Tags: Greece | dollar | IMF | Friday

Where Is All the Growth Going to Come From?

Monday, 01 June 2015 11:36 AM Current | Bio | Archive

This Friday has the potential of becoming a really interesting day.

First, we will get the May U.S. employment report, which is expected to remain good with non-farm payrolls continuing to grow by about 200,000 or better, while average hours earnings could rebound from the weak 0.1 percent increase in April and the year-over-year increase of 2.2 percent probably to remain unchanged.

Second, we'll have the OPEC semi-annual meeting where Saudi Aria is expected to get what it wants, which is keeping the OPEC output target unchanged although there is still a sizable oversupply in the market, albeit smaller than where it was in November.

It's interesting to take notice the U.S. commercial oil stocks that don't include the strategic reserves are 22 percent higher than where they were a year ago. The Energy Information Administration's latest Short-Term Energy Outlook also reflects continued production growth in 2015 and 2016, albeit at a slower pace than in 2013 and 2014, with U.S. crude oil production in 2016 forecast to reach 9.2 million barrels per day, which is not supportive for the oil price but is supportive for the dollar.

Third, Greece has to make a payment to the International Monetary Fund of 300 million euros ($327 million) on June 5, which is only the first of four installments that are due to the IMF in June and that total 1.6 billion euros ($1.75 billion) while Greece has also 5.2 billion euros ($5.7 billion) in T-bills redemptions in June.

All this becomes really interesting when we see that Greek Prime Minister Alexis Tsipras accused the IMF, European Central Bank and European Commission for the Greek disaster/tragedy: "The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance. It is due to the insistence of certain institutional actors on submitting absurd proposals . . . the issue of Greece does not only concern Greece; rather, it is the very epicenter of conflict between two diametrically opposing strategies concerning the future of European unification . . . Europe, therefore, is at a crossroads . . . the decision is now not in the hands of the institutions, which in any case — with the exception of the European Commission — are not elected and are not accountable to the people, but rather in the hands of Europe's leaders."

As an investor I'd take Tsipras words seriously because here we could have the real roots finally exposed for a "Grexident" or a "Grexit" at some point in time in the future. If that occurs, believe me, this could turn out being that feared catalyst for generating contagion beyond what many think is possible today. Let's hope it doesn't come to that.

In the meantime, deal or no deal, Greek bank deposits continue falling and are now back at their levels of 2005.

Besides all that, long-term investors would do well taking notice the OECD just reported international merchandise trade slowed sharply during the first quarter of 2015, with the G7 (Canada, France, Germany, Italy, Japan, the UK and the U.S.) and BRIICS (Brazil, Russia, India, Indonesia, China, South Africa) economies exports and imports (seasonally adjusted) declining by 7.1 percent and 9.5 percent, respectively, from the previous quarter.

And because there is still quite some optimism out there about investing now in the eurozone, maybe it would be helpful taking notice exports and imports fell sharply in Germany (by 8.6 percent and 8.2 percent, respectively), France (9.6 percent and 9.2 percent) and Italy (9.3 percent and 8.5 percent).

Yes, we could ask ourselves: "Where is all that so dearly hoped for growth going to come from?"

As a long-term investor, I'd prefer to keep it simple and remain for the major part in the U.S. and the dollar, for which the upward pressure remains well in place.

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This Friday has the potential of becoming a really interesting day.
Greece, dollar, IMF, Friday
Monday, 01 June 2015 11:36 AM
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