Markets Are Learning That Deficits Do Matter!

A Pfennig For Your Thoughts

Rocktober 9, 2019

* Currencies remain in tight ranges once again…
* More talk about Repos and interest rates…

Good Day… And a Wonderful Wednesday to you… Well, they finally got around to shipping me my new meds for treating my leg wound yesterday… I had lost patience waiting, and called to check on it, and 10 minutes later it showed up at the door… If I had just had a bit more patience, eh? Well, later this afternoon, into the evening, my beloved Cardinals will play Game 5… The winner of the game moves onto the National League Championship Series (NLCS), which will be a best of 7 games series… Good luck Redbirds! I don’t know what I’ll do before game time of 4 pm CT… I’ll try to take a nap, but… I’ll have that game on mind, so I doubt I’ll be able to sleep! The late great, Dan Fogelberg, greets me this morning with his song: False Faces…. Oh, false faces and meaningless chases, I travel alone…. Dan Fogelberg’s lyrics were the absolute best… I’m just saying…

BTW, patience is not something I’m good at… Unless I’m in a hospital, pun intended… Kathy always asks me why I’m so patient and nice to people in the hospital, and I say, “It’s because they have the needles!!!!”
OK, another day of tight ranges for the currencies… I think I’ve figured this all out… Basically, no trader wants to push the dollar higher, nor do they want to reward any of the currencies… So, it’s a push, each day… And that makes for a boring time in currencies… I’m glad they showed me the door a few years ago, so I’m not sitting there twiddling my thumbs each day, because with nothing moving in either direction, I would think that there are no phones ringing, with investors that want to take advantage of the moves…

Gold on the other hand had a nice day… Yesterday morning I told you that Gold was up over $12 in the early trading, and bust my buttons, that’s what it closed up on the day, at $1,505! It’s up a couple of bucks in the early trading today, so it’ll be interesting to see if Gold can add to the gains yesterday, or if the price manipulators show up at the COMEX with an armful of short Gold paper trades….

Gold is already on the downside of trading this morning with it down $3.50 as I write…. Back and forth, back and forth… UGH!

Before I go on this morning let me say that I absolutely agree with President Trump’s decision to bring home the soldiers that were in Syria… We should NOT be the policeman in the Middle East… We no longer need their Oil, so let them take care of themselves! And next on the agenda should be the end of the war in Afghanistan. Too many lives, too many tax dollars, and too much time has gone into being there, and like I said many years ago now, in my Sunday Pfennig, titled: Chuck’s Debt Solutions, I talked about how we needed to end all wars… not just foreign but ones at home… Like the war on poverty (how’s that working?), the war on drugs (how’s that working), and the war on the President…

One of the reasons I called for the ends of those wars was to attempt to get our Deficit Spending back in the ballpark… But look how many years have gone on now since I wrote that article… And look at the debt we’ve accumulated since then! Absolutely amazing!

OK, so I went from talking about agreeing with the President on calling the soldiers home from Syria, to my debt solutions, and ending it with the accumulation of debt since I wrote the article… Now that encompassed a few years!

You know… I truly believe that the markets have finally taken notice of the cash liquidity going on in the repo market… And while they aren’t as scared as I am about what’s going on, they are noticing it, and businesses are hunkering down, because they too see what’s going on…
Remember when they used to say that Deficit don’t matter? Well, they’re beginning to matter to the markets… They see the need to issue Treasuries to finance this every growing debt, and with that issuance comes the need for entities to buy them without forcing up the yield… Well, as I’ve been chronicling for some time now, the foreign countries have begun to be no-shows at the auction window, which then requires the Primary Dealers to step up and buy the remaining bonds that haven’t been sold.

This process used to be NBD (no big deal) because the foreign buying was sufficient… But that was then and this is now, and The Primary Dealers, which are very large banks are picking up the tab at each auction of Treasuries… And that puts a crimp in their ability to loan money in the repo market, and that’s one of the main reasons the Fed has had to inject Billions of newly created dollars to keep the banks that are lending, to place higher rates and cause the whole repo market to not function…

I had a dear reader send me a note and ask me how the repo rate could be higher than the interest rates…. So, I’m guessing he means Fed Funds rate… Well, that’s an easy on, so I’ll be glad to answer…. You see the repo market consists of loans between banks, so they can charge whatever interest rate the bank receiving the loan will pay… Think of Credit Cards…

Banks charge huge rates over normal rates to lend money on Credit Cards, right? OK… now that we’ve iron that all out, let’s move along…
Well, as I said yesterday, it doesn’t look like a BREXIT deal will be in place when the deadline comes 10/31… I keep reading where observers are almost sure that no BREXIT plan will be in place… And sterling just continues to get sold under the dark shadow cast by the no BREXIT idea….

And here in the U.S. there’s just no thought from the markets, especially the stock jockeys, and bond boys, that the Trade War negotiations between China and the U.S. will get us anywhere… I read last night that last year at this time that the Dow was trading about bang on where it is today… So, a year’s worth of trading for no gains? No wonder Gold has had such a great year so far!

