Dollar Bugs Head For Cover!

June 3, 2019 

* FSOC meeting spooks the markets and sends the dollar reeling… 

* An addition Trade War begins with Mexico… 

Good Day… And a Marvelous Monday to you!  And Welcome to June! Pfennig Tradition calls for:   June is busting out all over, all over the meadow and the fields….  Wow! What a gorgeous weekend, weather-wise here in my neck of the woods. The only blemish was a violent storm that came through our area Saturday night… I was at the ballpark, the game was tied 2-2, and it was the 5th inning… We looked at our phones and saw the storms coming, and decided to bail… Good thing we did, it was a 3 ½ hour rain delay! The weekend was made extra sweet because my beloved Cardinals swept the Cubs! The only downer was our Blues and their poor showing in Game 3, the first Stanley Cup Finals Game played in St. Louis in 49 years, and the Blues didn’t show up… They had 46,000 at the ballpark, 19,000 at the ice rink, and 50,000 in the street for a street watch party… Downtown was hopping! That is until the storms came… The Young Rascals greet me this morning with their song: A Beautiful Morning… Quite apropos eh?

Well, not much happened on Friday, other than another Trade War being waged, this time with Mexico… That was enough to send the dollar bugs scampering to the wall boards… That, and the two other things… 1. The economic Data was so-so…. And 2. There was a report of a secret meeting in Washington, D.C. to discuss the highly leveraged Credit markets… Uh-Oh, what’s up with that?

Here’s the skinny from the… “The Financial Stability Oversight Council, a panel of top U.S. regulators charged with preventing future financial crises, met Thursday to discuss the past decade’s surge in corporate borrowing, much of it by companies with junk-grade credit rating. An economic downturn likely would bring a wave of credit-rating downgrades and debt defaults that could ripple across markets.

The Financial Stability Oversight Council, formed in the wake of the 2008 financial crisis to prevent a repeat, met “in executive session,” or behind closed doors, according to a statement released by the Treasury Department’s public-affairs unit following the meeting.

Members of the group include Federal Reserve Chairman Jerome Powell as well as the heads of the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau, Securities and Exchange Commission and Commodity Futures Trading Commission. “

You may be saying to yourself, why on earth is Chuck making such a big deal out of a meeting? Well… that’s easy enough to answer! You see, if the folks at the Financial Stability Oversight Council, see these corporate junk bonds as a problem, well then it’s too late, baby now, it’s too late!

The cow is out of the barn, as my grandparents would have said… They admit that they are worried about a downturn in the U.S. economy, and what these leveraged loans might do in that situation… And you can bet your sweet bippie that you had better be aware of this, potential problem, and has a very high percentage chance of becoming reality…

And keep this in mind…. Remember…. the rating agencies had Enron as investment grade two days before they went bust. I’m just saying…. 

And don’t tell me that this news didn’t have anything to do with Gold’s romp higher on Friday! Gold is back above $1,300… Now, it’s time to begin to scrutinize the short Gold paper trades each day… Because they’re coming, I’m not mixing your mashed potatoes here! The shiny metal is up another $12 this morning in the early trading… So, it’s on a roll… Don’t stop it now! 

I came across something interesting this weekend… Malaysian Prime Minister Mahathir Mohamad on Thursday mooted the idea of a common trading currency for East Asia that would be pegged to gold, describing the existing currency trading in the region as manipulative.

Mahathir said the proposed common currency could be used to settle imports and exports, but would not be used for domestic transactions. I Immediately had a flashback to 2004… WOW that long ago, Chuck? What made you think of 2004… Well, in 2004, the folks at Agora Publishing came to me and asked me if I thought that with the success of the single unit, euro, if other countries would form unions for their currencies… So, Frank Trotter and Chuck sat down and put our heads together and came up with the Asian Countries could form a union and create a single currency called “The Pan”… The article became well liked and publicized at the time…

Could this be the beginning of “The Pan”?

It’s a beautiful morning… I think I’ll go outside for a while…. And just smile… Breathe in some clean fresh air… The Trade War talk now with Mexico, and continuing with China, and possibly the European Union for trading with Iran, has got me really fidgety this morning, and had me that way all weekend thinking about what I would say today… So, I think I’ll stop for a minute or two, and go outside, for there Ain’t no sense in staying inside If the weather’s fine and you got the time
It’s your chance to wake up and plan another brand new day
Either way, it’s a beautiful morning, ahh

See how mature I’ve gotten through the years… Shoot Rudy, maybe even my former marketing person would like me now! HA! The U.S. economy is heading to disaster, The Oversight Committee sees it, and it’s not going to be pretty, We have two Trade Wars going on, and a possible third one in the making, and… I’m singing along to song…

As far as I’m concerned… It’s about time!  What now Chuck? Oh, I’m talking about the dollar bugs scampering to find protection in the wall boards…  The euro traded very near 1.12 overnight, the Aussie and kiwi dollars are looking healthier, as is the Brazilian real, which has seen some hot and heavy selling for the last 9 months. 

The price of Oil got whacked like it’s never been whacked before on Friday, dropping $5 in one day!  The thinking here is that even though our friends at OPEC (NOT!) are still cutting production, that the Global Slowdown is going to reduce demand for Oil…  I have to question their thinking on this, as we begin the summer driving season here in the U.S.  And there’s no amount of slowdown that’s going to keep June and Ward from taking Wally and the Beaver on a road trip this summer!  

