The Dollar Buyers Have Left The Room!

February 22, 2021   

* Currencies & metals are both back on the rally tracks!

* Sterling outperforming both euros and francs… strange days indeed! 

Good day… And a Marvelous Monday to you! Who’s sneaking around the streets of the city? Everyone knows is Windy…  And that’s what it was here yesterday, gale force winds blew from daylight to moonlight, and oh was the ocean angry yesterday!  The surfers loved it, but to me I look at when it gets all riled up like that and think, of being on a boat in the middle of that, and how I would be hanging on for dear life! It’s pitch dark outside right now, but I don’t believe I hear the wind howling like it was yesterday, so I’m good with that! Just like I was good with my beloved Missouri Tigers putting a halt to their 3-game losing streak on Saturday VS. S. Carolina. And this morning, I’m being treated to one of my all-time favorite Temptations song: I Wish It Would Rain…  “Sunshine, blue skies, please go away, my girl’s found another and gone away.”

Well… All the dollar buying in the last 10 days came to an abrupt halt on Friday… The questions about the dollar began on Thursday, when the Weekly Initial Jobless Claims rose to 861,000 the previous week… And when I last talked to you on Thursday morning, I said it would be interesting to see what the Import price data showed us for Jan. And just like I thought, the import prices rose 1.4% in Jan. VS 1% in Dec.  Recall that we had seen dollar weakness earlier this year, before the last 10 days had wiped out all the gains the currencies had booked against the dollar. 

This Import data is an important thing to look at because when there’s dollar weakness, your buying power goes to hell in a hand basket, and inflation is imported into our economy…  But, with the last 10 days of dollar strength, all was forgiven… Until… It wasn’t, and that was Friday…  Of course it would help non-dollar owners if there was follow up to Friday’s dollar selling…  I guess we’ll have to see, eh?

The Dollar Index on Thursday morning was 90.72, and Friday at the close the Index was 90.36 , and the euro had climbed back above 1.21….  I was beginning to think that traders had lost their collective minds, with all that dollar buying the previous 10 days before Friday… How on earth could they believe that will all the currency printing that the dollar’s value wasn’t going to be diluted?  This past weekend good friend Dennis Miller sent me a link to an article that explained that new U.S. Treasury Sec. Janet Yellen was gong to release back to the Fed a ton of cash that the Fed can then use in their programs, which simply means that there will be even more dollars on the streets, diluting the current stock of outstanding dollars…

Dennis asked me if it meant a big dollar selloff, or no? I responded to him, “this should result in dollar weakness, but we do live in an age of opposites, where right is wrong and wrong is right” In case you want to read that article here is the link:

Ok, Gold finally put an end to the daily selloffs on Friday too! The shiny metal was able to gain $9.30 to close at $1,785.60… Bitcoin buyers had really taken a bite out of Gold’s value, and the price manipulators piled on, which should be a penalty!  Silver has been the more favored metal in recent days, as I am told by my metals Guru, Tim Smith (1-800-926-4922) that demand for physical Silver is so strong right now, that dealers are having a tough time getting new supply…  Silver was up 27-cents on Friday, to close at $27.36.

In the overnight markets… There’s been more slippage in the Dollar Index, as it has dropped to 90.25, as I write… Gold is pushing higher, with an early morning gain of $13, and is now within spittin’ distance of $1,800 again… Silver is joining in with a gain of 15-cents early today.   Pound sterling has climbed to 1.40 this morning, and there doesn’t seem to be anything to stop this currency that’s rallying on a hopes…  It’s as if Elvis, I mean the dollar buyers have left the room… 

Pound sterling is currently trading with a 1.40 handle, and is outperforming the euro and Swiss franc. This is something that is seldom seen, and these three will normally rise and fall together, with the euro being the Bid Dog on the porch… But in this day of opposites…  I’m just saying. 

The price of Oil which last Friday had reached a price handle of $61, has slipped back down below $60, since that time, as the latest data last week sure didn’t give anyone thinking that the economy was recovering a warm and fuzzy…  And all that talk of inflation rising and so on, really has the yields on Treasuries waking up from their 30 year slumber.. This morning, the 10-year Treasury yield is 1.39%…  The Bond boys are telling the Cartel members to get off their duffs and do something about this rising systemic inflation…  I’m just saying… 

The IMF was full of good news (NOT!)… The IMF believes that we will experience “The Worst Downturn Since The Great Depression”…  So, I guess they aren’t buying the Kool-Aid that some Gov’t economists are pouring, that the U.S. will come roaring back as soon as the virus is contained… 

Of course they didn’t know about the polar vortex that came down on Texas last week… I read this week that vegetables that were growing have frozen in the ground, and that the grocery stores are out of food supplies… The temperature may have returned to normal yesterday (it was 70 in Houston), but the ill-effects of the vortex will last for weeks, thus slowing the economy of Texas… And in case you wonder if Texas is that Big of a Deal, the answer is yes!

So, last week I went on about the Chinese renminbi and how it needed to gain a wider distribution of the renminbi and open up its bond markets to move ahead with their plans to replace the dollar as the reserve currency of the world… And then this weekend I read a report on, that said the Chinese were getting ready to check of the first box, as in: “In London — the world’s center of foreign exchange — there’s more yuan changing hands than ever before. Options on the Chinese currency exceed those referencing the Japanese yen, and buying or selling the yuan is now as cheap as trading the British pound.”

And next to that article was one stating that income flows into India are really helping the rupee to higher ground VS the dollar…  And then another talked about the rally that I’ve been talking about in pound sterling…   In the U.K. apparently, they ARE buying the Kool-Aid and believe that their economy will come roaring back once the virus is contained….   As if!

