The 2 & 5 year Treasuries’ Yields Invert…

A Pfennig For Your Thoughts

December 4, 2018

* Currencies & Metals Continue to ratchet higher…
* RBA meets today…

Good Day… And a Tom Terrific Tuesday to you! What a great evening last night, listening to the St. louis Sportswriters tell stories. I even met up with a childhood buddy! One of the sportswriters, Jim Thomas, and I grew up in S. St. Louis on the same street. Wyoming St. We went to elementary school together, played ball together and so on. He was “gifted” and went to the arch enemy of the high school I went to, and we ended up playing football against each other. I hadn’t seen him since those days, so that was quite the treat for me meeting up with him again last night. Our friend, Billy Squier greets me this morning with his song: My Kinda Lover…

I don’t know if I’ve even seen more misinformed writers and markets than now. The agreement between Trump and Xi was to not “add additional tariffs for 90 days”, not what everyone else seems to think, that Trump and Xi agreed to end tariffs and thus the Trade War! That’s simply not the case, but yet the stock jockeys rallied stocks… The Trade War still exists, and if anything the Trump / Xi agreement simply prolonged the Trade War…

But the currencies continued to rally in small chunks VS the dollar yesterday and overnight. Like I told you yesterday, the Aussie dollar (A$) and kiwi are the best performers, as they continue to ratchet higher every day… In the Eurozone yesterday, it was announced that Italy had finally decided not to “fight city hall”, and went back to the drawing board to find ways to cut their deficit spending budget… That news helped the euro to climb on the day. That, and the news that PPI (wholesale inflation) increased for the month of Rocktober and on a year to year basis, it rose from 4.6% to 4.9%… Just a quick econ 101 lesson here… PPI is where you first see inflation, and once Producers begin to hike prices, that bleeds to CPI (consumer inflation)…

The Reserve Bank of Australia (RBA) meets today to discuss interest rates, but I don’t expect them to have much of a discussion, and their key rate will remain at 1.5%… I find the fact that Australia’s key rate is lower than the key Fed Funds rate in the U.S. very interesting… I doubt that hasn’t happened in a month of Sundays…

OK… Well, I didn’t tick many people off yesterday with my diatribe on the Fed… So, with that in mind, I’ve got more up my sleeve for today… So, yesterday, James Rickards wrote the following: “the impact of QT is roughly equivalent to another 1% per year of rate hikes. This means that the combination of nominal rate hikes and QT is equal to 2% of rate hikes per year off an extremely low base. The Fed is tightening more than it realizes and will probably cause a recession or worse by the time it realizes its mistake. If this happens, the Fed will cut rates back to zero. But it won’t be enough. Then they’ll have to abandon QT and go back to QE4. The more things change, the more they stay the same.”

Now, where have I heard that before? Could it be… No… not there… but where? Oh, that’s right, I heard it right here in the Pfennig! Because… I wrote that same thing several times in the past about what the Fed was doing! I found Rickards to be bang on with what I’ve been saying, but also I would add that QE4 won’t be enough, and in the next recession, because of its depth, the Fed will resort to negative interest rates… I’m just saying…

OK… yesterday, I talked about how the Palladium price could very well bypass the Gold price next year… But when Palladium streaks higher by $23 in one day, it doesn’t look like Palladium will wait until next year to bypass Gold! The price of Palladium this morning is $1,229., and if it weren’t for the $8.20 price increase in Gold yesterday, the $8.45 in the early trading today, the deed would have been done already!

Did you hear the latest stupid idea that folks in Sweden are falling for? OK, first, let’s revisit the fact that Sweden is the poster child for the cashless society. They’ve pushed the envelope much further with a cashless society than everyone else.. And their latest thing is to implant a micro-chip in a person, so that when they buy something, all they have to do is wave their hand at the counter, and it automatically charges their banking account… Sure that sounds convenient, right? Well, if they can connect that to your bank account, the Gov’t could track your every move and every purchase… Now there’s always someone in the crowd that says. “I haven’t done anything wrong, or don’t expect to, so why would I care if the Gov’t is tracking me?” Civil liberties… You’ve lost freedom… I shake my head at people that don’t “get it” that you’re giving away your freedom…

Well, it looks like a judge in the U.K. has ruled that the U.K. could still walk away from BREXIT… And just having that hope, helped pound sterling to recover some recent losses. This BREXIT thing has really had a life of its own, and has shake rattled and rolled, with lots of twists and turns along the way since the people of the U.K. voted for the BREXIT amendment… I think that by just saying, “well the judge says we can nix it now” would be the easy way out this mess… And besides the people of the country voted for it to happen!

