The Markets Finally Believe The Fed!

A Pfennig For Your Thoughts

February 15, 2023

* Currencies & metals get sold overnight… 
* Bond servicing costs keep rising… Uh-Oh! 

Good Day… And a Wonderful Wednesday to you… Well, did you have a sweet Valentine’s Day? Mine was low key, I did wear a red shirt when we went out for dinner last night! I did sent texts to “my girls”.. Delaney Grace, Daughter Dawn, and daughter Rachel… Evie is too young to have a cell phone! I told you a week ago that my wife and kids conspired and got me an iWatch… I resisted wearing at first, but then something weird happened… It kept telling me to stand up, and then while I was standing up, I decided to walk a bit, and now I’m counting my steps! Don’t worry, I’m not over doing it…2,000 steps a day, which is equal to about 1 mile… At least I’m moving my body through space, which is good for me (I’m told)… My wife walks 10,000 steps a day.. So, you can see how watered down my walking is… Any more, than that, and my hip begins to bark at me, and my back tightens up… This morning, the Drifters greet me with one of my favorite songs to sing along with: Under The Boardwalk…

Well, yesterday’s talk was all about the stupid CPI report… which… showed that consumer inflation was stronger than expected in Jan… .5% gain for Jan, put the annual increase of inflation at 6.4%…  I told you before that even the great Paul Volcker got fooled by a drop in inflation back in the day, and cut rates, only to have to turn around and hike them again… At least the Fed Heads didn’t get caught up in all the talk by the markets that inflation was weakening, and it was tie for the Fed Heads to pivot…As Volcker learned, the hard way I might add, you won’t defeat inflation until your interest rates are above the rate of inflation… I know, Jerome Powell, the el jefe of the Fed/ Cabal/ Cartel, thinks that he can bring inflation under control by hiking rates to 5.5%, which will still be way below the rate of inflation… He’ll learn, and hopefully, for our sakes, not the hard way!

So, the markets were dazed and confused by the print yesterday, and took all bets off the table… The dollar only ended down by 1 index point, Gold only gained 70-cents on the day, and Silver fought back to show a better loss on the day of 16-cents (it was down 35-cents to start the day) The price of Oil gained a buck and ended the day trading with a $79 handle… Bonds were the most heavily traded asset class yesterday, and it looks like the bond boys are looking ahead at the June, FOMC rate hike, as they pushed yields higher on the day, with the 10-year at 3.75% to end the day…

Opposites day was in play yesterday with Gold… Inflation was higher than expected in January, so Gold should have been bought on that news… But on the other hand, higher inflation might mean much higher interest rates, than previously thought by the markets.. Neither one could outweigh the other once yesterday, and so for all intents and purposes, Gold was flat on the day…

In the overnight markets last night… the dollar buying has gone back to strong dollar buying.. The BBDXY is up 5 index points this morning, the euro has held onto to the 1.07 handle, but the rest of the currencies are looking pretty shaky… Pound sterling has lost ground from 1.22 yesterday to 1.20 today, and the Russian ruble has slid further and trades this morning with a 74 handle… And Gold & Silver are getting whacked right out of the starter’s blocks this morning… Gold is down $20 in the early trading, and Silver is down 42-cents! I would have to say that the dollar traders are seeing the Fed/ Cabal/ Cartel, in a different light these days… The Markets finally believe the Fed heads when they say they are going to keep raising rates!

The price of Oil has slipped a buck and trades with a $78 handle this morning… Oil got a double Whammy yesterday with the stronger inflation, and the news of a release of more Oil reserves… And bonds keep getting sold… and yields marked up, and in my opinion, it’s about time!

The one currency that has been quite strong, and not getting caught up in the dollar strength, has been the Swiss franc… The franc has enjoyed being out of negative rates territory, and investors and traders seem to like the franc in that new look… Now, as long as the Swiss National Bank (SNB) hikes rates again, at their next meeting, which won’t come about until March… The FOMC won’t meet again until March too, so March could end up being a very bad month for stocks, and bonds…  Who knows about Gold? It goes up when I think it shouldn’t, and goes down when I think it shouldn’t…

Speaking of the FOMC… I found this on Reuters: “The U.S. Federal Reserve will raise interest rates at least twice more in coming months, with the risk they go higher still, according to a majority of economists in a Reuters poll who see no cut by year-end.”

