Overnight Buyers Reverse The Dollar’s Direction…

September 1, 2022

* currencies & metals gain on Wednesday

* But get sold overnight! 

Good Day… And a Tub Thumpin’ Thursday to you! That’s what I need is a little Chumba Wumba to sing that song this morning, as I am dragging the line right now. Welcome to September…  It took by beloved Cardinals 13 innings to finally beat the Reds last night. Every extra inning was full of suspense… And guess what starts tonight? The start of my beloved Missouri Tigers football season! YAHOO! Fight Tigers fight for Old Mizzou… Right behind you, everyone is with you! And the Missouri Waltz, and so on, it’s time for tailgating and some good college football! And I won’t have to choose between the Cardinals and Tigers tonight, because it’s an off day for the Cardinals! That couldn’t have worked out any better! I’ll be wearing my balck and gold today and tonight, so if you want to root on the Tigers with me, drop on by, I’ll be out back! HA! REO Speedwagon greets me this morning with their song: Golden Country… “Golden country your face is so red, with all of your money you’re poor can’t be fed” Yeah,, that song…

Well, the dollar got sold yesterday, but before you go hootin’ and hollerin’ The dollar got bought in the overnight markets last night, and the buying made up for the loss during the day, and more! The Japanese yen continues to reach multi-decade lows, along with pound sterling… See what it gets your currency when you drag your feet to hike rates? The euro, on the other hand has dealt with a sloth-like moving Central Bank, but from all reports it appears the ECB will be hiking rates aggressively in their next meeting. So, those reports regarding ECB rate hikes, is what’s keeping the euro afloat right now…

The BBDXY lost 3 index points yesterday, and had some pundits believing that the overbought dollar was heading into a correction period of trading… But the overnight markets put an end to that thought, and the BBDXY gained 4 index points during the night..

Two currencies that haven’t been dragging their feet regarding hiking interest rates to combat inflation, are the antipodean currencies of Australia and New Zealand. But in their case, they get all bundled up with the rest of Asia, and that drags their respective currencies downward. These two currencies had it “all going for them” earlier this year, as Commodities began their ascent to fight inflation. But then, as I chronicled here in the Pfennig, the PPT started putting some of their Exchange Stabilization Fund (ESF) to work, buying dollars and ever since that happened, the only currency to hold its value VS the dollar is the Russian ruble… Go figure!

Gold & Silver continued to get sold yesterday, and everyone is talking about how the prospect of higher Fed rates is what’s causing Gold & Silver to genuflect… OK, for those of you not versed in the word, genuflect, it means to get down on one knee… Gold & Silver have been on their respective knees begging for a bid, and just can’t find one out there… Buyers are leery of getting caught in an engineered takedown… The buyers figure, “Why buy now, when I can buy cheaper when this is over?”

I reckon they are probably on to something there, but… to me the price of Gold doesn’t really matter, when I’m looking to buy… Maybe I’m being short some silverware in the box, by thinking that way, but it’s who I am… I have never looked for bargains when buying anything. If I feel I need to buy something, I go out and buy it, right then, and there!

So, as I told you above the overnight markets last night quickly dispelled any thoughts that a correction in the overbought dollar was in store… The BBDXY gained 4 index points and trades this morning at 1,299… The U.S. Data Cupboard probably had something to do with the dollar selling yesterday during the day, and we’ll talk about that in a bit…

Yesterday, I told you that Goldman, aka Lola had told clients that commodities should be bought, and this morning I have two more casino banks steering clients to something… Let’s get to the skinny on that hey?

On Bloomberg.com this morning, there’s this title: Goldman, Citigroup Tell Clients to Bet Big on Singapore Dollar…  And here’s why they believe this is the direction that investors should take… 

“While the relentless greenback strength has clobbered Asian currencies this year, Singapore’s dollar has held up relatively well thanks to a hawkish central bank and recovering economic growth. The currency has weakened 3.8% against the dollar in 2022, but has strengthened against all of its Asian peers with the exception of the Hong Kong dollar. “

For those of you who are new to class, the Singapore Monetary Authority (MAS) does things differently than everyone else. They use a range that the Sing dollar is allowed to trade in, thus using the currency as their internal rate… So, in the end, it appears that Goldman and Citi believe that the MAS which has adjusted the range twice already this year, will do so again at their next meeting in Rocktober…    I, myself, have always thought the MAS version of adjusting interest rates would be better than having a group of eggheads that have never worked a day outside of the Fed, arbitrarily set the internal rate…  I’m just saying… 

So, either the MAS in Singapore is going to adjust their range in Rocktober, or, both Goldman and Citi are long sing dollars and need for everyone else to prop us heir trading position…  For haven’t I always told you to be careful when these Casino Banks make these calls, due to their inner drive to make their long positions profitable?  Why yes, you have Chuck, and thank you for that!  HA! 

Ok, just to keep you up to date with market lingo…  The new buzzword that’s being used over and over again is “Growth Recession”…   this term came about after Jerome Powell’s 7-minute speech at the Jackson Hole boondoggle last week. As I told you earlier this week, Powell, told his audience, and thus the world, that the U.S. economy will need to suffer some pain as the Fed Heads continue to hike rates to combat inflation. 

The “Growth Recession” means that the Fed Head will have to slow economic growth to achieve their goal of reducing inflation.  I find this new term being as being useless… Because, we already know that rate hikes slow an economy!  Oh, well… we move on despite their shortcomings! 

