Will This Phase One Be A “One And Done?”

December 16, 2019

* Currencies lose a little ground on Friday

* Rubles are best performing currency in 2019

Good Day… And a Marvelous Monday to you! Well, we’ve come to that time of year, when Chuck goes on his annual Winter Vacation… That will start tomorrow and go through the 26th… When I used to work for a living, I always wanted to be away from the desk at Christmas, because I didn’t want to have to be the guy that made them work and not frolic and be giddy about Christmas! So, my annual Christmas vacation is a tradition, and even though I don’t have a crew any longer… I still honor traditions! So… I know, I know, you’ll miss me… HA! Longtime readers know that there’s a special Pfennig that will come on Christmas Eve… I’m already putting some thoughts into that one! The late, Great Marvin Gaye greets me this morning with his song: Mercy, Mercy Me…

Well… the currencies lost a little ground on Friday, and I’m trying to find out the reason for that given the poor print of Retail Sales here in the U.S. Gold found a way to fight through all the short Gold paper trades and eke out a profit of over $6 on Friday. Given the normal trading in Gold, I’m expecting the JPMorgans of the world to show up with arms full of short Gold Paper traders today… 

Oh, I know what all the pundits that go to the NY Times for their news will say about the dollar rebound on Friday, and that is, that the U.S. and China agreed to Phase One of the Trade Agreement… So, when did trade agreements get done in phases? I’m curious… Because, to me, this has all the inklings of a “one and done” with regards to the Trade Agreement. So, will it be a “one and done”? I’m betting a dollar to a Krispy Kreme that it will turn out to be just that!

Speaking of China… I keep reading about bond defaults in China… Well, that’s a good and bad sign… the Bad sign is that it’s not a good Omen for the economy, but on the other hand, it’s a good sign that Communist China is allowing these bad deals to fail… In a way, they’ve become more Capitalistic than we are! I can hear you saying… Yeah, Chuck, China still manages their currency, so put that in your oatmeal and stir! Ahhh, grasshopper, sit, listen to what I have to say…. China manages their currency in plan view of the world… The U.S. keeps a handle on the dollar in the shadows of the dark alleys!

You see, this dollar management began with Paul Volcker… This story begins in 1971, Richard Nixon, removed the Gold backing from the dollar, and the dollar began to float. It also began to fall in value VS other currencies and Gold… In 1977 the dollar was about to fall off a cliff, never to be seen again. But eventually, along came a white knight to save the dollar, and his name was Paul Volcker… And in his quiver were more rate hikes than any country had ever seen before, and soon interest rates were 18%, and when you’re the U.S. and you have yields above 18%, Countries all over the world were stumbling over themselves to buy U.S. assets with those high yields, and the dollar weakness ended…. Then in 1987, the Plunge Protection Team (PPT) was formed by then President Reagan, and the rest is history… The dollar has been under semi-management since. That’s my story and I’m sticking to it! HA!

So, I read where the Fed is going to inject a HUGE amount of dollars into the repo market at year-end so that there are no liquidity problems… The amount? Well, for those of you keeping score at home, it’s going to be around $500 Billion! But, I thought it wasn’t a “liquidity crisis”? That’s what the Fed Heads keep telling us, that it was just a one-day mess up… That now has gone on 3 months! And to end the year, the Fed will inject $75 Billion on 12/30, and $200 Billion on 12/31… With a total of $500 Billion in guarantees for 12/31… 

Isn’t it nice that the Fed can just print money when it wants to? I know I throw a lot of shade at Woodrow Wilson who allowed the Fed to be shoved down U.S. citizens’ throats back in 1913, but I doubt that he even knew back then that the Fed would simply trash the Constitution, and print dollars out the wazzoo! Yes, for all of you who don’t know this, but probably should… The Constitution, Article 1, Section 8, Par. 5) does NOT authorize Congress to circulate currency. Article 1, Section 10, Par. 1) prohibits the States from coining money, circulating currency, or making anything but Gold & Silver coin a tender in payment debts.

The Folks at Hillsdale College, gave me a pocket Constitution years ago, and I’ve kept that near me at all times… You know, the one thing that I can’t let pass by here… I’ve been through the Constitution a few times now, and I’ve never come across a passage in it that says, “When times get tough, you can scrap these articles, and start willy nilly printing money”…

Why has this gone this far? Because We The People, didn’t do a damn thing about it, we let Wilson shove the Fed down our throats in 1913, and we’ve let every variance from the Constitution be implemented without even a whimper from us… I’m just saying…

Well… as we come to the end of the year, and barring any major moves… The number one currency VS the dollar for 2019, is…. Drum roll please…. The Russian ruble… It’s up over 10% y-t-d. And then you add in the fact that it pays 4-5% interest APY, you’ve got a 14-15% total return in 2019… Not too shabby for a a currency that’s saddled with economic sanctions! And the fact that most U.S. investors still have that “I hate the Russians’” thing, and forget that in investing, the idea is to make money, or at least preserve what you have… And, oh there’s no need to go on with this… Either you “get it, or you don’t….  The Eagles sang a song titled: Get Over It! 

