The Fed Throws The Dollar Under A Bus…

March 24, 2020

* Currencies finally show some life on Monday… 

* Chuck thinks this is currency intervention 2.0…. 

Good day… And a Tom Terrific Tuesday to you! Well, the nurse at the wound center cut off my soft cast, and looked at the graph and said, “it looks great, you’ve had very little drainage to mess with it, and I’m looking forward to what the doc has to say on Thursday…. I was greeted at the wound center by a nurse with a forehead laser thermometer. I was told to stand still, so they could take my temperature. If I had a temp at 100 or above, I was to turn around and go home…. So, having passed the initial test, I then proceeded to the waiting room, only to find one chair… All the other chairs had been removed…. So, I would be the only one in the room! I loved that they took everything so seriously, as they should…. Jackson Browne greets me this morning with his song: For A Dancer…. “In the end there is one dance, you’ll do alone”….

Well, the currencies finally showed some life yesterday, but after moving higher all day, they gave back some of their gains at the end of the day… UGH! Maybe it was the news that the Fed is pulling out all the stops, and will now buy ETFs…. So, basically, the Fed is now the “lender of last resort” to Main Street, not just Wall Street! The Fed said that “aggressive action is needed” and that’s the reason they have begun “unlimited Quantitative Easing, or all investments buying, not just bonds, or in the end it’s really…. Printing a boat load of dollars to pay for this all…. And that “Unlimited QE” could be what scared some of the dollar bugs right back into their hole in the wall boards!

Gold had a good day, gaining $50 on the day, and is up another $35 in the early trading….  Hey! If the Fed and the U.S. Gov’t is going to throw the dollar under the bus, why wouldn’t Gold rise? I have a longtime reader that gets angry with me when I say that Gold has gained on a day…. He always says that Gold didn’t gain, dollar’s lost…. Without playing semantics here, we’re both right!

Getting back to the currencies for a moment… Yesterday, I told you that my spider sense was tingling for a coordinated currency intervention, ala the Plaza Accord in 1985…  If you recall that time period, the dollar had reached some very lofty heights, and the Finance Ministers of the world met at the Plaza hotel in NYC and expressed their fears that the U.S. was getting to deep into debt. It was agreed at that meeting that the dollar would be weakened, and the German marks, Swiss francs, and Japanese yen would be bought.  This would be considered currency intervention 1.01…. 

From the action yesterday, I have the feeling that the coordinated currency intervention came in the form of Fed Announcements…  Let’s just call it currency intervention 2.0…..  I’m just saying, that things are pretty suspicious here, don’t you think? 

Did you hear what Fed St. Louis President James Bullard had to say yesterday? Well, here it is if in case you missed it: “Unemployment could reach 30% in the U.S.” – James Bullard…

And while all this was playing out before our eyes…. What did Congress do to help the mom and pops of the country who have been ordered to stay home and not work to get paid? Nothing, absolutely nothing! I was watching a news feed on TV on Sunday (no sports, what’s a guy to do?) And President Trump was saying, “The stimulus bill is ready to go, but I’m afraid what will happen is that every politician with an agenda will tryi to hang it on this bill”…. And I thought to myself, “no way this could happen at this time, Congress has to come together to provide life support now, they have to be able to see that politics can’t be played at this time”…..

Well, I guess I was wrong… Because that’s exactly what happened to the life support bill… Politics got played, and nothing was accomplished… So, you know those checks that POTUS and the Treasury Sec. were talking about last week, going out this week? Well, there’s been a delay…. Come on Senators and Representatives, this is not the time for these games to be played… Get it through your collective thick skulls, now!

The Fed can pull all the shenanigans it wants to, but none of what they are doing, and let me repeat that, none of what the Fed is doing, is going to help individuals one iota! Yes, the Fed is making sure the credit market is fully funded…. But what good will that be when there’s no cash in the bank to go buy groceries, gas and giggles? 

Being the smart Alec that I am… I just had an awful thought about the Fed’s “Unlimited QE”….  Does that mean that the Fed can buy old bicycles? I mean they’re trash…  And Cash for trash, is the moniker for the Fed’s programs…   Us poor taxpayers…. we will be expected to do the heavy lifting when the life support check go out, and they will, eventually… 

Let’s talk about the price of Oil and what’s going on there a bit…  I told you yesterday that Goldman Sachs thinks the price of Oil will fall to $15… But Shoot Rudy, why at $15, why not at $1?  Or $5?  Whatever it falls to will be welcomed at the gas pumps by individuals…  I saw something the other day that brought me back to when I was first driving many years ago… Competing gas stations catty-corner from each other having a gas price war, to see who could go the lowest in price!   There was one gas station down here with regular gas at $2.07 and the one on the opposite corner had regular gas for $1.99…  And the prices had just changed!  

I know this price drop of Oil is bad for all sorts of reasons, but the one good reason is that individuals get cheaper gas, at a time when they really need to conserve their funds…  

OK…  The U.S. Data Cupboard had a regional manufacturing index that was different that the two we saw last week that had collapsed in Feb. This time the Chicago Index was better than the previous print…  I don’t see how that could happen, given the rot on the vine of the Philly and Empire indexes…  But they say it happened that way, so I guess we have to take their word for it, right?  (HA! Trick Question! Of course we don’t have to take their word for it! They’re all ninnies in my book! ) 

I keep getting this gnawing feeling that I want to talk about something, but it’s not coming to me, so I guess I’ll just take my ball and bat and go home…. I mean go to the Big Finish! 

