Is The Fed Lost In A Lost World?

November 7, 2019

* Currencies lose more ground to the dollar on Wed.

* Bank of England meets today, and the EC didn’t have nice things to say! 

Good Day… And a Tub Thumpin’ Thursday to you! I got to say that the old saying of “the squeaky wheel gets the grease” came to fruition, as I reviewed the emails in the Pfennig Replies box yesterday… Several readers have sent forward their thoughts on my never healing leg wound, and I can’t wait for tomorrow when I see the wound center doctor again to express some of their thoughts to him… He’s going to wonder where I got all that information! The J. Geils Band greets me this morning with their song: Must Have Gotten Lost… Which is what I feel most mornings when I stare at the blank screen!

OK… Another day went by, and there was another day of Trade War negotiations, which apparently didn’t go so swimmingly well, as we were told they were going to be…. As I’ve said before, I’m from Missouri, they’re going to have to show me the Trade Agreement, and stop talking about how they’re close! I started today’s missive with this topic because both Reuters and Bloomberg have articles this morning saying the dollar weakened on Wednesday because of the outlook for the Trade War negotiations. A quick look at the currencies, which I do first thing every morning, and onto the metals, bond rates, and Oil, before anything else, told me that I didn’t see an weakening in the dollar… In fact from what I was able to see, the euro lost ground, the A$ lost ground, just about every currency on the face of the earth lost ground to the dollar yesterday… So, the folks at Reuters and Bloomberg must be doing a J. Geils Band number this morning and Must Have Gotten Lost!

The Chinese renminbi was the one shining light in the currency roundup again today, as the renminbi was allowed to appreciate below the 7 figure for the first time since before the Trade Tariffs began to take a bit out of Chinese exports…  I’m wondering here, if the direction of the renminbi is a better indicator of whether or not a Trade Agreement is going to get done?  I could be onto something here, eh? 

Gold did recover some of the $25 loss on Tuesday, yesterday, gaining about $7 on the day, to close the day at $1,490…. But the shiny metal remains below $1,500 and Silver below $18, which represent the current levels of back and forth trading… The buyers drive the price up and the sellers with their paper trades drive them back down…  In the early trading this morning, Gold has given back that $7 gain…  back and forth… I see more and more writers writing about how they believe Gold is a buy at these levels… Where did all these guys come from? It’s sort of like back in the day, I used to be the only speaker at the Money Shows that talked about currencies and metals, and certainly there were only a handful of writers that talked about currencies and metals… Then one day, that all changed, and the guy that drove me in his taxi from the airport to the Conference setting in Kissimmee, Fla, was seen giving a presentation on currencies at the Conference! In other words everybody and their brother were talking about the weak dollar…

I used to talk about the history of currency trends in my presentations… And since August 1971, when President Nixon removed the Gold backing from the dollar, there have been 5 completed currency trends… The first one was a weak dollar trend that began in 1971 and ended in 1978… A strong dollar trend then took over and lasted until the Plaza Accord in 1985. The next weak dollar trend then was in place until 1995, and the strong dollar trend that started in 1995 lasted until 2002… From 2002 to 2011, the weak dollar trend was in place, and since 2011 to today the strong dollar has been in place, and remains in a strong trend for now…

As you can see from this historical data that a trend lasts the shortest amount of time at 7 years, and the longest amount of time at 10 years… Since we’re currently in the 8th year of the strong dollar trend, one has to wonder how much longer in the tooth this trend will last… If it were up to President Trump, it would have been over last year! But that hasn’t happened, much to his chagrin… In 2001, I wrote a white paper titled: The Decline of the dollar, not to be confused with the book that came out a few years later, that I wrote the foreword for: The Demise of the dollar… Was I just lucky back in 2001, that I thought the end of that trend was near? Or did I have a ton a research that led me to that call? Which do you believe it was? HA! Longtime readers know the answer to that! 

I tell you all this to remind everyone that you never know what will push a current currency trend to its end, and start a new one. But… I would say that investors that listened to me back in 2001 were sure happy they diversified their investment portfolios… And so now I’m going to go out on a big fat limb and say that it’s that time again… Time to make sure you have a fully diversified investment portfolio using currencies and metals… And that’s all I’m going to say about that now…

One of the reasons I’m getting that feeling again about the dollar is the moves the Fed is making to support the repo market… You know… that in the financial meltdown of 2007/08, that a lot of that mess could be blamed on the NY Fed who was supposed to regulating and auditing the banks that ran into problems… And when everyone found out that NY Fed had created $29 Trillion in newly created electronic funds to bail out the banks, they were appalled… But did Congress do anything about the Fed’s actions? Well, we all know they didn’t… And now the Fed NY is bailing out banks again with their injection of liquidity each day… And their buying of T-Bills from the banks… Tell me in your calmest voice how this is all going to come out peachy? Please, someone tell me, because I don’t see how this doesn’t create chaos…. 

Rot on the vine doesn’t just exist here though folks… The European Commission gave their outlook on the economy’s future earlier this morning, and they didn’t have nice things to say… They warned the European Banks that, “risks, including the possibility of a disorderly Brexit, remain “decidedly to the downside.”

