Greece Pays Early. Or Did They Really Pay At All?

* No news from Eurozone/ Greece.
* Euro leads currencies higher VS dollar.
* A treat from “the 5”.
* Kiwi rally to be short-lived?

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

Good day.. And a Tom Terrific Tuesday to you! Well, looky there! The NFL decided to suspend Quarterback, Tom Brady, for 4 games for his participation in the deflated footballs last winter. The Patriots fans won’t like me saying this, but for my money, I would have like to have seen the NFL suspend him for a year, you know like Alex Karras and Paul Hornung were for gambling activities back in 1963. But in the whole scheme of things, this is small potatoes, what happens in the NFL. But it appears that “Deflategate” as this is being tabbed, appears to have spilled over to the debt markets.

Something sure has taken the air out of the debt markets (bonds) around the world. I saw a headline on Bloomberg this morning That said, “Treasuries catch a cold from Europe”. Hmmm, I thought it was supposed to be the other way around? The U.S. sneezes and the rest of the world catches a cold, is what I was always told. But for those of you keeping score at home, the U.S. 10-year Treasury yield has spiked to 2.32% this morning, German 10-year Bunds are yielding .67% this morning, up from their record low of .49%… I stopped by the Big Boss’s (Frank Trotter) office yesterday and said, “hey, have you seen the spike in Treasury yields?” I don’t know why I asked him that, for I knew he had.. Frank is on top of the markets folks. But I did, and he responded “yes”. What’s it all about Alfie? Frank offered that it could be a spread trade. As the German 10-year Bund yield rises, the U.S. Treasury yield seems to match. And a quick check proved that to be the case.

Speaking of Germany… that leads one to ask how the negotiations between the Eurogroup, which Germany is the largest member, and Greece are going? Well, nothing new has come from the meetings, but on sidebar, Greece announced overnight that it had paid the IMF a day early for the euro 770 Million that was due today. On the outside that sounds good, right? Well, unfortunately, Greece has to dip into their IMF SDR’s line for 650 Million of that 770 Million total.. And when you do that, the funds have to be replaced within a month! Uh-Oh! This is a classic example of kicking the can down the road, unfortunately for the Greeks, they didn’t kick the can far enough down the road!

So, that start to the day, would probably have you thinking that the dollar is swinging its mighty hammer again this morning. But you would be incorrect! Euro, Aussie dollars (A$), New Zealand dollars / kiwi, Norwegian krone, Canadian dollars / loonie, Russian rubles and a handful of other currencies are booking gains VS the dollar this morning along with Gold, which is attempting to move higher too.. Have the markets finally figured out that the Jobs data from last Friday was basically fabricated with hedonic adjustments, and the real number of jobs created lacked Big Time? Or was the dollar’s move Friday, and overnight Sunday, through Monday, a case of too far, too fast? I would like to think it was the former.

The kiwi rally could be short-lived for this afternoon, the Reserve Bank of New Zealand (RBNZ) will print their Financial Stability Report, which will be followed by a press conference. And you know what I’ve told you since he took over at the RBNZ. RBNZ Gov. Wheeler never misses an opportunity to deep six kiwi, and I doubt he misses this opportunity this afternoon. The Aussie Federal Budget is also due at any time now, and we should have the results this morning. But there are no potential Big Surprises in the Budget, with only a small improvement in the Budget Deficit, but it’s so small that the Budget Deficit should remain 3% of GDP, which is no Big shakes, but something that I would like to see improved.

In Sweden this morning, their April CPI (consumer inflation) printed, and was softer than expected at .7% and expectations at 1%… Recall that Sweden’s Riksbank has already gone to negative deposit rates, and goosed them even wider at their last meeting. This kind of CPI print could push them to make deposit rates even wider in the negative range. And that’s the kind of thinking by the markets that could be the reason that Swedish krona is lagging the other rallying currencies this morning. The krona is carving out a small gain, but not lie it would usually, given the huge rally in the Norwegian krone this morning.

I arrived into the office this morning, quite a bit earlier than usual. I woke up early, and just couldn’t go back to sleep, so here I am, listening to Mr. Excitement, Jackie Wilson sing Higher & Higher, and reading an article on the Bloomberg that caught my eye this morning. The article talks about how investors are looking for an antidote to negative bond yields and overpriced stocks. “there’s little value left in the fixed income, credit and equity markets. We’ve seen a big increase in interest among our investors to use currencies to generate extra returns.” Said Mark Astley, the London based chief executive officer of Millennium. And another guy, named Dirk Aufderheide, said, “The use of currencies to generate extra returns is extremely important these days.”

Well, that’s all good. But that’s not the REAL REASON, you look to currencies as an asset class for your investment portfolio. It’s to diversify. Got that? OK. but yes, it’s like having your cake and eating it too, when your diversification tool outperforms the other asset classes in your portfolio. The problem has been the past 3 to 4 years, has been a washout for the currencies and metals, so if these guys that run these HUGE funds think that currencies are the place to be again, then maybe, just maybe we can put the past 3 to 4 years behind us, and come out from our cover. Maybe. Because you never know.

