“I Think The Fed Right Now Is A Much Bigger Problem Than China” -Trump

A Pfennig For Your Thoughts

December 3, 2018

* Currencies & metals rally
* The Trade War Continues…

Good day… And a Marvelous Monday to you! And Welcome to December! Well, I had a wonderful weekend, with our neighborhood Progressive Dinner party on Saturday night. And those Conference Championship Games on Saturday were great! They announced the 4 teams that will make up the playoffs this year yesterday. Congratulations to: Alabama, Clemson, Notre Dame, and Oklahoma… May the best team win it all! It’s December! Time to start to get into that Christmas Spirit, and I do that by listening to Christmas music at home and in my car! I love the Christmas season. The house is all gussied up, our big tree is sparkling, and everyone has a smile on their face… I always wish that the words of the Christmas song, All our troubles will be miles away… would come true! So, this morning, I’m listening to Bing Crosby singing White Christmas…

So, how about that title today? Guess who said that? You get a shiny gold star if you said, President Trump… That quote was actually in the Wall Street Journal Friday… Have you ever had “buyer’s remorse”?… Well, the President didn’t actually buy Jerome Powell, but he nominated him as the Fed Chairman, and now, well… the President has buyer’s remorse! “I think the Fed right now is a much bigger problem than China.” I couldn’t believe my eye, seeing that statement… You see, the President is smarter than a lot of the country gives him credit for… I would say he was at one time a Pfennig Reader, because, he sees just like I’ve been yelling from the rooftops about, that the Fed began hiking rates very late in the growth cycle, which meant only one thing… That they would bring about a recession…

And just how bad or deep of a recession it will be is the question… You dear reader know how I see things… Sure, I could end up being proved wrong, but I don’t care… This is what it looks like to me, and therefore I say it out loud so everyone can hear me! I don’t have problems with that…

All righty then, let’s get to the markets… On Thursday when I left you, I had talked about how Fed Chairman, Jerome Powell, had surprised the markets the previous day with comments that made the markets believe that the Fed was near the end of their rate hikes… Stocks, bonds, currencies, & metals rallied and it was a beautiful sight… HA!

On Friday, we had the comment above from the President, to add to more stock buying and bond buying, but the currencies drifted and Gold lost a buck or two on the day. Don’t look now but the 10-year Treasury’s yield slipped below 3% on Friday… The bond guys know, folks… I was once on a bond trading desk… So, I know all too well what I’m talking about here. HA! But always watch the direction of bonds, they’ll tell you where the economy is going… And with yields falling, that means they believe the economy is circling the bowl… I’m just saying. The 10-year’s yield was brought back above 3% in the overnight trading, as I think the “boys” realized that they had gotten ahead of themselves…

The two currencies that have been quite sneaky with their respective appreciations lately are the Aussie dollar (A$) and kiwi… Commodity Currencies… To me this is signaling that commodities are about to make a comeback, folks…

Speaking of Commodities making a comeback… The price of Oil jumped on Friday through last night, on the news that Saudi Arabia and Russia had signed an agreement to cut production, and Canada joined in with a statement that they too will be cutting production. So, the price of Oil has those announcements going for it…

There still doesn’t seem to be much, in the way of data, that’s getting printed outside of the U.S. but we did see Swiss Retail Sales for Rocktober this morning, and they were a strong 0.8% VS that ugly -2.5% print in September. The Eurozone also printed their Markit version of PMI (manufacturing index) for November, and the index increased during the month to 51.8 from 51.5 in Rocktober.

I have to say that I found the Eurozone PMI very encouraging in regards to the European Central Bank (ECB) actually removing some stimulus from the Eurozone economy. Remember, they ECB is supposed to put a halt on their bond buying at the end of this month… And a strong report like this could go a long way toward them actually doing what they said they would do!

I’ve been talking a lot about the U.S. Corporate leveraged loans and so on… And I’m really fearful that this is going to crash and cause a major problem for the economy, just like sub-prime loans did in 2007… But don’t worry about that, according to S&P… That’s right, the ratings agency S&P said that we needn’t worry about the downgrades in Corporate bonds… I shake my head and think, didn’t I see this movie before? Oh, that’s right I did see it… The Big Short…

I’ve also been reading a lot about how the U.S. recession will wait until 2020 to come about. Shoot Rudy, even the bears are saying that, but I’m going to go out on a limb here and say that it begins in 2019… Now, THAT, was spoken like a true economist (of which I’m not!) because I gave myself 12 months! If the recession waits until the last day of 2019, I will have been proved to be correct! HA! Well, actually this isn’t funny stuff Chuck, so be serious…

It all weighs on whether or when The Fed pauses their rate hikes… because as history has told us that wen the Fed pauses a recession starts within 6 months… I wasn’t aware of that fact until the very impressive economist, David Rosenberg, made me aware of that fact… Very interesting, eh?

