Is It Safe To Come Back Out Now?

Rocktober 5, 2023

*dollar wavers yesterday… 

* BOJ intervenes on Tuesday to help yen… 

Good Day… And a Tub Thumpin’ Thursday to one and all! Oh, the tangled web we weave…  Yes, yesterday, was a strange day for me… First of all the sun wasn’t out… Second, it wasn’t as warm as it had been, so sitting outside was a bit chilly for me… and with all the noise in the house from the rebuilding of our infrastructure, I couldn’t get my daily nap in, so… the day toiled on and on and on, and then it hit me right between the eyes… I needed to do some reasearch and reading!  Then when I began to read, I felt woozy, and well, I finally fell asleep… I slept the rest of the day away, so in the end, the day didn’t exist for me!  The Black Keys greet me this morning with their song: Gold On The Ceiling… 
The dollar yesterday traded flat all day, after being down 2 index points overnight, so in the end, the BBDXY lost 2 index points yesterday… That’s a pimple on a hog’s rear, compared to the 9 point gain the dollar had earlier this week… But it did show that the dollar can be sold… As it was the night before… Gold fought all day to go green, but ended up red, down $1.60 on the day to close at $1,822.00, and Silver couldn’t find a bid yesterday, losing 13-cents to close at $21.09… The euro kept its 1.05 handle, while the Russian ruble finally succumbed to the selling and closed over 100 yesterday… The Japanese yen, as I told you yesterday, had averted the 150 level the day before, and now it appears that the reason for this rally was Bank of Japan (BOJ) intervention… They BOJ won’t admit to any intervention, but at the same time they won’t deny it either…  But just in the way the yen rallied for one day, it had to be BOJ intervention… We’ll have to wait-n-see if the BOJ comes back for more, or was this a one and done… 
The price of Oil saw a huge selloff yesterday, with Oil losing $3 on the day to end the day with an $84 handle… Suddenly, the markets are taking notice that the economy is teetering, and the consumer is plum out of cash to spend, and with consumption a large piece of GDP, that spells trouble…   So, depleted supplies, can’t hold a candle to economic fears it appears…  And this was on the newswires this morning: “US gasoline seasonal demand fell to the lowest since 1998″… like I said, the summer driving season is over… Uh-Oh… 
And the 10-year’s march to 5% was interrupted yesterday, with some major buying… Wait! What? Yes, someone or some entity bought a boat load of bonds yesterday, and the 10-year’s yield dropped to 4.71%, when just the day before it had reached 4.80%…  I have something in a bit on the U.S. Treasury buying back bonds, but in this case I think it was the Fed Heads once again intervening in the bond market… 
And then one more thought on the commodities from Ed Steer this morning… “One would think we’re done to the downside after yesterday’s price action — and with gold and silver severely oversold, there’s not much left for the commercial traders to get out of the Managed Money traders. Although not oversold…platinum, palladium and copper look pretty much done as well. It’s just too bad that yesterday’s data won’t be in tomorrow’s Commitment of Traders or Bank Participation Reports. And me being the suspicious type, that price smash in WTIC — and close below its 50-day moving average, looked premeditated to me.” – Ed Steer from 
One currency that has really dropped in recent days is the Swiss franc… And yesterday, it dropped below $1.09, when the Swiss Consumer Price Index (CPI) for September came in at 1.7% YoY vs. 1.6% prior, worse than expected. OK, maybe it’s me because I’m so jaded, but wouldn’t it be nice if our inflation was 1.7%?  Just goes to show you that it’s all relative…  I’m just saying… 
In the overnight markets last night…  There was little to no movement, and any movement was downward for the dollar. But, really, we’re trading in the same clothes as yesterday’s close…  The BBDXY is 1.274 this morning, Gold & Silver are flat as a pancake (Head East) , with copper and Oil the only downward moves that are noticeable. The price of Oil has slid another $2, to trade with an $82 handle this morning, while Copper, which on the last trading day in July held a $4.00 price, has been reduced to a price of $3.57… And don’t think for a minute that the short paper trades let Copper slide for one minute, because they don’t! 
So, we start today, wondering if all the selling of the currencies, metals, Oil, and other commodities is over… If it is, then it’s time to back up the truck, folks… And pick up some of these beaten down assets, at bargain basement prices!  One currency to steer clear of is the Japanese yen, but then you already knew that, and it was not necessary for me to remind you! Sorry about that! 
I found this on the Fed St. Louis’ (FRED) site: “Under current policy and based on this report’s assumptions, [government debt relative to GDP] is projected to reach 566 percent by 2097. The projected continuous rise of the debt-to-GDP ratio indicates that current policy is unsustainable.”

