Copper Continues To Reflect Inflation Fears!

March 2, 2021

* Currencies & metals continued to get sold on Monday… 

* What’s the 10-year Treasury yield’s tipping point? 

Good Day… And a Tom Terrific Tuesday to you! What a day yesterday! Simply beautiful and we didn’t do much but relax in the sun! We ended the day with a trip to the Palm Beach Ice Cream Co. I didn’t partake since I’m supposed to be watching my sugar intake…  But a fun day, Monday, was had by all! My St. Louis U. Billikens won their game last night, improving to 13-5… And the Blues played late last night out in Anaheim, so I had to check the score this morning…  And I see that they won 5-4…   The Blues have really hit a bump in the road recently, with a lot of injuries, and losses… But two consecutive wins for them now, maybe has turned things around… We will have to wait-n-see…  Johnny Rivers greets me this morning with his song: Summer Rain…. “Summer rain taps at my window… “

Well, another day of dollar strength yesterday, has me wondering what the heck are currency traders doing?  But it is what it is, and so, I won’t harp on and on about how the U.S. is going to print $1.9 Trillion in new dollars, and knowing that alone should have currency traders lining up to sell dollars… But Nooooo!  And so life goes on… But eventually this will all come crashing down on those dollar holders… I’m of the full mind and thought that this will happen…

Gold also couldn’t find a bid after it had gained $7.80 in the early trading, and found itself down $10.80 on the day to close at $1,525.80. Silver lost 17-cents on the day to close at $26.63…  That’s a two day losing streak for Gold, folks… But again, I’m not going to harp on and on about price manipulation today… We all know it’s there right before our eyes, and there’s nothing we can do about it, except buy physical Gold by the truck load and make the short position holders of Gold feel the hurt…  That would make my day, week, month, year, decade… 

The price of Oil also took a shot to the midsection yesterday, and lost $2 or so…. The 10-year Treasury bond saw some buying yesterday, and the yield dropped 3 BPS on the day…  I don’t know if you read the FWIW article yesterday, but it was a very important article to make you aware of the funding problem the U.S. is experiencing…  Fed Chairman Powell, says that demand for Treasuries is strong… But I beg to differ with him on that… If that’s so, I would like to call him on that, and ask him why then are Treasury yields rising?  You see, as bonds are bought, the price rises, and that causes the yield to drop..  So, if the demand is so strong, why are yields rising, Mr. Chairman?

In the overnight markets, the dollar buying has continued, but not as damaging as the previous two days…  The Dollar Index yesterday morning was 91.06, and this morning it is 91.15, so, not much movement but some dollar buying nonetheless…  Gold is up $4.60 in the early morning trading today, but since it couldn’t hold yesterday’s early morning gain, this doesn’t look promising to me…  Silver is down 21-cents this morning, so the two kissin’ cousins are going in opposite directions today… 

OK… here’s something that scares the bejeebers our of me…  According to “27% Of All Household Income In The US Now Comes From The Government.” Wait! What? Yes…  going further into the article on, “Following today’s release of the latest Personal Income and Spending data, Wall Street was predictably focused on the changes in these two key series, which showed a surge in personal income (to be expected in the month when the $900BN December 2020 stimulus hit), coupled with a far more modest increase in personal spending.

But while the change in the headline data was notable, what was far more remarkable was data showing just how reliant on the US government the population has become.

We are referring, of course, to Personal Current Transfer payments which are essentially government sourced income such as unemployment benefits, welfare checks, and so on. In January, this number was $5.781 trillion annualized, which was not only up by nearly $2 trillion from the $3.8 trillion in December it was also $2 trillion above the pre-Covid trend where transfer receipts were approximately $3.2 trillion.”

Chuck again… Ok, simple question, tough answer… What happens when the Gov’t’s transfer payments dry up? So, spend those Gov’t dollars while you can, spend, spend, spend… not only will you help inflation rise, but also run you dry… And once you’ve been run dry, there’s no more rain / dollars falling from the sky… That is until they implement Universal Basic Income!   And that thought sends shudders down my spine!

So, let me take you back in time… not too far back, just to September 2019, months before anyone in the world had contracted the Covid-19 virus… Remember me ranting and stomping my feet that the Fed was bailing out the banks that participated in the Repo Market?  There was a total of $9 Trillion dollars that were applied to allow the repo market participants to continue to borrow funds at cheap rates.  I kept pointing out that this was not a good thing, and that someone needed to explain to the public why the repo markets needed these funds, and to whom was receiving them… 

Yesterday, Pam & Russ Martens of brought September 2019 back to everyone’s,  that reads their letters, minds… Their point was that no one in Congress is of mind to investigate where the $9 Trillion went… And so it’s just gone… flittered off into the wind…  We have 20 Million people without jobs, collecting unemployment, we have a large number of businesses that have closed since September 2019, and people that have lost their wills to carry on, and somehow the members of Congress don’t feel it’s worth their time to investigate where the $9 Trillion went…  But they have time for other nonsense… I’m just saying… 

Doesn’t that kind of stuff just make your skin crawl? It does mine, and longtime readers will recall me stating over and over again back in 4th QTR of 2019 that there were problems with the banking industry then, otherwise they wouldn’t need the Fed to intervene in the repo market.  Yes, we are 18 months removed from that time, and the banks are still operating… So, maybe it doesn’t matter?  NOT!  This just means that they have papered over their problems, and moved on down the line, but when the paper begins to get pulled back… Uh-Oh….  

