US Dollar remains the safer bet

Outlook:

On Friday before payrolls, the probability of no change in rates at the Oct 30 FOMC meeting was 12.9%. Today it's 20.4%. This is like a sentiment survey on payrolls—a good number or at least an acceptable one. Beware short-termism. The US economy and the global economy are seeing a slowdown that many economists expect will end up with growth under 2%. See the chart from the FT showing US service sector jobs may be okay now, but they do follow the manufacturing sector.

We see consumer spending as okay in most places, even Europe, and therefore seem to think that magically the household sector will keep propping up everything else. Weirdly, so far that seems to be true. The FT reports job creation "which has fed into robust household finances even when companies are on investment strike, that makes Adam Posen, president of the Peterson Institute of International Economics, predict that a global recession is unlikely as a result of the trade shocks since 2018. ‘You would need a mechanism so that the confidence shock goes from investment to consumption and most of the [mechanisms] are unusual,' he said. ‘The external [trade] shock is just not big enough. Similar views prevail in central banks, which are on the front line of responding to the cyclical slowdown."

Well, unless you are a farmer, or an importer, or a small business reliant on imports not going up 25% in cost. The shock of the trade war failing to reach down to the consumer is an unproved hypothesis, although the Peterson guys know more about trade than just about anybody.

There's another thing propping up the consumer—debt. Car loans that used to be three years are now 5-7 years because the average household cannot afford new cars without extreme terms. We get the August consumer credit data today and it could be scary. July was scary, up by $23.3 billion when something like $16.1 was forecast, most of it credit cards. This was an acceleration to 6.8% from 4.1% in June. Trading Economics offers some interesting data tidbits—"Consumer Credit in the United States averaged 4.48 USD Billion from 1943 until 2019, reaching an all-time high of 116.79 USD Billion in December of 2010 and a record low of -111.95 USD Billion in December of 2015."

Equity market analyst Lynne notes that we also get the University of Michigan Consumer Sentiment index this week. "The U.M. Interim Surveys, mid-month, may be based on fewer than 250 respondents, though they aim for 500. The final monthly survey is based on up to 2,500 respondents. However, the problem is consumers sometimes fib, and other times, go shopping exactly when they feel the worst. Other times, they feel so bad they don't shop at all. Knowing when that line is crossed is art more than science, making surveys of so few consumers all but worthless. Then, there are parents who must shop, even when their hearts and wallets aren't in it, at all—like for new shoes, because the kids have outgrown or shredded their old ones."

We buy it. The University of Michigan survey gets far more credibility than it deserves.

Markets continue to assume the US does not fall into the slough of despond, whatever happens elsewhere. That makes the dollar with its 2% yield advantage and turmoil everywhere the safer bet.

Politics: The lawyers representing Whistleblower No. 1 say they have at least one more willing to come forward. Trump claims it's just more of those conspiring against him from the "deep state."

Fortune magazine reports the Trump children have made over $82 million since dad took office. There is no law against it. Does anyone remember Billy Beer, sold by the brother of Pres Carter, or whatever the hell it was Hillary's brother was doing when the Clintons were in office? The difference, of course, is one of scale. No other presidential relative made as much as $82 million.

Nobody expects the craven Senate Republicans to do other than acquit Trump once the formal articles of impeachment are filed and the House holds formal hearings, but never mind. (There is some tiny hope that the judge presiding over the Senate proceedings, Chief Justice Roberts, might do the right thing, but don't hold your breath.)

What about Trump losing his grip on the Senators? So far wishful thinking but one ray of light is former presidential candidate Mitt Romney, now Senator from Utah, who said "By all appearances, the President's brazen and unprecedented appeal to China and to Ukraine to investigate Joe Biden is wrong and appalling. It strains credulity to suggest that it is anything other than politically motivated."

As for the bogus charges that the entire Mueller investigation was instigated by the mysterious Jospeh Mifsud telling Trump staffer Papadopoulos the Russians had dirt on Hillary and Papadopolous repeating it to an Australian diplomat who repeated it to the FBI (got that?), both Bloomberg and the NY Times report that the FBI and CIA deny Mifsud ever worked for them and Mifsud himself denied he worked for the Russians. Mifsud is a Maltese who worked part-time at a college in Rome but disappeared about two years ago. Golly, who is known for "disappearing" people?

Meanwhile, it looks like Ukraine and Australia are both willing to help Trump gather evidence for some cockamamie conspiracy theories, but Italy is not happy. The WSJ reports PM Conti will report internally and then to Parliament. "According to two officials from the far-right opposition party League, lawmakers want to ask Mr. Conte, the prime minister, about allegations that he helped set up meetings for Mr. Barr with Italy's intelligence chiefs. ‘If the prime minister treated and continues to treat the intelligence services as his own personal servants, like people who bring him drinks, then he has to explain to the Italian people why and what for,' Matteo Salvini, the League party's leader, said Thursday."

These conspiracy theories—Ukraine helped Hillary while Russia was helping Trump, the accusations of collusion between the Trump campaign and the Russians was invented by the CIA (the deep state), and so on, are far removed from investigating Joe Biden's son for getting a high-paying job without being qualified for it. In other words, mud. Deliberate mud-slinging to make those not keeping up several hours per day unwilling to believe anything a politician says. One Plub Senator appeared on "Meet the Press" on Sunday morning and yelled. He also wouldn't answer the simple question of why he "winced" when he heard Trump was extorting Ukraine and military aid was being connected to seeking political advantage. He was incoherent but it was obvious had had been gotten to, as they say about the Mob. Then "60 Minutes" had interviews with average Joes and Josephines in the heartland and half of them say yeah, Trump is a bum but he's our bum and his bum-ness doesn't rise to impeachment. Bottom line—those who like the macho image are fixed and unmovable. As many point out, though, Trump is not really macho, just a loudmouth bully.

Note to Readers: Next Monday, Oct 14, is a national holiday in the US, Columbus Day, and technically the federal government and banks are closed, although many banks stay open for trading, including FX. The NYSE and Nasdaq are open on Veterans Day and Columbus Day (but closed on Good Friday, go figure). The Chicago Mercantile Exchange will be open, so FX futures will trade. Bottom line—no holiday for us, but watch out for reduced activity.

 

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