May 31, 2023
* Currencies get sold in the overnight markets
* Debt servicing costs, continue to rise!
Good Day… And a Wonderful Wednesday to you… well, my beloved Cardinals needed a superb, pitched game last night from their starter to eke out a win.. they completed 19 games in 19 days, and from what I could see the team was running on fumes… Now the Cardinals have an oddity in baseball, 2 days off! We’ve had some unsettled weather here down south this week, partly sunny days, with rain always knocking at the door… And the seaweed accumulation on the shore is crazy! And it just keeps coming in… UGH! Today is the day the debt escalator agreement goes before Congress for a vote… while there might be some rogue lawmakers that stomp their feet and raise their collective fists in the air, protesting the agreement, it will be a rubber stamp, and then all the Kabuki theater will be over for another 2 years… Nazareth greets me this morning with their song: Holiday…
Well, the dollar buying was stopped for 1 day, with Friday’s flat day for the dollar… Yesterday morning, we were seeing some dollar selling, but that didn’t last too long, and by the day’s end, the dollar had rallied, as witnessed by the BBDXY gaining 2 index points on the day… The euro, which a few weeks ago, was flirting with the 1.10 handle, is about to give up the 1.07 handle, and that indicates to me that the dollar is once again overbought… But, as we’ve seen in the last year, the dollar can extend the overbought position a lot longer than one would think it could…
Gold started the day yesterday up $14, and ended the day up $16, to close the day at $1,960.30… And my hopes yesterday that Gold’s rally would pull Silver out of its funk, worked for the most part, as Silver was down 15-cents to start the day, came back during the day, and only ended down 1-cent, to close at $23.26
The price of Oil got whacked again, so much for the Saudi’s warning to the short sellers, eh? Oil ended the day trading with a $69 handle… And someone, someplace, for some reason unknown to man, was buying the 10-year by the truck load, pushing the yield down to 3.68%…
In the overnight markets last night… Well, don’t look now but the dollar is kicking tail and taking names later and starts today up 4 index points in the BBDXY… The euro has lost the 1.07 handle, and the rest of the currencies are all falling in line behind the euro’s losses… I haven’t put a finger on what all this dollar buying is about, but it quacks like a duck, walks like a duck, it has to be a duck… If it smells like PPT dollar buying, and walks like PPT dollar buying, then it must be PPT dollar buying… So, apparently the PPT hasn’t run out of cash in their Exchange Stabilization Fund (ESF)… Gold & Silver are both basically flat this morning, but, if the dollar is getting bought like it is then it won’t be long before the short paper traders pile on and make life miserable for Gold & Silver today… So, what I’m telling you to do is to batten down the hatches, and don’t come out until the Good Witch Glinda tells us its ok again…
The price of Oil has slipped further and trades this morning with a $67 handle… They talk around town is that Oil supplies are being replenished… I just want to make sure that everyone understands that the summer driving season hasn’t even come upon us yet… In a couple of weeks, families will pile into their suburban, and Tahoe, and whatever gas burning vehicle they own, and take off for the great American Road Trip… that should take care of the supplies… I’m just saying…
So… we’re down to the devil in the details of the debt escalator agreement get trashed around in Congress… But like I said above, it’ll get passed, and a new deficit spending budget will be in place… We’ve already got $31.8 Trillion in debt on the books, and another $187 Trillion in what’s called “unfunded Liabilities”… Think about all those baby boomers that are now seeing the tail end of their generation reaching retirement age… Yes, I’m one of them, and darn proud to have made it this far!
All this debt is going to choke off spending for “other things”, because the costs of servicing all this debt just keeps rising, and as long as the Fed Heads keep rates at these levels, the more the debt servicing costs (interest expense) will crowd out “other things” in the budget that used to get money allocated to it… While I don’t want to think about this thought, I’ll throw it out there anyway… Spending cuts could come to Social Security… Talk about ticking off senior citizens!
But those are the difficult decisions that the lawmakers will need to make in the near future… Bill Bonner said it best yesterday when he said: ” raising the debt ceiling isn’t a difficult decision… these lawmakers haven’t had to make a difficult decision, ever!” And I agree with Bill on that! I used to say every year when the debt escalator when higher yet again, that the lawmakers were kicking the can down the road… And eventually, someone will have to pick up the can and throw it away, and that person will be blamed for the mess they incur… You know how the younger folks all deal with stuff like this, right? Hey! It’s not my fault!
Bill also has me singing along yesterday when he highlighted the great Lovin’ Spoonful song: Did you Ever Have to Make up your Mind? YouTube the song, and listen to the lyrics… They are talking about a girl, but it could be them talking about lawmakers having to finally decide!
OK… So the short paper traders in Gold & Silver are still out there lurking, and waiting for the opportunity to bring down the prices of Gold & Silver once again… These guys always seem to go away for a while, and when they aren’t in the markets with their arms full of short paper trades, Gold & Silver rally and silly me, I aways seem to think that this time they won’t be impeded, only to be fooled once again… But one of these days, Alice… to the moon!
Yesterday, I had a nice conversation with a condo neighbor about the BRICS… He was amazed that the BRICS have become so important so fast… I brought up that the BRICS have been around for about 10 years… I first announced their formation in the Pfennig many moons ago… I told you then, when I first wrote about the BRICS, that they would expand their membership, and that it would be the end of the dollar’s reserve status… eventually… not today, tomorrow, next week, or next year… Probably within the next 10 years… But by then folding dollars will not be in existence any longer, and who will care at that point?
