The Greeks Bite Back!

In This Issue.

* Yellen keeps foot in rate hike door.
* Greece has this week to finalize a deal.
* SGE starts a Gold fund to reduce dollar’s relevancy further.
* U.S. Data continue to be weak.

But First, A Word From Our Sponsor..

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

Good day.. And a Tom Terrific Tuesday! Whew! What a Holiday Weekend! I’m worn out! The weather person was so wrong about the weekend weather, that she was almost right! HA! I do know that parts of Texas & other states have had devastating rain and storms, so I hope everyone there is safe. But for us it was seashells and balloons! Sure it rained at night, but by then I was ready to go inside! Kathy took off Sunday for two weeks, leaving me with Alex, who still hasn’t adjusted to being back home from college, for those of you who’ve had kids move back from college know all too well what I’m talking about. The late, great Dusty Springfield greets me today with her song, Son of a Preacher Man.

Well, speaking of knowing all too well what they’re talking about. The euro is getting sold like funnel cakes at a state fair since yesterday, when the European markets were trading on their own, and there was a lack of liquidity. It seems the Greeks have bitten back. Yes, last week, the negotiations between the Greeks and the Eurozone were all sugar coated and everyone left the meetings thinking that a compromise would take place, with the Greeks taking their dose of austerity medicine, and asking, “may I have another?”

But then the Prime Minister (PM) Tsipras, and Finance Minister (FM) Varoufakis, got together and decided that enough was enough, they had heard all they wanted to hear from their creditors, and decided to bite back! Tsipras said, “Our creditors’ insistence on greater austerity is subtle yet steadfast. Our government cannot and will not accept a cure that has proven itself over 5 long years to be worse than the disease.” The euro quickly went on the selling blocks, and has dropped over 3 full cents since Friday morning. I think this is all nothing but a Greek drama, for which they’ve excelled at for a very long time.

But, talk about knowing what they were talking about, the markets took these words from the Greek PM as the gospel and that no deal would result from this, that Greek would walk away from the euro and so on. Like I said though, later this week, we’ll hear these same Greek leaders with a form of a mea culpa, and get back on the creditors’ side. June 5th is the next scheduled payment to the IMF from Greece. So, things have to be worked out THIS WEEK!

Well, the IMF had some discouraging words for China and their currency this past weekend, saying that the Chinese renminbi / yuan was “no longer undervalued”. And hearing that, the Peoples Bank of China (PBOC) weakened the renminbi overnight. But I’ve explained this all before, this trading pattern that will exist while China prepares to state its case to the IMF as to why the renminbi should be a part of the IMF’s Special Drawing Rights (SDR’s)

The IMM Futures positions for the previous week, showed that more dollar long positions were dropped. But that’s got to be changing at this very moment, since the euro has taken a ride on the slippery slope.

Last Friday afternoon, Fed Chair, Janet Yellen, had a speech and she talked very confidently about the economy, saying that, “The U.S. economy’s first-quarter chills won’t deter the Fed from its plan to increase borrowing costs.” And that really sent the dollar flying higher in very thin markets on Friday. You know, Yellen had to know the markets would be thin and lack liquidity on Friday afternoon, and statements like that would really blow the markets up. But apparently she didn’t care. I’ll tell you what I got from her comment. She left the door open to the 2nd QTR. She said the Fed wouldn’t be swayed by the bad 1st QTR, but she didn’t say anything about the 2nd QTR. Oh, and the Atlanta Fed has already issued their forecast for 2nd QTR Growth, and it appears that it will be worse than the 1st QTR.

So. You see, she gave herself and the Fed an “out”. When the June meeting comes along and they don’t raise rates, She can simply say, that it wasn’t the 1st QTR winter chills that swayed their vote, it was the continued “transitory” economic slowdown in the 2nd QTR. And then go on to talk about how strong they see the 2nd half of the year for economic growth. Just so that the markets don’t get the wrong idea about what the Fed is looking at.

But I can tell you right here, right now, watching the world wake up from history. Oooops! This is not time to be quoting Jesus Jones, Chuck! You were as serious as heart attack a minute a go, and then this! Ok, sorry, I’ll get back to being serious. We could be looking at the NBER, you know the private, nonprofit, nonpartisan research organization that determines official recessions, when they begin and when they end. Well, we could have the NBER saying we began a recession already, and then what will the Fed do?

