Good day… The weekend weather here was unbelievably great! From freezing on Thursday night to swimming on Sunday… Unbelievable! We had a tragedy in St. Louis over the weekend, when Cardinal’s pitcher, Josh Hancock, was killed in a traffic accident. We’ve been through this before… In 2002, we lost Daryl Kyle…
OK… Friday’s data cupboard was chock-full-o-bad data for the U.S. economy… And of course the dollar. First of all, 1st QTR GDP printed worse than expected! Recall, I had told you that the “experts” had GDP pegged at a measly 1.8%… Well, the actual number came in at 1.3%… Hey! At least it’s not a negative number, eh? I’m not trying to be a smart aleck here… Well, maybe… But the point is the economy has slowed, just like I kept saying it was going to do. And the Tale of Two Cycles (U.S. and Eurozone) becomes a reality!
Then, we saw the data cupboard yield a not so helpful Personal Consumption figure of 3.8%… Let me explain real quick here… Personal Consumption is the Fed’s choice for a measure of inflation… The previous month’s figure was 4.2%, and one would think, GREAT! Inflation is slowing, right? Well… That’s true, but the forecast for inflation to slow was 3.5%… So, it didn’t slow as much as expected…
High inflation, and low economic growth… Uh-Oh… Sounds a lot like the 70’s! Did I hear someone say, “stagflation”? I think I did!
OK, enough of that… The currencies had a nice Friday, taking liberties with the dollar after all that data was printed. Oh, and get this… The U. of Michigan Consumer Confidence number was stronger!???? What are those people smoking?
The euro hit a new all-time record VS the dollar on Friday of 1.3675… Overnight though, we’ve seen the dollar rebound on news from China… Let’s go to the tape!
China’s Central Bank changed their reserve requirements, putting some stronger shackles on Banks and their lending practices… This was done to “cool the economy”… Hmmm, let’s look at this further. The previous reserve requirement on loans was 10.5%… The Central Bank ordered the lenders to raise that reserve requirement to 11%, and you would have thought they ordered them to raise it to 25%!
Oh, the heartbreak… The Armageddon! Here go the Chicken Littles again… “The Chinese economy is going to slow down, the Chinese economy is going to slow down.” What a bunch of dolts! I’m not arguing that this move might have some affect on the Chinese economy, what I’m arguing about is simply that it won’t in itself, bring about a cooling the Chinese economy!
But don’t let that get in the way of a “feel good story for the dollar”… The Commodity Currencies were the first to see selling, as they provide the raw materials to China for their growth. Then the euro took on some water, on the cross with yen… Somehow, this dolt mentality among traders crossed over to the “carry trade”…
Hey! Mexico’s Central Bank unexpectedly raised interest rates on Friday 25 BPS! Interesting move on their part, eh?
Speaking of rate hikes… Sweden’s Riksbank meets on Friday this week, and while they are not expected to raise rates, I’m going to go out on a strong limb and say they will raise rates! Of course I don’t want to be counting my chickens before they are hatched like I did last week with Norway!
The Eurozone will print a CPI report today… Look for inflation to remain below the European Central Bank’s (ECB) target of 2%… But, there could be some upward movement in the report that alarms the ECB… Especially with the price of oil continuing to move higher. I expect the ECB to remain on inflation alert, and keep the rate hikes coming!
The ECB will see some reasons to remain on inflation alert on Wednesday, when German unemployment data will print along with April’s PMI (Manufacturing report) So… It’s not just U.S. data on the docket this week!
Speaking of U.S. data… We begin the week with two of my faves… Personal Income and Spending, and the Chicago PMI (manufacturing) report… The rest of the week is chock-full-o-data, that we’ll discuss as we go along in the week.
Mountains of debt… That’s what we have here in the U.S. everywhere you look… Debt, and more debt… And money supply to deal with the debt is even more enormous!
Our long time friend, Bill Bonner, he of the Daily Reckoning and two best selling books on the problems we face here in the U.S. with all the debt, etc. had a great way of talking about the debt in his newsletter on Friday… (https://www.dailyreckoning.com) Let’s take a quick look.
“Currently, 80% of the U.S. fiscal deficit is financed by foreigners; one hundred percent of the U.S. trade deficit is financed by foreigners; and all over the world, the piles of dollar bills…dollar credits…dollar shorts…dollar bets…and dollar-based debts…are mounting up. China alone is expected to have more than $1 trillion U.S. dollars in reserves by the end of this year. In short, many of the people with the most to lose from a falling dollar are people who can perfectly well get along without it.
The foreigners don’t all speak English; but they can say ‘euro’ or ‘yen’ or ‘gold’ probably as well as they can say ‘dollar.’ And, if and when they feel that the dollar is wobbling, they are quite likely to want to lighten up on their dollar holdings.
You probably should too, just to be safe…and profitable.”
Time to head to the Big Finish… But before I do… There’s a great article on the Bloomie this morning about how the BIG BOYS, Merrill Lynch, Goldman Sachs, UBS, are saying that Fed Chairman Big Ben Bernanke, is wrong on inflation, and that interest rates need to be raised. Hmmmm… Food for thought, eh?
Currencies today: A$ .8295, kiwi .7410, C$ .8970, euro 1.3620, sterling 1.9960, Swiss .8275, ISK 64.20, rand 7.0750, krone 5.9670, SEK 6.7250, forint 181.50, zloty 2.7785, koruna 20.6650, yen 119.50, baht 32.70, sing 1.52, HKD 7.82, INR 41.17, China 7.7035, pesos 10.93, dollar index 81.66, Silver $13.51, and Gold… $679
That’s it for today… Looks like I might have to fill in for the Big Boss and head to Panama this week… I got to attend the Bob Costas Benefit on Saturday night with my lovely bride… The Benefit supports the Children’s Hospital here in St. Louis, and the Bob Costas Cancer Center for children… Quite a worthy cause! I’ll have to twist some arms, but I don’t see why EverBank shouldn’t participate in this cause… I’ll take that up with the Big Boss, Frank Trotter, whenever I see him next! Time to go now… So, have a great Monday and week…
Chuck Butler — April 30, 2007