Powell’s About Face Begins To Sink In…

A Pfennig For Your Thoughts

January 29, 2019

* Currencies and metals rally in the overnight markets
* PG&E Files for Bankruptcy! So much for the so-called robust economy!

Good day… And a Tom Terrific Tuesday to you! Well, the sun finally made its way from behind the clouds yesterday, while it was off and on, it still felt good, when it was on! Other than gathering up some overdue warm sun yesterday, I really didn’t do much… But then I think that’s what retirement is supposed to be about, eh? I don’t want to be busy any more… I was busy for many years, as I worked from being a mailroom clerk at a local brokerage firm, to holding the most important job in a Brokerage Operations, and then onto banks, and bonds, and then currencies, and metals… 13 hour days, dinner at the office, 7 -days a week, I’ve done it all, and now I don’t want to be busy any longer! I have friends that can’t sit still… But having cancer for the last 11 years has taught me to stop and rest when I needed to, and now… well, I have no problem sitting still! The Allman Brothers greet me this morning with their song: Whipping Post… Which I used to sing the words to, back when I was working 13 hour days… Sometimes I feel…. Like I’ve been tied to the whipping post…

Well, the currencies didn’t exactly light up the scoreboard yesterday, but they also didn’t short out… The euro bounced around in a tight range, but above 1.14, and the Aussie dollar (A$) lost its momentum from last week, and sold off in a tight range. Gold held steady Eddie above $1,300 and the 10-year Treasury’s yield fell 2bps to 2.74% on the day.

Remember when bond yields go down, the price of the bond goes up… and when the price of the bond goes up, it means investors are buying bonds… Stocks don’t know what to do… Is the economy robust and strong like the Fed Heads kept telling us previously? Or… Is it heading for a recession?

Speaking of a recession, let me be perfectly clear here…. Stocks, historically do NOT perform well in a recession… I’m just saying… And as far as IF a recession is coming, as I believe it is, and earlier than most economists are saying (they say 2020, I say this year!) Here’s another thing that leads me to believe we’re heading to a recession faster than most economists thing… I pulled this from Danielle Di Martino Booth’s Twitter feed last night…

“For 2018 as a whole, there were 1,452 changes among corporate chieftains, just shy of the highest annual total on record in 2008, when 1,484 CEOs left their posts; these figures are highly unusual in an economy that is purported to be expanding”- Danielle Di Martino Booth on Twitter

I would call that akin to rats jumping ship… HAHAHAHAHA!

Back to the currencies… In the overnight markets, the dollar has been sold more and the currencies have rallied a bit more… Gold is up over $4 in early morning trading, and there was word out overnight that the largest power utility, Pacific Gas and Electric (PG&E) filed for bankruptcy. Really? I did say the “largest power utility” has filed for bankruptcy, and you would have to think that their $50 Billion in debt had something to do with it, right?

This has really got to get to the Fed Heads… I’m just saying… How can an economy be strong and robust if the largest power utility can’t make a go of it any longer?

With regards to what I said yesterday, when I said that ECB President Mario Draghi, was going to throw the euro under a bus again when he gave his speech at the DAVOS conference… I’ve highlighted his speech in the FWIW section today… But as a teaser, I will tell you that he tried like the dickens to sound like a two handed economists… “On one hand we have this, and on the other had we have that”… He tried to throw the euro under the bus, but…. He stumbled and didn’t get the single unit near the bus…

The Fed’s FOMC starts a 2-day meeting today, culminating with an announcement tomorrow afternoon.. At no time, when the Fed was deeply entrenched in their rate hike cycle, this meeting held the chance of a rate hike… So, the meeting will be more important in a few weeks when the meeting minutes are printed… Did the Fed Heads discuss pausing their rate hikes, and Quantitative Tightening? Or, the resort to what I used to call their boardgamepallooza? By George, you’ve sunk my battleship! HA!