Did you read that great interview, if I say so myself, that was in the Daily Reckoning, last week that I highlighted in Friday’s Pfennig? Well, if you did, you’ll be hearing this a second time, and if you didn’t, well, you’ll be hearing this the 1st time, but that doesn’t get you off the hook of not reading it in its entirety.

“I think that we never really left the recession that we were in from 2009.

We’re six years removed from when they said we got out of the last recession and we’re still looking at factory orders and durable goods orders and retail sales that are bad.

The data just keeps coming in weaker and weaker. And that’s after six years of quantitative easing and stimulus.

Remember Cash for Clunkers and tax rebates? Those programs are so reminiscent of the responses that Japan used that it scares me.”

OK.. enough of that! Well, Canada had some interesting data on Friday last week. Let’s take a quick look at what they printed!… First, Canadian Retail Sales rose 0.7% in March, thus following the 1.5% gain in February. This was a very strong print for Canada, and funny thing about it, was that there was no mention of “bad weather” as we’ve discussed before, places that usually cold, like up north, don’t make excuses for “bad weather”. Canada also printed their April CPI, consumer inflation, which dropped to the lowest level since October 2013, at 0.8%… That represented a year on year drop of 0.4% (0.8% VS 1.2%). So, Canada is experiencing a relatively similar problem to that in the U.S. Except, here in Canada Retail Sales are strong. But both countries are experiencing the inability by retailers to increase sales margins. Hmmm. The Canadian dollar / loonie was able to hold Steady Eddie on Friday, but yesterday finally succumbed to the U.S. dollar’s heavy handed trading.

The Japanese yen, saw its value drop from 119 to 121 last week, and this week starts out with another loss to 122, which is the lowest the yen has been in 8 years! (remember yen is a European priced currency, so when the numbers representing price rise, it is actually losing value VS the dollar, as it takes more of the currency to make a dollar.

So, I could go on and talk about this currency getting sold, and that currency getting sold, but for the ease of my fat fingers, and to cut the boredom for you, dear reader, I’ll just say. It’s all about the dollar today, and the three anti-dollar assets, Gold, Oil and euros are all getting sold. well, like I love to say, getting sold like funnel cakes a State Fair!

Well. you could have been anything that you wanted to, the way you do the things you do. That snappy song by the Temptations is playing on the iPod right now. Yes, now you’ve got that song in your head. A 60’s version the Happy song of today.

So, did you see where Austria, you know the only country in the world, that I know of that is, that has Constitution that says the country can never give up banking clients’ names. Or something like that. I used to know a guy that worked for an Austrian Bank, and he would come to shows, and talk about how he was from Austria. Not Australia, and that Austria didn’t have kangaroos. HA! Oh, getting back to Austria. The announced that they would be repatriating 110 tonnes of their Gold from the Bank of England (BOE). I’ll say this one more time, no wait, come on Chuck, you know you’ll say it over and over again. OK.. I’ll say this now so you can listen to me later, but Central Banks are either producing tonnes of Gold, importing it, or repatriating it, all this shoring up their reserves on the books with physical Gold that they hold. It tells me that they know something we don’t. Hmmm

So, Gold is down $8 this morning, and has fallen below $1,200 once again. But is still within a small range of $1,200 at $1,194. Yellen’s speech on Friday, has weighed heavily on Gold, as the markets seem to have swallowed Yellen’s words, hook, line and sinker. And there’s something out there this morning that you should all be aware of. China’s SGE (Shanghai Gold Exchange) has set a fund to facilitate Central Bank Purchases of Gold. This will be yet another move by the Chinese to reduce the dollar’s relevancy in the world, as this Gold will be priced in renminbi. WOW!

The Chinese believe that the fund will grow to 100 Billion renminbi ($16.1 Billion).

The U.S. Data Cupboard gets back to business this week, starting today with Durable Goods for April, which will continue to print negative in my opinion. We’ll also see Capital Goods Expenditures the S&P/ CaseShiller Home Price Index for March, April New Home Sales, Consumer Confidence for May, and some other smaller prints. Durable Goods Orders if it prints negative as I suspect it will, will mark 2 consecutive months of negative growth. So, if the markets are paying attention today, the dollar’s currency slashing of currency prices may be stemmed.

