Is Powell Playing Chicken With Congress?

September 28, 2020

* the dollar bugs backed off late last week… 

* Gold & Silver… up, down, and up… 

Good Day… And a Marvelous Monday to you! Well, my beloved Cardinals kind of stumbled, and fumbled its way into the playoffs this year, but…. As 2006 will remind everyone that follows baseball, the important thing is to get into the playoffs, for you never know how it will all play out….   My beloved Missouri Tiger (Mizzou) didn’t turn out to be a blood donor for Alabama on Saturday night, and they beat the spread, which was a whopping 28 points! I think the SEC was getting back at Mizzou for crashing their SEC Championship games 2 consecutive years a few years ago…. The two teams added to the Tigers schedule, this year,  were Alabama and LSU….  Oh well…  You’ll never get better playing the Little Sisters of the Poor! That’s my story and I’m sticking to it! The Ozark Mountain Daredevils greet me this morning with their song: If You Wanna Get To Heaven…  …. You’ve got to raise a little hell….  Which has been my frame of mind while writing the Pfennig over the years!

Well…. As I stare at the screen this morning, wondering where to start, the thought crosses my mind that what I do say could get me in trouble with readers….  And then what I do say might have them exulting me! So, I’ll flip a coin…. HA!   The currencies didn’t really do much on Thursday and Friday last week, the dollar bugs must have taken a pause for the cause… Gold & Silver rallied on Thursday, and then turned around and reversed their Thursday gains on Friday…. 

The Dollar Index was 94.54 last Thursday morning and this morning it sits at 94.18, so, as you can see the currencies found some breathing room, but not a spacious floor plan! 

The Economic data late last week was pretty telling if you ask me…. First of all the weekly Initial Jobless Claims rose the previous week, and Durable Goods Orders only rose .4% in August VS 11.2% gain July, and Capital Goods Orders (CAPEX) only grew 1.8%  in August, VS 2.5% in July… Now what do those three economic prints tell you? Let’s see if we agree…. It tells me that whatever strength the economy was seeing from the reopening of economies, was nearly completely reversed the next month, and to me these are signs of a deep divide that’s beginning to show in the expectations of the rebound in the economy… 

So, the currency traders going into the weekend, didn’t know what to do…. Buy dollars, Sell dollars, or just do nothing…  Yes, I’ll take what’s behind door number 3…. And so the currencies ended the week on somewhat of an up note, but the move was nascent at best….  But like I said above, Gold gained $5 on Thursday, but lost $7 on Friday, and Silver had the same fate, gaining 37-cents on Thursday, and giving back 24-cents on Friday….

There’s just sooooooooo much price manipulation going on in the metals folks, that once again, I’ll remind everyone that to kick these price manipulators where the sun doesn’t shine we would need to buy as much physical Gold or Silver as we possibly can and hope to catch them short….

In the overnight and early morning markets, the dollar bugs have backed off a little more, and Gold has regained the $7 it lost on Friday, while Silver is back to 23-cents, up 11-cents this morning.  There’s been no real news overnight to cause this backing off by the dollar bugs. I’m thinking that they went too far, too fast, and like star burning out, it burns the brightest right before it fades out…  

Last week I told you about a metals trader that was convicted on price manipulation of metals and Treasuries….  And then this weekend I read that another trader in Europe was been indicted for price manipulation… And to top it all off I also read this week that Two Los Angeles-based dealers have been charged with swindling senior citizens on precious-metals purchases in the run-up to this year’s record high in gold prices.

Well…. Florida is the land of the free!  I’m just saying…  And S. Dakota has always been!

Nothing can prepare you for a jolt to the financial system…. But having Gold & Silver in your possession, and not ETF’s, is the only way to weather the jolt….  Margin Debt in stocks just keep climbing higher and was up another 5% in July from June.  The last time we saw a major decrease in margin debt was in February 2009, which was one month before the Fed announced their first bond buying implementation in March and the stocks being bought on margin haven’t slowed down since….  Oh, there was that short period in March of this year, but soon the Fed would announce the alphabet soup of currency printing plans, and well, we all know where stocks have gone since then, right?

I just don’t get it…. The stock investing is against every economic fundamental that I learned with regards to stocks….  The number of businesses in the U.S. that continue to close their collective doors just keeps climbing, and so does the number of Zombie Corporations…  And the businesses that are still viable, don’t have income, per se, and so their balance sheets look a lot like a sea of red….  And don’t forget about them cutting their dividend payments too!  But…. Their stock prices continue to climb… (Ok, we’ve actually seen 3 consecutive weeks of downward movement in stocks, but that’s chump change VS what they’ve climbed to)

Have investors finally seen the writing on the wall? If so, then we’ll begin to see the margin debt levels come down, as those positions held on margin will get sold out, to cover their balances…. I know I’ve told this story before, but here it goes again….  In a galaxy far away, I ran a margin dept, for a regional brokerage firm….  And there were times when myself and all the guys on the margin desk would be dialing clients on the phone, and telling them their account would be sold out….  It got so strange that the guys on the desk would come up with different ways to tell the client the bad news…. The one I remember was the margin clerk telling the client who was a dentist, that his account had a big cavity, that needed filling….