But it is what it is… and the price of Oil is trading with a $54 handle this morning…  I will say that on Saturday, I stopped to fill my gas tank, and noticed, as usual I must say, that the filling station had been slow to move the price of gas down to match the moves in the price of Oil…  Oh, well, bad timing on my part I guess, which is par for the course… Always choosing the wrong lane when driving in traffic, always choosing the wrong line when checking out at the grocery store, etc.    

The thing I don’t like about this downward move in the price of Oil is the negative affect it has on the Petrol Currencies of Russia, Norway, Brazil, Canada, and a few others… 

I just can’t get that news of a not so secret meeting took place last week… One of my fave economists: Danielle Di Martino Booth, was all over this story, and had plenty to say about it… You should probably check her out on Twitter… 

The U.S. Treasury yield continues to become more inverted daily…  The 10-year’s yield is down to 2.11%…  I’ve told you all dear readers for years, to pay attention to what the bond boys were telling us about the economy, and this time is no different…  But let’s check with someone else on his thoughts on the Treasury yield curve inversion… 

I can’t go any further without allowing one of my fave economists throw his 2-cents into the conversation this morning. So, here’s David Rosenberg, from his Twitter handle… “I’m hearing comparisons to ‘98 when global risks caused bonds to rally into inversion. Well, back then, the Fed didn’t just go on hold, it eased 3x. We were also in the midst of the dotcom boom and heading into the Y2K spending binge. These differences can’t be ignored.” -David Rosenberg on Twitter… 

The U.S. Data Cupboard gets restocked this week with data prints, and first out of the Cupboard today is the May ISM (manufacturing index), which has been slip sliding away in recent months and stands at 52.6 this morning….  Tomorrow we’ll see the color of Factory Order for May, and then after some other not-s0-important data prints, we end the week with the Jobs Jamboree for May…  What will the BLS have up their Bullwinkle sleeve this month?  Remember that last month… The BLS reported an increase in jobs created (with created being the operative word here) of 263,000 for April, but when the curtain got pulled back, we saw that the BLS had added 281,000 jobs after the surveys were received!  

And the media and markets took that number by the BLS and swallowed it hook, line and sinker…  Again!  How many months are the BLS going to be allowed to “fix the jobs report”? 

To recap… The dollar’s hold on the currencies and metals ended on Friday last week, and has continued in the Asian and European markets overnight.  A new Trade War was announced, this one with Mexico, and there was a private not-so-secret meeting late last week of the Financial Stability Oversight Committee regarding Corporate bonds…  If this committee is seeing this as a problem, folks, then it’s too late baby now, it’s too late… 

For What It’s Worth…. I told you last week that China was thinking of suspending their shipments of rare earth minerals and metals to the U.S. in retaliation for the Tariffs on their goods… And a dear reader asked me why these were so important… I scoured the internet and found this article on the sight that discusses what the rare earth minerals and metals are used in, and it can be found here:

Or, here’s your snippet:” Washing machines. Cars. Disk drives — if those are still a thing. The rare-earth minerals that China is threatening to withhold from the U.S. as a trade war escalates are more present in consumer products and manufacturing than people might think. Here are some of the surprisingly common things they’re used to make:

The Gasoline in Your Car
Oil refineries depend on rare-earth elements as catalysts in units called fluid catalytic crackers. In fact, they’re some of the biggest consumers of the stuff. These FCC units basically “crack” apart oil molecules to make gasoline and diesel.

Other energy industries use them, too: They’re in wind turbines and may be used to make solar panels and run nuclear power plants. According to the U.S. government, they can also be used in lights, semiconductors, superconductors and batteries. Large-scale energy storage projects, however, may see little impact as they don’t typically make use of the elements, according to BloombergNEF.”

Chuck again… It’s a very BIG Deal folks… So, let’s hope that calmer heads prevail in these Trade Wars, eh?

Currencies today 6/3/19 American Style: A$.6960, kiwi .6563, C$ .7410, euro 1.1186, sterling 1.2635, Swiss $.9981, European Style: rand 14.5230, krone 8.7334, SEK 9.4815, forint 289.36, zloty 3.8295, koruna 23.0920, RUB 65.42, yen 108.35, sing 1.3702, HKD 7.8359, INR 69.19, China 6.9036, peso 19.66, BRL 3.9119, Dollar Index 97.65, Oil $54.04, 10-year 2.11%, Silver $14.72, Platinum $802.25, Palladium $1,344.42, and Gold $1,317.43

That’s it for today…  June…. Well, at least the weather should begin to be more consistent…  The rivers all around us here in the St. Louis area are all up from all the rain, and they expected to crest this week… So, far, fingers crossed, the creek behind my house is behaving…  Well, how about that crazy night, this past Saturday night, in downtown St. Louis?  WOW!  Too bad the Blues and the rain storm ruined it for most…  A few years ago, my beloved Cardinals were a .500 team on June 15th, and then went on a roll to win the division… I’m hoping this team can duplicate that this year!  See what sweeping the Cubs can do to one’s psyche and out look for a team? HA!  Ok…  Chicago takes us to the finish line today with their song: Hard To Say I’m Sorry…    (kind of a sad song… )  I hope you have a Marvelous Monday, and please Be Good To Yourself!

Chuck Butler