Happy Halloween!

Good day… And Happy Halloween to one and all! Old and young, this is a great fun day/night. The kids get to dress up, and the old fogies like me get to see them and smile. I’m not into black cats, voodoo, and Halloween stuff… That scares the bejeebers out of me… But everything else is fun! I don’t know if my little buddy will dress up this year and Trick-R-Treat… But I do know that my little granddaughter, Delaney Grace, will be a lamb, in a costume my beautiful bride made, while her mother, my darling daughter, Dawn will be Mary.

OK… Onto currencies… The dollar lost more ground yesterday, falling 1.4440 euro (EUR), and 2.07 pound sterling (GBP)… The Canadian dollar (CAD) continues to move higher too! How about a 47-year high for the loonie! The dollar took one to the mid-section when the latest consumer confidence index fell, no collapsed, from 99.5 to 95.6 (consensus 99.0), a low since the immediate aftermath of Hurricane Katrina.

It’s about time consumers started feeling the pinch that I’ve believed they would already be doing for some time now… I had no idea what these people were so “confident” about. Yes, I realize that a lot of this comes from stock market performance… But come on… The housing mess alone should have put the kyboshes on consumer confidence months ago. And that’s not even taking into account the war… The deficit situation… Financing the deficit… And let’s not forget the weakening job market, and economy.

What? Everyone thought the Fed was just cutting rates to give them something to do? NOT! They’re cutting rates because the economy is in trouble! Oh… And there’s a little voice in my head that keeps telling me that the Fed could go 50 BPS today… Talk about hitting the panic button if they do! And that could very well accelerate the euro’s rise to 1.50.

The dollar didn’t get any help from the latest S&P/Case Shiller home price index for 20 metropolitan areas, which fell 4.2% year on year in August.

On Monday I told you that the Swedish Central Bank, the Riksbank, would raise rates on Tuesday… And raise rates they did! I find this refreshing! In this time of a major Central Bank, the Fed, cutting rates to respond to weak growth, and the ECB foregoing future rate hikes… The Riksbank goes ahead and stays on the road to fighting inflation… Bully for them!

This is one of the reasons I’ve highlighted Sweden along with Norway for over two years now… A positive balance of payments economy along with a strong Central Bank… Ingredients for a strong currency!

Today, we might see the Norges Bank, Norway’s Central Bank raise rates too… The markets aren’t expecting a rate hike… But, I smell one… I think they will raise rates today… We’ll have to wait-n-see, eh?

The BIG happening today though is Halloween… No wait! It’s the FOMC meeting! But before we hear about the Fed’s latest rate cut, we’ll see the color of the first reading of third quarter GDP. Look for a weaker economy as indicated in weaker GDP numbers. 2.9% is what the experts are forecasting… I wouldn’t be surprised to see it print weaker… But then, as I always explain to people… You have to look under the hood to see what GDP is comprised of.

If it is chock-full-o-government spending, then it certainly isn’t good economic growth. But don’t let that get in the way of more media coverage telling the public that’s it’s all good!

Remember the other day when I said that the Reserve Bank of Australia had more work to do with rate hikes to fight inflation? Well… Here’s more fuel for that thought… Australia’s home-building approvals surged seven times as much as economists’ forecast which equals a 14-month high… And on top of that lending to consumers and businesses rose 1.2% last month.

Currency participants are noticing this data from Australia too, and are pushing Aussie dollar (AUD) higher and higher. They’ve got their white leather jacket with the fringe on the arms and they are thrusting their arms in the air and singing… I want to take you higher… Want to take you higher, baby, baby, baby light my fire… Seriously though… This is what I envision when I look at the Aussie dollar pushing higher toward parity to the green/peachback.

And how about this for tough talk from a Central Banker… The Swiss National Bank (SNB) Governor Roth, told the press that he will “take the necessary measures on interest rates should the franc’s weakness stoke inflation.” WOW! I can tell you this, he’s directing that talk at the carry trade vultures that have preyed on the Swiss franc (CHF) because of the low interest rates there. Look for franc strength from these words.

