have inflation under control.

Stability in the banking system is also under control. The amount people have in savings is growing along with the number of mortgages granted while home loan rates are going down. Today, they’re just above 9%.”

Chuck again… Com’n admit it, you’re wondering why the Fed, the ECB, the BOE, the BOJ, and any other Central Bank can’t find someone like her!

Currencies today 12/4/19 American Style: A$.6838, kiwi .6426, C$ .7533, euro 1.1080, sterling 1.3098, Swiss $1.0114, European Style: rand 14.5617, krone 9.1815, SEK 9.5183, forint 298.53, zloty 3.8598, koruna 23.0320, RUB 64.12, yen 108.68, sing 1.3632, HKD 7.8287, INR 71.40, China 7.0511, peso 19.52, BRL 4.2112, Dollar Index 97.67, Oil $57.13, 10-year 1.74%, Silver $17.15, Platinum $915.44, Palladium $1,857.93, and Gold… $1,477.58

That’s it for today… Man, it’s been quite some time since I was woken up by my alarm… I set it each night, but usually, I wake up before it goes off, but not today, and by the time I actually woke up to it, the alarm had been gong off for 14 minutes! (sorry Kathy!) Well, with November behind us, the sun had decided to return, and it has been quite a nice couple of days here… I passed a Salvation Army Kettle person, ringing her bell, yesterday, and said to her, “At least it’s not bitter cold today” She smiled… For over 25 years our subdivision has held a Progressive Dinner Party, where we all visit different houses for a course and then finish at the last house for cocktails and dessert. We’ve always been the “last house” and will be that again this Saturday… And with that, Matthew Sweet takes us to the finish line today with his song: Girlfriend… Chuck, Kathy, Chris and Tina Gaffney, along with friend Michelle Camp, saw Matthew Sweet in concert many years ago… I hope you have a Wonderful Wednesday, and please Be Good To Yourself!

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