Focus Begins to Shift

Today’s Pfennigfor your thoughts…

Good day, and a Tom terrific Tuesday to you!

Well, now that Greece has been given a bridge loan and they won’t be going anywhere (Grexit) and they will remain in the euro (funny, I told you months ago that this would be the end result, but the markets failed to listen).

Can we now, finally get back to dealing with other things besides Greek Debt?  I’m sure going to try!   But first I can’t let it all go just like that yet.

I read an article on Google+ the other day, that was quite interesting, in that it talked about how a former employee of the institution that helped Greece hide their debt, suggested to Greece that they start legal action against said institution. The former employee says that the banking giant made as much as $500 Million from the transactions known as “swaps”.

Oh, and say it ain’t so, Joe! But “it’s” not completely in the rear view mirror, just yet. But for now, we can say an agreement is in place and that’s a whole lot closer to the finish line than we’ve been in two months of negotiations, eh?

The most likely center of focusing will be on China now. The Chinese renminbi has bounced around a bit lately, up one day, down two days, and so on. The Chinese, I’m sure, are just attempting to show the IMF that the currency is stable, even in the face of an economic slowdown…

I’m confident that China will figure it all out, and a crash landing will not occur. Yes, I’m about as confident about that, as I was that there would eventually be an 11th hour deal on an agreement with Greece.

The euro has backed off the knee jerk reaction to the deal that brought it to 1.12 and change but has now slipped back to the 1.10 handle. German Investor Confidence fell this month, as measured by the think tank ZEW, but it didn’t fall as far as the consensus forecasts, and that was a good piece of news, you know sort of like being handed lemons, but making lemonade.

For those of you keeping score at home the index fell from 31.5 to 29.7 (29 was the consensus). But the measure of current conditions actually rose!  So, go figure!  HA!  But, I think all the while the Germans knew that the Greeks would eventually see the Big Picture, and bag their demands.

I’ve read some emails from readers, and some news stories suggesting that Germany was the “bad guy” here, that they could have thrown the Greeks a bone, to let them save face back home. I say Hog Wash! Double Hog Wash!

The other main focus is going to shift to the falling price of oil again. For a short period of time there, we had a stable oil price around $60. But that stability has given way to a new round of speculation that the price of oil is going to continue to fall.

Well, that’s not the way I saw this whole thing going, as I really expected the stable price of oil to remain in place, at least through the summer.

And gold is down $4 this morning, as one more of the geopolitical cracks in the global foundation were filled in, as it was announced overnight that a nuclear deal with Iran was in place.

I’m going to keep my thoughts on that to myself… but as far as gold is concerned, it’s one more geopolitical problem that has gone away. At least for now, that is…

The Aussie dollar (A$) is rallying this morning, after a very strong Business Confidence that rose from 7 in June to 11 in July. The only time this index has been higher was after the last election in Australia (2013) when the bums were thrown out, and the new soon-to-be-considered-to-be bums were voted in.

Isn’t that like it is? You love these new guys until they start making life difficult for you, and then they become as bad as the previous bums!

Sorry about that road I just went down, I really wanted to make a big deal about the A$ rally this morning, especially since it left the New Zealand dollar/kiwi at the starters blocks.

And looky there! No, not there. Over here! HA! But looky there, Bank of England (BOE) Gov. Carney is back out on the newswires telling anyone that will listen, that “time for the first BOE rate increase is moving closer,” and the pound sterling is reacting to the comment by rallying this morning.

I guess currency traders love to be fooled more than once. I mean Carney came along with his bag of promises at the Bank of Canada, then at the BOE, and both previous times, the respective currency rallied only then to find that his promises were empty, and the gains were wiped out.

So, I guess these guys are ready to swallow that promise, hook, line and sinker once again. You would think that they would learn from previous mistakes. But Noooooooo!

A couple of weeks ago, I told you about how the Swiss National Bank (SNB) was attempting to get the franc weaker with verbal intervention.  For now, it seems that the SNB Gov. Jordan, has stopped the franc from getting extremely out of hand vs. the euro for now.

But that’s the key here, “for now”, because usually the markets get tired of this kind of situation, and usually begin to take on a Central Bank that has been so vociferous about what they plan to do to keep their currency in line.

I talked about the drop in the price of oil above, and forgot to go into how it effects the petrol currencies. Yes, I know I’ve done that at least 100 times before, but it has to be repeated because investors want to know why their currencies are weaker.

The countries with those Petrol Currencies include: Norway, Canada, Russia, Brazil, U.K., Mexico and so on. You can look at the currency performances of each of these and they tell you the story.

Well, the U.S. data cupboard has a big piece of data for us today: June Retail Sales.

The BHI indicates to me that this data will return to disappointing, after a surprise, rogue, I might add, strong May Retail Sales.  The other thing going on this week that companies that do business overseas will begin to report on their 2nd QTR Earnings, and it will be interesting to see just how many show that the strength in the dollar is hurting their earnings.

The BRICS countries met this past weekend at the BRICS Summit in Russia. There’s not been a ton of news coming from the meeting. But I did see this in Google+, and article in the Asia Times:

Leaders of the BRICS … launched the  New Development Bank, which has taken three years of negotiations to bring to fruition. With about $50 billion in starting capital, the bank is expected to start issuing debt to fund infrastructure projects next year. They also launched a foreign-exchange currency fund of $100 billion.

The two new endeavors are statements that the five largest emerging markets are both looking out for each other and, simultaneously, moving away from the western financing institutions of the World Bank and International Monetary Fund.

“The BRICS states intend to actively use their own resources and internal resources for development”, Putin said, according to Reuters. “The New (Development) Bank will help finance joint, large-scale projects in transport and energy infrastructure, industrial development”. Birthing the two initiatives in Russia had been Putin’s top priorities. {1}

Chuck again.  This is getting pretty BIG on the Big Things meter folks.

I think that the rest of the world is going to be surprised at the development of these countries and what they bring to the stability of the Globe. The BRICS (Brazil, Russia, India, China, S. Africa) are ready to begin their wrestling match with the U.S. to wrestle away the global financial security, which won’t be won by starting wars.

The dollar, the Treasury market, and IMF, are all the ways that the U.S. holds its power.  The BRICS have gone after the IMF with the start of their AIIB , and you have to wonder what’s next?

That’s it for today…


Chuck Butler
for The Daily Reckoning

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