More Dollar Strength

Good day… And a Happy Friday to one and all! It has not started out as a Fantastico Friday, just a Fun Friday… No wait! Just because the dollar is running around the end with the ball, and the currencies can’t catch up with the greenback, is no reason to allow it to filter through to my feelings about each and every day! That’s right! I’m feeling like there’s a ton of weight on my shoulders right now, with this dollar strength, and everyone jumping ship… But, I promised myself over a year ago that if I was able to fight cancer and come out on top, that I would celebrate each day… And that’s what I try to do! So… I’ll make it a Fantastico Friday after all!

The euro’s (EUR) two-day rally versus the dollar got stuffed in a box and shipped to sea yesterday. The single unit looked as though it would add to the rally that took it above 1.45 but as I was signing off yesterday, the euro was giving back its gains versus the dollar… And soon, it would give back more than the two-day rally’s gains.

The European Central Bank (ECB) did leave rates unchanged as I expected them to do, and ECB President, Trichet, sounded hawkish as usual in his press conference following the rate announcement. But, here’s the bomb that was dropped on the euro by Trichet. You see, the markets don’t care about inflation fighting any longer, that’s so old school! They only care about economic growth. And according to the second quarter GDP, the U.S. has growth, and the Eurozone does not!

Well… Trichet talked about slowing growth expectations for the Eurozone, and that’s all it took to get the juices flowing for dollar buying, and euro selling. Never mind the fact that the U.S. second quarter growth was fueled almost in full by exports, because the dollar was weak in the second quarter! I can’t understand why the markets, with their multi-million dollar research teams can’t see this staring them right in the face!

But… That’s the lot we’ve been thrown by the markets. The dollar is strong, and getting stronger everyday… And no, I’m not singing the great song by Chicago! This dollar strength has all been orchestrated by the U.S. government… And that’s fine. It’s legal. Too bad they didn’t let us all in on it so we could book profits and look to buy at cheaper levels, eh?

OK… As I said when the second quarter GDP report printed… “It looks like the markets ‘believe’ in the miracle of second quarter growth… And… If that’s the case, then why is everyone still of the belief that there will be a global slowdown? If the U.S. is hitting on all 8, why would we see a global slowdown? And if there’s no global slowdown, then commodities should be the belle of the ball once again, Gold would be back to $1,000, and the dollar circling the bowl once again.”

You can’t have it both ways… You can’t say, the United States is outperforming the rest of the world, and there won’t be any collateral global growth because of it.

But, I don’t believe it… Which would mean the dollar buying is all being done with smoke and mirrors… And that leads me to my latest conspiracy theory. If you don’t like it when I go into these conspiracy theories, just skip ahead to the paragraph that starts with an asterisk (*)…

Let’s go back to mid-July… The euro has hit $1.60 again and there’s just not a lot of love going around for the dollar. And the reasons for that lack of love are numerous. One BIG reason, is the debt problem… But that’s one that a lot of people feel we can deal with (yeah, right, and I’m a young Bruce Willis!) So, let’s put the debt on the back burner for this one… What the markets are feeling (in July) is the weight of the world on their shoulders, because of the rot on the vine with financial institutions.

Then, almost miraculously the dollar got up from its deathbed… And the weight was lifted, but by whom, and why? Well… We found out just last week that it was a coordinated intervention by the central banks of the United States, Japan, and Eurozone to prop up the dollar. And once the dollar buying got up some momentum, the Big Boy Brokerages were all touting the return of the greenback! But why did the U.S. feel it needed to intervene? OK, here’s what I think…

“The Boys” saw the list of banks and brokerages on the “dead man walking” roster… And they saw the dollar circling the bowl. If the “you know what” hit the fan with financial institutions, it could have, no wait, it would have, sent the dollar down the drain, and who knows, it could have been the end of the greenback as we know it. So, they intervened to prop up the dollar in “preparation” of what was to come, which would allow it to begin its decline from a higher level.

That’s my story and I’m sticking to it! It’s like last fall when the Fed started cutting interest rates. They knew there was going to be hell to pay, and they wanted as much liquidity in the markets as possible. Did interest rates really need to be cut at that time other than to provide breathing room for the Fed’s buddies on Wall Street? I don’t think so, Tim! But, I knew the Fed’s thinking on that, and I immediately called for a series of rate cuts, that the media or the markets didn’t see coming… But I did… And I think I see the conspiracy thought here clear as day.

