Rocktober 18, 2018
* Gold hasn’t been able to follow up it’s big gain…
* Fed meeting minutes send bond yields higher!
Good Day… And a Tub Thumpin’ Thursday to you… I’m hoping to include myself in your Tub Thumpin’ Today, because, well, I can! How about that! I had a nice meeting with my heart doc yesterday, and well, I feel good! I woke up this morning with the alarm, and I was in the middle of an interesting dream, so I turned the alarm off, and hoped I would return to the dream… That didn’t happen, but I did begin a new dream! And so, why this letter is later than usual… The Dodgers and Red Sox have leads in their respective League Championship Series. Boy the TV executives would be happy with that World Series matchup…. 10CC greets me this morning with their song: Dreadlock Holiday…
So, yesterday, the dollar continued its rebound from the night before, and pushed the euro down to just above 1.15. There wasn’t anything data wise to rally the dollar, in fact, if you want to get down to the cheese that binds, U.S. housing was weaker in Sept. than in August… A sign? Well, maybe, we’ll have to watch it… And on top of the weaker data in housing… The markets had this to contend with:
President Donald Trump plans to withdraw the U.S. from a 192-nation treaty that gives Chinese companies discounted shipping rates for small packages sent to American consumers, another escalation of his economic confrontation of Beijing.
Instead of us backing up a bit because the economy seems to be shaking at its foundation with these Tariffs, we go a step further, and the dollar rallies? I guess one of these days, I’ll get to sit at the grownups table and hear how all this happens… But until then… I’m as confused as you as to why the dollar bugs continue to party… One day, it’s “sell the dollar, the tariffs are awful.” And the next day it’s “buy the dollar, the tariffs aren’t that bad”… Pick one, please! I was driving on the interstate yesterday, and there was a car in front of me that couldn’t decide which lane they wanted to be in… I stayed back and kept saying, come on, pick one, I don’t care, which one, just pick one…
That’s the message I would like to give to the traders of currencies and metals… Look, the world is turning its back on the dollar, but you dollar bugs don’t care, for you have a Central Bank that’s going to keep hiking rates, come hell or high water! But it’s all going to come crashing down on you one day… and not to far in the future, either! So, go ahead, dance your dance today, for tomorrow, the music may be gone…
Well, yesterday’s BIG EVENT under the circus tent was the release of the Fed’s Meeting Minutes from their last meeting in Sept, when they hiked rates… The minutes were pretty much what I expected them to be, a rate hike jamboree among the Fed Heads, with most of them being hawkish, and that got the bond guys all frazzled, and the next thing you knew was bond yields climbing higher once again… The 10-year Treasury’s yield is back to 3.21% this morning…
I have to question these guys for this move, for what in those minutes surprised you? I mean the Fed Heads hike rates last month at the meeting, did they expect the Fed Heads to be Eeyore on them or what? Another case of young traders, not looking behind the curtain, around the corner, and under the hood for clues as to how they should trade…
The price of Oil plunged $2 in the past 24 hours on news that U.S. storage of Oil has really bulked up… And the Petrol Currencies saw some slippage too. I have to question this drop in the price of Oil too, given what’s going on in the Middle East, and all the saber rattling going on right now… But I’m not going to spend an enormous amount of time thinking about it for it is what it is…
Ok… Lola is singing again… do you hear her? Lola is what I call Goldman Sachs… The old saying was, “what Lola wants, Lola gets”, which is how I view Goldman Sachs… Well, Lola apparently doesn’t like the Trade War, and tariffs… Here’s something that I think will begin to filter through the markets… “US sanctions policy against Russia undermines dollar’s reserve currency position” – Goldman Sachs.
