We Simply Refuse To Learn From History!

January 6, 2020  

* Airstrike in Iran sends the dollar to the woodshed!

* And send Gold soaring higher! 

Good Day…. And a Marvelous Monday to you! Welcome to January and 2020! The Roaring 20’s are back! Well, at least in as far as decades go… How was your Christmas and New Year celebrations? I had a fabulous time through it all, even though most days I was feeling like death warmed over… The currencies and metals sure rallied strongly in that time. Tomorrow is a “travel day” for me, so by the time I get to the airport, you’ll still be sleeping, which means no Pfennig tomorrow, but I’ll be back in my home in the south to write on Wednesday… There’s been quite a bit of news since I last talked to you last Monday, so, we’ll talk about some of that, and other things this morning… Steely Dan greets me this morning with their song: Peg…

In the last week, we saw the euro trade in the upper numbers of an 1.18 handle… We saw Gold trade to a multi year high, and Silver get to trade over $18 once again, and the price of Oil shoot higher…. Most of the movement that related to these moves came from the air strike that was ordered by the U.S. Chief of Command and resulted in the top General in Iran being taken down. And now there are stories out there that more strikes could be in the offing… So, the pressure on the dollar will remain in tact for now… The thing I think we could very well see if these continue much longer, is that the strong dollar trend comes to an end… Remember last week I told you that Euro traders are calling for a rallying euro in 2020.

And I think the proof in the pudding of that statement is the fact that in the overnight markets, the euro has climbed past 1.12!  

The Petrol Currencies led by the Russian ruble, have really taken the Oil price rally to heart. The next move for the ruble will be to fall below 62. The Norwegian krone is firmly on the rally tracks, as it gets the double dose of rally medicine from the euro’s rise, and the Oil price rise.  

In last weeks flurry of activity in the currencies we saw the Aussie dollar (A$) climb to 70-cents… But, that gain was short-lived, as the Australian country is experiencing raging wild fires, and it has taken the focus off financials and what not there…  The fires are widespread, from what I read about them, and don’t look to be anything that will be put out any time soon… 

Cruising through Twitter yesterday, I came across some tweets that I’ll highlight here that tell a story about the U.S. Economy, folks… Ignore them if you choose… but if you do, I think you’ll end up being sorry…

The fist one is s tweet from a former colleague and longtime friend, Sean Hyman. Who posted: “Sales of Manhattan’s priciest apartments plunge almost 40% in fourth quarter”

The next tweet is from David Rosenberg, one of my fave economists, who responded to a article by Goldman Sachs that said the economy was fine…. “Someone forgot to tell the Baltic Dry Index, which has collapsed 60% from the nearby peak, about this “growth stabilization” narrative. Not as if the Cass Freight Index hasn’t been flashing the same signpost, which is tougher times ahead for the over-levered global economy.”

And finally, the next one is from Danielle Di Martino Booth, another of my fave economists, who posted:” Does ANYONE look at charts any more? Step 1. Yield curve inverts Step 2. Yield curve steepens Step 3. With an average 10-month lag post 3-month/10-year inversion (which occurred in March 2019), economy enters recession. Powell printing maniacally should push out lag time.”

OK… So, the rich are losing their shirts in Manhattan…. And the markets are oblivious to key indicators that the economy is going downhill fast… Like a snowball going down a steep hill, it gains more snow and size as it rolls downhill…

The things that get me all riled up folks, is…. When I hear people that should know better, but apparently don’t, say things like: This economic expansion is going to be like the Energizer Bunny and go on and on and on… That’s just not the way that economies work, folks… But then all past economies didn’t have a mingling Fed… Printing money as if it was their only job to do… Funny thing here… On Saturday, we celebrated my oldest son, Andrew’s, birthday, for he’ll be in N. Carolina next week when his birthday comes around, coaching water polo… And my two grandsons, Everett, and Braden were sitting downstairs watching football with me, when a commercial came on, and it was a presidential ad… And one of the boys said, “oh he’s the worst there has ever been”…. And I couldn’t let that one slip… I explained to them that Woodrow Wilson was the all-time worst president, and then told them the 3 reasons why, culminating with, he ushered in the Federal Reserve, who’s made a real mess of the economy, and the dollar through time… Then ½ hour later I asked them, OK, who’s the worst president, and the both shouted back at me. Woodrow Wilson!