—Financial Report of the United States Government, February 16, 2023

So, basically the Fed Heads know that the rise in debt is unsustainable, but when will this come to a head? The Fed folks don’t provide that info, so it remains that only the Shadow Knows… 
Right now the Debt to GDP is running at 130%… It was written in an education paper years ago, that any percentage above 95%, would lead to devastation for an economy…  
Addison Wiggin had this yesterday regarding where we’re going as a country: “McCarthy is the first Speaker of the House to be formally removed from the post in US History. Now, we’re in uncharted territory indeed.

To which, we repeat these ominous words from the economic historian Niall Ferguson:

This decade will not be identical to the 1970s. Now will it replicate the experience of the 1920s or the 1940s. But the idea that we can recover from the fiscal and monetary excesses of the past three years without economic pain—at a time of political polarization and geopolitical conflict—seems historically implausible.” 

You know… it’s difficult to remember sometimes, just how we all got into this mess… But leave it to Bill Bonner to remind us… Here’s Bill in his daily letter yesterday talking about Housing Cracks… “But the cracks and crumbling aren’t limited to the housing sector. The basic building brick for the whole world’s financial edifice is the US 10-year T-bond. Yesterday, the real yield (adjusted for inflation) on the 10-year rose to 2.27%. That was what it was in January 2009, just after Ben Bernanke began his disastrous ultra-low rate fantasy (as if you could actually make people better off by falsifying the cost of capital!)…the proximate cause of today’s financial distress.  
Until Bernanke went off the rails, the US financial system retained at least the appearance of sanity. It could walk and talk, more or less like a normal economy.  People remembered where they lived; they could still get home.  
It cost money (positive interest rates) to borrow back then…which limited debt to what people could afford. But then, after the Fed dragged interest rates below zero, in real terms, the sky was the limit. That is what made the US financial world what it became – 2009-2020 – cloud cuckoo land, where fake capitalists borrowed fake money at fake interest rates in order to make fake profits.

Those profits disappear when the whole fake hullabaloo comes to an end. Then, we suddenly sober up, look for our car keys….and try to remember how to get home.” – Bill Bonner  from his Bonner Private Research letter 10/5/2023 

