Eurozone Finance Chiefs Deep-Six the Euro!

The currency mini-rebound did well yesterday, all day… But then came the European session this morning, and more problems with the Greek bailout, and the bickering going on back and forth between the Eurozone Finance Chiefs… All this has deep-sixed the euro (EUR) this morning. The single unit is down 125 cents! So, when I left the office yesterday, the euro was 1.4445… this morning, it’s 1.4315, and looking like it wants to visit the 1.42 handle soon.

And to makes matters worse for Greece, the unions today are staging protests, because they don’t like any austerity measures one iota. Hmmm… I don’t think they’ve got their heads on straight… For like I said yesterday, what’s more important is the “Honor of the Nation” at stake… So go ahead and protest and see the country default, then you won’t get any of your demands anyway! I really don’t want to talk about this stuff this morning, but that’s what’s going on right now as I type away with my fat fingers.

The rest of the currencies, for the most part, are weaker, thus following the Big Dog, euro, down this morning. Yesterday, though, we saw some good rallies in the currencies. For instance, the Canadian dollar/loonie (CAD), which had drifted lower in recent weeks, saw Canadian Finance Minister, Jim Flaherty, grease the tracks for a rate hike… Flaherty said, “We need to remind Canadians that historically low interest rates will not be here forever, that interest rates really only have one way to go, and that’s up.”

These words put some strong wind in the loonie’s sails, and revisited the $1.03 handle, after spending weeks in the $1.02 handle… And yes, the price of oil rose $1 yesterday, so, that too helped the loonie get moving!

Another central banker with a rate hike on his mind is the Reserve Bank of Australia’s (RBA) Governor Stevens, who said that, “policymakers will need to raise interest rates at some stage.” He went on to say that “the underlying rate of inflation is more likely to rise than fall, in the next few years.” So… For all of you new to class… That’s central bank parlance for: interest rates are going higher, very soon!

The Aussie dollar (AUD) held firm, only slipping a few cents through the morning. So… The Eurozone/Greek debacle hasn’t allowed the Aussie dollar to take full advantage of these comments by RBA Governor Stevens… But at the same time, the comments have prevented the Aussie dollar from suffering like its kissin’ cousin across the Tasman, the New Zealand dollar/kiwi (NZD)…

One currency that I see getting sold this morning is confusing to me, and given the Eurozone/Greek debacle, the uncertainty meter rises, which until this morning, meant that the Swiss franc (CHF) would march higher in value… But not today! The franc is getting sold right next to the euro, and is down 2-cents from earlier in the week. The Swiss National Bank (SNB) said yesterday that they were going to have to keep interest rates on hold, given the strength of the franc… And just as soon as they said that, the franc began to fall!

But still… Given the geopolitical problems of the world, and the debt problems of the Eurozone peripheral countries, the franc has been the safe haven currency for everyone… But not today… But here’s my thought on this… While I still feel the franc is overvalued, it doesn’t change the fact that the franc is the currency everyone has flocked to with all the problems of the world… Well, those problems haven’t gone with the wind, so this weaker franc certainly represents a cheaper level to buy, eh?

I was watching a bit of TV last night, and saw the film footage of the two levees that broke in Northwest Missouri, flooding tons of farmland… And on that farmland you could see the tips of the corn stalks sticking out of the water… and that got me thinking about a lot of things… First and foremost the devastation to those farmers… That’s so sad… And second… All those damaged crops… In a year when food prices are already soaring, (forget Big Ben’s “transitory inflation”), that doesn’t lend any help to those soaring food prices.

And then speaking of inflation… Wholesale inflation is rising very quickly in the US. The Producer Price Index (PPI) for May increased 7.3%… (The Fed only looks at the number minus food and energy, which was +2.1%) … But since we all need and use food and energy almost every minute of our day, (don’t forget the things that run on electricity while you sleep!) I’m going to keep them in the number, and say that with rising Wholesale Inflation like this, you can expect that businesses won’t be able to hold down Consumer Prices very much longer…

