Another Bad Data Day For The U.S.

* Bad data turns dollar down on the day.
* CBR cuts rates 100 Basis Points!.
* RBA is steady Eddie on rates but disses A$’s.
* Chuck spends an eternity on Greece! .

And Now. Today’s A Pfennig For Your Thoughts.

Good day. And a Tom Terrific Tuesday to you! Well. Another day here, and a another day of rain. Although the outside activities planned at the Butler House yesterday went off without too many raindrops falling. It was also another day of bad economic data here in the U.S. Just how many of these is it going to take to get the Fed members to realize that their forecast for a strong rebound by now isn’t going to take shape? Well, a review of the bad data yesterday, and quite a bit on Greece, is on the Pfennig docket today, but first. Cheap Trick greets me this morning with their song: I want you to want me. Not exactly a smooth, mellow morning song, but if you need a pick-me-up than this is your tune!

So, let’s see where to start? OK, I’ve got it. Let’s start with a quick review here. Yesterday morning, the dollar was at the head of the class, and I said it had the conn, which for new readers is short for the “control” and it’s an old military term. Submarines I do believe, but I’ve used that for twenty-something years in writing the Pfennig, so there! But that conn, didn’t last through the early morning data prints, as once again bad/ weak U.S. data sent the dollar packing on the day. I’ll talk about the bad data in a bit, but first we’ve got some other things get through.

The dollar has won back some of the lost ground from yesterday after the bad data sent it packing. But it’s a mixed-bag-o-currency-values today, so let’s go through them, starting with the Aussie dollar (A$). The A$ is weaker this morning, after the Reserve Bank of Australia (RBA) Meeting minutes printed, and showed that while the RBA has taken a “wait-n-watch” stance with regards to any new rate cuts, and a better feeling toward China, the RBA took a shot at the A$, by saying that “it needs to be lower for a sustained period.” UGH!

The euro is a touch weaker this morning, after climbing to near 1.13 yesterday… One day, the euro gets whacked because of Greece, and the next day it gets pushed higher because of weak data in the U.S.. I wanted to spend some time talking about Greece this morning, so I guess this is as good a place as any, eh?

There was no news from the Eurozone/ Greek talks overnight or this morning. I get asked all the time about what kind of damage is Greece going to make IF it decides it wants out of the euro. Well, let me set this up. First of all, Greece accounts for 2% of the total Eurozone GDP. Many times in the past I’ve compared the size of Greece’s economy to that of Kentucky’s. Sure, many Eurozone banks and institutions hold Greek bonds, so having Greece default would hurt, but bring down the Eurozone? Hardly! And in the end, the pain would be much greater for Greece. And that’s where the rubber meets the road folks. Sure the Austerity plans and cuts to budgets would hurt Greece for a few years, but the pain from leaving would be far greater to them.

And think about this. Should Greece decide to drop the euro, and go back to the drachma, and then devalue the drachma by 50% or so, sounds easy, but it won’t be. It would probably involve shutting down banks and ATMS to prevent people from withdrawing money before it could be translated into a new cheaper currency. It would take months to get new bills in circulation, and with a new currency devalued by 50%, what do you think that does to inflation in the country? That’s right, we’re talking Hyperinflation, and that’s not a good thing, ask Germany, or Zimbabwe. I saw the other day that you could exchange 35 quadrillion Zimbabwe dollars for $1. Maybe that was a hoax, but that’s what was being talked about!

And if Greece defaults on their debt obligations, guess who will have to wait eons before ever going to the markets again for loans? Greece. So, no matter what the cost to the Budget, and the economy, they are nothing compared to the cost of dropping the euro, folks. I believe it or don’t, but this list of things that would cost Greece could go on and on and on. I’ve just given you the broad strokes.

Should have thought of all of that before Tsipras began touting leaving the euro. What is he doing now? Saving face? That’s crazy! Well, in the end, I still see Greece agreeing to the criteria that the creditors have presented to them, and this will have all been a bad dream. Sort of like when Bobby Ewing died, and then Pam woke up and found him in the shower a year later! HA!

Not a Dallas fan? Wow! Dallas was so cool back in the late 70’s. Everyone waited to go out on Friday nights, until they watched the TV Show.. Who Shot J.R.?

OK. Getting back to the currencies. The Chinese renminbi / yuan and Russian ruble are two of the handful of currencies that have carved out gains VS the dollar this morning. The ruble is the surprise for me, given that the Central Bank of Russia (CBR) did cut rates 100 Basis Points yesterday, as I suspected they would. The ruble which has seen a ton of weakness in the past month, after being the best performing currency of the year the first 4 months, no wait! The ruble is STILL the best performing currency year to date, but has seen those gains reduced in the past month, has taken the rate cut, put it under its arm and run around end, to the currency appreciation end zone.

