So, Were The Previous 9 New Programs Just Chopped Liver?

April 30, 2020

* Currencies and dollar bugs continue to play their game!

* 1st QTR GDP’s first print… -4.8%….  A recession is here! 

Good Day… And a Tub Thumpin’ Thursday to you! T-minus 5 days until the stay at home rule will be lifted here in Missouri… Good news across the board on treatments for COVID-19… No vaccine yet, but treatments that have proven, so far, to be quite effective… That’s great news folks… And since I’ve been so negative all week, I thought I would lead off with that bit of great news today, as we tie the loose ends of the week… Watched Game 4 of the 2015-16 Playoffs between the Blues and Blackhawks last night… I’m sure I watched it when it originally was played, but for some reason I’m not remembering any of it, so it was all new to me! I think that’s a sign, but I’ll let it pass for now…. It’s the last day of April… And tomorrow is May Day! I guess children don’t parade around a May Pole any longer, like we did, but I did see that on this day in history, Citizen Kane premiered in 1941, and in 1931 Kate Smith first sang on CBS radio, and in 1967 Elvis Marries, and 1962 the first K-Mart opened… So, we have that going for us tomorrow! Redbone greets me this morning with their song: Come And Get Your Love…. A great 70’s song!

Well, the currencies played around with the dollar bugs yesterday, and ended up flat as a pancake (Head East), but, as soon as the books were handed over to Asia, the currencies began to move upward VS the dollar once again, as our game of U.S. VS Europe/ Asia Traders continues…. Gold found a way to gain a buck or two and closed the day at $1,714… Same level it closed on Monday… So, Gold has gone nowhere this week, which is fine with me, as nothing should move in a linear upward move without some pauses for the causes…. Gold has joined in on the move VS the dollar in the early morning trading as has added $3 so far today… 

And that reminds me a chart I saw the other day… Which, in case you haven’t figured this out yet, but when I say, “the other day”, it could mean any where from 2 days to 15 years! HA! Any way… the chart showed the straight up the elevator shaft for the U.S. national Current Debt…. And the this upward movement went to the moon! That’s because the numbers are all over the board right now, but from best guestimates, the U.S. current debt will grow over $6 Trillion this year and top out the year over $30 Trillion…. I now feel somewhat ridiculous for things I said long ago about when we crossed $5 Trillion, and then $7 Trillion, and so on…. We’re going to be over $30 Trillion at the end of this fiscal year, folks…. I shake my head in disgust….

And that’s not all! According to the Debt Clock, that you can find here (but I don’t suggest you do that unless you put away all sharp objects first!) , the total Unfunded Liabiltities, are greater than $147 Trillion!!!! And let me also remind you that Professor Lawrence Kotlikoff told us a few years ago that if everything is counted our debt is well over $200 Trillion…

Now that changes the picture on the Debt to GDP number now doesn’t it! Right now just using the current debt of $24 Trillion, our Debt / GDP ratio is 105%… The amount of debt around the world is just staggering. Recall I told you a day or two ago that economist Danielle Di Martino Booth, had said that at the end of 2019 Total Global Debt was $255 Trillion…. And that’s before all the newly created debt around the world gets added to the 2019 total! That number will be oh, so, close to $300 Trillion at year end this year…. Wanna know the total debt of Russia? It’s less than $250 Billion… That’s right I said Billion! Remember when someone said Billion years ago, you sat up and listened? Well those are bygone days now… but not in Russia!

The poor Russian ruble… economic sanctions, and now collapse of their main product of the the price of Oil…. I sat on a panel in Westin Florida about 5 years ago, with, get this group I sat with… Grant Williams…. James Rickards… a couple of other guys, and little old me! David Galland, the former marketing guru at EverBank, asked the panel what about Russia and the ruble…. When no one else spoke, I said, “to me, Russia is an Oil play… if you think the price of Oil will be steady, or on an upward move, then rubles are for you, because they pay a very nice interest rate. However, if you think the price of Oil has nowhere to go but down, then you might not want to be in rubles.”

In the past 5 years, we had the conflict between Russia and Ukraine, and that took the starch out of the ruble and it has never recovered. The ruble was moving toward recovery, when this collapse of the Oil market began… And now they have another hill to climb…. But I don’t doubt they will, given their perseverance with dealing with the economic sanctions….

