Upon Further Review… Jerome Powell Speaks Today!

July 10, 2019 

* Currency Traders are waiting for Powell’s speech today

* Chuck throws out a number for Gold, should things change… 

Good Day… And a Wonderful Wednesday to you! OK, OK, so I was wrong about the day Powell was supposed to speak! It wasn’t yesterday, it’s today! That’s what I get for glancing at the economic data calendar and not focusing on it! Well, did you enjoy the All-Star Game last night? I went to bed long before it was even getting close to being over! When I was young, the National League won every year, and now it seems the American League wins just about every year… Another reason we all wish we were young again! HA! (I know we’re all not National League fans!) Summer is here! Finally! It took long enough, eh? OK… public service announcement… There will be no Pfennig next Tuesday, Wednesday and possibly Thursday. I have to report to the hospital for a procedure that may keep me there 1, or 2 nights, depending… It’s no big deal, no worries, just a simple procedure. Wait! What am I saying?  The late great Alvin Lee checked into a French hospital for a simple procedure, and he died!  I guess there’s no such thing as a simple procedure!  The Blue Jays greet me this morning with their song: Saved By The Music… (the Blue Jays were a spinoff of two guys from the Moody Blues)

Well, the currencies didn’t move much yesterday, as currency traders appear to be waiting for Jerome Powell to speak today… Gold however found a bid and ran with it on the day gaining $9 from yesterday morning, but still remains below $1,400… UGH!

One of these days, Alice! To the Moon! That’s what I keep telling myself about the price of Gold… Yesterday, I included the piece by Murray Rothbard, and I have more from him today… check this out… “The prospect for the future is accelerating and eventually runaway inflation at home accompanied by monetary breakdown and economic warfare abroad. This prognosis can only be changed by a drastic alteration of the American and world monetary system: by the return to a free market commodity money such as Gold, and removing Government totally from the monetary scene.”

OK, Chuck again… Mr. Rothbard talks about a return to a free market money such as Gold… Well, for that to happen there would have to be a reset in the price of Gold… I figure somewhere around $10,000 an ounce would just about cover the Gov’t debts out there… So, like I said… One of these days Alice….. To The Moon!

Now this is not to say that this is going to happen… It’s just a scenario that’s being thrown out as an alternative to the current: Deficit Spend till you drop policy… Because one day… maybe not in my lifetime, but one day, the chickens will come home to roost on all the debts we have, and when they

do, it’s not going to look like a pretty painting of a beautiful landscape with golden fields, purple mountains and blue umpbrella skies…. No it’s going to be more like Armageddon! But don’t let that get in the way of keeping your corn flakes from getting soggy!

I feel like I need to box a little defensively this morning, you know, do the rope-a-dope thing? I know I shouldn’t feel too bad about getting the Powell speech on the wrong day, but I don’t like making mistakes folks… When I was a young man playing baseball, I doubt I ever made an error, and I doubt I ever stood there and took strike 3 without swinging! Most times pitch counts barely got past 1, if it was a strike, I was swinging! But then high school came along, and so did the pitcher’s ability to throw curve balls…. Well, that was the end my dream to be a professional ball player!

OK… back to the markets… So… why would anyone need to diversify their investment portfolio using currencies and metals? Oh, I don’t know, how about this? So, that when one asset class in your investment portfolio goes to hell in a hand basket, the other asset class that has no correlation to the other asset classes in your portfolio, will rise, and thus offset your losses! I’m a firm believer of Harry Markowitz’s Modern Portfolio Theory… And have been ever since the day 20 years ago that I first stumbled onto Markowitz’s ideas about having different asset classes that have little or no correlation to each other in your investment portfolio!

Currencies, historically (since 1971 that is) have moved in long sweeping trends, that today are called Multiple year trends, that last between 5 and 9 years… The current strong dollar trend has been going on since 2011, when the hidden debts of Greece were revealed… So, the current strong dollar trend is getting pretty long in the tooth, don’t you agree? That’s why whenever we see these, what turn out to be false dawns, small currency rallies, I think that they have a chance to become a multi-year weak dollar trend… And during the next weak dollar trend, the dollar is the last place you’re going to want to be invested in… I’m just saying…

OK, a couple notes on specific currencies this morning… The Mexican peso, seemed to be going in the right direction in recent trading sessions but yesterday it got whacked, and that was due to the Finance Minister resigning, saying that “Mexico’s president was making economy policy that is not “based on evidence”.   Interesting, eh? 

