Chuck Butler

Yesterday, the euro (EUR) sure looked as if it were headed for a ride on the slippery slope, but about one-third down the slide, the single unit was yanked back to the top by a newspaper (Die Welt) report that the ECB is exchanging Greek bonds for new securities, easing concern that Greece will get its second bailout. And that news was followed up by an announcement that German officials will approve the next bailout payment for Greece.

Talk about a reversal! The euro, which had fallen to 1.2975, reversed course and rallied nearly 2 full cents on the news! I sent a note to the trading desk, boys and girls, letting them know what was going on, and included a note that the other currencies were playing follow the leader.

That’s what happened yesterday… This morning, the euro is holding gains it made yesterday, and there was something else that happened yesterday that has carried over to this morning. I know you’re waiting patiently… But a rally in gold is what I’m talking about, which illustrates what I’ve been saying that gold is the anti-dollar. You see, if it were merely a “safe haven” from geopolitical problems or weakening economies, gold wouldn’t have rallied on news that calmed the fears in the eurozone… But it did, and why did it rally? Because the dollar was getting sold, and gold simply “piled on.” In the NFL, you used to get a penalty for that; these days, I’m not sure what is a penalty on a hit and what isn’t anymore. But that’s a discussion for the Chuck Butler’s patio…

But once again, let me repeat something that I keep saying over and over again… The euro is not out of the woods… In fact, the single unit isn’t even halfway through the woods. So these 2-cent rallies can be wiped out at the drop of a hat, or a Greece problem…

Speaking of being of not being out of the woods… The US economy continues to show signs of a pulse… But to me, and I’ll probably rile a few… the US economy is enjoying a brief relief in the “eye of the storm.” I do believe it will begin the “eye of the storm” soon enough, and when it does, it won’t be pretty. I think — and you can mark this down — in one of the few times I’ll praise the Fed, that the Fed sees this, (maybe they’ve become Pfennig readers!), and that’s why they announced that near-zero rates would continue to late 2014, and laid some groundwork for additional quantitative easing. OK, I’m not praising them on their reaction to their revelation. I’m praising them for the revelation!

Speaking of the US economy having a pulse… yesterday’s data cupboard had enough data printed that it could choke a horse! (No animals were injured here.) Wholesale inflation rose just 0.1% in January, weekly initial jobless claims fell to 348,000 from 361,000, housing starts rose 1.5% after falling 1.9% in December… I thought out loud when I saw this data being hailed as a savior for the economy, and said, “Hmmm… Home prices are getting murdered because of the glut of inventory, and we’re still building houses?” The Bloomberg Consumer Comfort Index rose to -39 from -42, and the Philly Fed (manufacturing) rose to 10.2 from 7.3…

The one nasty piece of data that printed yesterday is something that’s going to eat away at the US economy this year… Foreclosures in the fourth quarter showed that the trend to see huge foreclosure numbers this year is in place, as foreclosures rose 4.38%, adding to December’s 4.48% rise. Of the 4.38%, 3.28% were from prime mortgage loans, and 14.45% were from subprime mortgage loans. So that nasty thing called subprime just won’t go away! It will be here to haunt us until these loans get closed… and that could take some time!

Today, the data cupboard has the stupid CPI report for January. And the media will be all over that report like a cheap suit…And with gas prices rising for over a month now, CPI should reflect higher inflation, but knowing the government book cooks, that probably won’t be the case. So I’ll be watching for something that makes much more sense, and that is leading indicators…

OK, enough with the data! Talk about boredom city! US Treasuries also saw some selling along with the dollar, which makes sense. Yesterday, the 10-year yield rose from 1.92% to 1.99%, which doesn’t sound like much, but when you’re dealing in hundreds of millions, that’s a hit (remember, when bond yields rise, the price of the bond goes down!).

Yesterday, I went way out on the limb and talked about Australia (AUD) as if it could become the new “safe haven” currency. Then I read a report that my good friend Sean Hyman says that the Australian dollar and gold are “great traveling partners.” “When gold heads higher, so does the Australian dollar. So when I see gold breaking higher, I get bullish on the Aussie dollar. And gold just tipped me off to the Aussie’s next move.”

