The carry trade returns

• Currencies & metals rally in the overnight markets.

• Chuck counts the ways the U.S. economy is in a bind.

Good Day... And a Marvelous Monday to you! Whew! What a weekend that I thought I was doing nothing... Friday was my granddaughter, Delaney Grace's play... She was a lead, and sang a solo that had the audience on their feet, applauding and whistling. She was awesome!  Then Saturday, was a great, very hot, day, sitting outside watching my beloved Cardinals play the Cubs in London... I then fired up the Big Green Egg on Sunday, and smoked some pork tenderloins, with my famous, in-house rub, on Sunday... The Guess Who greet me this morning with their song: Share The Land... I know I've told you before, but I have always loved the voice of Burton Cummings, the lead singer of Guess Who... 

Well... We get a report on Friday that shows the U.S. is one step closer to a full-blown recession, and what does the dollar do? It rallies... The BBDXY gained 5 index points on Friday... Crazy eh? yes, but here's the skinny on that... the Currency traders think that if the U.S. is slowing that much, then the Fed Heads won't hike rates again, like they said they would... And these knuckleheads still think that the Fed Heads will pivot this year and cut rates... But like I've said before, I don't see the Fed Heads pivoting in 2023, unless the economy goes to hell in a handbasket...  

The euro dropped a full cent on Friday, and ended the week trading 1.0894... Just last Thursday, the euro was sniffing around 1.10... So, one day of dollar buying stopped the euro from sniffing around 1.10... The rest of the currencies all had bad days. The Bank of England surprised the markets with a 50 Basis Points rate hike that brought their internal rate to 5.0%, but even with this rate hike in sterling's back pocket, the currency couldn't mount a rally in the face of the dollar's surge on Friday. 

I have to give the Bank of England (BOE) some credit here... They realize that higher rates will surely hurt their economy, but they would rather deal with a recession, than death by inflation... And for that, I applaud them, for recessions only last so long, before all the excesses of the previous boom are wiped out, and the economy starts over again, but... inflation could last a very long time, if not attended to, and ruin the finances of just about everyone in the country...  

Gold & Silver finally found a bid on Friday, gaining $6.40, to end the week at $1,921.20, and Silver gained 18-cents to close the week at $23.53... That's all good and such, but... at one point in the day on Friday, Gold was up to $1,940, and Silver up to $23.70...  Those darn short paper traders were once again in the markets and making certain that the two metals didn't gain any momentum... I'd say they did their job, eh? 

The price of Oil got whacked on Friday and ended the week trading with a $69 handle... And the 10-year's yield ended the week at 3.73%... The bond boys surely didn't think that the manufacturing collapse warranted a rate cut, but then neither do I, so for once in a blue moon, the bond boys and me agree on something... 

In the overnight markets last night... There was a bit of slippage in the dollar, and the BBDXY has given back almost 2 index points to start the day/ week. Japanese yen is the worst performer of them all... I would have to think that somewhere along the line here the Bank of Japan (BOJ) would step in and buy yen to intervene... To wrap a tourniquet around the bleeding in yen, but that will only be temporary, as it now seems that investors are seeing the BOJ say with negative yields the remainder of this year, and that locks in some nice "carry trades", like in the past, when there were interest rates higher than the yen...  

Gold is up $10 to start the day/ week this morning, and Silver is up 26-cents... After last week with daily interventions by the short paper traders, the Gold bugs have gotten out ahead of them to start this week, hopefully, the bottom was put in last week, and we can move along in an upward path one again with the metals... 

The price of Oil remains with a $69 handle, and bonds are getting bought again, with the 10-year's yield slipping to 3.67%... 

Let's circle the wagons here and go back to something I was talking about above... The "Carry Trade"... Here's the skinny on that, in case you missed class the day I explained it, or you need a refresher, since it's been some time since we had interest rate differentials around the world...  So... with the carry trade, you short the currency with the low interest rate, therefore the cost to hold the short in minimal, and you take the funds from the short, and buy a higher yielding currency... The interest rate differential is the potential profit on the trade... In the past, shorting yen and buying Aussie dollars or kiwi, was THE trade... In today's world, you could substitute Brazilian real or Indian rupees for the high yield currencies to go long... I'm just saying... 

Late last week FedEx announced plans to remove 29 aircraft from its fleet this year through permanent retirement and temporary storage, fulfilling its new program to eliminate permanent costs and make its logistics network more flexible as global trade slows. This really shows how the global economy led by the U.S. is slowing folks... I don't know any other way to show you than by showing you that Fed Ex is reducing their planes... 

And you can't make this stuff up.... The Securities and Exchange Commission (SEC) fined JPMorgan Chase’s broker-dealer arm $4 million for deleting tens of millions of e-mails from early 2018, with some relating to subpoenas in regulatory investigations.

The firm is now unable to comply with “at least 12 civil securities-related regulatory probes to comply with subpoenas and document requests for communications that had been permanently deleted. 

Can you believe that? And all they get is a weak slap on the wrists... $4 Million is nothing to JPMorgan, a rounding error... I guess they got their idea from the Presidential Candidate that somehow destroyed their emails that were in question... one thief, shows another how it's done...

I'm sorry I was so harsh there, but it does get my goat... and then my blood pressure rises, and heart beat quickens, and my fat fingers start typing what I'm feeling... See? I have no control over my impulsive writing... 

