Buffett Says the Dollar is Likely to Decline

Good day… And a Tub Thumpin’ Thursday to you! Ahhh… Serenity… The awful day I had on Wednesday was followed by a day of “Seashells and balloons” yesterday… No getting “bonked” on the head… No “soup Nazi” at the registration desk… Oh! And there was one more thing I forgot to tell you went wrong on Tuesday… I broke out in hives after dinner! Thankfully, I always carry Benedril with me for such occasions.

The euro (EUR) and other currencies fared better yesterday, too. The euro spent the day trading in a very tight range, but the bias was to buy euros, not sell them, as in the day before.

Last night, I saw a story about Warren Buffett and the dollar… So naturally, I stopped to read about it. It seems, the Sage of Omaha, is singing from my song sheet! Mr. Buffett thinks the dollar is going to continue to fall during the next decade unless policies are changed. I don’t think he gives two plug nickels to the thought that policies will change any time soon… Here’s a quote…

“If something is unsustainable, it’s going to have consequences; so far the consequences have been a general decline in the dollar against major currencies. If we continue the same policies, we’re going to get the same results in the next five or 10 years.”

He also had this to say about inflation… “Inflation has been in remission and is likely to be more prevalent in the next 10 years.”

Oh, and the report stated that the only foreign currency, Mr. Buffett currently owns is… Drum roll please… Bring in the trumpeters… And the choir… Ready? Brazilian real (BRL). Hmmm… Brazilian real… Interesting, eh? Oh! And guess who offers CD’s in an FDIC insured Bank, that are denominated in Brazilian reals? My bank! Sure… I can call it “my bank”… I don’t think the private investors, the Chairman, or CEO will mind if I call it “my bank”.

Besides, my Big Boss, Frank Trotter, and I talk to more people, on the road, over the airwaves, and through print, about EverBank.

Yesterday, I told you about the data that to me, confirms we are in a recession… And I received a few emails asking me about the dollar during a recession. Well… Historically speaking… The dollar tends to firm during a recession, because of growth prospects. But, could this time be different? In that, we’ve never gone into a recession with this much debt… We’ve never gone into a recession with this much debt and fighting a war… We’ve never gone into a recession with this much debt, fighting a war, and…. Having problems attracting financing for the deficit!

I think this time will be different… But then, I don’t want to sound like those stock jockeys that in 2000 kept saying, “Sure, valuations are over the top, but this time is different”…

Aren’t you glad that productivity rose last month? Didn’t it make your day better? I make fun here, because I despise the mere mention of productivity. I’ve said this for years and I’m not going to change now… Productivity simply means, we all worked longer hours! And probably filling in for someone that quit!

OK… I’ll stop being a smart alec…

New Zealand, which hasn’t had a good data report for what seems like a month of Sundays, finally saw their jobless rate fall to a record low. Now, if you’ve been paying attention in class, you’re probably saying right now… “This data probably means that wage inflation is going to rise, and that will prompt the Reserve Bank of New Zealand to raise interest rates again, just like in Australia”… Ding, Ding, Ding, you are correct sir! Give this person a Cupie doll!

Today’s the day in Europe… The Bank of England (BOE) and the European Central Bank (ECB) both meet to discuss rates. I’ve gone on record as saying that I believe the BOE will cut rates tomorrow, and the ECB will keep them unchanged. One of the reasons the euro has gotten sold this week has been the idea going around the carousel that ECB President, Trichet, will give the wink and nod to the markets that the ECB is ready to cut rates.

Hmmm… I don’t know where this stuffs starts… Well, let me say that I believe that it starts with a firm that is short euros, and needs for the currency to weaken so they can cover their short without a loss. Trichet has not given one word of cutting rates yet… So where this comes from is anyone’s guess. Maybe he will.. And maybe he won’t… Wouldn’t it be much better to wait and see what he says, and then comment, and trade?

Gold is rising once again, as I thought it would. The output of a South African mining company is falling due to power shortages. So… Gold rises… As an asset should that doesn’t flood the market with supply! Unlike the U.S. dollar, which does flood the market with supply!

Stocks have really had a hard row to hoe this year… They’ve been down 22 days and up only eight days this year. Hmmm… With stocks down so far this year, that must mean Japanese yen (JPY) is performing well… And that’s right! So far this year, Japanese yen is the best performing currency.

Swiss francs (CHF) can’t be too far behind the roll call for best performances year to date, and they aren’t! Yen and Swissie… They were sold together as financing currencies of the carry trade… And they will be bought together as the carry trade continues to unwind… Got francs? Got yen?

Every once in a while I like to bring you up to date on what I used to call the “euro wannabes”, that is Hungary, Poland and the Czech Republic… We used to do a lot of business in these three currencies, but as they moved closer to going into the ERM (exchange rate mechanism) that is used to determine if the currency will be able to maintain a trading range, before being converted to the euro, we crossed most of these to euros.

These three have continued on and sometimes even outperformed euros… But I don’t think we’ll see that any more. The pressure of an entry to the ERM has really pushed these three down, especially, Hungarian forints. I think it’s time to turn out the lights, the party’s over for forints… I could be wrong here… I’m just telling you what I see.

I usually try to hold out, hitting the send button on days when the BOE is meeting, as they normally announce their decision right a-b-o-u-t…. NOW! Well, that didn’t work, so I’ll just head to the Big Finish and see what happens… Hey! I just remembered, I’m an hour ahead here in the East! The won’t announce for a while… So, I will, go on to the Big Finish, without the BOE!

Currencies today 2/07: A$.8915, kiwi .7965, C$ .9925, euro 1.4630, sterling 1.9530, Swiss .9140, ISK 66.70, rand 7.7640, krone 5.5190, SEK 6.4510, forints 181.54, zloty 2.47, koruna 17.5180, yen 106.40, baht 31.34, sing 1.4150, HKD 7.80, INR 39.53, China 7.1890, pesos 10.82, BRL 1.7620, dollar index 76.18, Oil $87.20, Silver $16.75, and Gold… $912.60

That’s it for today… HEY! It worked! The Bank of England just announced that they will be cutting their main interest rate 25 BPS to 5.25%. Alrighty then, that’s over and done with. I’ve got to review my presentation for this morning… I haven’t looked at it since writing it last week! UGH! I’ll do that while Chris is out doing his morning run… It sure is nice a warm here, which as you know is very important to me… I’ve gotta go where it’s warm! But today, I’ll be inside the “Bio-dome” here at the show all day, until 7 tonight… Don’t worry, I’ll take breaks and go back to my room to rest… OK… I’ve delayed long enough… Let’s get this Tub Thumpin’ Thursday going!

Chuck Butler
February 7, 2008

The Daily Reckoning