Computer Glitches All Around!

Today’s Pfennigfor your thoughts…

Good day, and a tub thumpin’ Thursday to you!

Well, it’s Thursday and tonight is the deadline for the Greeks to show their potential creditors just how they propose to pay them back. I told you yesterday, that the Greek proposal had better contain spending cuts, higher taxes and reforms to pensions, or else I believe the creditors will send them packing.

Remember, 74% of the population in Greece wants to remain in the euro. They were just blinded by the light wrapped up like a deuce, and so on, when they voted no to austerity measures last Sunday. They want their cake and eat it too, and guess what? They’re not going to get that any longer, so they had better be ready to buck up, and respond like a recruit in boot camp… Yes sir, may I have another!

The currencies are mixed this morning, but really in place where they were for the most part yesterday. The Chinese renminbi was allowed to appreciate, after the Chinese stock market saw a recovery rally.

I have some more on China in a bit, but first let’s go through the usual currency roundup. Gold finally found a bid yesterday, and has found another one this morning as the shiny metal is up $4 as fat fingers fly across the keyboard!

The Russian ruble which has been on a one-way trip to weaker levels in recent weeks, is seeing a recovery this morning. I think that this rally is in conjunction junction what’s your function, with the Chinese stock market recovery rally. In fact, as you look around the globe, European stocks, Japanese and so on, all recovered a bit on the China news.

I had to laugh this morning, because some snarky (I respect them for that!) writer at Bloomberg, decided to take a shot a China and their push to make the renminbi a reserve currency. The writer points out how he feels that the huge sell off of the Chinese stock market, as shown China’s weakness, and therefore they couldn’t have a reserve currency.

Hmmm, by that argument, then the U.S. shouldn’t have one either, I seem to remember stock market selloffs here in 1987, 2001, 2008, and those are just in the recent years! Strange way to view things if you ask me.

Shouldn’t stocks go up and down? They can’t go up forever, and were investors really thinking that Chinese stocks would go up forever?  Of course that same question should be asked of investors of U.S. stocks, but I don’t want to spend the day talking about stocks movements, only just to point out that a stock sell off isn’t an indication that a country is not worthy.

How they respond to the selloff, or better yet don’t respond to it, is the key!

I guess, this is just as good a place as any to tell you what I wanted to talk about regarding China. First of all, longtime readers know that I’m friends and have played guitars together with Steve Sjuggerud, the well-respected analyst that writes for Stansberry Research.

Steve is what I consider to be a very intelligent mind and usually sees things long before other analysts even get a sniff of what he sees. So, it was very interesting to see him in a video yesterday, talking about what he feels is going to be a game changer coming in October.

I’ll tell you basically what he said in the video, but I’ll also give you the link to the video, it’s long, but very interesting.

Steve believes that the IMF is sure to add the Chinese renminbi/yuan to their basket of reserve currencies. Because this will be the first time the renminbi is added it will require billions of investments into renminbi, and Steve believes that those funds will come from U.S. dollars, therefore he believes this will be the currency move of a decade.

Pretty strong words from Steve. You usually don’t hear him talking this strongly about something, but in the video he states that this will be the biggest thing in currencies in his 35 years of participating in the markets. So, he’s really sure about this.

Now this is different than the analysts calling for a collapse of the financial system that would also occur in October. Steve points out all the billions that were lost when the Swiss franc dropped the peg to the euro cross in January, and the franc is very small in size compared to the billions that will be traded in dollars and renminbi.

So, here’s the video link. The whole thing about this video is the fact that Dr. Steve Sjuggerud thinks the IMF is going to add renminbi this October, and that’s the most important thing to take out of this. Watch it here.

Well, the FOMC meeting minutes from their June meeting printed yesterday. And from what I could gather from them, the FOMC is more tentative about hiking rates than they led us to believe in the press conference following the meeting in June.

They said they had an eye on global developments.. Well, if they had “an eye” on them, then they probably have both eyes on global developments now!  In fact, in reading the minutes, I found the FOMC to be downright insecure about everything. Which is how they should be, and stock all that crazy talk about hiking rates two more times this year!

Well, seeing how the markets began to react to these minutes, Fed member Williams came out in an effort to preserve the 2 rate hikes before year-end message, and said that he “still sees two hikes by year-end, but is in a “wait-n-see” mode until he sees evidence that inflation is moving back to 2%.”

