It’s A Fed FOMC Day!

A Pfennig For Your Thoughts

November 8, 2018

* Currencies see profit taking on the day…
* RBNZ leaves their OCR unchanged, and Chuck is disappointed…

Good day… And a Tub Thumpin’ Thursday to you! My stomach took a turn for the worse yesterday, so I doubt I’ll be doing any Tub Thumpin’ today, but please don’t let my problems keep you from Tub Thumpin’! The dust is still settling on the elections here in the U.S., I really went a bit too far with my statement yesterday, as I have made it a tradition in the Pfennig to not discuss politics at all… And while I just made a statement about the outcome, I probably shouldn’t have gone there… It doesn’t look like my beloved Cardinals are going to attempt to sign Bryce Harper, as his price tag is going to be north of $325 Million… And that’s going to keep the smaller market teams like my Cardinals from participating in the Bryce Harper sweepstakes… The late great Joe Cocker greets me this morning with his song from the movie soundtrack of 9 ½ Weeks… You Can Leave Your Hat On…

Well, there was some profit taking yesterday in the currencies, at least that’s what it looked like to me, as there were no stories on the wires about the king dollar, yadda, yadda, yadda… Instead, I keep finding stuff that the Fed Heads are saying that just leaves me baffled! They are wearing the rose colored glasses, for sure, as they keep giving us rosy forecasts about the economy and inflation… I think they’re full of baloney, but don’t just take my word on that… Here’s economist Danielle Di Martino Booth on her twitter page yesterday, “Goldilocks herself would blush at the near perfect jobs and inflation scenario forecasted by the central bank”

I wrote about their track record yesterday, and that will play nicely in the sandbox with their rosy outlook…

Speaking of the Fed… Their FOMC will meet this afternoon, and discuss rates… If the economy is so strong and robust and will continue that way for as long as the Fed thinks it will, why wouldn’t they hike rates today? Come on, Jerome, back up your words with a rate hike, I dare you… No, wait! I double dog dare you! While, there’s a slim chance that the Fed could hike rates today, most observers believe they will wait until December… But, as I said, if the economy is as the Fed say it is, then it certainly warrants a rate hike this month, and then in December!

But by doing that, the Fed would be sending out smoke signals that the markets would be taking as the Fed is panicking, and inflation is spiraling upward… Oklahoma and Oklahoma State football teams play a game each year that’s called “Chaos”… Well, that’s exactly what we would have if the Fed stepped up their rate hike game…

In China yesterday, they reported their Tade Balance for Rocktober… And guess what happened to their blance with the U.S. given the Trade War going on? China’s Trade Surplus with the U.S. grew in Rocktober to $34.01 Billion from $31.70 Billion in September… How is that happening? I can hear the leaders in Washington D.C. asking… Well, for one… China has chopped a good chunk of fat from the renminbi’s value, so that the exports to the U.S. won’t be more expensive… The U.S. has put 20% tariffs on Chinese exports to the U.S. and the Chinese have depreciated the renminbi about 16%… So, basically, the exports to the U.S. are a wash… to the U.S. consumer that as… And that brings me to the other thing in play here… the U.S. Consumer… Their cash may be depleted, but not their credit card availability!

And in other news… The GATA folks sent me a note yesterday telling me that Iran and S. Korea agreed to a currency swap agreement, to exchange each other’s currencies in the terms of trade, and leave out dollars… This may be a baby step in regards to the size of dollars not being used going forward between these countries, but… We all know tha baby steps turn to big steps… And that would be the end of the dollar as the reserve currency… So, we’re here… and we’re going there… The difference between humor and trajedy is time… That’s also what’s in play here… Time… how much? I don’t know, but I don’t want to be the last one to turn out the lights on the dollar!

The price of Oil continues to slide downward and this morning its trading with a $61 handle… Our friends at OPEC (NOT!) have decided enough is enough, and the have called for a meeting this coming weekend to discuss production cutbacks… You may recall that last year, the OPEC countries cut production and the price of Oil rallied nicely, and eventually got to the $70 price the OPECKERS were looking for… So, they’ll go for round 2, most likely, this weekend…

The Reserve Bank of New Zealand (RBNZ) left their OCR (official Cash Rate) unchanged at their meeting yesterday… And left no indication, in their statement, that rates will be hiked any time soon… I’m so disappointed in the RBNZ, they gave all kinds of indications last year about this time that they were ready to begin a new rate hike cycle, and then crickets…

Well, it was good while it lasted… I’m talking about the rally in the Brazilian real… But from the looks of the trading the last 3 days, I would have to think that the rally is over… It was a nice rally, as the real rallied from a low of 4.17 on 9/15, to the 3.69 level last week… And if my new math works that’s about an 11% move… But you will be able to see in the currency roundup that 3.69 is no longer… Oh, and the real is a European Priced Currency, which means as the price goes down, it takes less of the currency to make a dollar, and therefore represents a rally…

The Aussie and New Zealand dollars respectively, are back on the rally tracks… A couple of weeks ago, I told you to keep that news quiet, but someone cracked and the two had their rallies stopped at the border. But they’re back at it, and I find no reason to keep quiet about it, for there are just too many voices in the field of currencies these days…

In 2004, Craig Karmin, of the Wall Street Journal came to St. Louis to interview me for an article in the WSJ. He called me a pioneer, for at that time I was the lone voice shouting about how the dollar was losing value and investors should be diversifying into currencies and metals. I was among the few, that talked about currencies… And today? Well, there’s more currency analysts out there than you can shake a stick at!