OK, sorry for that tangent… This is going to be PMI week all over the globe… The U.S. jumped the gun last week with their print of December ISM, which used to be called the PMI, and is the same as the PMI’s that print in every other country in the world. The U.S. ISM (manufacturing index) slipped further below the 50 figure that separates expansion (above 50) and contraction (below 50)…. The November print was 48.1%, and the so-called experts said that we would see a bit of a recovery to 49%… But… instead, the index slipped further to 47.2%… I was taught many years ago now, that when a country’s manufacturing index slips to 45 and remains there for at least two consecutive months, that a country is in recession… So, 47.2 is not exactly a world away from 45, folks…. I’m just saying…

I don’t expect any of the PMI’s from around the world to show any kind of strength, as this is a Global event, with all economies suffering from the hangover of too much punch being served by their collective Central Bankers…. Too much punch is the same as too much easy credit,a nd too much money printing… $4.1 Trillion of Corporate Debt will come due in 2020, folks… What will happen with all that? I guess we’ll have to wait-n-see, eh?

I was doing some thinking yesterday about something that a dear reader asked me many years ago… I had told him that currencies move in big sweeping moves that take years to play out, and he asked, “Why then do you write every day?” Sometimes… folks… I would like to tear my hair out, but…. I don’t have much to tear out, just little stubble… I got to thinking about things I say, and how some people take them to be something that will happen right here, right now… That’s not how the bubbles were created, they took years to develop… and so on… the Debt problem here in the U.S. has been developing since Nixon removed the Gold backing from the dollar… So, when I say that’s unsustainable, I’m not saying that it’s going to implode today, or tomorrow or any time soon… but given the fact that most Americans are procrastinators, I figure if I continue to harp on having a diversified investment portfolio that includes currencies and metals that eventually they’ll get around to do doing so, and hopefully before the you know what hits the fan, so to speak!

Well the Gold bugs sure have been shaken out of their doldrums in the past week, with Gold closing last week on a real strong note closing up $25 for the day, to close the week at $1,578…  With more saber rattling going on between the U.S. and Iran I fully expect Gold to remain front and center of any conversation about safe havens…   

2019 was a good year for Gold, which was interesting, in that usually, we only see Gold rally when the dollar is getting sold… But last year, the dollar hung pretty strongly as its strong dollar trend wanes.. If my numbers are correct, I think Gold pretty much equaled the rise of the stock market last year, which is also a very interesting thought, given that most moms and pops don’t buy Gold, but do buy stocks… 

But like I said above, I expect Gold to continue its rise from 2019 throughout 2020… 

That wild and crazy Palladium traded past $2,000 late last week, and sits this morning at $2,025…   And Silver finally moved past $18 and looks like it wants to not be sent to the woodshed for a trip back below $18!  

We already talked about the U.S. Data Cupboard’s print if ISM last week, above. So, a quick look at the economic calendar shows that this will be a week where we will see December Factory Orders, the ADP report, and finish the week with the Jobs Jamboree, which because of all the holidays at year end, and the way the days worked out, got pushed to the second Friday in January, instead of its normally scheduled first Friday of a month schedule.

