Dollar Bugs Are Sweating Bullets….

June 10, 2020

* Currencies continue to move higher VS the dollar

* Gold gets back on the rally horse! 

Good Day… And a Wonderful Wednesday to you! Well, the reports of a heavy rain for yesterday, turned out to be wrong, as usual… Have you ever encountered a profession that could be so wrong all the time, and still be employed? Not that I’m complaining about the lack of rain, the sun did make a late afternoon appearance that allowed me to go outside for some reading… I’m into my new book on the history of Sam Houston… You know the Avengers of the Alamo? Where iconic American heroes of the day, Jim Bowie, and Davy Crockett both died defending the Alamo… I love American history, the real history, not the stuff they teach in schools these days…. OOOPs did I say that out loud? I guess I did! Oh well, we’ll just carry on as if I didn’t say that out loud! HA! Neil Young greets me this morning with his song: When You Dance, I Can Really Love….

Well, it looks as though the dollar bugs are sweating bullets ahead of the Fed’s FOMC meeting that will adjourn this afternoon with a rate announcement and a Press Conference, featuring Fed Chairman Jerome Powell… I say that because for no other reason than that, the euro rallied on Tuesday, and climbed above the 1.13 handle, to close the U.S. market side, at 1.1340… What have I always told you since 2002? That the euro is the second most traded currency in the world, behind the dollar, and therefore is the offset currency to dollar crosses… So, when the dollar bugs are running scared, and the dollar is getting sold, the euro will rise, whether things in the Eurozone warrant the rise or not…

The overnight markets had more sweating by traders, as the euro continued to move higher, and the A$ moved past 70-cents!  I’ve talked about the A$ quite a bit lately, but more on the line of I didn’t believe the rally was solid…  I’m still not completely sold, but this all has a familiar feeling to it, and that feeling is a loss of confidence in the dollar..  We’ll have to see more of these kinds of moves to say for sure this is what we’re seeing, but it sure does feel like it is… 

The European Central Bank (ECB) can always jawbone the euro back down, much like former ECB President Mario Draghi used to do at every opportunity, throwing the euro under a bus… But that’s really all they can do… They’ve already cut interest rates into negative territory, they’ve already implemented a bond buying program, and their economy is in a state of muck… But the dollar bugs are running scared, and so the euro rallies….

The reason I chose 2002, as my year above, is because that was when I wrote the white paper titled: 2003, The Year of the Euro… And it well became just that! But back then there were compelling reasons to buy the euro, not like today when all we’ve got is it being the offset currency to the dollar. That White Paper brought in so many new investors to the World Markets Desk, with them all wanting to buy euros… And soon the euro would rise to levels not even seen as available to me… The euro would rise to a high of 1.56 in June of 2008… And it hasn’t seen or sniffed a 1.50 level since 2008…

In 2011 the hidden debts of Greece, Italy and Spain were uncovered, and all hell broke loose with the euro, and it went into a deep slide that it has never really recovered from… Why? Well, those debts were made worse with more debts, and there’s been nothing done to reduce them… The grand austerity plans that Germany made the countries with the outrageous debts agree to abide by, have been burned and all that remains are the ashes…

Ok… time to talk about something else beside the euro, Eurozone, and so forth… Well, this isn’t that far away from a discussion about the euro, but I’m going to talk about it any way! 

About 4 maybe 5 years ago, when I was still with EverBank and I wrote a monthly newsletter to clients only, called The Review & Focus, I highlighted what I saw as the problems that were being laid at the doorstep of German Banking Giant, Deutsche Bank… I had to fight to get that letter through the review process, because it wasn’t really about what the clients were wanting to read… But I proposed that it did, in that, if this Banking Giant collapsed, then all those derivatives that I had been warning about would be coming home to roost, which would damage not only the euro, but the dollar, for not only did Deutsche Bank have its tentacles in Germany, but also all over the world, including here in the U.S. If any longtime clients still have a copy of that particular R&F, I would love to see it and read it again, because…. Longtime reader, Bob, sent me an article that said that Deutsche Bank was nearing filing Bankruptcy…

Or maybe they’re not really going to close, but instead, using the Hertz playbook, to  see if filing  bankruptcy as a means to get their stock price to rise! I know, I know, this is serious stuff, and here I am having fun with it… Well, if you read what I had to say about this bank 4 years ago, this announced bankruptcy would be coming to you as no surprise!