And I don’t know if you track the currencies in the currency roundup each day, but if you do you will have noticed that the Chinese renminbi, which for a couple of weeks there, was on the daily appreciation track…  But this week, the currency has gone back to getting weakened each session… What was the turning point?  G-20…  Leading into the G-20 meeting, the Chinese wanted to window dress the renminbi so that when Trump and Xi met, Xi could point to the appreciation and say, we’re doing out best here…  And since G-20 was over, the depreciations began again… 

There’s no headway on the BREXIT stuff in the U.K. and their new PM, etc. and now I hear that Bank of England (BOE) Gov. Mark Carney, has been mentioned as the new head of the Bank for International Settlements (BIS) …   I’ve never been a fan of Mark Carney’s policies, and so if I were in the U.K. I would say good riddance! But then I’m not… and I doubt people there even care…  Meanwhile, back at the ranch, the pound sterling continues to be weighed down by all this stuff… 

If you’re a currency roundup follower, then you will have noticed the nice stealth-like rally in the Brazilian real in recent times…  Brazil doesn’t have the swash-buckling interest rate differential that it used to enjoy all the time, but it does have a small pickup in yield to the dollars, euros, yen, sterlings of the world…  And with a stable gov’t now, and a price of Oil that’s OK, the real has enjoyed a nice run…  

The U.S. Data Cupboard is basically emptied out today, with only the Fed’s meeting minutes from the June meeting on the docket…  And those won’t print until this afternoon… Until then we’ll get our fill of Fed Chairman, Jerome Powell, as he’ll speak to Congress… Remember what I said about him having that rate cut in his back pocket to pull out and display before the lawmakers should things get hairy today…  I have to say that having that rate cut in his back pocket is well played by Powell, for he knows that the lawmakers will be so distracted by the shiny new rate cut, that they’ll forget what they were hammering him about!  

For What It’s Worth… Man, was I glad to have this sent to me last night… This is from MarketWatch, and is about all the stuff I’ve been warning you about. The article is by famous economist, John Mauldin, and it can be found here: https://www.marketwatch.com/story/when-the-us-falls-into-a-recession-a-credit-bubble-will-explode-2019-03-20

Or, here’s your snippet: “The European Central Bank this month said it would keep record-low interest rates for longer. The news comes shortly after the U.S. Federal Reserve gave in to the stock market and held off on further interest-rate increases.

While investors celebrate the policy reversal, they might soon regret it.
This stimulus may indeed buy the market an additional year or two. But postponing the inevitable downturn with artificially low rates will come at a cost. The cost is a massive credit bubble that is already of biblical proportions. Its implications chill me to the bone.

Here’s a quote from my friend Peter Boockvar, chief investment officer of Bleakley Advisory Group, a $3.5 billion wealth-management firm, which drew an enormous amount of interest: “We no longer have business cycles; we have credit cycles.

To me, it is a very simple message being sent. We must understand that we no longer have economic cycles. We have credit cycles that ebb and flow with monetary policy. After all, when the Fed cuts rates to extremes, its only function is to encourage the rest of us to borrow a lot of money and we seem to have been very good at that. Thus, in reverse, when rates are being raised, when liquidity rolls away, it discourages us from taking on more debt. We don’t save enough.

The problem is that over time, debt stops stimulating growth. Hence, the flat-to-mild recovery years.” – Peter Boockvar…

Chuck again… Well, didn’t I tell you all yesterday that we were in a credit cycle? John Mauldin and Peter Boockvar are very astute economists, folks… We should take heed at what they’re warning us about… And I’ll leave you with my simple question… Got Gold?

Currencies today 7/10/19 American Style: A$.6920, kiwi .6600, C$ .7618, euro 1.1218, sterling 1.2473, Swiss $.9918, European Style: rand 14.1837, krone 8.6496, SEK 9.4730, forint 290.47, zloty 3.8090, koruna 22.7905, RUB 63.75, yen 108.92, sing 1.3614, HKD 7.8152, INR 68.50, China 6.8848, peso 19.17, BRL 3.8000, Dollar Index 97.44, Oil $59.13, 10-year 2.10%, Silver $15.10, Platinum $815.46, Palladium $1,555.66, and Gold… $1,395.88

That’s it for today…  The Cardinals lone All-Star, Paul DeJong, must have thought he was playing a regular game with the Cardinals, as he was left on Third base, and he represented the tying run in the game… UGH!  That’s the Cardinals season right there in a nut shell!  One week closer to my annual summer vacation! I’m going to go fishing this weekend, with son Alex… Should be fun!  I hear that the interviews for new Fed Heads are being conducted, with the question being asked about how they view rate cuts…  I chuckled over that one…  OK… Steely Dan takes us to the finish line today with their song: Do It Again…  I have been a HUGE fan of the music of Don Fagen and Walter Becker (Steely Dan) since their first album back in 1973… Each album had a different twist to their music… great stuff!  I hope you have a Wonderful Wednesday, and will Be Good To Yourself!

Chuck Butler