The Fed To Begin To Buy Corporate Bonds!

June 16, 2020

* Currencies win back some lost ground from last week

* Gold fights back! 

Good day… And a Tom Terrific Tuesday to you! Another Chamber of Commerce day here where I live the summer and fall… Before I go ballistic today, I want send a great BIG Shout Out to my former colleague, and the guy I consider to be my metals guru, Tim Smith, who along with his wife Nicole, welcomed their first born into the world on June 3rd… Tim and Nicole are very happy with their strapping young man, named Jason… So, congrats to you two! May you get a lot of sleep in the coming weeks…. HA! I got to see all 4 of my grandkids on Sunday, and the highlight of the day went to little Evie, who is now 9 months old! She’s going to be walking soon, I would bet! Chicago greets me this morning with their song: Stay The Night… Hey! Remember when the radio stations wouldn’t play the Rolling Stones song: Let’s Spend The Night Together? The FCC has come a very long way, haven’t they?

Well, well. Well. What have we here? Longtime readers, Bob, sent me an article yesterday that made me sit up in straighter in my chair… The article states a passage from the OECD ( Office for Economic Cooperation and Development) where they believe that U.S. banks that are the custodians for many Corporate and Gov. pensions, were in deep dookie in February, and to prevent them from going negative with their returns, the Fed bailed out those banks…. And we were wondering how the picking of who got what, was going to take place… now we know!

Look, I don’t want pensions to have problems… But the Fed comes in on their White horse and saves them, when it was the Fed’s actions that caused them to have problems! So, don’t be getting out the bouquets of flowers for your favorite Fed Head… They caused the problem in the first place!

Another thing that crossed my writing desk was Dallas Fed Chairman, Robert Kaplan spoke yesterday, and told his audience that he didn’t think capping the yield curve was a good idea, because he didn’t feel as though there was a way to control it…. But Kaplan could just be the straw horse here, to lead us away from what the Fed is really going to do… And like I said last week, before Powell spoke I might remind you, I believe not only interest rates are going to capped, but also the Treasury yield curve…

Alrighty then we have those two thing out of the way and off my chest…. Well, the currencies, led by the euro, fought back yesterday, and won back some ground they had lost late last week. I left you yesterday, with Gold down $20 in the early trading, but the shiny metal fought back to only close down $5, on the day at $1,728….  And that mini-rally in Gold yesterday, rolled over to this morning, and Gold is up $5 in the early trading today.  

Speaking of Gold, there is a little story here to lighten the mood… Seems a rider on a Swiss train, got off at his stop and forgot his Gold haul…  The Swiss authorities have attempted to find the owner of $191,000 worth of Gold, but nobody has turned up, so the authorities have decided to go public with the information… There were no details on what the authorities would do to confirm the owner…  I left my phone on plane once… And thought it to be a catastrophe! Imagine this guy…. 

Longtime readers will recall a Sunday Pfennig, when I gave readers: Chuck’s Debt Solutions… And one of the main things in the letter was to close all foreign military bases, those countries don’t want us there anyway…. The Threat of Russia running all over these European countries is null and void these days, so they don’t need the U.S. military there to protect them, any longer… Talk about HUGE money savings! Look, I told you all last week that “the order” is no longer a thing… Each country is going to have to look out for themselves, and as the Order winds down, I believe we’ll see more news like the one yesterday where it was reported that of the 52,000 troops in Germany, we’re bringing home 27,000 which will leave them with just 25,000… (see that new math I just used? Amazing! )

I always thought that the protection of Europe against  Russia was a bunk, but “the order” allowed countries to grow their exports and thus their collective economies, and that’s a BIG DEAL folks!  Without “the order” The seas would have been chaotic, never knowing if your shipment would get to where it was going or not…  So… here’s where the rubber meets the road, folks… with no protection, what’s the new situation with exports going to look like?  And with every country having to defend themselves, who’s going to look around and say, “hey! we still have a big military, it’s time we used it?” 

No looking to the U.S. for help… We’re out of that game…  We got tired of being taken for granted and advantage of…  Here’s an instance… Germany, wanted protection from Russia, but then signed a trade agreement with them to import Russian Oil…   Now, the U.S. is paying huge bucks to defend Germany, you would think that Germany would buy their Oil from the U.S., right?  Just one of many instances where the U.S. was taken advantage of…

 OK… time for something else… let’s see…. Oh, the rally in the Aussie dollar (A$) in recent weeks was something to behold, given that there was no global growth to feed the A$ rally. I even pointed that out a couple of times in the Pfennig. And then last week there were reports of a 2nd Wave of the virus, and the rug was pulled out from under the A$…  Remember me telling you to be careful there? 

