Markets Get A Glimpse Of The Recession Train!

A Pfennig For Your Thoughts

Rocktober 2, 2019

*dollar gets sold, gold gains, bonds rally…
* RBA cuts rate below 1% for first time in history!

Good Day… And a Wonderful Wednesday to you! I would bet that the good money was on the Washington Nationals last night to win the wild card game… And they would be out a lot of money this morning, as the Brewers won the game, and head to Los Angeles to play the powerful Dodgers… I half watched the game and half read throughout the night… This will be short-n-sweet this morning due to me having an appt. early today. No biggie… Just a lot of sitting around waiting! One of my all-time fave songs from one of my all-time fave groups greets me this morning, as Chicago sings their song: Hard Habit To Break…

Well… the dollar bugs finally backed off yesterday, and being a longtime reader you know that I don’t like going to the Data Cupboard right from the get-go, but…. Today we’ll do things differently…

Well, looky there, once again I have proven that even a blind squirrel can find an acorn… Recall yesterday I said that I thought the ISM (manufacturing index) would continue its monthly decline? Well that’s exactly what it did, but first there was a revision to the August number which originally printed at 50.5. It was revised downward to 49.1… (Below 50!) And the September number printed at 47.8… I also said yesterday that I wondered when Europe’s manufacturing slowdown was going to come to our shores… Well, like the 60’s movie: The Russians are coming… This was like the European manufacturing slowdown is coming!

Well… so… the data brought the dollar bugs to red carpet and scolded them for being so strong with the dollar… And the currencies, led by the euro rallied… But… In the overnight markets we received some news that sobered up the currencies…. The Reserve Bank of Australia (RBA) surprised the markets with a rate cut of their own, and this time is quite significant, as Australia’s official cash rate has fallen below 1.0% for the first time in history with some economists saying it will stay down for at least another two years.

And the RBA wasn’t mincing words, when they talked about the need for further rate cuts… This news sent the Aussie dollar to the woodshed early this morning… I do want to mention though that Kiwi didn’t see any sympathy selling, yet, that is…

Gold even got an opportunity to get back on the positive side of the ledger… It’s still China’s Golden Week Holiday, so keep that in mind for the rest of this week’s opportunities to buy Gold… The shiny metal gained $7 on the day, but remained below the $1,500 figure once again.

The price of Oil slid further downward in the past 24 hours and this morning is trading with a $53 handle… I would have to think that the lack of demand is really causing this downward slide… The lack of demand will continue to get worse, if you asked me, due to the Consumers being tapped out, with no disposable income to spend on a trip to the Grand Canyon…

The Three Blind Mice, Ahem, I mean, The Fed was out trying to smooth the edges on its tarnished reputation yesterday, when the St. Louis Fed issued a paper on Countercyclical Capital Buffers… Sounds pretty intriguing, eh? Well, it wasn’t… it was just fluff that explained the role of Banking reserve requirements…. But then it did get interesting when the Fed decided that they has taken too many hits lately on their monetary policy… And went on to describe the mess the Bank of Japan and the European Central Banks are in… Thus making them look better, if you will… I can see them saying, “Mirror, mirror, on the wall, who’s the best central bank of all?” And if I were the mirror, I would answer…. “Certainly not you!”

Yesterday, Canada printed a better than expected Industrial Production number. The August IP was up +0.2% VS the negative -0.3% in July… So, a nice improvement there, and we saw loonie traders reward the currency with a small increase in its value. I have to say, and knowing all too well, that whenever I do this, it’s usually a signal that the kiss of death has been laid on the currency, but… It’s resiliency IS the story right now in the currencies, so I have to take the chance that maybe this time I won’t kill the currency’s rally…

But the loonie has been quite resilient in the past few months, remaining above 75-cents and inching higher from time to time… The price of Oil has slipped by a lot, and the other Petrol Currencies are taking a hit to the abs… But not the loonie… And one reason is the fact that Bank of Canada hasn’t gone down the road of keeping up with the Joneses, or the Fed per se… It took so long for the Bank of Canada (BOC) to react to the housing bubbles in Toronto and Vancouver, that they just can’t see themselves cutting rates so soon… Eventually though, with the rest of the world having a debase the currency with a rate cut party, they’ll have to join in…

