In This Issue…
* Euro rallies on deck chair rearrangement!
* Gold pushes higher too…
* RBA waters down rate hike talk…
* What will QE3 be named?
And, Now, Today’s Pfennig For Your Thoughts!
A Greek Confidence Vote Today…
Good day… And a Terrific Tuesday to you! Well… my time “alone” is just about over, as my beautiful bride returns home later tonight. So… as opposed to our little Christine’s thoughts that I wouldn’t be able to “make it” for a week, I did! HAHAHAHA!
Well… front and center this morning, there are more rumblings from anybody with a “title” in the Eurozone, about Greece… But, the euro isn’t paying attention, and yesterday, in the face of Greece being told they had to produce a budget full of spending cuts, the euro rallied… And continued that rally overnight. I had a dear reader ask me yesterday why I thought the euro was rallying with the latest news from Greece… I said… “Well, maybe traders are growing tired of all this back and forth with Greece.” Yes, maybe, just maybe, traders have decided to wait until a plan either has been implemented, or not, and deal with the currencies appropriately at that time…
Hmmm, makes sense to me, how about you? If that’s the case, then I wouldn’t be throwing caution to the wind with the euro… It’s not out of the woods by any measure… But I did say in yesterday’s Pfennig, that, “I think that this week will end up being OK for Greece, and the euro…” So, I’m not “surprised” to see the euro rallying this morning… but I would be surprised to see it begin a one-way hike to 1.50…
So… with the Big Dog euro rallying, the rest of the little dogs can get off the porch to chase the dollar down the street… And that means all of the European currencies or alternative currencies to the euro, are rallying… That means Norway, Sweden, Switzerland, and Denmark… Speaking of Denmark… the latest poll on joining the euro, shows the lowest acceptance percentage ever… So, with all the bad stuff going on the Danes have decided that 1. They are glad they didn’t accept the euro 5 years ago, and 2. That they aren’t going to accept the euro any time soon… Can you blame them?
The weaker dollar this morning, has Gold back in the black… Back in Black, what a great album! And, a great saying to use here for Gold! Silver is trying to gather some momentum, but with all the “goings on” that I’ve mentioned several times, momentum is not to be found right now for Silver… But it will, or I should say, But I “think” it will… That’s my opinion, and I could be wrong…
But, in the past 9 years, every time Gold & Silver see these periods of selling, and wallowing around in the mud, they break out to the upside… That’s what’s happened in the past… I don’t see what could stop them this time either!
The Greek Parliament will hold a Confidence Vote today… And it looks like the rearranging of the Titanic deck chairs that the Greek PM did last week, might be the thing that keeps the Government in place… If that’s what happens, then those same people will vote on the austerity package for the budget… If we go back to the top this morning, or go back to yesterday, we know that the next tranche (yesterday I typed trance, what a dolt!) that Greece needs to survive is due next month, and they are not going to receive that tranche if they don’t pass this budget with the spending cuts… It’s that simple… this for that… quid pro quo…
But, like I said… it appears that the moves the PM made last week, will be enough to get through this Confidence Vote, and then get the budget passed… That’s not a given, it just appears at this time to be what’s up…
Yesterday, I told you that the Reserve Bank of Australia (RBA) would release their minutes (from capture! HA) last night, and they did… The RBA minutes confirmed that their tightening bias remained, but then watered that down with comments about the weaker global data, and Greek debt problems.
And even though the interest rate futures in Australia are going flat… I still see the RBA hiking rates again this year… Probably about the time the kids go back to school… Which nowadays seems to start earlier and earlier each year! I saw the letter from the school the other day, as I actually look at mail when my beautiful bride isn’t home, and saw that Alex goes back to school on August 15th…
I digress… and I apologize… See how easily I am distracted, and begin typing away on some other tangent?
So… when I looked at the currency screens this morning, I noticed a BIG move in the Chinese renminbi overnight… So, I checked and yes, the Chinese Central Bank (The People’s Bank of China or PBOC) has allowed two consecutive nights of record levels of the renminbi VS the dollar. This all began last year… Do you recall that? It was June 19, 2010, that the PBOC announced that they were going to increase the flexibility of the renminbi… So… the renminbi was around 6.8275 a year ago… and it’s trading at 6.4650 this morning… That’s a 5.3% increase in a year…
Now… it’s not like 5.3% is something to write home about, but… think about this… That’s 5.3% of purchasing power that you lost holding dollars instead of renminbi. And… if you go back to July of 2005, when the peg to the dollar was dropped for renminbi, the currency has gained 27% VS the dollar…
So… if the renminbi has gained that much in 6 years… (remember for 2 years, the PBOC left the renminbi at a steady rate because of the financial meltdown)… I wonder what the Singapore dollar has been doing in that same time… Well, bust my buttons! The Sing dollar is also up 27% since July of 2005…
Now… do you see what I’ve been telling you for months now? The Sing dollar is a good alternative to the non-deliverability of the renminbi…
I saw a good story on the fiscal times web site (www.thefiscaltimes.com) that really touches home with the stuff I’ve been trying to get across to investors, and that is that the economy here is built on a house of cards… the cards are the stimulus… When that stimulus is removed I just don’t see how things like stocks continue to gain… Here’s the snippet from the story that I thought played well with these thoughts I’ve been trying to get across…
“From September through April, inflation-adjusted consumer spending slowed, but still grew three times faster than the sluggish pace of household income. To keep up their spending as soaring gas prices grabbed more of their take-home pay, consumers drew down their savings by $149 billion, which cut savings to 4.9 percent of income, from more than 6 percent last year.”