Yesterday, the U.S. Net TIC Flows, which is a fancy way of saying the Net foreign security purchases, saw an outflow.. That’s right there was a net reduction of security purchases by foreigners. Uh-Oh. But you didn’t hear about this anywhere did you? Of course not. Because, nowadays we know all too well, that the Fed can just make an entry on their computer to show that they have billions of dollars to go buy Treasuries and make this all better. Yes, I know the Fed isn’t a “foreign buyer”, but when you don’t have buyers, for Treasuries, the Fed will do just fine, it’s just that little entry on their computer that bothers me.

So. Guess, who said this in a speech in May. “If confirmed by further estimates, my guess is that this apparent slowdown was largely a result of a variety of transitory factors that occurred at the same time, including the unusually cold and snowy winter and the labor disputes at ports on the West Coast, both of which likely disrupted some economic activity. And some of this apparent weakness may just be statistical noise. I therefore expect the economic data to strengthen.”

Give up? Nah, I know you Pfennig Readers, you probably had it figured out at with the use of the word “transitory”. It was Fed Chair, Janet Yellen. Well, I have to hand to her, she’s doing her best to get the economy excited. A Cheerleader if you will. Hey it worked back in the 80’s for Ronald Reagan, who put the pride back into being an American, and then everything took off from there! So. keep these thoughts from Janet Yellen in mind as we go through the Data Cupboard from yesterday.

Yesterday’s U.S. Data Cupboard was quite disappointing. And once again, begs to question those that believe the U.S. economic data is getting “better”. I would point out that my thought was that while it may be better, you have to ask better than what? And that answer would be: Better than some really awful data! Which doesn’t say much. And so, once again, we look to Industrial Production (IP). May IP, which was expected to show a 0.2% gain, actually printed negative once again! And April’s IP was revised downward from -0.3% to -0.5%… The May negative print was -0.2%… So, let’s map this out. March was -0.3%, April was -0.5%, and May was -0.2%… So, like I said before. May was better than April. But, that’s not saying much!

And Capacity Utilization, which I’ll remind one and all that it is a good forward looking piece of data, fell down to 78.1% from 78.3% in May. So, even our forward looking data isn’t telling us to be dancing in the streets. In addition to those two major pieces of economic data, we also had the Empire State Manufacturing Index, which was supposed to show a gain of 6.00 actually printed negative at -1.98. That tells me that the Manufacturing in the NY state region, sucks eggs right now. So, the TIC Net Flows, the Empire State Manufacturing, Industrial Production and Capacity Utilization were all very bad yesterday, very bad. Let me say that again so it sinks in and then you can go back to read what the Fed Chair things, they were all very bad!

Hey! Maybe this will all turn around, and Janet Yellen will be smiling like the Cheshire Cat! For she has to have a ton of economists working at the Fed that would help her with speeches like the one she made in May, and they have to have far more gray matter than little old me, here in St. Louis, Mo, home of the 11-time World Champion St. Louis Cardinals!

And the Data Cupboard will probably get to gloat this morning, as the only data on the docket today is Housing stuff. Housing Starts and Building Permits. I’ll say it again, with all the talk of pending rate hikes, home buyers are going crazy folks, (in honor of Jack Buck) racing time to get in before the mortgage rates go higher. But then, maybe that’s all finished? We’ll have to wait-n-see this morning.

Had to stop and sing along with Charlie Daniels and his song: Long Haired Country Boy. But, I’ll be back in a minute.

Gold also received some wind for its sails after the bad data yesterday, and gained about $6 on the day. But this morning it’s back down $2. Well, today marks a momentous day for Gold. Today, the Bank of China Ltd. Will become the first Chinese Bank of join the auction process that sets gold prices in the London Market. The Chinese Bank will join 7 other lenders and start participating in the twice-daily auction. China finally gets its foot in the door of setting Gold prices. This is a great occasion for China and Gold folks. The two, China and Gold, are going to be tied together for a long time, I believe. And now, China gets to exert its influence on the price of Gold.

