April 27, 2020
* Currencies rally on Friday and through to today…
* Templeton closes 6 bond funds in India!
Good day…. And a Marvelous Monday to you! Well, after two rotten to the core days here with chilly rain, and gray skies, the sun came out yesterday, and it was an absolutely beautiful day! I went outside early and began singing, “It’s a beautiful morning, I think I’ll go outside for awhile… and just smile, I think I take in some clean fresh air”…. Yes, it was a day to be outside…. Finally! I miss my morning walks to the deck that overlooks the ocean, to watch the ocean movements, and soak up early morning sun… But soon the earth will turn on its axis and the warmer days here will become the norm…. And I won’t have to wait days to go back outside! I was listening off and on, all weekend to Sirius XM’s top 1,000 classic rock songs…. I didn’t vote on any of these songs, but I would argue with how low in the standings (400-500) some of my fave rock songs ended up…. Oh, well, it’s all something I have no control over, so I just listened and enjoyed! John Lennon greets me this morning with his song: Nobody Told me…..
I fear that one day in in the near future, many investor is going to sing that same thing, “Nobody told me”…. When if they had just listened to me, and not some talking head stock jockey, they would have been told! I have friends that are stock jockeys and I doubt they like me talking about them negatively like I do, so I’ll move on… But don’t worry, I’ll have more for them when we talk about the data prints last week later….
I also know that I’ve been very centered on the U.S. economy and things that will change here, but at the same time I also know that this is not confined to the U.S. every country, but the ones with little debt, like Russia, and Singapore, will have the same problems as the U.S. but on a smaller scale, so that’s why I focus on the U.S. because, well, that’s where I live, buy gas, groceries and giggles, (although not a lot of those giggles lately!) And take them to the woodshed because we should have known better, we should have done better, and now we have a big mess on our hands….
So… the dollar bugs backed off on Friday, and allowed the currencies to run a little, with the euro climbing back above 1.08 on the day… But Gold, which had put in two very good up days, gave back $3 on Friday, but closed at $1,729.00 so, overall it was a good week for the shiny metal…. The Gold and dollar relationship has been very strange in the past year, as Gold has rallied while the dollar rallied, and sold off when the dollar has sold off… Hmmm…. Opposites are still in play here, but makes you wonder, doesn’t it? I mean for the nearly 50 years that the Gold and the dollar have floated ( a dirty float if you will) they were always moving opposite each other, until 2019….. Does this mean that Gold has moved into a new trading relationship with the dollar that will become the new norm? That’s one of those “unknowns” that I don’t have an answer to folks…. Let’s just enjoy Gold’s upward moves and take them any which way they come, eh?
Last week I said a lot of things and one of them that I tried to point out was that the Fed, in my opinion, has been behind the main manipulations of Gold…. They give the wink and nod to the JPMorgans, who if they played their cards straight, would stay out of trouble, but instead, they got greedy, and now find themselves fighting off legal suits against their trading practices…. The Fed is on record as saying they can’t allow Gold to go to its true price, because that would ben that inflation was running fast, and that’s one thing the Fed can’t have, inflation running upward quickly…. Slow, sloth-like moves of inflation to the upside what the Fed needs and wants…. Unfortunately, they haven’t gotten what they’ve worked so hard to get… But that’s not going to stop them for trying to bring about rising inflation to inflate away the debt….
OK…. Back to things that are known by all…. Well, nothing like some recent data to wake us up, and get our blood flowing…. I watched an interview with one of my fave economists, Danielle Di Martino Booth on Friday, and in a YouTube video from 4/20, she said, “it really grates on me when I hear this called the “COVID Crisis”…. Global debt levels at the end of 2019 were $255 Trillion. These were accidents waiting to happen. There could have been any outside event to start this”
Yes, like I’ve been saying since the Middle of March, this economic shutdown, thus bringing about all the Fed moves to help Corporations may have come sooner due to the COVID virus but it was bound to happen sooner or later, because you have Corporations that have been BAD with their respective money, folks…. They just kept going into debt that they weren’t ever going to be able to pay back, and a lot of that debt was coming due this year, so we were about to get to the proverbial “cheese that binds”, but then along came a spider and sat down beside her, and the Fed came to their rescue….
