The Bubble Keeps Growing
"Anyone who has been to the doctor, paid school tuition, or had to purchase a home will certainly tell you there is inflation in this economy! The car prices and flat-screen TV prices may be dropping, but just how many cars and TVs can we buy?"
By Chris Gaffney In this issue… - The bubble keeps growing
- GDP data
- Shedding pounds
- Gold slips
--- Advertisement --- A CD made of Gold. Fund by January 24th. Diversify, seek higher yields, and safely take part 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! http://www.everbank.com/main.asp?idpage=pro_mscd&affid=eb& --------------------- And Now… Today's Pfennig! The Bubble Keeps Growing Good day. The dollar had its best day this month as it moved up after the housing starts number exceeded expectations. The euro fell below 1.19 after the announcement, and bottomed at 1.1841 before rebounding slightly in the European markets. The U.S. housing data suggests that reports of the death of the housing bubble may be premature. Builders broke ground on 2.123 million homes at an annual pace, up 5.3 percent from October, the U.S. Commerce Department said. This increase in housing starts was the biggest in seven months, and with the economy expanding, tighter factory capability, and the prospect of rising wages, the FOMC may have to keep raising rates into early 2006 to make sure inflation doesn't accelerate. But the other data released yesterday showed inflation is not yet on the rise. The producer price index for November fell 0.70%, which is a larger decline than expected. Even the ex food and energy number increased just a modest 0.10%. The year-on-year numbers increased 4.4%, with ex food and energy up just 1.70%. The markets largely ignored these relatively tame inflation numbers. Instead, they chose to focus on the housing starts. As Chuck has pointed out in the past, most of the inflation data coming out of Washington should be viewed with a skeptical eye. Anyone who has been to the doctor, paid school tuition, or had to purchase a home will certainly tell you there is inflation in this economy! The car prices and flat-screen TV prices may be dropping, but just how many cars and TVs can we buy? How much will it cost to put gas in that new lower-priced car and how much do you pay a month for cable (remember when TV was free?). By ignoring the latest inflation data, the markets are just confirming what we already know: don't take the government's measures of inflation too seriously. Today the United States will announce GDP for the third quarter, personal consumption, and the GDP price index. If GDP comes in at or above the expected 4.3% level, we would look for the dollar to hold its overnight strength on the view that the FOMC will continue to raise interest rates. If the number falls below expectations, it would give the dollar bears something to trade on as the Fed would then be expected to pause the rate hikes. I expect the number will come in just where it is predicted, and that the focus will move to the personal income & spending data due out tomorrow and the jobs data due out Friday. Overnight, the Euro was boosted by much-better-than-expected French consumption data and new speculation of possible ECB interest rate hikes in 2006. French consumption of manufactured goods rose 1.1% in November versus expected gain of only 0.50%. This data was all the more impressive given the fact that in November, France was plagued by riots, which put the whole country under curfew for several weeks. There were also reports that the ECB is planning a 25 basis point rate hike during each of the March and June meetings. The pound sterling fell against the euro and the dollar after one member of the Bank of England's Monetary Policy Committee voted for an interest rate cut this month, the first policy maker to back a reduction since August. Industrial output in the world's fourth-largest economy had its biggest decline in seven months in October, and U.K. jobless claims rose for a 10th month in November; both of which support calls for lower rates. Minutes of the bank's last MPC meeting showed Stephen Nickell voted to lower borrowing costs, surprising the markets. While this is only one policy maker, it does show that interest rates in England may still be dropping in direct contradiction to the expected increases by the ECB. These divergent interest rate policies will continue to place selling pressure on the pound vs. the euro. Gold sold off yesterday, giving the investors in our latest Gold MarketSafe CD a nice entry price into the metal-based C.D. Apparently, this recent sell-off is due to the rally of the U.S. dollar. As the dollar climbs versus the euro and yen, the appeal of gold as an alternative investment to U.S. assets is reduced. Spot gold closed below $500 an ounce for the first time this month after U.S. producer prices tumbled in November by the most since April 2003, sending the dollar higher and reducing the appeal of the precious metal against inflation. But, as I pointed out above, I believe inflation is actually much higher than is being reported, and therefore I think a sub $500 level on gold will be viewed as a great buying opportunity. We will be offering another Gold MarketSafe C.D. in January for those of you who have thought they missed the boat! Currencies today: A$ .7334, kiwi .6808, C$ .8536, euro 1.1861, sterling 1.7486, Swiss .7635, ISK 63.48, rand 6.3837, krone 6.7964, forint 211.71, zloty 3.23, koruna 24.39, yen 117.26, baht 40.94, sing 1.6674, China 8.0765, pesos 10.654, dollar index 90.78, and gold $493.36 That's it for today. Finally, I wanted to mention a very nasty e-mail, which may have been sent to you recently. This random-attack e-mail was sent out to many addresses including EverBank consumers stating that their EverBank account may have been used by a "third party without your authorization." If you receive this e-mail, DO NOT FOLLOW THE INSTRUCTIONS IN THE E-MAIL AND DO NOT CLICK THROUGH TO CONFIRM ACCOUNT INFORMATION. You should disregard e-mails sent to you on an unsolicited basis that ask for any personal or confidential information. You should ONLY enter personal and confidential information after you have securely logged in to the EverOne Financial Center, EverBank's secure on-line banking site. Also, EverBank will always provide a link to www.everbank.com in our e-mails to customers, so look for this link as a way to verify if an e-mail is official or fraudulent. This fraudulent technique is often referred to as "phishing" and has been written about extensively in the press. ***ONCE AGAIN, DO NOT RESPOND TO ANY UNSOLICITED EMAIL ASKING YOU TO CONFIRM PERSONAL OR CONFIDENTIAL INFORMATION*** | 
