Dollar's Mini Rally Ends

Good day… And a Terrific Tuesday to you! The dollar’s mini rally yesterday stalled overnight, and once again the dollar bulls are having to cover euro (EUR) shorts they put on. Yes, they NOW believe the Fed will not come through on it’s claim to be an inflation fighter, and leave rates unchanged. That will keep the positive yield differential in the euro’s favor (well, it would have anyway, but it keeps it unchanged).

Remember though, who called out Fed Chairman Big Ben Bernanke when he said early this month that the “falling dollar had caused an unwelcome increase in inflation, and that he was “attentive” to the problem.” Hogwash, said I!

Well… Now everyone is coming around to the “right way of thinking”… I see that 101 economists that were surveyed by Bloomberg say the Fed will keep rates unchanged tomorrow… In 6 weeks from now, we’ll most likely see that say kind of survey, as the FOMC will prepare to meet again, and so on and so on… The Fed is an inflation fighter like I have the body of a Greek God! HAHAHAHAHAHAHA!

The Aussie dollar is back on the rally tracks this morning after it was announced that Rio Tinto is reported to have agreed average iron ore price increases of 80% with China’s largest steel maker Baosteel group. That puts iron ore at a record price, and the Chinese have agreed to pay it! That just brings more revenue to the Aussie Treasure Chest, which helps narrow the Trade Deficit and so on… As I keep saying, I like Aussie to outperform kiwi, because of the astronomical Trade Deficit in New Zealand VS the narrowing Trade Deficit in Australia, and this story plays well with that thought!

And here’s a story you’ll like to hear, that is, if you are a fan of the Canadian loonie! Bank of Canada (BOC) Deputy Gov. Kennedy said yesterday that subprime lending only accounted for less than 5% to total mortgage lending in Canada, and that the housing market does not appear to have the excess supply that weighs down the U.S…. OK… That’s great news! Now… Keep those rates from falling any further!

I was watching a piece of the Glenn Beck show last night, and he had Ben Stein on as his guest. Ben Stein has long been a guy that has seen the problems with the dollar, and last night was no exception. When asked about the falling dollar, he said, that it will continue to fall because of the ever growing Fiscal Deficit and the large Trade Deficit. I would say that he does NOT subscribe to the “Deficits Don’t Matter” crowd, eh? That means he’s tops in my book!

My friend and former colleague, David Galland, reported this week that well respected investment analyst Dennis Gartman had reversed his call to sell Gold… I told you about the time I met Dennis Gartman in New Orleans last fall, that was pretty interesting… Good to see him back on the Gold bandwagon!

That news didn’t help Gold yesterday though, as it fell like a rock right after I hit the send button on the Pfennig… Looks like Gold Traders are being influenced by what Big Ben might say after the rate announcement tomorrow… To me… This sell off yesterday looks stupid, which means it looks like a buying opportunity to me… Shoot Rudy, Gold was $22 cheaper yesterday than the day before! The shiny metal has gained back of that loss and is up $6 this morning, so most of that “buying opportunity” has been lost… But, let me point out that Gold is still below $900!

My friend, the Mogambo Guru, ends his letter each week with a note about gold… I absolutely love the way he presents this note… So, I’m going to borrow it and put it here… Here’s the Mogambo on buying gold…

“The Mogambo sez: You have two choices. For one, you can buy silver and gold and watch in delight as it goes up in price as the value of the dollar goes down, and make delighted squealing noises (‘Whee’) as you wax rich.

“Or you can not buy silver and gold (thus reducing demand and making it cheaper for me to buy your share, for which I say thanks!), and then watching in horror as the purchasing power of your precious dollars and dollar-denominated assets go down and down, making prices go higher and higher, month after month, until it reaches a crescendo and everything collapses in chaos and brutal mayhem, after which things really get really, really bad.

“It’s nice to have a choice, eh?”

You’ve got to love that Mogambo!

