We’re Going To Need To Finance $1.34 Trillion In New Debt!

A Pfennig For Your Thoughts

Rocktober 30, 2018

* dollar continues to cast its spell over the currencies
* Germany’s Merkel announces that she’ll step down…

Good Day… And a Tom Terrific Tuesday to you! Almost to the end of Rocktober, can you believe that one? It won’t be long now, and all the discussion around the house will be about Thanksgiving, and when we go and cut down our Christmas Tree! WOW! On Saturdays on SiriusXM they play the top 40 songs on the 70’s on 7, from a corresponding week of the 70’s… Casey Kasem’s coast to coast… This past weekend, we were in the car, and I asked Kathy if she liked hearing songs from her freshman year of High School… Well, all I can say is that I enjoyed it! No baseball! What’s a baseball loving boy to do? I guess if I lived out in Arizona, I could watch some fall baseball, but I don’t… so I won’t! HA! S The great Rod Stewart greets me this morning with his song: Every Picture Tells A Story…

The BIG News yesterday came from Germany, where Chancellor Angela Merkel announced that she was stepping down… This would be at the end of her term which happens to be 2021. Germany, right or wrong, had steady leadership through all the mess of the uncovering of debt in the PIIGS… (Portugal, Ireland, Italy, Greece), and the austerity plans, and the awful decision to allow so many refugees into the country… That’s my opinion, nobody else’s, so if you have a problem with me saying that, I hope you can go on without wanting to do physical harm to me!

That’s the problem in the U.S. these days, you can’t have an opinion that’s not of the ruling crowd, for if you do, you get met with physical harm… I’m just glad I can give my opinions on the internet, and the ruling crowds can’t find me! I don’t know whether to say Ha! Or I’m sorry!

OK, enough of that… The Dollar’s spell over the currencies remains in place, and yesterday, we saw more weakness in the currencies led by the Big Dog euro… Shoot, even the strong charging Brazilian real saw some profit taking and a loss, after the man they all wanted to win the election, won! Now, that, that has taken place, we’ll have to see where the real goes now… if, it’s anything like most of these politically charged currencies go, after “the fact”, the real has seen its best days… But then, we could actually see a Political leader get the things done he talked about during his campaign, and that would be good for the real… So, it’s a wait-n-see… But I’m leaning toward, the real have seen its best days…

I could be already wrong, as I just checked the real and it has recovered yesterday’s small loss and the rally continues… We’ll see for how long…

Gold looks to have lost about $5 on the day yesterday, and is down another $7 in the early morning trading today… I was looking over friend, and former colleague, Omar Ayles, Gold Charts-R-Us report, and Omar thinks that Gold in technical terms is ready for a breakout upward in price… I continue to received emails from dear readers who ask me why I think that Gold could breakout upward in price, with all the manipulation that I’ve talked about through the years… And my answer, always, is simple… One day the manipulators will go home, and when they do, and Gold is allowed to reach its potential price, well, I don’t think that potential price is going to be lower than it is right now!

OK, the U.S. Data Cupboard was quite interesting with its prints yesterday… First we had Personal Income, which slowed in Sept… And Personal Spending, which also slowed, but its gain was more than Personal income, so we spent more than we made once again… And then Core Inflation slowed in September… Inflation for the year to year, fell to 2.0% from 2.2%… And this leads me right back to what I kept saying when the Fed began this rate hike cycle, and tried to tell us they were attempting to get inflation to 2.0%… You DO NOT HIKE rates when you’re trying to let inflation run… You HIKE rates when you want inflation to stop… Our Fed is backwards, which is the nice way to say that by the way… So, now rates are rising, and inflation that the Fed worked so diligently to increase, is falling… Go figure, right?

I found this on Twitter last night… It’s Danielle di Martino Booth, talking about rate hikes… “New homes sales report was very weak. It doesn’t matter where mortgage rates are, what matters is how much interest rates have increased, becoming a depressant on consumer activity. That pans out in consumption, which drives our economy.” -Danielle di Martino Booth…

But will all this put a lid on rates? Not so fast there… As I’ve said before, the Fed is hell bent and whiskey bound to hike rates further, and will continue to hike them in December… That one’s a given, right? But what would happen to the dollar’s spell over the currencies and Gold IF the Fed held back and didn’t hike rates in December, due to all the bad data in housing, and inflation? So, there, I put it out there, two months early, but that’s the risk that will be hanging over the Fed’s FOMC meeting in December, like the Sword of Damocles…

Ok, back to the currencies… I came across an article in the Business insider that can be found here: https://www.businessinsider.com.au/fx-currency-aud-australia-dollar-china-yuan-cny-tariff-trump-merkel-2018-10
But for those of you short on time… The article talks about how the Aussie dollar (A$) has become the whipping boy for the currency traders, as the Chinese renminbi continues to slide further, even after the Chinese leaders said two weeks ago that they were going to stop the daily depreciations and stabilize the renminbi… Look, I’ve said this before, but there are times when You have to repeat yourself, and this is one of those times… The weakness in the A$ can be attributed to all sorts of things, but there just one thing that if changed would reverse this weakness, and that is a rate hike from the Reserve Benk of Australia (RBA)… It was thought, last year at this time, that the RBA would be hiking rates in the 1st QTR of 2018… Well, as we all know, that didn’t materialize, and so the A$ has weakness… You can blame all the outside influences that you want, but the major blame should be laid at the feet of the RBA…

And the euro has dropped downward again… I guess some of that could be attributed to the news about Merkel, for there is now an “unknown” that the markets will have to deal with… I think this recent bout of dollar strength, certainly gives those of you who have procrastinated and held off diversifying your investment portfolios, an opportunity to buy at cheaper levels… I always remember my former colleague, Ty Keough, who would tell people that when currencies dropped in price that “it was a good thing, because now they can buy more of them”… So True… So True…

