G-7 To Discuss Yen

Good day… Well… I’m back! What a great trip to spring training in Jupiter, Florida. I actually stay on Singer Island when I go to spring training, so I have to make sure I give kudos to the beach at Singer Island too! But, it’s the warmth of the afternoon Florida sun, the smell of hot dogs grilling, the crack of the bat and the roar of the crowd that takes me there, and will continue to do so, as long as I can afford to do so!

OK… Chris did a great job on the Pfennig in my absence didn’t he? I thought so. We’re having technical difficulties this morning, so I don’t know exactly when you will receive this. If it is tardy, I apologize… But trust me, I’m here at 4:45 am as usual to begin my day, and seeing that we’re having technical difficulties is no way to come back from vacation!

The currencies didn’t really see much movement yesterday. Overnight, however, the Japanese yen has given back its recent gains and has popped back over the 118.50 level. I find this move to be somewhat confusing since Reuters was reporting yesterday that Canada’s Fin Min, Flaherty, said that the Japanese yen would be discussed at the next G-7 meeting, which is to be held April 11-12, I believe.

What, do the markets believe the discussion will involve? Exchanging cookie recipes? Not hardly! They are going to discuss why the currency is still crazy after all these years…I mean still the most undervalued, and manipulated currency! But don’t let that fact get in the way of the markets mentality on this one. Me? I’m looking at this as a buying opportunity!

The euro continues to be strong versus the dollar, and why not? The Eurozone economy is strong. They enjoy a trade surplus, and a Central Bank that oozes credibility with regards to maintaining price stability. The European Central Bank (ECB) will soon raise rates again to keep inflation below their 2% target ceiling. Probably not this month, but next month should be on the rate hike calendar!

Speaking of rate hikes… I’ve been watching the goings on in the United Kingdom, and Chris did a nice job of reporting the increase in consumer demand, etc. The markets are looking for another rate hike to come next month. (Remember when, after the last rate hike, the markets sold sterling because they believed that was the last rate hike, and I said how wrong they were?) Well… I found a big strong limb to climb out on, and I’m going to say the Bank of England will probably try to surprise the markets with a rate hike as early as this week!

That should be enough proof to the markets that they have sterling all wrong…and hopefully they don’t go back down the road of dumb moves!

I see this morning that one of the BIG BROKERAGE HOUSES, Goldman Sachs is reversing their previous call to sell Indian rupees. I wonder what made them change their minds? I can see a skit with the Church Lady on SNL, asking the head of Goldman why he changed his mind; and she would say, “Could it be…Satan?” HAHAHAHA!

I would say that it probably has to do with the fact that Indian rupees are really bustin’-a-move lately versus the dollar. The economy in India keeps growing, interest rates keep going up, and investments keep pouring in to India.

One thing I was looking at yesterday (as I slowly recovered from that Opening Day loss the previous night) was how the currencies have performed in the past year. Yes, instead of just looking at year-to-date stuff… Looking at a 12-month period. I do this whenever I’m about to go back to an investment conference, so I can show what the investors could have shown as returns if they had listened and acted on my presentation.

So… here goes… 12-month returns… Kiwi, +18%, Pound Sterling +13.5%, Aussie dollar +13.50%, Sweden +10%, Euro +10%, Swiss +7%, Singapore +6%, Norway +6%, and so on… The real killer is the Thai baht, the currency I was so high on, before the military government put currency controls in place. The baht is up almost 20% in the past year!

Pretty impressive, eh? Oh, and to make the regulators happy… This, of course, is past performance, and does not have anything to do with future returns.

OK, back to the present… April 2007. April showers and all that… Hey! If April showers bring May flowers, what do May flowers bring? The answer in the Big Finish!

The Canadian dollar/loonie has really rebounded lately on the back of a nice rebound in commodities, led by oil. Overnight, oil has given back over a $1, but the move to $66 is what lit the fire under commodities. And now, for the first time in almost a year, commodities have the spotlight shining on them again!

In Australia, a very strong retail sales report (up 0.9%) has the Reserve Bank of Australia (RBA) on the hot seat again. Again, the markets thought that the last rate hike was the end of the rate hike cycle in Australia. Looks like they will have egg on their collective faces again, as the RBA is looking seriously at another rate hike.

The data cupboard will yield only pending home sales and auto sales today. The housing market is still a BIG STORY these days. I have to tell you, that when I was driving around Singer Island on vacation, the massive condos that have been built just in the past few years look pretty empty. Maybe, as all my friends keep telling me I should do, I can pick up one of those empty ones in a couple of years! Nah… I’ve still got my little buddy, Alex, to get through college, and he’ll just be entering middle school next year!

The point, I was trying to make was simply that the builders keep building, and the buyers keep disappearing!

Oh, and this was sent to me by my old friend and once again colleague, Ed Bonawitz… The Greenwich Alternative Investments Macro Sentiment Indicators are based on the outlook of hedge fund managers employing a macro view and who manage, in aggregate, in excess of $30 billion in assets. And in their latest report… The majority of the managers continue to hold a pessimistic view on the U.S. dollar, as 54% report a bearish position, versus 23% bullish and 23% neutral.

Currencies today: A$ .8140, kiwi .72, C$ .8650, euro 1.3370, sterling 1.9765, Swiss .8215, ISK 66.30, rand 7.22, krone 6.11, SEK 7.01, forint 184.70, zloty 2.88, koruna 20.95, yen 118.50, baht 32.40, sing 1.5180, HKD 7.8140, INR 43.08, China 7.7310, pesos 10.99, dollar index 82.98, Silver $13.29, and Gold… $663.60

That’s it for today… and the answer is… Mayflowers bring Pilgrims! HAHAHAHA! As a long time Cardinal fan, I was quite impressed by the Opening Day ceremonies on Sunday. The outpouring of affection for this team by its fans is remarkable. Looks like our email system is still down, so as I said… whenever it is you receive this, I apologize for its tardiness. Congratulations to the Florida Gators… NCAA back-to-back Basketball Championships! Good Show! First school ever to hold Basketball and Football Championships in the same calendar year! Have a great Tuesday!

Chuck Butler — April 03, 2007

The Daily Reckoning