August 7, 2023
* dollar rallies while Chuck was gone…
* A tsunami of Treasuries hit the streets…
Good Day… And a Marvelous Monday to you! I’m back! And full of you know what and vinegar! The U.S. saw a ratings drop, the Fed Heads did hike rates again, and we’re seeing a debt explosion… All those things and more in today’s Pfennig! I had a very relaxing vacation, except for the news that our house back home, had a water pipe burst and flooded our house, with lots of damage and ruined things… We had a restoration team come in and do what they do, and now we wait for the insurance adjuster to come and view the damage. I can’t say that coming home the other night, wasn’t fun to come home to this mess… Faces greet me this morning with their song: Ooh La La
Well, where to start? The dollar on Friday last week got sold, which was the first time in about 10 days… The BBDXY lost 4 index points on Friday, after the weaker than expected Jobs created number was printed by the BLS… There were 280,000 jobs added to the surveys by the BLS… And the total reported was 187,000… So, in reality, there was negative job growth in July… But then that’s just how I compute it, the markets tend to take the BLS’s stuffing of the voting box, as the gospel…
The euro, which was trading near 1.12 when I left, has fallen back to 1.10… The BBDXY was down to 1,220, when I left, and on Friday it closed at 1,226, and that was after it lost 4 index points! The chart on the dollar looks like the dollar fell off a cliff come January of this year, and then sloped back up on a bunny hill…
The rest of the currencies have followed the Big Dog, euro’s lead, and gone up before the recent dollar rally, and then back down when the dollar rallied… I know that really didn’t need to be explained, but once my fat fingers started typing, it was all over but the shouting!
Gold has traded alongside the currencies, as the dollar rally, that came out of left field, and in the face of a downgrade of U.S. Debt… Gold finally found a bid on Friday, but its gains were capped by the short paper traders… Silver fell in line with Gold’s trading pattern, as usual…
The price of Oil has really rallied while I was gone… Oil traded with an $82 handle on Friday… that’s been quite some steady climb by Oil in the last two weeks. The Saudis and the Russians announced last week that they will support the production cuts until Sept…
And the news from the U.S. on Debt issuance is just as I said it would be… A Tsunami of new Treasuries hitting the markets ,and not getting much activity… So, when that happens, the yield on the bonds has to go higher to attract buyers… The 10=year’s yield is 4.04%…
In The overnight markets last night… The dollar buying returned, with the BBDXY gaining nearly 2 index points. The euro has slipped to a 1.09 handle, and even the Petrol Currencies haven’t been able to hold their gains with the rallying Oil price, the dollar’s hold on them is too strong right now. The Bank of England hiked rates last week, and this rate hike and the words from the BOE that more rate hikes might need to be made, hasn’t helped pound sterling… And when a rate hike doesn’t help a currency, well… that’s not a good thing…
Gold is down $8 in the early trading today, so the beatdown of the shiny metal continues… All I can say about this beatdown is that it certainly has presented to you some cheaper buying opportunities! The price of Oil held onto the $82 handle last night, and the 10-year’s yield bumped higher to 4.10% this morning. It appears that we will start the week on a down note in the currencies and metals… And I don’t see anything in the Data Cupboard this week that will turn things around… The only piece of data that is scheduled, that could move the markets is the Stupid CPI that will print on Thursday this week…
Deficit spending is getting out of hand once again…Speaking of deficit spending… Did you know that: The US National debt is up $1.8 trillion since the debt ceiling “crisis.”
It took the US 209 years to add the first $1.8 trillion in debt.
we just did it in just 8 weeks after a “historic” debt ceiling deal.
Isn’t that scary? Good friend, Dennis Miller wrote in his letter (www.milleronthemoney.com) last week that ” the Debt Clock shows us that by 2027, our national debt will be $43.3 Trillion…
You know something that I’ve always told my dear readers is that a strong currency reduces inflation… Or that a weak currency invites inflation in the economy.. So, with those thoughts in mind, you have to believe that whether the economic data shows (stupid CPI) that inflation is falling, you can point to the strong dollar… Yes, the dollar has lost some ground recently, and if that continues, one would think that inflation falling is just a short-term phenomenon… For those of you keeping score at home… The dollar gained over 30% during its bull run in 2022, and has lost about 15% do far this year… So, all-in-all, the dollar is still strong, just not “as strong”…
The Big News while I was gone, was not the FOMC raising rates, as one would think, but instead it was the stripping of the AAA rating of U.S. Debt, by Fitch… Here’s the 1440 report on that: “Credit rating agency Fitch has lowered the United States’ perfect AAA rating by one level to an AA+, citing an expected fiscal deterioration over the next three years, rising government debt, and concerns about what it calls an erosion of governance. The decision comes two months after Fitch placed the US on a negative watch as a result of delays in a debt-ceiling deal.
Fitch is the second major agency to downgrade the US; the S&P Global in 2011 was the first to strip the nation of its AAA rating. The ratings are an independent assessment of a government’s creditworthiness and ability to pay its financial obligations. Read an overview of credit ratings here.
The US government’s repeated standoffs and last-minute resolutions on debt and fiscal issues are one of the reasons for Fitch’s decision. The agency also noted the nation’s debt, which has swelled to a record $32.6T due to a number of factors, including tax cuts and spending initiatives. Fitch predicts the US deficit will rise to 6.3% of gross domestic product in 2023 from 3.7% in 2022.”
