Another Dollar Rout

Good day… And a Happy Friday to one and all! A Freaky Friday, as it’s a leap year Friday the 29th! WOW! What do you plan to do with your extra day this year? Well… I get to work, like most people… But I get to work doing what I love to do, and with a great group of people to boot!

The cards and letters keep coming with all kinds of good thoughts and prayers for me during my battle with cancer. I can’t thank everyone that sent an email, so please accept my thank you for being so caring. Chris Gaffney kept a log and made a book of the notes that everyone sent last summer when you all heard for the first time what I was facing. These latest notes will be added to that book, and whenever I feel down or like giving up, I’ll pick up that book and read those notes, and soon, I’ll be good as gold!

Yesterday morning when I left you, I had reason to believe the markets would take a breather with their rout on the dollar, as the euro (EUR) had backed off about 1/2-cent overnight… But, that was before YOUR central banker, Big Ben Bernanke, basically told the markets that a weak dollar was fine with him! What? Did he really say that? Ahhh grasshopper… He did. He actually ENDORSED the weaker dollar!

So… What’s a trader or currency investor to do? If a country’s central banker is endorsing a weaker currency, the markets should feel no other obligation but to grant him his wish! And the dollar rout was back on! And just like the day before when the euro spent less time in the 1.50 handle than it takes to say recession, the euro Skipped to My Lou through the 1.51 handle just as quickly! WOW! Can you believe the move in the euro this week? On Monday morning the euro was 1.4820… Yesterday, we hit 1.52 and change!

Once again, as I checked the screens before I hit the pillow last night, the euro had given back a bit and was trading 1.5175… But still! That’s an incredible move in four days!

Oh… And Big Ben also told us that he doesn’t see the United States entering a recession. Oh, and we’re supposed to believe the man that told us last July that the subprime meltdown wouldn’t filter out into the rest of the economy? Or, how about when he and Treasury Secretary Paulson said that the housing meltdown had bottomed last August? Ooooohhhhh, they were bang on with those observations, eh? NOT! And he’s so wrong here with this recession call, that he’s almost right!

The next Fed rate cut in March is looking more like it could be even more than 50 BPS! These guys at the Fed have their minds set on inflating the economy! The new and improved “pro-growth” Fed, bringing inflation to your door!

And the currencies aren’t the only things taking liberties with the dollar… Oil hit $103 yesterday, and gold was up another $14 and hit $973 yesterday! While I’m on commodities, let me tell you about two stories my long time friend and colleague, Ed Bonawitz sent me yesterday…

First… Commodity guru, Jim Rogers, was speaking to 750 global fund managers in Tokyo yesterday and had this to say… “America is ‘completely out of control'”. He said that there will be a 20-year bull market in commodities and that prices will be in turmoil. He also warned that it “‘made sense’ if global competition for resources ended in armed conflict.”

Mr. Rogers went on to tell the delegates to the CLSA investment forum that, “the prices of all agricultural products would ‘explode’ in coming years and that the price of gold, which hit an all-time high of $964 an ounce yesterday, will continue its surge to as much as $3,500 an ounce.”

Then… According to spokesman, Clark McKinley, The California Public Employees’ Retirement System, (CALPERS) the largest U.S. pension fund, may increase its commodities investments 16-fold to $7.2 billion through 2010 as raw materials prices surge to records.

CALPERS, which has about $240 billion in assets, agreed at a February 19 board meeting to hold between 0.5% and 3% of its assets in commodities.

I then showed Ed a price graph of the CRB index (commodities)… And he about had a heart attack! This is a moon shot now… Just wait till the CALPERS investments get rolling!

The other day when I was giving an interview to the Wall Street Journal Online, I mentioned that with the rate cuts already on the books and more on the way here in the United States that it wasn’t out of the realm of possibility to see the dollar replace, say Swiss francs (CHF) as one of the funding currencies for the carry trade.

Hmmm… The more I think about that, the more it makes sense! I mean, have you seen the movement in Swiss francs this week? Another moon shot! Swiss francs are now trading above 95-cents! It’s obvious to me that the franc is no longer getting sold short!

