The U.S. Kick Starts Its Fiscal Year Off With a $100.5 Billion Deficit!

A Pfennig For Your Thoughts

November 14, 2018

* Currencies rally, and then fall back…
* Big Al talks about confiscation of wealth!

Good Day… And a Wonderful Wednesday to you! Yesterday, was simply beautiful here in S. Florida, where a cold front is coming through today, and dropping the daily highs to 78 degrees.. Still much warmer than back home, where they are expecting more snow tomorrow! I had a visit yesterday from one of my fave people in the world… Walt.. Such a great friend! We talked for hours, regarding just about everything under the sun and moon! And then to top off the day, I received an email from another fave person, my old boss, Frank Trotter! I would have to say that it was a good day for me! The Atlanta Rhythm Section greets me this morning with their song: Imaginary Lover…

Yesterday, I really lost my temper writing the Pfennig, talking about debt in this country, and on a lessor note the world. For, when I was a young man, my dad told me that the rest of the world could go to hell in hand basket, but the U.S.A. would still be here… And I believed him.. until the last 10 years when we began to accumulate huge amounts of debt. With no willingness to pay the debts off!

I came across an old quote from Big Al Greenspan from his essay titled: Gold & Economic Freedom, dated 1966… So, this of course was written while the world, including the U.S., was under the old Gold standard, better known as the Bretton Woods Agreement. As many of you know, Big Al, before he was brainwashed by the dark side and became the Fed Chairman, AKA The Maestro, was a Gold Bug… He learned at the side of the great Ayn Rand… But in 1966, there were calls from dolts (I call them) that wanted to end the Bretton Woods Agreement, and this is Al Greenspan’s response for them…

“This is the shabby secret of the Welfare Statists’ tirades against Gold. Deficit Spending is simply a scheme for the confiscation of wealth… Gold stands in the way of this insidious process. It stands as a protector of property rights. If one can grasp this, one has no difficulty in understanding the statists’ antagonism toward the Gold Standard”… – Alan Greenspan from Gold & Economic Freedom 1966

Well, we all know that Richard Nixon removed the dollar from the Gold Standard in August 1971, and ever since then, the U.S. has gone hog wild in deficit spending, and creating the Welfare state that Greenspan talked about in 1966.

It’s important to remember this part of what he said though… “Deficit spending is simply a scheme for the confiscation of wealth”… And then remember that Gold, is a store of wealth… I’m just saying…

And to that tune… My old boss, and good friend of many years, Frank Trotter, sent me a note last night that he pulled from Bloomberg… Ready? OK, get a load of this… “The United States reported a $100.5 billion budget deficit in October, the start of the U.S. fiscal year, representing a hike of about 60 percent from the year-earlier period, as spending grew about twice as fast as revenue. Receipts hit $252.7 billion in October, a 7 percent rise from October 2017, while outlays jumped 18 percent to $353.2 billion.” – Bloomberg

OK… a point I want to make here is that when the Tax Reform was passed, I told you that it was not for you and me, but more for Corporations, which in theory would be good if Corporations would use the tax savings to improve their plants, buy new equipment, Capital expenditures… But unfortunately, I pointed out that in my humble opinion, Corporations would use the tax savings to buy back more of their respective company’s stock…

And so I was right… The Deficit spending is far outweighing any gains by the tax reform act, and this $100.5 Billion deficit in Rocktober is the first month of the new fiscal year! Annualized we would be looking at $1.2 Trillion in deficit spending… But that’s the good news, if there is such a thing here, because I believe each month will be worse, and therefore the annual deficit will be more than $1.2 Trillion… UGH!

The dollar bugs retreated on the news of this large first month of the fiscal year, deficit. The euro climbed back above 1.13, and Gold gained about $4 on the day. That was far better results than what we had seen since Friday… But in my opinion, it should have been a massaquer on the dollar… But those rallies were short-lived, as once again, we saw the currencies and metals get taken down in the overnight markets… Somebody out there, folks, wants the dollar to be stronger right now than it should be…

This deficit spending has gotten out of control once again, and as I was telling my good friend, Walt, yesterday, the next recession in my opinion will make 2008 look like chump change, because of the amount of debt that has been taken on by not only Governments, but the states, Corporations, and Consumers, The Too Big To Fail Banks growing even larger, the amount of derivatives being more in number and size than in 2008, the amount of leveraged Corp loans, and the fact that years of zero interest rates, and easy credit being reined in will be too much for the economy to take, and well… this is where you have to put away the sharp objects to read further…

OK, everything safe now? I believe the economy will collapse in the next recession, which will then be called a Great Depression… The Fed has kicked the recession can down the road, and down the road, and down the road, until… it won’t be able to kick it anymore… And that’s when the chickens come home to roost, the cheese binds, and we find out the true value of physical Gold…

My mother used to have a saying… “You made your bed, now lay in it”… We allowed the Gov’t to go on this deficit spending spree years ago, and well, now we’ll have to lay in it!

I still think that this could be averted somewhat by a complete repricing of Gold… If you repriced Gold to, say, $10,000 an ounce, and maintain that price going forward, the deficits would be forgotten about, and physical Gold holders could pay down debts with their newly repriced Gold… But is that going to happen? I doubt it very much… But it is a way to keep things from collapsing… And I’m not saying that just because I own physical Gold… So, think about that, and then send your representative a note and tell them this is your idea to deal with debts…

And then get set to laugh your know what off when you receive a response… The boys and girls in Washington D.C. have no idea how to deal with this debt, so they just continue to add to it, and hope it doesn’t collapse under their watch!