Chuck again… And to think that Treasury Secretary, Janet Yellen, has some harsh words for Fitch… She actually said, “The U.S. economy is strong and not worthy of a credit downgrade”… Oh brother!
And there was something else that happened while I was gone worth mentioning… The saying on the trading desk was “When Chuck’s away, the currencies rally”… But this time, they didn’t rally… In fact the dollar bounced from the lows we saw before I left… This is one of those periods that prove a trend is not a One-Way Street, folks… Just wait… the dollar depreciation is still in the cards…
Well, while I was away, Ed Steer had this in his daily letter that I thought was very worthy of sharing with you: ““In the end, more than freedom, Athenians wanted security. They wanted a comfortable life, yet lost it all; security, comfort, and freedom. When they finally wanted, not to give to society, but for society to give to them; when the freedom they wished for most was freedom from responsibility; Athens ceased to be free and was never free again.” ~ Historian Edward Gibbon
You know, you can always check out what Ed is talking about (Gold & Silver and other metals) here: www.edsteergoldsilver.com
There’s a good article here: The End of the Great Keynesian Experiment | Sprott Money News that talks about the end of the Keynesian experiment, and where we are headed with our deficit and debt… I won’t get into that now, but I think it would behoove you to click on the link and read the article… The good folks at GATA sent that to me, while I was gone…
The U.S. Data Cupboard last Friday, had the July Jobs Jamboree, and it was not a good one, as only 187,000 jobs were created in July, but… the hourly wages were up 4%…
In addition, on Friday, the July ISM printed (manufacturing index), and it remained well below the 50 level, at 46.4%… Remember, any number below 50 equals contraction….
To recap… The dollar has been on the rally tracks since Chuck left, and the day he returned, the dollar got sold… the BBDXY lost 4 index points on Friday, after the trumped up jobs number still failed to meet expectations… The price of Oil is soaring… And Gold has followed the currencies moves… The price of Oil is soaring and looks to be on firmly on the rally tracks.
For What It’s Worth… Well, I came across this article while on vacation, and it talks about something that I mentioned above, so if you missed that go back and read it! This article can be found here: Yields Surge After Treasury Boosts Auction Sizes More Than Expected, Sees Debt Issuance Tsunami On Deck | ZeroHedge
Or, here’s your snippet: “We gave a big picture preview of the debt flood (and fiscal crisis) that is coming to the U.S. this past Monday when, looking at the latest Treasury debt estimates, we showed that the U.S. predicted a near-record $1 trillion in debt sales in the current quarter (up from $$733BN forecast previously) and $852 billion in Oct-Dec quarter, numbers so staggering they are usually associated with economic crises…
But in this case a surge in debt issuance meant to sustain the illusion of the deficit-busting Bidenomics, which has managed to keep the U.S. economy from imploding only thanks to massive new debt and deficit spending, or what BofA’s Michael Hartnett called “The Era of Fiscal Excess”, something which Fitch finally realized last on Tuesday when it became only the second rating agency in history to downgrade the U.S. AAA rating.
And while the endgame here is the first ever $1+ trillion in U.S. interest payments which we expect will hit within the next two quarters…
This morning we got a more granular preview of how we get there, when the Treasury published its quarter refunding statement, in which the U.S. boosted the size of its quarterly sale of longer-term debt for the first time in over 2 1/2 years, testing buyers’ appetites amid an increase in government borrowing needs so alarming it helped spur Fitch Ratings to cut the U.S. sovereign rating from AAA (and judging by the surge in yields this morning, the appetite may be lacking).
While investment funds have been gobbling up paper – mostly to fund basis trades – the moment the basis trade blows up again, as it did in Sept 2019 and March 2020, the Fed will come running in to backstop everything.
Well, dear reader, the ‘print or die’ scenario is on full public display now. It’s only a matter of time before it shows up in the currency.”
Chuck again… It’s a real shame that our so-called leaders have led us down this path of destruction, isn’t it?
Market Prices 8/7/2023: American Style: A$.6568, kiwi .6101, C$.7474, euro 1.0980, sterling 1.2740, Swiss $1.1409, European Style: rand 18.6000, krone 10.1499, SEK 10.6243, forint 355.16, zloty 4.0223, koruna 22.0611, RUB 96.03, yen 142.26, sing 1.3410, HKD 7.8066, INR 82.74, China 7.1895, peso 17.09, BRL 4.8746, BBDXY 1,227.43, Dollar Index 102.26, Oil $82.04, 10-year 4.10%, Silver $23.43, Platinum $919.00, Palladium $1,263.00, Copper $3.83, and Gold… $1,936.15
That’s it for today… Quite wordy today, but then I’ve been gone for two weeks, so that was bound to happen! While I was gone, I made a quick trip to Boca Raton, where the Rule Symposium was being held, and sat in and listened to a longtime friend, Frank Trotter give his talk about his new bank: Battle Bank… I got to meet up with Frank and his marketing guru, Jason Coots for lunch… It was the first time I had attended a conference and not talked, presented, and not worn a suit! My beloved Cardinals made some trades at the trade deadline, trading away the players that would be free agents at the end of the year, and getting prospects… It will be some time before we know if that plan worked… A Flock of Seagulls take us to the finish line today with their song: A Space Age Love Song… I hope you have a Marvelous Monday today, and please Be Good To Yourself!
Chuck Butler