Of course, we’ll see the stupid CPI (Consumer Price Inflation) number today… But it doesn’t mean a hill of beans to me, given all the hedonic adjustments that have been made to it since the mid-’90s. I prefer to go to Shadow Stats guru, John Williams, and see what he has calculated for inflation using the pre-’90s method… I know that I’ve explained all this before, so I won’t go into it here… But think about the base root cause of the housing meltdown, and thus the financial meltdown… And you’ll get there… And it’s all centered around the hedonic adjustments that were made to CPI…

OK… Enough of that! Well, Retail Sales in the US for May were as I said I thought they would be… Disappointing… Recall, I told you that the forecasts were all over the place, but the final forecast going into the print was for a -0.5% fall in sales… Retail Sales weren’t that bad, but still “disappointing”, falling -0.2%… And like I also said yesterday, if the markets take an “old school” reaction to the number, the dollar will get sold… And that’s exactly what happened yesterday!

Today, the data cupboard has stupid CPI, but more importantly, the Empire Manufacturing Index, (NY region), and the Total TIC Flows, and two of my faves… Industrial Production and Capacity Utilization… If you really want to get the pulse of business in the US these two pieces of data do just that… And… Capacity Utilization is one of the few “forward looking” pieces of data.

Did you hear or see the Fed Chairman on the TV yesterday? When I saw him speaking, I was reminded of a quote by our friend, Jim Rogers about Big Ben… I can’t say it, or else I’ll get my hands slapped, but it’s quite funny, and you should Google it… Anyway… The Fed Chairman said we shouldn’t use the debt ceiling/limit as a “bargaining tool” to get spending cuts… OK. I’ll buy that one… But… What should we use, Ben Bernanke? Ahhh, grasshopper… He didn’t offer any such alternatives… So… With no alternative, what’s a country to do? I guess we use the debt limit as a bargaining tool, and hope that it doesn’t come to a default…

One of these days, though… And probably long after I’ve left for the green, green grass of home (died), that will be the only choice of the US… To just default on all its debts, and wipe the slate clean… Until that happens, though, the tax burdens on our grandkids will be tremendous! And the loss of freedoms will have mounted… I love those little rugrats of mine, but at the same time, I wonder how they will deal with all this in the future…

A couple of years ago, I wrote a letter to Delaney Grace and read it at the Agora Financial Investment Symposium… I’ll have to update it now, to add Everett the EverBaby, and B.C. Braden!

OK… This has got me going in a direction that I need to pull out of, and fast! Do you see now, why my drinking buddies don’t ever get me going on this stuff, and keep me focused on sports and music? HA!

And I just saw the news headline that will do that! Eurozone Industrial Production rose 0.2% in April, making the annual increase 5.2%… (4.8% was forecast)… This is good news for a region that needs a good shot of seashells and balloons every now and then!

So… One more thing before we head to the Big Finish… I see where the Fed members are discussing the adopting of an explicit inflation target (like most of the countries around the world use!) Former Fed member, and (Mark Twain Bank Advisor) Laurence Meyer believes that “this may be a done deal, though not one likely to be implemented soon, and perhaps not until economic conditions return to closer to normal.”

OK… So the Smart Alec like me would say to that… “Oh, I guess that means we’ll never implement them” But… All I can say to this is that it’s something that’s been missing from the Fed’s mandate for a long time… Throw the number out there and then we get to see when to expect policy adjustments!

Then there was this… From (thanks Scott!)…

Time is running out for Minnesota’s parks, highway rest stops and public universities, not to mention 36,000 state employees.

If Gov. Mark Dayton and lawmakers don’t agree on a budget by June 30, the state government is expected to shut down. The state moved one step closer to this outcome on Friday by sending layoff notices to much of the state workforce.

And then there was something else I wanted to mention this morning… I saw last night that Texas has created 213,000 jobs in the past 2 years! WOW! That’s a great thing! Way to go Texas! Get the accountable for that (Gov. Rick Perry) to run for president, apparently he knows what’s needed!

To recap… The currency rally lasted all day yesterday, but met up with more bickering between Eurozone Finance Chiefs this morning, and the rally was halted… The euro has sold off more than 125-cents, but currencies like the Aussie and Canadian dollars are holding on to gains, because each respective central bank head talked about hiking rates soon. Retail Sales in the US were disappointing, and Wholesale inflation is soaring…

Chuck Butler
for The Daily Reckoning