Greek Parliament Votes To "Implement" Austerity Measures.
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In This Issue.

* Euro keeps its rally shoes on.

* Second leg of Greek vote passes.

* Chinese manufacturing slips.

* What did Bullard say?

And, Now, Today's Pfennig For Your Thoughts!

Greek Parliament Votes To "Implement" Austerity Measures.

Good day. And a Happy Friday to one and all! On top of it being a Friday, it's also the start of a 3-day Holiday weekend that ends with our republic's Independence Day, otherwise known by youngsters as the 4th of July. That's HUGE Holiday in my book! I'll have my blue "patriot" shirt on for sure! Today also marks the beginning of July, and the second half of the year. So, keeping with the tradition of the Pfennig on the first day of July, here's one of my all-time fave songs.

There I was, on a July morning. I was looking for love.

With the strength of a new day dawning, and a beautiful sun.

Now that brings back memories, folks. For fans of 70's rock, the group, Uriah Heep, was what was on my 8-track player all the time! But, I know, you didn't click on the Pfennig today, to reminisce with me about the early 70's. So. let's go see what's going on!

Well. when I clicked on the currency screens this morning, the euro was doing well, trading around 1.4525, but then a cat was thrown among pigeons, when it was announced that the Eurogroup meeting scheduled for July 3, had been cancelled. That really threw the markets for a loop. and the euro lost 1/2-cent in a NY minute. But, it looks like it was a knee jerk reaction to the news, and the euro is trading back to 1.45 at the moment.

Yesterday, Greece's "implementation vote" for the austerity measures squeaked through, and the German banks took the "warming to bond extensions" thought I told you about yesterday, to the next level, and agreed to allow Greek debt issues to be "rolled over", or extended if you will. I find this as "a solution" for now. as I said the other day. it's not a "resolution", instead, it's simply the ability to keep the default wolves at the door, but not letting them in.

So. the euro, which had been beaten for the last couple of weeks on what people were thinking was going to be Greece's Lehman Brothers moment, kept its rally shoes on for another day. I know there are a ton of other currencies to talk about, but for you new readers, the euro is the offset currency to the dollar, and while the other currencies might outperform what the euro is doing, the other currencies don't get to begin to perform VS the dollar, until the euro begins. So, that's why I focus so much on the euro, as it is the proxy for dollar weakness.

With the euro wearing rally shoes, the other currencies were doing well too. That means that the risk takers are on board with the currencies once again, and that's not a good thing for Swiss francs, the currency investors flock to, on Risk Off days.

But something strange is happening the last two days, folks. We have dollar weakness as measured against the euro and by the dollar index, but Gold is getting hammered. That makes two consecutive days of hammering on Gold (& Silver), while the dollar gets sold. Something is strange here folks. Gold has fallen through the $1,500 level, all the way to $1,489 this morning. What's going on here? We have dollar weakness, and Gold weakness at the same time?

Could it all be tied to the debt problems of both Greece and the U.S. as it looks like defaults for both of them may be averted? Probably. Just as the safe haven trades in Swiss francs get unwound. But, that's the wrong way to think about this. Just like the ratings companies that keep warning the U.S. that if they don't raise the debt ceiling (and default) that their credit ratings will fall. Hmmm. wouldn't the fact that the U.S. IS raising their debt ceiling also be a reason to cut their credit rating? Sure, they averted a default, for now. But, the debt is going to go higher now!

So. while we're on the U.S. debt. it was announced yesterday that the 4th of July recess for lawmakers working on the debt problem, was being cancelled so they could work through the weekend. Maybe these lawmakers can go to Minnesota and help them too, for Minnesota had to shut down its government. Here's the story I saw on Bloomberg. "The Minnesota government was forced to shut down for the second time in six years after lawmakers failed to meet a budget agreement Thursday before a midnight deadline."

And, then reader, Scott, sent me a note this morning (another early riser). First, though. let me set this up. The other day, the President gave a news conference and said that August 2nd was the "drop dead date" for raising the debt ceiling. But, Bloomberg is reporting that, "Negotiators will need to reach agreement on raising the U.S. debt limit no later than July 22 so that legislation can get passed in time to stave off a default on U.S. debt, two Democratic officials familiar with the talks said."

Ok.. enough of "debt talk". I begin to break out in a rash whenever I think about this situation we're in too much!

Last night, China printed a "soft" manufacturing index number of 50.9, falling from 52 the previous month, thus putting the index at a 28-month low. However, one of the components of the data is "input prices", which is a good indicator of inflation. Well, "input prices" fell, which could be a sign that inflation in China is softening.

So. the global growth folks, were fine with the data, because, if inflation softens in China, then interest rates won't go higher, and thus global growth can continue on. But, I'm concerned about the falling manufacturing sector. yes, I've said for two years now, that China was going to "moderate" their economy, not collapse it. So, this is the "moderation" I was talking about. So, calm down, Chuck!

