Has The Fed Painted Itself Into A Corner?

September 3, 2020

* Another day of “suspicious” dollar buying… 

* Bill Bonner gives us his thoughts on the eviction moratorium… 

Good Day…. And a Tub Thumpin’ Thursday to you! Another yucky day weather wise here where I live in the summer and fall months… I don’t know that it ever really rained, it just looked like it was going to do that all day… That marked 3 days without sunshine… Jimmy Cliff sings a song that goes: Hello Sunshine, won’t  you please come around? Hello Sunshine don’t let me down….   After a night when the Cardinals got 23 hits, and scored 16 runs….  They were only able to muster up 6 hits last night, left the bases loaded in the top of the ninth, and lost in the bottom of the inning…. UGH!  As Tony LaRussa used to always remind Cardinals fans, that winning the series was good… So, the Cardinals took 2 of 3 from the Red, and now go Wrigley for the weekend, after getting their first day off in 19 days in which they played 23 games! Now it’s makeup time with several double headers this month… UGH!  OK…  The Beatles greet me this morning with their song from the Sgt. Pepper’s Album: With A Little Help From My friends…. Joe Cocker did a bang up job doing that song at Woodstock, too….

OK, well, yesterday I gave the idea of simple profit taking with a dash of short paper trades thrown in, a run up the flag pole…. But when I threw it against the wall, it slide right down… So once again the PPT has stepped in to save the dollar….  We can’t have two days where the dollar gets sold any longer without the PPT stepping to throw the dollar a life saver…. You know the kind that saves you from drowning, not the kind that comes in multiple flavors in a role with a hold in the middle of them!

The euro lost more ground, and now their lofty level of earlier this week seems like a distant memory….  The Aussie dollar (A$) also got sold, but at least there was a fundamental reason to do so….  Yesterday, it was announced that Australia had entered into a recession last quarter, their first recession in 29 years!  I was beginning to wonder if the folks that call the recession down under, had forgotten what the parameters were, as it had been so long since they were called on to calculate a recession!

This darn, I really wanted to say the other word there, pandemic is really beginning to get under my skin… Yes, lots of people have died from it…. But haven’t we carried things a little too far too long with this virus? I’m just saying…

Gold lost $26 and ended the day at $1,943.10….  Simply amazing that these guys get away with what they get away with…. My dad always told me, Chuck, be patient, your opportunity or time will come, and when it does you had better be prepared to act….    My dad was the smartest man I ever met… He had such logic about things, and I guess that’s where I learned that from….

Ok, sorry about that… Silver also lost 64-cents on the day to close at $27.54….  Platinum was down, Palladium was down, but Rhodium was up… Go figure, right? All three of them are used in catalytic converters for cars, so why would one be up while the other 2 are down, is beyond my thought process, folks…. So, let’s move along to talk about something I do understand!

And the overnight markets haven’t been kind to both the currencies and metals once again….  Gold has given up $9 in the early morning trading, and the euro looks like it would only take a couple more sell orders to bring it back below 1.18…  I just don’t get it… The Chairman of the most powerful Central Bank in the world, just told the world last week that he doesn’t care about anything else but to get inflation rising…. and that doesn’t get traders selling dollars like funnel cakes at a state fair? Gimme a break! 

Ok, remember last week when I talked about the moratorium on evictions, and expressed my concern about everyone else that’s involved in a mortgage loan, spending most of the time talking about the harm to the mortgage bond, and bond holder.  And then yesterday, longtime friend, publishing guru, and author, Bill Bonner gave us his thoughts on the eviction moratorium….. Take it away Bill!

“And what about the landlords? Will there be a moratorium on mortgage defaults? And what about the banks that hold the mortgages? Will there be a moratorium on bank failures?

And what about real estate prices? If landlords can’t collect rents… and can’t pay their mortgages… won’t real estate prices fall? Should there be a moratorium to stop them?

Maybe Mr. Trump should declare a moratorium on all bankruptcies, defaults, sales shortfalls, profit slumps, crashes, and repossessions… and knuckle-breaking loan shark collections.

And why not put a moratorium on weight gain and COVID deaths, too?” – Bill Bonner

OK… yesterday I told you about how the Fed would keep rates low to be able to keep the bond servicing costs down (interest costs)…. And while perusing Twitter, I found this ditty that plays well in the sandbox with what I told you… (Paying less interest while borrowing more is how we got into this mess in the first place: “Net interest costs on the debt have declined 12% during the first 10 mos. of the fiscal year compared with the same period a year earlier, despite rising red ink.”) – Twitter

So, am I right, well, am I right, well?  Of course I am! Not patting myself on the back here folks, just making the point that even little old me (HA!) can figure that one out all by himself!

Well…. I’ve been out walking…. I don’t do that much talking, these days…. These days I sit on cornerstones and count the time in quarter tones to ten, my friend. Don’t remind me of my failures, I have not forgotten them….  (one of my fave Jackson Browne songs, These Days) The reason I  began this part of the letter with the lyrics to that song is that I began to write about how I was thinking, about…. And the next thing I knew, I was singing that song in my head, and my fat fingers were following along! 

So, what I was really thinking about is what the Fed is doing buying all these Corporate bonds, and bond fund ETF’s….  I’ve come to the conclusion that they’ve painted themselves into a corner, and can’t stop buying now, because doing so would cause a major calamity in the markets, and the Fed Heads don’t want to be pointed to as the reason the bubble burst….  

