Gold Finally Finds a Bid

Good day. Last night, I went to bed with the Cardinals losing in Miami 2-1; it was the sixth inning. Apparently, after I went to bed, crazy stuff happened, with the Cardinals erasing a 6-1 deficit and winning 8-7 in 10 innings! WOW! Wish I had seen that! And apparently, there’s a new sheriff in town for men’s swimming. The Olympic trials are always cool to watch, as Americans compete against each other, and the athlete that shows up 0.005 seconds late loses his job! To be an Olympic-caliber athlete must be something!

I had to stop for a minute to see what one of my favorite analysts, David Rosenberg, was saying on Bloomberg TV this morning. Mr. Rosenberg believes that the U.S. may be heading back to recession. I guess we differ there, because I don’t truly believe that we ever left what I have called the depression.

One in seven Americans receive food stamps these days. Do you call that Happy Days? I don’t! But I do like that he said we may be heading back to recession, because that plays well with my call about how we’re about to get hit with the backside of the financial storm that first hit us in 2008.

The currencies fought to keep their heads above water yesterday, and pretty much succeeded in doing so, while gold finally found a bid and pushed higher by $13 on the day. It was a day that saw the sale of new homes here in the U.S. jump 7.6% in May, which surprised a lot of people, including me, who thought the annualized pace of new-home sales would be around 345,000, but instead printed at 369,000.

Even with this one month of good data, newly built homes continue to move sideways, within the 300,000-400,000 range for the past three years. These newly built homes also continue to fight competition from existing home sales, which have steep price advantages, and the fact that there is ample supply of these distressed homes. So I would be surprised to see these lofty new-home sales continue, but then maybe people have lost their minds and prefer to buy overpriced new homes, instead of distressed, lower-priced existing homes.

The Greek finance minister resigned yesterday. Greece political and government officials are turning Japanese too. I can’t begin to count the number of Japanese political and government officials who have had to fall on a sword in the past 15 years. Oh, and Cyprus became the fifth eurozone country that has requested a bailout. OK, I want to see the media take this one on! They’ve made a circus of the Greece debacle, and as I said yesterday, Greece’s economy is about the size of the Dallas-Fort Worth area. Cyprus’ economy would be about the size of Branson, Mo!  But the media will talk about contagion and all the problems that Cyprus will create.

Maybe you’re seeing a trend here this morning. I’m really not in a good mood, and when that happens, the sarcastic Chuck comes out of me. And believe me, I can be sarcastic like nobody’s business! So now that I’ve realized what I’m doing, I’ll try to correct it, but it won’t be easy, as I’m just in no mood to deal with twits this morning!

There’s a new Reserve Bank of New Zealand (RBNZ) governor. Gone is Mr. Alan Bollard, who was a thorn in my side for years! Bollard never missed an opportunity to diss kiwi (NZD). And that’s not what I believe a central banker should do. I’ve gone on at length over the years about how a central banker should embrace a strong currency, because it represents the stock of the country and fights inflation. So the new RBNZ governor’s name is Graeme Wheeler. Hopefully, he harkens back to the day of Don Brash, who was a “real” central bank governor!

New Zealand’s kissin’ cousin across the Tasman, Australia, saw the Australian dollar (AUD) slip below parity yesterday, but has regained parity overnight. The pull on the A$ from the eurozone is simply amazing to me. But I guess when you think of things as a whole, it makes some sense. I’ve told you how the eurozone is China’s biggest customer, so if China exports head to the eurozone, you can bet Singapore’s does too, and Hong Kong’s and Japan’s, etc., and therefore the Asian slowdown, which carries over to Australia.

One thing that has helped the A$ through this slowing down of Asia is the fact that the Reserve Bank of Australia (RBA) has indicated that they are content in sitting and watching to see the effects of their 75 basis points of rate cuts in the past six months will have on the economy before taking the next step. Most Aussie observers were thinking that the RBA would be coming right back to the rate cut table this summer.

Did you see that the U.S. Congress is considering delaying the so-called automatic spending cuts until next March? Couldn’t be because this is an election year, could it?  But that’s par for the course, eh? They made a deal, and the deal said if they don’t come up with spending cuts, $1.2 trillion of discretionary spending cuts will “automatically” kick in. The first part of the deal failed, and therefore the “automatic” cuts were to kick in. But let’s just think about this for a minute. I would bet a dollar to a Krispy Kreme that these so-called “automatic cuts” don’t come to fruition. What do you think?

What’s the big deal? I mean it’s $1.2 trillion over 10 years! It’s not as if they had to cut $1.2 trillion of the debt right here, right now!