Gold got back on the rally horse yesterday, gaining $17 on the day and closing at $1,716, and the shiny metal is up another $3 this morning. Silver on the other hand was not allowed to rally yesterday along with Gold. Silver lost 21-cents to close at $17.55, but Silver has erased that loss yesterday in the early trading this morning…  

Well… Yesterday I did the spoiled brat thing and reminded you that I kept telling you that the problems in the economy were already happening before the COVID-19 virus showed up in the U.S. and then I saw this from Russ and Pam Martens of and thought I would rub it a little more, because… well, that’s what spoiled brats do! So, lets’ listen in on what Russ and Pam Martens have to say… “Wall Street On Parade has previously written that a financial crisis was already well under way before the first case of COVID-19 was reported anywhere in the world. This should matter greatly to Americans because the Federal Reserve is attempting to blame the financial crisis on the virus to avoid Congressional investigations of its second epic failure in a dozen years at regulating the behemoth Wall Street banks.

America needs a comprehensive investigation of what really triggered this financial crisis in order to restructure the U.S. financial system away from a casino culture into one that doesn’t regularly need massive Federal Reserve and government bailouts. These bailouts are piling more and more debt on the shoulders of taxpayers and becoming a crushing drag on the U.S. economy, notwithstanding Fed Chairman Jerome Powell’s dismissive remark to Congress that we’ll worry about the debt later.”

I love the way the folks a WSOP put things… They put things into prospective, so that everyone understands what they are talking about… And do so with a punch to the gut!

Well, just when the demand for Oil began to increase, Libya announced that they were shutting down their largest Oil rig…  Could this bring about a huge spike in the price of Oil? Maybe… There are so many inputs to the price of Oil, that I hesitate to make any call on Oil…    But…  just for grins, I was searching through the Pfennig Archives yesterday, and saw that I had talked about the direction of the price of Oil several times in the past… I must have been sleep typing because I sure don’t recall those times! 

I read the other day that the Fed had pumped more money into the repo market… I find this to be interesting in that with all the COVID -19 stuff going on, and the Trillions of dollars the Fed poured into the economy, that the problems in the repo market seems to have moved to the back page…  But remember, this is what I said back in September when the problem first arose… ” How can Jerome Powell keep telling us that the banks are solid, when they have to bail out the repo markets each and every day?”   I point back to that time, to remind everyone that the problems in the economy were around long before the pandemic showed up on our shores….  I’m just saying… 

The U.S. Data Cupboard has the stupid CPI (consumer inflation) report for May…  And the Federal Budget deficit for May, and that’s all before the Fed adjourns their meeting this afternoon…  I read on Bloomberg this morning that they wonder how long the Fed will keep rates at zero… I laughed and said to myself, “How long have you got?”  

You see… I’ve thought long hours on this subject, and see the Fed having to cap interest rates in the future, to keep them from rising too much, given the amount of debt servicing that’s on the docket. I also think that a yield cap on Treasuries will be implemented. yes… take the “free markets” out of bonds would be the result of that, but a Fed has to do what it has to do to keep the economy from imploding… 

And now we turn to Chuck Butler for “deep thoughts”….   Yikes!  I had better return to the lighter side here before everything turns dark, eh? 

