German Banks Warm to 30-Year Greek Debt

Another vote this morning will take place in Greece, this being the most important thing of the day… So, I guess that’s all we need to talk about, eh? Not so fast there, my friend! There’s more to talk about, so stop beating around the bush and get to it! OK?

Front and center today, there’s more optimism that the “implementation” part of the 2-day Greek voting in Parliament, will pass, and that optimism has the euro (EUR) on the rise again. The first vote to accept the austerity measures passed yesterday, with only one dissenting vote… In fact, a trader friend of mine (thanks S.M.L.) sent me a note that said the markets misread the story at first, and thought that the vote had failed, thus causing a brief, but quick weakening of the euro. But that all changed once the “true” story was produced.

The euro, when I came in this morning had a 1.45 handle, but has steadily weakened, as I read and researched stuff for the Pfennig… I told the boys and girls on the trading desk yesterday that I really felt as though the euro was seeing profit-taking, as every time it would rise in price it would get knocked back down… It was a classic case of reaching a level that had been marked as “profit taking” … But you couldn’t keep the euro down… At not least yesterday, that is…

And gold too had a nice gain when I came in this morning, but that has been wiped out now too… It’s as if the markets know something about the second Greek vote… Or, it could be a case of buy the rumor sell the fact, which makes a lot of sense, given the price action I’ve seen already this morning.

Yesterday, I told you that the French banks were on board for a “rollover” or extension of Greek bonds (debt)… Well, now it is being reported that the German banks are also warming to the idea… German banks and other European investors holding Greek debt are considering a 30-year rollover, as proposed by France, was the news item this morning… 30-year Greek debt? WOW… That would be one Tom Dempsey-like kicking of the can down the road! And the original idea was hatched by yours truly, several months ago… Good to see these guys are reading the Pfennig! HA!

Remember, though… Greek debt isn’t like, say, Japanese debt, or US debt… There’s no way bondholders would be able to give up the interest payments or principal of the debt that each of these two respective countries have!

So… Back to the currencies for a minute… The Aussie dollar (AUD) has really “shown off” with their rally this week. On Monday, the Aussie dollar was around $1.0440… This morning I saw the Aussie dollar at $1.0740 (it has backed off a bit with the euro as I type), but that doesn’t water down the fact that the Aussie dollar has recovered 3-cents this week! WOW! On Monday, it was all that gloom and doom talk about needing an emergency rate cut… (I disputed the need for a rate cut, but still that didn’t change the fact that the Aussie dollar was much weaker.) But, here we are 3 days later, and those thoughts of needing an emergency rate cut have been put in the rear view mirror, and it’s as the Big Boss, Frank Trotter, likes to say… Onward and upward!

Yesterday morning, I mentioned that the Canadian dollar/loonie (CAD) was rallying on the back of a huge jump in their Consumer Price Inflation… The month-on-month increase was 0.7%, but the increase to last year at this time was the real eye-catcher… +3.7%! And that rally in the loonie didn’t stop all day and through the overnight session, with the loonie now demanding $1.0345 versus the US dollar… There’s no way the Bank of Canada (BOC) can ignore this… Unless that is, they’ve torn a page out of the Federal Reserve Chairman’s book on ignoring inflation, and calling it “transitory”… I would think that the BOC is seriously considering another rate hike now, and they had better do it quickly!

The New Zealand dollar/kiwi (NZD), outperformed just about every currency last night on the back of news that New Zealand businesses remain upbeat… The Business Confidence Index increased to a 46.5 level this month, which happens to be the highest level since May of 2010, before all the earthquakes began hitting New Zealand. Kiwi actually traded up to 0.8320 overnight, but has since backed off in sympathy of their kissin’ cousin across the Tasman, Australia… 0.8320 is a post-float high for kiwi… Pretty amazing for a country that has seen the devastation of earthquakes, and emergency interest rate cuts, don’t you think?

One of my fave currencies, that I tell people about when I’m out on the road, The Singapore dollar (SGD), continues to push higher… There’s not much to talk about here, when there’s been no news from the Monetary Authority of Singapore… So, the markets have taken the Monetary Authority’s last statement to heart, which was to allow a wider trading band. The markets have been OK with that statement, and have moved the Sing dollar higher and higher… They can’t let it get too far ahead of the Chinese renminbi (CNY), though…

Speaking of China… The renminbi has hit a speed bump this week, but that’s no biggie, folks… There’s no such thing as a one-way street in currencies, and although the renminbi has appeared to take on that look, since June of last year when the Chinese officials announced that they would seek a faster appreciation of the renminbi, there has to be speed bumps, to keep the speculators at bay…

And while we’re talking about China, I came across an interview with one of our old friends, Jim Rogers (thanks Ty), who has this to say about the calls that the Chinese economy would collapse… (You all know I’ve made fun of those people who have said that, so here’s Jim Rogers…)

What do you say to the people who say China is heading for a crash?