On sidebar. In the 80’s my beloved Cardinals had great teams, and in the early part of the decade they had a pitcher that was from another planet (the players would say) his name was Joaquin Andujar, and he used to say, “my favorite word is: You never know”. HA! And so I picked that up and have used it for a couple of decades now.

A couple of Sundays ago, we did a write up our latest poll which was where did people see the price of Oil at the end of the year, and the majority of the people participating in the Poll 50% thought it would be between $50 and $75, and 23.3% said they thought it would be between $75 -$100. So, a majority (73.3%) thought that the price of Gold would probably be higher than it was when the poll was taken when Oil was $56. Well, our friends at OPEC (NOT!) weighed in on this (not our poll but the where they thought the price of Oil would be for the next ten years. And OPEC said. drum roll please. that the price of Oil would be about $76. through 2025. The OPEC members point to the U.S. and say that shale producers will be able to cope with low prices and keep pumping out supplies. I would say they’re being quite optimistic with the Oil producers here in the U.S.

But then I read this in yesterday’s 5 Minute Forecast. I want to thank my friends: Dave Gonigam and Addison Wiggin who do a wonderful job of putting “The 5” together every day. So, here’s what I’m talking about:

“Back in January we told you about the death sentence Saudi Arabia had imposed on a revered Shia cleric, Sheikh Nimr Baqir al-Nimr.

Recall the House of Saud is Sunni Muslim… but Saudi Arabia is home to a restive Shia Muslim minority concentrated near the country’s most productive oil fields.

Al-Nimr was convicted of “waging war on God” and “aiding terrorists.” His supporters say all he did was lead a nonviolent movement supporting Shia rights and more rights for women.

We’ve searched high and low for confirmation al-Nimr is to be executed this Thursday, as rumored. All we find are references in the Iranian press, dubiously sourced.

Maybe there’s nothing to it. But if you wake up on Thursday or Friday to news that Shia mobs are torching the Saudi oil fields and crude has suddenly rocketed up $25 or $30, just remember what you read here today.” -The 5.

Chuck again. Interest stuff eh? Also interesting to me is the bubble in art. There was a story that Chris passed on to me a couple of weeks ago, that told about an investment guy who went on record saying that he thinks buying art and apartments in NYC are better than buying Gold. I immediately went into a tirade talking about how that was so wrong. But then last night I saw a headline from the WSJ, talking about Pablo Picasso’s painting of “Women of Algiers (Version 0), sold for $179 Million at Christies yesterday, the most ever paid for a work of art at the auction. YIKES! $179 Million for a piece of art? I don’t mean to sound flippant about it, I do have an appreciation for fine works of art, but I don’t believe they are worth $179 Million. But then, as my dad used to tell me, “Chuck, whatever it is you’re buying, it’s worth what you pay for it.”

Well, I’ve certainly gone off on some tangents this morning, maybe it’s from lack of sleep! HA! Nah. It’s just stuff that builds up in me, and then something triggers it, and voila, there you have it!

The Chinese renminbi was knocked back down a bit overnight, when the Peoples Bank of China (PBOC) weakened the renminbi/ yuan. I have to say this doesn’t surprise me even though I told you yesterday and last week that we could see more appreciations from the PBOC ahead of China’s meeting with the IMF this month, as China attempts to prove to the IMF that the renminbi is a stable currency, and therefore worthy of being considered by the IMF to be included in their mix of currencies that make up SDR’s (special drawing rights). Having said that, I also realize that the Chinese spent all last year, attempting to teach the markets a lesson that the markets can’t depend on a One-Way Street in a currency, and the PBOC introduced volatility to the renminbi.. So, they surely, don’t want to watch all the work get washed down the drain. So, some hits here and there to the renminbi might be the course of action.

Speaking of China. There was an article on Russia Today that Ed Steer posted that talks about the settlements in local currencies between Russia and China now account for 7% of the bilateral trade. That might not seem like a lot, but a year earlier it was 0%… and Renminbi -ruble trade in Russia has grown 700% in a year! This kind of news tells me that the partnership between China and Russia is growing stronger every day (sorry Chicago!) and bringing the countries’ finances closer will be a real challenge to the U.S. dollar reserve currency system, especially since both China and Russia have expressed a desire to remove that U.S. dollar system!

And the Brazilian real got whacked yesterday. I have to think this was all profit taking, as the real had rallied to 2.97 yesterday morning, only to see that gain wiped out quickly. And that could be the fate for the real going forward. Moves higher on rate hikes, and then two steps backward for profit taking. I would just as well steer clear of this trading pattern for now, until a clear direction can be defined, don’t you think?

