G-7 Sends a Message

Good day… And a Marvelous Monday to you! St. Pete was gorgeous, and it has been rainy, dreary, and cold here in St. Louis, since I returned. UGH! Front and center this morning, we’ve got to get to the G-7 meeting this past weekend, in which, the finance ministers expressed a concern with the falling dollar. This has led to some very strong selling in the overnight market of the euro (EUR) and other currencies.

What was it that the G-7 said anyway? Well… I’m glad you asked, because from what I saw of the communiqué, it must have been in some secret language. Here’s the communiqué…

“We reaffirm our shared interest in a strong and stable international financial system. Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability.”

So… Where did they single out the dollar? Oh! The dollar has lost quite a bit of ground since the last G-7 meeting… But so have pound sterling (GBP), South African rand (ZAR), and Icelandic krona (ISK)! I guess the emphasis for G-7 was “major currencies”. And… I guess they have forgotten about China, because they fell off the G-7 radar screen!

I would expect dollar shorts to be covered today, which would drive the dollar higher on this news… But, fundamentally, what has changed? The trade deficit rose to $62 billion in the last report, instead of falling to $58 billion! And… The U. of Michigan Confidence report crashed and burned on Friday! The confidence index fell to its lowest reading since 1982! (Which on a side note was a good year, as the Cardinals won the World Series and my oldest son, Andrew was born!)

So… The dollar bulls are going to be dancing in the streets today… And most likely tomorrow… That is unless the markets stop and take notice of U.S. retail sales, which are to print this morning. The G-7 communiqué came as a surprise, as these guys normally can’t agree on anything… And, I find it interesting that China has basically fallen off the radar screen.

I guess these knuckleheads finally took notice of the rot on the dollar’s vine. OK… This could mean a monumental swing… Or, it could be just a short-term sell off of the currencies. I’m thinking it is the latter of the two, but I could be wrong, eh?

This morning, we’ll see the latest retail sales data in the United States, which is expected to be very soft. The “experts” have forecast a “flat” report. In checking with the BHI (Butler Household Index) I have to go back to March, when I was gone most of the month – so the BHI is not sending me a clear signal. Chain store sales (sales of stores open 12 months or more) unexpectedly collapsed in March, by -0.5% year-on-year, with the consensus at 0.9%. The decline is the third largest on record… So I would think that retail sales would be weak, and probably on the negative side of the ledger.

That should keep the dollar bulls from celebrating too loudly!

There was another piece of data on Friday that flew under the radar screens of the mass media… Import prices soared in March, spiking to +14.8%! This means we’re importing other countries’ inflation… Great! That’s just great! As if we didn’t already have our own! See what the weak dollar will do to your purchasing power? Makes you kind of wonder why any country would seek out a weaker currency, doesn’t it?

I mean… No country has ever debased their currency to prosperity… So, why did we think we could do it now? Oh, I know, I know, it must have been that disastrous saying: “This time it will be different.”

So… Unfortunately, all the fundamentals will be forgotten today. We need to batten down the hatches, and withstand the prevailing storm caused by G-7. However, in my mind, I’m thinking that the words of G-7 might not carry much weight, and they will need to be backed up with intervention from the United States and ECB to really change this weak dollar trend… And even then, if the dollar bears still want to fight, it could be a long difficult battle.

OK… Now this might sound strange to you all… But I’m writing at one o’clock in the morning. I just got home from having to drive 100 miles to pick up my son, Andrew, and his friend, Rachel. They had a very unfortunate automobile accident this afternoon, and they were in the hospital, and all that, before I went down to get them to bring them home. So… OH! They’re OK, really hurting all over, and Andrew looks like he got into a fight with a bear!

So… As I was saying, the currency prices are as of 1:00 AM. I’m going to bed now… Talk later.

Currencies today 4/14/08: A$ .9215, kiwi .7875, C$ .9760, euro 1.5715, sterling 1.9710, Swiss .9960, ISK 73.50, rand 7.8250, krone 5.0590, SEK 5.9920, forint 160.60, zloty 2.18, koruna 15.85, yen 100.90, baht 31.60, sing 1.36, HKD 7.7915, INR 40, China 6.9960, pesos 10.52, BRL 1.6895, dollar index 72.15, Oil $109.60, Silver $17.34, and Gold… $920.30

That’s it for today… Retail sales are the headline data today… Get ready to rumble! I’m back in the saddle this week for the whole week! I have a two-day jaunt to Jacksonville next week, and then the Las Vegas Money Show the second week of May! This Las Vegas Money Show is HUGE! It’s held at the Mandalay Bay Hotel… You should check it out, if you think it sounds interesting! That’s all for me, I’m going to bed! I hope you have a Marvelous Monday! Batten down those hatches today!

Chuck Butler
April 14, 2008

The Daily Reckoning