The Gartman Letter Discusses The Effects Of The Strength Of The US Dollar, Yen

According to The Gartman Letter (TGL), yesterday the Yen and the US dollar were weak compared to other world currencies. This morning, the story was the opposite - they were both strong. The strength in the two currencies may have been due to “the problems attendant to the EUR and to the situation in Greece which simply will not go away,” TGL said.

The news for several days ahead is likely to be of meetings taking place in various cities regarding a Greek bailout plan. Moreover, Greek Finance Minister, Mr. George Papaconstantinou, will be in the US in the last ten days of this month with the aim of getting American investors to buy $5 billion-$10 billion worth of a new dollar-denominated bond. But what if the American investing public does not opt for the new debt offering? And how high will the coupon need to be on this debt offering to entice US investors? What if the clearing price for these securities is so high that it creates problems for economic growth? TGL added, “We note that even if Greece were able to secure these new debt offerings at interest rates a bit below current levels, it will have no choice but to borrow and then borrow some more. Greece’s public debt might well stabilise a bit above 150% of its GDP, rather than at 200% as is now feared, but even that is probably beyond the tipping point.”

Commodity prices have risen slightly but given the weakness in the international stock markets, and given the strength in the US dollar and the Yen, the strength may be transient in nature. “Share prices are weak and they may get a good deal weaker as the markets suddenly are convinced that the monetary authorities in China are going to become aggressive in fighting property inflation there and will move to raise rates and ratchet up reserve requirements on the nation’s banks. There is no confirmation that anything has been done yet, but the rumours are everywhere in Asia, and the effect upon share prices there and upon stock index futures trading here in the US is obviously anything but bullish,” TGL mentions.

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