A New Record for the Euro!

Good day… And a Happy Friday to one and all! 1.43… The euro (EUR) hit 1.43 yesterday… It couldn’t maintain the level throughout the day, but 1.43 was hit… A new record level for the euro!

And guess which currency is tagging along with the Big Dog that normally remains on the porch? Give up? The Japanese yen (JPY)! We’ve not seen the 115 handle in what seems like a month of Sundays! What caused this strong move?

Well… We had the news about the Asian Central Banks selling Treasuries… We had the Bernanke speech from the evening before… We also had the weekly jobless claims jump up by 28K, and we had a weak Philly Fed Survey (manufacturing for that region). So take your pick… But most likely it was the combination of all these things ganging up on the dollar.

Oh… And oil hit another new record level yesterday as it crossed $90! I know the price of oil hasn’t been filtered down to the gas pump yet… But it will… So gas up!

I read something yesterday that just sent shivers down my spine… Remember when I kept saying I didn’t know how the U.S. consumer was going to keep spending now that the ATM (the house) had run dry? Well… I got my answer yesterday… It was reported that consumers are taking more loans versus their 401K, or outright taking withdrawals from their 401K, even with the huge early withdrawal penalty! I don’t like hearing that! I don’t care if the withdrawals or loans are being used as alternative investments… The dollar loss on the 401K is staggering!

The long awaited G-7 meeting starts today… It looks like the scenario I went through is going to play out. The Eurozone minister, Christine Legarde, has decided to go after China, instead of picking a fight with the United States. Now, U.S. Treasury Secretary Paulson has Legarde to share common ground with.

Speaking of China… Their Central Bank Chief, Zhou, said that he was “sympathetic” to Europe’s concern about the renminbi’s (CNY) level against the euro. I’m laughing as I type this… The Chinese don’t give two hoots about what any country’s problems are because of the weak renminbi. I believe it was U.S. Treasury Secretary from Texas, John Connally, who once said something like… “It’s our currency, but your problem”…

John Connally was the Treasury Secretary when the dollar was bounced out of the Bretton Woods Agreement, and immediately began its long trip down the slippery slope! At least that’s what I recall… I’m sure if I’m wrong, I’ll have 100’s of emails telling me that!

While we’re talking about the ’70’s… Let’s talk about a currency that was around then, and was the major benefactor of the dollar’s float… The Swiss franc (CHF)… I told you last week about how Swiss National Bank (SNB) Governor Roth, had thrown cold water on the franc recently… Well… He’ll have to find some more cold water, because yesterday, Swiss Investor Confidence improved this month!

I use the Swiss franc as the currency I track versus the dollar in all my presentations… And why not? When a currency has a gain of 186% in a seven-year period, like it did back in the first weak dollar trend in the ’70’s, it catches your eye, eh? Back then, the franc was a “hard currency”… It was still backed by gold. Now-a-days it’s gone fiat like all the other currencies in the world, and with the size of its neighbor, the 13-member euro, the franc gets pushed to the back of the room most days. But, at one time… It was THE ONLY currency people thought of when you said, “Foreign currency”. “Oh, you mean Swiss francs!” OK… Enough of the history lesson, let’s get back to the present!

I’ll also say that it looks as though the usual suspects are trading like carry trades are being unwound. You know the procedure… High yielders down… Low yielders up… I’ve already talked about yen and francs rallying.

And now I’ll tell you that the high yielders like Aussie (AUD), kiwi (NZD), and Iceland (ISK) are seeing selling pressure. That looks like, smells like and barks like carry trades unwinding!

Today… We’ll have to listen to Big Ben Bernanke and William Poole speak right here in good ‘ole St. Louis! I wonder if… Nah… That won’t happen. But maybe… You never know! Maybe, Big Ben will skip out to our office to get some good advice! HAHAHAHAHAHA! But hey! Jimmy Rogers made the trip out to see us when he was in town… Why wouldn’t Big Ben?

While those two dance around inflation and are making no sense. Those of you that own gold can be doing your own river dance! Gold has moved past $770! As I’ve said over and over again dollar weakness is going to show up in two places… Euro strength… And Gold strength… And with the dollar well entrenched in this weak dollar trend, this is something that will continue to play out right before our eyes!

Another Fed Head, Pianalto, spoke last night… And she said something that makes me want to fire off a memo to her… Dear Sandra… Please stop talking… You might want to check to see what the “boss” had to say before you talk! Pianalto said that the housing slump hasn’t “held up” economic growth and employment… YIKES!

Just the night before Big Ben was talking about how the economy was slowing down from the housing meltdown… Geez Louise, would you Fed Heads get your stories straight!

Attention all you Wal-Mart shoppers… Announced yesterday that they will be cutting prices on 15,000 items. This is the second price cut announcement by Wal-Mart in the last two weeks… I think this gives us some insight to what I believe is the start of the U.S. consumer spending fading… If it’s not being bought at Wal-Mart, then mom and pop aren’t shopping! You can do all those data reports on retail sales you want… I think an announcement like this tells us more.

So… With all that said… We go into the weekend with the euro setting the pace… The single unit ventured above 1.43 again last night setting a new record level of 1.4319… But has since backed off again… We see this more often than not… Bouncing above a level a few times and backing off before a strong move takes it past the level and beyond. As the Big Boss, Frank Trotter, likes to say… “Onward and Upward”!

I find that the euro setting a new record level on a day that G-7 is meeting is interesting. This is the much-ballyhooed G-7 meeting that was going to whip the dollar into shape, and hatch those plans made by the euro ministers to strengthen the dollar. Instead we have a HUGE amount of negative dollar sentiment on the day of the meeting! Personally, I think it’s dollar bears selling dollars right under the nose of G-7 ministers so they could say, neener, neener, neeeeeener!

Currencies today: A$ .8950, kiwi .7525, C$ 1.0280, euro 1.4285, sterling 2.0480, Swiss .8550, ISK 59.80, rand 6.81, krone 5.37, SEK 6.4210, forint 175.54, zloty 2.5750, koruna 19.09, yen 115.10, baht 31.49, sing 1.4630, HKD 7.75, INR 39.75, China 7.5070, pesos 10.79, BRL 1.7890, dollar index 77.60, Oil $89.40, Silver $13.89, and Gold… $772.50

That’s it for today… It’s Homecoming tomorrow for my beloved Missouri Tigers, and they didn’t schedule an easy opponent! YIKES! They’ll have their hands full with the Texas Tech Red Raiders… My little buddy’s football team takes on a local rival in their game tomorrow. I started working on my New Orleans presentation yesterday… I have only 20 minutes to talk, this ought to be interesting! I’m excited about going to New Orleans, and seeing a lot of the people that I’ve missed this year at the investment shows… This conference, is always jam packed with big names… Me? I’m just a little fish in this kettle swimming around with big fish! I hope you have a Fabulous Friday, and Wonderful Weekend!

Chuck Butler
October 19, 2007

The Daily Reckoning