July 6, 2023
* currencies and metals rally in the overnight markets
* Fed Heads Dissenting, who knew that could happen?
Good Day… And a Tub Thumpin’ Thursday to one and all! A very short week for me and the Pfennig, and that suits me just fine! I have to say that after 31 years of writing this letter almost every work day, I sometimes grow tired of doing so, and that’s when I take a vacation… of which I’ll be leaving on my annual summer vacation starting July 18, through August 2nd, returning on August 3rd… It’ll be here before we know it, so make plans now… Boy, did the Cardinals lose another game, another way last night… If I were a betting man, and had money on the Cardinals last night, I would accuse them of throwing the game! But I’m not, so I won’t! But it’s so frustrating and disgusting how many games they’ve thrown away this year… UGH! I featured the song: July Morning, by Uriah Heap yesterday as Pfennig Tradition, and today that’s the song that greets us: July Morning, by Uriah Heap… funny how that worked, eh?
Well, the dollar got bought throughout the day on Wednesday, with the BBDXY gaining 2 index points. The euro has slipped further down in the 1.08 handle, and one of the best performing currencies last year, the Russian ruble, is not following through on last year’s gains, and in fact has been slip slidin’ away… slip slidin’ away… You know the nearer your destination The more you’re slip slidin’ away… I don’t mean to sound flippant about the rubles losses, it’s just that that particular song bounced around in my head, and the next thing I knew my fat fingers were typing away!
Gold lost ground on Wednesday, while Silver gained ground… Strange eh? But it is what it is… Gold lost $10.60, to close at $1,916.10, while Silver gained 16-cents on the day, to close at $23.21… I wish we had someone in this country in authority, that had some real valor, and the markets were scared of, to come out and issue warnings against short paper trading in Gold & Silver… and to extend it further, Copper, Platinum and Palladium too! But.. we don’t and that’s just wishful thinking on my part… Sorry about that!
The price of Oil remained trading with a $71 handle yesterday, and the 10-year isn’t seeing any buyers these days, and the yield on the bond rose to 3.96% yesterday… See? I said yesterday, that I agreed with Bill Dudley, the former Fed Ny Chairman, when he said that the yield on the 10-year would rise to over 4.5%, and I added this little caveat… As long as the Fed/ Cabal/ Cartel don’t reenter the bond buying business…
In he overnight markets last night: something happened to the dollar euphoria last night, as the dollar got sold, as witnessed by the 3 index point loss in the BBDXY. The euro is sniffing around 1.09 again, and the “down under” currencies of Australia and New Zealand, are showing some life… Gold is up $10 in the early trading today, but Silver is flat… I find this to be quite strange, but then with the short paper traders out there one never really knows, right? The price of Oil has bumped higher to trade with a $72 handle, and the selling of the 10-year continued overnight with the bond’s yield rising to 3.97%..
I had a nice conversation with good friend, Dennis Miller, on the phone yesterday… He was upset with the Big Box Banks and their CD offerings… I don’t want to spoil his letter talking about that, but I found it interesting that right after I hung up with him, I did a quick check of Twitter, and I found good friend, and former big boss, Frank Trotter, talking about how the Big Box Banks are ripping consumers off with their low offered rates, and how his new bank, Battle Bank (www.battlebank.com) will remedy that, just like the former EverBank did when it was introduced in 2000, with a 6% interest rate on checking accounts! When you don’t have all that bricks and mortar dragging you down, and all the costs of branches, etc. You can pay higher CD rates, etc
OK, I don’t receive a dime for talking about Battle Bank, but when I see something that makes abundant financial sense, I have to write about it… Now, that I’m thinking about it, I don’t see why I don’t get a dime for talking about it! HA! I don’t want the income, because then I would hvae to pay taxes on it, and if you know one thing about me, you know that I absolutely abhor taxes!
Last week I talked about how the Chinese were going to stop the short paper trading of the renminbi, and over the weekend the Peoples Bank of China (PBoC) had this to say: “People’s Bank of China said at a quarterly meeting of the monetary policy committee it will adopt “comprehensive measures and stabilize expectations” about the currency and will “resolutely prevent risks of big fluctuations.”
