What Are The Bond Boys Telling Us?

Rocktober 6, 2020

* Currencies & metals both rally on Monday

* Big Ben Bernanke & Paul Krugman explain GDP… 

Good Day… And a Tom Terrific Tuesday to you! I had a reader last week request that I include Tom Terrific’s dog, Mighty Manfred the wonder dog, on Tuesdays…  Well, I don’t know If I’ll remember to do it each week, but there it is! How many of you recall Tom Terrific cartoons? I loved the name of his foe: Crabby Appleton, whose saying was, “I’m rotten to the core”!  They don’t make cartoons like that these days! Well, tonight I’ll pick up my wife from the airport, which means, with kudos to Barbara Mandell, I won’t be sleeping single in a king size bed any longer! Well, for about 6 weeks that is, when she’ll return to our Florida home for a couple of weeks… I’m not a fan of country music, per se, but I am a fan of all the old recordings my Hank Williams…  My dad used to sing these song all the time, and so I learned how to play them on my guitar, and surprised him one day, many years ago… OK INXS greets me this morning with their song: Listen Like Thieves…  (were they talking about the price manipulators? HA!)


Well… I told you yesterday morning, that we were in store for an up day in the currencies and metals, and that’s what we got!   Gold held on to its early $6 gain, and added another $8 to close at $1,914.30, and Silver added another 33-cents to its 30-cent early morning gain to close at $24.42… The euro continued to ratchet higher through the 1.17 handle and was within’ spittin’ distance to the 1.18 handle, and the Aussie dollar (A$) was also close to hitting the 72-cent handle again…  But that was yesterday… And if recent trends hold true, it would mean that today will be a down day…. It’s turn down day… (The Cirkle)  Let’s hope the trend ends!


In the overnight markets… The euro did reach 1.18 and has held it so far, as the U.S. traders arrive at their desks… no wait!  Manhattan is a ghost town now, so traders are arriving at their laptops in their pjs…  The Aussie dollar (A$) found the sledding a little rough around 72-cents and it backed off of the figure..  The currencies I see that have gained VS the dollar since yesterday besides the euro would include: the krone, the sing dollar, the koruna, the renminbi, and real.  There could be others but these currencies have gained enough to make it noticeable…  

In the early trading in Gold & Silver, Gold has picked up another $4 this morning, but Silver has remained unchanged. 

So, maybe, the PPT will stay away, and the price manipulators are still licking their self inflicted wounds from last week’s news that their ring leader, JPMorgan had 2 more felony counts of price manipulation thrown on them by the DOJ….

The news that the Congressional folks in charge of negotiating a new stimulus bill are getting closer to announcing one… One side wants to pull out all the stops and have the bill larger than $2.2 Trillion, but they’re torn between two lovers… They want to spend, spend, spend, but if the stimulus bill helps reinvigorate the stock market, they don’t want that to happen before the election….  The other side wants the bill to be $2 Trillion and no more, but doesn’t want the public to see that they are working with the other side…   This isn’t politics, folks, this is fact!  And we all know that politics have no facts! HA!

So.. where was I before I went all truthful about the stimulus package… Oh!… The news of a new stimulus bill getting closer to realization, put the pedal to the metal for the metals, because even though we crossed $27 Trillion in current debt, it would mean another jump in the debt numbers… And while there are some that say they don’t matter, and that contrary to what my mom used to say to me and my siblings, that “money doesn’t grow on Trees”,  the Monetary Money Tree (MMT) folks don’t care… They’re hanging out the car window with their hands in the air, screaming, More Money, More Money, the debt is soaring and we don’t care!”

People that own Gold get it… People that don’t own Gold, don’t get it…. They call it barbaric, non interest earning, glob of metal, and they try and try to rationalize why they haven’t bought Gold by now….  When Gold wasn’t “that pricey” I used to give a Gold coin to my kids each year at Christmas… A Gold coin for those that don’t know it, says $50 on it…  And my darling daughter said, “looks kids it’s a $50 Gold coin”…. I then explained to her that if she read more of the Pfennig than the first and last paragraph, she would know that the price of Gold was at that time $1,000….   Well, I had to stop giving Gold coins, and substituted Silver Coins for the grandkids… I asked my kids (3 of them) if they still had their Gold Coins, and all said yes… So, at least I taught them something through the years!

