Who Will Buy Our Treasuries, If China Backs Away?

A Pfennig For Your Thoughts

May 21, 2019

* Dollar bugs continue to rule the roost…
* What’s a nuclear option? Chuck explains…

Good Day… And a Tom Terrific Tuesday to you! Tom Terrific and his wonder dog, Mighty Manfred, need to pull Crabby Appleton ( me ) out of his crabby mood this morning… My leg was screaming at me all night, and I just couldn’t get comfortable without pain… UGH! I’ve lived with pain somewhere in my body since I was 21, when I first threw my back out, only to find out a few years later, that I had ruptured the disk and no amount of pain pills, acupuncture, chiropractic work was going to relieve it… It’s been one thing after another year after year, something else hurts me… Pain is part of my life I guess… if I had known I would live this long, I would have taken better care of myself in my youth, instead of hurling my body in football games… But what’s done is done… As my mom would say, “you made your bed, now lay in it”… Big Head Todd and the Monsters greet me this morning with their song: Bittersweet…

But I don’t let it get me down, or hold me back from doing what I want to do… Although I am very limited with what I can do physically these days, since my 2nd major cancer surgery in 2007… Next month is an anniversary for me that I rejoice in observing… In June it will be 12 years since I was diagnosed with Stage 4 cancer… I know, I’m lucky to have lived this long, but the one thing I always had in my mind, was that I wanted to see my kids grow, and I thought that my work in writing had not been complete, that investors needed me… I was kind of full of myself back then, but cancer took care of that!

I’m sorry that I’ve turned today’s letter into some Chuck info… Sorry… But in reality, there’s nothing really to talk about, as the dollar bugs still rule the roost…. The currencies and metals can’t find bids… There was more talk about tariffs yesterday, but in reality the cat is out of the bag with regards to the Trade War… It’s here… And the only thing we can hope doesn’t happen, is that the Chinese who can’t match the U.S. tariff dollar for tariff dollar ( in other words we import more of their goods than they import of ours), that they don’t invoke the nuclear option… What’s that I hear you asking? Well, it would be to either begin to sell Treasuries, or just not show up at the auction window any longer… That would require the Fed to step in and begin buying Treasuries again… only this time it wouldn’t be called, Quantitative Easing, for it would be the for survival of our economy! Because, as I’ve explained many times in the past, we as a country use the sale of Treasuries to finance out deficit spending… And you don’t see a major cut in deficit spending do you? Well then, somebody would have to buy the Treasuries!

And the Data Cupboard has basically nothing to help us make decisions… Yesterday, today and tomorrow are jam packed with Fed Head speakers…. You know, I really don’t care what they have to say any longer, because they don’t have any idea what’s going on in our economy… Tomorrow we will see the Fed’s FOMC Meeting Minutes to see if they did talk about rate cuts, or was Powell’s press conference after the last meeting, where they left rates unchanged, but changed their verbiage, was just a providing cover for the stock market…

Speaking of the stock market, a slow burn seems to be taking place folks… Sort of like the old adage that if you put a frog in boiling water it will jump out, but if you put him in water in a pot, and slowly turn up the heat, he’ll never notice until it’s too late…. Consider yourself warned… for the markets seem to want to turn up the heat on stocks very slowly…

The price of Oil seems to be the only anti-dollar asset that’s on the rise these days… But we’ve seen the game played before… The price of Oil rises, and brings back all the players again, and they then proceed to ramp up supply, which brings the price of Oil back down, and all the players go home again, and we rinse, lather and repeat…

And with the price of Oil rising again, that means the Russian ruble is also on the rally tracks… But the ruble’s daily moves are so minimal that they are hardly noticed, except for someone with a keen eye on rubles like me! HA! There! I finally had some feeling for what I was writing this morning… I knew it was there, it was just playing hard to get to this morning!

We will see 1st QTR Retail Sales from New Zealand today… But like I’ve been talking about in recent letters, it matters not, right now that is, that foreign data prints strong or expectantly… Not with the sentiment toward the U.S. green/peachback going on in the markets right now… Maybe the Fed’s FOMC Meeting Minutes will shake the tree and cause some dollar bugs to fall off the limbs today…

The U.S. Data Cupboard does have Existing Home Sales for us today, but since this data has been on the slippery slope downward in recent months, traders just shrug it off, so there you have it… I believe the data will disappoint once again, but who’s counting, besides me?

To recap… The dollar bugs still have the conn, and no amount of bad stuff going on in the U.S. (Maybe a slow burn in stocks, among other things) will change the sentiment of dollar traders… Chuck talks about the nuclear option that China holds… But doubts that it comes to that… Gold can’t find a bid, but the price of Oil continues to ratchet higher daily…

For What It’s Worth… I was looking through Reuters yesterday, just perusing articles that were the re when I cam across this one, about GDP and Debt… When an article has a title that goes like this: U.S. growth would have contracted without trillions in government, consumer debt: It’s bound to catch my eye… I think it’s a good one, and it can be found here: https://www.reuters.com/article/us-funds-doubleline-gundlach/u-s-growth-would-have-contracted-without-trillions-in-government-consumer-debt-gundlach-idUSKCN1SK2KW

Or, here’s your snippet: “U.S. growth appears to be based “exclusively” on government, corporate and mortgage debt and the economy would have contracted if the United States had not added trillions in debt, Jeffrey Gundlach, chief executive of DoubleLine Capital, said in an investor webcast on Tuesday.

“Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased,” said Gundlach. “One thing everybody seems to miss when they look at these GDP numbers … they seem to not understand that the growth in the GDP it looks pretty good on the screen is really based exclusively on debt – government debt, also corporate debt and even now some growth in mortgage debt.”

If the U.S. Treasury had avoided increasing its debt then nominal GDP would have been negative in three of the last five years, “even with all of the exact mortgage, corporate, and student loan growth that occurred,” Gundlach told Reuters in an email, following the webcast.

“If those non-Treasury debt categories had not grown, either, GDP would have been very negative.”

Chuck again… You tell ‘em Jeff! The article goes on to explain his position on this, so like I said I think it’s a good one…

Currencies today 5/21/19 American Style: A$.6875, kiwi .6504, C$ .7456, euro 1.1146, sterling 1.2692, Swiss $.9898, European Style: rand 14.4353, krone 8.7857, SEK 9.6699, forint 293.12, zloty 3.8646, koruna 23.1284, RUB 64.54, yen 110.27, sing 1.3793, HKD 7.8492, INR 69.70, China 6.9138, peso 19.08, BRL 4.0980, Dollar Index 98.10, Oil $63.60, 10-year 2.42%, Silver $14.43, Platinum $814.98, Palladium $1,330.15, and Gold… $1,275.38

That’s it for today… Again, sorry about all my whining above… Our Blues are back on home ice tonight for Game 6, which could be the deciding game in the series if they win… Come on Boys, win it in front of your home crowd! The K.C. Royals come to town for 2 quick games starting tonight, that is if the torrential rain that’s being predicted stays away for the game. Every time the Cardinals play the Royals, I have bad memories of a World Series being stolen from us by Don Denkinger… The Umpire that called a runner safe at first, but was out by 2 feet! No replay in 1985, so that was that… Sort of like the 5th down play at Missouri when they had beaten the eventual national champions that year, Colorado, but the refs forgot how to count… And then in game 3 of the hockey series, the NHL stole a game from the Blues… Why does this stuff happen to my fave teams? AC/DC takes us to the finish line today with their song: You Shook Me All Night Long… Which is exactly what that cellulitis pain in my leg did to me last night! UGH! I hope you have a Tom Terrific Tuesday, and will continue to Be Good To Yourself!

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