Greek Bailout Halts Euro Decline

The price action in the euro (EUR) yesterday, which has dominated the currency trading for a month now, was something out of the Twilight Zone… “Help, I’m slipping into the Twilight Zone; the place is a madhouse; feels like being cloned”… Yes… That Twilight Zone… While the other currencies from Norway and Australia, were getting hammered – for no apparent reason, I must add – the euro rallied in the early morning to near 1.24… Then turned on a dime, and by the time my turkey sandwich on wheat arrived at my desk, the single unit was back to trading below 1.23… But… Then, by the time I packed up to go home, the euro was back to 1.24… The strange thing about this swing, was that there was nothing, nada, zero, zilch, a big goose egg of news, data, or official slant to trade off of…

So… As I turn on the screens today, the euro has remained above 1.24 in the overnight trading… A lot of the euro’s selling came last week based on fears that while Greece may have been promised funding, they might not ever see it… Well, those fears were thrown to the roadside this morning, as Greece received a 14.5 billion euro ($18 billion worth) payment this morning, which kept Greece from defaulting on debt/bonds… Greece is also set to receive 5.5 billion euros from the IMF… (I told you last week about who the major funding comes from for the IMF, so I won’t go into a tizzy again about the fact that you, me, and the guy down the street that cuts his grass with his shirt off, are the major financiers!)

The euro started last week with the euphoria of an aid package, and a level of 1.30, only to see selling the rest of the week based on the fears of no payments being made… Well, now that this has been settled, one would think that the bounce for the single unit would be more than we’ve seen so far this morning… But… Just goes to show you that “bailouts” aren’t all they are made out to be.

They should have asked us here in the US… No wait, they should have asked me, not the President or VP or Treasury Sec. or Fed Chairman, for they would have all told them to get the bailouts on the books, for they greatly helped the US. Now I, on the other hand, would have told them not to bother unless they wanted to begin a spending pattern close to what’s going on here in the US. Growth at what cost? Take away the government spending, and we have no economic growth, and are still saddled with near 17% unemployment (when real numbers are used) and the really sad part… Our national debt is out of control!

OK… Enough of all that… The euro and the Eurozone are not out of the woods by any stretch of the imagination, folks…

The global demand for US assets (Treasuries and other things) rose to a record level in March… So, you didn’t believe me that the flight to the so-called “safety of Treasuries” was going on? Think again… The yield of the 10-year Treasury has fallen to 3.47% after rising to above 3.80%… (Remember, bond pricing is an inverse relationship between price and yield… When yield goes up, the price goes down, and vice-versa)

So… The nasty circle of buying so-called safe Treasuries is “on” again… Grab your Treasuries, it’s on! (Sorry Southwest!) Oooh… Where do I sign up for this trade? NOT!

Chuck, Chuck, Chuck… Go on from here; don’t go down that road of explaining how everyone lost money in the last round of “flight to safety”… If they didn’t learn then, well, they will never learn!

Today, we will see the color of the latest Housing Starts, and Building Permits data… The experts have forecast that both of these reports will show a strengthening housing market… But remember, folks… These are “new buildings”… Do we really need more new buildings when we already have a glut of inventory in this country?

Oh well… Hey! I see the sun rising! YAHOO!

OK… Gold got smacked with a two-by-four yesterday right across the chops! And the selling is still going on this morning… The payment to the Greeks probably caused this morning’s selling, as the “uncertainty” of the payment was wiped out. But, this certainly looks like a “dip” to me… Very much cheaper than last week!

I noticed something last week, which Kristin confirmed, and that is, that silver has been performing better than gold in recent days. Gold… Silver… Either one provides a store of wealth… You pick the one that makes you happy!

The Treasury Department said Monday it would lose $1.6 billion on a loan made to Chrysler in early 2009. Taxpayer losses from bailing out Chrysler and General Motors are expected to rise as high as $34 billion, congressional auditors have said.

Hmmm… You don’t hear the government officials running around pounding their chests and spouting off about this news, now do you? They just sweep it under the rug…

Earlier in the letter today, I told you that Aussie dollars got hammered yesterday for no apparent reason that I could find… Well… Last night I couldn’t deal with not knowing, so I researched and researched until I found the news I was looking for… Moody’s (there they are again taking shots at smaller fish, instead of dealing with US debt) made comments that the mining profits tax that has been proposed may cut earnings by 33%… Now, that may be true, but the tax hasn’t even been passed yet by parliament!

On the brighter side, the Reserve Bank of Australia (RBA) minutes revealed that the RBA members believe that the impact of Greece on Australia was considered to be small… The RBA then went on to mention something interesting that I think the markets have missed altogether… The RBA said that “over the next couple of years it was likely that inflation would not be much below the top of the target range”… That’s Central Bank Parlance for “there could be more rate hikes in the future”.

I personally think that the RBA will take a summer vacation on the rate hikes, and not come back to the rate hike table until early fall.

Then there was this… Twelve months after federal regulators seized BankUnited FSB, the Federal Deposit Insurance Corp. says the Coral Gables bank’s failure will cost $815 million more than originally forecast.

The bank failure will now cost the FDIC an estimated $5.72 billion, a 16.6% jump from last year’s estimate of $4.9 billion, according to new estimates released by the FDIC. It is the second-costliest bank failure in FDIC history.

FDIC spokesman David Barr said the change in estimated cost is a natural development in the aftermath of a bank failure.

Funny, I didn’t see this on any cable news stations, did you?

To recap… The euro had a turn on Mr. Toad’s Wild Ride yesterday, but by day’s end was stronger. The first installment payment to Greece was made this morning. Aussie and Norway saw their currencies get hammered yesterday, along with gold… All providing “dips” in my opinion! And US Treasuries are popular once again; let’s see how it works out for the buyers this go-around…

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

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