RBA Sounds Upbeat About Global Economic Growth

Good day… And a Tom Terrific Tuesday to you! Well… Yesterday, I realized that I couldn’t eat all day on Sunday, and expect to want to eat on Monday! But I’m ready to do so today! HA! I also realized yesterday just what a Donnie Downer I’ve been lately, with my insistence that there’s something going on to pull the wool over our eyes… That may be, but I’ve got to be more upbeat, eh?

Take for instance yesterday, when I said that thing in Greece were unraveling very quickly… Less than an hour after I hit “send” on the Pfennig, I saw a quote from French President, Sarkozy, who said, “we couldn’t be closer to a deal in Greece”… Hmmm… Seems that there was no reason for me to be so Donnie Downer on Greece! Yeah, and I’ve got some swampland I need to sell you… Hey Disney World was built on swampland, so you’ve got that going for you! HA!

This morning, the euro (EUR) has climbed back above 1.31, on news that the Greek leaders have agreed to meet today (now probably) to put the final touches on structural economic reform, which has been demanded by the Trokia (or Troika — tomato, tomato, it’s all the same) and consists of the IMF, the European Commission and the European Central Bank (ECB). The Trokia had demanded these economic reforms before the next round of bailout funds are released. The Greek leaders need to cut 850 million euros from their spending, which will account for 1.5% of GDP…

This trading range in the euro lately has been as tight as a pair of new shoes on a rainy day… The euro has either bumped up above 1.31, or fallen below it… 1.32 had been a tough row to hoe for the euro, and so, the trading range has been established… And I believe it will remain there as long as the Sword of Damocles is hanging over Greece…

Remember when I kept telling you that the Bank of Japan (BOJ) and the Finance Ministry were saber-rattling and trying to verbally intervene to get the yen (JPY) weaker, but that it wouldn’t be long before they were digging into that treasure chest of yen that has been allocated for intervention? And then nothing? Nada, zilch, zero, a big goose egg!

Ahhh Grasshopper, it only appeared to us that the BOJ was sitting on its hands… Last night the Finance Ministry released a report showing that the BOJ had conducted 1.02 trillion yen ($13 billion) worth of unannounced intervention during the first week of November. So, who knew? Who knew the BOJ could be stealth-like? This way, the markets weren’t aware of the intervention, because the BOJ spread it out, and was quiet about it… And it worked, (as best as intervention can, that is) bringing the yen from its post-WWII high of 75.35 to 76.50… But, that’s not what the BOJ had to have had on their minds… The yen is still too strong for exporters at 76.50, so… Can we expect to find out about more “stealth intervention”? I think so…

The Aussie dollar (AUD) is stronger this morning on a relief trade… The Reserve Bank of Australia (RBA), unexpectedly left rates unchanged, and instead of dire words, signaled optimism that global economic growth will strengthen. The Aussie dollar touched $1.0810 after the rate announcement, but has since fallen back below $1.08… But not far, and still stronger than yesterday!

The New Zealand dollar/kiwi (NZD) really liked the fact that the RBA left rates unchanged, because it has clutched on to the Aussie dollar’s coattails in recent times, and if the Aussie dollar is going to rally on the news, then kiwi gets to rally too!

I see where The Washington Post, (WP) must have a Pfennig reader… For they ran a report last night about how the unemployment rate here in the US is falling because of the millions of workers who have given up looking for work… The Washington Post writer believes that if all 2.8 million people who have given up looking for work were actually counted as “unemployed” that the Unemployment Rate would be 9.9%, not 8.3%…

Of course, the WP writer would do a better job if they dug even deeper into the phony, trumped up BLS labor report, to find how John Williams at Shadow Stats thinks the unemployment rate is really 22%…

While I’m here in the US, St. Louis Fed Head, James Bullard was speaking in Chicago yesterday, and had this to say about the Fed keeping interest rates near zero to counteract a high degree of slack in the US economy… “If we continue using this interpretation of events, it may be very difficult for the US to ever move off of the zero lower bound on nominal interest rates. This could be a looming disaster for the United States.” — James Bullard.

Fed Head Bullard is telling you all and anyone who will listen that we are all turning Japanese! He didn’t say it, but the scenario he described is exactly what has happened to Japan… I sure hope someone is listening in the Fed Head circles…

Today, the data cupboard will print Consumer Credit for December… You may recall how this number exploded in November by $20 billion… Well, December credit is expected to hit $7 billion… This data is covered little, and I wonder why… It’s very telling about what’s going on, don’t you think?