The poor old Japanese yen (JPY)… Just when it seems to get some wind in its sails, the wind stops blowing in Japan. I was looking at yen the other day, and thinking about how I’m sure the Bank of Japan participants would’ve loved to have had at least two rate hikes, if not three, in their rear view mirror by now… But every time they get a piece of data that they could use to convince their colleagues, a different piece of data goes the opposite way! One step forward and two steps back for the Japanese yen.

But I just can’t ever shake the notion I had three years ago about yen. And that is that traders and market participants would grow tired of waiting for China to adjust their currency so that it made a difference in the U.S. current account deficit, and go after a “floating” currency that could also do the trick… Japanese yen.

Nobody has taken up the baton and run with that idea… Yet… Maybe investment guru, Jim Rogers, was doing that last week, when he said he was buying yen and Swiss francs because they were under valued from the carry trade. Yen did gain about three whole figures after that news spread… But we need follow through… We need more… We need for yen to get on bus Gus, make a new plan Stan, no need to be coy Roy… Just listen to me… And rally!

The commodity traders aren’t as convinced as everyone else that the Fed will cut rates today… Maybe they read that article in the Wall Street Journal yesterday that outlined why the Fed may not cut. Anyway… The reason I say this is because they have take commodities lower, which indicates to me that they are not a “believer”.

That’s OK… Because once rates in the United States are lower, and the threat of higher inflation than what we have is here, commodity prices will rebound. Oil, base metals, precious metals… They have all taken a breather here ahead of the rate announcement… Looks like a Blue Light Special!

Speaking of inflation… My long time colleague, Ed Bonawitz, sent me this link yesterday from the USA Today paper that highlights items that have skyrocketed in price since 1981.

After hitting historic highs, oil prices fall

Scroll down a bit and look to the left hand side… Where you’ll see the percentage increases since January 1981.

Pretty interesting, eh?

Oh… And one final thought on the rate cut that will be announced this afternoon by the Fed… Just like the last one… IT WILL NOT HELP WITH THE HOUSING WOES! IT WILL… STOKE THE INFLATION FIRE!

Currencies today: A$ .9230, kiwi .7630, C$ 1.0475, euro 1.4440, sterling 2.0740, Swiss .8630, ISK 59.90, rand 6.5490, krone 5.3605, SEK 6.3850, forint 174, zloty 2.5150, koruna 18.6750, yen 115.05, baht 31.68, sing 1.4475, HKD 7.75, INR 39.32, China 7.4620, pesos 10.72, BRL 1.7490, dollar index 76.87, Oil $89.59, Silver $14.25, and Gold… $783.90

That’s it for today… Boo! Did I scare you? Well… You may not be scared, but the dollar sure is spooked by the Fed Reserve! How about that Bret Favre? He is one of the best quarterbacks of our time. They’ll one day mention him with Johnny Unitas, Joe Namath, Roger Staubach, and others that were the best! Still haven’t gotten my taste for food back yet, but it will come. Probably the day before I go back on the medicine! UGH! In November, I’m scheduled for a new scan. We’ll keep our fingers crossed on that one! Until then though… I’ll keep plugging along and singing my song. It’s all seashells and balloons… Well… Maybe not that nice, but you get the picture!

At the end of next week, I’ll be heading to Amelia Island off the coast of Jacksonville for some relax time, and to see the beach again. The weekend is then followed up by corporate meetings But until then, I’ll relax and take it easy without having to get in and out of cars etc. So… I’ve got that going for me, eh?

OK VERY IMPORTANT! The Pfennig will be later tomorrow morning, probably more mid morningish due to some changes in the delivery system… It will be only one day, so you can go back to having your coffee with the Pfennig the next day… Just late tomorrow… Thanks!

Hope your Halloween is great and you get to do the Monster Mash… I hear it’s a graveyard smash! HAHAHAHA!

Chuck Butler
October 31, 2007

The Daily Reckoning