Now… That’s A Horse Of A Different Color!

November 29, 2018 

* Powell sounds dovish and the currencies respond!

* A quote from the great Hy Minsky from years ago! 

Good Day…  And a Tub Thumpin’ Thursday to you! I think I’ll be able to join you in any Tub Thumpin’ today, so I’ve got that going for me! What a sorry state our Blues are these days, as they lost another game last night,,, UGH! We’ve got a horse of a different color to talk about today, so grab your coffee, because you’ll certainly want to read the letter today, and not just the first and last paragraphs! The late great Marvin Gaye greets me this morning with his song: Inner City Blues… He has a line in the song that reminds me of me, it goes like this… Oh, and make me wanna holler, and throw up both my hands…  

Well, what have we here? A hawk turned Dove? It sure appears to be the case, and that’s why I say we have a horse of a different color today, so with no further ado, let’s get to it! 

Well, well, well… Looky there! Has Fed Chairman Jerome Powell become a Pfennig Reader? I say that because he sounded like Chuck at yesterday’s speech… I really was off base to think he hadn’t noticed all the pot holes in the economy… But get this…  Powell warned of “generally elevated” asset prices that “appear high relative to their historical ranges.”

He then went on to issue a cautionary note Wednesday about risks to financial stability, saying trade tensions, geopolitical uncertainty and a buildup in corporate debt among firms with weak balance sheets pose strong threats.

Now tell me if I haven’t been warning of these things for months now, while the Fed went along their merry old way hiking rates despite the warning signals, because I have! And now the Fed Chairman is on Chuck’s bandwagon! Welcome aboard, Mr. Chairman, I’ve reserved a seat for you up front, right behind me, because I have been banging the drum for a slow down or pause in Fed rate hikes for months, and so you now get to sit behind me!

The economy is heading for a real pot hole, folks… and it’s about time someone with authority, because I have none, to speak up and say something! GM laying off workers and shuttering up to 7 plants, must have been a real eye-opener for the Fed Heads… Because, like I said yesterday, these things we’re seeing now are just the tip of the iceberg…

Oh, and Powell, decided to tell the markets that the rate of rate hikes could be slowing down, and that sent the stock jockeys to the betting window yesterday, as stocks rallied like a banshee, but guess what else took off on this new development? If you guess the currencies and metals, then you win the kewpie doll!  

And IF the Fed decides to skip a rate hike this month, then all that I told you last year would be coming true right before your eyes, my eye! Remember what I’ve told you about Temporary stops… They sometimes turn into 47 year temporary moves (Gold standard)… Now, I’m not about to go around slapping myself on the back if all this that I’ve said would happen comes to fruition, because this is my country / economy too… And besides all that back slapping causes my bursitis to flare up! HA!

Another thing that caught my ear was Powell saying that the Fed was very close to “neutral”… To me, that means one more rate hike and then they are finished…  It was just Rocktober 3rd, when we heard Powell say that “interest rates were a long way from neutral…  And there you have your horse of a different color!

I don’t like the term one and done, because turkey is done, and you’re finished! This is all really too much like a nightmare come true for me… A nightmare I’ve been sharing with you dear readers for months now… And I’m sure many of you thought I had become the boy who cried wolf… But I haven’t had I?

In 2001, I wrote my first white paper titled: The Decline of The dollar… And it was written while the dollar was kIng of the hill and had been since 1995… And then a year later, I wrote my second white paper titled: 2003: The Year of the euro… After those two white papers, my longtime friend, and former boss, Frank Trotter, began calling me the “Oracle of St. Louis”… (a take from the Oracle of Omaha) boy those were fun days, happy days, and man was I in demand by TV shows, radio shows, and conferences to speak. But like everything else, all good things come to an end… And so it is this time with the economy’s growth cycle.

And so, the Jerome Powell, speech dominated the markets yesterday, and his talk of a possible slowdown/ pause in rate hikes, caused traders to forget about the other data… The revision of 3rd QTR GDP was expected to be revised up from 3.5% to 3.6%, but it didn’t… I remained at 3.5%… And New Home Sales didn’t meet their forecast either, as they were expected to weaken from 597,000 in September to 589,000 in Rocktober, but the selling was even weaker, with Rocktober coming in at 544,000… That’s a HUGE drop from September, folks, and just goes to show you that rate hikes and fears of more rate hikes for all those ARMs loans scared the bejeebers out of home buyers… And then also add in the too high of price on those homes, and you have a bad medicine for the Housing sector.

The Bond boys like the dovish sounding Fed Chairman, and the 10-year Treasury’s yield has dropped to 3.02%… Remember when reaching 3% on the way up was a BIG DEAL? It was supposed to signal a run higher on rates… But that never materialized, and now the yield is back to dropping…  I sure hope you locked in some higher yields while they were available…  Sort of like when the 10-year’s yield fell to 1.38% a couple of years ago, and I said “go get those home loans now!” 