But why? Weren’t we all taught in economics classes (I’m talking to the older folks here, because the economics young kids takes is nowhere near what I learned!) that when a Corporation does bad, that you jus allow them to file bankruptcy, and see if they can work out a deal to comeback, otherwise it’s a case “see ya, wouldn’t want to be ya”? But in 2008 we got a taste of the how the Gov’t. either the White House, Treasury or Fed, got to choose who survived and who failed…. Does the name Bear Stearns ring a bell, or how about Lehman Bros.? And now we’re back to allowing the powers that be decide his all over again… Who will it be this time that brings armegeddon to the streets?
In news from abroad, there was some big news from India over the weekend, as Templeton closed 6 bond funds in the country, claiming that it was due to a lack of liquidity… I don’t live in India, so I don’t know how this was viewed by the people there. I do know that if that happened here in the U.S. investors would be panicking…
Late Friday night, longtime reader Bob, sent me this link, and so now I’ll share it with you, but…. To me the last paragraph says it all, and it says: “The Fed has printed $2.26 trillion since March 11 to inflate asset prices and bail out asset holders and Wall Street. If the Fed had spread that $2.26 trillion equally over the 130 million households in the US, each would have received $17,380. But this was helicopter money for Wall Street and the wealthy that were losing part their wealth in the sell-off. Those are the folks that matter to the Fed.”
And you can find it all here: https://wolfstreet.com/2020/04/23/fed-slashed-qe-further-still-hasnt-bought-junk-bonds-or-etfs/
OK, let’s get to the actual prints last week… Batting lead off is the Weekly Unemployment claims, which added another 4.43 million in the Easter shortened week, to put the total in the last 4 weeks over 26 Million! That’s basically all the jobs that were created in the last 10 years of tepid expansion…. I know, I know, you’re saying, but once businesses open up all these people will go back to work…. Really? After all I’ve talked about with the change in people’s outlook on things you still believe that is going to happen? Not a snowball’s chance in hell that happens, folks….
In addition, we also saw rot on the vin in Durable Goods Orders, which fell from 1.1% in Feb. to -14.4% in March…. Remember, March was only shutdown the last two weeks of the month, April was a full-on month of the shutdown…. I’m just saying….
The Markit PMI which is a good indicator of what the national ISM (manufacturing index) will look like, fell this month to a very recession revealing 36.9, from the 48.5 in March… This is bad folks… Oh, and I can’t forget the rot on the housing market either…. New Home Sales in March fell to 627,000 down from a Feb number of 742,000…. That’s a HUGE drop….
And finally, finally I say, Consumer Sentiment hit the skids…. The April number was 71.8 down from a March number of 89.1…. Another HUGE drop, for sure!
And circling back to Industrial Production…. The Washington Post had this to say about Industrial Production: “The falloff in activity — which includes output from factories, utilities and oil and gas producers — “dwarfs any decline during the Great Recession,” Ryan Sweet of Moody’s Analytics writes in a note.
Oh, my! When is everyone in the stock market arena going to stop believing that this rot on the economy’s vine will be removed immediately, after the economy starts up again? Because it’s not going to folks! People are NOT going to rush out and start spending again once the all-clear horn is sounded…. They won’t trust who they’re standing next to in lines, so let’s not go to the line! They aren’t going to see this as something that’s gone forever, and therefore those that still have paying jobs, will be saving to replenish their reserves…. And I could go on, but this is not going to be “alright by the night” folks… bank on it!
Oh, and the Fed’s FOMC Meets this week…. I’m of the opinion that the stock jockeys are all holding their collective breaths in anticipation of Fed Chairman Jay Powell, having something up his sleeve, like maybe “negative interest rates?” But Powell made it clear in March that he doesn’t see the U.S. needing negative interest rates… He said, then: “We do not see negative policy rates as likely to be an appropriate policy response here in the United States…” So, that something up his sleeve, is going to look more like Bullwinkle and his pronouncement that he had nothing up his sleeve! So, what can he announce to bring the stock jockeys back? Well, just for grins, he could announce that the Fed is going to buy equities….
Why not? They’ve going to buy Corp junk bonds, the next step is to buy that corporation’s stock too…. But he might have to save that for somewhere down the line….
