The Dollar Continues To Soar!

September 26, 2022

* currencies & metals get battered and bruised!

* Swiss Central Bank hikes rates out of negative territory! 

Good Day… And a Marvelous Monday to you! Did you miss me? HA! I bet a lot of you were thinking that it was nice not having to read my whines and complaints every day! But that’s over, for now, anyway… I took the week to visit a good friend that lives in the Hamptons… My friend, Gus, owns and runs the famous Candy Kitchen in Bridgehampton… It was a great visit… While I was gone, my beloved Cardinals lost their bats! But found them when I returned! Albert Pujols joined the 700 homer club, but also is only one of two players in baseball history to have: 3,000 hits, 2,000 RBI, and 700 Home Runs… Albert and the great Hammerin’ Hank Aaron, are the only two to have achieved that… I can’t even begin to tell you how glad I am that the cheating Barry isn’t a part of that! The Moody Blues greet me this morning with their song: In My Wildest Dreams

Well, a lot happened while I was at the Candy Kitchen last week… Leading off was the Fed Heads rate hike of 75 Basis Points… That was the third 75 Basis Point rate hike from the FOMC, and in the back of my mind, I’m reminded that in history, whenever the Fed Heads hiked rates 3 times in consecutive meetings, that it would lead to a major stock market sell off… In one of good friend, Dennis Miller’s letters that can be found here; He interviewed me, and asked me if the stock market rally that was going on at the time was going to last… I said, that “no, it’s a bear market rally, and that historically bear markets rally that gain 20+%, would reach the end, and return to the bear market.” Looks like I hit that nail bang on the head, eh?

But what’s the Fed/ Cabal/ Cartel going to do? As old time friend, Bill Bonner has yelled from the rooftops, it’s either “inflate or die”… In other words, the Fed Heads could not combat inflation and allow inflation to continue, which would kill the economy eventually, or they could combat inflation with rate hikes that will kill the economy much faster. Pick your poison… Either way, years of easy credit, currency printing, deficit spending, and claptrap monetary policy, is coming home to roost… And there’s not one you, dear readers, that can say I haven’t warned you about all that!

OK, that was quite the beginning of the letter today, but in essence, it’s my way of saying that I don’t want to talk about how the rate hike, boosted the dollar to levels it had not seen in a very long time. The BBDXY ended the week at 1,339.64, up 16 index points just Friday! For illustrative purposes, the BBDXY was 1,308, when I last wrote to you on Sept 15th. Needless to say, that the euro has dropped to 96-cents… The euro in 1999, dropped to 92-cents, and looked then as if the whole European Union thing was going to go bust… But it didn’t, and soon after falling to 92-cents, the single currency began to rally…

What caused that to happen, you might be asking? Ahhh grasshopper, I happened to be in the business of trading currencies at that time, and I can tell you that the dollar had been on a roll, and taking no prisoners for some time, and then one day, traders and economists all agreed that the dollar had gotten to strong for its fundamentals, and in Feb of 2002, the whole currency trading went the other way, and dollars got sold, euros got bought, and so on…

I tell you this because, this dollar strength is reminding me of that time once again… Currencies have a history of trading in trends, and the trend is your friend, as long as it’s in place… But once the trend ends, and there will be no rhyme or reason that’s apparent in the markets of the trend to end, but when it does, it will be abrupt… And with all the things that I’m seeing going on in the U.S. economy, I can’t, for the life of me, believe that this dollar strength will be ever lasting!

Gold ended last week getting sold like it was the last thing on earth anyone wanted to own. Gold lost $26 on Friday, and closed at $1,645… Silver had been marching higher to $20, but late last week, it gave up the ghost on that though, and closed the week at $18.93… I have my full allocation of Gold & Silver, but if I were looking to buy more, how could I pass up this price?

I recently read an article sent to me by the good folks at GATA, and it was written by Alasdair Macleod. It was a very well written article, and very long, so I cut a snippet of it to back up what I’m saying here this morning, “It is with great regret that we must admit that the majority of investors who delegate the management of their capital into the hands of professional fund managers and investment advisers are likely to suffer a destruction of wealth that could become almost total. The reason is that these advisers and managers are comprised of a generation which has not experienced how destructive the link between persistent price inflation, rising interest rates, and collapsing financial asset values can be. Furthermore, to fully understand the link and current factors driving interest rates higher is not in their commercial interests.”

