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Fed Cuts Rates… But What’s Next?

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A Pfennig For Your Thoughts September 19, 2019 * Currencies continue to inch higher VS the dollar * BOE meets today, but don’t expect any fireworks…  Good day… And a Tub Thumpin’ Thursday to you! Well… I brought home a winner yesterday, as anyone that knew I was going to game instructed me to do! Not that I had anything to do with the Cardinals win in the day game yesterday! What a great day I had and all my buds that attended the game with me… We got to see a real pitcher’s duel, with Wainwright, VS Scherzer… You’ve got to love the little guys… The guys that everyone says are too small to play pro ball, no matter what sport. And then go out and prove everyone wrong! The Cardinals have two of those type players… Keep going boys!, keep going! Def Leopard greets me this morning with

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A Pfennig For Your Thoughts
September 19, 2019
* Currencies continue to inch higher VS the dollar
* BOE meets today, but don’t expect any fireworks… 
Good day… And a Tub Thumpin’ Thursday to you! Well… I brought home a winner yesterday, as anyone that knew I was going to game instructed me to do! Not that I had anything to do with the Cardinals win in the day game yesterday! What a great day I had and all my buds that attended the game with me… We got to see a real pitcher’s duel, with Wainwright, VS Scherzer… You’ve got to love the little guys… The guys that everyone says are too small to play pro ball, no matter what sport. And then go out and prove everyone wrong! The Cardinals have two of those type players… Keep going boys!, keep going! Def Leopard greets me this morning with their song: Pour Some Sugar On Me… In the 80’s when people like me wanted to hear real rock-n-roll and not electric music that was so prevalent in the 80’s, there was Def Leopard, to fill the void!
Well, I was wrong, let’s just get that out there front and center… The Fed’s FOMC did cut rates 25 Basis Point (1/4%) yesterday, bringing our Fed Funds rate to 2%… The Fed then said that they were Not in a rate cut cycle… And that scared the bejeebers out of the stock jockeys, who not only saw the rate cut as a response to slower growth, but also maybe the last for a while… I have to say that I just didn’t think the Fed Heads had it in them to cut rates two consecutive months/ meetings…
But did lower rates hurt the dollar? Not yesterday, as both the currencies and metals couldn’t find a bid to drive their prices higher… Usually, when the Fed cuts rates, Gold would go on a strong rally, and the euro wouldn’t be far behind it… I don’t see why this didn’t happen this time, but… we always have to remember that the Plunge Protection Team (PPT) is always lurking in the hallways and could have been the reason the dollar remained in charge on the day…
So, the Fed is reacting to the weak economic data that I’ve been talking about, but is not going all-in on rate cuts going forward… What they heck do they need? An invitation! I just don’t have any faith in our Fed Reserve folks… they’ve been wrong more than you can shake a stick at, their economic policies are a laughing stock in the markets, and they just don’t seem to see the trees in the forest!
But what Central bank does these days?… Oh, that’s right, there is one… The Central Bank of Russia! And I don’t care what that writer talked about the other day as to why he doesn’t like Central Bank of Russia’s Gov. Elvira Nabiullina, I do like her and her policies, and that’s that!
I have to say right here, that I talk a lot about Russian rubles… and Gold… and just to set the bar straight, I own both… But I don’t talk about rubles because I own them… I talk about rubles because they have the best Central Bank, and current fundamentals of any one in the world… And I talk about Gold, because… well… Got Gold?
Even though the Fed injected newly printed dollars into the Repo market the other day, the lack of dollars continues to be a problem here… It’s a real credit crunch going on and will soon turn to an all-out Liquidity Crisis… The Fed could step in at any time and calm the markets, but other than injecting a large sum of dollars late last week, they haven’t done a thing… But they will… you can count the chickens on that thought, because the Fed always knows best, right?
My old CFO used to say… “Liquidity is not a problem, until it is”… I think it’s become one folks… and once it sets in… it could very likely be the snowflake that causes an avalanche for the economy… I’m just saying…
Enough of that, eh? No reason to end the week for me on a sour note! So, with that on my mind… The Bank of England (BOE) is meeting while I write this morning, but once again, I don’t see anything going on here… The data from the U.K. has been patchy… with a couple of better than the average bear prints, and mostly worse than expected prints… But not enough bad ones to push the BOE to cut rates, which currently stand at 0.75%…
The Aussie and kiwi dollars both have seen some selling this week, which doesn’t make sense… Sure their rates are still below the Fed’s 2%, but the difference has narrowed, and that should have given some love to the to antipodean currencies… Most of these two currencies weakness comes from the slowdown in China… Other than that, I would think that both have economies that are just muddling onward. Remember I’ve said that the Aussie dollar (A$) is the proxy currency for Global Growth, and the OECD just downgraded their forecast for Global Growth!