Well, like I said above the metals rallied, led by the Gold, which gained more than $8 on the day, and is up another $5.85 in the early morning trading today, as the overnight markets got a chance to digest the Fed Chairman’s flip-flop yesterday. 

The price of Oil dipped below $50 at one point yesterday, but has since recovered back above the $50 handle. Oil traders don’t believe that Saudi Arabia will cut production like they said they would, and that has the price of oil on tenterhooks… Well, either the Saudi’s do cut production to save the price of Oil from falling further, or they cow tow to President Trump’s harsh words to them for even mentioning a production cut, and Oil slides further downward.   What’s it gonna be boy? 

The U.S. Data Cupboard today, has two of my fave prints… Personal Spending and Personal Income… What we’ve seen in recent months is that Personal Income has risen, while Spending has weakened. It will be interesting to see what the Rocktober prints brings us this morning.  Given that Christmas stuff was already being displayed in stores back in Rocktober, one would think that shoppers were looking for discounts, and spent a lot in that month… The Butler Household Income (BHI) suggests that Rocktober could be a strong month for spending…  But then, hopefully it was with disposable cash and not just willy nilly put on credit cards! 

To Recap…  We had a horse of a different color show up yesterday in the shoes of Fed Chairman Jerome Powell, who talked like he had been reading the Pfennig, and said that the Fed is close to reaching neutral with rate hikes, which was opposite of what he said on 10/3, when he said that rates were a long way from neutral… The currencies and metals, stocks and bonds all rallied, and the overnight markets followed up with more dollar selling… 

Before I head to the Big Finish today, I was treated yesterday with an email from good friend, Dennis Miller, of that contained a quote from one of my mentors of the past, the great Hy Minsky… This was on the Burning Platform website… check out what the greatest economist of our time said many years ago…

“The missing step in the standard Keynesian theory (is) the explicit consideration of capitalist finance within a cyclical and speculative context… finance sets the pace for the economy. As recovery approaches full employment… soothsayers will proclaim that the business cycle has been banished (and) debts can be taken on. But in truth neither the boom nor the debt deflation… and certainly not a recovery can go on forever. Each state nurtures forces that lead to its own destruction.”

Hyman Minsky

For What It’s Worth… OK, I talked about the drop in Consumer Confidence this morning, and said that it wasn’t enough of a drop in my opinion, given all that’s going on, and then I saw this on Zero Hedge and it shines a different light on the report, and you can find that here:

Or, here’s your snippet: “Consumers’ optimism about the short-term future declined in November. The percentage of consumers expecting business conditions will improve over the next six months decreased from 26.3 percent to 22.5 percent, while those expecting business conditions will worsen increased, from 7.2 percent to 8.8 percent.

Notably only the 35-54 cohort saw overall optimism decrease (tumbling from 143.2 to 132.0) while the younger- and older-cohorts saw confidence increase.

Income expectations also fell from 16.5% net expecting an increase to 13.7% net (the lowest since June).

Finally, as a reminder, the divergence between slumping savings rates and surging consumer confidence has typically not ended well…”

Chuck Again… Well, if you put it like that… I guess the fall was significant, but I sure did want to see it fall further to match my expectations for the economy… Oh well, you can’t have your cake and eat it too I guess!

Currencies today 11/29/18: American Style: A$.7325, kiwi .6865, C$.7526, euro 1.1375, sterling 1.2772, Swiss $1.0052, European Style: rand 13.6480, krone 8.5460, SEK 9.0530, forint 284.10, zloty 3.7696, koruna 22.8073, RUB 67.08, yen 113.31, sing 1.3705, HKD 7.8231, INR 69.60, China 6.9531, peso 20.21, BRL 3.8635, Dollar Index 96.85, Oil $50.35, 10-year 3.02%, Silver $14.37, Platinum $825.58, Palladium $1,183.62, and Gold… $1,227.07

That’s it for today… and tomorrow, of course… It’s Conference   Championship game weekend for college football, and will go a long way toward deciding what 4 teams go to the playoffs. It will also be the first Saturday of December, which means it’s time for our neighborhood Progressive Dinner! Time to see the neighbors before things get crazy with Christmas parties, etc.  The house has been getting all decorated again for Christmas… I love it when the house is all gussied up!  When we talk again, it’ll be December! And rotten November will be over! YAHOO!  King Crimson takes us to the finish line today with their classic rock song: In the Court of the Crimson King…  a very long song, I must say, but it’s all good!  I hope you can get out and make this a Tub Thumpin’ Thursday, and remember to Be Good To Yourself!

Chuck Butler