There was a surprise in the U.S. Data Cupboard yesterday, when the ISM Manufacturing Index rose higher than expected and went from 58.7% to 60.8%…  Well, that’s all good and such, but what it should do in my humble opinion, is really ramp up the inflation fears… 

Speaking of inflation fears… You know all the while, Gold & Silver are seeing the price manipulators showing up at the COMEX with arms full of short contracts in Gold & Sliver, that the base metal, Copper, keeps pushing the inflation meter higher… Copper is up to $4.18, and trades each day with a strong bid…  I’m telling you now, so maybe you’ll listen to me later, that Copper rising in price is telling us that inflation is on its way, if not already here… 

The U.S. Data Cupboard only has Motor Vehicle Sales for February today, and that’s not anything that’s going to move the markets, so we’ll just move along for these are not the droids we’re looking for!

To recap… More dollar buying yesterday and overnight, has the currencies & metals  down on the canvas and the Referee is beginning his 10-count! Chuck talks about a problem with 27% of U.S. Household Income comes from the Government… Yes, that’s a growing problem folks… One that needs to be addressed by Congress… Another thing that needs to be addressed by Congress is what happened to the $9 Trillion dollars that the Fed gave to the banks participating in the repo market in Sept, 2019? 

For What It’s Worth…  Yes, with the two snippets above I could have had 3 FWIW articles for today…  But this is the one that gets the flood lights shined on it… I’ve spent some time recently talking about the rising Treasury yields, and when I saw this on I thought this is interesting, as it’s about the tipping point for Treasuries, and it can be found here: BofA: 1.75% Is The “Tipping Point” For Bonds | ZeroHedge

Or, here’s your snippet: “Almost two months ago, Nomura correctly predicted that once the 10Y breaches 1.50%, stocks would freak out and sure enough that’s precisely what happened (with Nomura’s forecast becoming self-fulfilling and sparking a stop loss cascade one the 10Y hit 1.50% last Thursday, sending the 10Y as high as 1.61% in a matter of seconds following last week’s dismal 7Y auction).

So now that 1.50% is yesterday’s news, Wall Street is scrambling to define the next critical level for 10Ys beyond which there will be blood. As a reminder, yesterday Goldman hinted that 2.10% is what traders should be looking at, but that seems a lot, especially with many far more accurate forecasters saying that the Fed will have to engage YCC around 2.0%, and for that to happen stocks would need to crash first. Therefore, the next critical level is likely one between 1.50% and 2.0%.

One such level was proposed by BofA’s chief equity strategist, Savita Subramanian who today writes that “history suggests that 1.75% on the 10-yr (the house forecast and ~25bp above current levels) is the tipping point at which asset allocators begin to shift back to bonds” and thus sell stocks in the next wave of aggressive liquidations.

Why 1.75%? Because that yield on the 10Y is decisively above the S&P’s dividend yield, and where according to BofA “there is an alternative to stocks”. 

So after last week’s fireworks, will bonds continue to rise from the current level of 1.43%, and how fast until they reach the new “tipping point”? 

Nomura estimated

“that the 10yr UST yield is currently about 30bp above the fair-value yield implied by trend-following strategies. Short-covering by CTAs and other speculators for the sake of locking in profits may serve the purpose of reeling the 10yr UST yield back in.”

Chuck again…  Lot’s of talk about how the yield of the 10-year Treasury has about topped out, I believe can be misleading…  But, we’ll have to wait-n-see, now won’t we? 

Market prices 3/2/21: American Style:  A$ .7801,  kiwi .7264,  C$ .7906, euro 1.2034, sterling 1.3912, Swiss $1.0905, European Style: rand 15.0352, krone 8.5030, SEK 8.4243,  forint 302.26,  zloty 3.7692,  koruna 21.7258, RUB 74.18, yen 106.93, sing 1.3307, HKD 7.7570, INR 73.43, China 6.4638, peso 20.64, BRL 5.5994,  Dollar Index 91.15,  Oil $60.65,  10-year 1.44%, Silver $26.42, Platinum $1,191.00, Palladium $2,416.00, Copper $4.18, and Gold…  1,730.40

That’s it for today…  Well, we’re supposed to see some rain today, but no biggie, that will bring another cold front through, and our highs for the next few days will be in the high 70’s…  Again, still warm, and sunny!  The weather should be great for youngest son Alex’s visit this weekend… Alex has not visited down here since we moved to the 3rd Floor 3 years ago… As I look out the glass I see the ocean, and it looks like a lake today, with no chop or strong waves…  That means the wind has died down…  Once the rain goes through, should be another fun day!  3 Dog Night takes us to the finish line today with their song: Easy To Be Hard…  This is the live version from an album I had as a teenager, that I played over and over again, until it wouldn’t play any longer!   UGH!   I hope you have a Tom Terrific Tuesday, and please Be Good To Yourself!

Chuck Butler