Chuck again… yes that would put the Fed Funds rate at 5.50% (given 25 Basis Points rate hikes), and while that’s getting back to normal, it will still be below the rate of inflation…. I don’t think I can repeat that enough… I have hopes that someone at the Fed/ Cabal/ Cartel, reads the Pfennig… For if they do, they should follow my lead on rate decisions… As if!

Haven’t the markets as a whole, become Fed watchers? I’m a Fed Watcher, I’m a Fed Watcher, watching, rates go up, up, up, up… That’s their song, and they’re all singing it from the same song sheet these days… Finally, Jerome Powell’s words have been heeded! 

Debt is a real problem for most of the countries of the world… And with inflation rising all over the world, it’s becoming a real problem for these countries… The U.S. is the leader of these debt ridden countries, and we have the reserve currency of the world… Aren’t we supposed to be doing better than we are since so many countries use the dollar?  And here in the U.S. we need to issue Treasuries to fund the debt, unfortunately, for the Gov’t, the bond servicing costs (interest payments) is going higher with every day that passes… Bill Bonner always points out that the Treasuries had the worst year on record , in 2022… the yield on the 10-year went from .625%, to over 4%, settling at 3.75% right now… As the yield goes higher, in a bond, the bond price goes lower… So, this was over a 300 Basis Points move in yield, so there was no wonder that bonds did very poorly in 2022…

Speaking of the bond servicing costs… this from CNN: “The Treasury Department paid a record $213 billion in interest payments on the national debt in the last quarter of 2022, up $63 billion from the same period a year earlier.

The fourth-quarter tab was also nearly $30 billion more than in the prior quarter, which is the largest quarterly increase on record, said Jerry Dwyer, an economics professor emeritus at Clemson University.”

Chuck again, and those numbers will pale when compared to future costs… Hello, Mr. Butler? Yes, it’s me, how can I help you? This is the Soc. Security Administration, and we have some bad news for you. You see, the Gov’t can’t pay our your Social Security payment, because our bond servicing costs have taken over all of our tax receipts… And I respond… But, it was MY MONEY! I put that money in there per the requirements through the years, and it was for my golden years! And now you’re telling me that you spend MY MONEY? You rotten tomatoes, I hope you rot in… hello operator, Please give me number nine.

And if you disconnect me, I’ll chop of your /&$#%$, Behind the frigerator, There was a piece of glass. Miss Mary sat upon it. It went right up her… Ask me no more questions, Please tell me no more lies.

OK, for those of you who are wondering if that really happened… Not it did not, it was just me playing out a future call that could happen, given our soaring bond servicing costs!

I’m afraid that 2022, is just foreplay for 2023… And bonds will continue to lose money in 2023… I mean, you just read that economists polled called for no rate cut in 2023… And at least two more rate hikes, in 2023… That spells nastiness for bonds, folks… invest wisely… I’m just saying…

But… someone, somewhere, is going to have to step up to the bond auction window, and buy Treasuries when they are auctioned… I already explained to you about the build up of Treasury issuance while we are in the “alternative measures phase”, and I already explained to you about how the Primary Dealers will be on the hook to buy these bonds, that Russia, China, India, Iran, and others are no longer sopping up at each auction… But I had forgotten about the Fed/ Cabal / Cartel itself, as buyers of these bonds… Yes, the Fed Heads told us that they were out of the bond buying business, but if push comes to shove will they really be out of the bond buying business? No, I don’t think so… 

But… if the Fed/ Cabal/ Cartel does get back into the bon buying business, that’ll mean the money printing press gets fired up again… (yes I know there’s no printing press any longer, but for illustration efforts, it paints a great picture!) And money supply is what got us going down this road to multi-decade highs in inflation… I’m just saying…

We already talked about the offering in the U.S. Data Cupboard from yesterday… Today’s Data Cupboard has Retail Sales for Jan… You may recall that December Retail Sales were negative?  As I told you yesterday, the BHI indicates that the data will be soft/ disappointing… Not as disappointing as December’s negative result, but…somewhere in between…

We’’ll also see the color of the Industrial Production report for Jan, along with the Capacity Utilization, both should be better than the December offerings… IP for Dec. was negative -.7%, and Cap U, was flat in December… Both should be better, and it won’t take us long this morning to see!

