U.S. Data Prints Bad… Dollar Rallies… What Gives?

September 30, 2019

* Currencies and Gold get sold in the overnight markets

* Will the Administration put a choke hold on Capital Flows to China? 

Good Day…. And a Marvelous Monday to you… A Monday that brings us the new Central Division Champions in the NL this year…. My beloved St. Louis Cardinals… They may not make it very much further, although I think they will, but they’ll be forever loved for winning the division on the last day of the season, in style, with a 9-0 win… I sat outside to watch the game on TV, with my neighbor Paul, who was very interested in what was going on… He’s a tennis buff, but still follows the game of baseball, when he’s with me! I smoked some, hand made rub, rubbed Pork Tenderloins yesterday, that I have to say were the absolute best ones I’ve ever made! Everyone wanted my recipe for the rub! I said it has a little bit of this, and a little bit of that, and so on… The Marshall Tucker Band greets me this morning with their song: Searching For A Rainbow… Back in the 70’s, I only loved 2 other bands more than the Marshall Tucker Band…

Well, I have a question for everyone today, so bear with me here… But I want to know, does the rule of law really matter any longer? It sure seems to me that it’s a rule by the seat of our pants kind of situation, and that’s all I’m going to say about that!

The currencies flattened out VS the dollar on Friday… The U.S. data didn’t give the dollar bugs any additional fuel to fire their assault on the currencies… So, they traded in a very tight range on Friday. But… last night was a different story!

Throughout last night, in the overnight markets, the currencies led by the Big Dog, euro, got beaten down by large amounts… But why?  The dollar bugs have no reason to party any longer, folks… The data on Friday was interesting, with Personal Income up 0.4% in August, but Personal Spending was down from 0.5% in July to 0.1% in August… Durable Goods Orders were unchanged from July, but Capital Goods (CAPEX) was negative once again -0.2%… I’m telling you this for the umpteenth time folks… Capital spending is the lifeblood of an economy… Why would I say that I hear you asking? Well, if Corporations aren’t spending money on expanding their businesses with furniture, computers, quarters, etc. then they don’t think the economy is going to be strong enough to support their moves in the future…

A couple of years ago, I made a big deal out of how CAPEX was trending downward, which wasn’t a good sign for the economy, and I had a longtime colleague, Jack Stapleton, yell to me across the trade desk, that I need to keep harping on CAPEX because I was absolutely right!

Stocks were down here in the U.S. on Friday, as they see the writing on the wall too… At least I think they do… Remember, most of the buying in the stock market these past few years has been Corporations doing buy backs of their stock… Well, guess what I read last week? The buybacks have slowed to a snail’s pace… Uh-0h!

But I’m not stock jockey, so I’ll move on… Just wanted to point that out… Gold was only able to eke out a 70-cent gain on Friday… and spent the weekend trading below its 50-day moving avg.  And in the early trading this morning it’s not so good, as the shiny metal is down $13 as I write…

So, the week of engineered takedowns were successful for the price manipulators, but… as I always point out, they are doing procrastinators a favor, but bringing the price back to a cheaper level to buy! So? What are you waiting for?

OK… the week ahead ought to be a really doozy… We have the Impeachment proceedings going on… On the Butler Patio, I would tell you what I think of all this… But not here, sorry…. But I can’t see any of this enticing investors to buy dollars, do you? I’m just saying…

On the Trade War front… have you heard the latest idea to hurt China? The Administration is thinking of limiting investments in China… In other words they would really put the vise grips on capital flows into China, and that WOULD be far worse that any tariffs, folks…  This could be a game changer, and I sure hope the boys and girls that make these decisions think this one out all the way through…  I’m just saying… 

Well, last week, European Central Bank President (outgoing!) (ECB) Mario Draghi, gave a farewell speech if you will, as his reign ends at the end of Rocktober… Which starts tomorrow!    And last week I told you prior to his speech, what I thought he might talk about… And lo and behold, that’s what he did…  Check out this quote from his speech…. 

“At the start of my term in 2011, Europe was still dealing with the aftermath of the global financial crisis. Other financial stability risks – notably those associated with the sovereign debt crisis – were also crystallising. The costs to society from the crisis were substantial.1 By 2013, unemployment had risen by 10 million and EU GDP was some 13% below its pre-crisis trend.” – Mario Draghi, 9/26/19

So, he really went through his term and pointed out the highlights and left the problems, like the continuing systemic risk in the markets, negative rates and bond buying on the sidelines, only mentioning them slightly… 

I have to say that I do believe that Claude Trichet was a better steward for the Eurozone economy than was Draghi… And now the new President will be former IMF head, Christine Le Garde…  Given what I know about how the IMF basically kills a country’s economy when they arrive to help, this can’t be a good thing for the Eurozone economy… But then she hasn’t even sat in “the chair” yet… So, I guess I’ll give her a pass for now, but that background of the IMF will forever hang over her like the Sword of Damocles! 

OK… have you been watching the Chinese renminbi lately… About a month ago, when the Trade War negotiations were hot and heavy, the renminbi was allowed to appreciate, and stop the daily beatings it took previously… But since those negotiations stopped being so hot and heavy, the Chinese have gone back to the daily beatings of the renminbi…  

Of course longtime readers here know that I said that this would be the case as the Chinese attempt to offset the Trade War tariffs.  I didn’t say I thought it was the best idea, and it sure does hurt the other currencies in the Asian region… The Singapore dollar, for instance, is so tied to the performance of the renminbi, that a month ago the Sing dollar was on the rally tracks, and now, it’s been derailed once again…  

The Aussie and kiwi dollars get all caught up in what happens in China too, and their currencies are sinking long with renminbi… 

The price of Oil has really slipped in the last 10 days, and this morning it is trading with a $55 handle… That has really knocked the stuffing out of the Petrol Currencies, folks…  Even the Steady Eddie Russian ruble has seen some weakness in the past week…  The Norwegian krone is back above the 9 handle, and that’s not a good thing, either!  

