The Beginning Of A New Weak Dollar Trend?

August 18, 2020 

* Currencies & Metals both rally VS the dollar on Monday

* Chuck takes us back to 2002…. 

Good day… And a Tom Terrific Tuesday to you!  Another beautiful day yesterday was spoiled around dinner time with a rain shower…. Oh well, at least the day was great! My darling granddaughter, Delaney Grace celebrated her 13th birthday (which was last week) with some of her friends in our pool…  She made sure she sought me out when it was over, to come inside and give me a great big hug, ask me how I’m feeling, and tell me she loves me…  Ever since the day about 7 years ago, I sat her down and explained cancer and what it does to people to her, she has always made sure she stops to give me a hug, and ask me how I’m feeling….  I just love her to pieces! The Cards and Cubs split their doubleheader yesterday, with the Cardinals giving away the 2nd game late….   Our Blues  won 3-1 and evened their playoff series at 2-2…  Paul Carrac and the Squeeze greet me this morning with their 80’s song: Tempted….

The day in the markets yesterday was a good one for non-dollar holders, as both the metals and currencies took liberal swings at the dollar bugs all day long!  Gold ended up $38 on the day, but was up to a $44 gain at one point in the day… And the Dollar Index dropped a chunk on the day of its value, which means the euro continued to rise through the 1.18 handle, and the A$ traded over 72-cents, while the Swiss franc continued to defy the Swiss National Bank (SNB) and moved higher once again… 

In the overnight markets, the euro has been lifted to the 1.19 handle, and the Dollar Index fell further….  While I’ve been crushed by so many false dawns in the past couple of years, I’m hesitant to call this the beginning of a weak dollar trend. We saw last week that the Plunge Protection Team (PPT) can be formidable foe, and squash many a rally. So that has to remain in the back of my mind, but the euro passed 1.16 a while ago…. Which was supposedly a psychological level, and even with the Aussies closing down their opened economy again, and issuing a warning that anyone caught not adhering to the protocols, will be fined, the A$ still moved higher on the day….

We will know for sure that it’s the beginning of a weak dollar trend, when we keep hearing stories like the one from Australia yesterday, but still see the respective currency rally….  Like we saw yesterday, but… as I always used to say, one swallow doesn’t make a summer,  and one bad apple won’t spoil the whole bunch, so we’ll have to see more of these types of stories, that will etch in stone that it’s a new weak dollar trend…  If I were a betting man, I would put money on the call that it IS a new weak dollar trend….  I’m just saying…

So… how many of you recall the beginnings of the last weak dollar trend that began in February 2002? It too, had humble beginnings, and there were questions of whether or not it was real…. But since I had written a white paper at the end of 2001, titled: The Decline of the Dollar…  I was on board early with the call that this was the new weak dollar trend…  But that was 2002, and this is 2020… A year that I think everyone would just as well forget about, but…. I do believe that we’ll look back and see that the weak dollar trend began in July 2020, which means 202o will have something other than a pandemic to be talked about! 

OK…  So the U.S. economy was shut down for a couple of months, after it was originally supposed to be 2 weeks, that were extended to 2 more weeks, and so on…  A lot of jobs that were there when the economy shut down didn’t come back… And now people of all sorts of training and jobs, are looking for work to support their families, or maybe just themselves…  The $600 per week in unemployment benefits was nice while it lasted…. 

On a sidebar here, what mental genius (NOT!) thought up the idea to pay people more in unemployment than they made in their regular jobs?   Hey! Don’t look at me!

I still chuckle when I think of the Gov’t sending out stimulus checks to dead people….  What a bunch of dolts in the government, eh?   Ok, back to the point I was about to make before I got sidetracked….  It’s going to take some time before we get back to where we were before the shutdown, and even that wasn’t great!  But 2.1% economic growth is better than a sharp stick in the eye, right?  Especially now that our GDP in the 2nd QTR was negative! 

I was talking to some of my family a while back, and we were talking about McMansions, and I said, “aren’t you kids glad that I didn’t go for a McMansion back in the day, and instead saved my money so we could have this nice beach place in Florida?”  Save for a rainy day…. OR when you want to buy something, make sure you’ve saved the money to do so…. Those are a couple of lessons I learned many years ago from my dad….  And while I don’t believe I’ll make many friends, by telling them they don’t need that latest iPhone, or 80-inch Smart TV, if they have to borrow to buy them…. So, I write in the Pfennig, and hope that they get the message!

Wanna know what I’m really bummed about these days?  We had to cancel the Butler Annual Labor Day BBQ, this year….  We’ve been hosting this BBQ since 2001….  Even in the year of my cancer surgeries of 2007….  I’m still going to put the Big Green Egg to work that weekend, but it will be cooking for my family mostly, and not the 50-60 people that are usually here! UGH!

Well, in La-La Land, where….  Stop Chuck, you don’t want to say that!   Ok, in California, they have come up with an idea to impose a Wealth Tax on the Ultra rich….  I hear some of you saying, “it’s about time!” but wait…. Once California does this, other states will follow, and when those states find that taxing the Ultra rich isn’t as lucrative as they thought it to be, guess who’ll they’ll come after next?  Yes, the good old Middle Class, and what’s left of it, will be called on to do their patriotic duty and buck up…. 