*OK, welcome back! Ty handed me an article that was in the Barron’s he was reading on his plane ride home the other day that plays well with my conspiracy theory. The writer’s name is Stephanie Pomboy, and in the article she talks about how the markets have taken the Fed’s messages about future rate hikes, because the economy is soon to be ship-shape… And… She agrees with me that the Fed will lower rates before they hike them again… And then she says this, which really caught my eye… “Far from support(ing) the buck, the Fed’s comments suggest they’re packing away their conventional tools and that the real debasement (for the dollar) is about to begin.!”

Well… The Japanese yen  (JPY), has taken the seat in the front of the class, and doesn’t look as though it wants to give it up! As I’ve told you all week, the yen has not been part of the selling back to dollars. In fact, as I said the other day, it has all the makings of a Japanese repatriation back to yen from the commodity currencies of Aussie (AUD) and kiwi (NZD). Japanese yen is trading with a 106 handle this morning… All this in the face of the strongest dollar rally we’ve seen in years! In addition, this is all in the face of the fact that the Japanese PM position is empty… Chris Gaffney mentioned yesterday that “it doesn’t look like anyone wants to be the Japanese PM!”

Well, that may be… But, it sure looks like investors are lining up to buy yen. Is the call for stronger Asian currencies finally going to become a reality? Or will reality bite? This flag waving for yen must be tempered due to the dollar’s strength right now. In other words, I’m surprised at every move higher the yen makes each day… And I’m not a fan of surprises… So, I’m leery of this move… But, I’ll play ball, and wave the yen flag… No worries!

OK, all of this writing, and I haven’t even mentioned that today is a Jobs Jamboree Friday! Could this number provide a roadblock for the dollar? One would think so, given the fact that the “experts” believe that we’ll see a -75K job loss report… I’m going to go even higher and say I think it will reach -100K in job losses! The Average Hourly Earnings and Weekly Hours are what I usually hang my hat on… And here’s where we could see some wage spiral inflation, as the Average Hourly Earnings are expected to have risen 0.3% in August, and annually at 3.4%.

We’ll also see the Mortgage Delinquencies for the second quarter this morning… In the first quarter, Mortgage Delinquencies rose 6.35%… I would fully expect the second quarter’s report to be in worse shape, wouldn’t you?

So… We head into the weekend, and by the way, don’t you just love 4-day workweeks when we get them? Oh, as we head into the weekend, the dollar is on a tear, with the euro taking the brunt of the weakness, just the opposite as when the dollar was going down daily. The 1.43 handle for the euro lasted about as long as it takes to read the book on what men know about women… And now the dollar is going through the euro’s 1.42 handle like a hot knife going through butter. I don’t know where this will all end folks… And trust me, I just feel awful about it! I feel like walking away from all of this. I had a woman write me yesterday, accusing me of causing her to lose thousands of dollars. I’m not without a conscience and I don’t think “I caused her to lose thousands” but still, I feel the heat…

I’ll just stick to my fundamentals training and try to enjoy each day.

Currencies today 9/5/08: A$ .8070, kiwi .6645, C$ .9380, euro 1.4210, sterling 1.7590, Swiss .9410, ISK 88.25, rand 8.0650, krone 5.6550, SEK 6.68, forint 170.65, zloty 2.4160, koruna 17.46, yen 106.20, baht 34.60, sing 1.4385, HKD 7.8060, INR 44.65, China 6.8390, pesos 10.55, BRL 1.7175, dollar index 79, Oil $106.50, Silver $12.70, and Gold… $794.20

That’s it for today… It’s stand up to cancer day/night. All the networks will air a special tonight in an attempt to raise funds to accelerate cancer research. One of my faves, Katie Couric, will be on the hosts. This will be the first time in history that this is done on TV… And what a worthy reason to do so! 1,500 Americans die from cancer every day. That’s more than one per minute! I would think, unfortunately, that every American has had cancer touch their family or friends. I lost my mom, dad, and oldest sister to cancer… I have been fortunate enough to be given the opportunity to fight it, mostly because the treatments have improved. But I don’t think for a minute I could have fought this fight without the facts that I was a strong individual, I remained positive, and had the thoughts and prayers of thousands of people. Not everyone has that opportunity, and for that we need to research and actually find a way to deal with this deadly disease. Yes, I’m fully aware of all the alternative methods, I’ve read book after book on this subject… We just need to revolutionize the way we approach this disease.

And finally… I’ll be on the radio again this morning, on the Rocky Mountain Radio Network at 9:05 CT… And tomorrow is my little buddy’s (Alex) first football game of the year (last week were scrimmages) and he’s looking forward to playing a game again! (Games are easier than practices, even I remember that!) So, good luck to Alex, and my beloved Missouri Tigers tomorrow! Time to hit the send button… Have a Fantastico Friday!

Chuck Butler
September 5, 2008