An FOMC Meeting Week (Get Out the Board Games!)

A Pfennig for your thoughts…

Good day. And a Marvelous Monday to you!

Well, it’s all coming down to the cheese that binds for Greece, folks. And the Greek people are getting tired of hearing about it. Well, they can join the Germans, Austrians, and so forth, and us too, for I’ve grown so tired of this Greek drama. I hope it all comes to a boiling point, an agreement gets worked out, and we can go on with life, soon.

Front & center this morning, the dollar still has the conn, and is exerting its will on the other currencies and metals. Greece is weighing on the euro, the Kiwi is still reeling from the rate cut last week, the loonie goes up and down with the price of oil, which is down this morning. And let’s not forget that tomorrow and Wednesday will bring us a Fed FOMC 2-Day Meeting. Time to get the board games out! HA!

Back in the day our former PR person loved it when I would talk about how I don’t know why it would take the FOMC two days to meet, and how it was more likely that we would hear cries of: “You’ve sunk my battleship,” coming from the meeting room!

Just what the heck will the FOMC do this week? Remember when it was all but said and done that they would be hiking rates at this meeting? Well, that’s not happening folks. I told you that it wouldn’t happen, and look who’s going to be right, while everyone else is wrong! Well, the Fed could keep the heat on the rate hike talk by talking upbeat about the economy that they still see as rebounding.

In fact, I hear a lot of economists continue to say that the U.S. economic data has been better. Better than what? That’s what I say!

The BLS jobs report is a bunch of hooey, and Retail Sales is nothing but new car sales. Today, we’ll see two of my fave economic prints, Industrial Production (IP) and Capacity Utilization. And here’s where the rubber meets the road on that statement that the economic data is better. Sure, IP is expected to grow 0.2%, and in April it was -0.3%, so it is “better”. But after 6 years of stimulus, shouldn’t we expect better than 0.2% IP? Of course we should!

Well, there I was bored out of my gourd, due to the Cardinals and Royals game being rained out yesterday, so I started searching for news that would interest me. You see, when I’m on “my own time” I tend to lean to news that’s not markets related, and catches my eye. But there was none, really. UGH!

So I settled on a story about how Greek PM Tsipras is really pushing the envelope too far. Apparently, the Greeks that want to remain in the euro, and remember last week I told pfennig readers that 74% of Greeks want to remain in the euro and are growing very tired of Tsipras Brinkmanship. Well, all that could come to a breaking point this Thursday.

This Thursday looks like it could be the point of no return, as the fourth LTRO allotment comes around.. For those of you new to class, the LTRO stands for the European Central Bank’s (ECB) “Long Term Refinancing Operation”. The ECB could make things difficult for Greece here, and make them return to the negotiating table. The Eurogroup also meets on Thursday, so to me, this looks like a perfect storm gathering. And rock group, Kansas said it best when they asked, “How long, how long to the point of no return?” Looks like it’s just 3 days from today.

So, let’s move on to something else, eh? I did want to mention that the net short futures positions in euros dropped again last week by 27,500 contracts, bringing the short positioning in euros to the lowest level since December. The Big losers in the futures positions according to the IMM Futures Position report last week are Mexican pesos, Aussie dollars, New Zealand dollars/ kiwi, and Swiss francs. Again, these positions in futures can change in a heartbeat, but it does give us an indication of what traders were thinking the previous week.

The Indian rupee continues to disappoint me.. But that’s not all that’s disappointing about India. PM Modi has done some good, but not the BIG SPLASH I was expecting, and was pre-billed about his election. Reserve Bank of India Gov. Rajan, has held steady but his recent rate cut was a real mystery to me. Wholesale Inflation in India just printed -2.36% year on year in May. And he cut rates? Hmmm. I still believe that Modi is going to present a hoola-hoop to the Indian economy.

Speaking of India… I read some very interesting info on Indian imports of silver. Last year, India imported 7,063 tonnes of silver. In the first 4 months of 2015, India has imported 3,000 tonnes of Silver. WOW! What’s up with all this Silver importing in India?

Ahhh grasshopper, we all know that silver is an investment metal AND an industrial metal. And India has long been an importer of gold as their store of value metal so they must be looking to use silver for something else? That’s it! That’s the ticket!