I’ll just say this about what’s going on right now…. Do you think that Japanese investors thought back in 1990 that their stock market sell off was going to last 3 decades, and that the Bank Of Japan would be buying more stocks than investors, but the stock market is still 50% off its highs of 1990? I don’t think you could have had one Japanese stock jockey think that, and the same goes for here in the U.S., they just don’t see that happening…. Why? Because every stock jockey this side of Eden have been busy telling their clients that the Fed has their back, and not to worry…. I bet if they made a movie of the Japanese stock market circa 1990, that the Japanese stock jockeys had the same conversations with their clients….
To recap…. The dollar bugs finally backed off on Friday last week, and the currencies rallied, and are still on the rally tracks this morning, as I write…. Gold didn’t see the dollar weakness as an opportunity to gain alongside currencies on Friday, and lost $3 on the day. Gold is down another $14 in early trading this morning, as the Dollar Index has slipped back below 100…. Templeton closed their bond index funds in India over the weekend… A lack of liquidity was the reason for the closing of the 6 funds….
For What It’s Worth…. Well, I mentioned this above that the avenue for U.S. zombie Corporations is clear… The go into bankruptcy and see if they can find investors that will reorganize the company…. Before going bust…. Well, the former Big retailer, J.C. Penny has done just that, filed for bankruptcy, or I mean is going to…. And you can find that article here: https://www.zerohedge.com/markets/jcpenney-prepares-file-bankruptcy
Or, here’s your snippet: “It’s finally here. After a decade of management turnover, near misses, last minute rescues, and one valiant (sic) if disastrous attempt at an activist turnaround, one of the most iconic U.S. retailers and mall anchors, J.C. Penney, is preparing to file for bankruptcy.
According to the Journal, J.C. Penney is in advanced talks for bankruptcy funding with a group of lenders, a sign the troubled retailer about to make a visit to 1 Bowling Green. JCP is in discussions with existing lenders including Wells Fargo, Bank of America and JPMorgan for a debtor-in-possession loan that would keep the department-store chain’s operations funded during a court-supervised bankruptcy, according to people familiar with the matter.
The DIP loan would be roughly $800 million to $1 billion, with some of that money potentially including existing debt, and priming all the other unsecured creditors who will end up with a chunk of the post-petition equity, assuming of course it is not a Chapter 7.
The Journal sources said that a bankruptcy filing could take place within the next few weeks, and certainly before May 15 as JCP entered into a 30-day grace period after missing an interest payment due to bondholders on April 15. It is possible creditors enter into a forbearance agreement if the company needs additional time to iron out negotiations before filing, but the endgame is clear.
Should the shutdown of the economy last for several more months, or should a second wave of coronavirus infection strike the U.S., companies in all other industries are expected to follow suit.”
Chuck again…. Man, I have to tell you, back in the 70’s I went to J.C. Penny for just about everything…. I haven’t set foot in the J.C. Penny store in 20 years….
Currencies today 4/27/20 American Style: A$.6460, kiwi .6055, C$ .7107, euro 1.0848, sterling 1.2428, Swiss $1.0256, European Style: rand 18.8136, krone 10.5722, SEK 10.0385, forint 326.42, zloty 4.1743, koruna 25.1333, RUB 74.54, yen 107.05, sing 1.4187, HKD 7.7498, INR 75.62, China 7.0809, peso 24.82, BRL 5.5893, Dollar Index 99.90, Oil $12.23, 10-year .62%, Silver $15.16, Platinum $759.48, Palladium $1,969.05, and Gold… $1,715.32
That’s it for today… I apologize for the tardiness of the letter this morning… I had a bad night, and didn’t get much sleep, so when I finally got to sleep at 4:30am this morning, I turned off my alarm and said, I’ll write the letter when I wake up…. So, sorry… but I just had to sleep! Well, I gushed about the day in the intro, but now I see that it’s going to rain just about every day this week! UGH! April showers bring May flowers, right? What do May Flowers bring? …. wait for it…. Pilgrims! One of the oldest jokes in my book! Well, next week, here in Missouri, our stay at home order will expire… Where will people go first? I probably won’t go anywhere, for I never went anywhere before the stay at home order, except to the doctors, and my local watering hole… And I doubt I head there for a long time…. I’m just saying…. Soft Cell takes us to the finish line today with their song: Tainted Love…. I hope you have a Marvelous Monday, and will Be Good To Yourself!