ECB To Buy Junk Bonds….

April 23, 2020

* dollar bugs return to the top of the hill…. 

* Gold gets back above $1,700…. 

Good Day… And a Tub Thumpin’ Thursday to you! My memory came back to me last night, as I remembered what I was doing during the actual Game 4 of the World Series in 2006…. My good friend Rick took his lovely wife Laura to the game, and I was drafted to watch his girls, of whom I referred as: Madison Avenue, and Allison road…. They tried to play games with me regarding going to bed, until I finally told them, “This is not my first rodeo, girls…. I’ve been putting kids to bed longer than you’ve been alive” And never heard another peep out of them! HA! My wife was deathly sick having picked up a parasite from our trip to Panama, so she was no help to me that night… But as I recall, we played games, and had fun…. Allison Road still calls me once in a while to say hi! Love those kids! Romeo Void greets me this morning with their 80’s song : Never Say Never… It’s a strange song, but I like it….

Before I get into the markets, economies, etc. I wanted to share an idea with you that a dear reader had…. In reading the Pfennig and learning that the Oil glut has problems because there’s no storage available, the dear reader wrote: “wouldn’t it make sense for the U.S. Gov’t to offer up their storage facilities at least for the time being”…. And that got me to thinking, because, I didn’t know the answer to the question I would ask here and that is: Does the Gov’t use different storage facilities than the Oil Industry uses? And the answer is yes! The U.S. Gov’t uses caverns in Texas that were old salt mines to store their Oil… So, it would makes sense for the Gov’t to step up to the plate and make a gesture that doesn’t cost tax payer Billions of dollars!

OK…. The currencies lost ground to the dollar bugs again yesterday, after trading flat all day on Tuesday… At one point after the overnight markets handed their trading books over to the U.S. the dollar was not faring so well VS the currencies, but as the day wore on, the dollar bugs were relentless in their pressure on the currencies…. However, is a twist that had me scratching my balding head when it first began, but now it’s old hat…. And I’m talking about the dollar having strength VS the currencies but not against Gold….

The shiny metal had a very good day yesterday rallying VS the dollar…. Gold found its way higher to close the day at $1, 714… And…. the shiny metal is up another $17 in the early trading today…  Things are looking up for Gold, folks… Record deficit spending, money printing to beat the band, and a shutdown economy, giving the prospects for a deep recession a lot of merit these days….  So….

Well…. Well… well…. What have we here? I was perusing through Twitter last night, and came across a graph that was posted by commodities guru, Marin Katusa, and it showed the amount of Gold being mined each year for the last 30 years. The last 6 years are really telling, to me that is, for they show a dwindling amount of Gold being mined each year…. Which means supply is a problem for physical Gold, folks…. Oh, and the graph had a note from Marin…. (again, I took this from his Twitter feed) He titled it: Who’s Finding The Gold?

“ Bullion dealers, mints are all out. And it seems the earth is too. Or at least where companies are looking… Discoveries have dried up the last decade.”

Now, I know I too was around when there was all this talk of “peak Oil”…. And that didn’t fan out, as the Shale Producers took up the slack. But from what I read the “fracking” phenomenon is fading fast, and with this shut down, and all that glut of Oil that’s already been pumped out of the ground sitting around waiting for a home, the amount of debt these Shale producers took on to buy the expensive equipment they needed to extract the Oil from rocks, is hanging over the Shale Producers right now like a Big Black Cloud…. I’m just saying…

Of course that’s one way to get rid of the glut going forward, is to have the Shale Producers pull a Puff The Magic Dragon, and never be seen again…. But we sure don’t want that! So, they’ll have to figure out something else!

Oh! And then there’s this…. Did you hear that Bank of America (my friend Aaron’s fave bank, NOT!) sent out a report on Gold saying that they believed that due to central bank currency printing, the price of Gold will reach $3,000 in the next 18 months…. That’s an 80% move from here folks…. Now let me hear you all who can ask this, ask it together…. Got Gold?

