3 Weeks of Collateral Left For Greece

And now… A Pfennig For Your Thoughts…

Good day.. And a Marvelous Monday to you! It’s Victoria Day in Canada today, so our neighbors to the north, are enjoying the end of a 3-day Holiday Weekend. Here in the U.S., we’ll get to have a 3-Day Holiday Weekend, this coming weekend, as it will be Memorial Day. Boy that sure snuck up on me.

It will also be my grandson, Braden Charles Butler’s Birthday weekend. He’ll be 4. He stayed with us 2 nights this past weekend, and entertained us with his antics, talking, and silliness. A little kid with no cares or responsibilities in the world, except where his Spiderman is, and if he needs to go potty.

What a life!  But no, I wouldn’t want to go back to 4 now. Only if I could go back to 4 when I was 4 in the 50’s.

I was greeted this morning with a special treat. Elvis Presley singing: And I Love You So. The song was written by Don McLean,  (American Pie) but Elvis does a very good job of singing it. This song was sung by my friend, Steve Bushy at Chuck & Kathy’s wedding, which next month will be our 39th anniversary. Am I really that old?  HA!

Well. The U.S. Data Cupboard was not kind to those rate hike campers last Friday.  The two major prints, Industrial Production and Capacity Utilization both disappointed like I said they would in the Pfennig Friday morning.  Industrial Production (IP) fell -.3% in April, marking the 5th consecutive monthly decline.

Also marking its 5th consecutive month of declines, Capacity Utilization dropped from 78.6% to 78.2%… (a sizeable downward move, I might add!)  Just more data that doesn’t meet expectations or prints negative that continue to mount up for the U.S. economy, and also continues to make the Fed’s job very difficult, for they want to hike rates badly to save face with the markets, but they will meet all kinds of resistance in this kind of environment .

The U. of Michigan Consumer Confidence for the first two weeks of May, dropped from 95.9 to 88.6! OUCH! Now that’s going to leave a mark! Are the sheeple beginning to wake up and smell the coffee on the economy? I usually don’t place too much emphasis on this report, but a dealer sent me a note on Friday, and directed me to a graph, that showed how this report aligns with the direction of the Dollar Index (DXY) And now that the U. of Mich. Consumer Confidence report is heading downward, so too is the DXY. Very Interesting, and proves once again, that you do learn new stuff all  the time!

So, once again on Friday, the U.S. economic data was weak, and not representative of an economy that is 6 years removed from a recession. Of course that’s the word from the officials that technically make the calls on when recessions start, and end. However, if I were the Official, I would have never called an end to the recession.  Sure, supposedly, labor is doing well, as long as you buy into the BLS’s numbers. But what is? There’s no wage inflation, so how could labor be so strong, when there are no wage pressures?  And Retailers don’t feel as though they have the ability to increase margins, so prices for goods continue to remain stuck in the mud.

You know, I really didn’t mean to start today’s letter with this tirade about the U.S. economy, but it’s what is driving the dollar lower, so we need to know why the dollar is sinking again.  I had an interview the other day, and I mentioned that it is my belief that High debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions.

I pointed to Japan, the basket case that is their economy, and said that more and more we continue to follow Japan down the road to ruins. And no one in Washington D.C. seems to be aware of this. Amazing isn’t it?

OK, move along Chuck, this is beginning to give you rash. OK, then. Well, the IMM Positions report last week told us what we already knew (Pfennig readers that is) and that long dollar positions were reduced again last week.

Last week, they dropped 28,000 contracts, and a low level of long positions since last September. Euro shorts were reduced by 11,000 contracts. And the two losers to go along with Long Dollar Positions, were pound sterling and kiwi. who saw their long positions reduced.

The euro is seeing some slippage this morning, after moving to 1.1450 on Friday. I would think that the Greek problems would outweigh the weak U.S. economy, but apparently not so much, as the euro has really surprised quite a few investors, traders, and market participants with its resiliency.

So, I’ve told you over and over again, that this dance is gonna be a drag, no wait! That dollar selling equals euro buying, as the euro is the offset currency to the dollar. So, today, there’s no data in the U.S. so, the dollar can’t be dragged down by more weak data today, for there is no data to print!

So, that tells me that we could see the dollar recover a bit today. Especially VS the euro, pound sterling and kiwi. In an update on the Eurozone/ Greek talks. These two parties had better get to work on that 11th hour deal that I still think will take place with the resolution to fund Greece, but kick the resolution can down the road, like we do here in the U.S.