And if you believe that, I have a bridge to sell you... HAHAHAHAHA

In a case of: you don't just buy a currency because it has a high interest rate... Turkey hiked their rates to 15% late last week, in an effort to turn away rising inflation. The 15% level equaled a doubling of the interest rate... The Turkish lira is a bomb for a currency, and I don't mean bomb like Mae West! So, that's why you have to value a currency as the "stock of a country"... You have to look at the country's leadership, it's laws, it's yield, it's investing past, and what the future might be, and finally the country's balance sheet... And when you find a currency like the lira, and it only had one thing of those values that's good, you turn to the next currency that has a high interest rate and do the same comparison... 

A high interest rate does help offset currency losses, but once the interest rate is used up, then the rest of the currency loss is all yours! Of course, I would be remiss if I didn't mention that a high interest rate can enhance a currency profit, and then that's all yours!   

OK... enough schooling for today, Chuck, it's a Marvelous Monday, and there's no need to bring the house down because you want to make sure investors are looking for the right things... 

The U.S. Data Cupboard on Friday, showed that U.S. manufacturing sector fell deeper into contraction territory. Friday, the S&P Global Flash U.S. manufacturing PMI data fell sharply to a reading of 46.3, down from May's reading of 48.4. That's not a good sign for the economy folks... The deeper this data set falls, the closer we get to being in a full blown recession... If we're not there already that is...  Remember any number below 50 represents contraction in the manufacturing sector, which still even in its watered-down status, is a key to a strong economy...  

Also, late last week we saw the color of the latest Leading Index for May... And as expected the index was negative again, marking 14 months of negative readings... This is the 14th straight monthly decline in the LEI (and 15th month of 17) - the longest streak of declines since 'Lehman' (22 straight months of declines from June 2007 to April 2008) ...  

So, we have 1. an inverted yield curve, 2. 14 month of negative LEI, 3. Fed EX removing planes, 4. ISM diving deeper into contraction territory... And others, indicating a slowing is here, and coming in the near future that will be worse... 

To recap... The dollar bugs went on buying rampage on Friday, sending the BBDXY up 5 index points! All the currencies took one on the chin from the strong dollar... But, Gold & Silver found a way to carve out some gains on Friday, even with the short paper traders keeping the gains at a minimum... All the arrows are pointing to a deep recession for the U.S. and Chuck counts the arrows that point to the deep recession... 

For What It's Worth... Well, we all know that the Gov't's digital currency is in the pipeline... the CBDC (Central Bank Digital Currency) is all wrapped and ready for delivery, and now there have been some states that have passed laws prohibiting their state from accepting the use of a CBDC... 

Here's your snippet: "Last week, Alabama Governor Kay Ivey signed a bill into law that pushes back against CBDC in a small way that could place some roadblocks in the path toward implementing a digital dollar.

Sen. Dan Roberts sponsored SB330. The new law prohibits government agencies in Alabama from accepting a CBDC as payment and bars the state from participating in any testing of a CBDC by the Federal Reserve.

The bill defines a CBDC as, “A digital currency, a digital medium of exchange, or a digital monetary unit of account issued by the United States Federal Reserve System or a federal agency which is made directly available to a consumer by such entities.”

The Senate passed SB330 by a 32-0 vote. The House approved the measure by a 103-0 vote. With Gov Ivey’s signature on July 16, the law will go into effect Sept. 1.

IN PRACTICE

In the spirit of James Madison’s blueprint in Federalist #46, the enactment of SB330 creates “impediments” to the implementation of a CBDC in Alabama. Madison said “a refusal to cooperate with officers of the union” along with “the embarrassments created by legislative devices,” would “oppose, in any State, difficulties not to be despised.”

Other states have also taken steps to block the use of CBDCs. Florida and Indiana recently enacted laws that ban the use of a central bank digital currency (CBDC) as money in those states."

Chuck Again... Well, all that's well and good, until the Supreme Court rules on it all... And I don't get a warm and fuzzy thinking about how that will play out.... I'm just saying...

Market Prices 6/26/2023: American Style: A$ .6676, kiwi .6163, C$ .7595, euro 1.0900, sterling 1.2735, Swiss $1.1186, European Style: rand 18.5543, krone 10.7837, SEK 7.1114, forint 338.80, zloty 4.0700, koruna 21.7005, RUB 84.64, yen 143.14, sing 1.3530, HKD 7.8285, INR 82.04, China 7.2362, peso 17.12, BRL 4.7842, BBDXY 1,230.00, Dollar Index 102.73, Oil $69.46, 10-year 3.67%, Silver $22.79, Platinum $934.00, Palladium $1,309.00, Copper $3.85, and Gold... $1,931.85.

That's it for today... Well, my beloved Cardinals split with the Cubs in London, but now come home to face the defending World Champion Astros, and then the vaunted Yankees... The schedule maker didn't do the Cardinals any favors this week after having to come home 4,000 miles from London... It got very hot here this past weekend and reminded me that we are in summer now... Summer weather is supposed to be hot! With the wounds on my legs all healed, I'm thinking about getting in the pool more this summer! That'll really displace the water level! HA! Yesterday's Cards/ Cubs game came on at 9 am, here in the Midwest.... Man did that feel weird... I've been really good about not eating sweets, sugar, etc. and I have my blood sugar readings below 100 on a consistent basis these days... I even turned down a free donut last week from a neighbor! I told you 2 years ago, when the doctor labeled me a pre-diabetic... I said then, "that I don't want to be a diabetic"... And it looks like I'm getting there!  I dropped Kathy off this morning for her flight, and I'm all alone once again for the next 10 days... Hello? Pizza Man Pizza? The Jefferson Starship, with the great Marty Balin as the lead singer, take us to the finish line today with their song: Count On Me... I hope you have a Marvelous Monday today, and please, oh please, Be Good To Yourself!