OK, I’ve spent way too much time here…. Let’s move on to something else, eh?  Like how the Fed’s FOMC met and didn’t change anything, as I suspected they wouldn’t. Well, I should say they didn’t change rates, but Mr. Powell, the Fed Chairman, talked to the press afterwards, and let’s just say he didn’t overwhelm anyone….  

I had to laugh, and laugh until I cried, 1. Because what he said was funny (to me) 2. Because I’m scared for my kids and grandkids futures…. OK, what’s he talking about now? I hear you asking…. Ahhh grasshopper, you’ve come to the right place. What I’m talking about is a comment that Fed Chairman Powell made yesterday, and instead of me telling you what he said, I’ll let him tell you to see you have the same reaction as me….

Here’s Powell, “I’m ready to put the pedal to the metal to help the economy.” Ok, I’ll wait while you let that sink in…. For those of you who have not had a cup of coffee yet this morning, you might need some help…

So, my initial reaction to this was, “Oh, so NOW, you’re going to get aggressive?” Now, after 9 new money creation programs to take bad bonds and loans off the streets? Now, after it appears the economy is circling the bowl? And then my mind went straight to, what he’s doing is ruining the capitalist economy that served this country so well for over 200 years… What will be left for my kids and grandkids? And then I cried…. 

I told you all yesterday that I had asked Ed Steer, what his thoughts were regarding the closing of the doors on the metals business at Scotiabank, one of the major metal dealers around.  Well, just like the professional writer he is, Ed promptly responded to me…. So, I’ll let his take the conn on the Pfennig for a moment… Here’s Ed! 

“One wonders what will happen to their current short positions in both gold and silver, as they’re certainly a member of the Big 8 traders in my opinion — and most likely Ted’s. Ted and I were also discussing what they would do with their vaulting services — and their position as market maker and member of the daily ‘price fixing’ in London. I guess we’ll find out over time.”

Chuck again….  Yes, and Oh, the Ted that he’s talking about above is the Silver guru, Ted Butler, no relation that  I know of!  Thanks Ed! And welcome to contributing to the Pfennig! (I can’t imagine he’s doing cartwheels over that news! HA!) The thing I was thinking about with this closing notices, you touched on, but I’ll take if from there, and that is the Scotiabank short positions in Gold & Silver… To me, that’s one less arm full of short positions at the COMEX to worry about…. And that’s all I have to say for now… 

The U.S. Data Cupboard came out with a bang yesterday, and gave us the first read of 1st QTR GDP, which was negative -4.8% (I told you the forecasts for -3.6% were too low, didn’t I?), and that’s just the first print of the data, there will be a few revisions, down the road, that most likely will be revised downward even more….   The markets weren’t too shaken by the data, stocks lost some ground, but not much, as the markets carried on despite the fact that the with this print, the U.S. is officially in a recession, folks…  

A few years ago, I wrote an article for the Dow Theory Letters, and in it I did tons of research with charts and everything a good article should have, and it was about the stock market performances during recessions…. Don’t look know folks, but it’s awful!  I’m going to spend the day looking for that old article to pull it out and talk about it next week…. 

Today, we’ll see the Weekly Initial Jobless Claims once again, and once again we’ll see that this Economic shutdown has wiped out all of the job gains in the last 10 years!  YIKES!  I’ve already beat the dead horse (no animals were harmed!) over how 100% of these jobs aren’t coming back, so I won’t go there again today…  

Tomorrow, we’ll see two important pieces of data… First, the April ISM (manufacturing index) and it will show a collapse from an already below the 50 figure at 49.1 in March, to…. drum roll please….  OK! I just told you it will print tomorrow! But my best guess is it will collapse to around 35…. The other piece of data tomorrow will be the auto sales… this number has to have fallen from the sky, folks… 

To recap….  Same old trading pattern yesterday, with the U.S. traders buying dollars, and then in the overnight markets the Asian and then European traders selling dollars…. We’ll start today with the dollar being sold, but I doubt that will last too much longer this morning.  Gold found a way to add a buck or two yesterday, and is up another $3 in the early trading. Powell says that he’s ready to get aggressive to save the economy, and Chuck says, “get aggressive now?” You mean the 9 monetary programs you’ve already announced are just chopped liver? 

