A Penchant For Surprises…

Good day… And a Happy Friday to one and all! A three-day weekend for most to boot! I have to say that I truly enjoy these three day weekends, and wish we could find a way to have at least one a month! We had a surprise from the Bank of England yesterday, and more dollar buying, and we’ll end the week on a sour note for the currencies… UGH!

OK… How about that Bank of England? (BOE) They sure have a penchant for surprises, eh? You know, yesterday I even said that the recent data indicated to me that the BOE “should” hike rates now. But I, and the markets, truly thought they would wait… But why wait? I’m all for “going for what you want now!” So… Kudos to the BOE!

After the rate announcement, the currencies were taking liberties with the dollar, and I signed off saying that “today is going to be a good day for the currencies”… “Buzzer” Sorry, that was the wrong answer, thank you for playing, there’s a nice parting gift for you at the door! Geez Louise, the rug was pulled from the currencies so fast and furiously that one minute I was smiling… The next minute I was trying to figure out what was happening with a great big frown on my mug!

Well, you know how I had told you for months that European Central Bank (ECB) President, Trichet had basically told the markets what he was going to do at the next meeting, which I thought was only fair to the markets? Well… Yesterday, the markets believe he wavered. The word “vigilant” was absent, and oh Lordy…you would have thought he said he would cut rates! The markets immediately sold euros, bought dollars and all the gains from the BOE rate hike were wiped out.

I know, I know, the “markets are always right”… But they got this one completely wrong! Trichet said that rates were still too accommodating, which is Central Bank parlance for “rates are too low”… Money Supply, and credit growth is still too strong in the Eurozone. I wonder what the markets were thinking… Did they not hear Trichet say things like: “The ECB did change its communication” and “the ECB never pre-committed to moving rates every two months”? He explained the ECB’s position, and I believe the ECB has done and said everything to prepare the markets for another rate hike next month.

So… In my opinion, the dollar buying and euro selling yesterday was totally overblown.

OK… On to other things. A long time reader emailed me yesterday and sent accolades my way for my call last year that the euro would get back to 1.30 before the end of the year. Thanks! But, then he asked me for this year’s call… Hmmm… I think this is the year we see the euro possibly going to 1.40, sterling trading above 2, and 110 in the yen… But let me make something clear… These are just my thoughts. I know nothing more than anyone else! Are we clear? Please tell me… “Crystal”!

Another reader sent me a note that cracked me up! Here it is… “Chuck: If you knock the “L” out of BLS, you will get what it really is.” HAHAHAHAHAHA!

My friend the Mogambo Guru will get a big kick out that one! Of course he gets laughing really hard when the government prints CPI (inflation). What a joke CPI has become! With the amount of credit growth and money supply going on, I just can’t see how anyone can print CPI with a straight face!

WOW! How did I get to CPI when I was talking about the BLS? Stream of consciousness, that’s how! It’s OK now. I’m back!

Well… We get to see the latest retail sales data in the United States this morning. The December retail sales are expected to be strong… Albeit weaker than the previous month’s whopping 1.1% advance. Of course the report will be fueled by the Christmas shopping season… So, expect a stronger than usual retail sales report this morning, which will put more gas in the dollar’s tank to end the week.

A tourniquet was wrapped around the price of oil yesterday, and at least for one day the bleeding has stopped. I bet that gas companies will be slow to deliver price cuts in gas… But that’s their prerogative, eh? Anyway… After reaching a 19-month low, traders began to buy oil again, saying that the drop this week has been unjustified. So, the selling has been so frantic that oil got into an oversold position. I would look for at least a small rebound there.

I continue to be impressed by the fact that gold remains above $600. With oil prices so weak, and the dollar is so much stronger than it was a month ago. The longer it remains above $600 in the face of these two “anti gold rally” items, I think the $600 level will be used as a launching pad.

I’m heading to the Big Finish a little early this morning… I’ve grown tired of this stronger dollar babble… We dance now!

Currencies today: A$ .78, kiwi .6905, C$ .8525, euro 1.2910, sterling 1.95, Swiss .80, ISK 71.05, rand 7.245, krone 6.465, SEK 7.065, forint 196.25, zloty 3, koruna 21.515, yen 120.40, baht 35.90, sing 1.5425, HKD 7.7984, INR 44.56, China 7.7984, (did you notice that HKD and China are the same level? Strange….), pesos 10.9850, dollar index 85.19, Silver $12.44, and Gold… $614.10

That’s it for today… Except to wish my oldest son, Andrew, a very happy 25th birthday. 25 years ago, we were receiving a snowstorm that left nine inches of snow on the ground. Six weeks later we would receive the biggest snowstorm in my lifetime… 23 inches! Just a flash back 25 years… Bend it like Beckham is coming to the United States… David Beckham will play in the MLS next year. That ought to be interesting! Sunday night marks the beginning of the new “24” season… I’m a huge “24” fan, so this has been a long wait! Two hours on Sunday… Two hours on Monday… Good Show! Have a great Friday… And three-day weekend!

Chuck Butler, January 12, 2007

The Daily Reckoning