Chances Are...

Good day… Well… The first weekend of autumn was mostly a wash-out for me, as rain and ugly skies ruled… It also rained on my beloved Cardinals’ parade in Houston, as they were swept! UGH! So, inconsistent…

On Friday, we saw mostly book squaring going into the weekend, as there wasn’t any data to look through, and there was little impetus to move things forward… The euro gave back the ground above 1.28, but the range was very tight, so in reality no movement to speak of.

Overnight, hasn’t brought us any strong movements either except in the South Pacific where kiwi has gained over 1/2-cent on rate thoughts… There has been a whispering campaign going ’round the South Pacific regarding a rate hike from the Reserve Bank of New Zealand (RBNZ)… I don’t know if you can count on that at this point, but I’m not going to argue with anything that lights a fire under kiwi!

The “rate thoughts” I’m talking about are the ones going around here in the U.S. Here’s the skinny… There are thoughts going around the markets right now that the Fed is finished with rate hikes, and will begin rate cuts in 2007… Well… I recall, first mentioned this scenario about 3 months ago, and now the rest of the markets are catching on… Anyway, the pressure on the dollar was strong enough with the thought that the Fed was “pausing”… Imagine what it will be when the markets know for sure the Fed is “finished” and begin talking about cutting rates?

This kind of talk tells me that the markets feel as though the data is telling us a hard landing is on the way… My friend and well respected analyst, John Mauldin, tells us that hard landings are the norm following tightening cycles… Here’s a snippet from his Friday newsletter that can be found at So, here we go!

“But I find it interesting that so many are so adamant about the possibility of a soft landing. Soft landings are about as rare as a white buffalo of western B-movie lore. Everyone claims to have seen one or know someone who has, but actually finding one is difficult.

We have seen 16 periods in the modern era where we have ended a Fed tightening cycle. Only one resulted in a soft landing.”

So… Get ready… And prepare for this scenario… Of course, George Soros told us 6 months ago that the U.S. would experience a recession in 2007… Of course, none of this means that we WILL have a recession… No one knows for sure… But, the ducks are all lining up on this one… And… Chances are…

It will be a busy, last week of the month, data wise in not only the U.S. but Europe and Japan. I’ll start with the U.S. data, and right out of the starters blocks this morning we will see Existing Home Sales, which (in my opinion) will be disappointing. Tomorrow brings us Consumer Confidence, which I’ll bet a dollar to a Krispy Kreme that it will soar, given the price of gas… We’ll also see Durable Goods Orders, New Home Sales, GDP, Personal Income and Spending, and close the week with the Chicago Purchasing (Manufacturing) Index.

In Europe this week, we’ll see German IFO tomorrow, The Norges Bank (Norway) meet to discuss rates, Sweden prints their latest Retail Sales, and we finish the week across the pond with Eurozone CPI…

Expectations for weaker CPI is the reason the euro has given back some ground, as some dolts believe the ECB will be influenced by a weaker CPI, due to a temporary price reduction of oil… The ECB has already sliced a huge piece of rate hike and are storing them… They won’t let them go to waste! So… Look at this move in the euro as just another opportunity to buy at cheaper levels!

In Japan, we’ll see the latest illustrations of a strong economy with the printing of Industrial Production. That will be followed by a printing of CPI… I expect consumer prices to have extended their move higher, thus putting the ball back into the Bank of Japan’s court… I obviously don’t know how this will play out, but it certainly looks to me that yen could have a strong performance VS the dollar this week, should the data pave the way.

So… What’s your take on this Hedge Fund, Amaranth, announcing a $6 Billion loss? It scares the bejeebers out of me, I’ll tell you… I just shudder hearing these things, as all these hedge funds own each other’s paper, and the tentacles of something like this could be far reaching… But, the markets don’t seem to be too upset with this… Hmmmm

It looks like the “all clear” horn has sounded in Thailand once again… The military’s bloodless coup did what it set out to do, remove Thaksin as Prime Minister, and return the power to the people. There are reports from Thailand that foreign funds are flowing into the country once again… And as soon as a government is in place, I think the baht will return to its trend of being the lead currency in Asia…

OK… I’ll talk a bit about China before I head to the Big Finish… U.S. Treasury Sec. Paulson, left China with his parting gifts, and the sound of Don Pardo’s voice going through his head, over and over again. He left saying that he believed China would allow more flexibility in the renminbi… Oooh… Now that sounds concrete!

The U.S. lawmakers, Schumer and Graham, are attempting to get their bill to place tariffs on Chinese exports to the U.S. on the voting docket… I think I heard that they may get the ear of the other lawmakers very soon… I think that these two knuckleheads had better be careful of what they wish for… The currency markets do NOT like protectionism…

Currencies today: A$ .7520, kiwi .6685, C$ .8950, euro 1.2780, sterling 1.9040, Swiss .8090, ISK 70.10, rand 7.59, krone 6.5650, SEK 7.29, forint 215.10, zloty 3.10, koruna 22.27, yen 116.50, baht 37.45, sing 1.5840, HKD 7.7830, INR 45.95, China 7.9212, pesos 11.0275, dollar index 85.30, Silver $11.055, and Gold… $588.20

That’s it for today… Rams win… Tigers win… Cardinals get swept… A mixed emotions weekend… Heading down to Columbia this weekend to see my beloved Tigers, can’t wait! Sure wish it would warm up again, as it usually does… You know… An Indian Summer that lasts 6 months would be fine with me! Like Jimmy Buffett… I’ve gotta go where it’s warm! Have a great Monday and week!

Chuck Butler
September 25, 2006