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July 9, 2018

* Jobs Jamboree is interesting…

* Currencies are back on the rally tracks!

Good Day… And a Marvelous Monday to you… I trust you had a grand Independence Day Holiday week. I know I did… Saturday was probably one of the most beautiful days in July I’ve ever experienced in my life! But the heat will return later this week, so we have that to look forward to! NOT! I’m all alone again for the next 10 days, so as usual, “Hello, Pizzaman Pizza? I need a large, no, make that an extra large, with extra cheese, walk it through the garden and then through the barn!” HA! My beloved Cardinals are heating up the twitter verse these days, I wish they would concentrate on gong on a win streak of more than 4 games! Deep Purple greet me this morning with their song: Hush…

I last left you last week on Tuesday, the day before our Independence Day Celebration, and at that time, the euro was climbing through the 1.16 handle, and on the days following the euro climbed through that handle, and is trading this morning with a 1.17 handle! I read and researched quite a bit this past weekend, and I have to tell you that most of the chartists believe that the dollar’s run is over, which I would think would lead to lots of back up the truck noises… Beep, Beep, Beep…

On Friday of last week, the BLS printed their latest version of a very hedonically adjusted jobs report for June… The BLS claims that 213,000 jobs were created in the month of June, which was better than the 200,000 jobs that were expected to have been created in June. Of those 213,000 so-called jobs that were added in June, 104,000 of them came courtesy of the BLS themselves, adding them to the surveys with their Birth/ Death Model… The Unemployment rate though rose in the June to 4%, from 3.8% in May… And there was something else that caught my eye… Of the 104,000 jobs the BLS added out of thin air, they claim that 89,000 of them were in the Leisure and Hospitality sector… In fact, they’ve added 373,000 jobs for this sector, this year! Isn’t that nice that the economy is running on bartenders and wait staff? Not that there’s anything wrong with those jobs, but they aren’t going to bring this economy out of the 2.16% GDP it has averaged for the last 10 years! I’m just saying…

Well, we’ve begun a new quarter, the 3rd quarter of the year is here! And while I’m thinking of what’s going on this quarter, don’t forget that I warned you that the GDP reading for the 2nd QTR could be a moonshot above 4%, but it will be akin to a star burning brightest right before it flames out. In keeping with the 4th of July celebrations, in last week’s DTL piece I called the 2nd Quarter’s GDP potential print the Grand Finale… Congers up an image in your mind of fireworks going off everywhere, right? But then the show is over… And there’s nothing left but smoke and crying!

The Tariffs began to be added to Chinese exports to the U.S. on Friday, and the stock market shrugged it off… I don’t think this is a case of the tariffs being priced in already, but more a case of traders and investors not knowing full what the hit will be to the economy, so until we know for sure what it is, it’s a case of Party on Wayne, Party on Garth!

There’s an article on the Bloomberg this morning that has Morgan Stanley picking the currencies they feel will perform better than others during a Recession here in the U.S. I’ll come back to this in a moment, but first, I do believe that the major investment houses, are coming to the realization that a recession is on the way, as I see more and more of them talking making investment plans for the recession… Will this be a case of thinking something to reality? You know, the recession might not actually be here yet, but if everyone thinks it is, well, it is…

Yen, francs, and Singapore dollars are the three currencies that Morgan Stanley believes will be the best performers in a recession… I guess Morgan Stanley believes in the so-called safe havens and then throws in Singapore dollars… I’m not so sure this should be an end-all list folks, so take this with however many grains of salt you wish!

Gold didn’t have a good day on Friday, closing down $2.80 on the day, but the early morning trading this morning has Gold climbing nearly $10, so it could be a very good day for the shiny metal… I read this weekend that Chinese first half Gold demand exceeded 1,000 Tonnes… WOW! Russia, will see your 1,000 Tonnes and raise you 1,000 Tonnes! HA! That’s what it seems like is happening with physical Gold demand in China and Russia… One country announces their Gold figures and the other had to beat them!

Did you ever have a friend or know somebody that was always having to something better than you? If you bought a house, they bought a bigger one, if you bought a car, they bought a more expensive one, and so on… That’s Russia and China these days, and it’s all good for Gold! Oh, and guess what? I’ve got the link to Shanghai Gold Exchange’s price for Gold each day, and I’ll add it to the currency roundup from here on out…

So, the currencies are on the rally tracks, and it looks like the dollar’s run has come to an end… I might be a little early with that statement, but it’s a call, right? If I end up being early and the dollar bounces again, I’ll just pick up the pieces of my broken confidence, and move along… The signs are all there for me to be correct though… The Emerging Markets currencies have found a bid, a weak one, but a bid nonetheless. The Petrol Currencies are rebounding, and the offset currency to the dollar, the euro is leading the charge.