Recall me telling you that the Hungarian Central Bank Gov. dissed the euro earlier this week, right?  Well the forint has seen nothing but selling since that statement…  Take shots at the big Dog, and you get bitten…  I’m just saying… 

Today overseas… The Bank of England (BOE) meets to discuss rates… The current internal rate there is just 75 Basis Points (3/4%). And I don’t think rates are going anywhere right now, not with all the unknowns hanging over the BOE like the Sword of Damocles… upcoming elections, and continued BREXIT talks lead the list of unknowns… I read a report yesterday where the economist in the U.K. said that if the election in the U.K. goes the wrong way, that sterling will get punished…

Here in the U.S. there’s not much to see in the U.S. Data Cupboard either… However, having said that we will see the September print of Consumer Credit (read debt)… The August print was $18 Billion, and I’m thinking that consumer debt just got worse in September… But we shall see, eh? This data doesn’t really move the markets, it’s really more for the nerds like me to pick at…

Yesterday in the U.S. Data Cupboard we saw the color of 3rd QTR Productivity, and the color is red… As the data printed negative -.3%, which was the lowest productivity report since 2015… In addition, we saw the color of 3rd QTR Unit Labor Costs, which were much stronger at 3.6% up from 2nd QTR’s 2.4%… So, let me see here if I’ve got this correct…. Our productivity has gone to hell in a handbasket, but the cost of that lack of productivity is soaring? Are people getting paid for a lack of production? Is this a case of one guy digging a hole and 5 other guys standing around critiquing his digging?

And as far as the Unit Labor Costs rising, how much would you be willing to bet that major piece of this move higher comes from insurance costs?

To recap… The currencies lost additional ground to the dollar yesterday, even though Reuters and Bloomberg don’t agree… Gold was able to recover a small amount $5 of its $25 loss on Tuesday… The Trade War negotiations seem to be going sour, once again, even though we were assured earlier this week that they would be good! The BOE meets this morning, but Chuck thinks there are too many unknowns in the U.K. right now for the BOE to move rates… And Chuck goes through the currency trends for the 100th time in the history of the Pfennig!

For What It’s Worth… When I began reading this article, all I could think about was Enron… OK, this is an article about how an accounting firm & the company they audited obscured an accounting error. And my mind just keeps going back to the early 2000’s and all the Company scandals… Oh well this article can be found here:

Or, here’s your snippet: “ Mattel stock slumped more than 3% Wednesday after a report surfaced purporting that the toy company and its auditor PricewaterhouseCoopers obscured an accounting error.

The toymaker was forced to shelve the sale of senior notes in August when a whistleblower letter was made public, claiming the company had made accounting errors in historical periods. In late October, Mattel said auditors had completed their investigation and had determined that income tax expense was understated by $109 million in the third quarter of 2017 and overstated by $109 million in the fourth quarter of 2017, with no impact for the full year.

However, it appears that the “honest mistake” may have been buried by PwC and senior finance executives in an effort to save face, according to The Wall Street Journal.

The accounting error had to do with Mattel’s ownership of “Thomas & Friends,” an animated children’s show. The error was tied to a $562 million valuation allowance that Mattel created against its deferred tax assets in September 2017. Ultimately, the allowance was reduced by $109 million, which came from deferred tax liabilities related to Mattel’s acquisition of HIT Entertainment in 2011. Reducing this allowance lowered Mattel’s loss during the quarter.”

Chuck again… Sure it’s just one example of problems… But could it be the first of many to be revealed going forward? Only the shadow knows…

Currencies today 11/7/19 American Style: A$.6905, kiwi .6376, C$ .7595, euro 1.1083, sterling 1.2856, Swiss $1.0086, European Style: rand 14.7311, krone 9.0964, SEK 9.5955, forint 300.14, zloty 3.8484, koruna 23.0201, RUB 63.67, yen 109.13, sing 1.3568, HKD 7.8239, INR 70.66, China 6.9994, peso 19.09, BRL 4.0234, Dollar Index 97.82, Oil $57.06, 10-year 1.87%, Silver $17.54, Platinum $930.74, Palladium $1,797.55, and Gold… $1,483.18

That’s it for today… Well, our Blues has another back-to-back game last night, this time in Edmonton.. Too late of a start for me to watch the game, for sure!  But I see this morning that the Blues didn’t need overtime to win this time, as they pulled out a 5-2 win!  Let’s Go Blues! Little Evie was here last night for a short time, I kept giggling at the little noises she made while taking her bottle… So darn cute! Ok the cold front moved through here last night, and it’s downright cold outside this morning! It was 82 in S. Florida yesterday… UGH! This afternoon, I’ll get all bundled up and head to the Vascular Testing Center, for a test of the veins in my leg, to see if they could be the problem with me not healing… The streets dept. is repaving the roads in my little river town. Unfortunately there’s only one road in and out of my subdivision to the outside world, and it’s getting repaved! YIKES! Oh well better to bothered by this than to not be around to be bothered! Keeping with the thought today that we’re lost… The Moody Blues take us to the finish line today with their song: Lost In A Lost World…   I’m thinking that this describes the Fed, folks…  Lost in a lost world, of debt creation and negative yields…. I hope you have a Tub Thumpin’ Thursday, and a Fantastico Friday tomorrow, and please Be Good To Yourself!

Chuck Butler