The FOMC Experience… Are You Experienced?

Chuck Butler’s: A Pfennig For Your Thoughts  

September 21, 2017    

* Fed leaves rates unchanged… 

* But wins back the markets! 

* And Chuck goes crazy! 


Good day… And a Tub Thumpin’ Thursday to you!  Well, I’m in one of those moods this morning… Full of you know what and vinegar! I sure hope I don’t write something that gets me in deep dookie…  It’s also an infusion day, so I need to wrap this up and get out of here this morning in a timely manner… Someone sent me a note the other day, and said that he admired how I talk about chemo infusions like they’re a walk in the park…  It made me think about my infusions… I certainly don’t like them, I don’t like going to the infusion center (it’s so depressing), and I figure that no one wants to hear that stuff, so… It’s an infusion day for me, and that’s all I’ll say about that!   We’ve got lots of stuff to get to today too, so let’s quit dawdling here!  Steely Dan greets me this morning with their song: Deacon Blues…    

Well, Vini vidi, vici…  You can say that the Fed came, saw, and conquered the markets yesterday…  The won back the credibility that they had lost with all their flip-flopping around, with a bold statement yesterday, about how they are on track to hike rates one more time this year, and 3 more times in 2018, and while all that’s going on, they will be unwinding their balance sheet, with Treasury sales or redemptions of $10 Billion per month, and increasing the monthly total as we go along until they are at $600 Billion per year…  

The markets were impressed, and thought, “I guess we were wrong to ever doubt the Fed’s word.”  And then they went about buying dollars, and selling the currencies and metals…  It got very ugly yesterday afternoon and in the overnight markets, with the euro losing one full cent, and the other currencies following the lead of the Big Dog. 

Gold is $18 cheaper this morning than it was yesterday morning, as “the boys in the band” saw the selling of Gold as an opportunity to “pile on”… I  just don’t “get it” folks…  One day, the markets are convinced  that the Fed doesn’t know what they are doing, and are selling dollars like funnel cakes at a State Fair, and the next day the markets are down on their collective knees and bowing to the Fed saying, “We’re not worthy, we’re not worthy”…    Well, here I go, I’m getting up on my soapbox now, better protect the kids ears, or hide them out in the cellar!    

Distortions, lies and omissions… That was the title to an article regarding the journalists explanation of the conflict between Russia and Ukraine, a few years ago… I dug that up because it rings true these days, with all the talk of a “strong economy”, and “we’re on a roll” and “we’re still on the lookout for rising inflation”… And so on. I sit here in my basement at my writing desk in utter amazement that these contortions to the truth, just keep getting repeated, and the markets believe them… Just last Friday, we had Industrial Production and Retail Sales both print NEGATIVE! And Capacity Utilization, one of the few forward looking pieces of data that we see, fell from 76.9 to 76.1? And that’s just the most recent data prints! Factory Orders, Durable & Capital Good Orders have all been weak to disappointing, and yet, we keep getting told that the economy is strong… Well if it so dang strong, why didn’t the Fed hike rates yesterday? I’ll just leave that one out there floating around and maybe someone has an answer.

I have an answer, but nobody likes to hear it! But guess what? You’re going to get to hear it because, well this is what you pay for! Wait! Chuck, have you begun charging readers for the Pfennig? No, why do you ask? Because you said “this is what you pay for”… Ahhh, grasshopper, the pay part is in their time in reading the Pfennig, which I’m now causing them to have to read and take up their time! HA! But the Fed didn’t hike rates yesterday, saying that they will hike them one more time in 2017 (Yeah, right, and I’ve got some land for sale that situated between North and South Korea), because they’re finally seeing what they have done… They hiked rates into a weakening economy, and they did so hoping that inflation would rise… What were they thinking? If you want your economy to grow you don’t hike rates! If you want inflation to rise, you don’t hike rates! And when you’ve dug yourself a hole, and realized you dug it in the wrong place, you don’t keep digging in the same hole!

