Bullard Says The Manufacturing Sector Is Already In Recession!

September 23, 2019 

*  Dollar bugs regain the conn on the currencies

* Chinese Trade Delegation cancels trip to the U.S. … 

Good Day… And a Marvelous Monday to you! Exciting weekend for yours truly, as my beloved Cardinals swept the Cubs in Wrigley, four games! All four games were 1-run victories, so a lot of hand wringing was done… Good thing good friend, Duane, came down to watch the games with me, who knows what I might have done without company! 6 regular season games to go, and their magic number to win the division is 4… The division win is the goal because you don’t want to have to play that one and done game for the Wild Card… Melvin and the Blue Notes greet me this morning with their song: if You don’t know me by now….. I few years ago, Dane Moody, a young guy on the currency desk said, “I think I’ve got you stumped on this one Chuck, who sang If You don’t know me by now?” And I replied, “Melvin and the Blue Notes”… He was shocked! He thought he had stumped me! Little did he know that it was one of the many songs on my iPod!

OK… The currencies didn’t have a good day on Friday, and couldn’t hold their small gains they had garnered throughout the week, but Gold showed them how it was done, and gained $18 on the day… I continue to find it quite interesting that even with the dollar gaining ground, it’s basically getting sold to buy Gold… 

Gold’s rise began when it was learned that a Chinese trade delegation cancelled a visit to the U.S. So… just when the markets thought everything was hunky dory regarding the Trade War, they have this thrown at them from left field… Gold is still well bid this morning and has added an additional $2.50 to the $18 it gained on Friday. 

Speaking of Gold… I realized late last week that I had been pretty tough on the Beaver, I mean JPMorgan last week, as the prosecutors called their metals desk was “A Criminal Enterprise”… Well, so that I’m not put down as a JPM hater, let’s just say that they aren’t the only one to blame for Price fixing and manipulation… How about the metals exchanges? They allowed these traders to blatantly rig the metals markets for how long? How about the regulators? The CFTC continually said they saw no sign of price manipulation or fixing…. But remember former CFTC head, Bart Chilton, on his deathbed said that the CFTC did find things, but couldn’t nail down one person responsible… Trust me on this one, JPM was not the only pawn in this chess game to keep the dollar A-number-one in investor’s minds… And that’s all I have to say today about that!

What caused the turnaround in the dollar and currencies has got me a bit by the tail this morning.  All last week, the currencies would book small gains VS the dollar, and then when the Chinese announcement became news, the dollar bugs came out from their wall boards, and began scurrying across the floor, as if the lights were turned on…   

There is a very strange thing going on in the repo market folks, and just knowing this I would have thought that the dollar bugs would be hiding, not scurrying across the floor!  

The cash liquidity crunch continued throughout the week last week, as the Fed had to come to the rescue every day from Tuesday to Friday such is the liquidity squeeze being experienced. Wait! What? I thought that U.S. banks were supposed to be flush with cash? So, how in the world is it that the Fed has had to step in and provide cash liquidity in the repo market every day, except Monday, last week? Something’s rotten in Denmark, as they used to say… And I’m afraid that this isn’t going to turn out to be something that just runs off a duck back! 

Well, what do we have here? It appears that St. Louis Fed Reserve President, James Bullard, called for a deep rate cut last week, and told the local newspaper here, the Post-Dispatch, that to him, “it appears the manufacturing sector is already in recession”… Here’s the link to that article in case you want to read what else he had to say: https://www.stltoday.com/business/local/st-louis-fed-president-explaining-dissent-says-u-s-manufacturing/article_c941d06b-0f28-52a2-8b9c-465ba944e4b6.html#utm_source=stltoday.com&utm_campaign=BusinessNewsletter&utm_medium=PostUp&utm_content=a12874506a3b5805dded6c95af30d7173df7c77a

I have to wonder if Bullard is a Pfennig Reader? I mean, haven’t I already been saying that I think we could already be in a recession? Quite a few years ago now, I attended a breakfast meeting that the CFA people were sponsoring that featured a speech by James Bullard… I wanted to badly to ask him a question or two, but I had a problem with my throat, strep, I believe it was called, and could barely speak out loud, so I had to sit there like a lump on a log, and not participate… It was my one and only chance to confront a Fed Head, and once again my body didn’t allow that!

