Bellwether Status

Good day…and a Happy Friday to one and all! Only two weeks until my winter vacation begins… I’m more than ready for it to begin now! Thanks to all who sent along nice notes regarding the “news at the Butler House” yesterday. Yes, I’m going to be a grandparent… Now, I really feel OLD!

Before I get to the currencies, I want to point out something BIG! Next week we close the books on the funding for the Gold and Commodity MarketSafe CD’s. You’ve still got time. In Phoenix this week, I really made people see the need to own one of these CD’s. But once again…the funding ends on these next week, and then they go away.

OK…The European Central Bank (ECB) did raise their internal rates yesterday to 3.50%, and ECB President, Trichet let loose with his usual barrage of hawkish statements. Unfortunately the markets weren’t paying attention, and the euro drifted off on the day, dragging the other currencies along. So…for one day…the dollar won the battle. However, it’s so far behind in this war, that a ton of those daily battles will need to be won to reverse this negativism in the markets for dollars right now.

My chartist friend sent me a note yesterday saying that his charts show the dollar as oversold right now, and he would look for a dollar rally going into year-end before turning around. That’s always great stuff to know…but you know me, I’m not a chartist; I’m always looking at the long-term movements, and fundamentals. And…I’ll say this again…fundamentals are what cause trends to happen, not charts. Charts only explain what happens inside the trend that was created by fundamentals. The trend doesn’t end until that fundamental reason it began is satisfied or corrected. Does anyone see a correction to the fundamental reason the dollar went into the weak dollar trend in 2002 yet? I don’t!

Today is a Jobs Jamboree Friday, and with the entire world looking on the United States for signs that the economy is slowing down, the Jobs Jamboree has reached Bellwether Status! How about that? Bellwether Status for the Jobs Jamboree. Who would of thought? Oh well, we carry on my wayward son… There’ll be peace when you are done… No wait! Better get to the Bellwether Jobs Jamboree before another song breaks out, in a cold sweat.

Here’s the skinny… The experts are forecasting job creation for November of 100K following October’s weak showing of 92K jobs created. We have seen disappointing numbers recently. Therefore, I have to believe that the November number will be disappointing too. In fact, I saw one prognostication at just 82K jobs created. Now that would turn those charts around quickly, as the dollar would be sold yet again. And obviously, if the number of jobs created is strong…the dollar will end the week stronger.

Of course I can’t talk about the Jobs Jamboree without saying that I personally don’t get into the “number of jobs created” because they don’t tell us anything about the jobs! Instead, I focus on the average hourly earnings (to see if there’s wage inflation) and the average weekly hours worked. Here’s the real “meat” of this report in my opinion. But unfortunately, the markets get all lathered up about the number of jobs created…and I follow the markets, so therefore, I talk about it…and, its Bellwether Status!

OK… Enough on the Bellwether! Back to South Pacific… Mostly because I feel warmer just talking about Australia and New Zealand! Nah… Really, I wanted to point out that the job growth in Australia continues to be strong, growing at a 2.5% pace for the year! Good Show! And how about New Zealand? Well… Yesterday I told you about how the Reserve Bank of New Zealand (RBNZ) had left rates unchanged, but the statement following was very hawkish, and that should result in more rate hikes. Well, I thought some more about this stance by the RBNZ, and here’s the skinny on my thoughts.

Domestic inflation in New Zealand is running much higher than the 2% target ceiling (closer to 4%). Just imagine if you will, how high inflation would be if the kiwi hadn’t taken off to the moon in 2002! That’s right… The strong kiwi has done its job in helping to fight inflation. But kiwi can’t go up forever! What the fight against inflation needs is a strong rate hike or two. Therefore, I’m going to go out on that limb again (and believe me, every year that limb needs to have gained girth) and call for a rate hike by the RBNZ before the end of the 1st QTR 2007. January, in my opinion, is not soon enough!

Pound sterling has suffered through a rough week, as the lofty levels of last week have been put away for now. The feeling by the markets here is that interest rates have peaked. I say… NOT SO FAST! The markets have come to this feeling several times in the past, only to have egg on their face. I think this will be another of those times. So… If the markets want to bring the price down to allow purchases at cheaper levels so be it!

Next week the “new and improved Chinese boondoggle” takes place. This time, U.S. Treasury Sec. Paulson, has recruited a brother in arms (Big Ben Bernanke) to accompany him. I find this all very amusing. Nothing but a big boondoggle! Shoot Rudy, maybe next time Paulson can bring his neighbors too, and they can have a big sleepover in Beijing! Just what the heck is Bernanke going to add to the negotiations to get China to relax their currency policy? Will he give them printing press instructions? Or how about helicopter lessons?

These two knuckleheads will go to China… Chinese officials will smile at them, and tell them they will reform their currency policy… and send the dynamic duo home. And somewhere over the North Pole, these two knuckleheads will do a, “I could have had a V-8,” slapping themselves on the foreheads and saying, “We forgot to ask them a time frame for their currency reforms.” And the wheels on the bus go ’round and ’round.

The Song Remains The Same for China and the United States. The sooner U.S. lawmakers, and officials “get it”, the better. Besides… The more they bang on China to get their currency stronger versus the dollar, the more they tell the markets that they want a weaker dollar!

Gold and silver have given back some ground that they had gained last week as we’ve gone along this week. It is simply tied to the fact that the euro stopped rallying versus the dollar. Dollar weakness will help to drive the precious metals higher. So, if I’m correct in my thoughts that the dollar will continue to weaken in 2007, then these levels for gold and silver seem like Blue Light Specials! Of course, I could be wrong. In fact, let me say this… I don’t know any more about this than anyone else. This is strictly my opinion based on fundamentals.

Currencies today: A$ .7825, kiwi .6886, C$ .8695, euro 1.3280, sterling 1.9590, Swiss .8350, ISK 69, rand 7.0850, krone 6.12, SEK 6.8220, forint 193.20, zloty 2.8870, koruna 21.06, yen 115.50, baht 35.55, sing 1.5420, HKD 7.7720, INR 44.73, China 7.8245, pesos 10.88, dollar index 82.88, Silver $13.85, and Gold… $631.15

That’s it for today… 26 years ago, we received the news that John Lennon had been shot dead… Hard to believe that much time has passed by. While I was away, it was announced that my beloved Missouri Tigers will play in the Sun Bowl this year… YAHOO! Maybe one of these days they will be in one of those Big Time BCS Bowl Games. Tonight is the EverBank St. Louis party. It’s a shame that not everyone attends. This will be the first Latte’ Friday with my Latte’ buddy, Michelle in a month of Sundays, so I’ve got that going for me! Have a great Friday and week!

Chuck Butler
December 8, 2006

The Daily Reckoning