They had some new wrinkles added to the BREXIT negotiations, but even those setbacks aren’t raining on sterling’s parade this morning…

One currency that just seems to be on the chopping block every single day, is the Brazilian real… And Brazil has an election coming up , which normally lends a hand to the real, but not this time… And on top of that the Brazilian National Team lost their knockout round game in the World Cup, and the whole country is reeling from that loss…

The price of Oil continues to be well bid… It sold off a bit on Friday, but has rebounded in the past 24 hours. And the other commodities like copper, sugar, etc. are looking like that have some pep again… As well, they should given the inflation report in the U.S. last week, that we talked about…

The Commodity currencies though are really in the dumps… Kiwi, can’t seem to find a bid, the same goes for the S. African rand and the Canadian loonie… The only Commodity Currency to find some love is the Aussie dollar (A$) … I feel as though I’ve been led down a road that’s going in the wrong direction with kiwi… A year ago, the Reserve Bank of New Zealand (RBNZ) started talking about a rate hike cycle, and I was led to believe that this rate hike cycle would begin in the 2nd QTR of 2018… You may recall me talking about kiwi and saying that investors were getting a chance to buy ahead of the Big Boys…. But the 2nd QTR of 2018 just ended, and the RBNZ isn’t any closer to beginning a rate hike cycle than I am to the man in the moon! So, we’ll have to batten down the hatches here, and wait out the RBNZ!

The 10-year Treasury’s yield sits at 2.85%, and there seems to be a strong flight to safety going on right now, which supports the bond market here… I’ve told you this before, but the 10-year Treasury is used to price mortgages… and I found these rates online…the 30-year fixed-rate mortgage averaged 4.52% during the July 5 week, down from 4.55%, mortgage provider Freddie Mac said Thursday. The 15-year fixed-rate mortgage averaged 3.99%, down five basis points. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.74%, down from 3.87%.

And remembering my old training from the bank I must included this: Those rates don’t include fees associated with obtaining mortgage loans.

So, mortgage rates are falling again, which means more air will be blown into the housing bubble… It’s a shame that this is happening, yet again…

Speaking of the housing bubble… We’re quickly approaching the 10 year observance of the 2008 Financial Meltdown… And later this fall it will be the 20 year observance of the LTCM meltdown, where they had to form a “committee to save the world”… The timing for a the next meltdown could be bang on the 10-year, 20-year times… I’m just saying…

The U.S Data Cupboard is scratching the walls looking for some real economic data to print this week, and early in the week, there just isn’t much to talk about… So, we’ll move along now, for these are not the droids we’re looking for!

To recap… The Trade War between the world’s two largest economies began in earnest on Friday, and the markets are kind of reacting to it, with stock reaction muted, and the flight to safety in Treasuries and Gold taking flight, but not soaring yet. The rot on the economy’s vine isn’t being exposed just yet, but it will… The Jobs Jamboree netted 213,000 jobs in June, of which 104,000 were added out of thin air by the BLS, and the Unemployment Rate rose to 4% from 3.8% the previous month. The currencies are rebounding and Chuck has made the call that the dollar’s rally is over… Will he be right? Only the Shadow Knows!

For What it’s Worth… I came across this story and went into a deep dive on it for next week’s DTL, but will still give it to you here… this is about a warning from Moodys about corporate debt defaults, and it can be found here: https://www.cnbc.com/2018/05/25/moodys-warns-of-particularly-large-wave-of-junk-bond-defaults.html

Or, here’s your snippet: “With corporate debt hitting its highest levels since before the financial crisis, Moody’s is warning that substantial trouble is ahead for junk bonds when the next downturn hits.

The ratings agency said low interest rates and investor appetite for yield has pushed companies into issuing mounds of debt that offer comparatively low levels of protection for investors. While the near-term outlook for credit is “benign,” that won’t be the case when economic conditions worsen.

The “prolonged environment of low growth and low interest rates has been a catalyst for striking changes in nonfinancial corporate credit quality,” Mariarosa Verde, Moody’s senior credit officer, said in a report. “The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress eventually arrives.”

Chuck again… Yes, this could very well be the snowflake that causes the avalanche for the U.S. economy folks… better keep an eye on this one!

Currencies today 7/9/18… American Style: A$ .7476, kiwi .6850, C$ .7495, euro 1.1779, sterling 1.3345, Swiss $1.0124, European Style: rand 13.3566, krone 7.9940, SEK 8.7015, forint 274.04, zloty 3.6730, koruna 21.9521, RUB 62.94, yen 110.40, sing 1.3536, HKD 7.8482, INR 68.69, China 6.6427, peso 19.03, BRL 3.8644, Dollar Index 93.77, Oil $73.83, 10-year 2.85%, Silver $16.24, Platinum $858.69, Palladium $965.63, and Gold $1,265.31, and SGE Gold $1,269.64

That’s it for today… Nice to be back. We had an absolutely gorgeous weekend, weather-wise… A Chamber of commerce weekend. But the excessive heat is supposed to return this week, so I have that to look forward to! I’m all alone again for the next 10 days… good friend, Mike, came to the house yesterday to keep me company and watch the Cardinals blow another game. We grilled some good stuff to eat, and had a good day! Chicago takes us to the finish line today with their song: Hard Habit To Break, one of my fave Chicago songs! And with that I’ll get out of your hair today. Thanks for reading the Pfennig, and I hope you have a Marvelous Monday, but please remember to Be Good To Yourself!

Chuck Butler