Back In The Saddle

Good day…Back in the saddle again… This time, I’m here until the end of July, when I head to Vancouver for the Agora Wealth Symposium… So, you’re stuck with me for a while! The Las Vegas Money Show was a real barnburner of an investment conference, I was plum beat when I returned home on Friday!

I left you Friday with the currencies selling off, and they remained in the doldrums all day… Overnight, there has been some healing, with the euro trying to inch back toward 1.28… The Japanese yen, however, has been sent to the dark side of the moon, by the Bank of Japan, who failed to satisfy the markets with a rate hike last week… Yen hasn’t been able to recover… Yet!

The sell off in currencies has been accompanied by a sell off in commodities, and a sell off in equities / stocks… Kind of strange company, with stocks and commodities and currencies all getting sold at the same time, as they normally have different pricing mechanisms and low correlation to each other, which makes them great assets to have in one’s investment portfolio! However, this time, all have been on a tear so far in 2006, and a correction was in the cards… I suspect we’ll see these three assets come to a fork in the road (and no they won’t stop to pick it up!) at some point in the near futures, and commodities and currencies will part ways with stocks.

On Friday, Canada printed their latest (March) Retail Sales report, and once again, it exceeded the expectations, as it has done for almost a year now… (Ever since my beautiful bride’s visit to Canada last July! HAHAHA!) Seriously… Canada’s March Retail Sales rose 1.5%, a very nice number, and showed strength in job creation and rising wages, which I believe will keep the Bank of Canada at the rate hike table.

The loonie has suffered lately, taking on water from both the currencies sell off and the commodities sell off… And… The thought that the Bank of Canada would slowly pull away from the rate hike table… However, this report, as I said above should keep them at the table, and provide the loonie some support.

The emerging markets are getting hit again, as the sell off in stocks has investors flocking for safety… (read bonds)… Whenever this happens the emerging markets, especially those with large Current Account Deficits, get thrown together, and sold… So… Here we go again… With the weakness in rand, pesos, krona, rupee, and others…

Royal Bank of Canada has a measuring stick for this that they call their Risk Aversion Thermometer, which measures the momentum rather than the outright level of risk aversion, has risen sharply to +6.9pt (as of May 18) from 3.7pt a week ago. That’s a huge jump, and illustrates the concern in the market place right now… It’s time to hunker down once again…

I read a story over the weekend that was talking about speculation that the rally in Gold was over… What? Look… This is how I look at Gold… Jimmy Rogers tells us in his latest book, “Hot Commodities” that going back hundreds of years, and tracking bull commodities markets, that the average length of a bull commodity market was 17-22 years… And we’ve only been in this bull commodity market for about 6-7 years! So… Unless this bull commodity market is going to be different from all the others that have taken place in history…

What’s going on now in the currencies is very strange given the fact that just 10 days ago, everyone was talking about how the focus was changing from interest rates to the financial stresses on the U.S…. Now, it’s as if all that build up in the first 15 days of May didn’t happen! Of course it did… And we all know too well, what happened… The dollar got sold like hotcakes at a state fair! The Central Bankers around the world looked in the mirror and saw their own heads spinning! This selling of the dollar had to be slowed down!

I’m reading this morning that France is beating on the ECB ministers about the strong euro… Awww, poor France, they don’t like the strong euro because it hurts their tourism, and other things… Here’s a memo to France’s Finance Minister, Breton, You can’t have your cake, and eat it too… You can’t have low interest rates, in a rising inflationary period without a strong currency to help fight inflation pressures… So… Which do you want? Interest rates that squash your economy, or a strong currency that just slows it down?

There’s no data on the docket today in the U.S. and the pickings are pretty slim this week with regards to data… Not until later in the week do we see New & Existing Home Sales, GDP, and one of my faves… Personal Income and Spending…

The liquidity will dry up later in the week, as we head to the Memorial Day weekend… The first checkpoint in the baseball season… So far, so good for my Cardinals!

Currencies today: A$ .7510, kiwi .6180, C$ .89, euro 1.2775, sterling 1.8765, Swiss .8235, ISK 71.70, rand 6.60, krone 6.11, forint 206.82, zloty 3.0975, koruna 22.17, yen 112.30, baht 38.35, sing 1.59, INR 45.55, China 8.0260, pesos 11.24, dollar index 85.01, Silver $12.24, and Gold… $645.30

That’s it for today… Good to be home this past weekend, I had a few jobs to do around the house! The Season finale of “24” is tonight… This will be the first Monday night that I’m at home in a while, so I’ll be hunkered down in my chair to watch the final two hours! Have a great Monday and week!

Chuck Butler
May 22, 2006

The Daily Reckoning