Let’s look at GDP here in the U.S. Well, the Fed Atlanta has a computer system they call GDPNOW, and it throws all the factors together and projects quarterly GDP… Guess what they projected for the 3rd QTR here in the U.S.? They projects 2.2% GDP…. And my old pals at Kipplinger recently posted a projection of 2.1% GDP for the whole year 2017! Now, let me ask you, and be honest with yourself and me, here… Would you call 2.1% GDP a strong, growing economy? Or would you call it an economy that is just muddling through, year after year after year? OK, I’ve said enough here, I need to quit before I either say something I’ll regret, or begin yelling at the walls, which wouldn’t be a good thing at this time of the morning with Kathy sleeping upstairs!

So, the Fed didn’t hike rates yesterday, but you dear Pfennig Readers knew that was going to be the result of their two-day meeting, months ago, when I told you that there would be no rate hike in September! However, the Fed DID make an announcement that they will begin to unwind their balance sheet in Rocktober to the tune of $10 billion in assets in Rocktober and slowly raise the rate of sales in the months to come.

OK, let’s say that Chuck got transported to the Eccles Building yesterday,  and had the opportunity in the Q & A session to ask a question I would have asked this: “Ahem, if I don’t pronunciate very clearly, please excuse me I have a tumor in my mouth… But what I would like to ask you is this… When you first announced that the balance sheet unwinding talks were underway, you said that there would be no selling of Treasuries, just allowance of the bonds that mature to run off with no replacement bond purchased… So, why now, are you going to sell $10 Billion per month?”

Oh, I’m sure I would get some cockamamie response like, “well when we first talked about the unwinding of the balance sheet, the economy wasn’t as strong as it is today, and therefore we have changed out minds about how to unwind the balance sheet”

And I would say, “OK, a follow up question then, if I may… Please show me where Factory Orders, Durable & Capital Good Orders, Industrial Production and Retail Sales, to name a few, illustrate this “strong economy” you speak of.” And then these guys with guns on their hips and body camera came and asked me to go with them. Shoot Rudy, I thought I was going to get to go basckstage and meet Ms. Yellen in person! But NOOOOOOOOOO! As the great comedian Ron White says… The police said I was drunk in public, but I was in the bar, and they threw me out into “public”, I wanted to be drunk in the bar! I was thrown out the doors and asked to never come back… Fine, with me, because all I got out of the day was Distortions, lies, and omissions… 

I admit that using the word, Lies, is a little harsh, and I don’t mean to say that anyone is telling lies… It was just part of the phrase that I dug up… So, there’s the “nice Chuck” coming out, which one do you like better? HA!    I’m just so riled up about this change of mind for the markets, that I could spit!  I guess, we’ll have to deal with this change of heart for the markets, which means dollar strength, until the economic data begins to pile up showing them that there is no economic strength that the Fed speaks of…  Looking at past months’ prints didn’t help here, so like everyone else, the markets are a “what have you done for me lately” group… UGH!   

The stock market didn’t seem to care about what the Fed has to say yesterday, but the stock futures are down a little bit this morning, so it will be interesting to see what direction the stock jockeys take stocks today… 

The price of Oil gyrated back above $50 in the past 24 hours, and for now that appears to be the trading pattern… Go above $50, get sold back below the figure, and then rinse and repeat…   When will this change? Good question! I don’t think it will change until “something” happens to disrupt the apple cart…  Let me see, I would need a calculator to add up all the things up in the air right now, that could disrupt the apple cart!  

The Petrol Currency traders have taken the tact that they aren’t going to get caught up in the price of Oil’s daily gyrations… Good for them!  These guys have gotten drug through a mile of broken glass in recent years, and there’s no need for them to keep going back over the trail they trudged… 

Speaking of the Petrol Currencies…  I read an article this morning that said that the Norwegian Sovereign Wealth Fund (SWF) had reached a total value of over $1 Trillion!   The SWF is officially known as the Government Pension Fund…  Remember last year, when I told you that the SWF had announced that they were increasing their purchases of stocks? And I questioned their sanity? I guess I was the one that needed a sanity check, eh?  The SWF is now the owner of  on average 1.3 per cent of every listed company in the world!  I still question the increased stock buying by the SWF, for what goes up, must come down, spinning wheel got to go around. No wait! Now, there’s some lyrics I haven’t used before from Blood, Sweat and Tears…  But really, what happens when the “correction comes”?    Will the SWF panic and sell into the correction?  I sure hope not!   