Chuck again… Yes, it’s sad but true, that all these stock jockeys just don’t understand what role Gold plays when the whole shootin’ match is going down in flames… There’s also a good article on the Bill Bonner Private Research site where the writer, Joel Bowman, talks about how in 1977 when he bought his first house it cost 365 ounces of Gold (if he priced the house in Gold that is), and today his house is still worth 365 ounces of Gold… So, as we know, home prices have soared, but Gold has kept up with the home prices soaring… Got Gold?

The price of Oil has dropped below $80, and it was not a case of having to have a co-signer go with me to the gas station, yesterday… But even at $3.85 gas is still very expensive, and is probably causing major problems to the masses, who need to fill their gas tanks more than once a week. I’m just saying…

The bond market is in shambles folks… The 10-year Treasury’s yield is 3.69%… A year ago, the 10-year’s yield was 1.50%… When bond yields rise, that means the bond price lowers, and vice-versa. It took awhile for the bond boys to get their acts together and begin pushing yields higher, but they’ve finally seen the light.. Tod Rundgren sang a song about Till I saw the Light…

In the overnight markets last night… the wrecking ball dollar, continued to take chunks of flesh out of the currencies, metals and Oil… The BBDXY gained over 8 index points overnight, and Gold is down $3 in the early trading today. Silver is also down along with Oil..  I’m calling the dollar’s flight the “wrecking ball dollar” as long as this continues… 

The British pound sterling has fallen so quickly, that its trajectory indicates it could be headed to parity with the dollar!  And then we have the Russian ruble ignoring the wrecking ball dollar, and being the only currency with the gumption to fight back. 

Last week, the data prints were few, but we did see the Leading Indicators, which is one of the two data prints that are forward looking, and the August print was a negative -.3%… So, that’s not a good thing looking forward for the economy, folks… But then I didn’t need the Leading Indicators print to tell me that! I can see with my one eye, what’s happening to the once great Empire’s economy, and future…

The Bank of Switzerland (BOS) was the latest Central Bank to bring their deposit rates out of negative territory last week, when the BOS hiked rates 75 Basis Points (3/4%)… That leaves only Japan as the last country to charge depositors for holding their money… And the Bank of Japan, (BOJ) said recently that they had no plans to change their monetary policy, so there’s that! The Japanese yen has been battered and bruised in recent weeks of trading, and left the BOJ to jawboning the markets to make them believe that a coordinated intervention to save the yen was on the way… The clock is ticking on you coming through with that threat, BOJ… When traders see that no coordinated intervention is on the way, it’ll be Katy bar the door time for yen sellers… Have you sold your yen yet? If not, this is your opportunity to do so before the jig is up with the BOJ… I’m just saying…

I mentioned Bill Bonner earlier this morning, and well… I have another snippet from his letter at Bonner Private Research, and here it is: “Three times so far this century, Mr. Market tried to correct the nonsense and distortions caused by the Fed. In 2000 – with the Nasdaq crash. In 2008 – when the mortgage finance collapse caused a crisis on Wall Street. And then again, in 2020, when the feds panicked and shut down the economy to keep people from getting sick.

Each time, Mr. Fed rebuffed the attempt with more money and debt. The Fed refused to allow a correction. Zombie businesses that should have gone broke were kept on low-interest life support. Zombie investments that should have been wiped out were allowed to refinance at even lower rates. And the zombie feds themselves, their pockets as empty as their heads, were given trillions more dollars to spend as they saw fit.

Then, in the beginning of 2022, the party was over. A ‘downturn in the economy’ was for real. For the first time in 40 years, it was open season on zombies.”

Chuck again, so it’s time to pay the piper, as they say… And when the whole shootin’ match goes up in flames, we as a country will still be adding Billions to our current debt, which is nearing $31 Trillion.. .And here’s the scary thing in my mind… The deficit represents an amount of $92,771 per citizen to pay it off… Or, a payment of $245,191 per Taxpayer… And the tax payers are the ones who always get stuck with the bill, folks… so pucker up and kiss your savings away IF the government decides that it needs to pay off the deficit… Of course that’s not going to happen, but it still doesn’t mean that the government wouldn’t come for your savings to pay for some boondoggle or welfare program… I’m just saying..

The U.S. Data Cupboard this week is lacking, but will have Durable Goods and Capital Goods Orders data tomorrow, and the PCE inflation data that the Fed Heads track that will print on Friday this week… Besides those three prints, I would warn you to make sure you hold onto your wallets this week, because, Just about anybody that is a Fed Head will be out speaking this week…There will be 5 different Fed Heads speaking today, and it just goes on from there!