To recap…  The currencies finally showed some life yesterday, and Chuck thinks it was coordinated currency intervention 2.0…   The Fed has announced that they will buy anything from anyone that’s ailing… No wait, not just anyone, only the Casino Banks…  But that list now a-days is a ( in my best Elmer Fudd voice) Veerry, Veerry, long….  Have you seen a rabbit? 

For What It’s Worth…  Well… We all know Deutsche Bank is in trouble these days right? Shoot Rudy, when I was still with EverBank one of my monthly newsletters featured all of Deutsche Bank’s problems…  OK, so that’s established… So, when I saw this title in Ed Steer’s letter this morning, I just HAD to read it and include it in today’s FWIW…. This is an analysts from Deutsche Bank telling us that helicopter money will lead to disaster, but not for Gold….     It’s quite long….  And it can be found here:

Or, here’s your snippet: ” Now that helicopter money has finally arrived, and bizarrely has brought with it that blast-from-the-past idiocy that is the trillion-dollar coin – which does nothing more than remind the population that money, like any other consensus construct, is just an illusion and depends on “faith and credit” and an increasingly grotesque one at that reliant on such “in your face” gimmicks as minting platinum coins to bailout the world – the discussions of what the monetary endgame (with even deflation god Albert Edwards admitting that his iconic “Ice Age” is about to melt under the red-hot heat of paradropped cash) will look like have begun in earnest.

Doing it part to kindle this debate, no pun intended, are Deutsche Bank strategist Oliver Harvey and Robin Winkler who have published a report covering the two aspects of the helicopter money debate. And since we are confident that readers can find the happy ending version on countless other pro-paradrop forums, typically those run by socialist “island-dwelling traders” who have never actually traded (and their drug-delivery skills it turns out were also dismal) and who have no concept of how money or credit actually works, we will focus on the one that captures accurately what will happen on short notice: hyperinflation.

So for everyone curious what the hyper-inflationary endgame looks like, here it is, courtesy of DB’s Oliver Harvey…

“It should worry us that policymakers and academics think providing massive stimulus is the solution. This is because policymakers appear to be attempting to shift demand back to where it was a couple of months ago, at the same time as holding supply fixed. To put it another way, if the government tries to keep spending at levels before lock-downs began, while at the same time keeping lock-downs in place, there will be simply more money chasing after significantly fewer goods and services. The result of this will be inflation, and a lot of it.

This might seem like an absurd argument given that market inflation expectations – the price of inflation linked bonds – have fallen since the crisis began. But, it is perfectly consistent to say that even though this crisis ultimately originated with a supply shock, the market has up until now expected demand to fall somewhat more in response. What matters is that at present supply is inelastic – unlike in traditional Keynesian formulations – because while the government might be handing out $100 dollar bills it won’t be allowing workers to work regular days, restarting flights or reopening factories until the virus subsides.

What would be disastrous is if governments embarked on New Deal style spending program via monetary financing at a time when it is imposing stringent supply constraints on the economy. The result may be hyperinflation, and end up doing more harm to people’s living standards than nothing at all.

A good hedge would be to buy gold, as well as inflation linked bonds in the U.S. and Euro Area, which are currently trading at all time lows.”

Chuck Again…. Yes, this guy is simply saying the same thing I’ve already said, that if the U.S. wants to throw the dollar under a bus, then Gold will be there to take over the dollar’s strength… 

Currencies today 3/24/20  American Style: A$.5935, kiwi .5803, C$ .6940, euro 1.0886, sterling 1.1788, Swiss $1.0289, European Style: rand 17.5705, krone 10.9067, SEK 10.1311, forint 321.61, zloty 4.2157,    koruna 25.4370, RUB 80.16, yen 110.47, sing 1.4460, HKD 7.7545, INR 76.04, China 7.0947, peso 24.67, BRL 5.0831, Dollar Index 101.15,   Oil $24.66,   10-year .81%, Silver $14.04, Platinum $687.84, Palladium $1,587.92, and Gold… $1,587.92

That’s it for today…. I remember now what I wanted to talk about, so I’ll save it for tomorrow. Only this time I’ll send myself an email note reminding me of what I wanted to say!  I was talking to my friend, Ski, yesterday, and told him how I had told people to start a journal of the daily events during the mortgage and financial meltdowns… And that I think it would be a good idea to start another journal recording the daily events during this crisis… One day you’ll be at a family function, and someone will say, “how’d that all happen again?” and you can pull out your journal and walk them through it! Otherwise all the facts get fuzzy, and exaggerated and so on…. So start your journal! What else do you have to do these days? HA!  The ocean this morning is as calm as a lake in the morning… But no one can be out there enjoying it! UGH! OK… a Big Time Classic this morning takes us to the finish line: Aliotta Haynes and Jeremiah sing their song: Lake Shore Drive…  I hope you have a Tom Terrific Tuesday, and will Be Good To Yourself! 

Chuck Butler