Back in 2011, when the debts of Greece were discovered, I kept harping on the fact that Greece’s economy was about the size of Kentucky’s and that California, being the 8th largest economy in the world, had bigger debt problems, and wondered why no one was looking at California, New York, or Illinois, for they all have debt problems up to their eyeballs, and no way other than increasing taxes to help them from defaulting….  Remember when I broke the news to you that it had been Goldman Sachs, aka Lola, that had shown the Greeks how to hide their debts, and got them to issue even more bonds ….   But did Lola get called to the carpet for that? No….  

And thus we began the cycle of these casino banks getting into hot water, and the tax payers bailing them out….  And the regulators looking the other way, and no one goes to jail…. 

The U.S. Data Cupboard is still in a “wanting” mode, for real economic data, but until we get there later this week, we can see other lower tiered prints, like yesterday’s Empire Index, which is the NY region’s manufacturing index, and remember last month when it reversed the rot on the vine that was seen in the index during April and May, and came in with a 17 .2 print?  The markets and the dollar bugs rejoiced that the economy was reversing its downward course….  Well, I hate to be the one to buts their balloons or step on their seashells, but…. The July print was only 3.7…. A Big drop, and what do we hear from these same rejoicers now? Crickets….. 

So, when I began to write this morning, I said, “There’s no way the letter will as long as yesterday’s was” And so with that, we’ll head to the Big Finish from here… 

To Recap…. The day for the dollar bugs yesterday was one they would like to forget, as bot the currencies and metals took some pent up frustrations out on the dollar bugs. And both have continued their rallies in the overnight markets so we start today with the dollar reeling, stumbling, fumbling and about to fall on its face. Chuck thinks that this will be looked back on as the beginning of the new weak dollar trend…. A bold statement from someone that has been wrong about this a few times already, eh? 

For What It’s Worth….  So, I began to talk about how badly the economy is doing since the shutdown earlier this morning, and I went off on another tangent. So, I’m picking it up here with this article on about Mortgage delinquencies and it can be found here:

Or, here’s your snippet: “Last month we quoted from Wolf Richter to remind readers of something we discussed several months ago when we went over the details of the forbearance process and why so many banks have chosen to use it instead of rushing to admit their balance sheets are hammered with a record surge in delinquencies and defaults. As a reminder, “mortgages that are in forbearance and have not missed a payment before going into forbearance don’t count as delinquent. They’re reported as “current.” And 8.2% of all mortgages in the US, some 4.1 million loans, are currently in forbearance according to the Mortgage Bankers Association. But if they did not miss a payment before entering forbearance, they don’t count in the suddenly spiking delinquency data.”

Everything changed in April when there was a sudden onslaught of delinquencies according to CoreLogic, which came after 27 months in a row of declining delinquency rates. These delinquency rates move in stages – and the early stages are now getting hit, with the Transition from “Current” to 30-days past due suddenly soaring.

To wit, in April, the share of all mortgages that were past due, but less than 30 days, soared to 3.4% of all mortgages, the highest in the data going back to 1999. This was up from 0.7% in April last year. During the Housing Bust, this rate peaked in November 2008 at 2% (chart via CoreLogic):

Fast forward to today, when the dam of pent up mortgage delinquencies cracked some more, with the Federal Housing Administration reporting that its mortgages which represent the affordable path to homeownership for many first-time buyers, minorities and low-income Americans, now have the highest delinquency rate in at least four decades.

The share of delinquent FHA loans rose to 15.7% in the second quarter, up a whopping 60% from about 9.7% in the previous three months and the highest level in records dating back to 1979, the Mortgage Bankers Association said Monday. The delinquency rate for conventional loans, by comparison, was 6.7%.”

Chuck again… Yes, folks… the bank are in trouble… for they carry most of these delinquent loans…  I just don’t get the beating around the bush and the cover up of these numbers…. Call an elephant and elephant and go on with your day! 

Market  Prices 8/18/20: American Style: A$ .7235, kiwi .6561, C$ .7598, euro 1.1902, sterling 1.3161, Swiss $1.1050, European Style: rand 17.3993, krone 8.8248, SEK 8.6760, forint 293.78,  zloty 3.6876,    koruna 21.9543, RUB 73.31, yen 105.82, sing 1.3652, HKD 7.7500, INR 74.52, China 6.9365, peso 22.05, BRL 5.4511, Dollar Index 92.55,   Oil $42.60,   10-year .67%, Silver $28.23, Platinum $963.00, Palladium $2,161.00, and Gold… $1,982.00

That’s it for today…  Well on Friday night things looked bad for our Blues, as they were down 0-2 in games in their playoff series. But fast forward to today, and they are back in the hunt at 2-2!  They finally played “Blues hockey” last night, and so we can hope that they continue that play that was so crucial to their Stanley Cup Win last year… Looks like another chamber of commerce day outside this morning… I can’t wait to get out there! I just finished reading Book 4 of the C.B. Strike series. Book 5 will be coming to me next month… These are 350 page books, and it takes me a week or so to get through them! I have two books that I’ve also started: Thomas Jefferson, and Kurt Vonnegut’s Slaughter House 5… So, I’ll flip a coin as to which one I continue reading!  So, apparently, I didn’t tick off too many of you yesterday, so that’s a good thing!  Blackfoot takes us to the finish line today with their song: Highway Song….  A good song to have playing when you’re on a long drive!  I hope you have a Tom Terrific Tuesday, and please Be Good To Yourself!

Chuck Butler