Good day. And a Tub Thumpin' Thursday to you! I hope it turns out to be a Tub Thumpin' Thursday because right now, I'm just not feeling it! More like dragging the line! But don't let me dragging the line stop you from a Tub Thumpin' Thursday! I get there eventually today!
Well. the FOMC meeting minutes were the cat's meow for the markets yesterday, and boy did they come away feeling like someone just stole their puppy! Once again, the Fed has disappointed the markets, who, for some reason, thought for sure the FOMC meeting minutes would give them reason to believe that more stimulus was coming. I tried to warn them, if they had only read yesterday's Pfennig, they would have known that Chuck said, the meeting minutes were stale. for they took place a full week ahead of the Jobs Jamboree disappointment.
But, acting as if they were just left at the altar, the markets took their fury out on the risk assets. and they took no prisoners. The euro lost ground, the Aussie dollar (A$) lost over a cent, and Gold lost another $10. I just don't get these trader guys (& gals) what the heck do they want? Well, I know what they want, but do they "really" want that? They think they want more stimulus, that the market can't function without it. But in reality they want to be right. they want to be able to say, "see, I called this stimulus, and I was right!" Never mind the damage that the stimulus actually does to the country's balance sheet.
I was sitting at the desk yesterday watching the euro losing footing it had gained overnight once again, and began to think about what I had said at the start of this year. "That I wouldn't be surprised to see the euro fall to 1.18, or rise to 1.40 this year". I think the first part of that thought is about to come true, folks. Here's why I think that way. Remember the Eurozone Summit, that took place a couple of weeks ago? Well, the Eurozone leaders surprised the markets by actually coming up with a plan, and a new suggestion to use the ESM for recapitalizing the troubled Spanish Banks. And the euro found some terra firma.
but. not much, and soon that gained ground was lost.
Now it's been 2 weeks since the meeting, and nothing really has come of it. and now we learned the other day that 12,000 complaints have been filed in the German Constitutional Court (GCC) against using the ESM that way. It's going to take the GCC most of the summer to get through everything and make their decision. That's just too long for the markets, folks.
In addition, summer is normally a slower time in the markets, especially in August when most of Europe goes on Holiday (vacation). The exception to that was last summer, when the U.S. debt ceiling debacle unfolded, giving everyone in the markets the willies toward the U.S. dollar. Now, when a few months ago, I thought that the U.S. election campaign would focus on the debt, and the debt ceiling issue will be revisited in August or September again, that the euro would be saved, for the moment, from revisiting 2005 levels of 1.18.. But, from what I'm watching on TV, the election campaign is going to focus on jobs. so out the window goes the knight on the white horse for the euro this summer.
I've gone on pretty long here with regards to the euro, but since it is the offset to the dollar, it's important, folks. But there you have it. Chuck's thoughts on the euro for this summer.
And since I'm in such a dour mood on the euro this morning. I might as well get this out there too. Yesterday, I mentioned that someone sent me a note about the Aussie dollar (A$) being overvalued. Well, I'm reading more and more research reports calling for the A$ to get downsized as China bottoms out, and struggles to regain their economic prowess.
They all make sense to me, except. what if China takes the bull by the horns, and really turns their economy around, like they did in 2008? Of course that will take 3 or more months to confirm, so. until then we could be looking at cheaper levels to buy A$'s. So, as an A$ holder, you could very well take profits, and look to buy cheaper, or. just batten down the hatches.
Why does it feel as though the dog days of summer for the currencies and metals, are right here, right now? Because that's what's happening! I wish I could tell you something different than this, but. as I say all the time. "it is, what it is".
This morning. Eurozone Industrial Production printed for May, and showed an increase of .6% VS April. with Germany providing the cushion for all the countries posting negative numbers. And while May's number is good, it's May's number. that's right, it's two months old! I just don't get why it takes so long for data to print! The other problem with the number. and that is, we could average out April and May's IP and it would still be .9% below production levels of the 1st QTR. So, the slowdown in the Eurozone continues to extend its roots.
And the forecasters in Australia were right for once, as they had forecast no job growth for Australia in June, and in fact it was negative. with June's job losses wiping out May's job gains. This was much weaker than expected or forecast, and it weighed heavily on the A$ as the night went along. It's almost like a perfect storm for the A$, because now it will have to deal with the China 2nd QTR GDP report that will print tomorrow. I've already told you how it is widely expected that China's 2nd QTR GDP will be very weak. But, again, let me go through this, for those of you who missed class yesterday. All those that attended can skip to the next paragraph, that is, unless you need a review.
OK. the Chinese economy probably bottomed in the 2nd QTR. which means this GDP report is going to be ugly folks. and the knee jerk reaction to sell the A$ will be strong.
But, everyone needs to calm down here. as I said above, the GDP report is old. and if the Chinese economy actually is rebounding in the 3rd QTR, then what good is it to sell A$'s now, on a old report?
