"Euros Accepted"

Good day… And a Happy Friday to one and all! Let’s try to make this a Fantastico Friday as well! Yesterday’s wish for a Tub Thumpin’ Thursday came true for the dollar. As I left you yesterday, the Bank of England (BOE) had indeed cut rates 25 BPS. The European Central Bank (ECB) was in waiting…

The ECB left rates unchanged as I thought they would… But for the first time, ECB President Trichet, sounded a bit dovish… And the selling of the pound sterling (GBP) carried over to euros (EUR)… The selling was hard and fast… What? Did these mental giants just now figure out that the ECB was going to be cutting rates this spring?

Anyway… As I’ve said a couple of times now… Look for euros to give back gains all the way back to 1.40, as the dent from the markets realizing the ECB is going to cut rates filters through. But, after the dent is measured, and the auto body guys figure out that the euro is still going to maintain its rate differential, due to the Fed cutting rates all the way down to 2%, the dent will be straightened out, and euros will be back on the rally tracks.

Now… Everyone that reads this newsletter knows that what I just said was simply my opinion. The legal beagles are really on me about stating this!

A long time reader sent me a note yesterday regarding the euro. Reuters was reporting that “euros accepted” signs are popping up in New York City. WOW… Reuters! In the latest example that the U.S. dollar just ain’t what it used to be, some shops in New York City have begun accepting euros and other foreign currency as payment for merchandise.

Interesting, eh? I think so!

Well… Congress sent the Economic Stimulus Package to President Bush yesterday for his signature… Let me repeat something… This is NOT a Stimulus Package, it is a Politicized SPENDING Package! This will add $150 billion onto a budget deficit that WAS already forecast to be $250 billion this year. I say WAS, because that WAS before the latest budget proposal last week that will probably have us looking down the barrel of a $500 billion budget deficit this year… OUCH!

The high yielders of Aussie (AUD) and kiwi (NZD) held their ground yesterday, while Japan (JPY) and Swiss (CHF) currencies lost ground. We all know what that indicates… So I won’t go there. I’ve been there, done that, bought the % T-Shirt!

Kiwi, however, was supported by something else… Here’s the skinny… There was a large Uridashi bond settlement of $845 million yesterday. Recall the Uridashi bonds are ones that Japanese entities issue denominated in a higher yielding currency to make the bond attractive. We used to see this kind of stuff all the time, which really helped propel kiwi higher and higher… But now that the issue has priced… There’s only the high yield to act as a safety net for kiwi… Let’s hope it’s strong enough!

We get a G-7 meeting beginning today in Tokyo. It seems that one of the minor reasons for the euro losing ground this week has been the thought going around the markets that G-7 would make some sort of strong statement regarding currencies. So what if they did? Who are they you might ask? Well… Since it’s finance ministers from the G-7 block of major countries, they could move the markets with a statement… But most of the time all we get from them is a wet fish statement of “we believe the currency markets should be more flexible”.

Ooooh… I’m shakin’ in my boots!

Remember a week or so ago, when I reported that December’s consumer confidence had remained high and I said, “that was during the Christmas season, wait till the bills start arriving in January”. Well… I think all the bills were received… And the outlook isn’t so rosy any longer. My friends at the Royal Bank of Canada have what they call the RBC Cash Report, where they measure spending and sentiment in the United States. Here’s what their latest Cash Report had to say.

“The RBC Cash Index showed a sharp erosion in sentiment in February and fell 7.8 points to 48.5. This put the index at its lowest level on record – the index was first compiled in 2002. The decline reflected a deterioration in sentiment regarding current economic conditions and points to a significant slowing in spending in early 2008.”

Gold and silver continue to rebound from selling late last week. Silver is back to $17! And it won’t be long before gold is knocking on the door of its previous highs… So, at least the stars are aligned here!

Well… My first Money Show presentation since last May, went pretty well yesterday. I have to say that it was the largest crowed I think I’ve ever talked to. I got a little choked up at first due to the emotion rush, but I recovered and finished strong! I was then surrounded by people at the stage afterward, asking questions. I spent another half an hour answering questions from a crowd of people… It was fun! I’m much better at the question and answer stuff, because I can think on my feet, and just spew stuff out, much like I do when I’m writing the Pfennig!

And then, finally, I’ll leave you with this note that came from Frankfurt Germany last night… It’s interesting…

D Bank chief warns of monoline ‘tsunami’

By Chris Hughes in Frankfurt February 7, 2008 8:49:00 PM

“Credit rating downgrades of troubled bond insurers could trigger a potential financial ‘tsunami’ that could be as far-reaching as the subprime mortgage crisis, the chief executive of Deutsche Bank warned on Thursday.

“The alert by Josef Ackermann came as the banking sector continued to suffer from fears that rating downgrades to bond insurers, or monolines could lead to another round of writedowns of investments and renewed capital constraints. If the monolines are downgraded, the bonds they insure fall in value.”

Well, in my opinion… If the “tsunami” does hit, it will be as bad as the subprime “tsunami” and we’re still digging our way out of that mess!

Currencies today 2/8/09: A$ .8935, kiwi .7855, C$ .9980, euro 1.4485, sterling 1.95, Swiss .9055, ISK 67.70, rand 7.8230, krone 5.5430, SEK 6.5150, forint 183.16, zloty 2.50, koruna 17.7150, yen 107.40, baht 31.50, sing 1.4185, HKD 7.80, INR 39.63, China 7.1890, pesos 10.78, BRL 1.7670, dollar index 76.79, Oil $88.69, Silver $17.01, and Gold… $917.40

That’s it for today… The Show goes through tomorrow, and Chris and I don’t get home till Sunday morning. That makes for a long trip… And then turn around and head right back into work the next day… UGH! Oh well… I think I’m going to have to cut back on the Shows though. There’s just too much walking and standing… I’m just not cut out for all that any more… I recall Vegas is a mega walk from the hotel to the Conference Center… Maybe by July, when the Vancouver Conference comes around I’ll be ready! So… It’s Friday! Let’s make it a Fantastico Friday, eh? Enjoy the day and the weekend… I’ll talk to you on Monday.

Chuck Butler
February 8, 2008

The Daily Reckoning