Over in Germany this morning, the December print of Industrial Production (IP) was very weak, as it decreased 2.9% from November. There could be two things at work here… First, there’s not much work that gets done as Christmas closes in for German workers… And second, the German economy softened… But none of the other data we saw from this time period indicated that, so I’m going to go with what’s behind door number 1!

Today, Big Ben Bernanke will testify before the Senate on the economic outlook and the Federal Budget situation… Last week, when Big Ben talked to the House, the lawmakers tried like all get out to get Bernanke to fess up to messing up the economy, but as I reported here on Friday, he redirected the lawmakers questions to him talking about what he wanted to talk about, which was how he wants the lawmakers to get deficit spending under control.

It will be interesting to see how Big Ben is treated in the Senate… Either way, he’s a master of redirecting, and the talk will all come back to lawmakers getting deficit spending under control! Which is a good subject to talk about, but I’m sure what the lawmakers have to say about what Bernanke is doing to the dollar is also a good subject to talk about!

Last week I told you how the Swiss franc/euro cross rate was nearing the floor of 1.20 that the Swiss National Bank (SNB) set last fall. I said then that it would be interesting to see the SNB’s resolve in defending this cross level… New SNB Chairman, Thomas Jordan, is setting the markets straight on his resolve. Jordan said, “We remain firmly committed to defending the minimum exchange rate of 1.20 francs per euro. This commitment applies at any time, from the moment the market opens in Sydney on Monday to when it closes in New York on Friday. We will not tolerate any trading below the minimum rate.”

Well… I guess he told the markets where he stand, eh? But… As I’ve said before, money talks and bulldookie walks… It’s now up to the markets to see if the SNB is really going to defend the cross or not… Which, by the way, this morning is weaker than it was last week at 1.2070…

One of the things that I look at periodically is the “misery index”, which is comprised of the Unemployment Rate and the inflation rate… I like to see where the US is compared to other countries like Norway and Australia or Canada, etc.

Well, my most recent look at the Misery Index showed the following recent results…

US 11.30% up from 2011’s 10.60%
Canada 9.9% down from 2011’s 10.10%
Norway 3.0% down from 2011’s 5.9%
Australia 8.3% up from 2011’s 7.60%

I think it is important to a country’s psyche to have a lower misery index number…

So… If that’s as interesting to you as it is to me, I’ll keep this up-to-date going forward.

I see where the 3.6 million workers in the German metal and electrical industries union are demanding 6.5% wage increases. This is going to be a very heated negotiation, because in 2010, German companies did quite well, but… Most economists believe that the German economy will slip this year, along with the rest of the Eurozone, into a recession…

And in the UK it appears that the Bank of England (BOE) will extend their bond purchase program (quantitative easing)… And remember what I’ve told you now for a couple of years… What happens in the UK usually comes ashore here within 6 months… So, if the BOE is extending QE, then the Fed will be doing it soon enough…

And gold is still trying to find traction to move higher, as it slips on the overall better feeling about what’s going on in the global economies… I find this to be temporary… So, could be a good time to pick up some gold at cheaper prices, eh? I said could be…

Then there was this… From The Economist… First, I’ll give you the snippet of the Economist story and then tie it all together in a neat bow… OK… Here’s The Economist… “China and the US might be laying the foundation for another Cold War over China’s territorial claim for the South China Sea, The Economist’s Banyan columnist writes. None of the nations with interests in the South China Sea is making progress toward settling disputes. “So the chances are that America, with its mighty Navy and abiding interest in the freedom of navigation and commerce, will become still more involved.” — The Economist

Chuck again… Remember Rome? Remember how the Roman army got too extended putting out fires everywhere? Hmmm… Iraq, Afghanistan, Iran, South China Sea, doesn’t this scare anyone else?

To recap… The RBA left rates unchanged, and surprised the markets last night, sending the Aussie dollar over $1.08. It has slipped back below the figure this morning, but still stronger than yesterday! Japan has been doing stealth intervention to keep a lid on yen, going back to November, and The Washington Post figures out the funny bookkeeping at the BLS…

Chuck Butler
for The Daily Reckoning

The Daily Reckoning