Oh… You may remember last week when the price of Oil fell about $6 because the Saudi’s announced a production increase of 200,000 barrels of Oil a day… Well… It now looks as though that’s not enough to make a dent in the demand deficit… Once Oil traders got wind of this, they began to mark up the price of Oil again… $138 is where it stands this morning… That’s not a good thing, folks… So, one has to wonder, once again, what the heck our leaders are doing about this?

Oh, and I’m not talking about investigating the Commodities/ Futures market… I’ve got ideas on this, but this is not the place or time… If you ever see me out on the speaking circuit be sure to ask me… That is if you’ve got an hour to spare! HA!

Speaking of Oil trading… Did you see that according to congressional findings cited in a Wall Street Journal report… that Speculators now account for about 70% of all benchmark crude-oil trading on the New York Mercantile Exchange, up from 37% in 2000? Why not? It’s a free country last time I checked, and investors can buy Oil Futures just like anyone else… And if there’s a chance you can make a shekel or two, why not?

OK, I’m not saying, go out there and spend all your cash that you have stored away in coffee cans buried in the back yard, and buy Oil Futures… I’m just saying that it doesn’t surprise me on iota that this market has grown so much…

The data cupboard gets restocked today with the Case/ Schiller Home Price Index for April… Look for the price index to have fallen about 16% from a year ago… We’ll also see the color of the latest Consumer Confidence report for June… Look for Confidence to have fallen even further than May’s awful reading of 57.2.

So, unless we see a hiccup in Consumer Confidence today, the dollar should be pressed to rally.

Well… There was a currency that got routed yesterday… The Icelandic krona… The Banking Crisis going on there came to a head and the currency just got taken to the woodshed. It’s so bad that the Icelandic Prime Minister thought he had better come to the aid of the currency, saying that the currency, “is likely to stabilize at a stronger level”… The PM also said that Icelandic banks are “more healthy than they appear”…

I hate to say this, but that sounds to me like a General Manager in Baseball giving his manager a “vote of confidence”, only to fire him a week later… I sure hope I’m wrong here, Iceland deserves better… Unfortunately, things just got to heated for such a small country to bear.

Yesterday, I was doing some research for something I’m writing, and I noticed that the top ten currencies year-to-date are all my list of currencies to look to except two #7 Taiwan dollars and #9 Mexican pesos… But for those of you keeping score at home, the list goes like this: 1. Brazilian real, 2. Aussie dollar, 3. Swiss franc, 4. Swedish krona, 5. euro, 6. Danish krone, 7. Taiwan dollars, 8. Norwegian krone, 9. Mexican pesos, 10. Singapore dollar and just for fun, 11. Japanese yen

The Brazilian real is the winner by far though, racking up a better than 10% gain VS the dollar so far this year…

The Chinese renminbi put the brakes on last night… After a week of strong moves VS the dollar, the renminbi applied the brakes as it appears China might be trying to deter speculators from making what they believe to be “one-way” bets on the renminbi. The problem here is that the Chinese won’t follow that one day “hard stance” with about a week of the same… I’m not saying that the Chinese “don’t get it” what I’m saying is that I don’t believe they really truly want to deter speculators…

Currencies today 6/24/08: A$ .9540, kiwi .7560, C$ .9845, euro 1.5560, sterling 1.9645, Swiss .9610, ISK 84.45, rand 8.0750, krone 5.1250, SEK 6.0440, forint 153.72, zloty 2.1625, koruna 15.49, yen 108, baht 33.50, sing 1.3670, HKD 7.8075, INR 42.96, China 6.87, pesos 10.32, BRL 1.6125, dollar index 73.33, Oil $138, Silver $16.85, and Gold… $889.50

That’s it for today… For those of you in the Pittsburgh area… Did you see the story in the Post-Gazette, by Tim Grant, on the diversifying into currencies? I was interviewed for that story and he mentions some of my quotes… Of course I gave him more, but I guess they were left on the editor’s floor. Back on the cancer meds this week… I decided to go back on them myself… I’m sure in about a week I’ll be second guessing myself, but why not give it one more run? Lots of readers have sent me notes lately asking about my health… Thank You! Now it’s time to say good-bye, so… I hope you have a Terrific Tuesday!

Chuck Butler
June 24, 2008