A Conspiracy Story
"You don't think that all this central bank buying in 2005, is meant to prop up the dollar for the eventual move by the Chinese to strengthen the renminbi, do you?"
By Chuck Butler - In this issue.
- John Mauldin explains.
- China shows G-7!
- Higher rates in the Euro Zone?
- U.S. data resumes this week.
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--------------------- And now…today's Pfennig! A Conspiracy Story Good day. Well, I hope you had a safe a fun weekend. It looks like Rita didn't damage the oil refineries as first suspected it would, and so therefore we should see gas prices subside, for the time being! That doesn't mean there was no destruction or devastation from Rita, so my thoughts are with the people of that region. Friday, I left you with a grocery list of reasons why one shouldn't be buying the dollar. And then later that day, my friend John Mauldin, author of Bull's Eye Investing, sent out his weekly letter and pointed to central banks as the buyers of dollars. Yes, in 2004, we saw central bank after central bank talk about diversifying out of the dollar. And the selling almost got out of hand near the end of the year. However, in 2005, as currency owners, we are well aware that the dollar selling by central banks has stopped. And my thought on that is simply: They saw the rot on the vine late in 2004, and panicked big time. So, what (in their minds) if they take on some more dollars to keep it from falling out of the sky? John finished the piece with the following statement, of which you can find the complete version at his Web site, http://www.2000wave.com : "This process will go on precisely as long as it is to the advantage of (mostly Asian) central banks and governments to take dollars to spur their economies. When does that self-interest stop? It will stop when those countries can maintain their export economies and manufacturing base from consumer spending with each other and from within their own countries. "We are not yet anywhere close to that with most countries. Understand, I am long-term bearish on the dollar, but this view has the potential to be a long drawn-out march. Interestingly, in theory such a scenario has gold rising against all currencies, as it is now. Gold is a neutral currency. When governments do things to hurt their currencies or global balances, it is good for gold against that currency. Interesting times." OK. The euro is getting some love this morning as two ECB members said in separate speeches that the ECB is prepared to raise interest rates should oil prices continue to fan inflation fears. Good tough talk! You know, interest rates in the euro zone have held steady, Eddie, at two percent for some time now, and some tough talk by the ECB could be the thing to get this currency moving again. Well, The Group of Seven, better known as the G-7, issued a two-part message to China this past weekend: "Thanks for what you've done…now do more!" So, what did China do at the first market session? They moved the renminbi weaker versus the dollar! Yes, the first fixing after the meeting was set at 8.0929, +.0019 from Friday's fixing. I find this amusing in that G-7 issues them a note, and the Chinese laugh in the G-7's general direction! But doesn't this just get you? Above, John Mauldin tells us that central banks are buying dollars and you've got G-7 wanting China to get their currency stronger versus the dollar. You don't think - Nah…no wait - You don't think that all this central bank buying in 2005, is meant to prop up the dollar for the eventual move by the Chinese to strengthen the renminbi, do you? Oooh, weee! That sounds like something right out of Chuck's book of conspiracies! But - and I'm being quite serious here - this has got to be considered…think about that. Tomorrow, the real data begins to flow in the United States again. Consumer confidence leads off, and should show a real dent in this index. So once again, tomorrow, I'll ask the question I ask every month: Just who is confident? I think tomorrow's printing of the confidence report will show us that quite a few people have fallen off the bandwagon. Later this week, we'll see the set of data that I beat on every month: Personal income and spending. I think the report for August will be an aberration, in that it most likely will show spending to be down. How? Well, oil was beginning to really ramp up in August, but it wasn't until September that the hurricanes hit. So, this will be interesting. Even the Canadian dollar/loonie got in on the dollar move Friday. The loonie has lost about one cent since seeing it trade at 86 cents last week. Some of the move can be explained by profit taking and some of the moved can be explained by the weaker price action in oil, but I can't imagine that to continue. We'll have to see, eh? Currencies today: A$ .7575, kiwi .6860, C$ .8490, euro 1.2055, sterling 1.7750, Swiss .7745, rand 6.39, krone 6.49, forint 205.19, zloty 3.25, koruna 24.53, yen 112.50, baht 41.25, sing 1.6875, China 8.0929, pesos 10.85, and gold $461.20 That's it for today. The EverBank MarketSafe gold C.D. is getting all kinds of press, and a ton of interest! Have you requested your information kit yet? Hey, I got to attend the Rams home opener yesterday. What a great game! And I received a visit from Alison Road last night! What a great weekend for me! Have a great Monday, and week! | 