An interesting article on Zerohedge.com yesterday had the World Trade Order (WTO) talking about the global slowdown, so much so, they had to lower their global growth outlooks for this year and next year… And then they threw this grenade from left field…. check this out… “WTO confirms that the economic rebound or “green shoots” Wall Street was predicting for 2H19 is fake news. A growth scare for stocks is nearing; determining the trigger for the next stock market plunge is currently what every concerned money manager is trying to figure out.” – WTO

OK, after yesterday’s debacle at the Data Cupboard (ISM’s print) we come back today to see the color of the ADP Employment Report for September, which last month showed 195,000 new jobs in August… I doubt this month’s figure will be so stout… September just seemed to be digging deeper into a hole, to me… I’m just saying…

To recap… The U.S. recession train just keeps rolling into the station and we go a real glimpse of it yesterday, when the ISM for August was revised downward to below the 50 figure, and the September figure was 47.8, just slip sliding away… That sent shock waves through the markets, and the dollar got sold, Gold gained, Bonds rallied, and the price of Oil slid further downward… And Chuck thinks it’s all due to a lack of demand… The RBA cut their official rate below 1% for the first time in their history! And sounded like there could be more coming…

For What It’s Worth…. Well, for the longest time now I’ve said over and over again, that a recession is coming and when it does it’s going to be a doozy… The folks at the Telegraph in the U.K. see it for what it will be and have this article to talk about it… And it can be found here: https://www.telegraph.co.uk/business/2019/09/29/helicopter-money-may-weapon-confront-next-recession/

Or, here’s your snippet: “A radical world of helicopter money – where central banks fund government spending – is inevitable as policymakers run out of ammunition ahead of the next recession, top economists have warned.

Central banks are likely to explore more unconventional policies in the next downturn and blur the lines between fiscal and monetary policy with radical new tools, such as monetary financing, Deutsche Bank argued.
Recession fears are mounting but central banks have very little firepower remaining with traditional monetary policy — the control of the money supply and interest rates — blunted.

Helicopter money to stimulate the economy therefore “seems inevitable over the medium to longer term,” said Jim Reid, a Deutsche analyst. He argued that central banks “effectively invited governments to experiment with more unconventional policies” with ultra-low interest rates on debt.
Helicopter money is when central banks finance government spending through money printing but can also refer to cash transfers into individuals’ bank accounts and haircuts to debt already held by central banks.

“If the post global financial crisis decade has all been about printing money to buy financial assets, we think the next decade will be more about printing money and injecting it into the real economy,” Mr. Reid said.

The German bank’s analysis found that the world is already drenched in debt in the wake of the financial crisis. Total debt has tripled since the turn of the century to $247 trillion while government debt as a percentage of GDP in advanced economies is at a record peacetime high”

Chuck Again…. A not so very long time ago, but some time at least, I used to have a presentation slide that showed former Fed Chairman Ben Bernanke hanging out of a helicopter throwing wads of cash to the skies… Of course this was all fun and games as I took exception to his helicopter money quote … Eventually, “they” made me take that slide out of my presentation… I replaced it by getting everyone in Vancouver at the Agora Symposium, to sing Lemon Tree with me… You should have been there, we had some fun!

Currencies today 10/2/19 American Style: A$.6682, kiwi .6240, C$ .7551, euro 1.0928, sterling 1.2269, Swiss $1.0001, European Style: rand 15.2505, krone 9.1372, SEK 9.9013, forint 305.65, zloty 3.9977, koruna 23.5525, RUB 65.07, yen 107.55, sing 1.3853, HKD 7.8416, INR 71.07, China 7.1449, peso 19.82, BRL 4.1583, Dollar Index 99.22, Oil $53.87, 10-year 1.62%, Silver $17.28, Platinum $880.10, Palladium $1,666.90, and Gold… $1,486.19

That’s it for today, and this week… Recall I have an early doctor’s appt tomorrow morning, as I’m finally going to a wound center for my leg! Next Monday I’ll be all lathered up to talk about the Sept. Jobs Jamboree… And next Monday, I’ll have a good grasp on what’s going on with my beloved Cardinals in their playoff series…. And tonight…. Tonight marks the opening game for the defending Stanley Cup Champions, St. Louis Blues! Yes, the hockey season is here… So, here we go again, Let’s Go Blues! And finally my beloved Missouri Tigers come off their bye week, and play this Saturday again… Go Tigers! The Cure takes us to the finish line today with their song: Just Like Heaven… I hope you have a wonderful Wednesday, and please Be Good To Yourself!

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