A HUGE Data Week!

Good day… And a Marvelous Monday to you! This is scheduled to be the first five-day workweek I will have done in over six weeks! First vacation, then holidays, then the one day I was sick, and it all adds up! Geez Louise, if I was totally bushed at the end of last week, I can only imagine what I’ll feel like come Friday!

On Friday, there was no data to view, and nothing to really trade off of, so the currencies drifted, with the dollar getting the upper hand, with book closings in London. What we lacked in data last week, we’ll more than make up for this week. Starting with new home sales today, moving to durable goods and consumer confidence tomorrow, heading into GDP, and the scheduled FOMC meeting on Wednesday, followed by personal income and spend on Thursday, and finally Friday is a Jobs Jamboree Friday, along with ISM (manufacturing index)! Whew! That just about wore me out right there!

OK, I’m back now – had to take a breather! The Asian currencies, which I believe are the next shoe to drop for the dollar, put in a strong performance last week. The Asian currency, I keep coming back t Singapore dollars (SGD)… Rose 1% just last week! The Japanese (JPY) made a move versus the dollar, and the Chinese renminbi (CNY) has risen over 1% already this month! WOW! Oh… And to follow up on the “rupees for me, rupees for you” little ditty I did on Friday… Rupees (INR) gained back most of the small amount of ground it lost earlier in the week. So, go ahead, put some rupees in your big brown shoe!

I gave two more radio interviews on Friday, and one (if you can believe this one) at 7:20am yesterday! On a Sunday morning! The problem for me was I knew in the back of my head that I had to get up early on Sunday, so from 4 o’clock on, I couldn’t sleep! UGH! Anyway… The central theme I kept coming back to was this “Stimulus Package”. Too much, too little, too late! I keep getting asked… “Will this Stimulus Package work? Will it avert a recession?”

Well… Unfortunately, I was heard to say several times last week, the recession train has already left the station, so the Stimulus Package is too late! Then I would go on about how the checks aren’t going to go out until May or June, which means that most people will be so behind at that time that they will simply sign over the check to the credit agency that’s hounding them most! And in the end… The government added $150 billion to a budget deficit that was already forecast to reach $250 billion this year!

When will they ever learn? When, will, they, ev-er learn? But not to worry folks… U.S. Treasury Secretary Paulson is hailing this Stimulus Package as the best thing since sliced bread! But then, wasn’t he the one telling us back in August the housing meltdown has bottomed? Ahhh, yes, it was… The very same person… So, why would you believe this guy now?

The Fed has turned its back on inflation folks… And here are some items that you won’t see in the CPI data…

1. Grade-A Large Eggs – Dec. ’06 $1.54 a dozen… Dec. ’07 $2.10, and current $2.73 a dozen… That’s up 36% in a year!

2. White Bread – Dec. ’06 $1.13 a loaf… Dec. ’07 $1.28 a loaf, and current $1.62 a loaf… That’s up 12.6% in a year!

3. Whole Milk – Dec. ’06 $3 a gallon… Dec. ’07 $3.87 a gallon, and current $3.93 a gallon … That’s up 29% in a year!

4. Fresh Whole Chicken – Dec. ’06 $1.06 per pound… Dec. ’07 $1.17 per pound, and current $1.19 per pound… That’s up 10.3% in a year!

These are the things I talk about all the time, in that an individual can feel the inflation eating away at this wallet. These are just some simple food items… I’m not even talking about things like: Tuition… Insurance… Medical… Movie tickets… And so on…

Your Federal Reserve has turned their backs on inflation eating your wallet folks… Isn’t that SAD?

Oh… And last week, there were rumors going around that the Fed panicked when they heard about the rogue trader from Soc. Gen. and cut 75 BPS to save stocks here in the United States. I’m not buying that one… They may seem like dolts in the way they’ve turned their backs on inflation, but I don’t think they were duped into that one. I think the Fed has their eyes on the credit crunch going on and is doing everything in their power to “inflate” the mortgage bubble again!

So, that means that all those that believe the Fed cut 75 BPS to save stocks last week, have thrown out the 50 BPS cut at their regularly scheduled meeting on Wednesday of this week. And all those that don’t believe that, and believe that the Fed is reacting to a financial crisis in the making here in the U.S., still have the 50 BPS rate cut on the board for Wednesday’s meeting.

You know which camp I’m in. I told you my thoughts on interest rates last week… But in case you missed class that day, let’s go to the Pfennig archives to see what I had to say from Wednesday’s Pfennig… “But seriously, 50 BPS next week… And here again, I’m going out on the limb (not to worry I found a big strong branch!) I believe we’ll see 50 BPS cut at the next two meetings following next week. So… Add those together, carry the one, and you have 150 BPS still to go… That would bring rates here in the U.S. down to 2%.”