Gold had a good 2019, but Palladium had a “spectacular” 2019!  The Dollar Index has basically been flat for the year. On 12/17/19 it traded at 97.10, and today it is trading at 96.97…  That was a strange view for me, as I was under the assumption that the dollar had kicked tail all year and taken names later…  And leads me to believe that this is the “Capitulation” we’ve been waiting for with the strong dollar trend…  IF that’s correct, then the next step is for a reversal to begin of the strong dollar trend…  I’m just saying… 

The U.S. Data Cupboard last Friday, was a read dud! November Retail Sales only increased 0.2%, not the 0.5% that was forecast. And when you only look at core Retail Sales, they were only up 0.1%… I said last week, that this report would have the Black Friday Christmas sales… Well, what does this report tell you then? Right! It tells us that the Christmas shopping season didn’t get off to a good start, and I can’t believe that this isn’t an omen, for the rest of the shopping season, which in reality only has 8 more days… Or….. will cyber Monday (Dec 2nd) pull the season numbers to more respectability? From what I carry in from the front porch each day, that’s a real possibility!  But, I have a sneaky feeling that it won’t, and that will be a clear indicator that the U.S. Consumer is “tapped out”…  

The Data Cupboard this week, has a few real economic prints spread out through the week… Tomorrow, we will see Industrial Production, and Capacity Utilization, and on Friday, we’ll see Personal Income and Spending… The other prints this week are not that important… And certainly won’t move markets… But then with everything in “opposites” these days, who knows?

To recap… Phase One of the Trade Agreement was put to bed on Friday last week, and that led to a rebound in the dollar, which should have been on the ropes from a weaker than expected Retail Sales print for Nov.  Rubles are the best performing currency in 2019,  Chuck gives a mini-lesson on the Constitution regarding the Fed printing money…  And the Fed is going “all-in” in liquidity for 12/31… 

For What It’s Worth… OK, every now and then I throw something at the FWIW wall and see if it sticks… It may be something 180 degrees from what I think, but it’s a think piece, so it gets played here… This is an article about how a guy on Wall Street thinks that his clients should throw caution to the wind and back up the truck for stocks… And it can be found here: https://www.marketwatch.com/story/back-up-the-truck-and-buy-buy-buy-because-there-is-no-risk-says-mufg-economist-2019-12-13?mod=MW_section_top_stories

Or, here’s your snippet: “Back up the truck and buy, buy, buy.”

That was the advice from Chris Rupkey, chief financial economist at MUFG Union Bank, who sent a rousing note to clients late Thursday, on the heels of trade optimism that is lifting global equities at the week’s end and a decisive election outcome in the U.K. “All over the world, markets are falling love. Buy it. Buy it all,” reads the headline of that note.
Rupkey said a pair of geopolitical risks — an elusive U.S.-China trade deal and yearslong wrangling over Brexit — “thought to be strangling world economic growth” incredibly look to be getting resolved in a “big, big way.”

“There is some smoke and mirrors here, but it looks like this is the time for investors around the world to throw months of caution to the winds and take risk off the table, and they are, buying stocks and selling bonds with abandon, as the economic outlook brightens and central banks shelve their plans to cut interest rates further,” he writes.

Investors were waiting for more news on a trade deal after reports surfaced Thursday that the U.S. could trim existing import tariffs on Chinese goods, as well as delaying those set to kick in on Sunday. Notably though, China has remained silent on any deal progress in the wake of those developments.”

Chuck again… well like I said, there are times when the FWIW article will be 180 degrees away from what I think… I think I should forward my Dow Theory Letters article from a year or so ago, when I went through the historic numbers of stock market performance during a recession, to this guy, eh?

Currencies today 12/16/19 American Style: A$.6888, kiwi .6612, C$ .7619, euro 1.1142, sterling 1.3366, Swiss $1.0174, European Style: rand 14.4738, krone 9.0037, SEK 9.3632, forint 295.21, zloty 3.8664,   koruna 22.8773, RUB 62.80, yen 109.47, sing 1.3545, HKD 7.7899, INR 70.94, China 6.9719, peso 19.03, BRL 4.1068, Dollar Index 96.98, Oil $60.07, 10-year 1.84%, Silver $17.04, Platinum $930.81, Palladium $1,961.00, and Gold… $1,476.45

That’s it for today, and for the next 10 days until the 27th of December, when I’ll return… Twitter followers keep in tune, for with all the stuff going on these days, I’ll probably tweet something while I’m on vacation. Last Saturday, I went downtown to the Broadway Oyster Bar for a muffuletta sandwich and some great live music being played by “All Roostered Up”… It was a noon thing, so I was back home by late afternoon! In time to watch the Army / Navy football game, and then watch our Blues make a 3rd period comeback, scoring 4 times in the final period of the game, to beat the Blackhawks! What an exciting game! Yesterday, the snow began to fall around noon, and that initial blast of winter was then followed by some freezing rain… Oh, brother am I glad I don’t have to go out in that this morning! OK, time to wind this down… Jefferson Starship takes us to the finish line today with their song: Miracles…. If only you’d believe in miracles, baby, like I do, we’d get by… I hope you have a Marvelous Monday, and a very Merry, and Blessed Christmas… Oh, and please Be Good To Yourself! Bye~

Chuck Butler