Gold is up $10 this morning, but still short of the $1,200 figure. I want to skip over to Silver this morning, and revisit something I talked about last year in our monthly letter to clients called the Review & Focus, in which I talked about how Silver was used in the making of Solar Panels, and how Solar Panels were scheduled to see a HUGE pickup in production this year. And then there’s an article this morning on the that talks about how demand for Silver to make Solar Panels is expected to increase 30% this year and that China alone is expected to install 17 gigawatts of Solar Capacity by the end of t year, thus creating a HUGE demand for Silver.

Of course. There’s always the other side of Silver demand, which is represented by the short positions that exist in Silver. We all know who holds those shorts, and who has allowed them to hold more shorts than has been mined. But it’s fun to think of the potential that Silver has isn’t it?

Well, the U.S. Data Cupboard is pretty bare today, except for the Monthly Budget Statement for April, which should be a positive (for once in a blue moon) given that April is Tax collection month.. I know they received and cashed my check for taxes owed! UGH! We do have a Fed member, Williams, speaking today, but I don’t expect anything earth shattering to come from him. U.S. Retail Sales tomorrow, and remember, the BHI indicates it will be disappointing.

To recap. Debt Markets / Bonds are getting sold all over the world, as yields rise. We’ve seen this before, is this time different? Greece made their euro 770 Million payment due to the IMF a day early, but doing so, they had to tap into their IMF SDR’s line for euro 650 Million of the total, and that 650 Million is due to be replaced in 30 days. Uh-Oh! But the currencies, led by the euro are for the most part, rallying VS the dollar today. Kiwi’s rally might be short-lived though, as the RBNZ’s Financial Stability Review with a press conference following is due today, and the press conference will have RBNZ Gov. Wheeler talking, and he never misses an opportunity to deep six kiwi. Gold is up $10 overnight and the morning, but Chuck focuses on Silver today.

For What It’s Worth. Well, to follow up on the Jobs Jamboree, I found this article that was on MarketWatch. and can be read in its entirety here:

Here are a few snippets: “The pace of hiring in the U.S. has lost momentum despite the rebound in job creation in April, according to a pair of surveys, including one that’s watched closed by the chairwoman of the Federal Reserve.

The Federal Reserve’s index of labor market conditions fell to -1.9 in April from -1.8 in March, the first time the gauge has been negative for two months in a row since the middle of 2012.

The index, developed under the watch of Fed Chairwoman Janet Yellen, tracks 19 indicators and is used by the central bank to assess the health of the U.S. labor market in determining when to raise interest rates.

A separate assessment of the labor market compiled by the privately run Conference Board has also softened.

The board’s employment trends index rose slightly in April after falling in March, but it’s no longer increasing as fast as it did in 2014. The employment index is composed of eight labor-market indicators and has some overlap with the Fed’s version.

“April’s bounce back in the employment trends index is somewhat reassuring, but expectations remain that job growth will be slower this year compared with last year,” said Gad Levanon, managing director of macroeconomic research at the board. The economy added an average of 260,000 jobs a month in 2014.”

Chuck again. Now I have to do more research to see if these indexes that the Fed uses contain hedonic adjustments or are the raw data. UGH! I was unaware of these indexes before, so, see you can teach an old dog a new trick!

Currencies today 5/12/15. American Style: A$ .7985, kiwi .7385, C$ .8315, euro 1.1250, sterling 1.5680, Swiss $1.0830, . European Style: rand 12.1185, krone 7.4590, SEK 8.2840, forint 272.35, zloty 3.6405, koruna 24.3550, RUB 50.56, yen 120.00, sing 1.3345, HKD 7.7525, INR 64.16, China 6.1155, pesos 15.34, BRL 3.0615, Dollar Index 94.42, Oil $59.65, 10-year 2.32%, Silver $16.47, Platinum $1,135.38, Palladium $786.85, and Gold. $1,194.06

That’s it for today. The Righteous Brothers are singing their song: Unchained Melody, which takes me back to teen town, and slow dancing with girls. My older sister, Brenda, taught me to dance when I was young so I wouldn’t a stationary pillar in the corner at dances. She taught me all kinds of things, like how to tie my shoe, how to be polite to a girl, and to respect older people, and thousands of other things. She took me to school my first day, and I cried when she went off to her own class. Ahhh, slow dancing, swaying to the music, no one else in the whole wide world.. And now I walk with a cane, and no longer venture to the dance floor. Little Everett was at the house yesterday when I got home, and his mom and her mom who have become quite the seamstresses, were talking about fabrics and patterns, etc. and he looked at me from his iPad, with an exasperated face and said, “all they talk about is clothes”.. I laughed out loud! Then he knew he said something funny, and kept repeating it. So cute! Cardinals get back to action tonight in Cleveland, where the games will start earlier, and allow me to watch most of the game before falling asleep at night! YAHOO! Well, thank you for reading the Pfennig today, and I hope you have a Tom Terrific Tuesday!

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