In this issue…
* Views from Davos
* Fed Watch
* Sterling strength
* China's about face --- Advertisement ---
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--------------------- And now…today's Pfennig! Views from Davos… Good day. The dollar was fairly stable over the weekend, as the currency markets looked past Friday's disappointing GDP figure and towards this weeks Fed announcement. News that election turnout in Iraq was better than expected seemed to help steady the currency. With this very important first step towards democracy in Iraq completed, maybe we can now start to put together an exit strategy. While the news from Iraq was positive, the words coming out of Davos, Switzerland were not so kind to the greenback. "The ol' dollar, it's gonna go down." These words were spoken by none other than Bill Gates at the World Economic Forum in Davos. In a TV interview with Charlie Rose, Bill Gates stated he is short the dollar, calling the dollar's $7.62 trillion debt "a bit scary. We're in uncharted territory when the world's reserve currency has so much outstanding debt." Gates topped Forbes magazine's list of the richest people in 2004 with his friend Warren Buffett second. As Chuck has informed readers of the Pfennig over the past few years, Buffet bought $1 billion in foreign currency contracts in eight currencies on Sept. 30, according to Berkshire. The currency position gave Berkshire a $412 million pretax gain in the quarter as the value of the dollar fell. And the rich get richer! Even billionaire George Soros got into the act stating that the dollar has "every sign of getting more undervalued vs. the euro". Sounds like the billionaire boys club is continuing to bet against any rise in the U.S. dollar. Buffett and Gates also share our views on where the world's growth will occur over the next few years, Asia. Speaking like a regular reader of Chuck's Review and Focus; Gates described China as a potential "change agent" for the next two decades. "It's phenomenal," Gates said. "It's a brand new form of capitalism." Those of you with currency accounts here at Everbank read all about the Asian currencies and their importance in last month's Review & Focus. It's great that Chuck Butler continues to stay out in front of the currency markets sharing thoughts and views, which invariably get repeated by some of the world's wealthiest investors. Okay, enough of the kissing up, back to work. Buffet and Gates weren't the only ones talking about the problems with the U.S. dollar in Davos. German Deputy Finance Minister Caio Koch-Weser said, "The U.S. budget shortfall is the number one risk, disregarding geopolitical risks to the global economy. He urged Bush to present a "credible" plan for getting the deficit under control. Chinese central bank adviser Yu Yongding said in Davos the U.S. government should do more to tackle its record current-account deficit and ease pressure on China to loosen its currency's peg to the dollar. "The U.S. should take the lead in putting its own house in order," Yu said. "It's the root cause" of global imbalances." Our thoughts exactly. The attention today will focus on the Fed Reserve meeting on Feb. 2 and the wording of the release. It is widely expected that the fed will raise the benchmark interest rate .25% at the meeting. The dollar will likely resume its three-year decline unless the Fed policy makers signal a more aggressive pace of rate increases in the future. I would expect the Fed to do more of the same, keeping a slow and steady hand on interest rates, which will result in further dollar weakness. This Fed announcement will probably overshadow any news from this week's G-7 meeting. While the Europeans would love to have Asia shoulder some of the burden of the weaker dollar, Japan's official in charge of currency policy has expressed no interest in letting his currency appreciate. We expect no change in the G-7 statement, and further dollar weakness as a result. The U.K. pound traded close to a one-month high against the Euro as some traders judged the chances that Bank of England policy makers will raise their interest rate this year on signs of improving economic growth are rising. As Chuck stated in last weeks Daily Pfennig, we continue to believe the Pound will outperform the Euro in coming months. In typical fashion, Chinese officials did an about face on the possibility of currency revaluation. After Friday's "NOW IS THE TIME TO REVALUE THE YUAN, CHINA MUST REVALUE TO FIGHT INFLATION" statement by People's Bank of China advisor Yu; Chinese Vice Premier Huang Ju and deputy central bank governor Li Ruogu said they want a "stable" exchange rate. "Don't ask us to practice what you say, we have to maintain the exchange rate at a reasonably stable level." Huang also added that the government doesn't want to reward speculators betting on revaluation of the Renminbi. Currencies today: A$ .7744, kiwi .7121, C$ .8051, euro 1.3032, sterling 1.8838, Swiss .8417, rand 5.98, krone 6.3337, forint 188.41, zloty 3.13, koruna 23.15, yen 103.44, baht 38.58, sing 1.637, pesos 11.233, and gold… $424.69 That's it for today… Thanks for all the nice notes on my 40th, I don't feel any older. We will have a week full of data here in the U.S., but look for the currency market to key on the Fed statement to be released Feb 2nd. Chuck says it's 80 degrees in Florida, can't wait to get there. Have a great Monday! | 