India has announced that they are going to invest $200 billion in solar panels in the next 7 years. WOW! Late last year I told pfennig readers about how solar panels used silver and that it was a big part of the construction and continued use of a Solar Panel. Well, India is making a HUGE investment in solar panels, and they’re getting the silver they will need stockpiled. Pretty smart, eh?   Especially while the price of silver is cheap!

The Russian ruble is stronger this morning. It’s been a tough row to hoe for the ruble lately, and reminds me of what I told pfennig readers a month or so ago, about how I thought the ruble had pretty much gone about as far as it was going to go (rally-wise). I also said that until we saw something “good” for Russia like the dropping of sanctions, or an increase in the price of oil, that the ruble would probably range trade.   So, that scenario is playing out, folks. But we had better watch out this week, as the Central Bank of Russia (CBR) will meet, and all expectations are for the CBR to cut rates 100 Basis Points! (1%), bringing their internal rate to 11.5%…

Now, don’t act surprised! And the markets shouldn’t make that big of thing out of this as this is just the CBR removing the emergency rate hikes during the ruble debacle last fall and early winter. But their markets will — we all know they will — and the ruble will get whacked for a day or two. I would like to think not, but who knows? Only the Shadow knows.

As I’ve been writing this morning, the euro has lost more ground, so the NYC traders are arriving and seeing that Greece walked out of the negotiations after just 45 minutes yesterday, and once again the thoughts that Greece is going to default, and leave the euro are weighing on the single unit. But I still say that an 11th hour agreement will be made to kick the can further down the road. But until we get there, there’s all this Greek Drama. UGH.

Gold is flat again this morning. I wanted to check on the concentration of short contracts in gold & silver this past weekend to see if anything has changed. From what I could find, nothing has… It still takes between 50 -60 days of world production of gold to cover the short positions of the 8 largest traders.

And it still takes 160 days of world production of silver to cover the short positions of the 8 largest traders.   Now, if I were an investigator with the DOJ, who was assigned to investigate possible price manipulation in gold & silver, I would start here. Seems to me to be a good place to start, eh?

The U.S. Data Cupboard has the aforementioned IP and Cap Utilization this morning, and yes, they’ll be “better” than the April prints, but still “lacking” in my mind. We’ll also see the Net TIC Flows, but I doubt anyone even notices this data any longer.

The Big Kahuna This Week though is the FOMC meeting that will culminate in a rate decision on Wednesday afternoon. I guess the meeting will be all about “forward guidance”. But isn’t that what the Fed has supposedly been giving us all this time?   We’ll have to see this all unfold I guess. I can tell you that I give about as much credence to what they have to say as someone who lives under a rock!

To recap. It’s all about the FOMC this week, folks! The dollar has the conn on the currencies and metals this morning, as traders are still of the thought that the Fed could either hike rates at this meeting or give us a heads up that a rate hike is coming in September. The loonie is trading alongside the price of Oil, which is down today, the euro is being weighed down heavily by the Greek drama, that might come to a head this Thursday, and although the Russian ruble is stronger this morning, its chances of doing so throughout the week are slim, as the CBR will meet and probably cut rates 100 Basis Points this week.

For What It’s Worth. I come across a ton of research written by naysayers of China and its rise to an economic power. Most of the stuff centers on Chinese debt. none of it ever mentions China’s treasure chest of reserves. So, when I saw this article from Xinhua, I had to check it out to see if it could lend a hand at straightening this all out for us:

“China has adequate fiscal headroom to absorb local government contingent liabilities, a recent report by Moody’s Investors Service said.

As higher levels of local government off-budget investment financing pose a challenge to China’s fiscal position, such debt levels are relatively moderate and can be absorbed over time by the sovereign’s balance sheet, said Moody’s.

“While local government financing operations raised the general government debt-to-GDP burden to 34 percent in 2014 from a low of 17 percent in 2005, China’s debt trend appears to have stabilized,” said Tom Byrne, a Moody’s Senior Vice President for the Sovereign Risk Group.

“In addition, the government has an appreciable amount of fiscal space to accommodate such known risks.”

Chuck again. Well, maybe that will put that argument to bed! And while I don’t like Governments that take on debt with no ability or willingness to pay it off in better times, I don’t think that’s the case with China. Right now they need to provide help for their economy, and they have the wherewithal to do so!

That’s it for today. So. let’s go make this a Marvelous Monday.


Chuck Butler
for the Daily Reckoning

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