We Know Only What We Don’t Know On Greece, Rate Hike, Iran, China

Those four topics sum up today’s trading currents. Let’s start with the most intractable and the one that is most immediately able to endanger the world economy: Greece.

At approximately 4 PM New York time, there is a foul mood on the streets of central Athens, with Molotov cocktails being thrown at riot police, students and civil service workers about to strike and the haughty Prime Minister Alexis Tsipras having seemingly run out his string of good luck.

There is now much less assurance that the austerity-for-aid package negotiated just a few days ago between staggering Greece and the rest of Europe will pass the parliament.

The unrest and uncertainty drove the euro down, the U.S. dollar up, and therefore weighed on the price of both gold and crude oil.

Gold is down close to $7.00 as we write. However, we look for a small bump on a softer dollar and some bargain hunting tomorrow. Yet, for all that, gold hit a four-month low.

Also pressuring the euro and boosting the dollar were Fed Chairwoman Janet Yellen’s comments before the House of Representatives in Washington. She reiterated that a rate hike is likely this year.

But, but, but… employment is flat, factory orders are flat, wages are flat, consumer spending is flat, Europe is struggling, China is about to have a stock meltdown along the lines of the Crash of ’29, and the developing economies are still not out of the Great Recession.

A rate hike, to put it gently, would be insane. (Add your own expletive before the word “insane.”)

We are hearing all kinds of rumblings from most of the Republican Party and strongly pro-Israel members of the Democratic Party about the deal negotiated between Iran and the West. This is a crucial deal for all Western countries, and it is crucial for stability in the region. It may seem hard to swallow, but Iran is the only country we have that can be a meaningful friend in the region. (That’s not to say Iran is a friend now.) But they are the only country in the region that has a reasonable grip on the integrity of its borders, is rich, well-educated and is looking for a way to move toward the West after 40 years of estrangement.)

The crude markets seem to think the deal is going to happen as we survey crude prices in the few weeks. West Texas Intermediate is down almost to $51, while Brent North Sea is flirting with $57. WTI is down from $60 per barrel since June 22. Brent is down over $6 in the same timeframe.

So much can be said about China, the cowboy-ism of its stock markets, the gambler mentality (which is in most traders to some extent) and the credit bubble that we could write a book. We think it’s very scary.

What makes it all the worse is that China keeps publishing growth data that simply can’t be true, given what we know about the inflow of materials on one hand and the outflow of goods on the other. The numbers don’t match up even in the +/-10% world of economists who try to examine dynamic movements in nations. We’re talking about a disparity of almost 40% in China.

Take Greece and Europe, Iran, China and the sluggishness in the U.S. (with the rest of North America) and we fail to see how it possibly could be time, or getting near the time, for a Fed rate hike.

We’re actually drawing closer to a time for a sedative to calm our growing case of nerves.

Wishing you as always, good trading,