A Day To Remember

Good day. Five years ago today, we witnessed the horrific scenes from terrorists in our country. I recall trying to come up with words the next day and just couldn’t. So, I stuck to currencies, in an attempt to keep things as normal as they could be. I hope everyone flies their flag today in remembrance of this day five years ago.

OK. The trip to Montreal was interesting. The International Living people do a great job at what they do, and I appreciate their invitations to speak at their conferences. My next International Living conference will be in the country of Panama! There was something interesting that happened on Friday, right after I had given my presentation and had reminded everyone in the audience, much like I continually remind you, that it takes 12 to18 months for a Fed rate hike to filter through the economy. And the Fed was correct in pausing last month, because they haven’t seen the full effect of their two years of rate hikes. Then, along came a story on the Bloomberg that I then brought to everyone’s attention in the afternoon workshop.

Fed Head Pianalto said, “Although the elevated inflation numbers concerned me, and indeed they still do, the overall pace of economic activity – especially housing activity – had begun to moderate, and the full effect of the FOMC’s previous rate increases had not yet been felt.”

I had to assure everyone that her speech had just taken place, and that she was probably a Pfennig reader, which is where she got the idea in the first place!

OK. The currencies sure did put in an awful performance last week. Not the type of stuff I was expecting. The new U.S. Treasury secretary, Paulson, got about the same result from visiting the Chinese as his predecessors, and gold has fallen below the $600 figure as the media is reporting that the talks with Iran are progressing. While I find this news comforting, I just have to question if this is just a trap. And Iran will pull the rug away just when the negotiators are walking through the door to the nuclear facility.

I would really take this move by gold as an excellent opportunity to buy below $600. But, then, you expected that, right? I just can’t come to the conclusion that the commodity bull market has come to an end. Jim Rogers tells us that over history, commodity bull markets average 17 to 22 years. This commodity bull market has put in only six years. So, take that for what you will. Me? It’s my story and I’m sticking to it!

There are some pieces of market-moving data in the United States this week. Nothing today, but tomorrow we’ll see July’s trade deficit, which shouldn’t be dollar friendly. Thursday we’ll see the color of August retail sales, which by using the BHI (Butler Household Index) I just don’t see a good number coming. Retail sales, in my opinion, will be a real downer for the dollar. But, we’ll have to wait and see, eh?

Then on Friday, the big Kahuna of the week:  CPI for August. Consumer inflation, which I will repeat once more is a crock, is expected to show that inflation only increased 0.2% in August. Yeah, and my first wife was a young Elizabeth Taylor. Yeah, that’s the ticket! Come on! Who are they trying to kid with that data? Anyway, that’s the deal, and since the markets play along with the numbers, I have to also!

None of these reports look like they will be dollar friendly to me. So, we could see a currency rally this week! Now, wouldn’t that be nice! However, with that thought, the Fed Heads will be out in force this week, with three speeches today, and more tomorrow (Think they don’t see the cards being played with data this week? Think again).

There’s also a glut of data for the euro out this week. United Kingdom’s PPI, CPI, unemployment, and retail sales all will print this week, along with French industrial production, Swedish CPI, and then, finally, Eurozone inflation on Friday. So, the data won’t be confined to the United States this week. But none of these are as market moving as the releases in the United States, except maybe Eurozone inflation, but that doesn’t come along until Friday. There’ll be a lot of sawdust left on the trading floor between now and then!

No currency went unscathed last week, because the dollar enjoyed the bright lights. The Asian currencies were especially hurt since Paulson didn’t get any movement out of the Chinese. However, I see where Bloomberg did a survey on Friday and 55% of the 47 traders they surveyed, worldwide, were advising their customers to buy yen. Another 20% advised their customers to “hold” yen.

So, I’m not alone in my thoughts that the Japanese yen is undervalued and should be much stronger. That’s nice, but I would prefer for yen to get it in gear!

Did you see the report on Friday that said Lennar Corp. had became the latest residential builder to lower its profit outlook? The Miami company knocked down its third-quarter estimate because of a weakening market for homes. It’s just another piece of evidence that the “house party” is over.

There was also a report on Friday that Australia’s trade deficit narrowed to $588 million in July from $635 million in June. Good show!

Currencies today: A$ .7545, kiwi .6410, C$ .8940, euro 1.2725, sterling 1.8665, Swiss .8050, ISK 71.60, rand 7.4340, krone 6.53, SEK 7.2850, forint 215.80, zloty 3.13, koruna 22.2975, yen 117.25, baht 37.46, sing 1.5750, INR 46.29, China 7.9542, pesos 11.02, dollar index 85.78, silver $11.80, and gold $594.

That’s it for today. Great start for our Rams yesterday, and my beloved Missouri Tigers are 2-0! My Cardinals are still inconsistent, with a big series coming up with the Astros. Travel is really beginning to wear on me. Sitting in airports, having flights cancelled, and sitting even longer. I’m going to try to cut down my trips next year. I can hear the Big Boss, Frank Trotter, saying, “Yeah, good luck with that one!” Anyway, fly your flag today, and try to keep positive thoughts in your mind. Have a great Monday and week!

Chuck Butler
September 11, 2006

The Daily Reckoning