Dollar Index Up: A Momentary Safe Haven from Greek Debt

The Greeks have put Wall Street in a headlock for more than 24 hours now. Let’s recap…

  • Before market open yesterday: Greek debt deal announced, traders rejoice. Futures up
  • After market open: Traders realize there are no specifics to the deal. Market down
  • By midday: European Council president clarifies – the EU stands ready to help Greece, but help isn’t actually needed right now. Best of all worlds. Market up
  • After market close: German Chancellor Angela Merkel let it be known Athens would have to get its own act together and, in the words of the UK Guardian, she “brushed aside all questions of financial support.” Bummer.

Is Frau Merkel acting wisely? Behold…

Fourth-quarter German GDP figures just came out…and they’re flat. Not good after two consecutive quarters of growth. Year over year, the German economy shrank 1.7%.

French fourth-quarter GDP came in better than expected, up 0.6%. The Eurozone as a whole grew barely – 0.1%.

This news sent the euro to a nine-month low against the dollar, at $1.3533. The dollar index in turn is up to 80.75, a seven-month high. For now, as long as the euro looks shaky, the dollar retains its sheen as a safe haven. For now…

The US Treasury auctioned $16 billion in 30-year bonds yesterday, and it didn’t go very well. Before the auction began, yields were 4.68%. Afterward 4.72%. Clearly, buyers are getting more nervous about the notion of going “long America” for the next three decades. The bid-to-cover ratio looked lousy, at 2.36.

Maybe all this talk of who’s going to be “the next Greece” is rather beside the point when debt is weighing everyone down – including the keeper of the world’s reserve currency.

“All governments will eventually default, including the US,” says Marc Faber – except for a handful like Singapore that have their debts more or less under control.

This comment drew gasps, first of horror, then of outrage, from CNBC anchors Sue Herera and Dennis Kneale. You can watch for yourself here – the moment of truth comes around 2:15.

Still, the guardians of the Temple of the Perpetual Bull gave Faber a chance to explain himself. “In the developed world, we have huge debt to GDP, in terms of government debt to GDP and unfunded liabilities that will come due, and these unfunded liabilities are so huge that eventually these governments will all have to print money before they default.”

Dr. Faber was one of the most popular speakers at last year’s Agora Financial Investment Symposium in Vancouver, and we’ve just confirmed he’ll be back this year as well. There’s nothing like seeing and hearing him and his candid assessments in person. Early bird registration is still available. I urge you to book early…make a vacation out of it. Vancouver is very nice in July.