The price of Gold is up $8 in the early morning trading today. Over the weekend at the G-20 meeting, President Trump and Chinese leader Xi, announced that no new tariffs would be added for 90 days, as they attempt to negotiate a new trade deal. The problem as I see it for both economies is that there was no mention of putting up a road block on the previous tariffs… So, the Trade War is still going on, in spite of what the stock jockeys are thinking… And that is that it’s all sunshine, lollipops and rainbows going forward…

The U.S. Data Cupboard will get a workout this week, that ends with a Jobs Jamboree on Friday, December 7, Pearl Harbor Day… Our first day in infamy in our history… One of the real pieces of economic data will print this week when Factory Orders for Rocktober on Thursday… I’ll give you a teaser here, and say that I believe it will print negative… But getting back to today… The November ISM here in the U.S. will print… It will be interesting to see how that goes, given that it’s a check on the pulse of the manufacturing sector, and in November, the Trade War was in full bloom…

To recap… First we had Jerome Powell, the Fed Chairman, talking like a dove and then the President calling out the Fed… And the dollar got hammered as we ended the week… It was a small hammer, but hammered nonetheless. Chuck says that the recession will begin in 2019, and not 2020 like most economists think… Gold has a good morning today, and the price of Oil jumped on news of production cuts…

For What It’s Worth… Ok, I’ve been recording the price of Palladium every day for years and, and last year it was the year that it passed the price of Platinum… Will this next year be the year that Palladium passed the price of Gold? It gets closer to the price of Gold with every day that passes. So this article talks about that and can be found here: http://financeoffshore.com/article_template.asp?ns6=true&ie4up=false&NewsID=2249

Or, here’s your snippet: “It may appear surprising that palladium prices have almost tripled since the start of this decade, but supply in 2018 is only looking at a rise of just over 10% since 2010. It therefore seems worthwhile to present our latest findings on palladium supply and assess whether this structural lack of price response can change. This article also provides some background, which we hope will be of use to those less familiar with palladium.

It is important to note that palladium is mined in polymetallic ore bodies with the metal forming only a portion of total mine revenues. As such, mining operation’s economics are limited in their exposure to the rise in palladium price. For the largest palladium producer, Nornickel, palladium represents 36% of total metal sales revenue. This week, the company reiterated an essentially flat production profile out to 2020. In lieu of additional mine supply the company is releasing stocks accumulated by its Global Palladium Fund.

Over the next five years, we continue to forecast only a limited supply response from South Africa, with additional ounces from the five growth projects in our data-set offset by cost driven closures at Implats and Lonmin. Platinum forms a larger share of these operations’ revenue and thus the fall in platinum price has mitigated the benefit of rising palladium revenues. The palladium-rich ore bodies of Sibanye’s U.S. operations and North American Palladium’s Lac des Iles have meant that both operations have benefited and each is pursuing growth. However, the 250 koz additional contribution to North American production in 2021 will be partially offset by losses from Vale, which produces palladium as a by-product of nickel mining. This highlights why it is necessary to view palladium production in the context of the PGM basket price. For most operations, the decline in the platinum price has mitigated the rise in palladium. As a result we forecast global palladium production to decline by 2% to 6.7 Moz next year.”

Chuck again… well, after all those words, it comes down to the cheese that binds for Palladium… A decline of production, which means supplies dwindle, which should be a good thing for the price of Palladium!

Currencies today 12/3/18: American Style: $.7370, kiwi .6915, C$ .7580, euro 1.1333, sterling 1.2722, Swiss $1.0012, European Style: rand 13.6652, krone 8.5458, SEK 9.0480, forint 284.69, zloty 3.7757, koruna 22.8870, RUB 67.01, yen 113.58, sing 1.3675, HKD 7.8198, INR 70.28, China 6.9567, peso 20.09, BRL 3.8628, Dollar Index 97.07, Oil $53.10, 10-year 3.03%, Silver $14.39, Platinum $807.64, Palladium $1,199.10, and Gold… $1,229.41

That’s it for today… All alone again… At least this year, I’m not 2 weeks removed from surgery, and barely able to get around the house! I’m good to go this year! I heard that Rapper Nelly, has gotten into the calling for the Cardinals to sign Bryce Harper! Alright then! I’m going to an event tonight where the sports writers for the St. Louis Post Dispatch, will discuss the Cardinals and take questions from the audience… Should be fun… I would like these reporters to take a message back to the Cardinals… SIGN BRYCE HARPER! Ok… The great Marshall Tucker Band takes me to the finish line today with their song: Searchin’ For A Rainbow… I hope you have a Marvelous Monday, and are Good To Yourself!

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