Greenspan is Still Crazy

Good day…and a Happy Friday to one and all! I know that you did not receive the Pfennig yesterday. If the system is revived today, you will receive yesterday’s Pfennig, along with today’s. I apologize for this, but it’s completely out of my control.

Yesterday, we saw some additional dollar selling, and it wasn’t from any data. The dollar was sold after some comments by Big Al Greenspan. That’s right, the former Fed Chairman is still crazy after all these years. No wait! What I mean to say is that he can still move the markets. Let’s go to the tape and listen in on what he had to say.

“Central Banks around the world, and private investors are beginning to shift holdings from the dollar to the euro.” Greenspan went on to say that “the move is due to a desire to diversify after a concentration of global investment in U.S. assets.” But, here’s the one line that just cracked me up! “The trade and budget deficits aren’t a problem.”

Hmmmm. First of all, it sure sounded to me, and I guess the markets too, that Big Al was playing out a fantasy of directing the dollar. That’s the job of the Treasury Dept, not the Fed. But even though Big Al isn’t either now, he sure directed the dollar yesterday, eh? You know…Big Al just cracks me up. Here he is, the creator of all this mess, and now he decides to throw gas on the fire with talk about Central Banks diversifying out of dollars and into euros.

Yesterday, we saw the Reserve Bank of New Zealand (RBNZ) leave rates unchanged (UGH!), and Sweden’s Riksbank raise rates. First off, I was very disappointed in the RBNZ, as they have led the markets to believe that a rate hike was coming. The markets were disappointed too, and kiwi lost about half a cent. The Riksbank, on the other hand, did raise rates as I expected they would, and they not only left the door open for further rate hikes, they kicked that sucker open! Riksbank policy makers said that it was “reasonable to assume more increases.” The krona really received some wind in its sails after that statement, and got back onto the rally tracks.

Last night Japan printed their latest inflation report, and it was surprisingly on the weak side. This caused some selling in yen, as traders thought that this report would keep the Bank of Japan (BOJ) from raising rates before year-end. However, remember the other day when I told you that the Japanese Finance Ministry said they would be monitoring currency moves? Well…for once they came to the aid of the yen! Japan’s top currency advisor, Watanabe, came out and said he didn’t expect inflation to weaken further because of the strong economy.

Alright! It’s about time the Japanese intervened to help the yen! Too bad they waited this long, eh?

The other Asian currencies, like Thailand’s baht, Singapore’s dollar and China’s renminbi are all moving stronger versus the U.S. dollar. Thailand just keeps sailing along. Now it’s time to step up these moves!

Yesterday, new home sales in the United States rose 5.3 percent. Sounds pretty good, eh? Doesn’t sound like a problem in the housing sector, does it? Ahhh, grasshopper, every rose has its thorn…and the thorn in this case is the fact that these houses sold because the prices of those houses plunged 9.7% last month (compared with September 2005) the biggest such drop since December 1970. OUCH! That thorn sure does hurt!

Today, the trading in currencies will be dominated by the printing of the 3rd QTR GDP in the United States. The experts have GDP only posting a figure of 2.0 percent. That’s not very good…not for the United States…not for the world’s economic engine! I would say that if GDP does have a better showing than 2%, then the dollar will finish the week on a strong note. If it is bang on the experts forecast, we’ll end the week with a weaker dollar.

I’m really running late today. This head cold has got me not sleeping well. So, it’s onto the Big Finish. Again, I apologize for the delivery problems.

Currencies today: A$ .7660, kiwi .6580, C$ .8890, euro 1.2685, sterling 1.8925, Swiss .7975, ISK 67.80, rand 7.5140, krone 6.55, SEK 7.2725, forint 206.40, zloty 3.0575, koruna 22.39, yen 118.40, baht 36.85, sing 1.5625, HKD 7.7820, INR 45.19, China 7.8896, pesos 10.77, dollar index 85.94, Silver $12.07, and Gold… $594.45

That’s it for today… Great game last night! Could be a special treat to anyone attending tonight’s game, for sure! Tomorrow, we head down the road to see my beloved Missouri Tigers play mighty Oklahoma. I sure hope OU takes it easy on us! Time to see if the delivery system is going to work or not. Have a great Friday and weekend!

Chuck Butler
October 27, 2006

The Daily Reckoning