Feel Good Stories

Good day. A very tight range-trading day on Tuesday left the currencies looking bored to tears…no, wait! That was me! Except for kiwi, which I’ll get to later. Really not much to talk about either…but I’ll carry on despite the shortcomings! HAHAHA! Notice I didn’t say, “MY shortcomings!”

Yesterday, we saw U.S. Consumer Confidence report for August soar, as expected. This gave some strength to the dollar, but at that point, most of the damage to the euro had already been booked from the weaker IFO Business Confidence that we talked about yesterday. I’m not even going to get on my soapbox regarding this U.S. Consumer Confidence soaring. All I’ll say is that they didn’t ask me! I would give them a thing or two to think about regarding a lack of confidence! But…they didn’t…

Overnight in Japan, the former “Mr. Yen” Sakakibara spoke at a conference in Tokyo, and expressed his beliefs that yen should trade to 100 VS the dollar in the next 6-10 months… He doesn’t have a warm and fuzzy toward the U.S. Housing slump, not fueling a recession in the U.S. And…. He believes like I do, that yen is totally undervalued!

Speaking of the U.S. Housing slump…today, we’ll see the August New Home Sales print, and they are expected to have fallen again, following July’s awful 4.3% drop in sales. Last month when that 4.3% drop printed the dollar rallied, because Home Sales maintained a positive price increase. Of course it was only .3%, well…and when I say well, I mean a deep one! Well, if the markets had only taken the time and effort to actually look at the report instead of jumping out of their tube socks to buy dollars, they would have seen that the .3% gain was well, below the previous pace of price increases… But don’t let that get in the way of a “feel good story”!

I have to tell you that I’m so tired of these “feel good stories”… I was putting together my presentation to the San Francisco Money Show, which by the way is in three weeks, and if you haven’t signed up, you still have time! Anyway, back at the ranch, I was telling you about my presentation, and in it I go into how these “feel good stories” are nothing more than lies, and more lies. Change the data so that it looks better, and people “feel better”…no wonder Consumer Confidence remains high!

The other day, I asked you about what you thought regarding the Amaranth Hedge Fund losing $6 Billion dollars. I was surprised, because only a handful of readers responded… But that’s OK… What I was going to talk about here was a report that was on MarketWatch yesterday. Did you know that investors in the Amaranth Hedge Fund are having a tough time getting their money back? Here’s a snippet of the story on MarketWatch…

“Before the blowup, Amaranth was in demand. Like other sought-after hedge funds, the firm had investors agree to be locked up for at least several months before accepting their money. Investors who put money into the Amaranth Multi-Strategy fund after Feb. 1 had to agree to a 25-month lockup.

“Hedge-fund managers like long lockups because they don’t have to worry about a crush of investors bailing out if performance slips. As demand for hedge funds has increased in recent years, lockups have become longer.

“Yet according to some the trend is bad news for investors, because it means investors can get stuck with losses if managers’ performance heads south.”

I told you this whole thing scared the bejeebers out of me, but, again…the markets don’t seem to be too concerned. Strange days, indeed!

There was another story on MarketWatch yesterday that caught our eyes on the desk… Bridgewater Assoc. a $150 Billion money manager, gave some views on the economy and the dollar. Here’s another snippet:

“The persistence of the (U.S. trade) deficit and the so far endless willingness of Asian savers to finance this consumption is one of the odder features of the current global picture. The U.S. claim on the pool of available global savings is at a record high and this capital is mostly funded by the governments in the emerging world, particularly China, that make an ever-increasing effort to hold their currencies down.

But we don’t believe this is sustainable … a move of 40% to 60% seems like what is in the cards. If that seems a lot … consider that the euro moved 60% in nominal terms against the dollar from its low in the internet bubble to its high in 2004.”

So… It’s not just me… Or George Soros, or Sir John Templeton, or Warren Buffett, or Paul Volker, or Bill Bonner, or Addison Wiggin, or Richard Duncan, or U.S. Comptroller, David Walker,… Or a host of others, that say this current situation is unsustainable, and will result in a currency correction…

Ty Keough was keeping me up to date with the goings on in D.C. with lawmakers Schumer and Graham and their bill to bring about tariffs on Chinese exports to the U.S. The “boys” had a meeting with U.S. Treasury Sec. Paulson, just back from China… Apparently, Paulson got the “boys” to back down… However, I think if the Chinese don’t allow faster appreciation of the renminbi, they are going to feel the “boys” and their tariffs bill hanging over them like the sword of Damocles…

Oh, and by the way… The renminbi did gain to yet another new record level VS the dollar since the peg was dropped a year ago… I look at like this… The Chinese throwing a bone to the “boys”… And the next time they sit up and pant for currency appreciation the Chinese will throw them another bone!

Holy bottom dropping out of a currency Batman! What in the name of the Joker happened to kiwi? Just two days ago it was trading around 67-cents, and today it’s trading with a 65-cent moniker… OUCH! Yes, Robin… But this guy in St. Louis warned us not to get too cozy with kiwi, as we should look for the markets to return to focusing on the Current Account Deficit!

Currencies today: A$ .7510, kiwi .6590, C$ .8970, euro 1.2695, sterling 1.8925, Swiss .8035, ISK 69.84, rand 7.60, krone 6.5170, SEK 7.30, forint 215.55, zloty 3.13, koruna 22.37, yen 117.15, baht 37.50, sing 1.5875, HKD 7.7870, INR 45.92, China 7.90, pesos 10.99, dollar index 85.74, Silver $11.59, and Gold… $594.50

That’s it for today… A sad day in Cardinal nation, we just can’t seem to win a game anymore… UGH! It’s great having all the boys and girls back on the desk this week… Shoot Rudy, even the Big Boss, Frank Trotter is here! I’m off to the dentist this morning… Something I’m not happy about one iota! But then watching my Cardinals lately has been much like having your teeth pulled without painkillers! OK… That wasn’t a “feel good” way to end today… So… Have a great Wednesday!

Chuck Butler
September 27, 2006

The Daily Reckoning