Currencies Give Back All Of Their Gains From Friday!

May 5, 2020

* Traders can’t figure out which way they want to go…. 

* Gold is stuck in the muck around $1,700… 

Good Day… And a Tom Terrific Tuesday to you! Rainy days and Mondays always get me down…. Years and years ago, when I was a young man working downtown, in my suit and tie, there was an old bank that turned into a restaurant, and on Rainy days and Mondays, sandwiches were ½ price, and beers were 50-cents…. I used to stop there after work whenever it rained… wink, wink…. Yesterday, was a rainy day, and a Monday, so the Carpenters would be down…. HA! After 90 degrees on Saturday, I had to get my Blues hoodie back out yesterday, for it got chilly once again! UGH! OK, I have an additional thought on yesterday, a correction to make, and more this morning, so why don’t we get to getting it done! The Pousette Dart Band greets me this morning with their song: Amnesia…. Don’t recall that one? I hope that it’s only amnesia, believe me, I’m sick but not insane!

Well, in all my excitement about it being May the 4th with you, yesterday, the real event in history on that day totally slipped my mind, until later in the morning, when I realized that it was also the day in 1970 that 4 students were shot down at Kent State University, by the Ohio National Guard… The students were merely protesting the Vietnam War…. As a young man at that time, I thought, Oh no, they’re coming for me next… Because I was not a fan of the Vietnam War, and protested any time I got the chance. Thankfully, my lottery number for the draft was a high one, the one year I was eligible for the draft…

OK, there’s one task out of the way today! The currencies just can’t stand a day in the sun! The beat on the dollar bugs most of the day on Friday, and then proceeded to give back  all of their gains since then…. I’m telling you this for probably the 3rd time, but sometimes we have classmates that skip class and then try to catch up, this is for them…. I do believe that Traders are in a funk right now, they don’t know which way the wind is going to blow… They know that they should be selling dollars right now, but then in their heart of hearts they think, but what other currency is worthy? I can see sterling and yen, and reals, and a host of others down on their knees, like Wayne and Garth, bowing repeatedly and saying, “We’re not worthy, we’re not worthy”….

And Gold spent the day going up and down, up and down throughout the day, until finally finishing down a buck from Friday’s close at $1,701…. I’m sticking with my story that the $1,700 level for Gold is going to be a sticky point for a while, before the next upward move… But just like the sticky point used to be $1,300, when Gold finally made the upward move it was like was shot from a slingshot, and BOING! There it was at $1,700…. I do believe the next upward move will be just like that slingshot from $1,300….

And in the early markets, Gold is down $3 to $1,698 this morning…  And in the fave of 3 major operations here in the U.S. announcing bankruptcy yesterday…  Makes no sense to me, but it is, what it is…. 

Speaking of Gold, this is where I do my correction from yesterday… I misquoted something I thought I had read in Ed Steer’s Saturday letter about how the short trades in Gold were down from the week before… When that’s not what he said, and so I apologize…. I have no idea what happened, as when I read things I make notes so I don’t forget to talk about them… So, sorry Ed! And if you want to know what he really says each day, click here and sign up! 

I was going through Twitter yesterday, and came across something that pretty much tells us all we need to know about the prospects of a quick turnaround in the economy…. Get this… 40% of small businesses plan to skip their rental payment again this month, and that 84% of them are only going to pay 50% of what’s due…. Here I go again with the knee bone being connected to the shin bone, and so on… The people that own the buildings where these small business people set up shop, most of the time own them with a loan…. And they use the rents to help pay the loan…. No rents, no loan payment, no loan payment, no loan…. End of story…

And then the cleaners that clean the building, can’t work… The vending guy that supplies the coffee, and candy machine, can’t work… The landscaper, can’t work, and so on and so forth…. This is getting really ugly folks, and the deeper/ longer we remain like this, the more difficult it is going to be to get out of it…. Yes, I know some states have opened up…. But how’s that going? I would bet a shiny quarter, that the pickup in business is barely above being shut down, and people just don’t trust going out and being around other people, just yet!

Well, today is a BIG day for the euro, and Eurozone going forward, as the European Constitution Committee is supposed to be meeting today, to discuss the legality of everything the European Central Bank (ECB) is doing right now (Bond buying, negative rates, and wanting to buy Corporate bonds)…  But with the COVID-19 virus still hanging around causing Committee’s like this to resort to Zoom meetings are something like that, the meetings just lose their edge….  So, it will be interesting, to me that is, just how this all works out today…. More, hopefully, on this tomorrow.

In the U.S. Data Cupboard yesterday, we saw the rot on the vine of Factory Orders… The March print for this data was a negative -10.3%, down from the already negative -0.1% in February…  This data really represents what I’ve been talking about and that is that the economy was already headed in this direction, and just needed a little push, which it got from the reaction to the COVID-19 virus… 

We had 3 operations announce bankruptcy plans yesterday…  J. Crew, Gold’s Gym, and Neiman Marcus… This will become a daily occurrence folks, so prepare to hear the name of your favorite operation to go to, to file for Chapter 11….  I’m just saying….  Oh, and Got Gold?

