Investors Flocking To Negative Yielding Bonds?

April 2, 2019

* Another day of dollar buying, on mixed data prints… 

* Petrol Currencies gain on bump up in Oil to $62… 

Good Day… And a Tom Terrific Tuesday to you!  A good day here yesterday, turned to an even better day, when my beloved Cardinals found a way to win a game, and our Blues kept the pedal to the metal with a shootout win last night. I still say a shootout is the dumbest way to settle a match, that is unless the match involves shooting guns! I think the Cardinals’ front office is beginning to have some buyers’ remorse feelings about their purchase of an aging pitcher, of whom I won’t mention… I hope he can ‘find the magic” he once possessed…  Little Feat greets me this morning with their song: Fat Man In The Bathtub…  I think that only Little Feat fans would know that song… 

Another day, another day of dollar buying…  And to answer Ed Steer’s question about “has the bottom been reached” in Gold, I would say no…  The data prints yesterday, here in the U.S. were mixed and in no-way reflect the kind of buying that took place with the dollar. Something is fishy about this dollar buying folks…  Stocks aren’t getting bought, bonds have backed off their buying, currencies aren’t getting bought, and neither is Gold / Silver. 

The one asset I do see gaining is the price of Oil… Oil is trading with a $62 handle this morning, and the Petrol Currencies are the only currencies with a some form of gain VS the dollar…  The ruble, real, and loonie are the best examples of that.  I read something the other day that scared the bejeebers out of me, regarding Oil…   The Mexican peso has long been considered a Petrol Currency, but recently their Oil production has fallen from the sky! A major fall in production in 2018, has Oil traders wondering if the well is running dry in Mexico…   I’ll have to do more research on that subject folks, so stay tuned… 

Oil trading pales in comparison to Bonds, currencies and even stocks with regards to size, but still this move higher is something to behold, and comes to us by way of a deep plunge in Oil production by the Saudis…  Just in time for the summer driving season… I’m just saying… 

Another thing I read recently is something that I’ve talked about previously on many occasion, and that is the dumping of U.S. Treasuries by Russia and China (and Japan to a lesser degree)…  Yesterday, I told you that Russia had announced that the value of their reserves, including Gold, were greater than their external debt. ( A very BIG DEAL in Chuck’s book!) But failed to give you the skinny on Russia’s Gold accumulation…  And for that we have… Data from the Russian central bank cited by Bloomberg show that its gold reserves have nearly quadrupled over the past ten years, and that 2018 marked the most “ambitious year yet” for Russia gold-buying, which coincided with the Central Bank of Russia’s mass-dumping of its Treasury holdings.

Remember when I told you that Russia’s central bank had liquidated $81 Billion in Treasuries, nearly its entire holdings. And how that sales had dropped Russia out of the top 30 countries with Treasury holdings?  Well, It appears now that Russia didn’t just buy Gold with their Treasury sale funds…  The Chinese renminbi got bought up by the truck load, and has led to a mess of Central Banks buying renminbi…  

All these external things going on around the world have really caused the Chinese architects of getting the renminbi greater distribution in the world, to take their eye off the ball, in recent months…  But news like this has to be like manna from heaven to the Chinese leaders… 

This relationship between China and Russia has gotten a little strange… Two countries that were historically at odds all the time, have gotten together to trade Oil for Gold, to develop a new transfer payments system to use if they get kick out of using SWIFT again.  And now their buying each other’s currency as reserves…   I don’t like these goings on folks… I’m just saying, but it’s more than that, I’m afraid…  

The U.S. Data Cupboard, as previously stated, was a mixed bag-o-nuts yesterday, with February Retail Sales printing a Big Fat negative number to match the January red numbers… Feb. Retail Sales were negative -0.2%… And when they take out Auto Sales the number gets even more red at negative -0.4%…  I’m said this before folks, but spending is a Big Deal here in the U.S. and when spending isn’t taking place, the economy grinds to a halt…  

The positive side of the Data Cupboard yesterday was the increase of the ISM Index (manufacturing) in March… I told you yesterday that  the recent index direction has been to weaken each month, but March’s result was a positive gain from 54.2 to 55.3…    I don’t know that happened, given the other data prints, like the Chicago PMI that printed last week, so I’ll put that down to smoke and mirrors… That’s what the deal is as far as I’m concerned…  

Negative yielding bonds are making a comeback… As the rest of the world deals with low to zero interest rates, their bond issuance reflects this, and to highlight this, Germany’s recent bond auction saw a huge cover and interest in their negative yielding bonds…  Wait! What?  Yes, investors are lining up to say, “yes sir, may I have another?” to negative yielding bonds…  So for the next 5, 10 or whatever maturity length they buy, they’re saying that this is the best we can get, and we realize that at maturity, I will have taken a loss…  

I don’t know, maybe you have to be a little strange in your thinking to sign up for something like that, eh?  I don’t see it, as something that I would hear me telling my financial advisor to look into buying for my investment portfolio…  So, let’s hope it never happens here in the U.S.  But one never knows, right? 

