June 15, 2023
* Currencies & metals experience two different days
* The ECB meets today, and will hike rates…
Good Day… And a Tub Thumpin’ Thursday to one and all! Another game, thrown away yesterday, this time with me in attendance, which makes it even worse! I’ll never understand why a manager pulls a pitcher that has only thrown 2 innings and mowed them all down for the ninth inning… I told my son, Andrew, If it were me I would send him back out there on a short leash, as the Cardinals has a slim 2-run lead… But noooooooo! The “closer” came in, proceeded to walk the first man he faced, and then give up a game tying 2-run homer… He was the “closer” all right, as he closed the chances of a Cardinals win! The manager and the GM should be fired, period! Ok, the daily temps are rising here in the Midwest… And today will be a hot one, like seven inches from the midday sun… Weezer greets me this morning with their song: Island In the Sun…
Well, what did I tell you yesterday? I told you that it would be the Wild, Wild, West in the markets with the FOMC announcement, and how traders responded to it… So… BFMOC (Before FMOC) Gold was up $14, and Silver what booking gains too… The dollar was getting sold, and the BBDXY was down 4 index points… That was BFMOC… AFMOC (After FMOC), the dollar rallied and ended what was left of the day only down 2 index points, and Gold lost all its gains and ended up down $1.30 for the day to close at $1,943.00. Silver did NOT get caught up in the selling of Gold, and pulled a rabbit out of its hat, by gaining 26-cents on the day and closing at $23.99
So… What happened AFMOC? The Fed Heads pulled fast one on the markets… Yes, they paused, like I said they would, but then The central bank also signaled it may need to take rates higher this year, with half of the committee expecting rates to increase by another 50 Basis Points (1/2%) within this calendar year!
You see what they did there? The didn’t lose face with the markets, because the failed to defeat inflation, before stopping their rate hikes… And… While there’s no guarantee that they will hike rates further, they put the idea out there, so Gold couldn’t rise further, and the dollar didn’t fall off a cliff… Tricky, tricky, tricky, those Fed Heads are after all this time when I thought they were just administrative rats!
There wasn’t much time left in the trading day AFMOC, but traders took advantage of the time they had left, and brought the dollar back from the edge of the cliff, and wipe out Gold’s gains… The price of Oil slid by $2, and traded at the end of the day with a $68 handle, and the yield on the 10-year Treasury, remained around 3.80%, I’m sure the bond boys were scratching their collective heads over what they had just hear from the FOMC…
In the overnight markets last night… The dollar got sold some more… I guess the overseas traders didn’t take to kindly to the FOMC trickery… The BBDXY index has lost 2 more index points and starts today at 1,228… The old Dollar Index that I still report on, has dropped below 103, to 102.90… But… this dollar weakness isn’t helping the metals any… Gold is getting whacked in the early trading and is down $13, while Silver has given up 51-cents early this morning… This all doesn’t have anything to do with the fact that the Fed Heads said they would hike rates 2 more times this year… This smells, and walks like short paper trading to me… once again… When will they ever stop? Not until they all go to jail… And that’s not going to happen, so we’re stuck with these dirty dogs from here on out… UGH!
The price of Oil remained with a $68 handle overnight, and the 10-year’s yield is Steady Eddie at 3.80%… Today seems to be out of whack to me… We have the dollar getting sold, but the metals are too… Hello? Is this the Insane Hospital? I need to make an appointment for myself there, thank you… I’m going crazy trying to make heads or tails of these markets folks… But no worries, I’m not going anywhere! I now get 3 days to step away from all this and think about other things, and then on Monday, I’ll be as fresh as a daisy! HAHAHAHAHAHA!
You know, on one hand, I get it, why the Fed Heads might want to take a pause for the cause to see how their previous 10 rate hikes are doing, get a month or two of fresh data, and then decide about whether to hike rates again or not… But wouldn’t it have made everything better, if they had just signaled that this is what they were going to do ahead of time, and not just to a few of their primary dealers, I mean everyone?
With regards to their comments about expecting to hike rates 50 Basis Points within this calendar year, I say… Balderdash! By the time we get two months out, the stock market will be back to daily gains, and I doubt the Fed Heads will want to upset that applecart…
But then, I read Addison Wiggin’s letter yesterday, and he talked about “the Fed’s Terminal Rate”… Basically this is a rate that is achieved and is neither accommodative nor restrictive…. And the experts believe that the Fed Heads’ Terminal rate it 5.75%, which happens to be 50 Basis points from where we currently stand at 5.25%…
So… for now, it’s a toss-up! And having unknowns in the markets are usually what turns traders off… Hmmm…
Well, The Fed Heads trickery, left the Chinese wondering what’s going on… You see, it is my opinion, that the Chinese wanted to annouce a bit stimulus for their economy, but wanted to wait until the FMOC annouced a pause, for their best timing… For it would fly mostly under the radar, witht he FOMC garnering all the attention… But now, with the FOMC’s trickery, what are the Chinese going to do now? Well, if you asked me, Mr Xi, I would go ahead and get the stimulus out of the way, so your economy can move on from here…
I could say that I’m somewhat relieved that the FOMC played their trick yesterday, and kept the dollar from falling of the cliff… Wait! What? C’mon Chuck, what are you talking about? Well, if you all recall back a couple of springs ago, I wrote about what could bring about the introduction of digital currencies, and the dollar falling out of favor, big tim, was one of those things… So, see now, what I’m talking about? I can’t believe, for a minute, that you would think that want to see a strong dollar, given the U.S. fundamentals, debt, etc. You know me better than that, I’m a true Patriot, loyal to the cause, and never wavering in the wind…
Earlier this week I mentioned that there were no more Central Bank meetings this month, and that was in error… I completely missed the European Central Bank’s meeting that is taking place as I write this morning. I fully expect the ECB to hike rates again, and remain vigilant when talking about future rate hikes. The euro should get a boost when the rate hike is announced, and who knows, maybe the euro can climb past 1.09?
