A Reality Check

Good day… And a Tub Thumpin’ Thursday to you! It certainly was a Tub Thumpin’ day for the euro (EUR) yesterday… And the yen (JPY)… And the pound sterling (GBP)… And the… Well, you get the picture! Well… Maybe not! How about if I told you the euro hit an all time high of 1.5559? Or pound sterling was back to nearly 2.03? Or yen hit a 13-year high of 101.10? Now do you get the picture?

What caused all this dollar smashing? Let’s call it a reality check… The previous day, the stock jockeys were happy as a lark. The credit markets thought the white knight had come to save them… But then… Reality set in… The Fed’s $200 billion package would be a mere tempest in a teacup, when put up against he total size of the bad debt (probably in the trillions). Uh-Oh! Spaghetti-o’s! I can hear the old song playing in my head right now… Too-little… Too-late!

The Fed’s move addresses short-term liquidity, but in a small dose… And it doesn’t even come close to addressing the underlying credit concerns, the U.S. housing meltdown, and… The bad credit on everyone’s books. So… Back to the drawing board, Big Ben!

The guys over at Stansberry Research had a great line talking about the Fed’s actions. “The Fed’s actions are the financial equivalent of putting a penny behind a fuse. I’ve never done that, but I hear it can lead to some interesting results.” HA!

So… The euro ballooned up to 1.5559… WOW! Euro holders should be jumping for joy and clicking their heels! They also might want to look at their position, and say, “You know… I’ve got a lot of profit here!”

That was yesterday… Now for the overnight market, where the dollar was spanked even more! The Japanese yen actually traded below 100 overnight! Can you believe that? I can, because I’ve been saying this would happen for a month of Sundays! And the euro overnight really picked up more steam and is now within spittin’ distance of 1.56!

Can you believe this run though for the euro? Just a fortnight ago, (two weeks for those that don’t remember) the euro was trading at 1.4675… It’s getting pretty scary to me folks. Sure, I love it… By I don’t like it! I don’t like the fact that it has gone so far, so fast. It has gotten out of control, so much so, that European Central Bank (ECB) President, Claude Trichet is voicing his concerns about the strength of the euro.

Unfortunately for Claude and his friends, they haven’t seen the worst of the euro strength yet… In my humble opinion, this currency is like a hit song, and they used to say it was moving up the charts with a bullet. The euro is moving up with a bullet too… And it looks to me like it has 1.60 written all over it! Here’s the part that makes the legal beagles happy… It is just my opinion… I could be wrong!

At least I wouldn’t be as wrong as those two knuckleheads, Bernanke and Paulson, who are now eating their words about how the housing meltdown 1. Wouldn’t extend into other parts of the economy, and 2. That it had bottomed in August!

It’s all about interest rate differentials these days folks… Even more now than ever before. For instance… Look at pound sterling… A fortnight ago, pound sterling was left on the side of the road. Now, since the Bank of England decided to keep interest rates unchanged last week, and it looks like the Fed will cut next week by 50 or maybe even 75 BPS… Pound sterling is back to 2.03! Amazing!

There were a lot of people that wanted to get out of sterling when their CD’s came due… And now they can do so at much better levels! YEAH!

The price of oil hit $110 yesterday… Man! That’s going to leave a mark! You had better find yourself a nice big turtleneck sweater to hide that hickey! I don’t want to see this more than you don’t want to see it… But it’s there, it’s happening, and there just doesn’t seem to be anything we can do about it! Four-dollar gas… It’s coming to a pump near you… And me… I wonder when this is going to stop? The United States is in a recession. Sooner or later, demand in the U.S. is going to slow down… Or will it? I mean, U.S. consumers like to spend what they don’t have… Might as well get a new credit card with a nice line of credit and max it out on gas? I sure hope no one takes that seriously!

Speaking of U.S. consumers… Retail sales for February are due to print this morning. This could be a “make or break” event for the dollar this week. Right now, the “experts” think it will post a 0.2% rise in sales… The Butler Household Index (BHI) tells me that it will be disappointing. Remember, I made that big purchase I told you about in March! HA! If the report is disappointing, then the dollar is headed lower, and begins to play a game of limbo… Remember the Limbo Rock? Ahhh… I can see Chubby Checker in the white tuxedo suit jacket, dancing and singing. Limbo lower now, Limbo lower now, How low can you go? Every limbo boy and girl… Now you’re bobbing your head and singing along… What a great day it is!

OK… You may recall me telling you about the job shortage in Australia, and how the Australian employment picture was rosy! Well… The good news just keeps coming for those searching for a job in Australia! In February, Australia created twice as many jobs as the “experts” forecast! 36,700 jobs were added, lowering the jobless rate to 4%… WOW!

And look at the Aussie dollar now… It’s back to knocking at the door of 94-cents again. Someone’s knocking at the door… Somebody’s ringing the bell… Do me a favor… Open the door and let the Aussie dollar in. Parity is a rarity, but we’re seeing two currencies knocking on the door to parity with the dollar… Aussie and Swiss francs (CHF)…

I feel so good about Swiss francs. You can go back and look it up, but when I was in New Orleans in October last year, then Marco Island in December, I told those people that there were two currencies they should really be looking at.. Swiss francs and Japanese yen. Look at them now! WOW! No! Wait! Double WOW!

Swiss francs are the bomb, baby! The “BEST” performing currency versus the dollar this year, gaining 12.46%, while Japanese yen is just a short distance behind posting an 11.46% gain this year.

A news flash just came on my screen and said that U.S. Treasury Secretary Paulson was going to announce their broadest plan yet to deal with the credit crunch. Hope it’s better than what your buddy over at the Fed announced on Tuesday!

The Chinese yuan (CNY) stepped into the box and took a swing at the hanging curve dollar overnight too, moving below 7.10.

Risk aversion seems to have crept into the markets again, and this time it’s really hitting the emerging markets hard. South Africa (ZAR), Iceland (ISK), India (INR), and even a bit of Brazil (BRL). China is an emerging market, but a different animal altogether here… So… It’s not been “Happy Days” for the emerging markets, as the dollar falls on its face.

So… I wonder what the Treasury Department has up its sleeve this morning…

Currencies today: A$ .9385, kiwi .8080, C$ 1.0140, euro 1.5591, sterling 2.0375, Swiss .9925, ISK 70.20, rand 7.96, krone 5.0750, SEK 6.05, forint 167.70, zloty 2.2745, koruna 16.12, yen 100.20, baht 31.40, sing 1.38, HKD 7.7850, INR 40.45, China 7.09, pesos 10.80, BRL 1.6730, dollar index 71.93, Oil $109.90, Silver $20.36, and Gold… $988.88

That’s it for today… I take off again tomorrow… At least this time it’s for fun! I will write the Pfennig and be on my way! I’ll be back next Wednesday. I won’t get to celebrate St. Patrick’s Day with you; I’ll leave that to my Irish brother, Chris Gaffney. My little buddy just absolutely loved snowboarding in Vail… He said he’s through with Disney World; he just wants to go to Colorado instead… I told him he’ll have to get someone else to take him, as I do not plan on returning! I could not breathe that air! But it sure was “something” at the top of the mountain. Makes you stop and think about what a wonderful country we live in. Well… I hope your Thursday is Tub Thumpin’!

Chuck Butler
March 13, 2008