The Greeks Vote "No"

Today’s Pfennigfor your thoughts…

Good day, and a marvelous Monday to you!

Well, in case you haven’t heard the news, the Greeks voted overwhelmingly “no” on their referendum yesterday. So, now the ugly starts.

Remember last week I told you about the European Central Bank (ECB) and their ELA (emergency loan assistance) and their decision as to whether or not they would continue funding Greek banks, or not. I would have to think that this “no” vote is a nail in the coffin for ELA continuance.

So, what’s Greece going to do now?

Well, their Finance Minister, Varoufakis, resigned, I guess he had seen enough. I would have to think that the next few days will be key here folks, so stay tuned. The Eurozone leaders are scrambling around to meet and discuss this latest development, and Greece. Well, Greece has to now come up with something that will please their creditors and constituents, for the constituents have spoken.

The “no” vote was 61% vs. 39% “yes”. I’d say that was “overwhelming”! I always like the saying. Not just “no”, but Hell NO!

So, the euro has gotten whacked in the overnight trading, with those markets knowing the result, and having a knee-jerk reaction to the vote. But I would think they would have waited to see what the ECB does with the ELA’s.

The Greeks told the ECB on Friday, that the Greek banks would have enough liquidity through Monday morning. So, I would think the ECB would be meeting early to decide. The next day that will loom large for Greece is July 20, when their first bond maturity that’s held by the ECB will come due.

At this point, one might think that Greece didn’t have any problem defaulting to the IMF, they’ll not have any problem defaulting to the ECB.. But. I still think there will be an olive branch here, and a negotiation with an agreement in the next couple of days.

There are other things going on in the world with the currencies and metals folks, it just seems like it’s all about this Greek stuff. UGH! But Greece is tied to just about everything these days.

For instance, look at the stories written about the drop in the price of oil today, and they’ll be talking about how the demand for oil drops because of Greece. I have to think that’s a bunch of bunk. China? Yes. Greece demand? No! But, it’s what’s getting written.

Don’t look now but oil’s price dropped to a $54 handle overnight. That’s $4 cheaper than it was last Monday morning!

And the rot on the petrol currencies’ vines is really getting exposed with this drop in the price of oil, the news that China is going to inject stimulus into their economy, and of course Greece. It’s like a perfect storm for the petrol currencies.

Norwegian krone has gotten whacked and is trading above an 8 handle this morning, the Russian ruble is still in the dumps, the Brazilian real after seeing some gains last week is back to being weaker again, and the Canadian dollar/loonie, who just two weeks ago had reached 81-cents is about to lose the 79-cent handle.

The Aussie dollar (A$) continues to slide, and tonight the Reserve Bank of Australia (RBA) will meet tonight. I would think that the drop in the A$ has been about at the speed and force that the RBA has been looking for all this time.

So, given that the A$ is now below the RBA’s preferred level of 75-cents I would think that the RBA would keep rates unchanged tonight. But then all my thoughts on Central Banks and their rate moves lately have been wrong.

Take Sweden’s Riksbank last week. They had told everyone that inflation was their biggest concern, and inflation had ticked higher, which is what the Riksbank wanted, so I thought it was a safe thought that the Riksbank would keep rates unchanged. Don’t tell me something and then go in a different direction! But that’s what they did, and that left me on the wrong side of the tracks.

China announced last night that:

1. They were suspending any IPO’s

2. That their brokerages would be buying shares to support and stabilize the stock market

3. That the Chinese Central Bank would inject liquidity into China Securities Finance Corp, which the Corp. will use to expand brokerages’ business of financing investor’ stock purchases.

The China Securities Finance Corp. is owned by the China Securities Regulatory Commission (CSRC), and the CSRC said that they would increase the company’s capital to 100 billion renminbi from 24 billion renminbi…

So, that’s a sizable injection of liquidity, eh? Leave it to the Chinese to do things on a large scale, eh? But with all this slowdown in China, the renminbi/yuan is not being allowed to appreciate, and I guess rightly so, as inflation is not a problem in a country where the economy is slowing down.

But, as usual, longtime readers will recognize this talk from me, I really don’t see China’s economy going any deeper. They take some of their treasure chest of reserves, inject it where they see things being slow, and then things become normal again. That’s the reward for all the difficult work to build those reserves.

The U.S. data cupboard isn’t really too active today, given that the Markit PMI’s will print, but the national ISM printed last week, so who would care about the Markit PMI’s? Not me!

On Wednesday, we’ll get to see the minutes of the last FOMC meeting, you know the one where the Fed decided to not hike rates. I don’t expect much new from these minutes, but the markets will be waiting anxiously to see them, for any tidbit they can grab from the minutes.

It’s almost embarrassing for them the way they act, when there’s nothing there. But, I guess you never really know.

And gold. Well, again with all this gloom and despair around the world this morning, one would think that gold would be well bid. But it’s not. In fact it’s getting offered and is down $3, no big shakes, but that’s before the NY traders arrive at their desks. And we all know what can happen when that time comes around, right?

Last week I was commenting on how gold couldn’t find a bid with Greece defaulting, and I told you about a couple of other analysts that has commented on that.

Well, gold researcher, extraordinaire, Koos Jansen, had this to say about this whole scenario. “This smells like market rigging,” Jansen writes. “Surely the last thing the authorities need at this moment is gold on the move. Various media and bullion dealers report demand for physical gold in Europe is strong. Walter Hell-Hoflinger, owner of a gold shop in Austria, stated: ‘The critical thinkers have lost faith in politicians, their currencies, and the media. The price of gold is actually artificial.”

I had a long discussion with the Big Boss, Frank Trotter, last Thursday, after I wrote about this gold scenario. Frank is not on the same bandwagon as me, regarding gold price suppression, and that always makes me think really long about it, for Frank is the most intelligent person I’ve ever met, and if he doesn’t see it like me, then I must be wrong!

But, I’m not changing horses in the middle of the stream here folks, and we’ve just decided to agree to disagree on this.

It’s tough this morning to find something to talk about that doesn’t involve the goings on in Greece and the Eurozone.

That’s it for today. Things are pretty ugly over in Greece right now, I sure hope they can get things worked out…


Chuck Butler
for The Daily Reckoning

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