The U.S. Data Cupboard is basically empty today, and tomorrow’s data releases have been postponed until Thursday, due to the Government offices being closed down for the funeral of former President, George H.W. Bush, who died last week. I find it to be a real shame that the thing most people think of when they think of the former president, is that he made a promise he couldn’t keep… “Read my lips, no new taxes”… He was a far better man and president than that slip up… I’m just saying…
Hey! It just occurred to me, that if the Governmental Offices are closed tomorrow, that the markets will also be… So that means I get to sleep in tomorrow! HA! But seriously, it’s going to be a mid-week holiday, and therefore, I will close too!

To recap… Chuck thinks the markets and writers of the world have it incorrect regarding the Trump / Xi agreement. The currencies and metals continued to rally yesterday and overnight, with Gold adding more than $16 in the last 24 hours, but Palladium has gained $23 in the same period, and is within $10 of matching the Gold price! The RBA meets today, but Chuck doesn’t believe they will move rates, and wonders when the last time it was that the Aussie key rate was below the U.S. key rate?

For What It’s Worth… Well, I’ve been telling you over and over again about how foreigners are shying away from the Treasury Auction window, and this article on Reuters really gets into that idea. I do want to say though, that his is a really scary thing, considering the increase in Treaury issuance due to our debt increases. So, you can find the article here: https://www.reuters.com/article/us-usa-bonds-foreign-graphic/foreign-buyers-find-u-s-treasuries-less-appealing-idUSKCN1NV27V

Or, here’s your snippet: “ foreign holders of Treasuries like China and Japan have shrunk their portfolios of U.S. government bonds this year, and a recent barometer of participation in Treasury auctions suggests overseas buyers have not been showing up in force, according to Treasury Department data.

Some auctions since late October had the weakest foreign participation rates in nearly a decade, a Reuters analysis of U.S. Treasury sales shows. At the same time, auction sizes are rising fast, with bond issuance this quarter projected to set a record of $83 billion after deducting maturing debt.

“We do worry about where demand for Treasuries is going to come from, given the ongoing significant increase in supply,” said Torsten Slok, chief international economist at Deutsche Bank.

That concern will be on sovereign debt investors’ minds this week with the Treasury scheduled to auction $129 billion in notes with maturities ranging from two to seven years beginning on Monday.”

Chuck Again… Well, I wondered when everyone else on earth was going to see this as a potential problem, and now, well, I guess they have begun to see it… Of and one more thing this morning regarding Treasuries… The 2 and 5 year Treasures yields inverted yesterday…

Currencies today 12/4/18: American Style: A$.7380, kiwi .6968, C$ .7588, euro 1.1397, sterling 1.2808, Swiss $1.0051, European Style: rand 13.5895, krone 8.4644, SEK 8.9693, forint 281.65, zloty 3.7580, koruna 22.7260, RUB 66.52, yen 112.82, sing 1.3635, HKD 7.8057, INR 70.42, China 6.8994, peso 20.27, BRL 3.8477, Dollar Index 96.51, Oil $54.06, 10-year 2.96%, Silver $14.56, Platinum $805.01, Palladium $1,229.42, and Gold… $1,239.12

That’s it for today… And tomorrow, but I’ll be back on Thursday loaded for bear… None of the sportswriters last night, thought that the Cardinals had a chance to sign Bryce Harper… I hope they are proven wrong! Well, it looks like we received a sprinkling of snow last night, probably not even sticking to the pavements. Which is timely, because Roger Williams is playing Let It Snow! on my iPhone this morning… I’m not a fan of snow, although I do like to see it when it first falls, before the white snow turns to black slush! But then I want it to melt in hours! I’m not a fan of cold weather, so that pretty much tells you where I am with snow… I hope you have a Tom Terrific Tuesday, and you remember to Be Good To Yourself!

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