Over in Euroland… Austria’s Chancellor, Gusenbauer, was talking tough yesterday. Let’s listen in on his speech… “A cut in interest rates by the European Central Bank (ECB) would send the wrong signal to investors and consumers as economic growth remains… Solid!”

Again… This question keeps going around the table. The United States in a recession causes a recession in Europe and Asia too, right? Not so fast, Tim! Keep in mind that yes, it causes a slowdown… But a recession? I doubt it… 80% of all Eurozone trade is amongst themselves… Doesn’t sound like they necessarily need the U.S. going great, does it? And Asia? The same could be said for them if they kept tallies like that! But they don’t!

OK… How about that Super Ball Bounce in gold last week? WOW! 3.3% gain in a week! And why not? Inflation is killing us, as I highlighted above. And inflation in China is high, along with India. So… Demand for the shiny metal as a hedge versus inflation is strong. I’ve been telling people for more than five years now that gold is historically, an excellent hedge versus inflation, and a lot of you laughed, and said… Well that’s all fine and good, but we don’t have any inflation! HA, look who’s laughing now.

I’m like the third little pig that built his house of bricks… But instead I built mine of gold. I’d like to see that old inflation wolf come blow this down! Not gonna happen! That dog’s not gonna hunt!

The pound sterling (GBP) has really thrown a spanner in the works for the Bank of England (BOE). Pound sterling gained versus the dollar last week. It’s been a month or two of selling for sterling, so the gain last week was welcomed by sterling holders. I did some research into why sterling moved so much to the upside… And while the Big Dog, euro (EUR), was gaining and taking sterling with it, there was more… And there it was! A Merger & Acquisition (M&A)… Carlsberg and Heineken purchased Scottish & Newcastle PLC. The deal was about 7.8 billion sterling. Now, that will light a fire under a currency, eh?

But… Since this was a one-time deal, I caution you to be careful with sterling. The Bank of England (BOE) will be cutting rates soon enough, and when they do, I imagine the wind will come out of sterling’s sails…

Back to the Eurozone for a minute before heading to the Big Finish… I saw, over the weekend that Eurozone money supply had narrowed in December. Good for them! For money supply is in its truest form… Inflation! The European Central Bank (ECB) uses money supply growth as a gauge for fighting inflation. ECB President has stated a few times how he was not happy with the excessive money supply growth. So, it was nice to see it narrow. Now… It would be even nicer to see it narrow to a workable number!

Money supply in the Eurozone narrowed to +11.5% growth in December, down from November’s 12.3% growth. I would have to think that at 11.5% growth, the Eurozone isn’t seeing any “credit crunch”, eh? That’s a good sign for the economy folks… And a bad sign for inflation, which I believe the ECB has done a good job of keeping in line. I don’t look for rates to come down here, just yet – and that should continue to underpin the euro!

You know… I believe I was – if not the first, then one of the first – to tell you that the next problem stemming from the subprime/mortgage meltdown would be the bond insurers. And that certainly came front and center! I have to tell you that you should be concerned with this situation. There are reports that it might take up to $200 billion to bailout AMBAC and other bond insurers. This is a BIG STORY going forward, folks. Keep an eye on this one, it is persistent and scary!

Currencies today: A$ .8810, kiwi .7730, C$ .9890, euro 1.4715, sterling 1.9810, Swiss .9155, ISK 65.11, rand 7.1925, krone 5.4820, SEK 6.4450, forint 175.78, zloty 2.4630, koruna 17.62, yen 106.30, baht 31.41, sing 1.4210, HKD 7.8070, INR 39.42, China 7.1960, pesos 10.89, BRL 1.7860, dollar index 75.88, Oil $89.40, Silver $16.40, and Gold… $916.50

That’s it for today… A nice weekend to relax for yours truly. I came home on Friday, sat down in my recliner, and fell asleep for the night! That’s pretty sad… A Big Friday night, and I’m asleep in the chair! Oh well… After last week’s activity, I needed it, I guess, eh? This will be a very busy week, as we have visitors from all over coming to the office. Meetings galore… I wonder if there will be time to do my job? HA! One of my faves Lizzie Brown, will be here to try and settle me down. All my ranting and yelling about stuff lately has people concerned that I’m about to go off the deep end, I think… NOT! Just making certain that someone hears me! Just found out that I will be going to Vail for Corporate meetings in March. I’ve never been to the mountains in the winter… Basically because I don’t like cold, and I don’t like snow. I don’t know why I would go where there’s more of it! But, I’m OK with it this time. My beautiful bride wants to learn to ski, and my little buddy is into snowboarding, so they will have a blast, while I work… Hmmm.

I’ve carried on long enough this morning… Time to go figure out my positions to trade! I hope you have a Marvelous Monday… And Wonderful week!

Chuck Butler
January 28, 2008

The Daily Reckoning