Retail Sales Revised Down Big Time!

11/15/06 Good day…and a big hello from the Big Easy! Haven’t seen much since my arrival last night, and today. I’m a busy bee…OK doesn’t that take you back to the bee suit that John Belushi wore as a killer bee? That was funny!

Yesterday saw some wild swings in the currencies, with the dollar first losing ground, and then gaining it back. The overnight session has seen the dollar continue to gain. Doesn’t make any sense to me, so let’s go to the tape to see if it makes sense to you!

First of all, the government reported PPI (wholesale inflation) had fallen by 1.6 percent! Wow! How did that happen? Doesn’t that indicate to you that corporations have not been able to pass along price increases to consumers? And if that’s what has happened, then their profit margin won’t be great shakes, which should hurt their stock price. But these days it has all gone back to the go-go days of the late 90′s. Investors are taking on more risk than ever. I’m just standing back and watching all this all unfold.

Then…retail sales for October did disappoint as I thought they would, as indicated by the BHI. However, the real kicker here was the revision to last month’s number, which originally printed at a negative 0.8 percent. Well, the revision doubled that number to negative 1.6 percent! How did that happen? OK…I’ll give them a 0.1% revision…but a doubling of the number? Geez Louise! I can hardly wait for next month’s revision to the negative 0.2%!

The dollar was sent to the woodshed immediately. But just as the euro and other currencies were ready to make some considerable moves versus the dollar, things turned on a dime. I couldn’t find a reason on the screens; I couldn’t find a trader friend to tell me what was going on. And then I had to run to catch a plane, which ended up delayed! UGH!

There’s breaking news right now coming across my laptop. There has been an earthquake in Japan, and a tsunami warning has been issued. Northern Japan, and parts of Russia would be in the path of a tsunami, and residents have been told to evacuate. I’m sure you’re seeing all of this on your TV.

Yesterday, I talked about the Asian Central Bankers sitting in a room waiting for a sign from one of the bankers that they are going to sell dollars. I know that some of you were thinking, “Why would they do that? It would only make their other dollar assets worth less.” But, here’s how I look at it.

First of all, I believe in trends. Trends begin because of a fundamental reason, and don’t end until that fundamental reason has been corrected. These trends also last multiple years. So…if the dollar were to get sold, and allow the fundamental reason it has been in a weak trend for five years (a runaway current account deficit) to correct, that would be a good thing! And who knows how long that would take?

So if the Chinese and Japanese own treasury bonds that mature in what…five to seven years…maybe even longer…why would they care if the dollar weakens during that tenure? As long as the weak dollar trend has ended when their bonds come due?

OK…that’s just me. But it makes sense doesn’t it? I have to believe the Chinese and Japanese know this. And if not…maybe there’s a Pfennig reader out there who can point this out to their leaders! HAHAHAHAHA!

Well what do we have here? Goldilocks and the Three Bears? Here’s the skinny…Fed Head Lacker thinks rates are too low, and wants them higher. Fed Head Yellen wants to wait for the full effect of the 17 rate hikes. And now Fed Head Poole thinks they are “just right.” Who is Goldilocks you might ask? Oh, it could be Big Ben Bernanke…or it could be Dick Cheney who keeps telling us that deficits don’t matter. Who do you think Goldilocks should be?

Today we’ll see the notes/minutes of the FOMC meeting held last month. Don’t expect too much. If anything it’ll be dollar friendly, because I’m sure they are still scared of the inflation shadow.

Oil is on the rise today. So is gold. I’m not saying they are connected, I’m just saying that commodities are all looking a little stronger this morning.

Looks like Wal-Mart and Target are going to go to war over discounting prices for the Christmas shopping season. Oh that will look good on the profit ledger come January, eh?

Currencies today: A$ .7640, kiwi .6595, C$ .8775, euro 1.2790, sterling 1.8865, Swiss .80, ISK 69.90, rand 7.34, krone 6.4450, SEK 7.11, forint 201.75, zloty 2.9850, koruna 21.97, yen 118.10, baht 36.50, sing 1.56, HKD 7.7870, INR 45.34, China 7.8687, no dollar index today, Silver $12.72, and Gold… $618.50

That’s it for today…Now begins the longest process when writing the Pfennig on the road…getting it out! I’m looking forward to the conference here in New Orleans. Lots of serious investors, and great speakers! I host a luncheon today, and then speak later this afternoon, should be a fun filled day! Have a great Wednesday.

Chuck Butler
November 15, 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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