Germany and France Exit the Recession

Well, the currencies came back yesterday, but not with a lot of conviction. You see… Stocks rallied, but that doesn’t mean what I talked about yesterday still won’t happen… Be careful there!

The euro (EUR) has received some additional love this morning, as the Eurozone’s economic growth printed better than expected, albeit still negative… But… Germany and France showed growth, which I must say is very unexpected! That means that both Germany and France have exited the recession… At least for now! For those of you keeping score at home, Eurozone GDP fell 0.1%, which is far better than the 0.5% drop that was expected… Oh! And this is for the second quarter. You would have to think that data like this would be very good for the euro, and from the looks of it, that’s exactly what’s happening!

Whenever the Big Dog (euro) gets off the porch to chase the dollar down the street, all the little dogs get to chase too… And so, the usual suspects have posted gains since yesterday morning, like Norway (NOK), Switzerland (CHF), Aussie (AUD) and so on.

The BIG news yesterday was from the FOMC meeting, where the Fed Heads left rates at near zero, but were kind enough to tell us that their quantitative easing would remain in place through October… That’s all nice and sweet, eh? So… What, are they going to do here, buy some Treasuries out in the open and say, “See… We told you we were going to do this,” and then go back to the dark, smokey room and buy some more from the Primary Dealers just for GP? That just ticks me off! But there’s not a darn thing I can do to stop them!

What I would like to do is to start a movement to abolish the Fed… OK, who’s with me?

Think about this for a minute… What good are they? Have we not had dozens of recession and one Great Depression since they were created? Have we not seen a 95% loss of purchasing power for the dollar since they were created? Let me tell you something else, folks… If the markets set the interest rates based on activity, we would never experience inflation or deflation.

OK, I’ll stop there. I know that I’ve ticked off a few people that think the Fed walks on water, and is here to protect us financially.

Well… In news you won’t hear on radio or TV… The US Budget Deficit swelled to $180.7 billion in July, from $102.8 billion in June. Hmmm… Think about that for a minute, folks… In June, when quarterly tax receipts should be enough to cover the expenditures, they not only were not enough, but they fell short by $180.7 billion dollars! This is a combination of slower tax receipts because of the depression we’re in, and… The unsustainable deficit spending by the government. Oh! And the Budget Deficit year-to-date is now $1.27 trillion… But you don’t see the knuckleheads in Washington DC doing anything about it, except for coming up with new things to spend more money on. I say fire them all!

Speaking of tax receipts… My friend – writer and marketing genius extraordinaire, David Galland – had this to say recently in one of his most excellent newsletters…

“I like the idea of also forcing the government to stop automatically withdrawing taxes from paychecks. Instead, wage earners would be responsible for sending out their tax payments on a monthly basis. By my back-of-the-envelope calculations, it would take about two months of writing out the big checks to Uncle Sam before people came to grips with just what government (or, in this case, one slice of government) is actually costing them…and out would come the pitchforks. We cannot afford our current level of government, and the sooner we get around to cutting it back, the better. Period.”

Thanks, David… As always you think on a different level than the rest of us!

The Trade Deficit also grew larger in July as oil prices rose. The Trade Deficit moved to $27 billion from $26 billion… Now, the Trade Deficit is much smaller than it used to be thanks to the depression, but, the fact remains that it is still nipping at the heals of the dollar like one of those small dogs, and whenever it is that the US comes out of this depression, this figure will balloon once again.

Today’s data will be dominated by retail sales for July, which because of the CARS program, will be stronger than usual, probably getting quite close to a positive 1% for the month… Less autos, the data would be quite disappointing at just .01%, but you know me… I don’t like taking this, that and the other thing out, just so things look the way you want them to look!

It’s also a Thursday, so the Weekly Initial Jobless Claims will also print. Recall that on Monday of this week I told you the data would get going again this week? Well, we’ve got it going on today for sure!

Yesterday, Norway’s Norges Bank met, and while they left rates unchanged, they became the first Central Bank to move to a tightening bias! YAHOO! And the krone was the best performing currency yesterday and overnight on that news, as it should! Long time readers know my affection for the krone due to a number of reasons, but none so important than the fact that Norway has a financial surplus, has had one, has one, and will have one for as long as I can see. Norway didn’t get involved in the subprime bond buying game… And they have a very strong central bank in the Norges Bank… Last spring, the NY Times, which I don’t read for a number of reasons, but had this sent to me, called the Norwegian krone the safest currency in the world. Now… I like it when someone other than me climbs out on that limb, especially if your going to climb that far out!

Tonight, the Governor of the Reserve Bank of Australia (RBA), Stevens will provide a testimony to the Parliament regarding the economy, etc. I think that the Aussie dollar traders are holding their breath until he speaks, as this could be a real market moving speech! But then it could also be as dull as watching paint dry.

The Aussie dollar is back above 84-cents after spending a couple of days down in the 82-cent handle.

OK… So… We had good news from Germany, France and Norway this morning… Not so good news from the US, though…

Realty Trac Inc. is reporting this morning that a total of 360,149 properties received a default or auction notice or were seized last month. UGH! Foreclosure filings in the US climbed to a record for the third time in five months in July. All those jobs that were cut and still being cut, are having a real negative affect on this, and personally, I don’t see this getting any better any time soon! UGH!

There’s been a lot of talk about the news the other day that China’s loan growth had seen a huge fall last month. A lot of people think that this is the end of China’s growth… I see it differently… I see it as China just taking some air out of the balloon. They saw their economy moving ahead of the rest of the world at a very fast pace, and didn’t want it to: 1. Overheat, and 2. Have nowhere to go with everyone else in recession. Now, I’m sure a lot of you will say, Chuck… Doesn’t China risk the chance of popping their economic bubble altogether? Well… Yes, they do… But, they knew how to administer stimulus to make the economy click, I assume they know how to pull some if back when they need to.

And… I just think about the fact that since 2003, I’ve seen story after story by writers that thought they knew what was happening in China, say the economic growth was going to slow down… And they were WRONG!

And with that thought… No wait! I’ve got another thing from David Galland… He said that Dan Ferris sent this to him… “Members of Congress should be compelled to wear uniforms just like NASCAR drivers, so we can identify their corporate sponsors.” Yeah, right on! Now that’s change that’s really change!

The Daily Reckoning