Ok, there’s only so much good news I can give you each day! HA!  So, let’s go to the Data Cupboard and see what’s on the docket this week!

Well, it appears that we won’t spend a lot of time here, until later this week… Today’s Cupboard has the Leading Indicators for January, but it’s only economic data geeks like me that pay attention to this data set…  So, the currencies and metals are on their own today, if they want to follow up on Friday’s buying of these two asset classes.

To recap… The currencies and metals both rallied on Friday to end last week. In the overnight markets  there’s been more slippage in the Dollar Index, and Gold is up $13, and Silver is up 15-cents in the early trading, so it appears there will be follow up to Friday’s rally in both currencies and metals. Chuck is worried about the ill-effects of the polar vortex and how long they will last in Texas…  China is gaining a wider distribution of their renminbi, and investment flows into India are strong, thus supporting the rupee… And some economists are drinking the Kool-Aid in the U.K. and pushing pound sterling higher…

For What It’s Worth… So, how many of you have seen the movie “The Big Short”?  it was a movie that featured a trader by the name of Michael Burry, who shorted the housing markets back in 2007, and when everyone thought he had lost his mind, the housing market imploded, and he walked away with beau-coup bucks covering his shorts… Well, that “guy”, Michael Burry is back and he has some things to say about inflation… And that arricle can be found here: Michael Burry Warns Weimar Hyperinflation Is Coming – The Burning Platform

Or, here’s your snippet: “one day after the Weimar tweetstorm below, and shortly after our article came out, Burry tweeted the following:

People say I didn’t warn last time. I did, but no one listened. So I warn this time. And still, no one listens. But I will have proof I warned.

Indeed he will.

One week ago, Bank of America hinted at the unthinkable: the tsunami of monetary and fiscal stimulus, coupled with the upcoming surge in monetary velocity as the world’s economy emerges from lockdowns, would lead to unprecedented economic overheating… or rather precedented as BofA’s CIO Michael Hartnett reflected back on the post-WW1 Germany which he said was the “most epic, extreme analog of surging velocity and inflation following end of war psychology, pent-up savings, lost confidence in currency & authorities” and specifically the Reichsbank’s monetization of debt, and extrapolated that this is similar to what is going on now.

There is, of course, another name for that period: Weimar Germany, and because we all know what happened then, it is understandable why BofA does not want to mention that particular name.

Of course, others have been less shy – in 1974, Jens Parsson wrote a fascinating, in-depth historical analysis of the hyperinflationary collapse of Weimar Germany under the original money printer, Rudy von Havenstein, “Dying of Money: Lessons of the Great German and American Inflations” one which we periodically remind readers is absolutely critical reading in preparation for what comes next.

Then overnight none other than the Big Short, Michael Burry, who has been rather busy making waves within the financial community with his hot takes (most recently, his slam of Robinhood and his bullish view on Uranium), picked up on the theme of Weimar Germany and specifically its hyperinflation, as the blueprint for what comes next in a lengthy tweetstorm cribbing generously from Parsson’s seminal work. And while the details are familiar to most monetary historians, the fact is that now none other than the man who was made famous in the Big Short is calling for Weimar-style hyperinflation in the US. Below is an easily digestible repost of Burry’s lengthy Saturday tweetstorm, which shows just how similar our world is to that prevalent in the years just before Weimar Germany saw the most explosive hyperinflation in history.

The US government is inviting inflation with its MMT-tinged policies. Brisk Debt/GDP, M2 increases while retail sales, PMI stage V recovery. Trillions more stimulus & re-opening to boost demand as employee and supply chain costs skyrocket. #ParadigmShift”

Chuck Again…  You know… people didn’t listen to him in 2007… Will they listen to him now?  I doubt it, because people just don’t want to believe that the Gov’t would lead them down the road of runaway inflation…  But those of us that have hedged our investment portfolios with Gold & Silver, see and get what he’s saying… And speaking of inflation fears… don’t look now, but Copper is trading above $4.00 this morning…  hint, hint… 

Market Prices 2/22/21: American Style:  A$ .7885,  kiwi .7314,  C$ .7918, euro 1.2136, sterling 1.4018, Swiss $1.1137, European Style: rand 14.8392, krone 8.4912, SEK 8.2639,  forint 295.67,  zloty 3.7046,   koruna 21.3467, RUB 73.99, yen 105.58, sing 1.3228, HKD 7.7533, INR 72.42, China 6.4859, peso 20.66,  BRL 5.3806, Dollar Index 90.25,  Oil $59.69,   10-year 1.39%, Silver $27.52, Platinum $1,273.00, Palladium $2,414.00, Copper $4.01, and Gold… $1,798.40

That’s it for today…  Well today’s is Washington’s Birthday…  When I was in elementary school we celebrated Washington’s birthday, but years later they decided to bundle all presidents together, and call it president’s Day…  Well, the full team reports for Spring Training this week. When I first started coming to Spring Training down here in Jupiter, you could go around to the back and watch the team go through fielding and hitting drills… I could sit there on a bleachers bench, watching my beloved Cardinals practice on 3 different fields… But not this year! No one can watch practice… UGH!  Next Monday, I’ll have seen my first game of the spring… And this weekend we will be having guests… YAHOO! I told my friend, that it was good he was coming so that Kathy would stop yelling at me! HA! Our Blues split a pair of games with the Sharks this past weekend, and start a new pair of games tonight VS the Kings…  Let’s Go Blues!  And with that, one of my fave bands will take us to the finish line today, as Poco sings: Just For You And Me…  I hope you have a Marvelous Monday, and please… Be Good To Yourself!

Chuck Butler