Word is that U.K. PM May has torn up her divorce papers from the European Union and is starting over… Of course I’m taking about BREXIT, and with all the questions about the proposed agreement, pound sterling has removed the shackles that bound the currency during the previous negotiations, and is on the rally tracks. I’m not completely sold on the idea that no news is good news for pound sterling, but that’s what traders are going with, and so be it…

I saw plenty of headlines yesterday and last night talking about how the U.S. is going to borrow more than $1 Trillion for the 2nd year in a row… No, that’s not a record, as you may recall that the previous administration had a string of 4 years of Trillion dollar deficits.. But, as I say, things continue to deteriorate here in the U.S. and it won’t be long (a couple of years) before we’re booking $2 Trillion in deficits per year… It matters not who’s in charge, the writing is on the wall, folks…

I have to go to the data calendar each day and see what prints will be delayed and which prints will actually get through the road block… Today, we should be able to see the Case/Shiller Home Price Index for November, and if there really is a trend here, we’ll see Home Prices slip once again as they have the previous two months to November.
November seems like ages ago doesn’t it? What give with the folks at Case/Shiller, needing 2.5 months to print some home price data? Doesn’t anybody want to work any longer? HA! The folks on my old trading desk, would get a laugh out of that, because that’s one of my fave lines whenever someone wanted to take off…

Speaking of my old job… I started receiving messages from LinkedIn yesterday from people congratulating me on what LinkedIn said was my 20 year anniversary at EverBank… I laughed out loud! First and foremost EverBank is not in existence any longer, and on my personal profile I had changed it to me writing for Aden Research… But somehow in the bowls of LinkedIn they think I’m still at EverBank! Now that’s funny if you stop to think about it…

Gold only gained 20-cents yesterday, but this morning the shiny metal is up more than $4, as the about face of Fed Chairman Jerome Powell has finally begun to sink into commodity traders and investors… I’ve been reading all kinds of articles about the Russian Gold horde, and how they tend to use it in the future… One of the thoughts is that Russia will use their Gold reserves as a payment system on trade… I would caution them on that, considering what happened here in the U.S. in the early 70’s… Again, I’m just saying…

To Recap… The about face of Powell has finally sunk into the thoughts of traders and investors, and that has the currencies and Gold on the rally tracks today. This is a nice follow up to the move last Friday. The FOMC meets today, so get out the board games, and PG&E has filed for bankruptcy! WOW!

For What It’s Worth… I thought that the euro had a lot riding on the ECB President, Mario Draghi’s speech yesterday, so when I saw it in text, I thought why not use it for the FWIW piece today? So, this is the Draghi speech, but I only highlighted the important part, and it can be found in its entirety here:https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190128~8b43137b4f.en.html

Or, here’s your snippet: “Thanks to the collective efforts of all European citizens, the euro area has emerged from this crisis. The results of their and their representatives’ determination have been tangible: 22 consecutive quarters of economic growth, the unemployment rate at its lowest level since October 2008, and wages and incomes on the rise.

However, over the past few months, incoming information has continued to be weaker than expected on account of softer external demand and some country and sector-specific factors. The persistence of uncertainties in particular relating to geopolitical factors and the threat of protectionism is weighing on economic sentiment.

At the same time, supportive financing conditions, favourable labour market dynamics and rising wage growth continue to underpin the euro area expansion and gradually rising inflation pressures. This supports our confidence in the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. Significant monetary policy stimulus remains essential to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This will be provided by our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets. In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.”

Chuck again… See what I’m talking about… On one hand, things don’t look so good, but on the other hand, things over here look good… Strange, but the good thing is that the euro didn’t get thrown under a bus, which had been the MO of Draghi…

Currencies today 1/29/19: American Style: A$.7185, kiwi .6845, C$ .7605, euro 1.1438, sterling 1.3154, Swiss $1.0073, European Style: rand 13.6337, krone 8.4915, SEK 9.0595, forint 277.20, zloty 3.7550, koruna 22.5080, RUB 65.99, yen 109.45, sing 1.3518, HKD 7.8458, INR 71.01, China 6.7381, peso 19.02, BRL 3.7579, Dollar Index 95.70, Oil $52.45, 10-year 2.74%, Silver $15.89, Platinum $817.80, Palladium $1,337.11, and Gold… $1,307.89

That’s it for today… I’ve always referred to January as “the longest month”, as it seems it drags on, with cold shortened days for sun, and so on… But we’re almost to the end of it… 17 days until pitchers and catchers report to spring training… the first sign that winter is coming to an end… YAHOO! Our construction project is beginning to look like there’s a light at the end of the tunnel… I can’t believe how long this has taken… My house was built in 3 months! I’m just saying! Talk about inflation… I looked online for movie tickets the other day, and found them for the movie I wanted to see, and they were $19.80! I said, forgetaboutit! I’ll wait for it to come out and I can watch it at home! The last movie I’ve seen was The Big Short… Pink Floyd takes us to the finish line today with their song: Learning To Fly… And with that… I hope you have a Tom Terrific Tuesday, and remember to Be Good To Yourself!

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