We’ve already hear the Ford Motor Co., Harley Davidson, and a few other U.S. companies complain about the tariffs, and now Lola decides to throw her 2-cents into the ring… Soon, we will begin to hear more calls to end the tariffs… At least that’s how I see it, and how things have worked before whenever Lola decided how she wanted things to go…
Gold lost a couple of bucks yesterday, and well, I’m disappointed that Gold hasn’t been able to follow up last Thursday’s $30 rally… Since then, Gold has been back and forth, up and down, with no follow through, and that usually doesn’t bode well for an asset, when there’s no follow through, folks…
The U.S. Data Cupboard had the Housing Data (starts and permits) yesterday, and both showed a big drop in numbers from the previous month… And then a quick look at Mortgage Applications shows another big drop in the past few weeks… Other than a couple of outlier weeks, mortgage applications haven’t been this low since 2000… Oh, and the reason? Well, there’s a perfect storm here working against housing… 1. Home prices are too high, and 2. Mortgage rates are bumping up against 5%…
But not to worry, there’s no chance of another housing crunch… NOT! There’s a HUGE chance of another housing crunch, with the Fed on the rate hike cycle that doesn’t look like it can stop! I can’t help but to keep pointing out that the Fed started this rate hike cycle very late in the growth cycle for the economy, and that’s never worked out for a country… I’m just saying…
And all this debt… We just booked another year of extraordinary debts, and we’re already off and running in the new fiscal year, with $138 Billion in debts already booked in the first 11 days of the new fiscal year… I’ve got a good piece on this in the FWIW section today… Which asks the question that I keep asking… Who’s buying our Treasuries to finance this debt explosion?
To Recap… The Fed Meeting Minutes were the Big Event under the circus tent yesterday, and from the reaction of the bond guys, they were surprised at how hawkish the Fed Heads were… Chuck calls them out for this thinking… President Trump upped the ante on the Trade War, with China, and the dollar rallied… Chuck wants a seat at the adults table so he can learn how this happens, and Gold dropped 2 bucks on the day, with no follow up from last Thursday’s $30 rally…
For What It’s Worth… OK, I already gave you a hint as to what this is about. Debt is exploding and someone has to be buying our Treasuries… This article explores that question, and can be found here: https://wolfstreet.com/2018/10/16/who-bought-the-1-6-trillion-of-new-us-national-debt-treasury-securities-foreign-domestic/
Or, here’s your snippet: “
As a flood of US debt washes over the globe, someone has to buy.
So far in this fiscal year, which just started on October 1, the US gross national debt – the total debt issued by the US government – has jumped by $138 billion in just 11 business days, fueled by a stupendous spending binge and big-fat tax cuts, to a breath-taking $21.654 trillion, after having jumped $1.27 trillion in fiscal 2018. And these are the good times!
So who owns and buys all this debt? This is a critical question going forward, because the flood of new debt inundating the market is spectacular, and someone better buy it. Today we got another batch of answers from the US Treasury Department’s TIC data on this increasingly edgy topic.
In August, foreign private-sector investors (banks, hedge funds, individuals, etc. outside the US) and “foreign official” investors (central banks, governments, etc.) owned $6.287 trillion of marketable Treasury securities. This was up $37.6 billion from August last year but was about flat going back to the beginning of 2016.
Over the same 12-month period through August 31, 2018, the US gross national debt jumped by $1.614 trillion. So who bought it?
The Biggest holders didn’t buy, they shed:
China’s holdings of Treasury securities have been inching down ever so gingerly with its holdings at the end of August at $1.165 trillion, down $37 billion from a year earlier.
Japan’s holdings fell by $72 billion year-over-year to $1.03 trillion and are now down by $210 billion from the peak at the end of 2014″
Chuck again… No sign of who is buying though… and it’s all beginning to become quite suspicious to me, how about you?
Currencies today 10/18/18… American Style: A$ .7144, kiwi .6573, C$ .7667, euro 1.1518, sterling 1.3108, Swiss $1.0069, European Style: rand 14.2339, krone 8.2116, SEK 8.9666, forint 279.50, zloty 3.7280, koruna 22.4405, RUB 65.43, yen 112.46, sing 1.3778, HKD 7.8391, INR 73.42, China 6.9233, peso 18.90, BRL 3.7119, Dollar Index 95.53, Oil $69.05, 10-year 3.21%, Silver $14.51, Platinum $828.00, Palladium $1,066.00, and Gold… $1,224.00
That’s it for today… And this week… Man, I sure don’t like having to get our the long pants and long sleeve shirts for these chilly days… I’m a shorts, and golf shirt kind of guy. Getting dressed for chilly days, is like putting on a suit of armor for me… UGH! See how quickly I became that? Just 1 year removed from going to an office every day! At least once a week from now until something is announced, I’m going to be begging the Cardinals to sign Bryce Harper… And with that… the group called Madness takes us to the finish line today with their 80’s song: Our House… (that’ll make Rick happy! HA!) I hope you have a Tub Thumpin’ Thursday today, and a Fantastico Friday tomorrow, and remember to Be Good To Yourself!
Chuck Butler