The selling of the dollar is building steam… I saw where one of my former fave economists, Stephen Roach, gave a long dissertation on how the U.S. dollar is going to collapse…  I used to hang on every word that Stephen Roach said, but then he disappeared and I lost track of him…  But if he’s back now, that’s a good thing!  I’ll attempt to get through his latest writeup on the dollar, but I can tell from scanning it, he really does believe that the dollar is in deep dookie… 

I’m going to repeat this every day until it sinks into Traders’ collective minds that this is a very bad thing….  “The Fed’s Money Creation Has Exceeded U.S. Treasury Tax Receipts”…. 

The U.S. Data Cupboard gets back in business today with their prints of May Retain Sales, which the Butler Household Index, indicates will be better than the April report which saw a negative -16.4%, but the forecasters believe that May’s report will be far better than April’s and have Retail Sales growing 8%…  I’m thinking that’s a bunch of bunk, so we’ll have to wait-n-see in a bit… 

The Data Cupboard also has the May prints of Industrial Production and Capacity Utilization, two BIG “real economic reports” for us to view today…  But I somehow keep getting this feeling that I’m the only one that worries about these economic prints…  Oh well… It is what it is… 

To recap…  The currencies won back some ground lost late last week to the dollar bugs, yesterday… And Gold found some terra firma and recovered from an early morning $20 loss to just a $5 loss on the day, and is up $5 in the early trading today!  The fears of a 2nd wave of the pandemic sent the A$ to the woodshed late last week…  And Dallas Fed Head, Kaplan, doesn’t see how the Fed could control a Treasury yield cap…  Come on Rob… You can do it, if you really try!  HA!

For What It’s Worth…  OK… up to now, the Fed has only broken their rules by buying ETF’s… but it seems they are lining up another rule to be broken, as they announced that they are ready to buy Corporate Bonds… I do not like it when the main story is carried by CNBC ( I have a long running grudge against them!) But if that’s what it takes, then so be it, and you can find the article here:

Or, here’s your snippet: “The Federal Reserve is expanding its foray into corporate credit to now buy individual corporate bonds, on top of the exchange-traded funds it already is purchasing, the central bank announced Monday.

As part of a continuing effort to support market functioning and ease credit conditions, the Fed added functions to its Secondary Market Corporate Credit Facility.

The program has the ability to buy up to $750 billion worth of corporate credit. Its March 23 initial announcement is largely considered a watershed moment for the financial markets, reeling from the coronavirus threat spread.

“The decision to buy a broad portfolio of corporate bonds represents a shift to a more active strategy for the secondary market corporate credit facility, rather than the passive approach originally envisioned,” said Steven Friedman, senior macroeconomist at MacKay Shields.

Under the latest guidelines, the Fed said it will buy, on the secondary market, individual bonds that have remaining maturities of five years or less. Those purchases will go along with the ETFs the Fed already has been buying, which are balanced toward investment-grade indexes but also include some junk bond funds that track debt which had been investment grade before the crisis but had been downgraded after.

The intent of the individual debt purchases will be “to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds,” the Fed said in a news release.”

Chuck again… All the Fed is doing here folks, is creating a zombie economy, with zombie corporations, and fake money… But here I am pointing this out, and no one on the outside world thinks this is a bad thing… Am I the crazy one here?  No, wait! don’t answer that, for I fear what you’ll say! HA!   And old Fleetwood Mac song had lyrics that went like this, “don’t ask me what I think of you, I might not give the answer that you want me to”… 

Market Prices Today 6/16/20 American Style A$.6917, kiwi .6465, C$.7376, euro 1.1312, sterling 1.2650, Swiss $1.0557, European Style: rand 17.0945, krone 9.5086, SEK 9.3102, forint 305.34,   zloty 3.9165,   koruna 23.4842, RUB 69.94, yen 107.28, sing 1.3905, HKD 7.7498, INR 75.86, China 7.0908, peso 22.11, BRL 5.1049, Dollar Index 96.66,  Oil $37.84,   10-year .74%, Silver $17.40, Platinum $814.16, Palladium $1,949.09, and Gold… $1,730.63

That’s it for today…  Ok, last night on TV, they showed the replay of Game 7 of the 1982 World Series… I was at that game 38 years ago, it was a very cold night, but as I recall I didn’t feel the cold after the 6th inning…  Bruce Sutter came in to start the 8th inning, and in the end it was 6 up, 6 down, for Sutter…  I’ve always said that whenever Sutter came into a game, that the opposing team would start to pack up their bats! We used to park for the games at the old Mark Twain Bank downtown across the street from the ballpark. After the game we went back to the car to find a slew of Bank employees and customers standing around celebrating. It was a long night, and I recall it was an ugly morning..  But I got to see a Game 7 win… James Taylor takes us to the finish line today with his song: Don’t Let Me Be Lonely Tonight…  I hope you have a Tom Terrific Tuesday, and please Be Good To Yourself! 

Chuck Butler