Finally, a Breather!

Good day… And a Marvelous Monday to you! What a glorious weekend here in St. Louis! Finally! Some weather that we could enjoy! I spent the day outside yesterday, just enjoying the weather. The baseball game was on the radio, my good friends Kevin and Lisa came to visit, and then my gorgeous granddaughter, Little “D”, Delaney Grace, was there to see me too! (Along with her mom and dad of course.) What a day!

I don’t want to get all sentimental and stuff, but I can tell you this… Once you’ve gone through what I’ve gone through in the past year, days like yesterday are like manna from heaven!

OK… Friday, we finally saw a breather in the currencies, the euro (EUR) stopped in its tracks for the first time all week… And that’s just fine and dandy with me! I was of the belief that it had gone too high too quickly… But, what was curious to me was that the “profit taking” didn’t really come to fruition. I know on our trading desk, we had so many “two way trades” going on… People selling and taking profits and people buying before the next big move!

But, the thing that put the dollar on the greased skids last week, still exists this week… And that, simply put, is the fact that the Fed is going to cut rates even further.

Now… Overnight, in Japan, the yen (JPY) is pushing even higher. I thought 104 looked sexy on Friday… But right now, yen is 103 and change… WOW! This is Jessica Rabbit stuff!

So, the fact that interest rates in the United States are going lower, pushed the dollar down. It didn’t help that Fed Chairman, Bernanke, saw fit to “endorse” a weak dollar. I’ve had it with our Fed Chairmen. First it was Big Al Greenspan, or better known as “bubbles Greenspan”… And now it’s this guy “endorsing” a weaker dollar! I know, you’re saying, “But Chuck, you should be happy. This guy is helping your calls come true…” But, I’m not! There’s no way, no matter how you twist it, that a country’s central banker should be dissing the currency! It’s that plain and simple!

But he did… And now where’s the dollar going? Yes, that’s right… Because there’s nothing that a market participant loves to hear more than a central banker “endorsing” a weak currency. That tells them that the central bank isn’t going to step in and intervene while the currency circles the bowl. It’s that simple folks… And… I’ve been telling you that Bernanke and Paulson have been wanting a weaker dollar for years now… Did you listen? Well… If you didn’t… I sure hope you do now!

OK… Before my blood pressure gets to levels the doctor would rather not see it reach… I’ll talk about the other side of the coin…

I told you last week, that oil and gold had really moved higher on the week. Well, by the end of the week, the Canadian dollar/loonie (CAD) was the beneficiary of those moves, with the loonie hitting a two-month high versus the green/peachback.

Last week, the high yielders ruled the roost… This week it appears as though that’s yesterday’s fish. The carnage from the stock market sell off on Friday, has the risk takers on the run (again), and risk aversion is all over the market this morning. That means Aussie (AUD), kiwi (NZD), Iceland (ISK), South Africa (ZAR), and Brazil (BRL) have all backed off last week’s lofty levels. South Africa is a horse of a different color though, as it never really got going last week, and now is sitting at a five-year low versus the dollar!

The Swiss franc (CHF) is kicking tail and taking names later these days. I believe that it is no longer being used as a funding currency of the carry trade… Which lifts the carry trade Albatross from around the franc’s neck! At one point last week, I thought that we would see a race to parity versus the dollar, between francs and Aussie dollars… But that 300 point sell-off in U.S. stocks on Friday really pushed Aussie dollars down, and that means Swiss francs are on the road to parity, with a nice lead over Aussie dollars.

So… I wonder how many people that were in my last two talks – Marco Island and Orlando – listened and acted on my thoughts that Swiss francs and Japanese yen would be the currencies to look to for gains versus the dollar in 2008… It’s happening right before our eyes folks.

OK… On Friday, the recession received more affirmation from The Chicago PMI and U. of Michigan Consumer Confidence poll. First… The Chicago PMI (manufacturing index)… The headline number, fell from 51.5 to 44.5, a low since early-2002 when the economy was emerging from the 2001 recession. The details were just as weak. All sub-indexes except prices paid are now in contractionary territory.

This report really illustrates the problem the Fed has right now… The “pro-growth” Fed is failing miserably, and yet, they keep cutting interest rates!

The U. of Michigan Consumer Confidence report hit its lowest level since February 2001, when it fell to 70.8… A 9.7% decline from the previous month. Uh-Oh… Spaghetti-O’s.

So… Today, we’ll see the color of the National ISM (manufacturing), which is expected to remain below the 50 level… But not below 45, which would be a foot in the door to confirming the recession. Then… After today, the data cupboard is pretty bare the rest of the week with smaller reports printing here and there… Until Friday, when the Jobs Jamboree prints. So… That means the dollar is on it’s own this week.

I don’t think that’s going to help it any either… But maybe it will place a tourniquet around the bleeding… But it’s got to get through the ISM today first.

Tomorrow, the Reserve Bank of Australia (RBA) will meet, and I’m betting a dollar to a Krispy Kreme that the RBA will raise rates again. If they do, this will bring interest rates in Australia to a 12-year high! WOW!

This will push Australian dollars front and center to be a currency to look to buy versus the U.S. dollar.. Anytime, anyplace, folks… The interest rate differential, along with all the other fantastic fundamentals in Australia will win. As I’ve said before – and I’ll probably beat the dead horse with this – but Aussie dollars will be playing a tug-o-war with investors buying the currency for the high yield, and other investors selling the currency because of the high yield (unwinding carry trades). In the end… I hope to see and I think I’ll see the buyers outweigh the sellers.

