06/27/06 Good day. Must be a few more Pfennig readers out there in “writer’s land” than I know of! After my little rant on Big Ben’s baloney yesterday, there were quite a few stories that hit the wires that basically said: “Bernanke, burned before, will try again to clarify his anti-inflation case.” Or, how about this one titled, “Fed Officials confront failure to comprehend.”
Pretty good stuff, as these writers understand what I was alluding to yesterday. Big Ben has given the markets conflicting answers, and that has confused them. He says he’s anti-inflation, but then makes a statement about “pausing.” So, he may be “anti-inflation” (one would hope!), but he’s at the wrong end of the rate-hike cycle to prove it, in my opinion.
Anyway, enough on Big Ben, I’m already becoming tired of this talk. As Dieter would say, “Now, we dance!”
And dance we will, over to currencies. As I said yesterday, I find it strange that traders have decided to buy euros as we start an FOMC meeting week. For they had sold them leading up to this week, because of the FOMC meeting! But, I’m not going to throw myself in front of that bus! Traders are buying euros, that’s fine with me!
The euro got a boost this morning when it was announced that German business confidence, as measured by the think tank IFO, unexpectedly rose to a 15-year high this month! Not since 1991 has the IFO’s business confidence index been this high. Wow! Of the 7,000 executives surveyed by IFO, the majority said that “spending and hiring” was on their agenda. That means spending to make capital improvements and hiring workers. You can’t paint a better looking picture for a corporate sector than to have those things going for you. Some might say, “Hey, Chuck! What about profits?” Ahhh, grasshopper, if there weren’t any profits, there wouldn’t be any money to spend on capital improvements. So, that’s already taken care of!
Euros are also seeing some benefit from a speech by ECB minister Garganas this morning. Garganas spoke like a central banker with some intestinal fortitude when he said, “should the need be for a more aggressive interest rate adjustment, there is nothing to stop us from taking that decision. I would not rule out a higher adjustment to rates than 25 BPS, nor quickening the pace of increases from once every quarter.”
I’ve been talking to a reporter from Forbes about currencies, other than the euro and the yen, that currency investors should look at. Of course, I picked the current account surplus currencies of Norway, Sweden, Switzerland, and a few of the Asian currencies. We also talked about the Mexico peso, which in my opinion should be looking better than it has traded, given the Mexican central bank’s announced that their interest-cutting cycle had ended, and with the oil revenues.
However, the upcoming elections have been hanging over the peso like the Sword of Damocles! As I’ve explained in the past, the markets do not care one iota for uncertainty. And the Mexican election has uncertainty written all over it! I’m not even your last choice as a Mexican political advisor or commentator, but it seems to me that the markets would prefer the candidate that would give continuity to current economic policy. That would be Calderon. The other candidate, Obrador, is carrying around some baggage with his perceived choice for finance minister, as he is widely perceived as an unimpressive economist with a poor grasp of financial markets. And that would be negative news for the peso.
Besides, the peso has gotten all caught up in the Risk Aversion going on right now. So, I would wait until the dust settles on this election that takes place this Sunday.
Wow! That must be the most time and space that I’ve ever allocated to Mexican pesos! I just thought it would be good to review the currency ahead of this very tight election.
As far as the Asian currencies are concerned, I continue to take on hot water from people for the non-moves in Asian currencies. Well, all I can say is: patience, grasshopper, patience.
My friend, John Mauldin, wrote a nice piece in his weekly letter last week on the “end of the carry trade.” You can read it here http://www.2000wave.com But here’s my point: When the Bank of Japan begins to raise rates (and they will) this summer sometime, the yen will become expensive as a funding currency, and all those yen shorts will need to be covered. In Chuck’s world, that’s when the Asian currencies begin to soar, led by the yen. Chuck’s world, Chuck’s world, party on…excellent!
The Belle of the Ball, Canadian dollar/loonie, got a boost yesterday afternoon when two M&A (Mergers & Acquisitions) deals were announced that will require loonies to get bought to finalize the deal. Recall last year that M&A deals were big movers for the loonie, and helped get it started on its way to the ball.
Yesterday, we saw data that showed U.S. new home sales rose again in May. This bubble just keeps getting more hot air blown into it. The thing that most people won’t take from this report though is the fact that sales have been trending down since January relative to year-ago levels. Hmmm. Oh, and the fact that the mean price for a new home fell to $294,300 from April’s figure of $302,200.
Currencies today: A$ .7330, kiwi .6040, C$ .89, euro 1.2575, sterling 1.8215, Swiss .8020, ISK 75.85, rand 7.2775, krone 6.32, forint 221.76, zloty 3.23, koruna 22.62, yen 116.40, baht 38.45, sing 1.5970, INR 46.37, China 7.9980, pesos 11.44, dollar index 86.58, silver $10.43, and gold $587.76 (have you noticed gold inching back up again lately?)
That’s it for today. My beloved Cardinals are in a big deep rut! I sure hope they can turn this around fast! The Butler family will be heading to the ballpark tomorrow night to celebrate Alex’s 11th birthday, we certainly wouldn’t want to see a losing game! A full desk again yesterday. I love it when that happens! I don’t love when this happens though. We are experiencing technical difficulties with the Pfennig server this morning, so I have no idea when this will get to you! I carry on though. Have a great Tuesday!
Chuck Butler
June 27, 2006
Chuck Butler
Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter, which is reposted here at The Daily Reckoning. With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News and World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune. Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.
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