Borrowing Costs Are Going Higher!

Good day…I cannot begin to tell you all of the problems I have experienced this morning (trying to connect and so on) and yet I carry on despite these problems! Neither rain, nor sleet, nor snow will keep the Pfennig from its appointed rounds!

Currency trading yesterday was yet another day of Tupperware-like range trading…TIGHT! So with me traveling, and having technical difficulties, this edition of the Pfennig will be short n sweet! Chris will have the conn on the Pfennig tomorrow as he returns from the Money Show.

Overnight, Bank of Japan (BOJ) Gov. Fukui said that borrowing costs would rise appropriately in Japan. Hmmmm, was that Central Bank parlance for “watch out, a rate hike is coming?” I think so…but then I have a bet with someone for a shiny quarter that the BOJ will hike rates one more time in 2006. So what else would I think? Japanese yen did gain versus the dollar on this talk…but again, the range is tight!

This morning, pound sterling was thrown for a loop when it was reported that retail sales had dropped, unexpectedly, in September. This is the first time in eight months that retail sales have dropped in the United Kingdom. I think the Bank of England needs to look at this as something that has happened because of rising inflation, which, if they did, would prompt them to raise interest rates in November. I still believe they will raise rates then, so selling sterling now because of this report is useless, and very un-wise in my opinion.

I see where the South African rand has rebounded from some dreadful year-to-date performance. This improvement is basically driven by…an oversold position…and investors looking for yield, and not caring about the wild swings of the currency. Either way, none of it will be long lasting until gold gets back on the rally tracks.

Speaking of gold, it sure has seen some rough road ahead every time it looks to go past $600. Oil is the main pothole in the road for gold, and until that changes, I think it will continue to struggle to get past $600. But when it does, it could be a breakout session.

The price of oil might be looking straight down the barrel of a shotgun today, as our friends at OPEC (NOT!) will meet to discuss production cuts. Rumor has it that OPEC will cut production of about one million barrels of oil per day. Of course, they all wink and nod at each other saying that they will share the load, but then they go home and cheat the heck out of each other! So who knows? This should be a harbinger for a rise in oil prices…but again…who knows?

Oh…get the kids, and hide out in the cellar! China’s GDP has fallen! The sky is falling! The sky is falling! I can hear the dingbats out there saying, “I told you so, I told you so!” China’s GDP “fell to 10.4%” in the 3rd QTR, down from the previous quarter’s 11.3% showing. OK…I’ll admit that this fall is interesting, but “it don’t mean a thing if it ain’t got that swing.” Until China’s growth falls to about six or seven percent – then I’ll worry.

This morning we’ll see the Weekly Initial Jobless Claims, Leading Indicators, and the Philly Fed Index, which we all know fell from the sky last month. Leading Indicators have really been down, but the markets no longer notice them, too bad. And the Philly Fed Index, which takes the pulse of manufacturing in that region, should be able to rebound from that awful number of negative 0.4% last month. None of this should be a real directional for the dollar today.

As I said earlier…short n sweet! On to the Big Finish!

Currencies today: A$ .7570, kiwi .6660, C$ .8810, euro 1.2570, sterling 1.8690, Swiss .7910, ISK 68.05, rand 7.55, krone 6.74, SEK 7.36, forint 209.47, zloty 3.09, koruna 22.55, yen 118.65, baht 37.30, sing 1.5745, HKD 7.7880, INR 45.34, China 7.9102, pesos 10.81, Silver $11.71, and Gold…$592.50

That’s it for today. I sure hope this gets out to everyone…the Cardinals are in trouble, as we go to a game 7 tonight…my presentations went well in San Francisco…we’ll see how they go over here in Panama…then back home and in the saddle on Tuesday. Have a great Thursday, and weekend since I won’t talk to you tomorrow…and GO CARDS!

Chuck Butler
October 19, 2006

The Daily Reckoning