To recap…  The dollar bugs are sweating bullets wondering what Fed Chairman Powell will say this afternoon about rates and the economy…. Will Powell speak with a forked tongue, or a true tongue?   So, with the dollar bugs running for the hills, the currencies, led by the euro have really gone on a run, moving higher VS the dollar. So, is this a short-live move in the currencies, or a change in sentiment toward the dollar?  That has to be the question of the day, and one that cannot be answered today, but in the days to come… 

For What It’s Worth…  Well, I’ve talked about Jeffrey Gundlach many times in the past, for he’s the new Bond King, and when he talks, people listen. It’s that simple… So, when Jeff talks, I highlight it and put it in the FWIW section!  Today’s Gundlach talk is about, the stock market, the Fed, and Gold…  (sounds like a Pfennig! )   And it can be found here:

Or, here’s your snippet: “Gundlach Warns Stock Market Likely to Fall From “Lofty Perch” Despite “Superman” Powell, Says Buy Gold” 

Chuck again… Nah… I’m just kidding… I have more for you from Mr. Gundlach… I’ve listed the take aways from his webcast here for you:

The stock market is likely to fall from its “lofty” perch. “The big, experienced smart money is skeptical of this little-guy created, epic rally.”

The Fed violated the Federal Reserve Act of 1913 by buying high-yield bonds and ETFs. Gundlach expects Fed Chair Jerome Powell to follow through on controlling the yield curve should the 30-year rate come unhinged.

Traders think that Powell is Superman, and that the chairman will keep the fed funds rate at zero for the next two years.

Quantitative easing and zero rates don’t work, otherwise “we wouldn’t be back at them on steroids 10 years later.”

Negative rates are the biggest kryptonite of all, given that they’re “fatal” for the banking system, he said.

In the long term, the bond manager is bullish on gold, saying it will reach new highs. Alternatively, he’s sticking to his weak-dollar call, saying the greenback can devalue against most other currencies.

Coming in waves: Gundlach sees waves of corporate credit downgrades and white-collar unemployment. He said the lockdown has him questioning the usefulness of middle-management, supervisor-types and that he could “easily see” layoffs hitting people earning $100,000 a year.”

Chuck again… And you think I’ve turned to the dark side?  Boy this Jeff Gundlach is a hoot to talk to at a cocktail party don’t you think?   I can see Chuck and Jeff in a corner talking economics, and people all standing around waiting to hear something good… 

That scenario happened somewhat in the past… I was in San Diego attending the memorial service for the great, legendary Richard Russell, and there were three seats with a table outside, and I sat down. Soon, friends, John Mauldin, and Bill Bonner sat down too, and we began to talk about this and that, and then when I got up to leave, I saw this huge crowd of people standing around us, listening to whatever we had to say… 

Market prices today 6/10/20 American Style $.7007, kiwi .6555, C$.7471, euro 1.1373, sterling 1.2772, Swiss $1.0574, European Style: rand 16.5411, krone 9.2512, SEK 9.1825, forint 302.00,  zloty 3.9166,    koruna 23.4075, RUB 68.50, yen 107.32, sing 1.3842, HKD 7.7498, INR 75.32, China 7.0780, peso 21.78, BRL 4.8585, Dollar Index 96.09,  Oil $37.96,   10-year .80%, Silver $17.73, Platinum $832.05, Palladium $1,958.73, and Gold… $1,719.08

That’s it for today…  Well, I don’t know about tomorrow at this point… if I get up early enough, there will be a pfennig before I head to the oncologist, if I don’t, there won’t be one…  The Baseball draft will take place today… They cut the number of rounds down from 40 to 5…  So there will be a lot of graduated either from college or high school players that will be wondering what they are going to do if they don’t get drafted…  the minor leagues will be cut, and baseball is in trouble….   The players and owners better get their collective heads out of their sit upons and work something out so they can play this year… I’m just saying….  Robert Plant takes us to the finish line with one of his best solo songs: In the Mood… And with that I hope you have a wonderful Wednesday, and please continue to Be Good To Yourself! 

Chuck Butler