Greece Cries "Foul!"

Today’s Pfennigfor your thoughts…

Good day, and a Tub Thumpin’ Thursday to you!

The only thing really going on different today than yesterday is that the Eurogroup/Greece Summit lasted about 7 hours, and brought about no new agreement.

So once again, the markets’ thoughts that a deal would be done by the end of the week, has brought us to the end of such week without an agreement. I know, I know, we still have tomorrow, and these guys should be working overtime into the weekend. But, it doesn’t look like “a done deal” as we were told yesterday.

The euro doesn’t seem to mind too much, it’s still weak, but not getting sold like funnel cakes at a State Fair, even with reports from the Syriza party (the “no austerity for Greece party” ) that the creditors’ proposals amount to “blackmail” Greece is becoming the boy who cried “foul”.

Well, what in the hell do you expect them to do with your financing needs, Greece?

You stepped into the debt hole big time, then were given loans, with spending cut measures, that you ignored for the most part, and now you expect white glove treatment when you come back for more loans?

If it were me. I would make you come with your begging cup and plead tender mercies! Good thing you’re not dealing with King Chuck! HA!

Over in Switzerland, one of our fave central bankers (NOT!) the Swiss National Bank (SNB) President, Jordan, was not happy with the franc’s stronger moves lately, and decided to scare the bejeebers out of the markets by saying that “the franc is considerably overvalued, and that the SNB stood ready to intervene in the markets”.

Here’s a fun fact for you, just to show you how strong the franc has gotten vs. the euro. Remember that ill-fated floor that the SNB installed on the euro/franc cross at 1.20?

Guess where the cross is today. As the Jeopardy Final Answer song plays. Well, let’s see how much you wagered. And your answer is. 1.15. No, I’m sorry, the answer is: What is 1.05?   That’s right. 1.05!   The franc vs. the dollar is OK, but not as strong as the cross to the euro is.

Well, did you see the 3rd revision of 1st QTR GDP yesterday? Oh, the rate hike campers were coming out of the wall boards again to dance in the street.

The last revision has 1st QTR GDP at -0.7%, but this revision took it to -0.2%… I wonder what happened to make GDP look so much better?

You don’t think that. nah, that wouldn’t happen in the U.S.! We don’t need no hedonic adjustments, or book cooking to show how strong our economy is!

OK. Are you chuckling along with me there?

Apparently, the upward revision was brought about by stronger “consumption”. I doubt that really happened. But it’s a good excuse. Think about it, retail sales hasn’t been good and strong for a month of Sundays, so where’s the “consumption” happening?

I always liked the story that the big boss, Frank Trotter, told an audience in Bermuda a few years ago. He was on a panel, and all the guys on the panel except Frank, were touting “consumption” as leading the U.S. out of the doldrums (this was like 2010?).

Then Frank said, “You know, I was walking through one of the old cemeteries here, and I noticed a reoccurring reason for death — ‘consumption,’ so maybe it’s not such a good thing to have.” Frank has a good sense of humor, folks, sometimes you have be on his intellectual plane to “get it” but that was funny!

But getting back to the 1st QTR GDP revision. Quite a few economists are saying that this uptick points to a rebound in the 2nd QTR to around 3.8% GDP.

What, what?

How does that reconcile with the Fed Atlanta, reporting that the 2nd QTR would be very weak?  Explain that one to me and then we can go on…

Speaking of the revision in 1st QTR GDP, wrote the following:

Fifteen minutes after GDP data was released — showing Q1 was indeed as weak as expected and inventories suggesting Q2 will be just as weak — someone decided it was an appropriate time to dump over half a billion dollars of notional gold on the futures market.

Oh brother! When will this all stop?

Ever hear of a well-respected investment analyst named Bill Holter?

My friend Dave Janda, sent me a note from Bill Holter, and I took this out of the note, because it plays nicely in the sandbox with what I was just talking about. Here’s Bill Holter:

Over the last few years, “theory after theory” has become fact after FACT after FACT!  There can no longer be any question, conspiracy to delude and defraud has run rampant and is a day to day operation in the Western world.

Alrighty then, let’s get back to some different things to talk about.

The Aussie dollar (A$) and New Zealand dollar/kiwi, are both stronger this morning. No big shakes, but stronger nonetheless. I was reading some research that one of our dealer friends sent over and it talked about NAIRU, and that caught my eye, because I did a class on NAIRU last week.

Remember what it stands for?  Non-Accelerating Inflation Rate of Unemployment. So, at what level of unemployment does inflation begin to take off?