The U.S. Data Cupboard yesterday had the August Factory Orders, which were negative in July, but August printed a positive 1.2% gain… That gain corresponds to the uptick we saw in the ISM that I reported on earlier this week. Things aren’t hunky dorey, in the economy, but they aren’t dire straits either, at least not yet, that is… It’s all window dressing that’s hiding the rot on the vine in the economy, folks… And sooner or later, it will be exposed, and when it does, Katy bar the door! (a warnig of approaching trouble)  There’s just too much debt in the system to get anything real done, folks… And the sooner the markets realize that, the sooner the dollar gets hammered once again… 
We also saw the ADP Employment Report for September, and it showed 177,000 jobs added to the payrolls in September… That’s not bad, but then again, it’s not good, and plays along with the Factory Orders and ISM… doesn’t it?  Longtime readers will recall me saying at times in the past that I truly believe that the ADP would be a better gauge of the employment in this country, than the hedonically adjusted BLS report, which will print tomorrow… At least there wouldn’t be flown under the cover of darkness, revisions to the jobs reports , like there are with the BS, I mean BLS reports… 
So, like I just said, the BS, I mean BLS jobs report will print on Friday… I’ll tell you all about their lies, on Monday morning, when I report to you on Columbus Day! 
To recap… the dollar got sold, rubles got sold, Oil got sold, and bonds got bought… Hmmm…  Interesting, very interesting, but stupid! The dollar’s 2 index point loss in the BBDXY that started yesterday morning, didn’t fudge from that all day, so the index lost 2 points… As Chuck pointed out it was a pimple on a hog’s rear, compared to the 9 point gain the index posted earlier this week. Suddenly it appears, the markets have come to the conclusion that the economy is teetering… Maybe, they as a whole, are reading my letter?  HA! AS IF! 
For What It’s Worth…  Ok, I’ve talked endlessly about the bond sell off, and have talked about the losses in bonds until my words become so repetative that they get passed over… But this article really gets to the gist of the rate rises and what the bonds have done, and it can be found here: Long Bonds’ Historic 46% Meltdown Rivals Burst of Dot-Com Bubble – Bloomberg
Or, here’s your snippet: “Losses on longer-dated Treasuries are beginning to rival some of the most notorious market meltdowns in US history.
Bonds maturing in 10 years or more have slumped 46% since peaking in March 2020, according to data compiled by Bloomberg. That’s just shy of the 49% plunge in US stocks in the aftermath of the dot-com bust at the turn of the century. The rout in 30-year bonds has been even worse, tumbling 53%, nearing the 57% slump in equities during the depths of the financial crisis.
The extent of the losses is a stark reminder of the risk that comes with piling into longer-dated bonds, where prices are the most sensitive to changes in interest rates. That was part of the appeal of the securities as the Federal Reserve spent the better part of a decade cutting borrowing costs to near zero.
But as the central bank has carried out the most aggressive monetary-policy tightening in decades to rein in runaway inflation, the mix of historically low starting yields, long-maturity debt and rapidly rising rates has proven to be a painful combination.
“It’s quite something,” said Thomas di Galoma, co-head of global rates trading at BTIG and a four-decade market veteran. “To be honest with you, I had never thought I would see 5% 10-year notes ever again. We got caught in an environment post global financial crisis where everybody just thought rates were going to remain low.”
The current losses in long-maturity debt more than double the next biggest slump in 1981, when then Fed Chair Paul Volcker’s campaign to break the back of inflation drove 10-year yields to almost 16%.

It also surpassed the 39% average loss in seven US equity bear markets since 1970, including last year’s 25% slump in the S&P 500 when the Fed started to lift rates from near zero.”

Chuck Again… And now there’s no wonder we had banking a crisis last spring, and the banking losses are still out there stirring and will boil up at some point, just be ready for that!   
Market Prices 10/5/2023: American Style: A$ .6348, kiwi .5941, C$ .7269, euro 1.0525, sterling 1.2142, Swiss $1.0921, European Style: rand 19.5537, krone 11.0037, SEK 11.4037, forint 367.89, zloty 4.3692, koruna 23.2001, RUB 99.86, yen 148.90, sing 1.3766, HKD 7.8292, INR 83.25, China 7.2980, peso 18.08, BRL 5.1579, BBDXY 1,274.79, Dollar Index 106.68, Oil $82.83, 10-year 4.72%, Silver $21.11, Platinum $806.00, Palladium $1,159.00, Copper $3.57, and Gold… $1,822.30
That’s it for today, and this week of course… So, next week, a very short and abbreviated Colombus Day Pfennig on Monday, then no Pfennig Tues & Wed, but back on Thursday… Got it! Good! Good luck to my beloved Mizzou Tigers on Saturday, as they play host to LSU…  Bot teams use Tigers as their team name…  Congrats to the Twins, Diamondbacks, Phillies, and Rangers who all won their best of 3 games playoff series 2-0… Sweeps…. all of them!  A cold front came through here yesterday, and left us with normal autumn temperatures… it’ll be a rainy day today, all day, so I’m stuck inside with all the construction noise! UGH! Oh well, it has to get done, to get our house back to normal again! I feel great again this morning, so it looks like my system has finally accepted the new chemo… YAHOO! The Byrds take us to the finish line today with their song: Eight Miles High…  I hope you have a Tub Thumpin’ Thursday today, and a Fantastico Friday tomorrow, Go Tigers! Please Be Good To Yourself! 
Chuck Butler