A New Inflation Hedge?

June 21, 2022

* The dollar continues to get sold… 

* The Swiss National Bank Hikes rates! 

Good Day, and a Tom Terrific Tuesday to you! A real pitcher’s duel last night in Milwaukee, had the Brewers besting my beloved Cardinals 2-0. It was the first game of 4 game set VS the Brewers, so it would behoove the Cardinals to win the next 3 games! Well, my Father’s Day was simply delightful, all my kids were here, along with the grandkids, and the temps had backed off a bit making it a picture perfect day to be outside! My two sons took over the cooking for the day, and did a bang up job! If only the Cardinals could have won on Father’s Day, that would have topped the day! I got to see my dentist yesterday, and she told me I was doing fine, with my teeth that is… The ones I have remaining are holding up fine. The Beatles greet me this morning with their song: Norwegian Wood… “I once had a girl, or should I say, she once had me?”

Well, forget about all the nastiness in the markets, and the economy that is failing on all 8 cylinders right now, because Fed St. Louis President, James Bullard, gave a speech yesterday, and said, (you won’t believe these words came out of his mouth) “That he expects the U.S. economy to remain robust”… Still trying to sway the people into believing the lies that the Gov’t, Treasury, and now the Fed Heads keep spewing out of their mouths, so that the people don’t turn to rakes and pitchforks and storm the gates… Or, more likely, vote the bums out in November… But can you believe he had the braziness, or the audacity to say something like that, when the first quarter’s GDP was negative -1.6%, and the 2nd QTr’s GDP is forecast to be flat, with no growth, and probably even negative, thus making this a Technical Recession… You know, if I had been in the audience, when Bullard was making this claim, I would have, put my hand in the air, and started in my best Arnold Horshack voice, “Call on me, Call on me, Call on me, Mr. Kotter, I mean Bullard!

And I would have asked him to show the proof of a robust economy, and to prove the folks that compute GDP that they were wrong… But since these Fed Heads have rock star status, no one, and I mean no one in the audience even thought to question him!

Well, the dollar had been getting sold since the middle of last week, and yesterday was no exception. The dollar saw selling throughout the day. The BBDXY has lost 4 index points since last Thursday morning. The euro is back above 1.05, and Gold had a good day last Friday, but didn’t see enough bids to keep Gold from closing the day at -$1.10, to close yesterday at $1,839.70, and Silver lost 8-cents to close yesterday at $21.66….The Boys in the Band kept a lid on Gold all day, not allowing to get its head above water all day…

The price of Oil rebounded $2 yesterday to close the day with a $112 handle, and just what’s going on in bonds is becoming stranger than fiction… Bond yields have dropped since the Fed hiked rates last week… Go figure… So, do you think it’s the Fed Heads doing the buying, even though they pinky swore that they wouldn’t buy bonds again?

In The Overnight Markets last night… The dollar continued to get sold, with the BBDXY  losing another 1 index point to trade this morning at 1,257. The euro has bumped higher, as is always the case when the dollar loses ground.  The Russian ruble continues to be the best performing currency this year, even after its horrendous start! The Swiss franc has bumped higher after the SNB rate hike last week, but c’mon the Swiss banks still charge you for deposits!  

The price of Oil has slipped again overnight, and fallen back to a $109 handle this morning, and Bonds continue to get bought, bringing the yields down, in a case of mistaken identity… I say that because, people are buying the 10-year, thinking that its yield has peaked… 

Well, late last week, the Swiss National Bank (SNB) hiked their internal rate 50 Basis Points from negative -.75% to negative -.25%, their first rate hike in 15 years! And guess what Deutsche Bank then announced? Try not to laugh out loud at your desk, you could get in trouble, or wake someone up! Deutsche Bank announced that they believe that after the rate hike that the Swiss franc is now a better hedge against inflation than Gold…. They truly said that! A currency that charges you for holding a deposit, is better than Gold at hedging inflation? LOL!