You may recall me talking about how the Fed doesn’t really advertise what their NAIRU is, but given that unemployment according to the BLS –so take it for how many grains of salt you wish– is 5.4%, and we sure haven’t seen inflation taking off for higher ground yet, according the PCE (personal consumption expenditures), which is the Fed’s preferred measure of consumer inflation.

So I guessed that the Fed’s NAIRU is probably around 5%.

Well then this research by the dealer talks about how the Fed has steadily lowered its estimate of NAIRU since late 2012, and any further downward revisions would likely signal a desire to stay more accommodative than the dealer currently projects.

Here’s the dealer talking about this whole thing:

In a recent speech, Fed Governor Lael Brainard argued for a lower long-run unemployment rate. Her comments were later echoed in remarks by Governor Daniel Tarullo.

In support of her argument, Governor Brainard cited a recent FEDS Note that argues a decline in worker bargaining power has led firms to be more aggressive in hiring, leading to lower long-run unemployment.

So, all in all, it appears that maybe more and more people see what I’ve seen all along, and that is that interest rates aren’t going anywhere for a while.

And in a very large roundabout that’s what has the currencies A$ and Kiwi, on the rise this morning, for their positive interest rate differentials to the dollar, euro, yen and pound will remain, pointing investors toward these currencies for that positive differential.

The U.S. data cupboard has two of my favorite prints today, personal income and spending. Personal spending for May is expected to outpace income once again, which I will point out over and over again, is not the ideal situation, although the Keynesians will jump with joy seeing “spending” going good.

We’ll also see the aforementioned PCE  for May. And the usual Weekly Initial Jobless Claims, which continue to bounce around 275,000 each week.

Well, gold is flat this morning, but just kind of has the look about it, that it could head South at any moment, like when NY Traders arrive at their desks.

I cracked up yesterday at a press conference regarding the repatriation of gold by Texas from NY Banks.  You may recall me telling you that Texas announced that they were building a depository for their gold, which brings about a ton of questions as to why and what they will do with it, but that’s for another day.

Well, the press conference had the Texas Gov. proclaiming that Texas had $1 billion worth of gold, and the assistant to the Gov. gets up and says something like: “That’s right, we have $1 billion worth of gold, tell me of another state that has $1 billion worth of gold,” and then someone informed him that the Texas gold was really worth $340 million (still a lot, but not $1 billion) and the assistant, is shocked, and says, “Well that’s still more than any other state!”

For What It’s Worth.  I’m sure you’ve all heard by now that the new $10 bill will remove Alexander Hamilton, the first U.S. Treasury Sec., and replace him with a woman.  I don’t really care who’s dead mug is on my Federal Reserve notes, but a twist on this story came to me and I thought you would like to hear about it. The whole report can be found here:

But for those of who just want the broad strokes, this is about former Fed Chair, Ben Bernanke, who now tells us he was a fan of Alexander Hamilton, but the folks who wrote the story believe that Bernanke must be thinking of someone else, for Bernanke did whatever he could to unravel what Alexander Hamilton tried to preach to his followers.

Here are a couple of snippets:

Mr. Bernanke qualifies America’s first treasury secretary as ‘among the greatest of our founders for his contributions to achieving American independence and creating the Constitution alone. In addition to those accomplishments, however, Hamilton was without doubt the best and most foresighted economic policymaker in U.S. history.’ So Mr. Bernanke is opposing the demotion of Hamilton from his featured spot on the ten-dollar bill.

The irony of this is that while chairing the Federal Reserve, Mr. Bernanke traduced every principle Hamilton held dear, particularly the idea of sound money defined by Congress. It was Hamilton who wrote the first law Congress passed under the authority the Constitution grants it to coin money and regulate the value there of, and of foreign coin, and to fix the standard of weights and measures. That piece of legislation, the Coinage Act of 1792, is the final fruit of what Hamilton envisaged in respect of money and the purest record of how he thought about the dollar.

That is the law that established the United States Mint, enacted that the money of account of America would be expressed in dollars, and defined the dollar as having the value of ‘a Spanish milled dollar’ as it was then current and ‘contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.’ The law recognized gold as specie in coins at a value of about 15 times that of silver, and for debasing coins of either specie established the penalty of death.

Chuck again. Crazy stuff, eh?  Sort of like, for the years that Big Al Greenspan was Fed chairman and he never supported gold. But before he was Fed Chair, he was a disciple of Ayn Rand, probably the first “Gold Bug”  and then after his years in the Fed were over, he went back to being a supporter of gold.

Thank you for reading the Pfennig, and I hope you have a Tub Thumpin’ Thursday!

Chuck Butler
for The Daily Reckoning

P.S. The Daily Pfennig is first published everyday, right here.

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