Euro Dips Briefly on Greek Debt Downgrade

Well… I was off a bit on my call for a disappointing Jobs Jamboree… Recall that the “experts” said 200,000 jobs were created in January, and I told you about the downside risks to that number, saying that 175,000 would be the top… Well, it wasn’t 200,000… And it wasn’t 175,000 either… It was 192,000… I’ve been through all the explanations about who gets counted, and so on, the ghost jobs, and the fall in the unemployment rates, so I won’t bore you with those details again… I’ll just say that 192,000 is better than a sharp stick in the eye, like the 300,000 monthly job losses we saw a couple of years ago… But it’s not enough to fuel a strong economy.

When I signed off on Friday morning – before taking a quick tour of EverBank Field, and then boarding a plane for home – the currencies had backed off their lofty overnight levels, but were in still “rally mode” versus the dollar. And they remained like that the rest of the day… Silver was the best performer of the day, gaining 1.76% to nearly $36!!!!! Gold touched a new record high of $1,440… And the price of oil hit $105, which has really pushed the Canadian dollar/loonie (CAD) to $1.03!

I read a story this past weekend about Fed Heads calling for an abrupt end to the QE2 bond purchases… Well… I guess their calls are falling on deaf ears, because the CABAL will make purchases of about $25 billion this week… So… neener, neener, neener… You’re not the boss of me; you can’t tell me what to do! I’m laughing loudly right now, because I’m thinking that Big Ben Bernanke is the one sounding like a 7-year old with the Fed Heads… HA!

So… This morning the euro (EUR) briefly fell below 1.40 on news that Moody’s downgraded Greek debt by three grades! Whoa there, partner! I’ve never seen that before! Three grades… And it didn’t stop there; they also hang a “negative outlook” for Greek debt… I have to chuckle a bit, here, because JoJo the monkey, who performs tricks at the children’s zoo, probably already believed that Greek debt had a “negative outlook”! But a year later, Moody’s comes along to do the trick… UGH!

But my trusty “Bloomberg Anywhere” tells me that the euro has shaken the affects of that downgrade to one of its “outlaw states” (Greece), and is back to pushing higher versus the dollar, and yen (JPY) this morning.

Other than silver…. The best performing currency last week was the Brazilian real (BRL), and the worst performing currency last week was the New Zealand dollar/kiwi (NZD). Well, the real saw a 50 basis point internal rate hike to push it higher, and kiwi heard all the calls for a rate cut to help the country deal with the aftermath of an earthquake. The Brazilian government continues their assault on a strong real, by buying dollars and selling real by the truckload about once a week, but it hasn’t stopped the real from gaining 7.5% in the past year versus the dollar… And when you take into consideration the interest earned on the real, the overall return is nearly 14%… Not too shabby for a “diversification hedge”, eh? But here’s where I pop the balloon on this seashells and balloons talk about reals… Don’t forget that Brazil is still considered to be an “emerging market” which says simply that the volatility can be quite wild sometimes…

I say, look at kiwi like this… If the Reserve Bank of New Zealand (RBNZ) does decide to cut rates, in an effort to assist the country, the cut has already been priced in… (Unless the RBNZ says something like, this is the first of many cuts to come, which I don’t think they will)… And therefore, the level we’re seeing for kiwi, could (and I emphasize “could”) represent a contrarian’s view of an opportunity to buy a cheap asset… The rebuilding of New Zealand is already beginning, as homebuilding approvals increased the most since 2009, last month… And yes, before everyone fires off emails telling me about Hazlitt’s broken window and so on… This rebuilding is a good thing for New Zealand’s economy…

The job advertisements were very strong in Australia, last month… So… The Aussies and kiwis are on the mend…

The Chinese renminbi (CNY) continues to move higher versus the dollar, in baby steps, but still it’s a one-way move, these days… Now, that’s not to say the renminbi can’t lose ground versus the dollar, I’m just saying that recently the move has been one-way… I believe I’ll be talking to a reporter tomorrow about the Chinese renminbi… And for those of you that plan on attending the Las Vegas Money Show at the end of April, I’ll be talking about how I believe the renminbi is going to be the next reserve currency of the world… And no, I don’t mean in the next year, or two years, or even three years… But eventually, as these things take time to wind through…

Well… Looky here! The boys and girls over at Morgan Stanley have removed their bearish outlook for the euro (versus the dollar), and now believe that the euro will end 2011 at 1.45…

In my opinion that’s all fine and dandy, except for the debt solution resolution that I’ve been talking about, which hangs over the euro like the Sword of Damocles! Last Friday I said that the euro needed to beware of the Ides of March… That thought remains and the Eurozone leaders have this month to come up with their solution… If they don’t, I don’t care who removes their bearish outlook for the euro, the single unit will get hammered… But then, if the response to a crisis can be solved… Look out… Because here comes the Big Dog! The European Central Bank (ECB) is going to hike rates soon, and it will be “game on” (Wayne and Garth style!) for the euro!

I had someone ask me to explain “risk on”… So here goes… Basically, when the markets are buying up “risk assets” like currencies, stocks and commodities, the “risk aversion” has been removed from the markets, and therefore I call it a “risk on” day, which simply means that it’s all seashells and balloons for the risk assets.

Well, the data cupboard here in the US is pretty bare for the first three days of this week, but then about the time I’m boarding a plane for spring training on Thursday, the data begins to come in strong! Data prints like: the trade deficit, weekly jobless claims and retail sales… I won’t be around when the retail sales prints, but I can tell you that the Butler Household Index (BHI) tells me that it should be a strong report… Retail sales are going to reflect a huge surge in car sales in February… Of which I participated!

Then there was this…

Utah took its first step Friday toward bringing back the gold standard when the state House passed a bill that would recognize gold and silver coins issued by the federal government as legal currency. The legislation now heads to the state Senate, where a vote is expected next week.

Under the bill, the coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative.

If the bill passes, Utah would become the first of 13 states that have proposed similar measures. The others states are Colorado, Georgia, Montana, Missouri, Indiana, Iowa, New Hampshire, Oklahoma, South Carolina, Tennessee, Vermont and Washington.

That’s pretty interesting stuff, eh? Talk about sending a message to the rest of the country and to the leaders charged with providing a strong currency… WOW!

To recap… The carryover of the news from Thursday that the ECB is preparing to hike rates has put some wind in the euro’s sails, and it carried over the 1.40 level… There’s been some slippage on the news that Moody’s downgraded Greek debt by three grades, but as I get ready to hit “send” the euro is back on the rally tracks versus the dollar and yen. The Canadian dollar/loonie is $1.03, as the price of oil picks up steam and is over $105! The Brazilian real was the best performing currency last week, and the New Zealand dollar/kiwi was the worst performing.

Chuck Butler
for The Daily Reckoning

The Daily Reckoning