To recap. Another day of bad data for the U.S. led the dollar to a day of getting sold yesterday, but today it is winning back some of the lost ground, as only a handful of currencies are carving out gains VS the dollar. The RBA said that they were waiting and watching, but that didn’t stop them from talking down the A$… Chuck goes through an epistle of stuff on Greece today, and for those of you who only read the recap, you won’t want to miss this. A very bad data day in the U.S. as IP printed negative, Capacity Utilization dropped, Net purchases were negative, and the NY Region Manufacturing is sucking eggs, Chuck wonders what Janet Yellen thinks now? And Gold gained $6 yesterday after the bad data printed, but is giving up 2 this morning. China begins to have some say on the pricing of Gold today.

Before I go to Big Finish today. No Deep Thoughts today from Chuck. Instead, I wanted to bring to everyone’s attention an interview on the Daily Reckoning (DR) with my friend, the Great Mogambo Guru! You won’t want to miss this, so here’s the link to go directly to the interview.

And, you get to see a picture of the Great Mogambo Guru! I got to have lunch with the Mogambo when I was in St. Pete in March. He calls me one of his JMR’s. Junior Mogambo Rangers. That’s a title I proudly wear! So, check it out, I think you’ll enjoy it.

And then another Before I go to the Big Finish. Last week I told you that Ed Steer’s Gold letter that was published by Casey Research, had been sold to another publisher who shut down the letter, but that Ed would be producing his own letter going forward. Well, I heard from Ed the other day, and he’s up and running! Now, I must alert you that his new letter is going to charge a subscription. But shoot Rudy, where else can you get the info that he gives you daily? So, if you’re interested click here to start.

For What It’s Worth. Well. nothing like rehashing old stuff. But this article caught my eye, and I had to read it, and share it, for it goes through stuff that I had questions with back at the time this was going on, and it’s nice to see a Judge say the same thing I was saying. The whole article can be found here:

“It’s cold consolation for former AIG Chairman Hank Greenberg and his shareholders now, but a federal judge in Washington has ruled that the Federal Reserve broke the law when it seized almost 80% of AIG’s stock and charged it loan-shark rates for an $85 billion bailout in the depths of the financial crisis.

The Fed’s behavior was all the more reprehensible because it gave other financial firms like Citigroup, Bank of America, Goldman Sachs and Morgan Stanley MS tens of billions of dollars in emergency loans on better terms.

Many of those firms, Judge Thomas C. Wheeler noted in his 75-page decision, “engaged in much riskier and more culpable conduct than AIG, but received much more favorable loan treatment from the Government.”

Judge Wheeler ultimately awarded AIG shareholders nothing because that’s what they would have ended up with if the government hadn’t stepped in. As government attorney Kenneth Dintzer said in closing during the trial in the Court of Federal Claims, “[i]f the Fed had wanted to harm AIG in some way, all it had to do was nothing.” The parent company would have failed and state insurance commissioners likely would have seized AIG’s profitable insurance units, the judge wrote.”

Chuck again. Crazy stuff, eh? I wonder what Tim Geithner thinks about this ruling. Paying off some, not all, when in reality, none should have been given a dime, the firm should have been left to fail. That’s all I’m going to say about that. But if you have questions about that thought, I suggest you pick up a copy of Henry Hazlitt’s book: Economics in One Lesson.

Currencies today 6/16/15. American Style: A$ .7745, kiwi .6985, C$ .8105, euro 1.1225, sterling 1.5620, Swiss $1.0725, . European Style: rand 12.4340, krone 7.7740, SEK 8.1925, forint 277.75, zloty 3.6910, koruna 24.2720, RUB 54.24, yen 123.45, sing 1.3455, HKD 7.75.30, INR 64.25, China 6.1155, pesos 15.45, BRL 3.1355, Dollar Index 95.08, Oil $59.69, 10-year 2.31%, Silver $16.00, Platinum $1,086.00, Palladium $738.94, and Gold. $1,182.87

That’s it for today. Congrats to the Chicago Blackhawks who are Stanley Cup Champions this year! Their third Stanley Cup Championship in the past 6 years! WOW! Now that’s a dynasty, eh? And silly me, I thought that this was going to be the Blues’ year when the season started last Rocktober! Cardinals and Twins at Busch for a day game today. That is if the rain stops for a couple of hours so the game can be played! Doesn’t look that way right now. UGH! I was talking with my friend, and colleague, Jack Stapleton, yesterday about Greece, and both of us wondered how a country as tiny as Greece, can sway the markets like it does. Singing in the rain, just singing in the rain. I guess that’s what we’ll be doing when they play the National Anthem today before the game.. Well, this coming weekend is Father’s Day Weekend. I sure it doesn’t get washed out! And with that. I need to go, as I really went into overtime this morning, with all this writing! I hope you have a Tom Terrific Tuesday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts