Rocktober 4, 2018…
*ADP report sends the currencies down…
* Gold can’t follow up Monday’s gains…
Good day… And a Tub Tumpin’ Thursday to you… I’m not going to be able to participate with you on any Tub Thumpin’, as I’ve hit a brick wall this morning, with regards to answering the bell… Every once and a while, the chemo gets to me, folks… that’s all I can say. Otherwise, I’ve been able to tolerate it to the degree that I can write each day, and no one knows how badly I feel… And today, well, I feel badly, but not bad enough to keep me from writing, just bad enough that I won’t be doing any Tub Thumpin’! Today is 10/4… Remember those old days of CB radios? 10/4 good buddy! Charlie Daniels greets me today with his song: Long Haired Country Boy… A rich man goes to college, and a poor man goes to work, a poor girl wants to marry and a rich girl wants to flirt… I came from a relatively poor family of 7 kids, and I had to go to work… I didn’t begin any college education until I was married, had two kids, and went to school at night… So, I guess old Charlie Daniels wasn’t wrong!
Well, the ADP Employment report that I told you would print yesterday, threw a cat among the pigeons, by printing a blowout number of jobs created in September… According to ADP 230,000 jobs were created in Sept. That got the dollar bugs all excited and they came out of the wallboards by the truck load buying dollars left and right, and by the end of the day the euro had fallen below 1.15… I guess we’ll have to wait-n-see if this holds true when the BLS prints their version of the jobs report tomorrow morning… Until then, we’re stuck with the dollar bugs singing and dancing in the streets…
On a sidebar, a few years ago, I had a dear reader send me question and ask me why I call the dollar buyers, dollar bugs… And I replied, “ well, they call us Gold lovers “gold bugs”, so I’m just returning the favor”…
Less than a week ago, the Aussie dollar was trading above 72-cents, and this morning it’s trading below 71-cents, and the euro was above 1.17 and this morning its below 1.15… And once again, Gold couldn’t hole its price above $1,200… The price of Oil surged higher to trade above $76 a barrel, and the only Petrol Currency to get any love from the move was the Brazilian real, which has been the basket case currency for the last year, as first it was lower Oil prices, and then Political circuses that caused investors to drop reals like a bad habit…
The Brazilian real, at one time in the past was the best performing currency of the year… And the fall from grace was not pretty… But here we are, with the real trading below the 4 handle for the first time in a month of Sundays. Or probably longer, as this circus with Brazil has been going on a long time! But like I said something is going on here and unfortunately, it’s political… We’ve ridden this horse before, and this isn’t my first rodeo folks… Political gains in a currency can be erased in a heartbeat, so be careful here… But ride the horse as long as it doesn’t buck, right?
And all the hoopla and hype about the Hong Kong dollar/ honker last week, has fallen by the wayside, and the honker is nearly back to where it was before there was a euphoria about a rate hike in the country took the currency for a rally ride that shocked the world of currency traders and investors… But like I said, a week later, and all the euphoria is gone… The hype is gone, the hoopla is gone, and so are the gains the currency booked last week…
So, like I said above, Gold wasn’t allowed to hold its gains above $1,200 yesterday, and closed below the figure on the day. So, who’s next in line to be caught rigging the price of Gold & Silver? First it was Deutsche Bank, and then yesterday I told you about Bank of Nova Scotia… Wouldn’t it be great for Eliot Ness to round up all the perpetrators of price rigging and bring them all in to be booked and locked away? OK, I probably dated myself there with the reference to Eliot Ness… But if you’re too young to know who I’m talking about, I apologize, but Eliot Ness was responsible for heading up the Untouchables, and they took down Al Capone! I hope you see what I’m talking about now?
Don’t look now, but the U.S. Debt Clock says the U.S. current Debt is $21.6 Trillion… That’s a gain of more than $1.27 Trillion in the fiscal year of 2018, which just ended at the end of September, by the way… And remember the tax cuts didn’t go through until mid-year… I was talking to someone the other day, and said that during the Bush administration years, his worst deficit year was $740 Billion, which seems like chump change now, right? During most of the previous administration’s years the deficit each year was more than $1 Trillion… They tailed off in the last couple of years, but now their back to being above $1 Trillion, and like was telling this person, I won’t be long before our year deficits are $2 Trillion… And all that’s going to just work out just peachy dandy, don’t you worry your little mind about that the Gov’t has it all under control… Yeah, you can put that up there with believing in all the things they told you as a kid were real only to find out later they weren’t…
The Japanese yen is sliding… A week or so ago, I wrote about how the safe havens were being unwound, and it continues… I guess no one out there in investment land feels that all this sunshine and lollipops is going to end at any time… This leads me to believe the complacency in the markets is at a place that the great economist, and a mentor of mine, Hy Minksy, would call a Minsky Moment…
Remember when the tech stocks AKA dot.com stocks were soaring and there weren’t too many people out there saying that it was going to collapse and losses would mount up… Or, how about the financial meltdown… Me and few others, were warning anyone that would listen to us that there was a housing bubble, and that houses were being used as ATM’s, but again, there weren’t many people that were worried, including Fed Chairman, Ben Bernanke, who thought housing prices would never collapse, like the did… So, I’m just saying folks… When the markets participants become really complacent, the hammer is about to be dropped on them… So be careful out there will you please?