I’m not trying to throw cold water on the COVID-19 deaths and near deaths, but since cancer is a disease that I find out about as much as I can, this snippet from Tom Woods email yesterday really struck a chord with me…. “The UK’s Sunday Express reports that increased cancer fatalities will result from the redeployment of health resources caused by COVID hysteria. In fact, says Richard Sullivan, a professor of cancer and global health at King’s College London and director of its Institute of Cancer Policy, “The number of deaths due to the disruption of cancer services is likely to outweigh the number of deaths from the coronavirus itself.”

“The cessation and delay of cancer care will cause considerable avoidable suffering. Cancer screening services have stopped, which means we will miss our chance to catch many cancers when they are treatable and curable, such as cervical, bowel and breast.”

Chuck again…. And when the all clear horn is sounded, the backlog of all those needing cancer screening, will put quite a strain on the healthcare system folks…. On a sidebar…. I was able to get in to have a scan last week, and I think my oncologist stomped her foot and threw a tantrum when the hospital first called to cancel the scan…. I truly appreciate her going to bat for me! In addition the insurance person at the hospital has been a shining star for me in getting the new chemo drugs….

OK, not sure how that all got into this letter, but it did, so we’ll move on from here…. This item really ticks me off, and shows the idiocy of the gov’t’s programs…. So let me set this up…. The Gov’t set up a small business loan program (which I pointed out at the time didn’t have enough money allocated to it) and took applications, which were requests for more money than the program had…. But there was one application that did get approved…. OK, get this… Harvard, which has a $40 Billion endowment fund, received $9 Billion from the gov’t.  I have a family member that has a small business, and he didn’t get squat from the Gov’t….  Brother! were there not any requirements like show us your balance sheet?  I find this to be typical of Gov’t programs… feed the rich, and leave the middle class bread crumbs…. 

I also like (not!) that fundamentals get thrown to the curbside most every day, but when the traders want to use them they sure do pull them out for everyone to see why they are selling an asset…. And so it was yesterday, and overnight with the euro….  Yesterday, the European Central Bank (ECB) says it will “grandfather until September 2021 eligibility of marketable assets used as collateral in Eurosystem credit operations falling below current minimum credit quality requirements.”  

In Central Bank parlance, that’s saying, that they are going to be buying junk bonds….  Now when the ECB announced that they are going to be buying junk bonds, the euro gets taken to the woodshed, but when the Fed Reserve announced they were buying junk bonds, the dollar got bought, because traders thought it was best for the economy…. 

And I’ve been beating on the Reserve Bank of New Zealand (RBNZ) quite a bit lately for all their implementations of monetary hoopla…. Well, as I looked at the RBNZ the other day, I came to the realization that the only thing left for the RBNZ to do is to monetize their debt…. You know like the Fed’s been doing….  And that thought had me thinking…. I wonder what the former, long time ago, RBNZ Gov. Don Brash would be doing during this global shutdown?   Don Brash was my fave Central Banker of all time, and not just because I met him in person, and he gave me his card with his telephone number on it and told me to call him anytime….  I put that to work one day and dialed his number, and he picked up the phone and talked to me for 1/2 hour!

When I turned 60 (5 years ago) Frank Trotter had gotten all kinds of people in the industry to write a quick Happy Birthday line to me, then Frank bundled them all up and sent them to me…. One of the entries was from Don Brash!  How about that?  After all these years! 

I laugh now when I think that once upon a time, I created an index CD at EverBank titled : The Prudent Central Bank CD….  it consisted of what were considered Prudent Central Banks at that time, and included: New Zealand, Australia, the U.K. and Eurozone.  Now, all these years later look at these Central Banks, they aren’t even close to what they used to be…. Goes to show ya what can happen when greed…. and a misunderstanding of what it takes to make a dollar or euro, whatever, in the real world, become the Central Bank… 

Longtime readers know that I have no love for the Fed…. And its mainly for this reason that they are a bunch of propeller heads that have never run a business, worked making widgets, or selling ice to an Eskimo.  So, they have no idea what it takes to have a real economy working….  I’ll stand by that statement until they show me….  I am from Missouri! 