Longtime trader, and active Twitter supplier, Sven Henrich, had this to say about the Fed and their bond buying: “so rather the attitude is: let the bubble run, hope it sorts itself out, rather than be blamed for pricking the bubble they created. imho.”- Sven Henrich on Twitter…

OK, I had two FWIW stories lined up today, and decided to go with the one that’s below, and save the other one for Tuesday next week (remember Monday is a holiday) and it’s from Pam and Russ Martens of wallstreetonparade.com, so that’ll give you something to look forward to….  Another thing my dad taught me when I began my career in the music industry, he told me, “Chuck, always leave your audience wanting…”  So, that’s what I’m doing today giving you a teaser for Monday….  Pretty suave of me, eh? HAHAHAHA!

The U.S. Data Cupboard yesterday had the ADP Employment report for August, and from what they reported the number blew away the forecast of 162,000, and came in at 428,000 jobs added in August! Well, as the late Great Charlie Daniels said, “Well, you’re pretty good old son, but sit down on that stump and let me show you how it’s done”…. We as a country have laid off over 30 Million people and that doesn’t count the “gig workers”, so when the economy began to open up, shouldn’t the jobs added be blowout numbers? Of course they should!

But short-sighted people don’t see it that way… They see the blowout number, and start singing, we’re in the money, we’re in the money, and clicking their heels way up high!

Today’s Data Cupboard has the Weekly Initial Jobless Claims which two weeks ago was 1 Million on the dot… The experts thing that last week’s number will drop below 1 Million….  I guess we’ll find out very soon, eh?  We’ll also see the stupid Productivity report for August, The ISM Services index for August, and the Trade deficit for July…

To recap…. So much for profit taking, this has turned into another PPT-like rout on the currencies and metals by buying dollars, and delivering short Gold paper trades to the COMEX…  Every time it appears that the dollar is going down a deep rabbit hole, it gets pulled out by its ears, and put on Terra Firma once again….  Bill Bonner asks some good questions about the eviction moratorium…  Chuck talks some more about how the Fed can’t raise rates….  And there was lots of singing going on this morning…. Good thing no one is around at this hour of the morning!

For What It’s Worth….  Well, I’ve been telling you that this feels as though we’re in the beginning stages of a new weak dollar trend for a couple of weeks now…. So, when I saw this article featured on Ed Steer’s letter yesterday, I just knew it had to be our FWIW to end the week!  This about the dollar going into a long multi-year weak trend, and it isn’t me talking! It’s someone else, and it can be found here: https://in.reuters.com/article/usa-markets-dollar-analysis/u-s-dollars-woes-are-only-beginning-some-bears-say-idINKBN25S3KN

Or, here’s your snippet: “ The chief investment officer of currency manager A.G. Bisset believes the U.S. currency will plunge 36% against the euro over the next year or so, taking it to levels it has not seen in more than a decade.

The greenback’s recent weakness “is the beginning of a very large move” that could hurt the droves of investors exposed to it through their holdings in U.S. stocks and bonds, Lindahl said.

Wall Street is swarming with bearish dollar forecasts, though few are as extreme as Lindahl’s.

The U.S. currency is near its lowest level in 27 months and is down about 11% from its 2020 peak against a basket of its peers, with Goldman Sachs, UBS and Société Générale among the banks forecasting more losses.

Hedge fund bets against the dollar in futures markets are at their highest level in about a decade, according to data from the Commodity Futures Trading Commission, while 36% of fund managers in a recent Bank of America Global Research survey named shorting the dollar as their top currency trade for the second half of the year.”

Chuck again… Well, this reminds me of 2001, when I wrote the Decline of the Dollar white paper, and our PR people couldn’t get me an interview to talk about it, until…. Everyone else in the industry began to see the writing on the wall…. And then It was like, “how did you know this was going to happen?”  I would tell them, well, if you line up the tea leaves correctly, they tell the story”… And then I would laugh, and say, no, seriously, all you had to look at were the fundamentals….  These days, what you have to look at are the tea leaves! Seriously, it’s all about sentiment… And if everyone begins to have a sentiment change toward being long the dollar, then Katy Bar The Door!

Market  prices 9/3/20: American Style:  A$ .7292,  kiwi .6730,  C$ .7626, euro 1.1810, sterling 1.3250, Swiss $1.0954, European Style: rand 16.7707, krone 8.9171, SEK 8.7568,  forint 303.28,  zloty 3.7469,    koruna 22.3316, RUB 74.48, yen 106.48, sing 1.3658, HKD 7.7501, INR 73.45, China 6.8310, peso 21.78, BRL 5.3781,  Dollar Index 93.01,  Oil $40.40,  10-year .65%, Silver $27.22, Platinum $908.00, Palladium $2,350.00, and Gold… $1,934.10

That’s it for today…. And tomorrow, and Monday, and while I’m at it…. Next Thursday is my monthly appt with my oncologist, to go over the scans results, which I already know what they are…. So, only two Pfennigs next week, but like I said above, you’re not going to want to miss Tuesday’s FWIW! So, do you have BIG plans for this holiday weekend, the last holiday weekend of the summer?  I don’t, and as I’ve already told you, I’m really bummed out about it…. The Cards and Cubs this weekend with a double header on Saturday, so as long as the weather is nice, I’ll be outside watching them play ball!  I hope to see my kids and grandkids this weekend…  I’ll fire up the Big Green Egg on Friday, and cook all day, so that I don’t have to cook any more thru the weekend!  Supertramp takes us to the finish line today with their song, and my fave Supertramp song: Hide In Your Shell…. ( Hide in your shell, ’cause the world is out to bleed you for a ride…What will you gain, making your life a little longer?)   I simply love this song! I hope you have a Tub Thumpin’ Thursday, and please remember to Be Good To Yourself!

Chuck Butler