Rogers: “Well, I feel sorry for them. They’ve been dead wrong for two years. Hugh Hendry has at least acknowledged that being short China is hurting him. I don’t know about Chanos – Jim said he was short, and if so, he’s hurting too. China has not gone down. It’s been two years now and, sure, there are going to be setbacks in China along the way, but China has not collapsed. We, in the US, had many depressions – with a “small d;” we had a horrible Civil War; we had very little rule of law; we had periodic massacres in the streets; we had virtually no human rights; you could buy and sell congressmen – well, you can still buy and sell congressmen in America, but they were cheap in those days. As recently as 1907, the whole system was broke in the US, and yet we were on the verge of becoming the most successful country in the 20th century.

Maybe real estate speculators in Shanghai will go bankrupt. I expect that, I hope it happens; it would be good for China and it would be good for the world. But in the meantime, these guys shorting China have been dead wrong. But I want to repeat this: There will be massive setbacks in China along the way. It’s the way the world works. If I see serious problems in China, I’m not going to stop teaching my children Mandarin.”

When you get Jim on a roll, he’s amazing with his thoughts and the way he says things…

OK… Back to the euro and Eurozone for a minute… This morning, the latest inflation data for the Eurozone printed, and remained unchanged at 2.7% in June… But European Central Bank (ECB) President, Trichet, was quick to point out that “inflation pressures are on the rise”… So… I think that means that Trichet still wants to hike rates, otherwise he would have let that inflation data just filter though the markets, and not react to it…

I know that it sounds strange to think of a rate hike in the Eurozone with all the goings on with Greece, Portugal and Ireland… But… They signed up for the “one policy fits all” that the euro brings to a nation, and the ECB’s mandate is to provide price stability… Their inflation ceiling is 2%, so even with the inflation rate remaining unchanged in June, it’s still 2.7%, which even using my “old math” skills, I can see that inflation is stronger in the Eurozone than the ECB’s target ceiling… And, as I’ve said many times in the past, why have a “target” or “ceiling” if you’re not going to react to it, when the time comes?

I have two “Then there was this” items today… But first, we need to do a check on the US debt situation… I saw a graph in The Economist yesterday that showed the countries with the greatest debt are the US and Japan… Greece is not in the top two… I’m still waiting for the bond vigilantes to focus on the US debt like they did Greece… And Moody’s is warning the US again that their credit rating will slip if they don’t resolve their debt ceiling impasse… I see that the President was blaming the lawmakers for the impasse… Hmmm… I think I’ll just skip past that, and keep my initial thoughts to myself…

You know… Going back 11 years, I’ve been writing about the growing debt problem in the US. Yes, that’s right! Long before all these new writers came along and jumped on the bandwagon, I was one of the lone wolves that saw this as a growing problem. I banged on the previous president time and time again about the growing debt, and the budget deficits, and those that said that deficits don’t matter… I used to say that knowing that the debt was out there and would eventually lead to a problem, was like driving down an icy road, and your car begins to spin out of control… You know that eventually, you’re going to end up crashing into the guardrail… Well, the US debt problem is about to meet up with its own guardrail…

OK… Here’s the first “Then there was this”… From Reuters (thanks Scott)…

When the President cited cost as a reason to bring troops home from Afghanistan, he referred to a $1 trillion price tag for America’s wars.

Staggering as it is, that figure grossly underestimates the total cost of wars in Iraq, Afghanistan and Pakistan to the US Treasury and ignores more imposing costs yet to come, according to a study released on Wednesday.

The final bill will run at least $3.7 trillion and could reach as high as $4.4 trillion, according to the research project “Costs of War” by Brown University’s Watson Institute for International Studies.

And then there was this, that will just make you want to yell at the walls… From Bloomberg

In 2000, a Fannie Mae executive discovered that Taylor, Bean & Whitaker Mortgage had sold the government-sponsored entity a mortgage it didn’t own, but the matter was never reported to law enforcement. Instead, Fannie Mae bought more fake, nonperforming or defective loans from the firm. That was the beginning of a $3 billion swindle, one of the biggest fraud schemes in US history.

The former chairman of the Taylor, Bean & Whitaker Mortgage Corp, Lee Farkas, is scheduled to be sentenced today in Federal Court in Virginia… I’m just sitting here wondering about responsibility… I think you know what I’m thinking…

To recap… The first leg of the Greek austerity measures vote passed easily yesterday, and now the second leg, which won’t be as easy to pass, will be voted on today, that being, the “implementation” of the measures. The euro went on a rally yesterday with the assumption that the votes would be positive, and didn’t stop until it reached 1.45 and change this morning… It has backed off since, on what looks like profit taking, along with the other currencies that have rallied alongside the euro.

Chuck Butler
for The Daily Reckoning