Yes, a global recession seems to be in line, don’t you agree? And the point that I think most Fed Heads miss, here is that there’s no way the U.S. will avoid being pulled into the Global recession mess…
OK… Gold was up then down, then sideways and then back down yesterday, and ended the day down $6… But it’s up more than $8 this morning, so we’ll have to wait-n-see if there are any more engineered take downs of Gold like yesterday’s…. But none of this surprises me… Remember…. I told you when Gold went over $1,500 that the $1,500 level was the “new $1,300” … And that we would see this back and forth, lathered, rinsed and repeated for some time, until that line broke, and we finished the year at $1,600…
You know… I was really surprised to see that the Fed Chairman, Jerome Powell, didn’t mention the cash liquidity in the repo market, not once during his press conference following the rate announcement… What’s up with that? This is a real problem folks, and he doesn’t even mention it? I shake my head in disbelief…
The Chinese renminbi continues to inch stronger VS the dollar… A couple of weeks ago, it appeared that the renminbi was falling off a cliff, and today, it appears to be on terra firma, still weak, but not as weak… And that doesn’t get lost to the folks at the Monetary Authority of Singapore (MAS) who keep the Singapore dollar in line with the renminbi, as to not lose any competitive advantage in exports… This has gone on since the renminbi began to be available to the world, I do believe it was 2003… Or some time around then… I recall because we were the first U.S. bank to allow U.S. investors the opportunity to hold renminbi…
The euro has been through the wringer lately, but is still standing, and this morning it’s trading a bit stronger VS the dollar… The eurozone economy is a real mess folks… Shoot Rudy, even Germany is seeing problems, and that’s the largest economy in the Eurozone! Too much debt in the Eurozone, folks… It’s a real problem for any country to deal with, and also find ways to promote growth… Japan had the problem first, then the U.S., then the U.K. and then the Eurozone…
The U.S. Data Cupboard doesn’t have too much for us going into the weekend… Leading Indicators is about the only real piece of economic data that is on the docket for tomorrow… There is one other piece that always catches my attention… and that is Household Debt… This will be a revision of an earlier print of 2nd QTR Household Debt… I’ve written a lot about Household debt, and am convinced its a house of cards that will come crashing down on those holding debt that they can’t afford to have, at sometime in the future…
To recap… The currencies continue to inch higher VS the dollar, Gold got sold by $6 yesterday, but is up more than $8 this morning. The Fed failed to mention the cash crunch in the repo markets yesterday? Do you think that they did that on purpose? I do…
Or, here’s your snippet: “THE FEDERAL RESERVE had plenty to fret about as it prepared to discuss policy interest rates on September 17th and 18th. Trade tensions and wilting global growth have led businesses to cut back investment in the second quarter of the year. In manufacturing, production and capacity utilisation have been falling since the end of 2018.
Though the Fed has described jobs growth as “solid”, some analysts worry that the labour market is wobbling. As expected, these concerns prompted the central bank to lower rates for the second time this year, by 0.25 percentage points, to a target of 1.75-2%. But the meeting was overshadowed by turmoil in money markets.
On September 17th, for the first time in a decade, the Fed injected cash into the short-term money market. The intervention was needed after the federal funds rate, at which banks can borrow from each other, climbed above the level targeted by the Fed. It rose as the “repo” rate—the price at which high-quality securities such as American government bonds can be temporarily swapped for cash—hit an intra-day peak of over 10%. On September 17th the Fed offered $75bn-worth of overnight funding, of which banks took up $53bn. The following day it again offered $75bn-worth. The amount demanded by banks rose to $80bn.”
Chuck again… liquidity is real Bear when it’s no longer present in a market… And so far the Fed’s reaction is akin to having the same effect as removing a bucket of sand from a beach!
Currencies today 9/19/19 American Style: A$.6795, kiwi .6313, C$ .7531, euro 1.1070, sterling 1.2463, Swiss $1.0070, European Style: rand 14.6693, krone 8.9377, SEK 9.6885, forint 300.50, zloty 3.9208, koruna 23.3873, RUB 64.30, yen 107.95, sing 1.3770, HKD 7.8290, INR 71.17, China 7.0863, peso 19.38, BRL 4.0868, Dollar Index 98.26, Oil $59.15, 10-year 1.77%, Silver $17.87, Platinum $933.30, Palladium $1,591.85, and Gold… $1,502.16
That’s it for today and tomorrow, talk to you again on Monday… And we’ll begin the last week of September… What a pleasant surprise yesterday we sat in the shade all day at the stadium, so no sweating bullets for me! It’ll be a wild and wacky weekend in Chicago starting tonight… Just 10 games left in the regular season, and 7 of those games are with the Cubs! YIKES… Supertramp takes us to the finish line today with their song: Hide In Your Shell… one of my all-time fave songs…. I hope you have a Tub Thumpin’ Thursday and a Fantastico Friday tomorrow, and please Be Good To Yourself!
Chuck Butler
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A Pfennig For Your Thoughts

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