All Shook Up!

Good day… And a Happy Friday to one and all! An All Shook Up Friday for us here in the St. Louis region, as we experienced an earthquake this morning registering 5.4 on the Richter Scale. My house started shaking, and kept shaking, which led me to believe it was more than wind. The house was shaking so bad, it woke up my beautiful bride… Which isn’t something that’s easily done! Especially at 4:30 AM!

But, it looks as though all is right on the night, the earthquake was centered 127 miles east of St. Louis. As you all probably know, here in St. Louis, we keep the New Madrid Fault in the backs of our minds, and drag it out whenever we feel the earth move under our feet.

Well… European Central Banker, Juncker tried to “shake” up the currency markets yesterday with some comments about G-7. As I’ve said two times this week, I was afraid the markets didn’t understand the G-7’s comments about the currencies, and that thought was repeated by Juncker yesterday, as he said, “the markets did not correctly understand the G-7 message on FX”.

So, that was what put a bug in the bonnet of the euro (EUR) yesterday morning as I was signing off. And that carried through to the Asian markets last night… But, we’ve seen this before, right? Just a few weeks ago, we experienced euro weakness, but that bad “air” soon dissipated… And I would think this would too.

It all depends on the market participants and their will to push the envelope with G-7. If it were me… I would push the envelope and call their bluff. I truly do not believe a coordinated intervention will take place, for to do so, would require the United States to join in… And here’s where the oil in this machine gets all sticky. How can the United States intervene and buy dollars, when they keep harping that the Chinese renminbi (CNY) needs to get stronger versus the dollar? They can’t… If they did, the markets would take them to the woodshed… And the U.S. officials know that.

We had Fed Head Fisher out on the speaking circuit yesterday, and his comments also helped the dollar rebound. Fisher was talking “some sense” (believe or not!) on the subject of “attempting to inflate away the Financial System’s woes”, saying, “there’s danger of a wing-and-prayer promise to rein in inflation later” and then the fateful, “I maintain a strong reluctance to further interest rate cuts”.

Well… The problem here is that Fed Head Fisher is a Lone Ranger. Big Ben doesn’t share his thoughts, and when the Fed meets later this month and cuts rates, Fisher will probably be the lone wolf on dissenting.

So… After all this, the euro still has the dollar by the tail, as it maintains a strong base above 1.58… Of course, now that I’ve said that, we’ll probably see it fall further! UGH! The Chuck Kiss of Death or as in honor of my friend the Mogambo (TCKOD).

Well… The U.S. data yesterday showed more signs of recession, with the Weekly Jobless Claims jumping up to 372K from 355K the previous week. But the piece of data that really barked like a recession was the Philly Fed Index (manufacturing), which collapsed this month and fell from -17.4 to -24.9. This is the lowest level since January and February 2001, as we entered the last recession. Data back to 1968 shows that declines in the index below current levels has been consistent with recessions.

Of course you, a Pfennig reader, knew we were in a recession months ago, because I told you so! I bet you used that information as “cocktail trivia” to sound smart! Good for you! That’s they way more people see the “light”.

Alright, I went off on a tangent there… I’m just kidding you know… It’s just my nature to have fun!

So… The fundamentals haven’t changed. The U.S. deficit is soaring higher and higher, requiring us to attract more and more foreign investment… The economy is in a recession… Jobs are hard to find… House prices are falling… And we’re still fighting a war! Does this sound like the stuff that a stronger currency is made of? I don’t think so! So… If this isn’t a trend reversal, what is it? Ahhh grasshopper, it’s simply profit taking and the scared Nervous Nellies who are selling. It sure does give us some cheaper levels to buy euros, eh?

Not just euros… The whole cellblock is dancing to this jailhouse rock… So, if you can’t find a partner to dance with, grab a wooden chair! In other words… Find your fave currency and most likely it has been dancing to the jailhouse rock, and is now at cheaper levels than even earlier this week!

One currency that sat out the dance overnight was pound sterling (GBP). In fact, pound sterling has rallied on comments from the Bank of England (BOE). BOE member, Bean, tried to calm the fears of a huge sell off of pound sterling. Bean commented that the stimulus from GBP’s fall from the peak is roughly equivalent to a rate cut of 3% points and that GBP’s fall since August was “of the same order” as the fall after the ERM crisis in 1992.

All a bunch of rubbish to me… But it calmed the fears for a day at least!

Man… Did you see the awful earnings report by the brokerage that owns a Bull? In case you missed it… $1.96 billion net loss, with $9 billion more of mortgage-related write downs. I’m not picking on Merrill here, just posting what I believe will be more damage to the economy… This morning, Citigroup, posted an even bigger loss. Citigroup Inc. reported a net loss of $5.1 billion, and more than $10 billion in write-downs.

And… These reports lead one to believe they should buy dollars? Hmmm… If so, I’ve got some land.

Stocks were no great shakes yesterday, but at least they didn’t sell-off. So, that means the carry trade remains in place, and the weakness of Japanese yen (JPY) and Swiss francs (CHF) remain in place, while Aussie (AUD) and kiwi (NZD) are looking good! And always I tell you that it is better to look good than it is to feel good my friend!

There’s no data today in the United States so… It would appear that the dollar will end the week on an upbeat note. That’s OK… Even a blind squirrel can find an acorn!

Currencies today 4/18/08: A$ .9375, kiwi .7905, C$ .9925, euro 1.5845, sterling 1.9975, Swiss .9835, ISK 75.65, rand 7.76, krone 5.01, SEK 5.9285, forint 159.75, zloty 2.1560, koruna 15.81, yen 103.25, baht 31.44, sing 1.3530, HKD 7.7925, INR 39.93, China 6.9935, pesos 10.46, BRL 1.6540, dollar index 71.80, Oil $114.15, Silver $18.05, and Gold… $934.50

That’s it for today… So… Shake me, wake me, when it’s over… I thought of that great old Four Tops song, on my way to work this morning. Geez Louise, my poor face got fried yesterday at the ballgame… Good thing I had a ball cap on to protect my bald head! I was hoping last night that the red on my face would fade… But as I looked in the mirror this morning, my face is even redder! OUCH!

HEY! Sunday is the Big Boss, Frank Trotter’s birthday! Frank and I have worked together so long, that he was a young man when we started! In fact… The Dead Sea wasn’t even sick yet! That’s how long we’ve worked together! His beautiful daughters are all grown up now, I held them as babies! So… Happy Birthday, you youngster! (Frank’s 1 year older than me, so as long as I keep calling him young, I’m younger!) I hope you have a Fantastico Friday!

Chuck Butler
April 18, 2008