Well, now wait a minute there Chuck-a-roo… It is true that while you have Swiss francs on deposit, you’ll get charged, but for the most part the currency isn’t manipulated like Gold is subjected to on a daily basis… But, I’m still not buying it! There was a time about 8-10 years ago, when the SNB put an artificial cap on the franc’s upward movements to keep it from getting out of line with the euro… But, eventually, the floor/ ceiling didn’t last, and it was scrapped… Also, remember the man that put the cap on the franc, only to find out his wife had profited Big Time and he was put to shame and removed at SNB President…

That puts the Bank of Japan and the European Central Bank as the only two major Central Banks that haven’t done anything to combat inflation in their countries… The Bank of Japan (BOJ) is a different animal that I’ve explained previously, why they will drag their feet to the rate hike window, but the ECB is just plain stupid…  I present my case here: Earlier this month, the ECB met and instead of hiking rates then, they announced that even though inflation is soaring in the Eurozone, they would wait until July to hike rates… Wait, What?  They must think that the soaring inflation will magically disappear in June, and they won’t have to hike rates come July!  Stupid, stupid, stupid! 

There was an article in the Atlantic this past weekend that talked about how the end of the Everything Bubble doesn’t mean that the little guy will be helped… You, know, that the Everything Bubble, was a result of the Fed’s zirp (zero interest rate policy), printing more currency than at any time in the past, and buying bonds of zombie companies, to keep them afloat… Well, as Meatloaf once sang: Two out of three ain’t bad”… In that I mean that the Fed Heads have begun to aggressively hike rates, to end ZIRP… They have said, that they are out of the bond buying business… But I’m sure Money Supply isn’t taking on any water right now, and the proverbial printing press is still working overtime… So, 2 out of 3…

But who knows for sure what the heck the Fed Heads are doing right now with Bonds… As I stated above, bond yields have fallen since the Fed Heads hike rates last week… When bond yields drop, that means the price of the bond has gone up, and the only way for that to happen is the bond sees buyers lined up, down the street and around the corner, past the deli, and the laundry… Or, in lieu of many buyers, one HUGE BUYER could be taking up the slack… And that one HUGE BUYER is….. You’re going to have to use your own imagination, about who that could be, and I’m sure you will have no problem in coming up with who that might be!

I don’t know if you saw this or not, I’m guessing you didn’t… But Reuters reported last week about a meeting taking place overseas, that the members are calling the “new G8”… Let’s check in to see what’s up: “The speaker of the Duma, Vyacheslav Volodin, may have created the defining acronym for the emerging multipolar world: “the new G8”.

As Volodin noted, “the United States has created conditions with its own hands so that countries wishing to build an equal dialogue and mutually beneficial relations will actually form a ‘new G8’ together with Russia”.

This non-Russia-sanctioning G8, he added, is 24.4% ahead of the old one, which is in fact the G7, in terms of GDP in purchasing power parity (PPP), as G7 economies are on the verge of collapsing and the US registers record inflation.

The power of the acronym was confirmed by one of the researchers on Europe at the Russian Academy of Sciences, Sergei Fedorov: three BRICS members (Brazil, China, and India) alongside Russia, plus Indonesia, Iran, Turkey, and Mexico, all non-adherents to the all-out Western economic war against Russia, will soon dominate global markets.”

I hope the “new G-8” will have more to do with what’s going on in the world that the G-8 that the U.S. runs… I think that in all of the years that I’ve been writing the Pfennig, it marks 30 years this year, I only recall one time the U.S. led, G-8 met and came back with a message of currency intervention to save the euro, which at the time was falling toward parity with the dollar… One time! Only one time… In that case I’m staying home and relaxing in my PJ’s until noon, no need to travel to what-ever-the-name-of-the-country-du-jour-is… I’ll just call it in, and not wait on hold while the votes are counted!

The U.S. Data Cupboard yesterday, only had the aforementioned James Bullard speech, and today’s Cupboard has more speeches form the Fed Heads, and tomorrow, Fed Chairman Powell, will face the music of the Senate Banking Committee, while the actual data prints just aren’t on the docket for this week, so far… I long for the days when we would see a plethora of data prints, and not just speeches by the Fed Heads!