Oh, and one more point on the markets getting complacent… The yield on the 10-year Treasury has jumped higher to 3.22% this morning… There are two things at work here… First, the bond guys finally believe the Fed is going to keep raising rates, and second, they’ve lost the belief that the economy is going to suffer at some point…
And it’s not just the 10-year moving higher with its yield, the 5-year is 3.06%, and a 12-month T-bill is 2.61%… I tell you this to show you that you don’t have to go out 10 years to get any yield… In a rising rate environment it’s always better to stay short in tenure on your bond holdings so that when they come due you can roll them into a higher yielding bond… Booking the interest, and rolling the principal, now that’s a store of wealth idea, now isn’t it?
The U.S. Data Cupboard has August Factory Orders for us today… You might recall that July’s print was negative? Well, it was, and that leaves us question marks about August’s print. I do expect it to be positive, but just not as strong as it should be at this point of the expansionary cycle…
To recap… The ADP Employment threw a cat among the pigeons yesterday, and got the dollar bugs to come out of the wallboards and do some dancing in the streets. All this left the euro trading below 1.15, and the A$ below 71-cents… Gold couldn’t follow up Monday’s $14 gain and lost $5.70 on Tuesday. Oil continue to rack up the gains and now trades with a $76 handle. But the only Petrol Currency to get some love was the beaten and bruised Brazilian real… go figure!
For What It’s Worth… Well, I had a couple ideas stacked up today, and went with this one, from Nomi Prins, who I really enjoy reading her stuff, and this time she’s talking about zombie companies… Pretty interesting stuff, and can be found here: https://dailyreckoning.com/worlds-most-important-bank-issues-urgent-zombie-alert/
Or, here’s your snippet: “So today we stand near – how near we don’t yet know – the edge of a dangerous financial precipice. The risks posed by the largest institutions still exist, only now they’re even bigger than they were in 2007-08 and operating in an arena of even more debt.
Now the Bank for International Settlements (BIS), or the “central bank of central banks,” is sounding a new alarm on this policy.
In its recent quarterly report, the BIS warned that low rates have catalyzed an increase in the number of “zombie” firms. The number of such firms has now risen to an all-time high.
Zombie firms are companies “that are at least 10 years old, yet are unable to cover their debt service costs from profits.” Their prospects for future growth aren’t so hot either.
The problem is that once a company becomes a “zombie” it tends to stay a zombie. That phenomenon is only getting worse. The BIS disclosed that “whereas in the late 1980s zombie firms had a 60% chance of staying in that condition the following year, the probability reached 85% in 2016.”
Zombies created from an influx of central bank money aren’t good long-term investments. It’s one thing for a company to take on debt to grow, but it is another to take on debt simply to re-pay other debt.”
Chuck Again… yes, not all debt is bad, as long as it’s repaid… and that’s all I’m going to say about that!
Currencies today 10/4/18… American Style: A$ .7085, kiwi .6492, C$ .7770, euro 1.1499, sterling 1.2978, Swiss $1.0084, European style: rand 14.6582, krone 8.2235, SEK 9.0414, forint 281.94, zloty 3.7440, koruna 22.4255, RUB 65.60, yen 114.29, sing 1.3797, HKD 7.8345, INR 73.74, China 6.8679, peso 19.01, BRL 3.9105, Dollar Index 95.88, Oil $76.38, 10-year 3.22%, Silver $14.65, Platinum $823.75, Palladium $1,058.94, and Gold… $1,199.01
That’s it for today and this week… Tomorrow’s a Jobs Jamboree Friday, so you’ll have that going for you! My beloved Missouri Tigers play on Saturday so that’ll be my day! Baseball is cruel… One day the Cubs are in first place, where they’ve been most of the season, and the next day, they’re out of the playoffs… That’s cruel man… I went to get a massage yesterday, my back has really been giving me fits, so it’s feeling much better this morning… I know how to get my back good again… lose weight! Last winter when I was so sick every day, and eating was the last thing on my mind, I lost a ton of weight, and my back felt great! But a change in medicine, changed all that, and eating was fun again! Too much fun! UGH! On well, people around here don’t remember what I looked like before, so fat, bald, and short, is what I am now! And with that the great Al Stewart takes us to the finish line today with his song: The Year Of The Cat… I hope you have a Tub Thumpin’ Thursday, and a Fantastico Friday tomorrow! And please… Remember to Be Good To Yourself!
Chuck Butler