The Fed Drops…Accommodation!
"Yes, for 18 months now, the Fed has pretty much told us the accommodation of lower rates was being removed, and that the moves would be "measured." Yesterday, they broke from that routine, and removed the "accommodation" word altogether!"
By Chuck Butler In this issue… --- Advertisement --- A CD made of Gold. Invest by December 16th. Diversify, seek higher yields, and safely invest in Gold Bullion market returns. You can do it all with the new MarketSafeSM Gold Bullion CD from EverBank®. 100% principal protection, market-driven upside potential, no account fees, and FDIC insurance. Click here to open your new MarketSafe Gold Bullion CD today! --------------------- And now…today's Pfennig! The Fed Drops…Accommodation! Good day. Well, the FOMC went pretty much as the markets thought it would, with the Fed raising the Fed funds rate 25 BPS to 4.25%, and then ending what has been an 18-month run on wording of the monetary statement. Yes, for 18 months now, the Fed has pretty much told us the accommodation of lower rates was being removed, and that the moves would be "measured." Yesterday, they broke from that routine, and removed the "accommodation" word altogether! This means that the Fed hasn't promised another rate hike, and that news was manna from heaven for the dollar bears, who have basically been in hibernation all of 2005! However, I'm still of the opinion that in Big Al's last meeting next month, rates will be raised again. Then, I think that the March FOMC led by Big Ben Bernanke, will also have a rate hike in store for us, as I think this will be the way that Big Ben lets everyone know that he's not a dove. It's hard to say what will happen as March is a long way off! I would know, because I'll be heading to Florida twice that month, once for a conference, and once for spring training. It seems like it's so far away! OK. So, the Fed removed the accommodation word, they still kept the "measured" word attached to future policy. The markets wanted to get lathered up about the wording though, and as such decided to push the dollar down, and by the end of the day, the euro was trading at 1.20, again. All the other currencies followed the lead dog off the porch, too! Then last night, the Japanese Tankan report (business sentiment) was printed with some glowing praise for the economic recovery! The report shows business confidence at the highest level in a year! So, not only did the yen get a boost from the Fed wording, it followed through with the rally after the Tankan printed. This morning, I saw a report that the big brokerage house that owns a bull, is telling its customers that the yen is going to 100 versus the dollar in 2006! So, the yen has something going for it which hasn't been seen a couple of months! Yesterday, U.S. retail sales were really subdued, coming in at +0.3%, and -0.3% less autos. So, when you finally received your Pfennig yesterday, you read my thoughts on retail sales, and probably said, "Did he write this after the report?" I did not write it after the report, I did not write it on a court, I did not… No, wait a minute, that's Dr. Seuss! What the heck are you doing this morning, Chuck? But really, the point here is that retail sales aren't soaring, even with the beginning of the holiday shopping season. Uh-oh, is the U.S. consumer tapped out? If so, we've got trouble right here in river city! Oh, and I had someone write me yesterday, and say, "Gosh, I didn't see that budget deficit of $83.1 billion, you must be the only one who cares." But, that's not true. Last week, I told you about my friend Addison Wiggin's new book that he co-authored with Bill Bonner, "Empire of Debt." Well, Addison and Bill care, and after reading their book, you will care, too! The easiest way to get a hold of this book is to go to Amazon, and before you know it, Empire of Debt will be at your doorstep! The dollar shouldn't look for any reprieve in today's data. We'll see the October trade deficit, which I talked about the other day as narrowing from the record September deficit of $66.1 billion, but remaining above $60 billion! Ouch! Now, that's going to leave a mark! I'm hoping that the markets don't get ahead of themselves like they did last year-end, though. So, a nice slow move upward for the currencies versus the dollar will be better for currency holders in the long run. Take, for instance, the Canadian dollar/loonie. The loonie is trading above the lofty 87-cents handle. Great fundamentals, interest rates moving in the right direction, and a hawkish central bank, are all reasons why the loonie is so strong. However, looming in January is an election, and that throws uncertainty over the markets. While I know a month ago I said I didn't see the loonie getting hurt too bad as long as the Bank of Canada kept their focus, I also didn't see the loonie trading above 87 cents this soon. So, as I said the other day with regard to the price of gold, slow down, you move too fast. You've got to make the morning last. In Thailand overnight, the Thai Central Bank raised interest rates for the ninth time in the last 16 months. The Thai Central Bank is fighting inflation, and has put the worry of currency strength due to higher interest rates on the back burner. I commend them for taking this fight to inflation! Don't look now, but oil is beginning to ratchet up again. Now that most of the country has experienced the first Alberta Clipper of the winter season, the focus on home heating oil supplies have come back into the picture. So, earlier this week, I told you about natural gas hitting a high, industrial metal on the rise, and now oil. Gold has come back to earth, and should be ready to move higher again. Commodities are back on the rally tracks, kicking tail and taking names later! Currencies today: A$ .7565, kiwi .7105, C$ .8730, euro 1.2025, sterling 1.7715, Swiss .78, ISK 62.35, rand 6.29, krone 6.61, forint 209.55, zloty 3.1980, koruna 24.11, yen 118.60, baht 41.02, sing 1.6715, China 8.0746, pesos 10.66, dollar index 89.88, and gold $512.35 That's it for today. Thanks to Christine for picking up the trading for me yesterday, as I snuck out to see my little buddy's school program. A reader sent me a note from Seattle, which agreed with my note the other day about the shopping season results this year. It doesn't look good at this point. The office has been like an infirmary lately with all of the coughing that is going on, and now they've passed it to me! Ugh! Thanks! I needed that…Not! Oh, well! Have a great Wednesday! |