In the Eurozone this morning, Industrial production for September printed, and was not good, falling -0.3%, VS the 1.0% gain in August. The Year-on-year IP was still positive at -.9%, but I think we have to really pay attention to this one month downward move, and think about the Trade War’s affects on the world of Industrial Production. The Eurozone also printed their first run at 3rd QTR GDP, which was 1.7%, matching the 2nd QTR’s output of 1.7%… So, no slippage here, but… the majority of the Quarter took place before the Trade Wars began…

The U.S. Data Cupboard doesn’t have much for us today other than the stupid CPI (consumer inflation) for Rocktober… In the previous two months to Rocktober, this data had shown some slippage, which it was due to experience because of the Fed Rate hikes… I’ll say this again, just to drive home the point… You don’t hike rates to induce inflation into your economy! You hike rates to eliminate inflation from your economy! The Fed have been hiking rates all while telling us they wanted inflation to grow… I shake my head in disbelief that these guys really thought they could pull the wool over our eyes…

For we all know good and well, why the Fed has been hiking rates… They need higher rates going into the next recession, so they can cut them in an attempt to cut the recession short… We went through the math of this yesterday, so in case you missed class that day, go to www.dailypfennig.com and read it there!

Will the last trader to leave the Oil trade turn out the lights? There’s been a mass exodus from the Oil trade since last Friday… President Trump called out the Saudis and slam, bammed the production cuts, and that started all this Oil price debacle… This morning the Price of Oil is trading with a $55 handle… That’s $20 from its recent peak…

And Gold eked out a small gain yesterday, but has given it all back already in the early morning trading this morning… I’m at a loss for words, to describe my feelings toward this recent price action of Gold… Ed Steer calls the short Gold paper trades as “Salami Slicing”, and that’s a good description of what’s going on…

To Recap… The currencies and metals rally on the news that the U.S. kick-started its fiscal year, with a $100.5 Billion deficit… But those rallies were short-lived and the traders in the overnight markets took profits. Chuck believes there’s somebody out there that feels the need to have a stronger dollar right now… Chuck tells us about a something that Big Al Greenspan said in 1966, and the price of Oil continues to slide downward…

For What It’s Worth… Remember Rolling Stone’s Matt Taibbi? He of the famous quote calling Goldman Sachs, the “vampire squid”? Well, according to this article the folks in Malaysia are probably thinking the same thing. So here you go, this article can be found here: https://www.zerohedge.com/news/2018-11-13/malaysian-prime-minister-obviously-we-have-been-cheated-goldman-sachs

Or, here’s your snippet: “Goldman Sachs famously avoided liability after the Libyan Investment Authority accused the bank of squandering more than $1.5 billion belonging to the country’s sovereign wealth fund after the bank plied employees of the fund with “hookers and five-star hotels” before losing all of their money in complex derivatives trades. But as the DOJ ramps up an investigation into the bank’s role in the sprawling 1MDB scandal (the federal government believes Goldman helped now-jailed former Malaysian Prime Minister Najib Razak siphon $4.5 billion from the fund), it’s looking like the bank (and possibly its ex-CEO Lloyd Blankfein, whose involvement in the scandal was recently revealed by Bloomberg) may not escape culpability this time.

Yesterday, Goldman shares cemented their largest two-day drop since 2010, crashing to a two-year low after Malaysian Finance Minister Lim Guan Eng demanded a “full refund” of the $600 million in fees that Goldman charged Malaysia for the three 1MDB bond offerings underwritten by the bank. Eng also demanded that Goldman repay the “interest-rate differential” that Malaysia paid, which was 100 basis points over the benchmark rate. Goldman has argued that it demanded such high fees because it took many of the unrated bonds on to its balance sheet, increasing its exposure, because Malaysia said it wanted the money “right away” for “development projects”. Of course, Goldman had sold the local currency bonds long before 1MDB defaulted in April 2016.

And on Tuesday, Malaysia turned up the heat when the country’s 93-year-old Prime Minister Mahathir Mohamad accused Goldman bankers during an interview with CNBC of “cheating” Malaysia (though he also said the country wanted to “see the results” of the DOJ’s investigation).

“There is evidence that Goldman Sachs has done things that are wrong,” Mahathir said.”

Chuck Again… Yes, it’s always someone else’s fault, right? But when the blame finger keeps pointing at the same entity, there’s something to that, right? I’m just saying…

Currencies today 11/1418…American Style: A$.7193, kiwi .6775, C$ .7550, euro 1.1265, sterling 1.2904, Swiss $1.0099, European Style: rand 14.4015, krone 8.5305, SEK 9.1205, forint 286.59, zloty 3.8135, koruna 23.0680, RUB 67.81, yen 113.90, sing 1.3817, HKD 7.8327, INR 72.11, China 6.9546, peso 20.50, BRL 3.7812 (it sure appears that the bloom is off the rose here with the real, eh?) Dollar Index 97.36, Oil $55.76, 10-year 3.13%, Silver $13.76, Platinum $833.65, Palladium $1,107.29, and Gold… $1,199.95

That’s it for today… Well, I guess today’s Pfennig was more than you bargained for, eh? I love the fact that I can express my opinions, without having to be stopped at the border… Did I make you think this morning? I sure hope so… If not… Maybe you should go back and reread it? HA! Well, this is my weekly plead to my beloved Cardinals to sign Bryce Harper… Please? Triumph takes us to the finish line today with their song: Fight The Good Fight. That’s what I’ve always done in the Pfennig… I hope you have a Wonderful Wednesday, and remember to Be Good To Yourself!

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