Good day. And a Happy Friday to one and all! I do believe that today will turn into a Fantastico Friday, so I’m going to just put that down in the books, and move along! I’m going to attempt to spend a few hours in the office today. Hopefully today works out better than the other day, when I realized quickly that I needed to go home. I’m sure it will because this is a Fantastico Friday!
Well… Front and center this morning, it appears the ball has been volleyed back to the US. Yes, the Eurozone was able to get the ball back over the net and into the US’s lap. I say that because the euro (EUR) is on the rally tracks this morning. Spain has presented their budget, and the bank audit report is expected, as I write, so the markets are like, “We’re tired of all this Spain stuff; let’s go back to the US’s problems.”
Another thing to keep in mind today is that it is the end of the month and quarter, and book-squaring could very well drive the markets today, and if the overnight markets are any indication, it appears that the book-squaring could involve closing out dollar long positions. So, from what I’ve seen so far, I would have to think that the bias would be to sell dollars today. But then I could be wrong.
One of the best performing currencies overnight was the New Zealand dollar/kiwi (NZD). And the reason for the rally tried to fly under the radar, but that’s where I normally hang out for stories! So, it couldn’t slip by me! You see, two major mortgage banks in New Zealand announced large cuts in mortgage rates, and since most mortgages in New Zealand are floating rather than fixed, these cuts make a very quick impression, and will be felt in the economy quicker than a Jimmy John’s sandwich delivery, which are freaky fast! This will free up money allocated to mortgages and could very well be better than a central bank easing! And whenever something like that happens, it’s very good for the currency. (You didn’t have a debasing central bank easing, and yet, the private banks reduced borrowing costs.)
Well… Remember yesterday when I told you how the global growth optimists weren’t getting any help from the US? Well, we saw two more pieces of data that paint an ugly picture for the US economy. Orders for durable goods plunged 13.2% in August versus the previous month, which was bloated by aircraft purchases. And proving what I always say about those months that have 1-off aircraft purchases, they don’t book those purchases every month! Just like one swallow doesn’t make a summer, one month of aircraft purchases doesn’t make a strong manufacturing sector!
But wait, if you order now, we’ll send you a second piece of proof that the US economy is in shambles. All you have to do is pay separate shipping and handling! US second quarter GDP was revised down from 1.7% to 1.3%… I sat back on Tuesday and asked the boys and girls on the trading desk what they had seen that would warrant the media to report that the economy was showing signs of improving. They had nothing. And I had nothing. But apparently the media does!
The downward revision of GDP was largely due to consumer spending failing big time. This doesn’t bode well for the third quarter GDP, folks. As 1.3% is well below the recent avg. of 2.2%… At this point I would have to say that third quarter GDP will print below 2%… But don’t worry. The Fed is going to buy $40 billion of mortgage backed bonds and keep interest rates near zero until 2015. That ought to do the trick. NOT!
And next week won’t provide any hiding places for the US economy. Monday, we’ll see the National ISM Manufacturing Index, and given the awful reports from the regionals, and the drop in new orders (see above), I would expect the ISM to remain below 50, which represents contraction. In addition, next Friday will be the Jobs Jamboree, and given the fact that hiring is lacking greatly versus firing and layoffs, the downward risk for this report is great…
OK. Enough of that! I don’t know if you’ve been following all the rants by David Stockman, but whenever I see that he’s talking, I trying to carve out time to hear what he has to say. Sometimes, not all the time, but sometimes, he really says things that make abundant sense to me. For instance… In his latest rant, he said that the Fed’s printing of money “has gone too far” and that “the Fed is being run by the most-dangerous man ever to hold high office in the history of the United States. He is more dangerous than Geithner, Greenspan, Summers, Hank Paulson all put together.” If you feel like he’s talking to you, then you might want to Google his name and begin to view video clips, and texts of his rants. Hey, maybe he’s a “little out there”, but at least he’s saying the things no one else is!
I see where French President, Hollande, is going to introduce increased taxes as a way to reduce debt. I doubt seriously that the French people are going to go hog wild over these increases. And in Spain, where the 2013 budget was introduced, which included a ton of austerity measures, the Spanish aren’t going to take that sitting down, either. Imagine here in the US if we decided to do the right thing and begin to cut discretionary spending… The people would take to the streets in a New York minute. So, we need to be very careful pointing fingers at the Europeans that fight spending cuts with riots, for we would do the same thing here, if our leaders were to do the right thing.
The Chinese government allowed a nice gain in the renminbi (CNY) overnight. The markets were pushing for a gain, on speculation that more stimulus from the Chinese government is on the way. The markets had better be careful here, the Chinese government can only be pushed so far. But, the gain in the renminbi versus the dollar is refreshing, especially after watching the renminbi stuck in the mud for so long
And the price of gold (and silver) is getting marked up on all the optimism in the markets this morning. Spain, New Zealand, China… It’s all good as far as gold is concerned! Gold is also getting some notice because of the heightened tension in the Middle East — which is also responsible for the $2 gain in the price of oil yesterday. But I would rather focus on the optimism, at this point. I think we all know that Iran is working toward having nuclear weapons; that’s no secret. And therefore the prices of oil and gold should come as no surprise.
The There Was This, from Bloomberg…
“The US Postal Service, on the brink of default on a second multibillion-dollar payment it can’t afford to pay, is sounding a new cautionary note that having squeezed out all the cost savings within its power, the mail agency’s viability now lies almost entirely with Congress.
“In an interview, Postmaster General Patrick Donahoe said the mail agency will be forced to miss the $5.6 billion payment due to the Treasury on Sunday, its second default in as many months. Congress has left Washington until after the November elections, without approving a postal fix.”
Chuck again. Default? Again? Why isn’t this all over the cable news? I guess the lawmakers don’t see this as a problem. I can hear them saying, “we can just fire up the printing press, and take care of this default quickly.”
To recap. Spain’s budget is put to bed, their bank audit is too, and the volleyball has been volleyed back to the US. The data from the US yesterday was awful, and now the postal service is about to default. New Zealand mortgage banks lower rates, which is better than a central bank rate cut, and the renminbi moves higher on speculation that China is going to administer additional stimulus for their economy.
Chuck Butlerfor The Daily Reckoning
Chuck Butler is President of EverBank
Great post Chuck! Thanks for all the insights. Privatization?
Yes, good post. But expect another bailout from those who can still pay their taxes!
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