Uh-oh for the short paper traders of the renminbi! One of the tools the PBoC will use is a long trusted measure that have the PBoC selling dollars ahead of the daily fixing, that has seen upward movements in the currency’s fixing for the last week… But once the fixing is in, the short paper traders go to work, and the renminbi ended last week at a 7 month low, VS the dollar… Remember when the previous POTUS would point out how the Chinese were making their currency weak on purpose to help them with their exports? Well, unless the Chinese are talking out of both sides of their mouths right now, that doesn’t seem to be the case any longer!
Circling back to the Russian ruble… The currency has gone on a ride of the slippery slope… And most of that slide can be blamed on the drop in the price of Oil… But that’s not all there is to blame… The Russian Central Bank had gotten things under control and dropped the internal interest rate to a level it stood at before the Conflict broke out between Russia an Ukraine (U.S. really) … Remember those days? The ruble had traded as low as 126.50, and the Central Bank had to hike rates to 20%… Well, interest rates there are now 7.5%, of course those are the internal rate, a deposit in rubles will only pay you 2%… The announcement that the ruble would be backed by a percentage of Gold, or Oil or other commodities, gave the ruble a HUGE lift, but apparently all those good times for the ruble are wearing off… I’m not giving up my holding in rubles, as I have said before, I believe that the price of Oil will rebound, and take the Petrol Currencies, including the ruble, back to a strong status VS the dollar.
The Russian Central Bank may need to hike rates to a higher level again, maybe not 20%, but something higher than 7.5%… I’m just saying…
Well, what’s this I read about how there were some Fed Head Gov’s that were against the “pause” er, I mean the “skip” last month? Wow… I always had heard that there may be one dissenting vote, but not more than one… That leads me to believe that my statement that now that the Fed Heads had paused their rate hikes, they would have a difficult time explaining why they returned to them, when after a month or two, the stock market was soaring once again, and I didn’t think they would want to upset that applecart…
Inflation reports since the Fed Heads “skipped” a rate hike at their last meeting, have proved to be what I continue to call it… Sticky… And that is because we haven’t really slayed inflation, by keeping the interest rate near the rate of inflation… Paul Volcker proved that you had to have the intestinal fortitude to hike rates higher than inflation… So, if Chairman Powell, and his band of Fed Heads are whiskey bound, and hell bent to reincarnate Volcker, then they will return to the rate hike table, no matter what the stock jockeys cry about…
The leading Indicators went further into negative territory last week, the ISM (manufacturing index) fell further below 50, and not counting last week the weekly initial jobless claims had gained for a couple of months… The Treasury yield curve gets more inverted every day… So, why is everyone so confident that the recession will just blow over us? I’m not buying it, these “indicators’ have never failed before, and I doubt they will do that now. And, if the Fed Heads do go back to hiking rates that could be the last nail in the economy’s coffin… You may recall that when Volcker hiked rates to over 20%, these rate hikes were the major cause of a recession that came along… So, there is that thing about how history doesn’t repeat itself, but it is always at the scene of the crime!
The U.S. Data Cupboard today is chock-full-o-data for us… Everything from the Weekly Initial Jobless Claims to the ADP Employment Report, to the Trade Deficit for May… And there are some other minor reports that will print… Tomorrow is a Jobs Jamboree Friday… And right now the forecast is for 240,000 jobs created which would be down from May’s 390,000… I would think the BLS would do everything in their power to preven showing that the economy is slowing in Job creation… I’m just saying…
To recap… The dollar got bought yesterday, by 2 index points in the BBDXY, the euro fell further in the 108 handle, and Chuck spends some time going through what’s going on the Russian ruble, and he gets into what going on with the Chinese renminbi… I must admit that he is quite informative today! HA!
