We Need More Details On Europeans Bearing Gifts To Greeks

We haven’t had a full day to thoroughly analyze the “A-Greek-ment,” although at first glance there seem to be some messy details not fully buttoned up. As the cathedral builders of the Middle Ages said when things were going well, “God is in the details.” When the cathedral fell down, they would say, “The devil is in the details.”

Nevertheless, today’s near achievement regarding the Greek crisis powered all equities markets ahead from Tokyo to Paris to New York. Let’s face it, everyone has been waiting for that boil to be lanced and there was a sigh of relief. (We’ll turn to Shanghai a little later in this letter.)

The announcements perversely and counter-intuitively pushed the euro down against the U.S. dollar. On further examination that happened because investors and traders can now focus on the eventuality of a Federal Reserve interest-rate hike. Going forward, we will be spotlighting what promises to be a growing spread in real, on-the-street rates. Fundamentally, the dollar should get very strong in the next few months on concerns involving rates.

Yet, we have a sneaking sensation that the Greece deal is not completely done and some fears will re-enter the markets as i’s are dotted and t’s crossed.

The irony for Greece is that it had a better deal on the table three to four months ago. We may be getting too fundamental here, but we believe all the offensive comments about Nazi Germany and personal attacks on the leaders of Germany and France came into play. “Hey mom and dad, may I have the keys to the car? And by the way, I hate you.” Never works, does it?

The rising dollar hurt gold and silver today, although regular trading, if separated out, would show a gain for the day. But the dollar is always almighty and serves as its own primal force in practically every market you can name.

For a variety of geopolitical reasons, the central bank of Russia added an increased amount of gold to its holdings while divesting itself of dollars. They badly need the profit they’ve made holding dollars of late, and as of yet have no place to put their capital. Additionally, although it would never happen, they are afraid of U.S. sanctions “freezing’ their dollar holdings.

Also, like most governments that lean heavily to the right, gold has a tangible feeling that is easily communicated to a simple-minded constituency. That constituency cannot grasp the conceptual nature of currencies. They also must not be able to grasp the long decline of gold from its highs of $1900 per ounce to its current levels.

Gold is off its lows for the day of 1149.60. It’s clear that traders are probing the downside of the 1150 mark. Silver experienced more or less the same phenomenon of moving up in regular trading and down because of dollar strength.

Shanghai is going to continue to be a conundrum for some time. It is up again today, although more modestly. The last few days’ upswing in the index’s pricing shows how strong government intervention can be in stocks in a developing country. But, like most interventions, unless they are administered for months and months if not many years, the effects of a temporary shot in the arm’s fade quickly.

China claims its economy grew last quarter by 6.8%, but given its imports of raw materials, the outflows through its ports and a variety of other factors, experts have regularly come to scoff at such announcements. The number is a little under 5%, which itself is nothing to sneeze at.

Showing that even the windiest of big winds is not inured to the vagaries of business, it was announced today that a Trump-branded golf course in Puerto Rico has filed for bankruptcy protection.

Wishing you as always, good trading,