However, it’s beginning to get pretty late, as I read on the Bloomberg this morning, that Greek Banks are running short on the collateral they need to pledge for loans, and keep them going. Apparently, the emergency liquidity that’s held at the Greek Central Bank will run out in approx.. 3 weeks.  Uh-Oh!

This tells me that something has to be done quickly, because 3 weeks give or take a few days is going to be here before you know it, Shoot Rudy, it’s going to be Memorial Day this weekend, how fast did that get here?   And it’s time for Greece to back off their defiant posture. They need to be a part of the euro, and the sooner they figure that one out, the better this will all be.

I skip over to economist Barry Eichengreen, who believes, well, let’s just listen to what he had to say, “Staying in the Eurozone will be costly and difficult for Greece and for Greece’s partners, but Greece getting out of the euro would be even more costly and difficult. Reintroducing the drachma would solve none of Greece’s problems and instead set the stage for even more chaos and uncertainty.”

I agree 100% with Mr. Eichengreen on this and have said so many times in the past.

I mentioned above that kiwi saw a drop in their long contracts last week, and we also saw the result in the actual price of kiwi as one of my all-time fave currencies saw its value sliced downward.

The downward move last night came as a result of a move by the Gov’t to tighten the existing capital gains tax rules on housing, which got everyone thinking that the Reserve Bank of New Zealand (RBNZ) could then offset the move to slow down housing, with a rate cut.  I still am holding out hope that the RBNZ reverts back to the Don Brash days of the RBNZ, and do what’s right by not debasing the currency.

In a hop, skip and a jump across the Tasman, we reach the shores of Australia, where the Aussie dollar (A$) is selling in sympathy to the kiwi losses, but right now remains above 80-cents, barely, by the skin of the currency’s teeth, but above nonetheless. The Reserve Bank of Australia (RBA) will print their latest meeting minutes this afternoon. You might recall that after the last meeting, when rates were left unchanged, that RBA Gov. Stevens actually sounded pretty upbeat about the Aussie economy. So, if that upbeat feeling carries through to the meeting minutes, the A$ could get back on the rally tracks.

The Top news story on the Bloomberg this morning says something that I think you’ll say, “boy that sounds familiar, yes, we’ve heard that one before.. many times!”   So, here’s the title: Dollar Recovers As Investors Anticipate Better Week of Data.   I’ve got to call this news story out, because I’m not buying it, and.

What data this week is going to move the markets to thinking the Fed is going to forget all the weak data and hike rates?  There’s really no Tier 1 Data to talk about except later this week when the Leading Index for April  prints, and then on Friday when the stupid CPI (consumer inflation) prints. So, I’m just not seeing what the writer of this article is seeing, but then I only have 1 eye, maybe it’s the depth perception thing.

The Russian ruble, and the Chinese renminbi both are seeing appreciation this morning.  The Chinese renminbi / yuan continues in their attempt to place curb appeal on their currency for the IMF to see, how stable it is. The weekends usually bring us some Chinese economic data, but not last weekend, as things were pretty quiet.   I’m actually a little surprised by the ruble’s rally this morning, bringing the ruble back below 50, for the Central Bank of Russia (CBR) had to cancel a 1-year repo auction scheduled for today.

The CBR only said they were cancelling it due to developments in the FX markets.  Hmmm. I wonder what they were referring to?  Oh, I get it. the ruble was rallying below 50 again, and the CBR thought if they cancelled this auction, that it was stop the rally..  Ahhh, the tangled webs we weave, eh?   Memo to the CBR. Just leave things alone, and the markets will decide the value of the ruble.

Gold is up $5 this morning.  I read this weekend that this latest move by Gold has been its best rally since the start of the year. Remember that? Gold climbed to $1,300 only to get whacked back down to $1,200, where it began the year. India is reporting large imports of physical Gold again, China is still withdrawing an avg. of 43 Tonnes of Gold per month from the Shanghai Gold Exchange (SGE) and Russia has reported another month of large physical Gold imports.

The Big 3, as I call them when it comes to Gold reserves, continue to not disappoint when it comes to Gold accumulation. These 3, especially China, are going to prove to the world that they not only have deep pockets but also the Gold to back up whatever they want to do.

I told you a couple of weeks ago, about the rumors going around that, and no I’m not going to start singing Witchy Woman, there was going to be a new digital currency that was Gold backed.

Well, I received a GATA Transmission on Saturday, telling me that Jim Blanchard’s son, Anthem, was the person that is actually starting a Gold backed digital currency, that will be called the “Hayek” , named after Friedrich Hayek, the Austrian economist and free markets hero.  The only thing I see here that interests me, is the fact that lots of Gold will have to be bought to back the currency once people start buying it. I would also be interested to see just how the backing works.