Two things there… 1. We spend more than we make… again! And 2. Savings rates are taking a HUGE hit… and then just wait when stimulus is removed, and stocks (in my opinion) take a dive…
The guys and girls over at the National Inflation Association (NIA) are at it again… I find what the NIA has to say, very thought provoking, and interesting… They also tell it like it is (to them), which, dear reader, you know I love! So… what’s the NIA saying these days? Ahhh grasshopper… The NIA believes that Fed Chairman Ben Bernanke will, “do everything possible to disguise QE3, and will never admit to there being a QE3.” They went on to explain… “The Federal Reserve’s balance sheet just reached a brand new record of $2.832 trillion, up from $2.815 trillion in the prior week, as we approach the end of QE2 at the end of June. The stock market is already anticipating the end of QE2 with the Dow Jones currently down over 900 points from its high at the end of April. The declining stock market is pretty much sowing the seeds for a QE3. After all, Federal Reserve Chairman Ben Bernanke doesn’t want to see the phony U.S. economic recovery blow up in smoke.”
Chuck again… Hmmm… seems to go along quite well with what I’ve been saying, that QE3 will eventually come, but might not be called QE3, by the Fed… For I truly believe that we’ve become addicted to stimulus in this country… And, as long as the Fed Reserve believes it’s the best thing for what ails the economy, that’s what we’ll get… Doesn’t make it right… except in the eyes of the Fed Reserve…
And they truly believe that it helps, so… you can’t get upset with them… I disagree with them, but who am I to argue with these guys? Oh… and in a recent survey of 58 economists, 79% of them (46) believe that the Fed will sustain their balance sheet at current levels until October or later… The 79% is up from 52% that thought that at the last survey…
I tell you all of this, so that you can be prepared for more of the same, low rates, that deep six savings, and more dollar weakness, for the foreign markets can see through the smoke screens that may be wrapped around the next round of stimulus…
Well… yesterday, I told you that we would see the May print for Existing Home Sales today… and we will… The May Existing Home Sales data looks to have fallen about 5%… That’s not a good thing, folks…
Then there was this… my friend over at Agora, Addison Wiggin, (did you know that I wrote the foreword for the second edition of his book, The Demise of the Dollar? ) had something in his excellent daily piece called the “5 Minute Focus”, which is shortened to be “The 5”… Addison was talking about the Misery Index, from the Jimmy Carter days… Where you take the unemployment rate + inflation rate to equal the Misery Index… Well, with all the funny games the Gov’t plays with data these days, it’s better to go to John Williams over at Shadow Stats, where he computes things like unemployment & inflation using the old formulas before the hedonic adjustments were added…
First… The Gov’t’s way of calculating the Misery Index:
9.1% unemployment + 3.6% consumer price index = 12.7% misery index
Now… John Williams’ way of calculating the Misery Index:
22.3% unemployment + 11.2% consumer price index = 33.5% misery index
The all time record was in 1980, when the Misery Index was: 22%…
Oh My! Or as Snagglepuss used to say: Heavens to Murgatroid!
And also… let me make clear what I was saying yesterday about the reduced tax for Corporations doing business overseas… I’m not against stock buybacks or increased dividend payouts… But call it that! Don’t call it a reduction of the budget deficit, and increase of employment… For it “might” get around to doing those things, but I doubt it…
To recap… The euro set out to rally yesterday morning, in what appears to be good news in the Eurozone… It appears a Confidence Vote in Greece will keep the Gov’t in place, and afterward that same Gov’t will vote on the austerity measures in the budget, that’s needed to gain the next tranche of their bailout. So… right now, there is some relief in the Eurozone, and with the euro… which allows the other currencies of Europe to gain VS the dollar…
Currencies today 6/21/11… American Style: A$ $1.0580, kiwi .8115, C$ $1.0240, euro 1.4360, sterling 1.62, Swiss $1.1850, … European Style: rand 6.7670, krone 5.51, SEK 6.3770, forint 185.75, zloty 2.7680, koruna 16.83, RUB 27.96, yen 80.15, sing 1.2340, HKD 7.7890, INR 44.85, China 6.4650, pesos 11.82, BRL 1.5960, dollar index 74.84, Oil $94.24, 10-year 2.97%, Silver $36.24, and Gold… $1,544.75
That’s it for today… And this first day of Summer! The summer Solstice occurs exactly when the Earth’s and the moon’s axial tilt is most inclined towards the sun, at its maximum of 23° 26′ ! And it will be a very hot one here in St. Louis today… which is what it’s supposed to be in the Summer! Hot town summer in the city, back of my neck get dirty and gritty… of course, that’s how I feel in the mornings here in the Office! HA! I forgot to mention that yesterday was my good friend and colleague Chris Gaffney’s lovely daughter Lauren’s birthday… She’s now a teenager… When I was going into the hospital 4 years ago, Lauren wrote me a note, giving me hints about what to do and ask for in the hospital… What a sweetheart! And with that… I’m going to get another glass of ice water, and hit send! I hope your Tuesday is Terrific!
Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837
www.everbank.com