I read this morning that the U.S. is going to have to finance $1.34 Trillion in the next year… That’s a whole-hell-of-a-lot-of Treasuries to issue, eh? At a time when foreign Central Banks are backing away from the Treasury auction window, and the U.S. consumer has tapped out… I know I told you all last year that by now the Fed would be thinking about reversing their rate hikes, and begin a rate cut cycle that ended with negative rates, and a Central Bank buying stocks, and bonds… And, well, that obviously hasn’t happened… yet that is… I still believe it will happen…

I was talking on the phone with good friend Dennis Miller of www.milleronthemoney.com and we touched on the subject of how all the bad things we’ve talked about that could happen, just seem to be put in corner and not allowed to come out… I reminded him of the great saying, about how the markets can remain irrational longer than you can remain solvent… This dark cloud hanging over the U.S. and it’s debt picture, continues to amaze me that it can go on, and on, and on, and on…

But, it all ends when the countries around the world stop buying, and using dollars for everything… That’s why I always highlight the news of a currency swap agreement being signed that removes the dollar from the terms of the trade, like the one that Japan and China signed last week. Look, like what I have to say here or don’t… But I have to say it… We’ve ticked off everyone in the world, and sent them to other lovers… Be it our handling of the dollar’s value, or our run up of debt, or our Trade Wars, the shine has come off the dollar folks… Which is why I’m so lost when I turn on the currency screens each day, and the dollar is till on top… Props… I used to use a three legged stool to illustrate what happens when a leg/ Prop is removed, and the biggest Prop for the dollar is the rate hike cycle…

The U.S. Data Cupboard today has the Case/Shiller Home Price Index (HPI) for August, which shouldn’t show the real drop that started in September, but we could still see some shaking of Housing’s foundation today… The stupid Consumer Confidence is also going to print… This index has gotten so strong, and I have no idea, except the stock market’s performance, why, but stocks are getting sold these days, so this will be interesting… not important, but interesting…

To Recap… Well, I climbed out on big fat limb a few times today, eh? The currencies continue to be under the dollar’s spell, Gold lost its footing, and the Business Insider things the A$ has become the whipping boy of currencies… We as a country will need to finance $1.34 Trillion this year… Attempt to get your arms around that one, folks… and then you’ll be like Chuck who gets lost when he sees the dollar on top…

For What It’s Worth… Well, I mentioned this above, the need to finance $1.34 Trillion this year and here’s article about just that… Put away the sharp objects first, and then click here: https://www.zerohedge.com/news/2018-10-29/americas-true-deficit-us-borrow-over-13-trillion-2018

Or, here’s your snippet: “Confirming recently reduced estimates of U.S. debt borrowing needs – mostly as a result of new funds brought in via Trump’s trade tariffs – the Treasury Department today lowered its estimates of fourth-quarter borrowings to $425 billion from the $440 billion forecast it made in July, while assuming an end-of-December cash balance of $410 billion, up from $390 billion 4 months ago.
The revised Treasury numbers bring the total net borrowing needs for calendar 2018 at $1.338 trillion, while borrowings for fiscal year 2018 (which ended on Sept. 30) amounted to just under $1.2 trillion.

The Treasury also released its first estimate of borrowing needs for the January – March 2019 quarter, which it expects to hit $356 billion, well below the $488 billion borrowed in the same quarter of 2018, while assuming an end-of-March cash balance of $320 billion.

Meanwhile, during the July – September 2018 quarter, the last of fiscal 2018, the Treasury borrowed $353 billion in net debt, up from the $329 billion it had estimated in July and ended the quarter with a cash balance of $385 billion, which was also higher than the $350 billion forecast previously. The increase in borrowing resulted from the higher end-of-quarter cash balance partially offset by higher net cash flows.

So why did the U.S. borrow $1.2 trillion in Fiscal 2018 even though the official budget deficit was reported to be $779 billion for the same period? That is mostly due to “off budget” items that Congress thinks shouldn’t be part of the normal budgetary process. It includes things like Social Security and Medicare, which vary from year to year, and can be anywhere from $200 billion to almost $500 billion.

Of course, since the U.S. Treasury ultimately ends up borrowing those dollars as the table above shows, the true deficit that adds to the debt is actually about 50% higher than the number discussed by the media.”

Chuck Again… That’s going to be a lot of Treasuries issued in the next year… I’m just saying…

Currencies today 10/30/18.American Style: A$ .7096, kiwi .6550, C$ .7630, euro 1.1352, sterling 1.2746, Swiss $.9976, European Style: rand 14.6586, krone 8.3942, SEK 9.1735, forint 285.95, zloty 3.8116, koruna 22.7825, RUB 65.69, yen 112.83, sing 1.3845, HKD 7.8460, INR 73.47, China 6.9538, peso 20.03, BRL 3.60, Dollar Index 96.92, Oil $66.60, 1o-year 3.11%, Silver $14.43, Platinum $835.07, Palladium $1,085.23, and Gold… $1,222.06

That’s it for today… Tomorrow I think I’m going to get into discussions I’ve had with dear readers about why I bang on the Fed so much… So, look for that! I have no idea why I climbed out on the limb so far and so many times today, must be this new feeling I have… I’m not holding anything back any longer… So you had better watch out! Tomorrow is Halloween, and it looks like the weather people are calling for a rainy Halloween here in the St. Louis area… That’s too bad for the little guys… R.E.M. takes us to the finish line today with their song: Losing My Religion… (and now I’ve said too much) which is me today, I think! I hope you can make this a Tom Terrific Tuesday, and remember to Be Good To Yourself!

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