But here’s a little talked about fact regarding Gold that needs to be said more…. Gold is not issued by a Central Bank… Therefore it can’t be debased,  sent to the printers for copies, and there is a finite amount of Gold in the world….  I heard this yesterday, that the Pension companies, the one’s I’ve been telling you are in deep dookie for a long time now, are saying that they will change their bylaws and start buying and holding Gold…   Do you know the size of these potential  transactions? If the Pensions made a 1% allocation to Gold, it would put such pressure on supply that it would probably eat the supply away, thus leaving everyone else to scramble for physical Gold…  So… if you’ve been waiting, and waiting, and waiting, to buy Gold… I would certainly think about doing it before the Pensions Plans fire up the buying machines!

OK… enough… I mentioned above that the current debt is now $27 Trillion…  It wasn’t that long ago that we passed $26 Trillion… And with another stimulus coming, We, as a country will be very close to my estimate from months ago that our current debt would be $30 Trillion by year end…  And it’s not just the Gov’t debt, which doesn’t include Unfunded Liabilities ($155 Trillion),  but you have to include Corporate debt, which is 48% of out GDP right now at $10 Trillion, and State and local Gov’t debt, and then the topping on the debt cake, Consumer debt… How does all of this debt ever even think about getting paid down, much less paid off? 

And this is why…. I still believe that the U.S. along with other countries are going to have to default on their respective debts…  And this is why I continue to think that countries like Russia, Singapore, Germany, Ireland, Netherlands, Oh, wait, those last three, you can’t buy their currencies because they belong to the European Union, and use the euro…  But Isn’t it nice to know that not every country in the world is up to their eyeballs with debt?

All this talk about debt is giving me the willies…. Let’s move on…

I don’t know if you’ve noticed this or not, but the yield on the 10-year Treasury has been very stealth-like in its move higher this past week…  On 9/28/20 the 10-year’s yield was .66%, and today it sits at .78%…  In the “old day” that would be a big move…  Are the bond boys telling us something that we need to pay attention to?  Like inflation is rising? Or, is this upward move in the yield a result of a lot of absentees at the bond auction?  Hmmm… These ARE things that may you go Hmmm…  

The U.S. Data Cupboard  today doesn’t have much for us, just like yesterday’s offerings. Tomorrow we will get the Minutes of the last FOMC meeting by the Cartel, I mean the Fed…  We did see the color of the monthly Trade Deficit this morning… And it was larger than then expected and the August Trade Deficit came in at $67.1 Billion…  You know… it wasn’t that long ago, well it was before Covid (BC) , that the Trade Deficit was around $40 Billion, and then in July it jumped to $63 Billion, and now $67 Billion…  

I once read a paper written by an economist that said, “the Trade Deficit isn’t a concern”…  I said, “What?!@*%^(O  you’ve got to be kidding me! Oh me, oh my, what’s a guy like me supposed to do with a guy like that? I just hoped that my dear Pfennig readers didn’t read this guy’s essay… 

The other day I mentioned that GDP for the 2nd QTR was negative -33%, but I got to thinking that a lot of people don’t know what that means in dollar terms….  Well, that negative 33% was equal to $2.07 trillion, in the second quarter to a level of $19.49 trillion.  And all that thought about GDP got me thinking of this great cartoon that circulated during the Big Bernanke era… 

I have no idea how to get a picture on this set up, so…  Big Ben and Paul Krugman are walking down a country road, and Paul says to Ben.. I’ll pay you $20,000 to eat that pile of bull crap. Ben says, “Deal”!  Then Ben says to Paul, I’ll pay you $20,000 to eat the pile of bull Crap, and Paul says, “deal”! Ben then says, “I’m feeling pretty sick, we both ate a pile of crap and neither of us is any richer”… To which Paul Krugman says, “You’re missing the big picture, Ben, we ‘ve increased GDP by $40,000, and created two jobs”!   

And that pretty much explains how GDP is created….  pretty funny, eh? 