For What It’s Worth…. Well, I went all week without highlighting an article in the Wall Street On Parade site… But this one talks about something that just has me about as ticked as when KU would be my beloved Mizzou! And that’s ticked! So, the title of the article is How the Fed manipulated junk bonds to help the Dow… Now, you know you can’t pass this one up! And it can be found here:

Or, here’s your snippet: “Thus far, the highly controversial corporate bond buying programs that the Federal Reserve first announced on March 23 have yet to spend a dime according to a spokesperson for the New York Fed, the regional Fed bank that is overseeing almost all of Wall Street’s emergency bailout programs today as well as during the financial crash of 2007 to 2010.

But as the above chart indicates, just a promise from the Fed to spend billions removing toxic waste from Wall Street’s mega banks is enough to put a bid back in the junk bond market.

Here’s the skinny on how the Fed propped up both the Dow and the junk bond market with its well-timed announcements on March 23 and April 9.
From the close on March 4 to the close on March 23, the junk bond exchange traded fund (ETF) which goes by the fancy title of “iShares iBoxx High Yield Corporate Bond ETF,” or symbol HYG, lost 21 percent of its value. But that weakness in the junk bond market did even worse damage to the Dow Jones Industrial Average. Over those same trading days, the Dow lost 8,498.93 points or a stunning 31 percent of its value in just 14 trading sessions. (See chart below.) That had apocalyptic overtones for what lie ahead for the balance of the year.

There are two key reasons for the correlations between the junk bond market and the Dow. The first is that two of the Wall Street banks that were a regular presence in the Wall Street syndicate that underwrote these junk bond offerings are components of the Dow’s 30 stocks. Those two banks are Goldman Sachs and JPMorgan Chase. The second key reason is that if Goldman Sachs and JPMorgan Chase are tanking, they will inevitably bring down the share price of every other major Wall Street bank because of their heavy interconnections as derivative counterparties to each other. (If all of those banks enter a serious selloff, the Fed could be looking at another 2008 financial crash after assuring Americans for years that these banks are “well capitalized.”)

In short, thanks to the repeal of the Glass-Steagall Act in 1999, which allowed Wall Street casinos to merge with the largest federally-insured, deposit-taking banks in the country, we now have a central bank (the Fed) that believes its job is to throw money at any market that pulls down the Dow. Because damage to the Dow might damage consumer confidence which might damage the wealth effect which might damage consumer spending which might damage the next GDP report which might damage the vision of American exceptionalism. In other words, we’re all just Labradoodles now in fealty to Wall Street.”

Chuck again… Man would I love to include the whole article here, but I can’t, and therefore you need to hit the link above and read it in full, if this snippet whets your whistle! Oh, and one more thing, circling back to my comment above about how the stock market performs during recessions….  I guess the Fed is going to have to pull out all of the stops, throw in the kitchen sink, and anything else they can find to help stocks, going forward…. 

Currencies today 4/30/20 American Style: A$.6558, kiwi .6143, C$ .7215, euro 1.0882, sterling 1.2530, Swiss $1.0305, European Style: rand 18.0421, krone 10.2764, SEK 9.8026, forint 323.71, zloty 4.1630,    koruna 24,8727, RUB 73.49, yen 106.50, sing 1.4085, HKD 7.7508, INR 74.14, China 7.0759, peso 23.65, BRL 5.4408, Dollar Index 99.36,  Oil $17.47,   10-year .61%, Silver $15.33, Platinum $784.01, Palladium $1,985.90, and Gold… $1,717.00

That’s it for today…  And tomorrow of course!  Yuck!  What a rotten day yesterday for going outside! I had to wear my hoodie sweatshirt, inside, I would have had to broken out the winter coat to go outside! UGH!  It appears the sun is back today… I love the sunshine!  Man, would you like to have had stake in the ground on Zoom before the COVID-19 came around? Everybody’s doing Zoom meetings… They’re pretty cool, and I think will replace Corp. Travel for years! Shoot Rudy, even my friend, John Mauldin, is going to do his annual Big Time Strategic Investment conference via the teleconference route…. Like Grant Williams did his Hummmminars….  It’s a new dawn, it’s a new day, it’s a new life (Michael Buble’) So we had better get used to it….  Jefferson Airplane takes us to the finish line today with their song: Miracles….    I hope you have a Tub Thumpin’ Thursday today, and a Fantastico Friday tomorrow, and will Be Good To Yourself!

Chuck Butler