OK, two stories on the Bloomie this morning have the charts people at Goldman Sachs claiming the euro will rise to 1.57 in this current run… And another story has a researcher at Travelex seeing the euro rise to 1.54 in this current run. Either one is fine with me… Let’s just take it slow and easy… Let’s string this out for a couple of months, make my life boring here, OK?

I missed an opportunity to be on the Fox Business Show this morning, as I was in too much of a hurry to leave on Friday, and didn’t pick up my messages until it was too late. Oh well, those shows never let me really say what’s on my mind anyway! But, maybe… Just maybe, you never know, one day Alice… To the moon!

My friend, John Mauldin, wrote in his weekly newsletter this week about the Fed looking the other way on inflation… That got me thinking… I can see it now… On the cover of MAD Magazine… A caricature of Ben Bernanke, looking much like Alfred E. Newman, with the caption… “What Me Worry” as inflation dogs are nipping away at his ankles.

OK, seriously, folks this is the stuff that pops into my mind… My kids used to love the little voices I could do, and all that, but now they’re not so impressed… But maybe Delaney Grace will be my next audience! HA!

Again… Seriously… Inflation is going to eat us alive folks… It’s here, it’s there, it’s everywhere! Inflation! Look at the commodities! They’re rising faster than the creeks here, with our torrential rainstorm this morning! Gold hit $982 this morning… And everyone looked at me like a deer in the headlights last fall at our corporate-planning meeting when I said I thought gold would go to $1,000 this year… Shoot Rudy! It may hit that by the first quarter!

My friend, Bill Bonner, of Daily Reckoning fame had a great line about the Fed and inflation in his letter on Friday

“Yes, dear reader, as you sow…so shall ye reap. The feds sowed inflation – and now they’ve got a bumper yield of it. They planted a good crop of deflation too – by encouraging so many bubbles and so much debt. They’re going to fill the silos with that too.”

And look at silver! $20 for an ounce of silver! I haven’t seen that since the early ’80’s!… And if you want a precious metal that’s on a mission to mars… Palladium has gone from $350 on December 18th, 2007 to $580 today! WOW!

Remember what I told you on Friday… Well… Let’s go to Friday’s Pfennig and pull the quote!

“According to spokesman, Clark McKinley, The California Public Employees’ Retirement System, (CALPERS) the largest U.S. pension fund, may increase its commodities investments 16-fold to $7.2 billion through 2010 as raw materials prices surge to records.

“CALPERS, which has about $240 billion in assets, agreed at a February 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities.”

That’s important to remember folks… If CALPERS is going to keeping pushing the commodity prices envelope… It’s going to be very interesting for commodities!

On Friday, Reuters was reporting that the AMBAC (bond insurer) bailout had hit a “snag”. Well… That really knocked stocks for a loop. I didn’t see another word on this all weekend… So, we’ll pick it up again this morning.

Also on Friday, it was announced that the Thai government was going to remove the currency controls they put in place in December of 2006. I said “no thanks”… I’m really, Once Bitten, Twice Shy Babe on Thailand. Let the “BIG BOYS” play there, it doesn’t hurt them as bad is it hurts me to get your wrists slapped with bamboo when the Thai government decides to change again! So… Don’t look for us to get back into that market. Sorry… But I prefer to sleep at night!

Ok… Time to head to the Big Finish! I expect another crazy day here on the desk… We get our little Kristin back today, so we’ve got that going for us! And… The BIG BOSS, Frank Trotter sent me a note yesterday that the former head of Mark Twain Bank, is stopping by today. I haven’t seen him since I “retired” at Mercantile Bank (the bank that bought Mark Twain Bank, and then performed, as I called it, ethnic cleansing of Mark Twain personnel) in May of 1998! He used to work out in the morning at the same gym as me… (See, I bet a lot of people that have seen me, can’t believe I used to work out every morning). Yes, that “used” to seem to be important to me… But there comes a time when it doesn’t anymore.

Currencies today 3/3/08: A$ .9320, kiwi .7960, C$ 1.1055, euro 1.5185, sterling 1.9855, Swiss .9620, ISK 66.50, rand 7.92, krone 5.2090, SEK 6.1770, forint 174.90, zloty 2.33, koruna 16.55, yen 102.75, (looking sexier all the time!) baht 31.50, sing 1.3930, HKD 7.7830, INR 40.39, China 7.1030, pesos 10.72, BRL 1.6910, dollar index 73.65, Oil $101.13, Silver $20.18, and Gold… $982.50

That’s it for today… I hit the road this week on Wednesday. Two quick days in Clearwater, Florida, then off to Colorado… All business stuff, although next weekend is “free time” and my beautiful bride and little buddy, plan to hit the slopes to learn to ski and snowboard… Me? I’ll be “resting”. I don’t like cold, and I don’t like snow; and now that I’m handicapped, it doesn’t sound like I’ll be doing much but “resting”. After tomorrow, I’m only here in the office three more days this month! I’ll be seeing so many airports it’s not funny! And since Phil the groundhog saw his shadow on groundhog day last month, which means we’ll have six more weeks of winter, I’ll be glad to be going “south” after the Colorado experiment! So… March is here, it came in like a lamb… Uh-Oh! Welcome to March… I hope you have a Marvelous Monday!

Chuck Butler
March 3, 2008