OK, enough of that!  Well, that was one heck of a week with all the Fed Head speeches last week, eh? And the result? Not much movement, as they collectively didn’t upset any applecarts, which I’m sure is their goal, so at least they can go back to the Eccles Building and claim that they met their goals!  Not so much on employment or inflation here in the U.S. but that’s for another day, the Fed Heads are too busy slapping each other on the back… 

The U.S. Data Cupboard doesn’t have a lot of data prints for us this week, and is empty today, but the week does end with a Jobs Jamboree!  I’m sure that the bond, metals and currency markets will be tuned in to the ups and downs that will come with leaks, and commentary that goes on this week regarding thoughts on what the Jobs report will tell us…. 

If the Weekly Initial Jobless Claims are any indication, and they should be, the report will be weaker than the one printed earlier this month for July.  Right now the experts are forecasting an increase in employment for August of 810,000, which is down considerably from the 1.31 Million that were added in July…  I know these numbers are very large and don’t seem possible, but you have to remember where employment number fell too this spring, and then it kind of makes sense… 

To recap…. The dollar bugs have backed off on their assault of the currencies and metals from last week, and the two asset classes are fighting back. Gold & Silver were up on Thursday, down on Friday, and up again this morning, and the Dollar Index has fallen from 94.54 last Thursday to 94.18 today, so you can see that the dollar has given back some of the ground it gained last week.  Chuck sees a real problem with the size of the margin debt in stocks, folks… And he has a story for when stocks slide in margin accounts… 

For What It’s Worth….  Well, did you know that the Fed has backed off their buying of Corp Bonds and ETF’s? Well, they have and I have to believe that they sending Congress a message, of how ugly this whole enchilada could end up being, if Congress doesn’t come up with a new stimulus plan soon…. Well the info on the backing off is here :

Or, here’s your snippet: “Two weeks ago, when the Fed published its latest monthly breakdown of purchases Secondary Market Corporate Credit Facility which shockingly showed that in the entire month of August, the Fed had not purchased a single corporate bond ETF and had barely purchased any corporate bonds in the open market, we asked if Powell was “sending the market as message.”

In the subsequent two weeks, which saw a sharp drop in risk assets and the Nasdaq sliding into a 10% correction, coupled with a modest rout across the corporate bond sector, many had expected the Fed to revert to its role as custodian of market stability and ramp up its purchases of corporate bonds, if for no other reason then to assure investors that Uncle Jerome was still watching over everyone.

So in what may come as a big surprise to all those praying for the Fed to bail them out, or to at least telegraph that he is keeping an eye on the current tech-led market mess, Powell did no such thing and in fact the Fed’s latest weekly H.4.1 report showed that the corporate credit facilities held $12.911bn of corporate bonds and ETFs as of Tuesday, up a tiny $44 million from $12.867BN the prior week.

And since that implies the Fed bought a paltry $9 million/day of corporate bonds and ETFs on average this past week, down from $19 million/day the prior week, and far, far below the $300 million in daily corporate bond/ETF purchases for much of the early summer, one wonders if Powell is urgently trying to let the market know that it is on its own?”

Chuck again…  I don’t believe the Fed will play this game of chicken with Congress too much longer folks… They may all be dolts in my opinion, they’re not going to watch stocks fall much further without doing something…  I’m just saying…

Market   prices 9/28/20: American Style: A$ .7068, kiwi .6655, C$ .7470, euro 1.1675, sterling 1.2869, Swiss $1.0796, European Style: rand 17.0144, krone 9.4665, SEK 9.0584, forint 311.82,  zloty 3.8977,   koruna 23.3313, RUB 78.11, yen 105.46, sing 1.3772, HKD 7.7499, INR 73.74, China 6.8228, peso 22.27, BRL 5.5597,  Dollar Index 94.18,  Oil $40.45,  10-year .66%, Silver $23.10, Platinum $867.00, Palladium $2,299.00, and Gold… $1,867.50

That’s it for today…  A rainy day apparently, the first rain we’ve had here in two weeks, so that’s OK, with me… Not that I can do anything about mother nature!  All my kids and grandkids were here yesterday to spend the day with me…  I cooked up some yummy chicken and a good time was had by all!  Now, I know I’ve seen three of my own kids do this, and their kids do it, but when I saw little Evie, stand up by herself, and begin to walk the other day, I was amazed, and shocked, and a tear came into my eye… Simply amazing…. She’s so darn cute!  Justin Heyward and John Lodge of the Blue Jays take us to the finish line today with their song: When You Wake Up….  “you will find, that your love has left your side”…  And with that, I hope you have a Marvelous Monday, and will Be Good To Yourself!

Chuck Butler