A Huge Data Week

Good day… And a Marvelous Monday to you! A weekend that was supposed to be filled with rain was nothing but sunshine, and beautiful days. For once, I didn’t make fun of the weather people that make the forecasts! But, as always, it was too darn short! The alarm went off this morning, and for a minute I thought, “To heck with this, I’m going back to sleep!” But, then as always, I got up to start the day!

Well… Recall on Friday, the currencies had rallied very strongly on Thursday, and it looked like a reversal of the month-long dollar rally could be at hand. I had this to say in Friday’s Pfennig: “But today is a new day folks… And what happened yesterday is now history. The attitudes could change in a NY minute, and the dollar could be back in favor. This is what I’m talking about when I say things are less secure. Wishy-Washy market sentiment leads to very volatile markets, and that’s what we saw yesterday… Now, let’s move on to today, and see what Bullwinkle has up his sleeve. Hey Rocky, wanna watch me pull a rabbit out of my hat?”

And so went the currency rally on Friday… Soon the currencies were giving back the gains they made on Thursday, and once again the dollar had the conn. There was more dollar buying in the overnight market, although the volume is lighter given that London is on holiday today.

Big Ben gave the stock market here in the United States a boost when he so boldly predicted that inflation pressures were easing, saying that those pressures are likely to subside due to slower global growth. Hmmm… Given he and his buddy, Treasury Secretary Paulson’s track record of forecasting, I wouldn’t be so sure… But the stock jockeys were! Big Ben also called the dollar’s increased stability “encouraging.” I think he was really singing the Temptations hit… It was just my imagination… Once again, running away with me…

Recall that the “boys” were in Jackson Hole, WY for the Fed’s annual boondoggle for central bankers and other “VIPs”… There wasn’t much that came out of the meeting, so the “boys” must have been strolling the paths and getting completely engaged in the views! There was a disagreement between Big Ben and European Central Bank (ECB) President, Trichet on whether or not central banks should be made responsible for financial stability and how closely to heed the concerns of Wall Street (or whatever stock market). Herein lies the BIG difference between the Fed and the ECB…

The ECB has taken the road to provide price stability, while the Fed has taken the road to… What road have they taken? All I know is that they have bowed to Wall Street, and been at their call at the sake of the economy.

OK… So… If there’s dollar buying once again, then that must mean gold has sold off again… Well, no so fast there mister! Yes, gold saw some profit taking on Friday, but has steadied and is actually up a buck or two this morning. That could be an indication that the dollar’s rebound will be short-lived. Maybe the data this week will give us a strong direction, eh?

Today, we will see the color of the existing home sales for July, which are expected to bump higher given the price drop in homes… Something that I’ve pointed out before, but needs to be revisited, is the fact that foreclosed homes get included in the existing homes sales data. So… It’s not all seashells and balloons for this data, folks… But hear me now and listen to me later, there will be some media dolt that goes hog-wild over this data saying it shows improvement, and the housing meltdown has “bottomed”. You would think they would learn from the un-dynamic duo of Big Ben and Paulson, not to say something has bottomed until you know for sure it has! Recall, these two told us last year that housing had bottomed… Oh, and the markets believe Big Ben has his finger on the pulse of the market now? HAHAHAHAHAHAHAHAHAHA!

Did you see the news on Friday that also gave the dollar and stocks some love that the Korea Development Bank said they might buy troubled, Lehman Bros?

To take that thought a bit further… My friend, whom I will see again when I visit him in Dallas, John Mauldin, had this in his great weekly letter Thoughts from the Frontline…

“A few weeks ago when I was in Maine, I met Chris Whalen. Chris is the managing director of a service called Institutional Risk Analytics, whose primary business is analyzing the health of banks and financial institutions. And what he sees is not pretty. There is a crisis brewing. He expects 100 banks to fail between now and July of 2009. Most of them will be small, but there will be a few large banks. The total assets of those banks he estimates to be $850 billion (not a typo!).”

Now… I’ve long said that there would be more risk events this year, and I was bang on with Bear Stearns, and then Freddie and Fannie blow up, but I never thought there would be 100 risk events! The thing I want to point out here is that I know the big guys at this bank will not like that I wrote about this problem, as we are a bank… But we are a STRONG BANK! So, therefore I feel comfortable talking about this…

But go ahead and keep buying the dollars, you dollar bulls…

Tomorrow, we’ll see the S&P/Case-Shiller Home Price Index, which has been quite telling recently. We’ll also see New Home Sales, and the minutes of the August 5th FOMC meeting. Later this week, we’ll see the first estimate on second quarter GDP, and I’m sure that the pundits who don’t know dookie will be out in force, spouting off about the recovery in the U.S. economy and that there is no recession. Let me be the first to say HOGWASH! Second quarter GDP will have been inflated with the stimulus checks, it’s that simple!

But look for some dollar strength until the calmer heads prevail on Wednesday when that data prints.

Later in the week, as we all get ready to celebrate the 3-day Labor Day Holiday weekend, we’ll see the Personal Income and Spending data for July. I had a reader tell me that I don’t know what I was talking about when I say that we spend more than we make. Well… All I do is look at the data. For instance July’s numbers are forecast to look like this: Personal Income -0.2%, Personal Spending +0.3%…

So, this will be a data intensive week, as there are plenty more data prints than the ones I’ve talked about. By the end of the week, the markets will be quite confused, as there will be plenty of negative data to deal with, but also that second quarter GDP that will confuse the folks… I’m sure of that!

As Milton Friedman once said, “If you let the government run the Sahara Desert, soon there will be a shortage of sand.”

I just love that thought by Milton Friedman! And it is so apropos for this day and age, eh?

One currency that hasn’t gotten caught up in the spring back in the dollar is the Canadian loonie (CAD). The inflation report last week has gone a long way toward lighting a fire under the loonie. Higher inflation will put a cap on those interest rate cuts by the Bank of Canada, and that has the loonie looking quite perky.

Not much else going on this morning. The week will be very volatile, so it might be better to batten down the hatches and sit on the sidelines throughout this week. We could see some wild swings in the currencies due to the confusion the markets have regarding the data. So, with little else to talk about, I’ll head to the Big Finish! Talk about short-n-sweet today!

Currencies today 8/25/08: A$ .8685, kiwi .7085, C$ .9570, euro 1.4770, sterling 1.8510, Swiss .9110, ISK 81.65, rand 7.7020, krone 5.3710, SEK 6.3350, forint 158.30, zloty 2.2390, koruna 16.53, yen 109.90, baht 34.10, sing 1.4170, HKD 7.8090, INR 43.70, China 6.8470, pesos 10.13, BRL 1.6270, dollar index 76.75, Oil $115.20, Silver $13.37, and Gold… $823.50

That’s it for today… The kids are all back from Orlando this week, so that should alleviate some of the pressure on the trading desk. College Football begins this week, Yahoo! My beloved Cardinals are falling short of their quest to make the playoffs; I’m not counting them out yet, but if they don’t sweep the next two-game series versus the team in front of them – the Brewers – then it will be a tough row to hoe to make the playoffs. The Olympics ended with the U.S. winning gold in men’s volleyball and basketball, and silver in water polo… Great showing by the U.S. athletes!  Nothing else… So, let’s get this Marvelous Monday going!

Chuck Butler
August 25, 2008

The Daily Reckoning