And look at the Japanese yen (JPY)! Trading below 105! I know, I know, we’ve seen these strong moves in yen before, only to see them turn out to be false dawns… But you have to admit, yen looks pretty sexy with a 104 handle! The really sexy thing about yen in the 104 handle is that at 104.15, which is where it is trading right now, it is at its best level versus the dollar in three years!

My chartist friend sent me a note yesterday and said the dollar rout was for real, because there were no longer any short-term support levels to keep it in place. Uh-Oh! The perfect storm for the dollar is taking place… The fundamentals are in line with the technicals… Somebody throw the dollar a flotation device!

The latest revision to fourth quarter GDP didn’t do the dollar (or those claiming that we’re not in a recession) any favors yesterday, as it held steady at 0.6%, instead of bumping up to 0.8% as forecast. All the pieces of this report showed little growth, if not an all out reduction… And… Just when you thought is was safe to get back into the labor waters…. The weekly jobless claims jumped to 373,000 last week from 354,000 the previous week.

Did you see the size of the loss at AIG? OUCH! Now that’s going to leave a mark! In case you missed it… AIG posted a fourth quarter loss of $5.29 billion! You see… It seems the bean counters found “material weakness” in AIG’s accounting systems, and were forced to boost their write-downs. The $5.29 billion loss was the net after taking an $11.12 billion pre-tax write-down on the value of insurance contracts tied to mortgages. The tote board just keeps adding up the mortgage related losses folks. Remember last November I told you that when the dust settled on this mortgage/subprime/CDO meltdown the total losses would be greater than $400 billion. We’re about halfway there right now.

Attention K-Mart shoppers! There’s a Blue Light Special going on in the dollar value aisle. If you go there now, you can meet in person, U.S. Treasury Secretary Henry Paulson, who will tell anyone that’s listening that he believes in a strong dollar! Of course, after that appearance he’ll be signing autographs and 5×7 glossy pictures over in the China aisle. Here, he’ll tell you that he wants the Chinese renminbi (CNY) to gain versus the dollar. Confused? As a famous pitchman here in St. Louis used to say… “Don’t be confused!”

This has been going on for as long as Paulson has been U.S. Treasury Secretary. All I can say is… Don’t believe this man when it comes to his “strong dollar claim”. In fact, I think that the lyrics from Charlie Daniels’ song Uneasy Rider are very appropriate here.

You may not know it but this man is a spy.

He’s a undercover agent for the FBI

He’s a snake in the grass, I tell ya guys.

He may look dumb but that’s just a disguise,

He’s a mastermind in the ways of espionage

OK… It’s a Friday! I’m just having a little fun there! Hope no one gets too much in a bind over that!

Well… U.S. stocks took a blow to the mid-section yesterday… And whenever that happens, the high yielders get treated like redheaded stepchildren! (OK, that’s just an old country saying, I love red heads!) So… That means kiwi’s (NZD) 22-year high has slipped away for now… Aussie (AUD), which was trading near 95-cents yesterday has backed off, and so on and so on…

And on that note… I think I’ll “leap” to the Big Finish!

Currencies today: A$ .9380, kiwi .8067, C$ 1.02, euro 1.5195, sterling 1.9850, Swiss .9585, ISK 65.70, rand 7.7280, krone 5.1910, SEK 6.17, forint 173.50, zloty 2.3245, koruna 16.65, yen 104.10, baht 30.65, sing 1.3940, HKD 7.7810, INR 39.95, China 7.1110, pesos 10.70, BRL 1.6710, dollar index 73.72, Oil $101.63, Silver $19.72, and Gold… $969.42

That’s it for today… Looks like the bitter cold weather and snow might break here this weekend. Now that could have happened two months ago in my opinion! Basketball is over for my little buddy, Alex, and it’s too cold to begin baseball. What ever are we going to do this weekend? HA! RELAX! Because I’m beat! Or “spent” as Austin Powers would say! Tomorrow is March first! YAHOO! If it’s March, that means the trips to Jupiter to see my beloved Cardinals can’t be far off. I’m such a baseball geek… I admit it! I played the game so much as a kid, and listened to the games with my dad on the front porch of our house, that it became engrained in me. So… Let’s Play Ball! Or as Ernie Banks would say… “Let’s Play Two”! I hope you have a Fantastico Friday, and a Wonderful weekend!

Chuck Butler
February 29, 2008