But… as I always say…. When the dollar bugs take a big bite out of the currencies’ values, that this just allows you to buy more of the currency at a cheaper price!  And there are always investors out there, that realize that they need to diversify their investment portfolios, with currencies and metals, and will look back at their entry points and smile like the Cheshire Cat… 

The U.S. Data Cupboard gets busy this week, with the monthly ISM (manufacturing index) for Sept. tomorrow… Recall that in August this data fell below the line in the sand 50…  So, it will be interesting to see if the index number continues to fall, or, if by some “miracle” it rises back above 50…   On Wednesday we’ll see August Factory Orders, and on Thursday the ADP Employment Report, and finishing up the week with the Jobs Jamboree for September on Friday…   

I spent a lot of time last week talking about the perils the Fed was undertaking in injecting funds into the repo market… I had a dear reader ask me how the repo rate could be higher than the Fed Funds rate? Easily… stay with me here… You see a repo is a loan of funds… The lender can charge whatever he feels is the market rate for the funds… When funds are in short supply, the rate will go up, and vice versa when it’s not… With repo rates hitting 10% at one point, the Fed felt they needed to step in, because, well they know best, right? …. And I saw this written this weekend:

The third quarter ends Monday. So, for the past two days, the New York Fed has run $100 billion overnight repo operations — bigger than the $75 billion daily liquidity injections that began early last week — plus separate 14-day operations. Neither of Friday’s actions were fully subscribed and short-term lending rates are well below the peak seen last week, a sign order has been restored for now.

But on Monday, that larger $100 billion size will be repeated and the overnight operation will run from 7:45 a.m. to 8 a.m. New York time, earlier than prior morning actions. Both signal the Fed is girding for rates to spike again.”

I saw that in an article that you can find it on Bloomberg.com with this heading: The Fed Is Girding for Repo Trouble Monday Even as Market Calms 

OK, before we head to the Big Finish today… I saw a cartoon that absolutely made me laugh so strongly that my ribs hurt! Yes, even someone my size can still feel my ribs! OK… The cartoon was of the 3 blind mice… All wearing shades ala Ray Charles, and each one had a shirt with a single letter on it… The First one was “F”, followed by “E” and then “D”… which spells… FED! Inferring that the Fed are the 3 blind mice! Talk about cracking me up! I sent it off to all the people on my old currency and metals desk. But talk about hitting the nail on the head! 

To recap… The currencies traded flat on Friday, but in the overnight markets they have been beaten down and big bite has been taken from their values by the dollar bugs… Gold has followed the currencies this time too, only gaining 70-cent on Friday, but trading down $13 this morning. The price of Oil has continued to slip causing major pains to the Petrol Currencies. And the Chinese are back to giving daily beatings to the renminbi, which isn’t good for the rest of the region’s currencies… UGH! 

For What It’s Worth… Longtime readers know my affection for publishing guru, and writer extraordinaire, Bill Bonner. Well, last week in his daily letter, he wrote about being ill, and thinking about what he should think about if this were his deathbed… I thought, this is very well written, and I want to highlight it here…. So, you can find the article here: https://bonnerandpartners.com/reflecting-on-our-legacy-before-we-die/

Or, here’s your snippet: “Some people believe there are things they should do before they die. Magazines offer lazy copy about how it is essential to visit the Taj Mahal or the Pyramids.

But what kind of life can be given real meaning by the travel industry? Who really cares whether you’ve been to the top of the Eiffel Tower? Nobody. Not even you.

And who wants to travel, anyway? It is tiring. And you end up in the company of other tourists, all hoping to snatch a peek at staged authenticity without ever really finding out what it is all about. (Unless you are traveling off the beaten path like our colleague Tom Dyson, who writes to you below.)

Or how about big public events? Should you go to the Olympics? The Venice Film Festival? The Rolling Stones’ last concert? Why not? But we doubt it is something you’ll recall on your deathbed.”

Chuck Again… Bill talks about his call back in 2000 when he told his readers to buy Gold and sell the Dow… What a call that was, eh? Well, he’s doing it again, in case you’ve missed class the day I talked about the Gold to the Dow ratio…. Guess you had better check out the archives at www.dailypfennig.com, eh?

Currencies today 9/30/19 American Style: A$ .6755, kiwi .6268, C$ .7548, euro 1.0890, sterling 1.2294, Swiss $1.0039, European Style: rand 15.1983, krone 9.0875, SEK 9.8234, forint 307.44, zloty 4.0195, koruna 23.7003, RUB 64.62, yen 108.00, sing 1.3828, HKD 7.8396, INR 70.61, China 7.1217, peso 19.70, BRL 4.1576, Dollar Index 99.28, Oil $55.40, 10-year 1.69%, Silver $17.24, Platinum $913.58, Palladium $1,692.59, and Gold… $1,485.03

That’s it for today…  A long one today, but I had plenty of stuff to talk about given the 3-day weekend, and really nothing else to do, except go to grandson Braden’s soccer game on Saturday… So, I read, and read, and read… which is a dangerous thing for me… and you I guess! HA! So, my beloved Cardinals head to Atlanta to play the 1st game of a best of 5 series with the Braves… What about our young pitcher, Jack Flaherty? Is he not worthy of the Cy Young this year? If not then you had better already scratch his name on the trophy for next year!  I’m just saying!  The band Live takes us to the finish line today with their song: Sellin’ The Drama… And with that I hope you have a Marvelous Monday, and please Be Good To Yourself!

Chuck Butler