Good day… And what should be a “Wild Wednesday” to you! This is the day the Fed’s “true” colors come through in my opinion. The markets were all fired up a couple of weeks ago, and the air in their balloon has been slowly let out up to now. But today, we’ll see if their balloon gets re-inflated or goes “pop”!
You see, today is the day the Fed’s FOMC meeting adjourns and a rate announcement along with a new bias will be the order of business at the end of the meeting. The Fed Heads normally eat their lunch, which was probably packed in brown bag consisting of a baloney sandwich (since that’s what they normally spew is baloney!), some chips and ho-ho’s… HAHAHAHAHA!
The currencies tried to mount a rally yesterday after I signed off, but they were stopped in their tracks with the euro (EUR) reaching 1.56. The single unit is somewhat softer right now, but think about this for a minute… A couple of weeks ago, we were staring down the barrel of the 1.53 handle… So, the euro has climbed back over 2-cents.
The currency traders are champing at the bit to see what the Fed Heads will do today… I think they’ve come to the realization that Big Ben Bernanke was merely “kidding” when he said he was an inflation fighter. You see, an inflation fighter would be raising interest rates aggressively (think Paul Volcker)… The Fed can’t raise rates… Not with the economy teetering… And not with the mortgage market melting down, along with housing… And let’s not forget about all that collateral the Fed has taken on from financial institutions that needed loans. As rates go higher, guess what loses value? That’s right… Bonds.
So… When all the dust settles on today I think this is the scenario we’ll see…
Lo and behold, look who’s running for the hills. It’s the dollar bulls that truly believed their beloved Fed Reserve was serious about their claim that they were “inflation fighters”. Once the Fed keeps rates unchanged this afternoon for step one… And then in step two decides that they need to include a “downside risk” bias once again, you’ll really see the dollar bulls running for the hills. Their currency will be like a fillet of cod, getting ready to be put in one of those fryers that they have at my local fish fry!
Alrighty then… Let’s talk about the data results yesterday. As I told you beforehand, I doubted it would help the dollar rally, and it didn’t! Consumer confidence hit a 16-year low of 50.4 this month. That’s a fall from a revised 58 in May. These indexes might look strange, but think of it this way… When the United States was high flying in the late ’90s, the index number was over 100! That’s how far we’ve fallen, and quite frankly, you know me, I still think it’s too high! What in the world do these people have to be confident about? Gas prices continue to head to what appears to be $5, and food prices won’t stop going higher either! The jobless rate keeps going higher, and the stock market is in a funk… Not to mention, we have a war going on, and all the saber rattling in the Middle East… I could go on, but I don’t want to get in a bad mood.
I met a man at the Las Vegas Money Show that really chastised me about always being so negative about the United States. I explained that I was not negative about the U.S., I was negative about the deficits, the way the Fed operated, and people that think that investing outside the United States is unpatriotic! But, to make him happy… Here’s the opposite side… I feel that with all the bad stuff going on, that this is the U.S., and it’s the economic engine of the world (at least now it is), and if there’s a country that could get out of this mess, it would the United States… But would someone please start digging us out of this mess?
The Case/ Schiller Home Price Index hit the skids yesterday too… The home-price index of 20 cities fell by 15.3% in April versus a year ago. This is the largest drop since the index’s inception in 2000. It marked the first time all 20 metro areas posted year-over-year declines. The sad thing here is that not all areas are posting losses, so that means places like Miami, Phoenix and Las Vegas have HUGE losses!
Let me remind you that it was almost a year ago that our fearless Fed Head, Big Ben… Or was it U.S. Treasury Secretary Paulson? Anyway one of the two told us that the housing meltdown had bottomed. (I forget which lies are told by whom after a while…)
Today, we’ll see durable goods orders for May, along with new home sales for May, before the FOMC announcement this afternoon. durable goods orders might surprise on the upside given the orders at Boeing, but remember those are “one and done” deals, and new home sales will probably remain weak, even with the prices dropping like, well… The way they’re dropping.
I know this sounds negative… But I just can’t get my arms around a call that an academic just made that the U.S. economy will rebound in the second half of this year. To me… I think we are just beginning to feel the bad stuff happening… But don’t let that get in the way of the “Polly Annas”.
European Central Bank (ECB) President, Trichet, is in the news this morning as he tries to keep the heat on inflation, but temper the statements so that the markets don’t read something that isn’t there… Trichet said this morning that, “risks to price stability (read inflation) have “intensified”.
He followed that up with a comment about his earlier statement regarding a rate hike… Trichet said that he never said there would be a series of rate hikes… No, you didn’t Claude… But we all know that inflation isn’t going down across the globe… So, you might not want the markets to price in more than a “one and done” rate hike, but you’re going to have to live with it! Your attempt to “cool the jets” might work this time.
The Aussie dollar (AUD) has caught some wind in its sails this week, and will see even more wind after the Fed Heads keep rates unchanged this afternoon. The huge positive rate differential in favor of the Aussie dollar over the green/peachback will remain in place, and when the Reserve Bank of Australia comes in to raise rates in one of the next couple of meetings, the differential will go wider! Wind, we need more wind!
The Reserve Bank of India (RBI) raised interest rates 50 BPS last night, and the RBI Governor issued a statement that said he believed capital inflow into India had remained strong. The Big Brokers, Goldman and JP Morgan don’t believe this rate hike will help a sliding rupee (INR)… I tend to disagree (you knew I would!) with them. Yes, India’s current account deficit is higher than I would like to see a country’s deficit, but, if traders swept New Zealand’s huge deficit under a rug because of their huge rate differential, then they could also do it for India.
I guess we’ll have to wait-n-see… But, kudos to the RBI for raising rates aggressively. Unfortunately… I’m still mad as hell and won’t take it anymore about the RBI’s intervention months ago to stem the rise in the rupee. Goofballs! If they had allowed the rupee to continue to gain, it would have done some of the inflation fighting for them! But, as usual, central bankers just can’t leave a good thing alone!
By long standing convention, quotes for currencies are done in two styles… European and American. European style quotes are expressed in terms of how many unites of the currency are required to buy on U.S. dollar. The American style quotes are expressed in terms of how many U.S. dollars are required to buy one unit of the currency.
I receive tons of emails every week about the currency quotes in the Big Finish… Some people ask why they can’t be all of one or the other? I guess they could, but I like to keep things simple, and the quotes I use are the way each currency is traded, except Swiss francs (CHF), which many years ago, people asked me to quote it differently. At that time I quoted about 5 currencies each day, not the long list of stuff that appears now!
Currencies today 6/25/08: A$ .9555, kiwi .76, C$ .9875, euro 1.5585, sterling 1.9740, Swiss .9610, ISK 82.80, rand 7.9825, krone 5.1150, SEK 6.0350, forint 152.20, zloty 2.1550, koruna 15.4350, yen 108, baht 33.60, sing 1.3675, HKD 7.8060, INR 42.76, China 6.8650, pesos 10.29, BRL 1.6040, dollar index 73.20, Oil $137, Silver $16.70, and Gold… $885
That’s it for today… The Big Boss, Frank Trotter, was on the Fox Business Channel yesterday morning. I don’t get that station! But our PR people sent me the clip and Frank was eloquent as always! We’re less than a month away from the 2008 Agora Financial Investment Symposium-Vancouver… I wasn’t able to make it to Vancouver last year, and this year, I’ll be going by my lonesome, which means tough travel for yours truly… But hey! It’s better than sitting at home, with a walker, which is what I was doing last year! FOMC holds the key today… So get ready for a “wild” Wednesday!
June 25, 2008