For What It’s Worth… well, we’ve been talking about a coming recession for some time now, and still it’s not here, but I think this article is great at breaking down the phases of a recession, and it can be found here: Recession ante Portas: Which Assets Perform Well in Recessions? – GoldSwitzerland (campaign-archive.com)
Or, here’s your snippet: “t is considered the most anticipated recession of all time – the one looming in the US. And although countless indicators ranging from the yield curve, the Leading Economic Index (LEI) and PMIs to producer prices and international trade volumes have been pointing to a recession for months, it has not yet materialized in the USA. However, the labor market, which has been more than robust up to now, is now showing the first signs of a slowdown. A labor market which, due to demographic change, is structured completely differently than it was in the 1970s. Initial jobless claims have been on an upward trend since last fall.
Despite this increasingly widespread gloom, it is not too late to ask the question: Which asset classes are now proving to be good investments in a recession, and which are bad? To this end, we have conducted an in-depth analysis.
The following analysis does not consider the recession as a uniform block. The Incrementum Recession Phase Model (IRPM) divides a recession into a total of five distinct phases. Dividing a recession into different phases can help reduce the risk of losses and maximize gains. It helps investors develop a balanced investment strategy that takes into account the different phases of a recession. This is because, as will be seen, individual asset classes sometimes exhibit significant differences in performance across the five recession phases. After all, each of the five recession phases has unique characteristics.
Incrementum Recession Phase Model – GoldSwitzerland Matterhorn Asset Management Article
The run-up phase (phase 1) of a recession is characterized by burgeoning volatility on the financial markets. In this phase, the market increasingly starts to price in an impending recession.
In phase 2, the so-called initial phase, there is a transition between increased uncertainty and the peak of the economic slowdown. In this phase, the slowdown in economic momentum can also be documented for the first time with negative macroeconomic data.
In the middle phase (phase 3), the negative economic data manifest themselves. It also marks the low and turning point of the recession.
In phase 4, the final phase, a stabilization of the economy gradually occurs, resulting in a return of optimism on the markets.
In the fifth and final phase of the recession model, the recovery phase, the economy returns to positive growth figures.
In the case of a short recession, such as in the spring of 2020, there are phases that last less than 3 months, so phase 3 is irrelevant if the recession goes on only 6 months or less. For our model, we chose the NBER’s recession definition, which states that a recession has occurred when there is a significant decline in economic activity that spans the entire economy and lasts longer than a few months. The Federal Reserve also follows this definition.”
Chuck again… So there you go! I would say that we’re currently in Phase 1…
Market Prices 7/6/2023: American Style: A$.6688, kiwi .6219, C$ .7530, euro 1.0896, sterling 1.2777, Swiss $1.1169, European Style: rand 18.9403, krone 10.6830, SEK 10.9278, forint 350.50, zloty 4.10.82, koruna 21.8561, RUB 91.63, yen 143.73, sing 1.3500, HKD 7.8209, INR 82.51, China 7.2118, peso 17.04, BRL 4.8500, BBDXY 1,231.62, Dollar Index 102.98, Oil $72.04, 10-year 3.97%, Silver $23.20, Platinum $925.00, Palladium $1,277.00, Copper $3.76, and Gold… $1,926.66
That’s it for today… And this week, one more week for me, and then I’m outta here for two weeks! I always get at least one half dozen or so of emails while I’m on vacation, asking me where I have been? That’s sweet of them to care for me like that, eh? HA! Well, oldest son, Andrew, is going to go to the next StL City SC game on July 15th with me… We were hoping that Lionel Messi would play for the Miami team that game, but it doesn’t look like he will… When they thought he might play, the aftermarket for tickets to this game went crazy hot… But has cooled down now… My beloved Cardinals go to Chicago to play the White Sox this weekend, the last weekend ahead of the All-Star Game next week… The season is 1/2 over, and my beloved Cardinals are in last place in their division, this is the first time since maybe the 70’s that were so bad, that I remember them being last place this late in the season… UGH! Van Morrison takes us to the finish line today with his great song: Into the Mystic… I hope you have a Tub Thumpin’ Thursday today, and a Fantastico Friday tomorrow… And please, oh plese with sugar on it, Be Good To Yourself!
Chuck Butler