The U.S. Data Cupboard finally gets some data to look at today! Leading off will be The Weekly Jobless Claims, which have been very ugly the last 3 weeks….  And batting second will be the Markit versions of PMI (manufacturing index), which is current, and the April print will show just how the rot on manufacturing’s vine has grown….  Again, it’s not the National version of PMI, which we changed to ISM a few years ago, but the Markit version will be a good indication of what’s to follow…. 

Tomorrow’s Data Cupboard has the March prints of Durable and Capital Goods Orders… These two had already turned negative before the COVID-19 virus shut down the economy, so just for GP we’ll need to look had badly these two were doing before the shut down…. 

OK…. To recap….  The dollar bugs are back on top of the hill again VS the currencies but not Gold…. Gold had a good day gaining $14 yesterday, and is up another $17 in the early trading today… BOA says that Gold will reach $3,000 in the next 18 months….  I sure hope they are correct! The RBNZ is close to monetizing their debt, and the ECB will be buying junk bonds, all reasons to sell the respective currencies and buy dollars….  to traders that is…. 

For What It’s Worth….  Well I have a treat for you today…. This is hot off the press, and will be going out to his readers this morning!  This is an article that I contributed to, for good friend Dennis Miller, it’s about negative interest rates, and it can be found here: 

Or, here’s your snippet: “In our recent article, “What The Heck Is Going On?”, our guru friend Chuck Butler remarked:
“There’s no harm in holding cash, as long as your bank isn’t charging you to do so, which is probably coming down the road, so be prepared!”

Chuck’s remark did not go unnoticed. Subscriber Rikk M. asked, “IF we go “negative” what is your thought on the solvency of the banks at that point in time with people pulling out their funds…it sounds frightening!”

Rikk, you are correct, it is frightening!

What are negative interest rates?
Investopedia offers this definition:
“This unusual scenario is most likely to occur during a deep economic recession….
• With negative interest rates, banks charge you interest to keep cash with them, rather than paying you interest.
• Negative interest rates might be seen during deflationary periods when people or institutions are inclined to hoard money, rather than spend or lend it.
• The negative interest rate is meant to be an incentive for banks to make loans during a period in which they would rather hang on to funds.”

In early 2016, Chuck warned us, sharing some quotes:
• “We’re taking a look at them (negative interest rates). I wouldn’t take those off the table.”
– Janet Yellen, Chairman, Federal Reserve, February 11, 2016
• “[Negative interest rates are] working more than I can say I expected.”
– Stanley Fischer, Vice-Chairman, Federal Reserve
• “I think negative rates are something the Fed will and probably should consider if the situation arises.”
– Ben Bernanke, former Chairman, Federal Reserve

Chuck again….  A very good article and one that people should be reading in that I do believe negative interest rates are on their way to banks in your region!  Here’s another thought that goes along with all that was printed here….  What if going to negative interest rates was a plan by the gov’t?  Stay with me here…. If the bank was charging you for your deposit, wouldn’t you go to the bank withdraw it and take it home with you? Or would you just allow the bank to charge you for your money?  Remember, the Oil contracts the other day? Who would have thought that it would ever come to you have to pay to have your oil taken from you?  Well, that happened and so will negative interest rates…. 

But that’s not the real reason the gov’t wants negative interest rates…. All that new debt that’s coming down the pike wouldn’t have any bond servicing costs!  Can you imagine that, the U.S. issues Treasuries and you have to pay the U.S. to hold them?   

OK, I know I’m going long here, but, I’m on a roll! …. the other reason for negative interest rates would be when the sheeple begin to pull their cash out of the bank , the gov’t issues a decree that prohibits cash, and that all your cash balances have been turned into digital money, which the Gov’t can now track what you spend your money on, etc.  The bank then can start charging new fees that you won’t even know existed!    OK, this last part is all my imagination, folks…. but don’t you see the possibility of this happening?  

Fleetwood Mac takes us to the finish line today with their song: Gypsy… I was a HUGE Stevie Nicks fan…  Still am, but less than before, as we all get older…. HA!  I hope you have a Tub Thumpin’ Thursday, and will Be Good To Yourself! 

Chuck Butler