Big News From India!

Good day. Well, here I am in Delray Beach, Florida, writing to you from my hotel room. The trash trucks were making a ruckus outside, but at this point, it’s very quiet out on the streets. Very contrary to the daily activities around here!

Chris sure did a nice job of telling you about his Irish heritage on Friday, eh? I’ll have more on St. Patty’s day later.

The currencies finished up a nice performance last week with another rally, albeit small – but a rally nonetheless. Overnight in Asia and Europe, not much activity has taken place. I think the traders in those countries want to see what the United States does when they show up in a few hours. There’s some talk going around that with three different Fed Heads, including Big Ben talking today, that they will use those opportunities to talk about rates, which would get that stupid interest rate talk going again. In turn, this would help the dollar regain some shine.

Personally, I would prefer if the Fed Heads talked more about things like how many bankruptcies are beginning to show up in the housing sector, and how we continue to talk about the U.S. dependence on foreign oil, but not our dependence on foreign capital! Unfortunately, I doubt that is not going to happen, so I can put that wishing hat away for now!

There was big news, overnight, about India’s currency, the rupee. Now, a lot of you know that we’ve shied away from the rupee because of its “non-deliverable” status. Well, that could all change in the future, if the stories this morning are bang on. Here’s the skinny from India:

“NEW DELHI – India will soon announce how it plans to make its currency fully convertible, the finance minister said Monday, a decade after such plans were shelved following the Asian economic crisis nearly a decade ago. Finance Minister P. Chidambaram told a business conference that he has already held discussions with the reserve bank on this subject and that the Prime Minister will probably make a statement regarding this in a few days.”

Wow! This would be huge! So, stayed tuned – same bat time, same bat channel – for more information on this potentially good move!

The dollar, which had seen the hammer taken from its grip last week, is being talked about this morning as having fallen too far, too fast. I don’t see it that way, but I understand. I see it has “caught up” for all the time it was swinging the hammer and had no fundamental reason to do so! The government told us last week that we don’t have to worry about inflation! The CPI report was a non-event! So, if higher inflation was fueling the rate-hike talk, which fueled the dollar’s hammer swinging, then there’s nothing for it now. Nothing, absolutely nothing! Say it again!

Gaining lost ground, the Belle of the Ball, the Canadian dollar/loonie, ran strong last week. But, it stumbled once it got above 86 cents. In Canada, they printed a report on Friday that showed weaker wholesale inflation. So, the immediate knee-jerk reaction was to assume the Bank of Canada would halt interest rate hikes and thus, end the rate hike cycle. I say, “Hogwash!”

On Saturday, I was talking to a good customer/friend that is in the oil business. He agreed with me that oil is not going down to the previous levels seen a couple of years ago – and neither is natural gas! So, those two things should be enough to keep the Bank of Canada’s hand on the rate-hike trigger!

The precious metals of gold and silver continue to chug along. Silver is leading the charge right now after achieving a 22-year high last Wednesday of $10.40. It has held near that level since reaching it, which is a very good sign, too! We’re still waiting for news on the Silver ETF, which is really giving silver support right now. I continue to believe that with all the unstable situations in the world right now and inflation going higher (I don’t care what the government tells me, I know inflation is higher!), the precious metals, especially gold, will continue to rally.

As I talked to guys that have far more gray matter than I, here in Delray Beach, I came away with the thought that Iceland is really getting a raw deal by the markets right now. I read a piece this morning about how Halldor J. Kristjansson, the chief executive of Iceland’s second largest bank, is perplexed. “I feel that there has been some misunderstanding and misinterpretation of some of the facts in Iceland, ” he said – and I agree!

We’re getting ready to put our April edition of the Review & Focus to bed, which is only available to customers of EverBank World Markets. In it, we go over this thought of “misunderstanding and misinterpretation” on Iceland.

The Chinese are expecting two visitors from the West: Lawmakers, Schumer and Graham. You know, the two that want to pass legislature placing tariffs on Chinese exports to the United States, because they feel that China has an unfair currency advantage (Of course, they could stay at home, and take a step toward keeping government spending down! Ha!). So, guess what the Chinese renminbi did last night ahead of the their arrival? It traded to a post drop of the peg high versus the dollar! I find this to be absolutely hilarious! The same thing happened a month ago when a U.S. Treasury official visited.

Anyway, the renminbi is down to 8.0240 versus the dollar. It is still moving in the right direction, just slow as molasses!

Currencies today: A$ .7210, kiwi .6250, C$ .8595, euro 1.2190, sterling 1.7575, Swiss .7750, ISK 69.50, rand 6.2750, krone 6.5270, forint 215, zloty 3.19, koruna 24.47, yen 116.10, baht 38.65, sing 1.6143, China 8.0240, pesos 10.70, silver $10.39, and gold… $555.30

That’s it for today. So, I hope you had a great and safe St. Patrick’s Day! I celebrated by watching my beloved Cardinals beat the Yankees. Then, I spent the evening listening to a great local band called the “Courtneys.” If you’re ever in town, try to check them out! I also got a chance to sit by my favorite Cardinal of all time on Saturday. He’s a man that should be in the Hall of Fame: Ted Simmons! I must say that the trip was great for me! Have a great Monday and rest of the week. I’ll be back in the saddle tomorrow!

Chuck Butler
March 20, 2006

The Daily Reckoning