You’ve got to love these Fed guys, they tell you one thing, and then soften the blow with an additional statement. Williams is a middle of the road guy, not a ultra-dove or ultra-hawk, so hearing this from him got the rate markets back on track, and U.S. Treasury 10-year yields started to move higher once again.

A slight move, but a move higher nonetheless…

But, the most important thing from the FOMC meeting minutes and the Williams reminder of two more rate hikes by year-end, is that the FOMC was feeling insecure about things, and if they were insecure about things three weeks ago, they are probably really insecure now!

At one point last night, the Japanese yen was the best performing currency vs. the dollar, but it was as if suddenly Traders did the V-8 head slap and said, “what the heck are we doing?” And that pole position as best performer on the night was quickly taken away from the yen.

And we’re back to where we were yesterday morning with yen.

I have to say that while things in Japan haven’t really changed, I still believe the country to be a basket case, the recent data shows things looking a bit better there, and flows into the country are picking up, probably from China, but picking up, so the small healing in the yen that’s taken place recently is probably warranted, for now, that is.

It’s kind of strange looking at the currency screen and seeing the Aussie dollar (A$) with a gain on the day so far. The gain is small, but a gain nonetheless, and the A$ seems to be dragging the N.Z. dollar/kiwi along, as kiwi was in the red when I turned the screens on this morning but is now on the positive side of the ledger.

The poor A$ has seen so much negative stuff said about it recently, that I’m surprised to see it with a gain this morning. I wouldn’t get too lathered up about this gain this morning, I’m sure any signs of a sustained rally would be squashed like the bug on your windshield by the Reserve Bank of Australia (RBA) in a NY minute!

So, how about those “outages” yesterday here in the U.S.? We had United Airlines flights grounded by a “computer glitch”, and then the NY Stock Market had to shut down because of a “computer glitch.” I find that to be too eerily close together, don’t you?

I was leaving the office yesterday, and mentioned to the good folks on my side of the office, as I passed them, I told them that the news from the TV was that the NY stock market close was just a “computer glitch” and not a cyber-attack.

Lucy then asked me, “Do you believe that?” and I said, “No, I don’t believe anything the media or the government tells me, on face value, and neither should you!”

They all had a good laugh, as I walked out the door.

The U.S. data cupboard is pretty barren today, with only the usual tub thumpin’ Thursday fare of weekly initial jobless claims on the docket.

Yesterday’s data cupboard had the aforementioned FOMC minutes, but also the consumer credit (read: debt) numbers, and May’s numbers were better than April’s for sure! April’s number was an upward revised $21.397 billion vs. May’s $16.086 billion.

Let’s not fool ourselves here folks. $16 billion in a month is still way too much to add onto debt loads that are already pushing the limits of what should be accepted.

And gold… finally finding a bid, or wind for its sails. And silver, after seeing it get whipped around on a day when the U.S. Mint suspended sales of American Eagle silver coins, because of lack of supply vs. demand, is finally trading up too.

The suspending of the A.E. silver coins by the U.S. Mint was an interesting topic of discussion on the desk yesterday. Our metals guru, Tim Smith was shaking his head in disgust, Aaron Stevenson was getting quite heated with the thought that one point during the previous day silver was down 1 full dollar.

I tried to calm them all down, but you know me, I’m the one that started the whole discussion! HA!

I found this in Ed Steer’s new letter this morning, and he directed me to an article on KITCO’s website, and the whole thing can be viewed here.

German investors have been jumping into gold, protecting themselves against a free-falling euro and geopolitical uncertainty, according to European precious metals dealer Degussa.

Earlier this week, the company said in a press release that sales of gold bars and coins increased more than 50% in the first half of the year, compared to the first six months of 2014. Total sales equaled more than ?700 million.

According to the company, one of the most popular product among German investors has been the South African Krügerrand gold coins.

Chuck again. Well, again, I point to physical buying of gold, and still it loses ground from the paper sales– which I will remind you are larger in size of ounces that are short than there is gold or silver above the ground. How on earth is that not regulated better than it is?

That’s it for today… I hope you have a tub thumpin’ Thursday!

Regards,

Chuck Butler
for The Daily Reckoning

P.S. The Daily Pfennig is first published everyday, right here.

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