So. last Friday, one week ago. the U.S. Treasury 10-year yield had fallen to 2.86%... Earlier this week, I asked you if you had noticed the rise in the 10-year's yield. Well, it's more than a "rise" now. it's a moon shot! The yield on the 10-year this morning is 3.17%! That's a 3 point loss in dollar price for the bond in a week! And this was a "safe haven"?

I told you that once the Fed stepped away from the auction table, from which they had accounted for 70% of Treasury auctions during QE2, that yields would rise. Well, they're rising. Yes, we've had several "false dawns" with my call of a couple years ago, that the next bubble to burst would be Treasuries, so I'm not going to pat myself on the back just yet. When yields are soaring higher, because foreigners are demanding higher interest rates to take on more U.S. debt, then, we might have something here. But like I said, we've had a few false dawns. Of course, 2 of those false dawns were created by Quantitative Easing.

Then there was this. I just mentioned the Fed, so I'll keep with that.

St. Louis Federal Reserve President, Bullard, was asked if QE was successful.

He replied. "In reality QE 2 worked. In particular, real interest rates declined, inflation expectations rose, the dollar depreciated, and equity prices rose," Bullard said.

Chuck again. Hmmm. did you catch those items? Let's review them one-by-one. Yes, QE is the only arrow left in a Central Bank's quiver when interest rates can't be cut any further. and Yes, inflation expectations rose. so much so, that commodities as measured by the DJ UBS Commodity Total Return Index, rose 25%, and CPI as measured by John Williams of Shadow stats is 6.5%, up from 4% since QE was announced last summer. And yes, equity prices rose. but as I wrote last year, since when is it the Fed's job description that they are responsible for supporting stock prices? And then finally. Yes, the dollar depreciated. The dollar index is down 13.78%, the Swiss franc has gained 20%, and the Aussie dollar has gained 17%, and even the beaten and beleaguered euro has gained 9%... But. the most important thing about his statement is.. So, is this the Fed's admittance that they prefer to see a weaker dollar?

Shouldn't the markets be all over this comment like a cheap suit? He admitted it! He was talking about things that worked with QE2, and the depreciation of the dollar was one of them! Where's the media on this? But. most important of all. shouldn't this be a HUGE FLASING WHITE LIGHT telling you all you need to know about why you should be allocating a portion of your investment portfolio outside of the dollar? I would think so!

And. there's also this. The news headlines are all about this rumor that U.S. Treasury Sec. Geithner is considering leaving his job once the debt limit is raised. I've got so many funny things to say about this, but, the new kinder, gentler me, is going to go right past this. Move along, there's nothing to see here, these are not the droids you're looking for.

And then. this is the start of a holiday weekend, so you know the drill. after around 11 am (CDT) when London closes, the trading desks here in the U.S. will begin to shut down, and volume in the currency market will be very thin, and subject to some wild swings. So, don't let this afternoon's trading lead you to believe that's a new trend.

To recap. The first half of the year is behind us now. Greece passed their implementation of austerity measures vote. The euro has its rally shoes on, which means the rest of the currencies are free to gain against the dollar. Gold and Swiss francs are selling off, Gold more than francs, probably in reaction to the Greek default being averted, and the U.S. lawmakers announcing they will work through the weekend to get the budget deal, and debt ceiling resolved. Chinese manufacturing softened, but so did their "input prices" which could indicate that inflation is softening too.

Currencies today 7/1/11. American Style: A$ $1.0710, kiwi .8255, C$ $1.0380, euro 1.45, sterling 1.6010, Swiss $1.1820, . European Style: rand 6.7525, krone 5.3775, SEK 6.2965, forint 183.20, zloty 2.7370, koruna 16.76, RUB 27.87, yen 80.75, sing 1.2265, HKD 7.7822, INR 44.57, China 6.4645, pesos 11.69, BRL 1.5630, dollar index 74.45, Oil $94.83, 10-year 3.17%, Silver $33.95, and Gold. $1,490 and since it's a Friday before the lawmakers work on a debt deal, let's not forget to take a look at the debt clock:

That's it for today. The 4th of July. what a great holiday! And a Happy Birthday to our Republic! And. Happy Birthday, to Drew McLean, Jen's son, who turns 4 tomorrow. Jen and I have worked together since 1994. that's a long time! Well, my beloved Cardinals found themselves in Baltimore this week, and swept the Orioles, who once were the St. Louis Browns. Now, let's hope the Cardinals can keep this going! I keep thinking I'm forgetting to talk about something today. UGH! Led Zeppelin is playing on the I-Pod as usual on Fridays, and our little Christine is bringing us breakfast sandwiches this morning. YAHOO! Alex did get his driver's license yesterday, and as I suspected, he wanted to take off immediately. His mom told him that she didn't think he was ready to just take off driving, and he replied. "The State of Missouri thinks I am". Youngsters! Well, he didn't get to! And with that, I hope you have a Fantastico Friday, and Wonderful Weekend, filled with sunshine and blue umbrella skies, the smell of charcoal getting ready to grill, swimming, fireworks, and whatever else you do.. . have fun, and be careful! Let's go have some fun!

Chuck Butler


EverBank World Markets



Posted 07-01-2011 11:55 AM by Chuck Butler