BIS Disses the Dollar!

Good day… And a Marvelous Monday to you! June the 30th… I had a fabulous weekend, with a Cardinals’ win Saturday night to top it off! I’m waiting for news from the blood doctor on my latest ultra sound on my leg. And my goofy car is acting up again! UGH! But… Not even that kind of stuff could ruin my weekend!

OK… Front and center this morning, we have the euro (EUR) climbing above 1.58, and the Aussie dollar (AUD) hitting a 25-year high! The dollar is getting sold again, as the negativity towards it grows strong. We also have The Bank for International Settlement (BIS) talking about how a disorderly decline in the dollar can’t be ruled out completely, while U.S. Treasury Secretary Paulson is talking about how a strong dollar is a good thing for the United States.

We also have conflicting stories on commodities, as some are saying the commodities bubble is bursting, and our old friend, and investment guru, Jim Rogers, says to “avoid U.S. dollars at all costs, buy commodities instead.” I’ll pin my colors to Jim Rogers’s mast for sure on that one!

Oh… And the Black Gold, Texas T, Commodity of Oil… Has reached $143 overnight. UGH!

You should have seen the currency screens light up on Friday when: 1. The U. of Michigan Consumer Confidence report printed… We had already seen U.S. income soar, on the tax checks that will be taxed next year (but don’t let that get in the way of a feel good story!), and the markets were feeling pretty cocky… But then the U. of Michigan report printed and the dollar bulls quickly cowered back into their corner. The report dropped to a new low since beginning to report in 1980. An analyst that reviews this report said, “It looks as though the U.S. Consumer is about as depressed as they could possibly be”. But I’ve got news for him… This is going to get even uglier.

And 2. The Weekly Jobless Claims rose to 380K. This report keeps inching toward that 400K per week job loss that we saw during the last recession.

With Friday being a holiday here in the U.S. (4th of July), the Jobs Jamboree will move to Thursday. The report in recent times has been quite depressing, with negative job creation the past three months. I fully expect job losses to print around 100K in June, marking the fourth consecutive month of job losses. I would also look for the unemployment rate to rise to 5.6% (from 5.5%), which would be a high in a month of Sundays. The Bureau of Labor Statistics (BLS), which as you know, I don’t hold in high regard, will have the final say on the number that the media picks up… I still say -100K.

Ty sent me a note on Friday afternoon of a story that appeared in the Telegraph (U.K.)… And instead of explaining the story, I’ll just let it speak for itself! “Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall ‘below zero’.

“‘We’re in a nasty environment,’ said Tim Bond, the bank’s chief equity strategist. ‘There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth.'”

Last week I told you about a similar warning from the Royal Bank of Scotland… Maybe these guys are all Pfennig readers? HA!

OK… Enough depressing stuff! Let’s talk about the Aussie dollar, which as I said above just hit a 25-year high. The recent rebound and rise in commodity prices has really put some wind in the Aussie dollar’s sails. The last time the Aussie dollar was 0.9667, was 1983… YIKES! My little Dawnie was only 4, and oldest son Andrew was 1! As I said above, Jim Rogers is still a huge commodity bull, and as long as the bull run in commodities continues it could underpin the Aussie dollar all the way to parity to the green/peachback!

The U.S. stock market sold off Big Time again on Friday, following Thursday’s meltdown of -380 points with another 106.91 points on Friday. A lady (one of the mothers at my buddy Alex’s baseball game) asked me yesterday if she should sell her stocks in her 401K. I said, “yikes” I’m not a stock jockey! But… I did sell every stock I owned, save one, back at the beginning of November, if that tells you anything… She said, “What do you do then? I thought you were a financial guy?” Ahhh grasshopper… Let me tell you about currency investing…

Anyway, with the stock market in a tailspin, the Japanese yen (JPY) is back in the atmosphere. It now trades with a 105 handle… And Swiss francs (CHF) have a hop in their step this morning too! And remember last week, when I said in the Pfennig, “Gold, which sold off big time earlier this week, is still below $900… Wink, wink…?” Well… Ever since that morning, gold has taken off! And is now trading at $934! It has not looked back at the sub $900 number since I gave you the “Wink… Wink”.

I’m seeing some light selling of the currencies, as I get ready to head to the Big Finish, I suspect the NY boys are arriving at their desks, (Hey! Nice of you to come in to work!) and saw that 1.5810 in euros and decided to book some profits. That’s OK… You know me. I love profits! So take ’em if you’ve got ’em!

The European Central Bank (ECB) meets this week (Thursday), and they just received some very bad news for anyone thinking the ECB might delay a rate hike this week. Eurozone CPI (inflation) printed this morning at double the ECB’s ceiling target of 2%. A 4% print in CPI won’t make the ECB happy, and pretty much puts the chances of a rate hike on Thursday at the equivalency of a slam dunk for Shaq! It’s a done deal folks.

And, I’ll finish coming full circle on an item I mentioned in at the top… The Bank for International Settlements (BIS), issued a report last night that really dissed the dollar… Let’s listen in…

“A plunge in the currency may happen even after [its] remarkably orderly 14% slide against the euro in the past year. Foreign investors in the U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public-sector investors, a sudden rush for the exits cannot be ruled out completely.”

Remember, a few months ago when G-7 said “no mas” regarding dollar weakness? The dollar rallied for a short time afterward… But, as time goes on… The dollar slowly sold off again, and again, and again, till we’re about right back to where we were when G-7 met… I guess, as always, always, I tell you, Tutor Turtle, words mean nothing without action! Help Mr. Wizard!

Other data prints due this week include the Chicago PMI (manufacturing) today… Given the rot on the vine of the Philly and Richmond PMI reports, I don’t expect the Chicago PMI to be anything to help the dollar. The national ISM (manufacturing) prints tomorrow and is expected to remain under the line in the sand of 50, which indicates contraction in manufacturing. Then on Thursday, we get the Jobs Jamboree, and right after that report prints, the boys will head to the Hamptons, and the liquidity in the markets will dry up!

Currencies today: A$ .9640, kiwi .7635, C$ .9890, euro 1.5765, sterling 1.9925, Swiss .9820, ISK 79.55, rand 7.8250, krone 5.08, SEK 6, forint 149.20, zloty 2.13, koruna 15.19, yen 105.35, baht 33.44, sing 1.3610, HKD 7.7980, INR 42.90, China 6.8544, pesos 10.29, BRL 1.5950, dollar index 72.18, Oil $143, Silver $17.70, and Gold… $934

That’s it for today… The selling is continuing as I get ready to hit the send button, so the profit taking is for real this morning! UGH! I will be doing a radio interview tomorrow on the Business for Breakfast show (KCRN Denver, CO) at 8:20 CT… Well.. The year is half over… Unbelievable! I had a blast at the Cardinals/Royals game in KC this past weekend as we celebrated my buddy Alex’s 13th birthday. Our little granddaughter even made it through the game… She is such a cutie in her Cardinals outfit, and red and white ribbon bows in her hair. She turns 1 in August! Again… Unbelievable! We made it back in time for Alex’s last baseball game yesterday. We get a short break and then football starts… I hope you have a Marvelous Monday and a Wonderful Week!

Chuck Butler
June 30, 2008