Gold lost a whopping 40-cents yesterday, and the volume picked back up with 242,000 contracts traded. I’m waiting… and I’ll keep waiting… and waiting… for U.S. investors to realize that buying commodities will help to offset the damage that the rising inflation that the Fed is talking about will do to their investment portfolios…

The U.S. Data Cupboard is all about the FOMC meeting this afternoon… Yesterday, the Cupboard has Consumer Credit (read debt) for September, and it was far less than expected, which was $20 Billion, and it only amounted to $11 Billion… That’s so strange, in my book, folks… And now I’m going to be fixated on how that data is comprised to see if “adjustments” are made… Because $11 Billion just doesn’t seem to be right in my estimation…

For What It’s Worth… I told you last week that I truly enjoy reading anything I can get my hands on from James Grant. So, with that in mind, this is an article with James Grant talking about U.S. Debt that was on a free site! And it can be found here: https://www.weeklystandard.com/james-grant/congress-is-plenty-bipartisan-when-it-comes-to-ignoring-the-national-debt

Or, here’s your snippet: “America’s deteriorating public credit is the cold-button issue of the 2018 midterms. With rare bipartisanship, Democrats and Republicans compete to pretend that the country isn’t going broke. In 1992, the third-party presidential candidate Ross Perot likened the widening gap between federal receipts and federal spending to “the crazy aunt tucked away in the room upstairs nobody talks about.” The old gal’s dottier than ever.

It took the United States 193 years to accumulate its first trillion dollars of federal debt—the gross debt, as it’s called. We will add that much in the current fiscal year alone. All told, the government owes $21.5 trillion, give or take a few careless tens of billions—that works out to $65,885 for each American. It’s the ease of borrowing that drives the growth in federal IOUs.

The remote political cause of this predicament is the ideology of statism. In Washington, this takes the form of tax and tax, spend and spend, elect and elect; on Wall Street, it’s found in too-big-to-fail, a virtually socialized mortgage market, and an overreaching,
manipulative central bank.

The remote monetary cause of our troubles is the closing of the gold-standard era in 1971, or what little remained of it by then. It was the breakdown of the fixed monetary order that opened the floodgates. From Alexander Hamilton to Richard Nixon, the dollar was an IOU, a promise to pay gold or silver at a fixed rate. It subsequently became a thing unto itself, an IOU nothing. In consequence, for the past several decades, federal liabilities have grown faster than the national income with which to service them. Ultra-low interest rates have cheapened the cost of this profligacy and hidden the looming dangers.”

Chuck again… Now, James Grant is as concerned about the National Debt, as I am, and that says something, folks… Too bad the media, or the markets, don’t see it that way…

BTW… The U.S. spent $548 Billion in Rocktober to service its debt… (pay interest on bonds outstanding) That number is only going to go up because 1. Interest rates are rising, and 2. Debt issuance is exploding higher and higher…

Currencies today 11/8/18… American Style: A$.7283, kiwi .6775, C$ .7632, euro 1.1415, sterling 1.3093, Swiss $1.0027, European Style: rand 13.9896, krone 8.3388, SEK 8.9832, forint 281.67, zloty 3.7605, koruna 22.6735, RUB 66.03, yen 113.75, sing 1.3715, HKD 7.8272, INR 72.13, China 6.9197, peso 19.89, BRL 3.7556, Dollar Index 96.26, Oil $61.76, 10-year 3.22%, Silver $14.47, Platinum $870.94, Palladium $1,124.46, and Gold… $1,222.73

That’s it for today… I had a good phone conversation with good friend Dennis Miller yesterday. He told me that he had just read that the U.S. is going to change the way they compute FICO scores… I immediately thought of all the other hedonic changes that the Gov’t has made through the years, when things just wouldn’t work the way the wanted them to… It’s a sad, sad, thing, folks… Well, our Blues are back to .500, and at home for the next few games, so they need to put the pedal to the metal now! Let’s Go Blues! This makes two days in a row, but the band Yes takes us to the finish line today with their song: Long Distance Runaround… I hope you can get out and do some Tub Thumpin’ on this Thursday, and remember to Be Good To Yourself!

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