Speaking of the debt, though, there are only four months to go in the U.S. fiscal year, the White House is estimating tax revenues for 2012 of $2.47 trillion and spending of $3.8 trillion, which is a deficit of $1.33 trillion for 2012. A numbers guy does all the math on this stuff (thanks for sending along, Dennis!) and he calculates that the $1.33 trillion deficit this year is equal to $3.64 billion of debt created per day.

Speaking further of the debt and deficit spending, I just love the saber rattling going on in a battle of words between the U.S. president and Treasury secretary and the eurozone officials.

Just the other day, Germany’s finance minister basically told the U.S. president to mind his own business. When the finance minister heard that the U.S. president was calling for Europe to move faster in fighting their debt crisis,  the German FM said, “Mr. Obama should first of all take care of reducing the American deficit, which is higher than in the eurozone. People are always very quick at giving others advice.”

But doesn’t the German FM know that the U.S. economic slowdown is Europe’s fault? There I go again with the sarcasm. But isn’t this the same thing the Chinese have been telling the U.S. to do, for years now? Take care of your own house before you begin to criticize others. But not us — we’re now the “it’s somebody else’s fault generation.”

And then I might as well go the full nine yards with sarcasm here, since I’m on this debt and deficit road. It’s been 3 ½ years since the Fed heads changed interest rates in this country, and they won’t be changing them (unless they go even lower) until late in 2014. I guess they don’t have to change rates, because all their stimulus plans have worked so well, eh?

Yesterday, I read a report on India, and in the report, the author talked about how the Indian government had recently claimed that they were going to support the rupee (INR) and stop the bleeding. I said to myself, “Self, hasn’t the Indian government said this all before?” Yes, Chuck, they have! You are correct! OK, so the point here is that we shouldn’t get all caught up in this government jawboning.

The Indian government has made these claims before and done nothing. The rupee gets a short-term bump because everyone thinks the government is going to really pull a rabbit out of their hat, and then they get disappointed. I don’t see why “this time, it will be different.”

Speaking of “this time it’s different,” longtime readers know I really dislike that saying. But my friend, John Mauldin, made a point the other day in his weekly letter that I agree with. John was talking about how the Treasury yield curve used to be an excellent indicator of coming recessions. But that’s not the case right now. But as John points out, and I have too, the Treasury yield curve is no longer moved by the markets. The Fed has manipulated the yield curve with their bond buying, so this time “it is different.”

This morning, the euro (EUR) was moving higher (up to 1.2530), and then the results of the latest Spanish bond auction, showing a poor performance, knocked the euro back down to 1.25, and even lower as it bounces back and forth around 1.25.

In the U.K., the latest debt numbers were wider than expected in May, and that has weighed heavily on the pound sterling (GBP) this morning. The Olympics are drawing nearer, and I’m still waiting for that host country currency rally.

Moody’s cut the ratings of 28 Spanish banks yesterday, and issued a warning to Canada! Whoa there, partner! Moody’s said that the steps the Canadian government took last week to keep the housing market from overheating might have come too late. Moody’s also said that the “buildup in consumer debt that has already occurred, and the Canadian consumers’ reliance on low interest rates to support high debt loads remains a risk.”

The thing the Moody’s doesn’t have to be worried about is the strength of the Canadian banks, and this is a huge key in dealing with this overheating of the housing sector. The Canadian dollar/loonie (CAD) is more driven by commodity prices than this Moody’s warning.

And the ratings agency Fitch said yesterday that Norway’s outlook was stable. I could have told them that! But it won’t be enough for the krone (NOK) to break the chain connected to the euro. But one of these days, traders and investors will realize that Norway is not the eurozone!

Then There Was This… Antione sent me this story yesterday from CNNMoney.com titled: “Government Wants More People on Food Stamps”:

“More than one in seven Americans are on food stamps, but the federal government wants even more people to sign up for the safety net program.”

“The department is spending between $2.5-3 million on paid spots, and free public service announcements are also airing. The campaign can be heard in California, Texas, North Carolina, South Carolina, Ohio and the New York metro area.

“In fiscal 2011, the federal government spent more than $75 billion on food stamps, up from $34.6 billion at the end of fiscal 2008, according to the USDA.”

Chuck again. OK, I’m not trying to be insensitive to people in need, but this is getting out of hand, folks. In a time when we, as a country, should be looking for ways to save money here, and not spend what we don’t have, let’s not recruit more people for the program!

To recap… The currencies kept their heads above water yesterday, but gold finally found a bid and gained $13. Moody’s downgraded 28 Spanish banks, and warned Canada about the housing market overheating. The euro gained overnight, but gave it all back with the poor performance of a Spanish bond auction this morning.

Chuck Butler
for The Daily Reckoning

The Daily Reckoning