I told you above about the U.S. Data Cupboard today. So, I’ve got a piece for the FWIW section today, that will follow up everything I’ve been saying, so let’s beat around the bush here, and just head to the FWIW section today. But first. the recap!

To recap. More weak data on Friday, sent the dollar down quickly, but in the overnight markets investors are feeling better about the prospects for this week’s U.S. data and are buying dollars. Chuck isn’t buying it, because there’s not much in the way of market moving data to print here this week!

It’s getting down to the cheese that binds for Greece, as their collateral they use for liquidity is running out, and they have less than 3 weeks to go before it does run out. The euro remains resilient despite all the hand wringing over Greece, as the weak U.S. data that keeps pulling down the dollar is outweighing Greece right now.

For What It’s Worth.  Well, I keep telling you over and over again that (no Dave Clark 5 here this time) the U.S. recession was really a depression, and that it has never really been “over”. Check this report out right here or just peruse my snippets.

“When the federal government reported yesterday on the growth of retail sales last month, there wasn’t any. Growth, that is. April sales overall were flat compared with March, with declines in autos, department stores, electronics & appliances, furniture and food & beverages. The strongest growth was in internet, sporting goods, restaurants & bars, and health store sales.

Overall sales increased year to year, but by less than one per cent, the slowest growth since 2008. Wait, wasn’t that the year the last recession hit stride? What a coincidence.

This is hardly the first or only indication that the U.S. economy is in serious trouble. Federal agencies have reported just in the past week or so that consumer confidence is plummeting, and household spending is expected to nosedive. Last month, statistics on the gross domestic product in the first quarter of the year showed consumer spending to be weaker than at any time since World War II, except for the fourth quarter of 2008. Another coincidence.

The GDP report, whose bottom line was a dismayingly tiny growth of 0.2%, included another stunner. During the first quarter, privately held, unsold inventories of stuff increased by  $122 billion. Without the activity generated by putting all that stuff in storage somewhere, the GDP would have been down by 3% and all hell would have broken loose. The question now is, with consumer spending anemic and getting weaker, who is going to buy all that crap?

If American consumers suddenly decide to go shopping, by the end of this year they will have more than 6,000 fewer stores in which to do it. That’s how many store closings have been announced so far, including Radio Shack (1784), Office Depot/OfficeMax/Staples (625), Dollar Tree/Family Dollar (340), Barnes & Noble (223) Walgreen’s (200), Sears (77),.”

Chuck again. Yes, think about it like I’ve illustrated to you for over 6 years now. The soup lines that so illustrated the Great Depression have been replaced by the checks and EBT Cards in the mail. There are no wage pressures, and the deep dark depression that hags overhead just keeps making a mess of the economy here. Debt. remember, steals from the economy.

Currencies today 5/18/15. American Style: A$ .8005, kiwi .7415, C$ .8295, euro 1.1400, sterling 1.5675, Swiss $1.0880,  . European Style: rand 11.8595, krone 7.3445, SEK 8.2275, forint 269.05, zloty 3.5605, koruna 24.0275, RUB 49.11, yen 119.65, sing 1.3220, HKD 7.7510, INR 63.72, China 6.1079, pesos 15.03, BRL 2.9955, Dollar Index 93.56, Oil $60.06, 10-year 2.17%, Silver $17.59, Platinum $1,167.72, Palladium $792.25, and Gold. $1,226.59

That’s it for today.

Regards,

Chuck Butler
for The Daily Reckoning

The Daily Pfennig is published everyday, right here

P.S. It was a BIG weekend for my son Andrew’s water polo team. The Lindberg High School (public school) played in the State Championship Game on Saturday night, but lost to the private school, but ended up 2nd place in State! YAHOO! I know Andrew was very proud of his guys, as I was proud of him. He was also named coach of the year. Which marks the 2nd consecutive year of that honor. It’s a very difficult challenge for public school to compete with private schools that can recruit, but there was only one private school to beat his team this year, and it was the State Champion.

I went to Cardinals game on Saturday, sat through a 1.5 hour rain delay, and then watched my Cardinals lose. UGH! Ran into colleague Jen Mclean at the game and got to see her darling little girl, and son, and can’t forget dad, John. Longtime reader, and someone I’ve met in person, Walker, sent me a fantastic link of music. I’m having a ball going through the songs!  Hall & Oates is singing their song: Sara Smile on the iPod right now. They called their music: Blue-eyed Soul. I call it popish, but it’s OK.  And with that, I’ve got to go. I hope you have a Marvelous Monday!