To recap… The dollar continues to see selling, that began in the middle of last week…The euro is back above 1.05… In all that dollar selling, Gold has had a governor put on it’s upward movements, by the price manipulators… The Swiss National Bank hike rates last week, but their internal rate on deposits is still negative…  And the overnight markets saw more dollar selling, but Gold & Silver are in the red to start the day today. 

You know, today’s traders, for the most part, have never seen a bull market! It’s comforting to know that they’ll deal with all those derivatives when they come flying off the shelves to make the holder good on the trade… NO! that isn’t comforting at all!

For What It’s Worth… I came across this article this past weekend, and made a note to come back to it, and when I did, I liked it a lot, for it is a very intelligent person, saying the “all-everything bubble” is getting popped, and the article can be found here: Economist Mohamed El-Erian says that central banks are catching up to inflation after years of loose monetary policy | Fortune

Or, here’s your snippet: “Wednesday’s decision by the Federal Reserve to hike interest rates by 75 basis points was its biggest hike since 1994, and economists are starting to digest what a paradigm change it is.

One of the world’s most prominent Fed watchers, Mohamed El-Erian, chief economic adviser of financial services firm Allianz and president of Queens’ College at Cambridge, says it’s part of a “great awakening” for central banks, as several others took action this week.

For instance, the Swiss National Bank imposed a 50 bps increase, its first since 2007, and the Bank of England initiated a more modest hike of 25 bps. The European Central Bank (ECB) recently announced at an emergency monetary policy meeting that it would initiate its first rate hike in over a decade next month and continue with another in September.

Before this spate of dramatic hikes, central banks had been significantly leading investors astray, he said on CNBC’s Squawk Box on Thursday.

“It’s about time we exit this artificial world of predictable massive liquidity injections, where everybody gets used to zero interest rates, where we do silly things where there is investing in parts of the market we shouldn’t be investing in, or investing in the economy in ways that don’t make sense,” he said. “We are exiting that regime, and it’s going to be bumpy.”

El-Erian is referring to the fact that for most of the past 14 years, monetary policy in the U.S. and internationally has been consistently loose, with the Fed and other central banks setting interest rates low and letting money flow to commercial banks by buying up assets and stocks. (Some critics argue that the 1990s were also extraordinarily loose.) That spurred economic growth in the face of several economic crises but also led to multiple economic bubbles—from housing to crypto to VC-backed subsidies for things like cheap Uber prices—existing at once. Now, all those bubbles are poised to dissipate as banks tighten their policies and stop the free flow of cash.”

Chuck again… El-Erian goes on to say that the impetus of this shift was the 75 Basis Points rate hike by the Fed. Whatever it is that’s causing this shift, I’m all for it!

Market Prices 6/21/2022: American Style: A$ .6947,  kiwi .6331,  C$ .7722, euro 1.0553, sterling 1.2261, Swiss $1.0333, European Style: rand 15.9345, krone 9.8061, SEK 10.0818,  forint 375.78,  zloty 4.4011,  koruna 23.3955, RUB 54.71, yen 135.94, sing 1.3862, HKD 7.8500, INR 78.06, China 6.6995, peso 20.18, BRL 5.1906  BBDXY 1,257.96,  Dollar Index 104.30, OIl $109.91, 10-year 3.28%, Silver $21.69, Platinum $941.00, Palladium $1,864.00, Copper $4.05, and Gold… $1,833.37

That’s it for today… The hot temps are back today here in the Midwest. I heard someone say the other day, “we’re not even to summer yet”… I thought, hey! we’ve seen these hot June’s before, this is nothing new, and besides I’d rather it was hot than cold!  I watched the 007 movie, No Time To Die, and without giving away the ending, I saw something in the movie that I never would have thought I would ever see! I’ll leave that there… Little Evie stayed with us on Saturday night, and we had her in the pool…She is fearless! I think she might be ready to swim by the end of summer! She has a dad that’s a swim coach, and aunt that used to be a swim coach, and an uncle that was quite the swimmer too… Three Dog Night takes us to the finish line today with their song: Out In The Country… I hope you have a Tom Terrific Tuesday today, and please remember to Be Good To Yourself!

Chuck Butler