The price of Oil slipped from Friday, and this morning is trading with a $57 handle… The reason for the slippage is tied to the news that there’s just too many questions about the Saudi’s ability to restore their destroyed by drone attack, Oil production… The Saudi’s claim it’ll be no problem, and observers are saying otherwise…  I think I would side with the observers here… 

Well, things around the world, sans Russia, aren’t looking so bright economically either… This is unofficially PMI week… The week where most countries print their monthly PMI (manufacturing Index)… last night Australia was first to print and their monthly PMI fell below 50… Uh-oh! The Eurozone is next on the docket… Recall their PMI last month, fell below 50… I would expect this number to fall further… The U.S. and other countries will print their PMI’s as we go through the week, but other than that, it’s pretty darn quiet abroad and here in the U.S., that is until we get to Friday, when we’ll see a plethora of data here in the U.S. that really matters… Like Durable and Capital Goods Orders, Personal Income and Spending.

Friday’s U.S. Data Cupboard had the August Leading Indicators, and they weren’t good folks… They prints 0.0%, for not a good economic outlook… I’ve long said that this data and Capacity Utilization are the only forward pieces of data we get… So, we need to pay attention to these two… And both are telling us that things don’t look good going forward…

To Recap… the currencies week of small gains was wiped out in one fell swoop on Friday when the dollar bugs came scurrying out on the floor… The Chinese Trade delegation cancelled their trip to the U.S., and that got Gold on the rally tracks to gain $18 on the day…   Bullard says he wanted a 50 Basis Points rate cut, and that the manufacturing sector is already in recession, And Chuck points out that the goings on in the repo markets sure are strange… 

For What it’s Worth… Some time ago, I told you that the Russians were selling their Treasuries, and allowing them to mature without replacing them, right? Well, this is an article that talks about how they continue to rid themselves of U.S. debt… And you can find it here: https://www.rt.com/business/469064-russia-dumps-us-treasuries/amp/

Or, here’s your snippet: “Moscow has continued to sell off US Treasury securities, cutting its stockpile by $2.35 billion in July, according to the latest US Department of the Treasury data released on Tuesday.
Russia’s holdings of US state debt amounted to $8.5 billion in July, with long-term US Treasury securities standing at $6.2 billion and short-term at $2.2 billion. In June, Russian investment in Treasury bills was around $10.8 billion.

Japan remains the biggest holder of US Treasury securities for the second month in a row. In June, Tokyo held Treasury bills worth of $1.13 trillion, around 8 billion more than it had a month earlier. Japan is followed by China with $1.11 trillion.

Russia used to be one of the major holders of US Treasuries, but since last year it has been steadily cutting the investment in US debt in line with the nation’s de-dollarization policy. Russia is now on par with countries like Oman and New Zealand, which are at the bottom of the list of US Treasury holders.

As a matter of state policy, Moscow has also been diversifying its reserves, increasing bullion purchases to record levels and earning the title of the world’s most committed purchaser of gold. As of September, Russia held the fourth largest gold reserves in the world worth $109.5 billion, according to the country’s central bank.”

Chuck again… not earth shattering news, all stuff we already knew, but just a confirmation that it continues is all… But all you boys and girls new to class, let me explain that the deficit spending by the U.S. Congress has to be financed, and the financing tool they use is the distribution and sale of U.S. Treasuries…  In borrow a quote from Blanch DuBois, “We have always depended on the kindness of strangers”….   so, if there is a problem at the auction window when Treasuries are sold, and not enough buyers show up…  Then what we have here is a major breakdown of the financial system! so, think about that and then re-read the FWIW section again… 

Currencies today 9/23/19 American Style: A$.6772, kiwi .6271, ,C$ .7523, euro 1.0978, sterling 1.2443, Swiss $1.0085, European Style: rand 14.8884, krone 9.0796, SEK 9.7621, forint 304.84, zloty 3.9850, koruna 23. 5724, RUB 63.98, yen 107.47, sing 1.3732, HKD 7.8394, INR 70.78, China 7.0906, peso 19.40, BRL 4.1456, Dollar Index 98.72, Oil $57.89, 10-year 1.69%, Silver $18.40, Platinum $1958.11, Palladium $1,665.11, and Gold… $1,519.48

That’s it for today… A very strong win for my Missouri Tigers Vs S. Carolina on Saturday… Other than the hiccup in their very first game, they’ve looked good to me… Go Tigers! Saturday night I attended a community theater production of Oklahoma! Delaney Grace was a dancer and singer in the production, and she did great! Next for her is the Gateway Production of Matilda, for which she’s excited about doing! Oklahoma was always one of my faves… But, man did the production take forever to get to the end! It was near midnight when we got home! Can you believe the Blues are playing exhibition hockey games already? Pink Floyd takes us to the finish line today with their song: Mother…. I have a poster, that my former colleague, Danielle, bought for me that had a line from the song… Mother should we trust the government? I hope you have a Marvelous Monday and please Be Good To Yourself!