This dollar trend has really been hanging around much longer than I would have suspected it to hand around, but then even a blind squirrel can find an acorn, right?  But if you’re diversified with currencies and metals, you’ve reduced the overall risk of your investment portfolio, and when things turn around, and they will, no trend grows to the moon, you’ll be set to see those asset classes perform nicely…   

Well, a new and improved BREXIT deal is being worked on as I write…  And all the while the U.K. economy suffers, and pound sterling does too…  Hey Bank of England Gov. Mark Carney, Hello… Is that really you on the phone? OK, Great! I’m humbled that you would take my call, but I have a question for you… How’s that call that you made about how interest rates would be going higher?   Oh, I seem to have lost you, the line went dead… I’ll call back to get my answer… 

Today’s Data Cupboard here in the U.S. will have February Durable Goods and CAPEX Orders… I suspect them to be negative once again… I’ve played the record of me talking about how important CAPEX orders are to an economy, that I’ve worn a groove in the vinyl, and now it’s stuck, and keeps playing the same thing over and over!   

And remember when I was talking about Retail Armageddon?  Well, longtime reader, Bob, sent me a link to something that is pretty scary to me… Walmart has been closing stores…  Wait! What? Walmart? not Walmart?  Yes, it’s true… And on a much smaller scale, I saw yesterday that Steak-n-Shake restaurants are being closed here and there…  I Googled the nearest Steak-n-Shake to me, down here, and it’s 34 miles away… Just reading that made me crave a double steak burger with cheese!  HA! 

To recap…  Another day, and another day of dollar buying yesterday, with the only exceptions the Petrol Currencies, who saw their values increase along with the Price of Oil that is trading with a $62 handle this morning. The U.S. Data yesterday, was mixed with Retail Sales printing negative, but the manufacturing index increasing this month…  Gold can’t find a bid, and keeps dropping, and has Chuck scratching his balding head once again… 

For What It’s Worth…  I was doing my usual research yesterday, and checking out what the Reuters people were writing about, and came across this article about the White House calling out the Fed rate hikes, and thought it to be FWIW worthy… So here’s the link to the article: https://www.reuters.com/article/us-usa-fed-trump/white-house-calls-for-fed-to-reverse-u-s-rate-hikes-idUSKCN1RA2MB

Or, here’s your snippet: “U.S. President Donald Trump said on Friday that the Federal Reserve made a mistake by raising interest rates and blamed the central bank for hurting the U.S. economy and stock market.

“Had the Fed not mistakenly raised interest rates, especially since there is very little inflation, and had they not done the ridiculously timed quantitative tightening, the 3.0 percent GDP, and Stock Market, would have both been much higher & World Markets would be in a better place!,” Trump tweeted.

The remarks were part of a new attack the White House has launched against the independent central bank in their unusual public split. The Fed’s Board of Governors did not immediately comment.

No fewer than five Fed officials this week have touted the underlying strength of the American economy and argued a recent spate of weak data on business activity is more likely to prove fleeting than lasting. None said they currently back a rate cut.

Prior administrations have taken care not to comment on Fed policy, but Trump has railed repeatedly against the U.S. central bank’s rate hikes. Friday’s comments were uniquely specific about the course of action now favored by the president.”

Chuck Again… You know, love him or hate him, the guy doesn’t have a problem speaking his mind on things, and for that I applaud him…  And that’s all I’ll say about that!

Currencies today 4/2/2019 American Style: A$.7078, kiwi .6770, C$ .7506, euro 1.1205, sterling 1.3052, Swiss $1.0003, European Style: rand 14.1787, krone 8.6087, SEK 9.3181, forint 287.23, zloty 3.8373,  koruna 22.9835, RUB 65.35, yen 111.38, sing 1.3555, HKD 7.8496, INR 69.16, China 6.7092, peso 19.16, BRL 3.8913, Dollar Index 97.37, Oil $62.04, 10-year 2.47%, Silver $15.02, Platinum $850.00, Palladium $1,404.52, and Gold… $1,288.50

That’s it for today…  It was a real foggy day outside this morning down here… Fog is something I’m used to see back home in my little river town, but now down here!  A nice sun-filled, warm day, today is supposed to turn nasty this afternoon, so I had better get out and enjoy the sun while it’s still shining this morning!  Played email catchup with a former colleague yesterday… it was great to hear from Lauren again… Day one, alone was OK… Onto Day two… And most of the “renters” here in this building have gone home, so there aren’t many people here… So, there’s no one to bug me! HA!  The Reverend Al Green takes us to the finish line today with his song: Love And Happiness…   I hope you have a Tom Terrific Tuesday, and will Be Good To Yourself!

Chuck Butler