I was taught at an early age in the business that you buy into weakness and you sell into strength…   If you do that with every investment you make, you’ll be doing alright!  But going back here, and circling the wagons, kudos to the Norwegian Sovereign Wealth Fund for reaching $1 Trillion in value..     I know that I’ve talked about this before, but this is a good time to talk about it again since the SWF was in the news…  Norway’s pension fund gives every single person in Norway a pension fund from the time they are born till they die. And a few years ago now, they even started a pension fund for “yet to be born Norwegians”…  it’s quite costly to live in Norway, but you have this pension fund… Pretty cool if you ask me!    See? more nice Chuck for you to go along with the upset Chuck!    

Yesterday’s U.S. Data Cupboard had the FOMC experience, and Existing Home Sales, which were down in August, but hardly anyone noticed given the goings on at the Eccles Building! I heard that there was some dude there giving Janet Yellen a difficult time, and then was escorted out of the building and thrown into public… I wonder if that was true! HAHAHAHAHHA!   

Today’s U.S. Data Cupboard has a couple of economic prints for us, but the only “real economic print” will be the Leading Indicators…  It will be interesting see what this data shows today…   

To recap…  The Fed left rates unchanged yesterday, but pointed to another rate hike this year, and 3 more next year, and announced their plans for unwinding their balance sheet… Chuck wonders what the stock jockeys will think about this unwinding…. And Chuck goes DEFCON 4 regarding the description of the economy… You won’t want to miss that! And Gold has lost $18 since yesterday morning…     

For What It’s Worth….  this is really good stuff folks, and I hope you have to time to read through it… The GATA folks, sent me a note yesterday that talked about how the Russians know all about Gold price manipulation, and then gave me the link to an article on the subject that can be found here:   

Or, here’s your snippet:  “When the gold price manipulation started on August 5, 1993, these were central banks that initiated the process, and namely the then head of the US Central Bank Alan Greenspan. He did not want to let the gold price rise over $400,” Speck said, adding that Greenspan feared that a significant increase in gold prices might affect the “inflation thermometer.”   

Chuck again… that’s all I have for you, as I don’t want to spoil your appetite! Read the article and get the  “rest of the story”…    

Currencies today 9/21/17… American Style: A$ .7950, kiwi .7351, C$ .8105, euro 1.1910, sterling 1.3493, Swiss $ .9714, … European Style: rand 13.3394, krone 7.8237, SEK 8, forint 260.24, zloty 3.5964, koruna 21.9127, RUB 57.99, yen 112.35, sing 1.3511, HKD 7.8051, INR 64.90, China 6.5132, peso 17.81, BRL 3.1303, Dollar Index 92.41, Oil $50.41, 10-year 2.28%, Silver $17.01, Platinum $941.89, Palladium $913.75, and Gold… $1,298.20

That’s it for today and this week… Cards’ bats come alive last night, but one has to wonder why that doesn’t happen against the “good teams”…  I like my new oncologist ( I liked my old one too!)  she’s a no-nonsense, tell it like it is doctor, and I appreciate that, for I don’t want someone spraying me with Febreeze just to make me feel better!   This was quite the long Pfennig today, after my soapbox speech! But that’s not too bad considering no Pfennig tomorrow!  The band, Lighthouse takes us to the finish line today with their classic rock song: One Fine Morning…    Not familiar with that one? YouTube it, I think you’ll like it!   And with that, I’ll get out of your hair for today, and send you out to make this a Tub Thumpin’ Thursday!   And please Be Good To Yourself!