But the Gold to Dow ratio is still above 17, so there’s still time to participate in Gold’s next rush to the top…. I’ve talked about this Gold/ Dow ratio before… And basically the way it goes is when it still takes 17 ounces of Gold to buy the Dow, it represents a buy and should be bought until the ration goes down to 5… So, it’s not too late folks!

I heard this morning that a foot of snow is forecast to fall on the plains in Canada, and that would be disastrously bad for the crops in the fields… So, look for food prices to rise in Canada in the future…

The U.S. Data Cupboard yesterday had the Producer Price Index (PPI), which is a check on the pulse of wholesale inflation, and for Sept. it was down a negative -0.3%, from 0.1% in August… There was something on Monday that I forgot to talk about yesterday, and that is Consumer Credit (read debt) which was $18 Billion for August, VS $23 Billion for July… Recall I told you that the back-to-school spending took place in July, as schools start so darn early these days…

Today’s Data Cupboard has the Fed’s FOMC meeting minutes from their last meeting, when they cut rates… The markets will be looking for any signals of more rate cuts in the future…

To recap… It was another day of no real moves in the currencies, as they continue to trade in very tight ranges… Chuck believes that its’ come to an impasse with traders not wanting to take on more dollars, but to them everything else looks bad too… Gold gained $12 yesterday… but is down a few bucks in the early trading today… Chuck gives kudos to the President for removing soldiers from Syria, and then goes the whole nine yards in explaining how deficits do matter now to the Primary Dealers…

For What It’s Worth…. Well, I’ve long thought that the local St. Louis Post Dispatch had fallen on difficult times, and that the only real reporting they did was in the Sports Dept. Everything else is usually copied from API or other news source… they do have a good Business and economics writer, but rarely does an original idea come from him… I had to drop the paper being delivered to me last year, and now view all the local stuff on line…. UGH! But yesterday they sent me a link to an article about Businesses thinking a recession is coming, so that’s what I have for you today, and the article can be found here: https://www.stltoday.com/business/local/business-economists-foresee-slowdown-in-u-s-growth/article_2a886f1e-90c9-5c5b-bc28-c5fc32fba977.html#utm_source=stltoday.com&utm_campaign=3OclockStirNewsletter&utm_medium=PostUp&utm_content=a12874506a3b5805dded6c95af30d7173df7c77a

Or, here’s Your snippet: “WASHINGTON — The nation’s business economists think President Donald Trump’s trade war with China will contribute to a sharp slowdown in economic growth this year and next, raising concerns about a possible recession starting late next year.
The latest survey by a panel of 51 forecasters with the National Association for Business Economics shows they expect growth, as measured by the gross domestic product, to slow to 2.3% this year from 2.9% in 2018. The new forecast marks a downgrade from the 2.6% estimate for 2019 economic growth that the NABE panel had made in June.

For 2020, the forecasters expect GDP growth to fall to 1.8%. They see little likelihood of a recession over the next 12 months but expect the risk to increase by late next year.

Gregory Daco, chief U.S. economist at Oxford Economics, said the forecasting panel turned more pessimistic over the summer, with 80% of the economists now saying the risks are pointed to the downside.

“The rise in protectionism, pervasive trade policy uncertainty and slower global growth are considered key downside risks,” Daco said.”

Chuck Again…And I think these guys are still being too optimistic! If they turned more pessimistic this past summer, wait until they close out the year! I’m just saying…..

Currencies today 10/9/19 American Style: A$.6742, kiwi .6316, C$ .7512, euro 1.0975, sterling 1.2222, Swiss $1.0046, European Style: rand 15.1482, krone 9.1613, SEK 9.9447, forint 304.30, zloty 3.9372, koruna 23.5144, RUB 65.06, yen 107.38, sing 1.3801, HKD 7.8445, INR 70.87, China 7.1442, peso 19.5 (What a great year!), BRL 4.0964, Dollar Index 99.04, Oil $53.13, 10-year 1.55%, Silver $17.78, Platinum $885.98, Palladium $1,677.89, and Gold… $1,501.54

That’s it for today… Well, no Pfennig tomorrow folks… Sorry but I have to be at the wound center bright and early… And next Thursday I’ll have to at the hospital for scans bright and early, so, short weeks for me two weeks in a row… Whenever they need to schedule me for scans I always say, I want to be the first one of the day. I say that because, there will be no delays, or backup of appointments that way… Alrighty then… Let’s Go Cardinals! I’m already getting nervous…. UGH! The late great Otis Redding takes us to the finish line today with a recording from a live at the Whiskey A G0-Go… Can’t Turn You Loose…. I got to meet a fellow trader once at the Whiskey A Go-Go and all I could think of was that Otis Redding was there back in the 60’s… I hope you have a Wonderful Wednesday, and rest of the week, and please Be Good To Yourself!

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