And, since we were all at the grill, Big Green Egg, or whatever outdoor cooking apparatus you use, yesterday, we didn’t go over the Friday data. And that was not a good thing folks. Industrial Production of April fell 0.3%, and Capacity Utilization dropped from 78.4% to 78.2%, the U of Michigan Sentiment report for May showed a drop from 95.9 to 88.6, and Current Conditions from 107 to 99.8. The total Net TIC Flows showed a negative number of -$100.9 Billion.. net securities purchased by foreigners, for March, which doesn’t come close to financing the Trade Deficit back in March. This data used to get the markets all lathered up, but then they figured out that the U.S. Fed was buying up the difference, and it’s no longer thought of as market moving.

But to me, it’s important that the markets look at this like it should be looked at.. and that is that foreigners are not buying Treasuries folks. Well, at least they didn’t in March! And therein lies another problem with this data. It’s not timely.

To recap. Yellen got the markets riled up in thin, non-liquid markets last Friday afternoon, and the markets fell in love with what she said and began buying dollars, and that carried over to yet again thin markets on Monday, which leaves the euro down 3-full cents since Friday morning, and looking once again like it might plunge at any moment. The Greeks bit back yesterday, telling their creditors that they won’t accept any more austerity. And that has also weighed heavily on the euro this morning. Chuck thinks the Greeks are just trying to make it look good for their countrymen that voted them into power on the basis of “no more austerity”, but in the end, a deal will have to be worked out this week, as the next tranche of money owed to the IMF is due June 5th. The U.S. data has been pitiful and weak, but yet, the markets continue to believe Yellen’s assessment that the weakness is Transitory. Gold fell below $1,200 again, but there was BIG news on repatriation in Austria, not Australia, and BIG News from China regarding the SGE. So, why is Gold down in price today?

For What it’s Worth. This is a little different this morning, but still it’s a FWIW, because it’ll bring something to your attention that you probably wouldn’t otherwise hear of. I found this in my general perusal of the people I follow on the internet. The whole story can be found here:

“General Motors claims that you do not own your car because the computer code that operates it is copyrighted. The company has joined John Deere tractors in asking the Government to stop the Copyright Office from allowing consumers to “jailbreak” the code in their car’s engine to they can have it serviced by non-GM Mechanics or fix themselves. If GM is successful, auto companies can force us to buy only official, expensive parts.”

Chuck again. That’s just preposterous! I guess I have to hope, that GM isn’t successful. But then, no Chuck don’t go there! There’s no reason to drag GM through their dirty laundry. But anyway, the FWIW was short and sweet today.

Going into the Currency roundup, the euro has rallied since I came in this morning, and is now “only” down 2-full cents since Friday morning.

Currencies today 5/26/15. American Style: A$ .7805, kiwi .7300, C$ .8090, euro 1.0930, sterling 1.5415, Swiss $1.0555, . European Style: rand 11.9900, krone 7.6610, SEK 8.3995, forint 262.70, zloty 3.7850, koruna 25.0480, RUB 50.37, yen 122.60, sing 1.3460, HKD 7.7525, INR 63.97, China 6.1172, pesos 15.28, BRL 3.1145, Dollar Index 96.85, Oil $59.27, 10-year 2.18%, Silver $16.82, Platinum $1,135.38, Palladium $785.45, and Gold. $1,195.17

That’s it for today. Well, friends across the state, the Kansas City Royals treated us rudely over the weekend. Had a great day yesterday, Little Delaney Grace, and brother Everett, along with their parents, were over to swim, and thoroughly entertain us. Neighbors Paul and Lenore came over and spent the day with us, as we hung out, watching the Cardinals game, and enjoying an adult beverage or two. Alex had some of his H.S. friends over, so it was like a small party. I didn’t do anything fancy on the Big Green Egg, but I did grill some burgers for everyone. Yesterday, made up for the rotten Thursday night, and Friday day I had.. UGH. It was good to see oldest son, Andrew’s wife, Rachel’s family Saturday at Braden Charles’ Birthday party. I’m not sure I said that right, but you get the message! We, at the Butler house, traditionally held a big BBQ on Memorial Day weekend, but with Kathy leaving Sunday, that didn’t seem to work out this year. Alrighty then, this should be quite the interesting week in the markets, so we had all better strap ourselves into our seats, and keep all arms and legs inside at all times during the ride. Thank you for reading the Pfennig. and I hope you have a Tom Terrific Tuesday!

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