Greece Negotiations Drag On

There’s no sweet sound for the currencies and metals coming from the eurozone, as the Greek debt debacle does its best imitation of the Energizer Bunny! UGH! Yesterday, the euro (EUR) was in the mood to party, after China said they would help the eurozone, but then the US traders came in and said, “No, Greece is still hanging on the euro like a cheap suit.” And they proceeded to begin slashing away at the euro, which brought the other currencies along for the euro’s trip to the woodshed.

The selling didn’t just last for the New York trading session… Overnight, the euro has steadily fallen and is now trading below 1.30… A level it last passed on the upside a month ago, after it had reached a one and a half-year low of 1.2815. So we’re back to square one this year, and all the things that were on our minds as the year began, like when I told you that I wouldn’t be surprised to see the euro fall to 1.18 in the first half of this year, nor would I be surprised to see it rally to 1.40 in the second half of the year…

And all the euphoria of Monday — when the Greek Parliament agreed to the austerity measures — and on Tuesday when China said they would help, was washed away on Wednesday and into this morning. The euphoria, and gains are all gone, washed away, and now the tide is out to sea…

There’s not one currency out there that is moving in the right direction this morning, including gold, which is off by $10 this morning. On Tuesday, I did an interview with Alix Steel on the regarding gold. Of course, I was bullish on gold, and then she asked me if there were any downside risks. And I said yes… If there’s another so-called flight to safety of dollars and Treasuries, gold will suffer, because gold is the “antidollar”… I would certainly think that if gold makes another dip below $1,700, it would represent some cheaper levels to buy, but then there could always be even cheaper ones on the way! But I’m not selling my gold, or silver for that matter… let the markets take cheap shots at the metals. I’m not going to get caught up in chasing price…

And did you see the numbers on the amount of gold China purchased last year? And if China purchased truckloads of gold, you can bet your sweet bippy that India did, too! I haven’t seen the numbers for India yet, but recent history tells me that India bought truckloads of gold, too. But when I see them, I’ll report on them.

The point here is that sellers of gold are finding buyers in the form of central banks, primarily in Asia, but Russia, too, has been upping the ante on the gold purchases…

A commodity that hasn’t been fooled by the dollar’s head fake here is oil… Oil remains above $100, and I saw last night that the price of gas here in the US is up 12 cents in the past three weeks… Uh-oh! Rising gas prices are not welcome here in the US with its nascent economic recovery… I told you a week or so ago that $4 gas was forecast for us by May. Well, it certainly is headed in that direction, eh?

The damage that higher oil prices creates for the economy will be difficult to overcome, which would play well with the Fed thinking they need to implement more stimulus. And this plays back to the Fed minutes of the last FOMC that printed yesterday, in which the Fed Heads reiterated their pledge to further stimulate the economy if necessary… And then the rising oil price… Is it demand? Well, yes, as I’ve said for years now, middle classes in India and China are buying cars and increasing the demand for oil that was never there before. But I think this time, it’s even more. I think we’re going down the road again to defend the arrangement made between Richard Nixon and the then Saudi King that oil would be priced in dollars, as a part of the dollar being the reserve currency.

When Gaddafi proposed a “gold dinar,” he saw cruise missiles coming through his tent… and when Hussein announced he would accept only euros for his oil, well, we know what happened then. And now we have Iran accepting gold for oil, or even other currencies than dollars. You have to believe that all the saber rattling is about the nonuse of dollars here…

I sure hope the US doesn’t get dragged into another theater of operation, because this could spin out of control very quickly. But that’s just me. But talk about something that would light a fire under gold: If the gold is the anti-dollar, guess what happens to the dollar?

But for now, we have to deal with dollar strength, until the focus of the media shifts back to the US. And I don’t mean to report that the payroll tax deal had been hammered out. I mean to focus on our debt, and inability to repay our loans, or what may become an even-bigger issue as we head to the end of the decade, and that’s a question about how the US will pay for the debt servicing on the bonds we’ve issued, and pay for all the other stuff in the budget.

If the media focused on that, maybe enough people would see the light and finally understand that we as a country must change course, and fast, or our kids and grandkids may never know the freedoms and prosperity intended for us by the Founders of this great nation.

As I told an audience in Orlando, we have this problem, and it’s a HUGE problem, but the country that defeated Nazi Germany and Imperial Japan at the same time should be able to clean house in Washington, balance the budget and clean up our debt. But before we go on, who here believes there is the political will to make these necessary cuts? Not me!

Sweden’s Riksbank did cut rates, as I thought they would, and like Steve McCroskey in the movie Airplane!, the Riksbank picked a bad day to cut rates: a day when dollar strength is the name of the game being played today. So normally, the krona (SEK) would experience some weakness seeing a rate cut, but today, it got slammed!

Australia printed a very strong employment number for January last night, as 46,300 jobs were created in January, thus wiping out the negative December number of -29,300. The unemployment rate fell to 5.1% (from 5.3%). I see this as a result of the mining operations all coming back on board, after the floods last year just about wiped out most of the mining.

The thing that I think the Reserve Bank of Australia will keep in mind here is that after a brief slowdown, the economy has reacted favorably to the one rate cut, and that another rate cut probably isn’t necessary right now. And on any other day, this news would have pushed the Aussie dollar (AUD) higher. But not today.

Then there was this. In Orlando last week, I talked to the audience about being in Orlando 10 years ago. It was a very small room, just a handful of attendees to my presentation on why I thought the US dollar was about to enter a long-term multi-year weak trend. I gave them a list of things from 10 years ago, when I was standing there being looked at like a loon…

Here’s the list:

  • The euro traded around 91 cents
  • The Aussie dollar traded around 55 cents
  • Gold traded around $260
  • Silver traded around $4.70
  • The US debt stood at $5.7 trillion
  • The debt to current account ratio was 4.5%
  • President Bush had just attached tariffs to Japanese steel.
  • A gallon of gas was $1.46
  • A gallon of milk was $1.38
  • China was just awaking from its slumber
  • Chuck had hair, less weight and few believers.

To recap: Greek negotiations continue to drag on, thus putting tons of pressure on the euro and giving the dollar a chance to shine today. All currencies are down versus the dollar, including gold (and silver). The price of oil remains above $100, with new reasons, I believe. Sweden’s Riksbank did cut rates yesterday, and Aussie job creation for January was very strong.

Chuck Butler
for The Daily Reckoning