Powell Takes The Air Out Of The Dollar…

A Pfennig For Your Thoughts
 
June 11, 2020
 
* Currencies rally strongly on Wed. but soften overnight
* Gold soars on news that interest rates will remain near zero! 
 
Good Day… And a Tub Thumpin’ Thursday to you… This should be shorter than usual this morning, as I need to get ready to go see my oncologist this morning. Here’s something I doubt you’ll ever hear from any other cancer patient… “ I love to go see my oncologist” I’ve had 4, counting my M.D. Anderson doc, so I should have a pretty good idea as to who’s good and so on… Two of my former oncologists have retired… So, you know you’ve done a good job of surviving when you outlast your oncologist! HA! My allergies have really been beating on me this spring… Every time I go out to the back yard, everything has an inch of pollen accumulated on it… Yellow in color, and monstrous to my sinuses! The Beach Boys greet me this morning with their song: Wouldn’t It Be Nice… here’s Chuck’s version.. Wouldn’t it be nice if we could wake up, in the morning when the day is new, and never have to worry about the economy, because it hurts the whole day through…
 
Well, well, well… What did I tell you yesterday about how zero interest rates aren’t going anywhere and that eventually they will be capped off to prevent the markets from pushing them higher… And then about 6 hours later… Fed Chairman Jerome Powell, told reporters at his press conference, that “zero interest rates are here to stay through 2022”… Powell made sure the reporters were clear on the fact that the Fed will keep rates near zero until they are confident that the economy has weathered the storm, successfully….
 
He then went on to talk about GDP… And here’s where I believe he made a big mistake… He said that GDP for 2021 will be 5%, and in 2022 3.5%… I’m not buying it with YOUR MONEY! Or as I used to say about the S. African rand, I wouldn’t touch that with YOUR TEN FOOT POLE!
 
So, the bullets the dollar bugs were sweating yesterday morning ahead of the FOMC meeting adjournment were bonafide, and for goo cause… Because you can’t defend the dollar when the Fed Chairman says interest rates are staying near zero, not just the rest of this year, and not thought next year, but into 2022!
 
The Currencies, led by the euro, took off for higher ground VS the dollar, and Gold kicked some tail too. So, all you naysayers that wouldn’t buy Gold because it’s a non interest bearing investment… Well, where are you getting your interest on your investment now? I’m just asking…
Gold closed the day up $24 with Silver tagging along. But something happened overnight, because the currencies and their lofty levels of yesterday afternoon, have had the wind taken out of their collective sails, and Gold is down a couple of bucks early this morning. I’m in a good mood this morning, so I’m just going to put this pullback in the overnight markets down to profit taking… And then move on… 
 
OK… now this really rankles me… There’s an economist out there by the name of Stephanie Kelton, who wrote an article in the NYTimes, (go figure, right? ) saying “Why I’m not worried about America’s Trillion dollar deficits”… Go ahead and google it and read it, that is if you want to get sick to your stomach, and lose today’s lunch… What a looney tunes! Apparently she never took an economics class, I Mean a real economics class, where you learn about Adam Smith, etc. And she obviously never studied the economics theories of Misys… But a stray here… Here’s the main fact that she seems to forget, or probably never learned, is that the larger the deficit the harder it is for a country’s economy to thrive… I don’t think we need any more proof of that than just looking at Japan… They’ve taken the deficits spending to heart, and for over 20 years their economy is… well, there is no economic growth to speak of…
 
Today’s analysts, I guess that’s what they call them, have no idea what looking under the hood, is all about… The get fixated on a something and soon it’s the “call of the month” and they want everyone to read about what they’ve come up with… It embarrassing to me, someone who learned economics at the knee of the great Hy Minsky, to see this going on… But it is what it is, and hopefully not too many people think much about what she had to say…
 
Well, another one bites the dust…. I read yesterday that Shale pioneer, Chesapeake Energy had their shares stopped on the NYSE, due to rumors that they will file bankruptcy… Remember when I told you months ago that the shutdown was going to really put some stress on the shale producers, because, they had loaded up on debt, and with no income coming in, to pay on that debt, things get really sticky… Well, fast forward to yesterday, and this was the news article that printed: “Shale gas pioneer Chesapeake Energy, once worth $37.5 billion, has warned of a possible Chapter 11 bankruptcy filing in order to restructure some $9 billion in debts.”
 
Just another sign that the economy isn’t going up… instead, it’s going down…. 
 
The U.S. Data Cupboard had the stupid CPI report for May yesterday… The consumer price index (CPI) showed that deflation wasn’t as bad in May as it was in April, as May printed at -0.1%, VS the April print of -0.8%… John Williams over at www.shadowstats.com shows inflation, calculated using pre 1990 methods, i.e. before hedonic adjustments, shows CPI at just below 4%… I mean what does it take to get people upset with the CPI’s version, when the real cost of living is near 4%, and that’s after the drop in April because of the lockdown.
 