To back up the thoughts that the Fed Heads will continue to hike rates to combat inflation, Cleveland Fed Head, Mester, believes that the Fed Funds rate will be 4% by early 2023, and that she does not anticipate the Fed Heads cutting that Fed Funds rate in 2023…    

Well, in my humble country boy opinion,  while 4% rates would be significant move toward fighting inflation, it’s not going to cut the mustard!  As I’ve explained before, historically speaking, a Central Bank needs to hike rates above the inflation rate to achieve their goal…  I’m just saying… 

OK, enough of Fed Head talk, too much of that could cause a bad rash! 

I read an article this morning that talked about how U.S. farmers are warning that there could be a tomato shortage coming… That means tomatoes, salsa, paste, marinara, spaghetti sauce, would all be affected…  

Now, I would draw the line in the sand, if I went to a Mexican Food restaurant and they charged me for my chips and salsa! But, if this warning about tomatoes comes to fruition, then we could very well see that happen… UGH!

The ADP Employment Report yesterday, showed that only 132,000 jobs were added in August..  Now keep that in mind when the BLS issues their jobs report on Friday this week. I’ve always contended that the U.S. should use the ADP report as their official jobs report, because ADP simply counts the number of new jobs that were added to their computer, and doesn’t get into forecasting jobs, and saying they existed when they don’t! 

The so-called experts are calling for 328,000 jobs to have been created in August. So, I guess we’ll have to wait until Friday to see what the BLS has up their sleeve…  Ala Bullwinkle! 

Today’s Data Cupboard has the weekly Initial Jobless Claims, and revisions of 2nd QTR Productivity and the Employment Cost Index…  I really, truly don’t believe the markets even notice revisions any longer… I’m just saying… 

To recap… The dollar saw some selling on Wednesday, but before anyone could say this is the correction we’ve been waiting for, the dollar turned around and got bought in the overnight markets last night.  The Japanese yen and U.K. pound sterling are sporting multi-decade lows VS the dollar, and looking very sickly… Chuck talks about inflation, the Fed Heads, and lingo this morning, hope you didn’t miss that!

For What It’s Worth…  There’s something happening here, what it is ain’t exactly clear (Buffalo Springfield)…  this article came to from longtime reader, Bob, and it’s about how many zombie companies are in the U.S. and other countries, and it can be found here: Up to one-third of all Australian and US companies could be “Zombies” – Christopher Joye | Livewire (livewiremarkets.com)

Or, here’s your snippet: “Since 2019, we have been warning about the rise of “zombie companies” kept alive by perpetually cheap money care of the near-zero interest rate and QE-to-infinity policies of profligate central banks in the period following the GFC. The worry is that as interest rates now normalise, many of these zombies could fail to survive, creating waves of corporate defaults the likes of which has not been seen since the 1991 recession in Australia and during the GFC in the US.

We have, therefore, updated our quantitative zombie detection models to cover both Australia and the US. And we have stress-tested some of the definitions of what is, and is not, a zombie. The standard definition for a zombie is a company that meets two tests:

They have existed for more than 10 years, and
They have an interest coverage ratio (ICR) of less than 1 for 3 years in a row.
There are other more complex definitions that we employ, but this will suffice for our public research. So the ICR is defined as the ratio of a company’s earnings before interest and tax (EBIT) relative to the interest (note, not principal) repayments on their debt. If the firm’s ICR is less than one, it is not earning sufficient income to repay the interest due on its debt. Hence the “zombie” moniker.

As a final exercise, when classify companies as zombies only using the data from their last financial year alone, as opposed to requiring them to have ICRs less then one for three years in succession. The final panel of the table below shows that the zombie share rises further to 39% in Australia and 37% in the US.”

Chuck again… yes, the article is a good one and should be used in determining stock values of these zombie companies… The article also has a table chart that’s useful. 

Market prices 9/1/2022: American Style: A$ .6817,  kiwi .6096,  C$ .7691, euro 1.0015, sterling 1.1569, Swiss $1.0218, European Style: rand 17.1474, krone 10.0263, SEK 10.7251,  forint 398.75,  zloty 4.7023,  koruna 24.4259, RUB 60.41, yen 139.31, sing 1.3794, HKD 7.8477, INR 79.55, China 6.8999, peso 20.18, BRL 5.1848,  BBDXY 1,299.56, Dollar Index 109.06, Oil $87.86, 10-year 3.19%, Silver $17.71, Platinum $839.00, Palladium $2,060.00, Copper $3.49, and Gold… $1,701.37

That’s it for today and this week of course… Tomorrow I visit my oncologist for my monthly blood draw, and examination. Last month, the nurse drawing my blood asked me if I was ok? I said, darlin, if I had a dollar for every time I’ve been stuck with a needle in the last 15 years, I would be a rich man… My wife gets mad at me when I call someone “darlin” I tell her, I’m an old man now, who cares?  Root, root, root for old Mizzou! Go Tigers! I’m so excited… The Moody Blues take us to the finish line today with their song from the Seventh Sojourn album, which is one of the albums I would take to the island, another discussion someday,  and the song is: Lost In A Lost World…    which aptly describes where I am these days! I hope you have a Tub Thumpin’ Thursday today, and a fantastico Labor Day Weekend! Please Be Good To Yourself! 

Chuck Butler