Right now, the so-called experts have the Jobs report showing a gain of 155,000 jobs in December, which would include part time, seasonal, help… As in the past, I’ll remind you that the BLS’s version of a jobs report is so ignorantly wrong that I just don’t care about it any longer…   I prefer to get my jobs data from either the ADP report, or John Williams at Shadowstats.com

To Recap… The airstrike in Iran last week, sent the U.S. dollar to the woodshed, and the currencies along with the metals have been rallying very strongly since.  More saber rattling has Chuck thinking that this could be the snowflake that causes the avalanche to fall on the dollar… We’ll have to wait-n-see…  Gold finished the year in line with stocks, in regards to performance for the year, and Chuck thinks that this is just the beginning for a strong 2020 for Gold and Silver…

For What It’s Worth…  Well, I read a lot of articles on different things last week, and one of them hit a nerve with me… It was from the duo of Russ and Pam Martens, of www.wallstreetonparade.com  This article is about how Citicorp, which was nearly a thing of the past back in 2008, is at it again with credit default swaps (CDS) which were front and center of the financial meltdown. The article can be found in its entirety here:  https://wallstreetonparade.com/2020/01/the-doomsday-machine-returns-citibank-has-sold-protection-on-858-billion-of-credit-default-swaps/

Or, here’s your snippet: “Lily Tomlin is credited with the quote: “No matter how cynical you get, it is impossible to keep up.” Wall Street regularly brings that message home.

According to the latest derivatives report from the Office of the Comptroller of the Currency (OCC), Citibank, the federally-insured, taxpayer-backstopped bank owned by Citigroup, has sold protection to other banks, hedge funds, insurance companies or corporations on a staggering $858 billion of credit default swaps. When a federally-insured bank sells protection to others on credit default swaps, it is effectively taking on the risk of a default event. At a time of unprecedented levels of debt in the system and growing warnings about leveraged loans, that seems like a very unwise move by Citigroup.

The OCC notes that Citibank has bought protection via a larger amount of credit default swaps — a total of $898.8 billion. (See Table 12 in the appendix of the report.) There is no guarantee, however, that these bets are properly aligned and will not, once again, blow up this bank along with a chunk of Wall Street firms or insurance companies that may be its counterparties.

Credit default swaps played a central role in the 2008 financial collapse on Wall Street, as did Citigroup. It is an indictment of every federal banking regulator in the United States, as well as Congress, that Citigroup has been allowed to return as a major player in this market while using its federally-insured Citibank once again as a pawn in this game.

Adding to the outrage, it was Citigroup that was responsible for overturning the portion of the Dodd-Frank financial reform legislation of 2010 that would have pushed these derivatives out of federally-insured banks.

It may also help to explain why the New York Fed continues to fling hundreds of billions of dollars each week at the trading houses on Wall Street while the Federal Reserve Chairman, Jerome Powell, insists that everything is just fine on Wall Street.”

Chuck again…  We just never learn from the past do we?  Where this all goes is anyone’s guess, but if we simply review 2007-08, we’ll know where all this headed then, and well… I’m just saying… 

Currencies today 1/6/2020, American Style: A$.6948, kiwi .6675, C$ .7710, euro 1.1203, sterling 1.3161, Swiss $1.0320, European Style: rand 14.2619, krone 8.7915, SEK 9.3885, forint 294.14, zloty 3.7840,   koruna 22.6115, RUB 62.01, yen 108.07, sing 1.3490, HKD 7.7691, INR 71.84, China 6.9645, peso 18.86, BRL 4.0657, Dollar Index 96.56, Oil $63.84, 10-year 1.78%, Silver $18.40, Platinum $986.96, Palladium $2,025.44, and Gold… $1,578.30

That’s it for today…  and tomorrow, since I’ll be traveling during writing time, but I’ll pick it up from my home down south on Wednesday morning… My beloved Cardinals did very little at the winter meetings, which means they are prepared to go into the season with an offense that uses noodles instead of bats… UGH!  Our Blues were on a very long winning streak that ended New Year’s Eve, and now they can’t shake loose of the losing streak… They head home to play on home ice for the next 5 games so that losing should come to a quick end! I have a busy day today, so I need to get this out the door and get moving!  Ambrosia takes us to the finish line today with their song: Holdin’ On To Yesterday…   I hope you have a Marvelous Monday, and will Be Good To Yourself!

Chuck Butler