I saw some data yesterday that showed the Fed has already pulled back on the helicopter money reins…. They had better be careful…. They can’t supply the economy with the cocaine it needs to continue, and then go cold turkey on it….  Of course, in my humble opinion, the Fed should have never tried to save the economy… They should have just allowed it to bust, suffer through the short-lived period of a recession, and then watched as it recovered without a helping hand, and this time it would really recover, and not that 2.1% GDP we’ve seen here in the U.S. for the last 10 years! 

Well, did you get a kick out of my reprints of thoughts on the Butler Patio, which was the name of my letter with the Dow Theory Folks?  I thought they were so darn bang on, to what’s happening today…  And, the fact that they were written 3 years ago, just blows my mind!  How did I know that the Fed would be entertaining buying Corporate bonds, and extension of Corporate stocks?  

Here’s the thing most people don’t think about, when they think, “the Fed’s got my back with stocks”… And that is simply, the Fed can’t buy every stock… And look, we’ve already seen three Big Name operations file for bankruptcy….  So, the Fed may have your back with Facebook, Amazon, Netflix, and Google (The FANGs) but for how much longer?  I’m telling you this so you will enter it into your journals….  If the Fed does pull out and stops stick handling through all this mess, the house of cards comes tumbling down….  I’m just saying

To Recap…  The currencies can’t stand to stay in the sun very long, and after taking liberties with the dollar on Friday, they gave back all their gains yesterday… Back and forth we go, as traders can’t figure out which way they want / should go….  Gold did the same type of trading, back and forth, through $1,700, and Chuck thinks that we’ll continue to see this go on until it doesn’t and Gold makes its next upward move…. 

For What It’s Worth….  Speaking of the Fed, and what they are doing now… Yes, as I said they’ve pulled back on the reins, of the helicopter money, but their initial go at helicopter money was quite a scene…. And this article talks about that and more, and can be found here:

Or, here’s your snippet: “So much can change in three months.

Back on February 3, the Treasury in its quarterly announcement of marketable borrowing estimates was delighted to announce that “During the April – June 2020 quarter, Treasury expects to pay down $56 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $400 billion.”

Well, oops.

Fast forward to today, when one global (still ongoing) coronavirus pandemic, and one global economic crisis later, the Treasury now expects to boost the net amount of marketable Treasury debt outstanding by an unprecedented $3 trillion in the April-to-June quarter in order to fund the trillions in stimulus and bailout payments.

This is what the Treasury said about its latest borrowing needs:

“During the April – June 2020 quarter, Treasury expects to borrow $2,999 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $800 billion. The borrowing estimate is $3,055 billion higher than announced in February 2020.”

But wait there’s more because looking at the next quarter (July though September) the Treasury now expects to borrow an additional $677 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $800 billion.

In other words, the Treasury will borrow a record $3.7 trillion in the 6 month interval from April to September. This also explains why the Fed – which has already purchased $2.5 trillion in securities in the past 6 weeks – is currently monetizing double the total Treasury net issuance: because it is preparing for precisely this eventuality.

Summarizing this data, Reuters’ Jeoff Hall writes that US marketable debt borrowing is more than the previous five fiscal years combined and almost 2.5x the previous record high borrowing for any fiscal year (FY’09$1.786 tn).”

Chuck again…  Yes, as I told you last week, the national current debt will be more than $30 Trillion at fiscal year end (Sept)….  And the debt to GDP will continue to grow larger and larger, folks…. This can’t end in nothing but tears… 

Currencies today 5/5/20 American Style: A$.6445, kiwi .6055, C$.7120, euro 1.0840, sterling 1. 2460, Swiss $1.0300, European Style: rand 18.3195, krone 10.3085, SEK 9.8675, forint 323.65, zloty 4.1797,   koruna 24.8745, RUB 75.15, sing 106.70, sing 1.4160, HKD 7.7520, INR 75.06, China 7.0614, peso 23.90, BRL 5.5203, Dollar Index 99.85,  Oil $22.42,  10-year .65%, Silver $14.77, Platinum $767.09, Palladium $1,845.68, and Gold… $1.698.41

That’s it for today…  It’s Cinco de Mayo! And the celebrations will be put on hold this year…  Each year on the 5th of May, I retell a story from many years ago (1998 I believe)… I was on vacation in Cancun, with my wife and friends, and we came across a guy playing his guitar and hawking his CD’s, he began to play a song that rang a bell with me, so I grabbed his microphone and began singing Dust In the Wind, in front of about 250-300 people gathered in the square….  One year that I wrote about this, a reader got mad and sent me a note and called me a Big MAK…  You’ll have to figure that one out, and so now I retell the story just to make him more mad! HAHAHAHAHA!  Faces takes us to the finish line today with their song: Ooh La La…  (love that song!)  I wish that I knew what I know now when I was younger…. .  I hope you have a Tom Terrific Tuesday, and will continue to Be Good To Yourself!

Chuck Butler