Big Al Is Upset!

Good day… And a Terrific Tuesday to you! Well… As a Missouri Tiger fan, it pains me to say congratulations to the Kansas basketball team on their National Championship. I didn’t see the game, as it came on too late for your Pfennig writer to enjoy. I see that it went into overtime, so it must have been a great game! I held Memphis… Oh well.

The currencies were boring yesterday, with little movement at all. I was swamped though… Normal Monday trading, an interview with Smart Money, and further discussions with the NY Times… But, if you were at home keeping score, you probably found that counting flowers on the wall, and playing solitude with a deck of 51 were probably more exciting than watching the currencies.

And… That’s fine with me! We had just gotten too crazy with those records falling like the rain that kept coming down on us here in St. Louis. Overnight, though… We’ve seen the euro (EUR) gain about a half-cent as the dollar’s mini-rally continues to fade in the rear-view mirror.

As I mentioned last week, the markets are all about the thought that the Fed has taken “risk” out of the equation with their bailout of Bear Stearns. I still believe that taking that path is going to get someone hurt… But for now, the euphoria in stocks has the risk takers going into these murky waters feet first, which means… Carry trades live again… And that also means that the high yielders have gotten a reprieve.

Iceland (ISK) and South Africa (ZAR) have really seen a dead-cat bounce (no animals were hurt!), and the crisis for Iceland has been pushed to the back of the room. Hmmmm… Does this mean these two are ready for a full circle rebound? I don’t know… I’ll check my crystal ball… But I don’t have a crystal ball! But… I do have an opinion on this (you knew I would!) and of course to make the legal beagles happy, my opinion could be wrong!

Anyway… I don’t think this is a new life for Iceland or South Africa. You can cover up those awful looking warts, but sooner or later they will be exposed… So… As I’ve said before… As your Iceland CD’s come due, you should call the desk at 1-800-926-4922 and speak to someone about alternatives to Iceland. Let me also remind you that breaking CD’s is a no-no… It’s costly.

OK… The other high yielders that have a “life” other than high yield, Aussie (AUD) and kiwi (NZD), have also seen their fortunes turn with “risk” being put back onto the table.

And… Pound sterling (GBP) is not faring too well this morning. After reaching the “2” level again last week, sterling has steadily fallen. Remember what I always say about a star burning brightest right before it burns out.

U.K. house prices fell more than expected, and the markets woke up to the fact I told you about yesterday. The Bank of England (BOE) will most likely cut rates this week… And with the data continuing to print weak… We could see back-to-back rate cuts from the BOE. That won’t help sterling any… Short term anyway.

I have two BIG things to talk about now… 1. Big Al Greenspan… 2. Pooled precious metals accounts.

First, Big Al Greenspan… You won’t believe this, or maybe you will, but nevertheless, Big Al Greenspan wants to “set the record straight”. This I’ve got to see, I said to myself… So… Here are some snippets… This man is 82… Why should this matter to him now? Anyway, here’s Big Al…

“I do take it seriously if my peers think I have misstated the facts,” he says. “But where’s the evidence? Too many people make accusations by assertion. I think it’s improper.

“I am reasonably certain that I am right here,” Mr. Greenspan says. If proved wrong, he says, “I will change. I do not have a vested interest in holding wrong ideas.”

Hmmm… I find it interesting that Big Al is getting testy about all the fingers being pointed at him for this mess. I believe I may have been one of the first to point a finger at him when the housing bubble was getting bigger and bigger, and no one would admit we had a bubble.

But just for the record… Here’s the blame I believe he should bear… First, I believe the Fed was too lax during the stock market bubble. Raising Fed requirements on margin, in my opinion would have gone a long way toward slowing that bubble, and maybe preventing trillions of dollars in losses.

Second, I believe he fueled the housing bubble and then all the awful stuff that happened as a result of the housing bubble, by cutting rates too low back in 2001 and then keeping them too low for too long (through 2003).

OK… I could spend a month of Sundays talking about Big Al and his faux pas after faux pas… But I won’t. Instead, I’m going to talk about our pooled precious metals accounts.

This is important, so please take the time to read this carefully.

There has been a lot of stuff said on the internet lately about “pooled” precious metals accounts and that the holders of the accounts don’t have the precious metals to back their holdings. This has caused quite a stir in the marketplace. We’ve had many a customer call and question us… We’ve even had some clients pull their accounts.

So… Here’s my take on all this…

First of all the person that started this rumor doesn’t have his facts in order.

At EverBank, we hold our “pooled” accounts at the Perth Mint in Australia. I reviewed the legal stuff and here’s what I found… The Perth Mint runs by a strict set of guidelines and policies: they do NOT sell metals short. They do NOT use derivatives. They do NOT lend clients’ metals to other entities that may have short positions.

For every ounce of metal they sell to clients, they MUST purchase a corresponding ounce in the marketplace.

Hope that helps everyone understand the “pooled” accounts better…

So… Today, we’ll see the color of the latest Fed meeting (FOMC) minutes… And pending home sales. It will be interesting to see if the Fed gives a “true” recognition of inflation pressures, or if they will give it the old college try of “we see growth and inflation risks to be balanced”.

Pending Home Sales are expected to fall 1%, continuing the downtrend in place since 2005.

The price of oil hit $109 this morning… So much for all those that were calling for a falling price of oil a month ago! Inflation is all around us, but yet… Our central bank does nothing… Absolutely nothing, say it again!

Currencies today 4/8/08: A$ .9270, kiwi .7945, C$ .9880, euro 1.5750, sterling 1.9680, Swiss .9895, ISK 72.75, rand 5.0650, SEK 5.9525, forint 161.45, zloty 2.20, koruna 15.90, yen 102.20, baht 31.70, sing 1.38, HKD 7.79, INR 40, China 7, pesos 10.55, BRL 1.7025, dollar index 72.04, Oil $109, Silver $17.98, and Gold… $919.93

That’s it for today… I’m seeing some euro selling as I get ready to hit the send button… Probably the sterling weakness pulling the euro down right now. Chris Gaffney, Mr. Marathon, will have the conn on the Pfennig the remainder of the week, as I head to St. Pete tomorrow. I’ll be back on Monday. I speak twice on in St. Pete, and I haven’t even begun to work on my second presentation. UGH! Hey! I’ve still got today, right? HA! Oh well… Gotta get this train out of the station! I hope you have a Terrific Tuesday!

Chuck Butler
April 8, 2008

The Daily Reckoning