To recap… Tuesday ended up being a non-event day… The BBDXY lost just 1 index point, Gold only gained 70-cents, an so on… The stupid CPI was stronger than expected, go figure… Chuck talked about how Volcker got fooled back in the day, and thought inflation was defeated, only to have to hike rates again… Chuck is concerned about bonds in 2023… and he wonders who will stop the rain? No Wait! Who will step up to the auction window and buy bonds….

For What It’s Worth… Well, I’ve got another treat for you this morning… this is a video of an interview with Matthew Piepenburg, of Gold Switzerland… And I’ve said this before, whenever Matthew writes, talks, etc. I listen… and I think you should too… So, here’s the link to the video: No “North Star” for a Global Economy Drifting in Unsustainable Debt – Matterhorn – GoldSwitzerland

Or, here’s your snippet: “In this latest conversation with Elijah Johnson of Liberty & Finance, Matterhorn Asset Management principal, Matthew Piepenburg, ties together the evolving themes of debt, credit market distress, currency failures and gold pricing.

Looking first at the UST market, Piepenburg argues that Treasuries matter simply because debt matters, and debt, by every metric, has passed the Rubicon of sustainability. The obvious distortions (and recessionary signposts) within the Treasury market are made clear by the inverted yield curve and the recent declines in the USD’s relative strength as measured by the DXY.

Piepenburg maintains that the West’s sanctions against Russia in general, and the US/Fed’s strong USD policy of 2022 in particular, have backfired with staggering panache. The net result has been a clear and steady process of de-dollarization as nations turn away from the USD and the UST for a host of described reasons.

The problem in US debt markets is only compounded by the hard fact that similar weaknesses exist globally. From the EU to Japan, the BRICS to DC, there is no “North Star” nation or economy to pull markets through what is in fact a simultaneous and global debt crisis.

As debt levels and yields rise, the only solution is now a familiar one: Monetizing those debts (and “controlling” those yields/rates) with inflationary mouse-click money from a local central bank. For now, however, the Fed is tightening rather than easing, and Piepenburg explains the ironic (and dis-inflationary) consequences (and eventual pivot) of an increasingly cornered Fed.

Chuck again… The snippet this morning is just a teaser, so you get intrigued and then find the time to watch the video… I strongly suggest you do…

Market Prices 2/15/2023: American Style: A$ .6903, kiwi .6282, C$ .7463, euro 1.0723, sterling 1.2084, Swiss $1.0844, European Style: rand 17.9825, krone 10.1619, SEK 10.3728, forint 353.29, zloty 4.4368, koruna 22.1019, RUB 74.33, yen 133.34, sing 1.3336, HKD 7.8485, INR 82.80, China 6.8379, peso 18.82, BRL 5.1948, BBDXY 1,239.82, Dollar Index 103.52, Oil $78.47, 10-year 3.74%, Silver $21.50, Platinum $928.00, Palladium $1,473.00, Copper $4.02, and Gold… $1,835.06


That’s it for today… Well, my beloved Mizzou Tigers got run out of the gym at Auburn last night, with the Auburn Tigers not showing any Valentine’s day love for the Mizzou Tigers… Our Blues won last night 5-2, VS the Panthers… The wins for the Blues have been far and few in between, so this one was a good one… It’s not too late for our Blues to get hot and go on a run toward the playoffs, which they currently are out of playoff contention… Let’s Go Blues! The sunrise out of the ocean this morning was beautiful! Most days the marine layer of clouds block the sun as it rises out of the ocean, but not this morning! YAHOO! I actually got a full night’s sleep last night! That happens about as often as a Blue Moon! And so, I’m rough and ready for today!  Van (the man) Morrison takes us the finish line today with my former colleague, Jen’s song: Brown Eyed Girl… I hope you have a Wonderful Wednesday today, and please Be Good To Yourself!


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