Before We head to the Big Finish today, I wanted to make note of a headline I saw late last night… This was from MarketWatch, and said, “Over 60 year olds, are propping up the economy”… Well, that makes sense to me, because we are the ones that saved and didn’t spend more than we made, and now we have funds to spend!
The U.S. Data Cupboard today, will have the usual fare for a Tub Thumpin’ Thursday with the Weekly Initial Jobless Claims… This data print really jumped higher last week, so it will be interesting to see if there’s follow up last week… Tomorrow, we’ll see the color of May’s Retail Sales… I told you yesterday, that the BHI indicates to me that this report will be disappointing…
To Recap…. It was a crazy day in the markets with two trading periods that were completely different… First we had the Before FMOC, and then we had the After FMOC… Starkly different… The Fed Heads played a trick on us yesterday… First the paused, but they didn’t call it a “Pause”, instead they said they “skipped” the scheduled rate hike, and then added that they expect to hike rates 50 Basis Points higher this year! I can’t begin to describe the change in sentiment in traders AFOMC… The Fed Heads accomplished a few things with their surprise for the markets yesterday…
For What It’s Worth…. Well, what do we have here? Something that I’ve warned you all about for some time now, ever since the Fed/ Cabal/ Cartel began their rate hike cycle over a year ago, and what that is, is the fact that a lot of companies got hooked on cocaine, no wait, zero interest rates and low rate loans, and took them out hand over fist… Well, those loans were short term, and now when those loans come due, and they need to be rolled, the stark realization that the zero rate world is over, and most likely we’ll see a ton of companies file for bankruptcy… Well, that’s what this article is about and you can find it here: 12ft | US junk loan defaults surge as higher interest rates start to bite | Financial Times
Or, here’s your snippet: “Defaults in the $1.4tn U.S. junk loan market have climbed sharply this year as the Federal Reserve’s aggressive campaign of interest rate rises increases the pressure on risky companies with “floating” borrowing costs.
There were 18 debt defaults in the U.S. loan market between January 1 and the end of May totaling $21bn — greater in number and total value than for the whole of 2021 and 2022 combined, according to a Goldman Sachs analysis of data from PitchBook LCD.
May alone saw three defaults totaling $7.8bn — the highest monthly dollar amount since the depths of the Covid-19 crisis three years ago.
The failures underscore the pressure being exerted on lowly rated companies with large debt piles as they bear the brunt of the U.S. central bank’s tighter monetary policy to curb high inflation.
“There is a payment shock unfolding among the weakest issuers in the loan market,” said Lotfi Karoui, chief credit strategist at Goldman Sachs.
Many “junk”-rated companies loaded up on leveraged loans — debt with floating borrowing costs that move with prevailing interest rates — when the Fed slashed rates close to zero at the peak of the Covid crisis. Issuance nearly doubled between 2019 and 2021 to $615bn, data from PitchBook LCD shows.
However, the Fed has lifted its “target range” for interest rates to 5 per cent to 5.25 per cent in just over 14 months. That has left borrowers facing much higher interest payments, just as slowing economic growth threatens to squeeze earnings.
This combination is “really problematic for companies that have a big chunk of their liabilities in floating-rate form”, added Karoui.”
Chuck again…. Yes, this is happening, and it will get worse as we go along here folks… What will the Fed / Cabal/ Cartel do about it? Nothing, absolutely nothing, say it again!
Market Prices 6/15/2023: American Style: A$ .6805, kiwi .6170, C$ .7501, euro 1.0873, sterling 1.2664, Swiss $1.1120, European Style: rand 18.5363, krone 10.6133, SEK 10.7228, forint 345.99, zloty 4.1155, koruna 21.8543, RUB 83.55, yen 141.01, sing 1.3424, HKD 7.8252, INR 82.18, China 7.1600, peso 17.23, BRL 4.8410, BBDXY 1,228.60, Dollar Index 102.90, Oil $68.88, 10-year 3.80%, Silver $23.28, Platinum $976.00, Palladium $1,378.00, Copper $3.84, and Gold… $1,930.96
That’s it for today and this week, of course… My beloved Cardinals have the worst record in the National League, which means they are the worst team! UGH! Two of the worst teams in baseball, will travel to London soon, and play 3 games there… I apologize to all my English readers looking for well played baseball, when the Cardinals and Cubs visit… Besides the loss yesterday, it was a great day at the ballpark with son Andrew! Our seats were ADA, which meant no stair climbing for me, and were easy in and out, and in the shade! If those were my seats for all games, I would attend more games! Ok, Sunday is Father’s Day this coming weekend… Don’t forget to give your dad a hug and tell him you love him… He’ll have tears in his eyes! The great Al Stewart takes us to the finish line today with his song: Time Passages… (A great song!) I hope you have a Tub Thumpin’ Thursday today, a Fantastico Friday tomorrow, and that all the dads out there have a Fabulous Father’s Day! And last but not least, don’t forget to Be Good To Yourself!
Chuck Butler