Good stuff, Sean! They are both anti-dollar currencies, and since Australia is No. 2 in the world when it comes to gold production, Sean points out something that I’ve not seen before. See, even an old dog like me learns something new each day, and that is that Australia has more gold reserves than any other country in the world!

The price of oil moved past $102 this morning. I told you yesterday that I thought the saber rattling between Iran and the US is all about oil. With every rattle of the saber, the price of oil moves higher…

I don’t like seeing this, but there are a few currencies out there that don’t mind seeing the price of oil rise. The Canadian dollar/loonie (CAD) is the major beneficiary, but other petrol currencies like Norway, Brazil, Russia and even Mexico, with their depleting oil reserves, all see buyers when the price if oil rises…

Now that Reserve Bank of New Zealand (RBNZ) Gov. Bollard has announced that he’ll step down when his term is up, he’s talking up New Zealand. Wow! This is like a 180-degree turn-around for Bollard. Let’s listen in as he talks about New Zealand…

“Our view is that in New Zealand, some conservative statistical interpretations and particular characteristics of our economy have resulted in the understatement of New Zealand’s economic performance. In international league tables, New Zealand is in some ways better off than is often thought.”

In other words, Bollard is saying that in New Zealand they don’t cook the books to make things look better, and if other countries followed their lead, New Zealand would look much better. When comparing countries and their data, you have to think about whether that country cooks the books.

Canada’s CPI rose in January to 2.5%, from 2.3% in December. Prices for just about everything in Canada, except leisure products, rose in January, led by food and fuel… So the 2.5% rise versus last year is quick, and something the Bank of Canada shouldn’t ignore, as I know the BOC and their Gov. Carney would love to do…

Back to the US one more time before I head to the big finish. An independent company says that 2.5 million people here in the US have gone back to work. The total spent by the government on job creation so far is $744 billion. That works out to about $200,000 per job. I could really go on here, but I’ll just leave that for you to decide whether or not this is a function of the government, using taxpayer money…

Longtime readers will hopefully remember that I used to quote Stephen Roach of Morgan Stanley, one of my favorite economists, all the time. What he was saying was so similar to what I was saying. Then Roach went to Asia and I really lost track of him.

Yesterday, he announced his retirement to pursue “scholarly pursuits.” But before he rides off into the sunset, he left us with a few thoughts that again echo what I’ve said over and over again for years.

Here’s Stephen Roach in a Bloomberg interview. After predicting that China will overtake the US as the dominant economy by 2025, Roach said The US should stop blaming China and instead look to create economic growth through exports. He then went on to say, “As I look to the United States, I think to this day, there’s a glaring absence of truly being able to fathom the mistakes that were made either on Wall Street, Washington or Main Street, heading into the great crisis of 2008 and 2009. So humility is not something that we’ve been able to fully grasp a this point, I’m sorry to say.”

Playing the blame game has been something the US has done with China for about 10 years now. It’s a game that needs to be completed, and the game board and all the pieces put away!

To recap: The euro was yanked back from its visit to the slippery slope yesterday when the ECB announced that it would swap old Greek bonds for new ones and Germany approved the payment of the next bailout funds for Greece. The euro rallied nearly 2 cents. Gold also took advantage of the weaker dollar and rallied. The US economy is showing a pulse, but Chuck believes it’s simply enjoying the calm of the eye of the storm, with the exit out of the eye coming soon.

Chuck Butler
for The Daily Reckoning

Chuck Butler

Chuck Butler is the Managing Director EverBank Global Markets. The father of the Daily Pfennig® newsletter, Chuck has a career in investment services and currencies spanning 35+ years. His tacit knowledge of the global markets along with his inventive spirit has led to the creation of many distinct and innovative currency-based products. A respected analyst of the currency market, Chuck has made frequent appearances on MarketWatch, USAToday, CNNfn, Bloomberg Television, and CNBC as well as quoted in The Wall Street Journal, US News & World Report, and The Chicago Tribune.

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