There was also a reveal of the Federal Budget for May… The Federal Budget had a deficit of $399 Billion, which blew April’s deficit of $208 Billion out of the water! A couple hundred Billion here, and a couple of hundred Billion there and pretty soon you have a multi Trillion annual deficit! Take the average of these last two months, and get $303 Billion deficit per month, and then multiply that by 12 and you get an annualized deficit of $3,642 Trillion… Then add that to the current debt, and you see why / how we’ve gone from a current deficit of $5.7 Trillion in 2000, to $7.2 Trillion in 04, to $10.2 Trillion in 08, to 15.3 Trillion in 12, to 19.6 Trillion in 16, to $25.9 Trillion today… All of these numbers come curtesy of the www.usdebtclock.org…. Oh, and just for grins, they let me go forward, based on the trend in deficit spending now… In 4 years, 2024… The current U.S. Deficit will be $46 Trillion!!!! And our Unfunded Liabilities will be $188 Trillion…
 
Of course, I don’t believe we’ll get to those numbers… Because this is all becoming just too much for the financial system to bear… It might be different if, say the second largest economy, China, ran a surplus, but no, they too have gone down the deficit spending road that leads to dead man’s curve… And the 3rd largest economy, Japan, is up to their eyeballs in debt, and the 4th largest economy, ah, never mind, I think you get the picture…
 
To recap… The Fed left rates unchanged, and Fed Chairman, Powell, told reporters that the Fed plans to keep rates near zero into 2022… Not just the rest of this year, and not all through 2021, but into two years from now! This news sent Gold higher on the day (by $24), and the currencies kicked some sand in the dollar’s face… But in the overnight markets there must have been some profit taking, (Chuck’s in a good mood this morning) because the currencies have backed off their levels of yesterday afternoon. And another one bites the dust, as another Shale producer has filed for bankruptcy… 
 
For What It’s Worth… Well, this article is all over the internet, so you don’t need me to give you the link to the story, simply Google it… But for those of you wanting to know more, this is an article about U.S. Pensions running out of money in 8 years… And it can be found here: https://burypensions.wordpress.com/2020/06/10/ft-seven-major-us-public-pensions-to-run-out-of-money-by-2028/
 
• Or, here’s your snippet: “Over 320,000 members of the New Jersey Teachers and Chicago Municipal public pension plans: “A slow recovery for the US stock market could result in Chicago Municipal’s funded position falling from 21 per cent this year to just 3.6 per cent by 2025. This would leave assets to cover just three months of the fund’s retirement payments…”
• New Jersey Teachers: “…funded position projected to decline from 39.2 per cent to 23.2 per cent over the next five years. By that time, New Jersey Teachers would have assets to cover 19 months of retirement payments.”
 
• Police and fire departments: “public pension plans of Kentucky and Providence along with Dallas Police and Fire, Charleston Fire and Chicago Police could all end up with less than three years of retirement benefit payments saved as assets.”
 
• “Chicago has particularly high pension risks. The city has built up very large unfunded liabilities through years of very weak pension contributions,” a senior credit officer at Moody’s.”
 
Chuck again… I’ve been talking about a problem for pension plans for years folks, have you been listening? There’s another bailout from the Government in the offing… I mean we bail out Corporations now, why not Pension Pans?
 
Market prices 6/11/19: American Style: A$ .6915, kiwi .6477, C$ .7408, euro 1.1360, sterling 1.2660, Swiss $1.0606, European Style: rand 16.8413, krone 9.4146, SEK 9.2360, forint 303.10, zloty 3.9356, koruna 23.4358, RUB 68.56, yen 107.08, sing 1.3880, HKD 7.7500, INR 75.61, China 7.0634, peso 22.39, BRL 4.9098, Dollar Index 96.23, Oil $37.96, 10-year .70%, Silver $17.96, Platinum $834.18, Palladium $1,933.60, and Gold… $1,732.96
 
That’s it for today… See? I can keep it shorter, when time is of the essence! HA! Well… On Wednesday this week, it was the Birthday for one of my fave people on earth … Laura Baur… Then last night was the Birthday of good friend… Mike Kettler… Happy Birthday! Tomorrow is Chuck & Kathy’s anniversary… This will be 44 years… I know I’ve told you all how the two of us met in 1972… but I’m going to tell it again… I was a what you would call a country strong football player, and in the summer I would run the track at the high school to keep in shape for the upcoming season. One day, I was running the track, and the cheerleaders were having a practice, and my eye immediately went to the beautiful young lady with red hair. I stopped, called a friend of mine over to ask her what that young lady’s name was… And we met… And the rest, they say, is in the books… Blood, Sweat & Tears take us to the finish line today with a song that’s very appropriate after the story I just told you… You’ve Made Me So Very Happy… Ok, with that, I need to get going, so please go out and have a Tub Thumpin’ Thursday, and Be Good To Yourself! 
 
 
Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts