Eurozone Manufacturing Slumps

Good day. I’m at a complete loss this morning on what to start with! I’ve sat here staring at the blank Pfennig template for about 10 minutes now. My mind wandering to this, that and the other stuff, but never really settling on something. UGH! So I thought I would just start typing away and see what comes out. I don’t know what I’ll talk about today; you’ll just have to read it to find out! HA!

The markets are in the same dilemma, as they hem and haw about where to focus their attention. Friday’s bad taste remained in their collective mouths, all day yesterday, and the currencies were able to add to their Friday gains.

The euro (EUR) briefly touched 1.25 before settling back down. But this morning, the focus is back on the eurozone’s problems, as well they should when the eurozone manufacturing index slides to 46 as it did in May! YIKES! That’s plain awful, folks! Remember, any number below 50 represents contraction in the manufacturing sector.

So the two reserve currencies of the past 10 years, the dollar and the euro, are in a battle to see who can look uglier than the other. So the euro has lost about three-fourth of a cent this morning on that bad data.

Of course, I told you several months ago that I thought it was time that countries, traders, etc., started looking for a new currency to turn to other than dollars and euros. At that time, I was thinking the Australian dollar (AUD). I know, I know, the A$ doesn’t have the depth that dollars or euros have, or to that extent, Japanese yen (JPY), British pound sterling (GBP) or Swiss francs (CHF) — or did I hear someone say gold?

Jamie over in our new Wealth Management group sent me a link to a story yesterday in which the writer said that “your portfolio doesn’t need gold.” The writer made a big point of how even now, with all the problems in the U.S. and eurozone, gold’s price is falling.

Hmmm, obviously, he doesn’t read the Pfennig, otherwise he would know all about the price manipulation that has gone on in gold in recent months. I’m in complete disagreement with this writer, but then everyone has opinions, right?

Speaking of gold’s price, I told you yesterday that gold had soared $66 on Friday. I see my friends over at The 5 Min. Forecast talked about this move and have narrowed it down to “very powerful buying that came out of the East.” That makes sense to me — a move like the one gold made had to be powered by central bank purchases. The 5 then pointed out that “even during April, when gold was priced higher than it is now, Turkey, Mexico, Kazakhstan and the Ukraine all loaded up with gold purchases”

The Reserve Bank of Australia (RBA) did cut rates last night (as expected), but less than what was expected by the swaps market. The RBA cut 25 basis points (1/4%) from its official internal rate, leaving it at 3.5%. The A$ was not sold, but bought instead on the news.

I guess there were some shorts in the A$ that had to be covered, once the RBA cut only 25 basis points, and the A$ didn’t fall in price. And the RBA didn’t exactly sound like a central bank that was 100% behind the cut in saying, “with modest domestic growth and a weaker and more-uncertain international environment, the outlook for inflation afforded scope for a more accommodative stance of monetary policy.”

They’ll just have to deal with another cut down the road, folks, because things aren’t going to get better any time soon. I’m not the only person that believes this; apparently, the finance ministers of G-7 are seeing it too, as they have called an impromptu meeting to be held via teleconference today.

Japanese Finance Minister Jun Azumi told reporters, “we have reached a point where we need a common understanding about the problems we are facing.” But wasn’t it just two weeks ago that G-8 leaders met at Camp David and acknowledged the problems?

I have to say that I’m worried about this global slowdown. I have something very different in the TTWS section today, regarding the Bilderberg Group, but if you read that and then think back to what Azumi had to say, and you start to think, “Lions and tigers and bears, oh my!” then you are thinking like me!

Sprinkle in one of my favorite reads in the U.K. Telegraph. Ambrose Evans-Pritchard talks about how the Bank for International Settlements (BIS) is warning that “global lending is contracting at the fastest pace since 2008 Lehman crisis.” And the warning signs just keep getting flashed in front of our eyes.

This morning, besides the awful manufacturing print in the eurozone, the euro has to contend with the fact that Spain has now asked for outside help for their troubled banks. Spanish Budget Minister Cristobal Montoro called for funds to be used to shore up the nation’s banks overnight. That can’t sit well with traders that had pushed the euro up to 1.25 yesterday. I would think that traders are looking at the euro in a negative light now, and therefore are selling into euro rallies.

Not much new going on in China to talk about. HSBC says that the Chinese services industry expanded at a faster pace in May. And that news sent Chinese stocks higher, as the immediate fears of a sharp slowdown were eased. I’m still of the opinion that China’s economy moderates and doesn’t collapse I’ve had those colors pinned to my mast for a couple of years now, while “others” have called for a collapse.

The emerging markets, for the most part, continue to keep their heads above water and have not allowed themselves to be dragged through the mud and yuck of the U.S. and eurozone. Countries like Columbia, Chile, Turkey and many more. The problems with these countries is that their markets are very small, and the liquidity stinks and they experience much wilder swings in price on market moves. But I said early this year that I thought the emerging markets would be the only place that economic growth might occur in 2012.

Meanwhile, back at the ranch, fundamentals continue to be thrown to the side of the road, and countries like Norway and Canada can’t catch a bid. Norway has its eurozone to contend with, and Canada has its U.S. to contend with.

I have a special treat today, with a recent quote by the man, Richard Russell. Unfortunately, the “maestro” isn’t talking about anything fun. Here’s he is talking about a nasty decline in stocks:

“I don’t know what that number is. Dow 8,000?, Dow 6,000? Dow 4,000? Dow 2,500? The number could be any one of these. What I hope is that we get to that number as quickly as possible. I just hope we get the pain of the bear market over as fast as possible. One mistake is to think we know how costly the bear market is fated to be — and how far the bear market will carry. The primary trend is a law unto itself. It will continue until it dies of exhaustion.

“In the meantime, the bear market goes on. I’m afraid it has a long way to go. But we will survive. In all seriousness, I feel it is my duty to help my subscribers to survive and weather this bear market.”

That leads us to the “Then There Was This” section today. Now, let me set this one up. You may or may not believe in the Bilderberg Group, which is a select group of people from the U.S. and Europe that supposedly make the decisions for the world. They have meetings where no one outside the group is allowed to be in the room. There are about 120-140 members. According to Wikipedia:

“Bilderberg itself is not an executive agency. However, when Bilderberg participants reach a form of consensus about what is to be done, they have at their disposal powerful transnational and national instruments for bringing about what it is they want to come to pass. That their consensus design is not always achieved is a reflection of the strength of competing resisting forces outside the capitalist ruling class and within it.”

Then There Was This: Author Daniel Estulin reporting on leaked info from the Bilderberg meeting: This elite group is split over whether to sink the current economy and replace it outright or allow a long, agonizing depression.

According to Estulin’s sources, which have been proven highly accurate in the past, Bilderberg is divided on whether to put into motion, “Either a prolonged, agonizing depression that dooms the world to decades of stagnation, decline and poverty… or an intense-but-shorter depression that paves the way for a new sustainable economic world order, with less sovereignty but more efficiency.”

Scary stuff, eh? But then we always have the competing resisting forces outside the capitalist ruling class to fight for us, eh? And then maybe everyone is wrong about what these people do and maybe their annual get-togethers are just opportunities to exchange recipes and share their latest family portraits.

To recap: Friday’s gains in currencies and metals couldn’t be added to, although the euro did climb back to 1.25 briefly yesterday. But bad data and calls for help from Spain have the euro selling off again this morning. The RBA did cut rates last night 25 basis points, and the A$ gained. Gold sold off about $10 yesterday and is basically flat this morning.

Chuck Butler
for The Daily Reckoning