Well, the reopening of the Chinese economy, after being shut down for 2 years, hasn’t really helped the Chinese renminbi… The renminbi has dropped to 7.04 (European pricing, so as the number goes higher the less its value VS the dollar)… So, it was interesting to see this headline on Bloomberg.com that HSBC sees renminbi at 6.80 by year end… Do you know what I thought of when seeing that headline? That HSBC, must be very long renminbi, and need to sell their position! I say that, because, while China reopening is going along, it’s not without roadblocks, and setbacks… And nothing that will prompt the PBOC (Peoples Bank of China) to allow a strengthening of the currency to 6.80… That’s my thought… kick around if you want…
But… And you knew that there would be a But… if the Chinese renminbi is allowed to strengthen then the Singapore dollar will follow suit… I told you last week that the Sing dollar had reached an all-time high VS the Malaysian ringget, well, Singapore’s biggest competition for exports is China, so as I’ve explained many times in the past, the two countries won’t allow their respective currencies to stray too far from the other one, because of the competition for exports…
So… here’s the play as I see it… I would look to buy/ own Singapore dollars as a flier on the HSBC call… But! Only if you believe the renminbi is due for a rally…
I read a piece in the U.K. Telegraph that talked about how they (the British) were very disappointed with the debt escalator agreement was made… And I thought… Hmmm… what’s up with that? the U.K. has their own debt problems to deal with and don’t need to be sticking their noses in ours…
The U.S. Data Cupboard yesterday, had the April Case/ Shiller Home Price Index (HPI) and it showed a -1.1% drop in home prices in April… So… we’re seeing housing deflation, and food inflation… Oh boy, sign me up for more of that! NOT! The stupid Consumer Confidence report for this month showed an increase in the index number… I told you it was a misnomer to call it the Consumer Confidence, without adding “in the stock market”…
The Data Cupboard for today is lacking at best… In essence, all we have for today, is 3 different Fed Heads speaking…
To recap… Today’s the day that the debt escalator agreement gets voted on in Congress… Chuck thinks it’ll be a rubber stamp… Oh boy! Our debt gets to go higher! The dollar buying that ended last Friday, was a one and done with the dollar getting bought again yesterday… Chuck talks about making the difficult decisions, and kicking the can down the road… And Gold got a chance to rally yesterday, without the short paper traders showing up…
For What It’s Worth…. OK, i talked about the debt servicing costs rising above, and then I saw this article talking about that very thing, and thought it to be FWIW worthy! This article can be found here:Update on US Government Holy-Moly Debt, Interest Expense, and Tax Receipts, and How they Stack Up Against GDP | Wolf Street
Or, here’s your snippet: “US government interest expense shot up over the past four quarters in line with higher interest rates and the ballooning pile of debt. At the same time, tax revenues fell from the peak levels in 2022 and are back where they’d been in Q4 2021, which had been a record high at the time.
So, interest expense as percent of tax revenues – the primary measure of the burden of the national debt on government finances – spiked to 32.9% in Q1, from 19.3% in Q1 2022. But wait… that 19.3% a year ago had been the lowest since 1969, thanks to the Fed’s interest-rate repression through early 2022 and high tax revenues from the growing economy, wage inflation, and big realized capital gains as people sold assets to lock in their many years of gains.
In the 1980s, interest expense as a percent of tax receipts was around 50%. In the decades since then, Congress has been footloose and fancy-free about its spending and taxing policies, and there hasn’t been any discipline, no matter who runs the show. It’s just that priorities shift. A high interest-expense burden might be the only discipline left that will put some common sense into these people in Washington.
This is the holy-moly gross national debt, and how it ballooned under the last 2.5 years of the Trump administration and the first 2.5 years of the Biden Administration. Over that 5-year period, the debt has ballooned by $10.5 trillion, or by 50%, whereof $6.7 trillion under Trump and $3.8 trillion under Biden.
Over the days after the debt ceiling gets lifted, the gross national debt will spike in massive leaps, as it always does after the debt ceiling is lifted, because the debt ceiling never actually limits the debt.”
Chuck again… Yes, and again I ask the question… Got Gold?
Market Prices 5/31/ 2003: American Style: A$ .6076, kiwi .6004, C$ .7325, euro 1.0674, sterling 1.2364, Swiss $1.0982, European Style: rand 19.7656, krone 11.2515, SEK 10.9055, forint 347.54, zloty 4.2557,
koruna 22.2319, RUB 81.07, yen 140.0260, sing 1.3550, HKD 7.8341,
INR 82.12, China 7.1007, peso 17.65, BRL 5.0365, BBDXY 1,2449.97, Dollar Index 104.57, Oil $67.75, 10-year 3.65%, Silver $23.25, Platinum $1,012.00, Palladium $1,394.00, Copper $3.66, and Gold… $1,957.25
That’s it for today… shorter than usual, but it is what it is… There’s not much more to talk about, other than rehashing the debt escalator agreement… Well, this Friday, I’ll be heading to NW Arkansas for a family wedding on Saturday… And then back home on Sunday… No Pfennig next Tuesday, as I’ll be at the oncologist bright and early that morning… No biggie, just bloodwork to see how my system is handling my new chemo… I had a conversation with the nurse at the Chemo manufacturer, and I told her that I’m really dragging the line these days, falling asleep easily, during the day… I also told her that if that’s all I have to deal with, I’m good… Today, I start 1-week off the Chemo… 3 weeks on, 1 week off… No baseball for me tonight, what will I do? Ahh, click on the MLB app and watch another game… C’Mon Chuck, get with the program, here! The band, Missouri, takes us to the finish line today, with their great highway driving song: Movin’ On… I hope you have a Wonderful Wednesday today, and please remember to Be Good To Yourself!
Chuck Butler