Alright. I've spent quite a bit of time on the euro and A$'s this morning. And China! What about the other guys? Well. let's see. the Japanese yen is a bit stronger this morning, nothing to write home about, and the rest are following the euro and A$ down the road to the woodshed.
Well. my mood just changed, and I can credit the song Black is Black by the Los Bravos. Ever want to get the blood going? Turn that song on. you'll be dancing in your seat!
The Bank of Japan (BOJ) also disappointed the Japanese market watchers by holding back on more stimulus. So, it's the season of disappointment for the markets. I have to say that I'm somewhat impressed that the Central Banks, mostly the Fed, have held back on their feeling that the economy can be saved with stimulus. But, they will revert to that feeling soon, folks. so don't go giving Big Ben Bernanke any gold stars now. Speaking of Big Ben. Yesterday, the FOMC meeting minutes noted that a "few members were for adding more stimulus". I said to the boys and girls on the trading desk that "all of the members could feel that way, but unless Big Ben feels that way, no stimulus will be implemented".
Yes, this Fed is run just like Big Al Greenspan's Fed. It's pretty much like here on the trading desk. I remind the people here from time to time, that this is a benevolent dictatorship, and I can remove the benevolence at any time! HA!
Well.. the third California city has filed for bankruptcy and seek protection. San Bernardino was the latest to file. And why isn't this Big news? I've pointed to California's debt problems for over two years, and still everyone is fixated on Greece. The problems for San Bernardino aren't just confined to payroll, benefits and pensions. Nearly half of the homeowners in the city, with mortgages owe more than their homes are worth, increasing the risk that they will default on their loans.
But, it's all about Greece, or Spain or whomever, right? Well, the last time I checked.
California was the 8th largest economy in the WORLD! I don't think you would see Greece in the top 100. But, just like things in Greece. Things in California aren't a problem, until they are a problem. sound likes a Yogi-ism. but its true. One day, investors and trader decided that things weren't good in Greece, which for years was able to issue debt at the same yields as Germany. and then one day they couldn't. It will be the same for the U.S.. and to further this discussion. Just wait until the Gov't gets their hands into the California foreclosure problem and acts like they know what they are doing.
Then There Was This. Federal Reserve Bank of St. Louis President James Bullard said the U.S. fiscal position is as weak as some euro-area countries' and lawmakers must take "dramatic" measures to tackle it and restore confidence.
"The U.S. fiscal situation is similar to that of some countries in Europe and requires dramatic and sustained attention," Bullard said in a speech in London. "The political compromise in the U.S. has been to delay action until after the November election, but markets tend to pull the uncertainty forward."
Chuck again. Bullard went on to say something that I thought I would never hear from a Fed Head. Let's listen in. "Increased government spending today followed by higher future taxes is not likely to produce more rapid growth," he said. "The most likely way forward continues to be a long period of debt pay down and sluggish growth, both in Europe and the U.S., and that the most pressing policy issue is to accept this path and prevent any additional problems from developing."
Are you kidding me? Did a Fed Head actually say, a long period of debt pay down and sluggish growth? Why, yes, Chuck he did! Well. James Bullard gets a Gold Star!
To recap. The FOMC meeting minutes, although they were stale, disappointed the markets and the markets took their fury out on the risk assets. The euro has fallen below 1.22 for the first time in some time, and Chuck gives us his dour outlook for the euro this summer.
Eurozone Industrial Production was strong in May, but not as strong as the month reports from earlier in the year, thus confirming the economic slowdown of the Eurozone. June job losses in Australia wiped out job gains in May, and the A$ has lost over 1-cent overnight.
Currencies today 7/12/12. American Style: A$ $1.0120, kiwi .7870, C$ .9770, euro 1.2190, sterling 1.5445, Swiss $1.0150, . European Style: rand 8.375, krone 6.1305, SEK 7.0385, forint 237.10, zloty 3.4540, koruna 20.8460, RUB 32.80, yen 79.30, sing 1.2725, HKD 7.7565, INR 55.86, China 6.3730, pesos 13.45, BRL 2.0360, Dollar Index 83.70, Oil $85, 10-year 1.49%, (proving once again that yes, Virginia yields can go lower in the U.S. ) Silver $26.69, and Gold . $1,563.85
That's it for today. with only the Pacific Coast All Star Game on the tube last night, I turned my attention to reading and research.. It was quiet in the house as there was a swim meet, so, I did a ton of reading. This is very important folks. so I'm going to put it right here.
Yesterday, our friends over at the 5-Minute Forecast wrote some disturbing stuff about a bank that was using Gold for trading purposes. They did this to highlight their new affiliation with a Gold dealer in Switzerland. Let me first say that I found this way of going about this to be very disturbing. EverBank has metals accounts, and we have never been short to customers' holdings and will never be short to them. So, they weren't talking about us.
but given our long term friendship with them, wouldn't it have been nice for them to simply say something like, "our friends over at EverBank tell us they have never been short to a customer's holdings" and we trust them"? That's all I have to say about that.
I hope you have a Tub Thumpin' Thursday! I'm searching high and low for mine. but it will come.