OK, To recap…  The currencies and metals had an up day yesterday, thus continuing the back and forth, up and down days in trading… But in the overnight markets and early trading the currencies have added to their gains from yesterday, and Gold is up another $4 this morning, so maybe, just maybe because you never know, the back and forth trend has ended! Chuck talks about the talk going around that the Pension funds are contemplating buying Gold, and what that would do to supply… 

For What It’s Worth…  Well, this is quite an interesting article that’s about the ending of the Dollar’s hold on the reserve status, and so on… Longtime readers know that I’ve said this for a long time now, but it’s good to get a refresher, eh?  This article can be found here: https://www.zerohedge.com/geopolitical/crash-looming-yale-senior-fellow-warns-end-dollars-exorbitant-privilege

Or, here’s your snippet: “The riddle once posed in the 1960s by former French finance minister (eventually president) Valéry Giscard d’Estaing is about to be solved. Giscard bemoaned a U.S. that took advantage of its privileged position as the world’s dominant reserve currency and drew freely on the rest of the world to support its over-extended standard of living. That privilege is about to be withdrawn. A crash in the dollar is likely and it could fall by as much as 35 per cent by the end of 2021.

The reason: a lethal interplay between a collapse in domestic saving and a gaping current account deficit. In the second quarter of 2020, net domestic saving – depreciation-adjusted saving of households, businesses and the government sector – plunged back into negative territory for the first time since the global financial crisis. At -1.2 per cent in the second quarter, net domestic saving as a share of national income was fully 4.1 percentage points below the first quarter, the steepest quarterly plunge in records that go back to 1947.

Unsurprisingly, the current account deficit followed suit. Lacking in saving and wanting to grow, the U.S. levered its exorbitant privilege to borrow surplus saving from abroad. That pushed the current account deficit to -3.5 per cent of gross domestic product in the second quarter – 1.4 percentage points below that in the first period and also the sharpest quarterly erosion on record.   

While a Covid-related explosion in the federal government deficit is the immediate source of the problem, this was an accident waiting to happen. Going into the pandemic, the net domestic saving rate averaged just 2.9 per cent of gross national income from 2011 to 2019, less than half the 7 per cent average from 1960 to 2005. This thin cushion left the US vulnerable to any shock, let alone Covid.

As budget deficits pile up in the years ahead, further downward pressure on domestic saving and the current account will intensify. The latest estimates of the Congressional Budget Office put the federal deficit at 16 per cent of gross domestic product in 2020 before receding to “just” 8.6 per cent in 2021. Assuming the US Congress eventually agrees to another round of fiscal relief, a much larger deficit for 2021 is likely.”

Chuck again…  Yes, like I’ve tried to explain numerous times previously, the pandemic just hurried along the rot that was on the economy’s vine, folks… And it’s nice to see someone else express this point! 

Market  Prices 10/6/20: American Style: A$ .7167,  kiwi .6656, C$ .7546, euro 1.1802, sterling 1.2956, Swiss $1.0945, European Style: rand 16.4645, krone 9.1919,  SEK 8.9012, forint 304.40,  zloty 3.7990,   koruna 22.8985, RUB 78.21, yen 105.63, sing 1.3588, HKD 7.7499, INR 73.28, China 6.7893, peso 21.25,  BRL 5.6388,  Dollar Index 93.36,  Oil $40.32,  10-year .78%, Silver $24.42, Platinum $887.00, Palladium $2,417.00, and Gold… $1,918.22

That’s it for today…  Well, it was quite chilly here yesterday morning, and today things are a bit warmer, good thing! I was thinking the other day that we are in need of an “Indian Summer”…  Which usually follows a cold spell in the fall… I saw the other day that for Halloween we’ll have another full moon, which would be a Blue Moon… Pretty cool…  Sorry for the tardiness of the letter, I had to stop and go put the trash and recycle bins out, I forgot to do that last night, and I had to wave down the truck to see my bins… the joys of owning a home! HA!  Ok…  Red Rider takes us to the finish line today with their song: Lunatic Fringe…  a 1980’s song, that my good friend Rick will enjoy!  I hope you have a Tom Terrific and Mighty Manfred the wonder dog day, and will Be Good To Yourself!

Chuck Butler