To recap… the Fed hike rates last week and for a 3rd consecutive meeting they hiked rates 75 Basis Points, and Chuck points out something about 3 consecutive rate hikes that historically, is not a good thing for the economy and stock market, but you’ll have to read the whole article to find out! HA! The dollar is screaming “buy me” from the rooftops, and the currencies are all losing ground, except for the Russian ruble… See what happens when you tie your currency to a commodity? Oil is dropping like a rock thrown in a fountain, but it’s still expensive… And Bonds are in shambles, and will continue to see their yields rise, and prices fall…

For What It’s Worth… When I saw this on this weekend, I knew I would be talking about this on Monday, so I highlighted it to be the FWIW article today, it’s about how the Fed is finally seeing the errors of their ways, and it can be found here: The Fed Is Finally Seeing The Magnitude Of The Mess It Created | ZeroHedge

Or, here’s your snippet: “This is, by far, the most hawkish announcement yet out of the Powell Fed and no doubt reflects the fact the Fed has finally come to terms with the fact that inflation is not transitory—as the Fed long insisted—and is now impossible to deny. Last month, CPI inflation rose 8.2 percent, year over year, marking six months of year-over-year price inflation rates over 8 percent and near 40-year highs.

Moreover, in its summary of economic projections, many FOMC committee members said they expected the target policy rate to reach or exceed 4.25 percent this year, and exceed 4.5 percent in 2023. Projections of economic conditions, however, continued to be relatively rosy with the report suggesting that GDP growth will stay above zero for the foreseeable future while unemployment maxes out at only 5 percent.

In spite of two quarters in a row of shrinking GDP over the past year, and in spite of many indicators of brewing recession—such as falling home prices and an inverting yield curve—the committee is still clinging to the idea that the Fed can steer a “soft landing” in which inflation will be reined in with no more than some moderate slowing in economic growth.

Although the recent hikes in the target fed funds rate suggest an increasingly hawkish position, the Fed nonetheless continues to take only the most tepid steps when it comes to reducing the size of the Fed’s portfolio. Such a move would directly reduce the money supply by reversing QE, and it would also reduce asset prices by producing a small deluge of government bonds and mortgage-backed securities flowing back into the market.

While the Fed is allowing some government bonds to continue to roll off the portfolio, we shouldn’t expect any drastic moves here. It’s been nearly four months since the Fed announced plans to reduce the portfolio, yet the actual reduction continues to be miniscule. Moreover, in Powell’s press conference on Wednesday, when asked about selling off the Fed’s mortgage-backed securities, Powell responded “It’s something I think we will turn to, but that time — the time for turning to it has not come … It’s not close.”

Even now, after immense and rapid price inflation over the past two years, the Fed is still too afraid of fragility in the housing market to put much of its $2 trillion MBS portfolio back into the private sector. “

Chuck again… neener, neener, neener, I told you, I told you, I double, double told you that all that easy credit, currency printing, deficit spending, and claptrap monetary policy was going to lead to the road of ruins…

Market Prices 9/26/ 2022: American Style; A$ .6500,  kiwi .5718, C$ .7328, euro .9647, sterling 1.0809, Swiss $1.0009, European Style: rand 18.0638, krone 10.7187, SEK 11.3300,  forint 421.76,  zloty 4.9317,  koruna 25.5490, RUB 58.22, yen 144.30, sing 1.4351, HKD 7.8499, INR 81.62, China 7.1620, peso 20.32, BRL 5.2630,  BBDXY 1,347.99,  Dollar Index 113.80, Oil $78.32, 10-year 3.79%, Silver $18.71, Platinum $853.00, Palladium $2.050.00, Copper $3.37, and Gold… $1,640.76

That’s it for today… There’s only 8 games left in the regular season for baseball, and only three of them will be at Busch Stadium for my beloved Cardinals… The last 3 regular season home games for two iconic baseball players, Albert Pujols, and Yadier Molina… The Cardinals will be at home for the first round of the playoffs by benefit of them winning their division (they haven’t nailed it down yet, but it’s inevitable given the magic number is now 3) but who they will play is still up in the air… My beloved Mizzou Tigers gave away another football game on Saturday, this time to Auburn. Mizzou has an awful history of these weird endings in games that cause them to lose the game. We call it “getting Mizzoued”… Well, I can’t fight getting older any longer… Granddaughter Delaney Grace got her driver’s permit last week! I know some you dear readers have been with me since she was born 15 years ago… Delaney is still so small, I do believe she’ll need a booster seat to see over the dash! But then how will she reach the gas / brake pedals? HA! The Pretenders greet me this morning with their song: My City Was Gone… I hope you have a Marvelous Monday today, and please remember to Be Good To Yourself!

Chuck Butler