A Big Currency Rally

Good day… And a Happy Friday to one and all! The last Fantastico Friday of 2007! The St. Louis EverBank crowd gathers tonight at the St. Louis Blues hockey game for our annual party. I hear that quite a few people will miss the party this year… That kind of hurts… We go out of our way to throw a party for everyone… Oh well… Those that do go will have fun, with a capital “F”!

OK, now that I’ve gotten that off my chest… The currencies should put in a nice rally yesterday. It all began in the Asian session, driving the euro (EUR) up from 1.44 to 1.45, and then when the data came out yesterday and didn’t really give anyone a warm and fuzzy about the future of the U.S. economy, the euro gained all the way past 1.46 on the day! WOW!

As I said, the data didn’t give anyone a warm and fuzzy… Durable goods were up by a horse hair, and consumer confidence gained, but the future look was not confident. So, once again, the people (that think like me) came out of the walls and started acting like they were the first to say that the Fed would be cutting rates for most of 2008…. Needless to say, none of that was good for the dollar.

Oh, the media is telling everyone that stocks took a ride on the slippery slope because of the assassination of former Pakistan PM, Bhutto. While I think that may have had some to do with the sell off… I would think the bad vibes coming from pundits about the future of the U.S. economy are beginning to sink into the stock jockeys’ heads. Maybe… You never know!

The Energy Department’s Energy Information Administration told us yesterday that oil inventories fell by 3.3 million barrels last week, more than double the 1.3 million barrel decline that was expected by analysts. Crude and heating oil supplies are declining, and may be inadequate to meet winter demand, which by the way, started just last week! It’s going to be cold one, as far as my bones tell me!

Let’s get back to the story that got me all fired up yesterday. The Big Boys are calling for a 3.3% gain in the dollar for 2008. Hmmm… After further review… I wouldn’t be surprised to a mini-rally for the dollar in 2008, heck, stranger things have happened… But I doubt we’ll see an end to the weak dollar trend… So.. If all that happens… It would equate to the euro falling from 1.46, at which it trades now, to around 1.42… Ooooh… They call that a rally?

I call that merely adjusting the oversold dollar position! And… Finally, before I go on… I still think we’ll see euro 1.50 before it’s all said and done!

Well… The United States isn’t the only country experiencing rising inflation… But there’s one country that I think would surprise you to hear that their inflation is rising… Yes, it’s Japan! Japan’s inflation rose at the fastest pace in more than nine years in November, mostly from rising oil prices. Will it be enough to get the Bank of Japan off their duffs and raise interest rates? I doubt it… The Bank of Japan likes to torture me… And they do it so well!

Gold sure has bounced back again… You gotta love it! I was reading a story on gold that talked about a survey by metals analysts that called for a new record level in gold this next year. Now, this should be nothing new to those that read this journal often. I have been a huge flag waver for higher gold prices, based on inflation that’s being neglected here in the United States by the Fed Reserve… But, you don’t have to take it from me… Here’s John Reade of UBS London, who was just named “the most accurate analyst in the London Bullion Market Association’s 2007 gold price forecast”. John Reade says, “I do see gold hitting a new high at some point in the first half.” Thanks John!

The Big Boss pointed out to me yesterday that it’s been a while since I talked about what we offer in the way of gold for investors… Well… First of all we have the EverBank MarketSafe Gold CD, with 100% principal guarantee… And then we have our pooled gold bullion accounts, which happen to be the most cost effective and easy way to own gold, for we do not charge storage fees!

OK… Back to currencies… The Bhutto assassination reminded us that Swiss francs (CHF) are still considered “safe assets” as we saw Swiss francs rise steadily during the day after the Bhutto news was printed. Gold also gained… And so did U.S. Treasuries… All considered to be “safe assets” in times of turmoil.

I like Swiss francs… I think they’ve been held down too long by the carry trade. Good fundamentals… And no subprime exposure!

Today, we’ll see the color of the latest new home sales data, along with the National Purchasing Managers (manufacturing) Chicago report. Again… I doubt either one gives anyone a warm and fuzzy toward the future of the U.S. economy.

Someone sent me an email yesterday telling me that they couldn’t believe I was ripping on the Big Boys so badly. I replied… “If you don’t know me by now… You will never, ever ever know me…” I take no prisoners. A dolt is a dolt, and knucklehead is well. A knucklehead… There’s just no reason to beat around the bush, and be all nicey, nicey, sweetie pie, like… That’s just not my style!

Speaking of which… In November, Citigroup announced that they thought their fourth quarter writedown of bad loans would be $8 to $11 billion, and everyone stopped to catch their collective breath. But, it now appears that those estimates may have been drastically understated. Goldman analysts believe the writedown could be in the neighborhood of… Are you ready for this? $18 billion! Now, THAT, is going to leave a mark!

There’s news this morning from the Eurozone that has stopped the euro in its tracks. Eurozone retail sales fell for a third month in December as rising inflation is eating away at consumers’ wallets. And just think for a minute, in the Eurozone, inflation is barely over 2%. While here in the good ole’ USA inflation is probably (and I’m not using the government’s trumped up CPI here) around 8-10%… But consumers here don’t feel the pinch apparently, as confidence remains up, and spending is strong. What’s it gonna take boy, to get U.S. consumers to stop spending and start saving? Baby, baby let me sleep on it, I’ll give you an answer in the morning.

Seriously though, this is something that really grabs my attention, and gets me scratching my bald head.

And the data for the European Central Bank (ECB) has got have them scratching their collective heads too! Inflation, because of higher oil prices, is above the ECB’s target of 2%, but the economy is slowing down. What’s a central bank to do? Forget that their main goal was to drain the swamp when they are up to the rear ends with alligators? I don’t think so Tim! This is the ECB… Providers of price stability. I doubt we’ll see them go down the same path as the U.S. Fed, in an attempt to bolster the economy and throw inflation fighting out with the bathwater.

Oh… And one more ditty before I head to the Big Finish… With the stock market selling off some 200 points yesterday, risk was brought back into the markets. So class… When risk is brought back into the markets, what happens to the carry trade? Oh, Oh, call on me, Mr. Kotter! Yes… That’s correct… The carry trade gets unwound… And when that happens, Japanese yen (JPY), and Swiss francs rally!

Currencies today: A$ .8830, kiwi .7725, C$ 1.0210, euro 1.4690, sterling 2, Swiss .8850, ISK 62, rand 6.8150, krone 5.4275, SEK 6.4320, forint 172.32, zloty 2.4525, koruna 18.11, yen 113.05, baht 29.95, sing 1.4450, HKD 7.80, INR 39.43, China 7.3020, pesos 10.88, BRL 1.7580, dollar index 76.36, Oil $96.70, Silver $14.82, and Gold… $832

That’s it for today… A lot of people will have Monday off, so that should be interesting. And the Pfennig will go out later in the morning on Monday, so you have been warned! The college bowl games are heating up, with the big ones starting on New Year’s Day. My beloved Missouri Tigers take on Arkansas in the Cotton Bowl New Year’s Day. The first time the Tigers have played on New Year’s Day in 39 years! This is special for us die hard Tiger fans! I actually got a chance to sit down and talk with the Big Boss, Frank Trotter yesterday… First time since before Thanksgiving! Always a treat to talk to Frank! (I was being serious there, in case you thought I wasn’t!) So.. I sure hope you have a Fantastico Friday… The last one of 2007!

Chuck Butler
December 28, 2007

The Daily Reckoning