Bad Data Begins To Mount...

Good day… And a Happy Friday to one and all! 9 degrees on my car’s thermostat this morning… You would think that with it being that cold it would have helped to wake me up when I stepped outside this morning… But, no… My motor just won’t get started this morning…

But, it’s Friday, and a 3-day weekend for yours truly, so maybe I can muster up enough energy to get through the day on that thought! There was some very important data that printed yesterday in the U.S. and the outcome wasn’t dollar friendly… But for the most part, we saw the currencies go right back to a tight trading range, with the euro on terra firma above 1.31.

Front and Center on the data yesterday was the awful showing of the TIC Data… Recall, I’ve talked about how this data, which measures the ability of the U.S. to attract investment to finance the Current Account Deficit, had been trending down for the past year. Well… While I’m skeptical of this printing of the TIC Data, it does show that the investment flow went NEGATIVE in December… That’s right! NEGATIVE! Obviously, there could have been some year-end “Window Dressing” by money managers… But still, NEGATIVE? That’s pretty ugly stuff for the U.S.’s ability to attract financing…

Not only did the buying stop by foreigners in December, but the outflows were huge! Domestic investors increased their buying of long-term overseas securities from $37 Billion to a record $46 Billion. This is a classic illustration of a “lack of funding”… So, the question I asked the desk was… “Why isn’t the euro skyrocketing to 1.35?”

Well… The severity of the drop was such that it had to leave a lot of traders scratching their heads and wondering if this is just a rogue printing of this data, or what? Obviously, traders are taking the approach that this is will be reversed next month… I’m not so certain of that though… Look at the previous month revision… Overall flows showed that the prior month was revised lower from $74.9 Billion to $70.5 Billion. Uh-Oh…

Capacity Utilization didn’t lend a hand to the dollar either, falling to the lowest level since last February… And Industrial Production? Don’t look for any help here either! Industrial Production fell .5%, and marks the 4th monthly decline in the last 5 months… The Philly Fed Index, collapsed… And then… The trap door sprung on the Weekly Initial Jobless Claims as they rose to 357K last week… Poor weather was blamed for this rise… But I’m not buying it… Look around at the data this week… Poor this, bad that… It’s beginning to look a lot like Christmas… Really… Recall December? The data began to look bad, and the negative Nellies all came out of the woodwork, calling for a rate cut from the Fed, and the dollar suffered.

We end the week today with PPI, Housing Starts, and the U. of Michigan Consumer Confidence… Should be more dollar negative stuff…

OK… Enough on that bad data in the U.S.! That stuff can get quite boring, don’t you agree? Anyway… After seeing the mistake the Riksbank (Sweden’s Central Bank) made yesterday talking about an end to rate hikes… The Norges Bank (Norway) Gov. decided he would show the Riksbank how it’s supposed to be done! Norway’s Central Bank Gov. Svein Gjedrem said on Thursday he envisaged raising interest rates gradually to more than 5 percent from 3.75 percent now to calm a booming economy and curb a pick-up in inflation.

That comment put some major wind in the Krone’s sails, and it set sail to a very nice performance VS the dollar on the day. That’s the way I like it… Money for nothing and the… No wait… I love it when a plan comes together! This is what I’ve been telling people about Norway for over a year now…

That strong Japanese GDP that posted on Wednesday helped the yen to a strong performance VS the dollar yesterday… And believe or not, there wasn’t any profit taking overnight! WOW! Of course the recent trend with yen, is that it strengthens and then gives it back… So, today’s performance should give us some indication on whether this rally is going to continue of fizzle out.

Well… Big Ben Bernanke was back on the docket for the “boys” on the “hill” yesterday… Recall, the day before he said that “inflation risks diminish”… Well, I guess he got a memo, after the markets took the dollar to the woodshed because of that statement… Because yesterday he reminded the “boys” that inflation rises, the Fed is prepared to raise rates… Just a little band-aid eh, Big Ben?

Big Ben also gave the Democrat controlled “hill” a little fuel for their fire when he said that the Chinese renminbi remains undervalued… No Duh! Now, there’s a bon-a-fide genius! OK… I better back off, I don’t want to hear from June that I was a little hard on the Beaver! Anyway… The renminbi did gain on those words, so it wasn’t wasted away again in Margaritaville!

The renminbi now trades at the highest level since breaking the peg in July of 2005… I said last year that I believed that we would see 7.50 from the renminbi before this year ended… It now sits at 7.7445…

Currencies today: A$ .7850, kiwi .6955, C$ .86, euro 1.3130, sterling 1.95, Swiss .81, ISK 67.15, rand 7.18, krone 6.1275, SEK 7.0650, forint 192.44, zloty 2.98, koruna 21.54, yen 119.20, baht 33.05, sing 1.5320, HKD 7.8130, INR 44.04, China 7.7445, pesos 10.9660, dollar index 84.21, Silver $13.93, and Gold… $666.20

That’s it for today… Mardi Gras in St. Louis tomorrow… It’s going to be a cold one! Monday is a national holiday called Presidents Day… Isn’t it a shame that we don’t celebrate the great Presidents with individual holidays? They are all just lumped together in one day that has come down to a 3-day weekend that is known for great mattress sales… UGH! Just two weeks before I head to Jupiter Florida for my first trip there of the spring! YAHOO! Have a great Friday, and 3-day weekend!

Chuck Bulter — February 16, 2007

The Daily Reckoning