China's Economy Continues To Soar!

Good day… Well… The currencies and metals are back to kicking sand in the dollar’s face this morning… It’s as if the selling of these two assets never happened! Or… To put it another way, if it was to believed that a turn around of these two assets were about to happen… That belief is now squashed like a bug! The euro is back to knocking on the 1.29 door… And Gold has pulled itself up by the bootstraps to move back above the $700 level!

That buying opportunity didn’t last long! Euro and Yen have been the big movers VS the dollar overnight as some dolt economists are thinking that inflation in the U.S. will show a non-event… Now… Think about that for a minute, with the price of oil jumping through the roof, how could inflation not show damage? Well… You never know about the reports that are issued… But in this case I’m certain that inflation will have picked up, and therefore the rate hike campers in the U.S. will buy dollars once again.

However, as with all data recently, the dollar buying will be short-lived. The CPI report is due out this morning, and probably will be printed before I hit the “send” button, so I’ll keep an eye out for it, and report later…

Did you see the economic growth figures from Singapore and China overnight? WOW! Singapore revised their economic forecast to as much as 7 percent, thus showing an increase over the 6.4% GDP posted in 2005… China’s April output continued strong at 16.6% (annualized), down modestly from 17.8% in March. But NOT THE BIG SLOWDOWN THE CHICKEN LITTLES KEEP SQUAWKING ABOUT! This report has really helped the Commodities turn around, for if China is going to continue to grow, which I continue to say it will when others say it won’t, they will continue to need raw materials / base metals, etc.

What it also means is that the growing economy continues to put money into the hands of people that haven’t seen disposable income before… And what have they been buying with this disposable income? Gold! So… This economic report has played a hand in the recovery of Gold overnight too!

This just out… U.S. consumer prices increased a larger-than-expected 0.6% in April, led by… Drum roll please… higher energy prices. Yes… The gasoline component of CPI rose 21.5% year on year, up from 17% year on year in March! So… Like I said above this should bring the Fed rate hike campers out of the walls, and give the dollar some room around the neck… But… This should be short-lived, and the rope around the dollar’s neck will be tightening again soon!

OK… The Canadian dollar / loonie has gotten back to the 90-cent level with the rebound of Commodities… People down here at the Las Vegas Money Show, keep asking me if the loonie has reached the end of the road VS the dollar… My standard reply is simply this… “Do you think that oil is going to return to the $40 per barrel level any time soon”? If you think it will, then you would think that the loonie has seen the highs VS the dollar… However, if you’re like me, no wait, you wouldn’t want to be like me… If you think like me, no wait, you don’t want to do that either… OH, shoot! If you think oil is NOT going to return to the $40 per barrel level, then there’s no reason to think the loonie has run out of steam!

I sat on a FOREX panel yesterday, along with 4 other FX guys… The overwhelming theme from all of them was that the negative momentum for the dollar is quite evident in the markets right now. This is something I’ve told you about for the last few weeks, and it was good to hear other FX guys thinking the same way… Of course one could take the contrarian side of that and say, if you all are thinking that way, then I’ll take the other side of that trade… Well… That’s probably a good idea to have once it looks like the momentum has run its course… But right now, I would have to say taking the contrarian view is akin to throwing yourself in front of a moving bus!

The Aussie dollar did move higher VS the greenback last night, but not on pace with the move by euro and yen… Aussie consumer confidence took a hit yesterday, and that has some traders questioning any further rise in Aussie dollars…. However, I’m not pinning my colors to that mast… My colors are still pinned to the “Aussie dollars will probably go to 80-cents again on the rise of Commodities” mast…

The presentation yesterday went pretty well, we did experience a minor technical glitch, but carried on despite our shortcomings! The presentation was web cast… So… Hopefully, in about 3 weeks, we’ll be able to provide you a link on our web site, that will allow you to view the presentation.

Off to the Big Finish and breakfast with the Boss!

Currencies today: A$ .7710, kiwi .6270, C$ .9060, euro 1.2885, sterling 1.8975, Swiss .83, ISK 69.75, rand 6.2790, krone 6.07, forint 203.70, zloty 3.01, koruna 21.88, yen 109.30, baht 37.88, sing 1.5680, INR 45.20, China 8, pesos 11.02, Silver $13.80, and Gold… $711.30

That’s it for today… This Show is fabulous! Great attendance… Lots of current customers stopping buy to say hi, and our presentation was very well attended! Good stuff! Chris Gaffney was still ill, and not able to go to dinner with us last night… It’s not a good thing to be ill when you’re not at home! I’ll have to have latte’ at breakfast in his honor, since today is what Chris likes to call… “Wired Wednesday”, when he buys latte’s for the desk! Have a great Wednesday!

Chuck Butler
May 17, 2006

The Daily Reckoning