Hitting the Snooze Button

Good day… And a Tremendous Thursday to you! Another full one-cent range trade in the euro (EUR) on Wednesday… First it sold off from the 1.46 I left you with, to just above 1.45, and then as I walked out the door it was 1.4640! I bought our customer’s euros early on, about in the middle of that sell off, so I didn’t get caught up in the whirlwind movement on the day.

When I checked the currencies last night, the euro was back to 1.46. Traders can’t figure out which way they want to take it… But as I said on Tuesday… In fact, let’s go to the tape from Tuesday’s Pfennig to see what I said! “So… Here goes folks… We could see this going on for an extended time, with the dollar basking in the sunlight of all this gibberish. Patience is going to be the key here… Are you patient? I know there will be people calling the desk and wanting out of their currencies, because they have no patience… But as I tell people all the time… A trend, which the dollar is in, is not a ONE-WAY street. There is volatility. We saw it 2005, and it looks as though, as long as the ‘spin doctors’ can pull the wool of the public’s and market’s eyes… We could very well see it again.”

One of the FX research firms that I read now and then, recently said that the euro could call to 1.40 maybe even 1.38 this year, before heading back to 1.50… Not that I would mind if that happened, but I sure can imagine the nasty emails I’ll be getting should the euro fall by that much. Because you know the media, it will be 2005 all over again… The stories will be flying out the windows about how the euro is going to crumble, and member nations are revolting, yadda, yadda, yadda.

I’m just saying that we could see a weaker euro before we see a stronger one… Which means… 1. All the other smaller dogs (except Swiss (CHF) and yen (JPY)) will follow the Big Dog, euro. 2. We’ll have to be patient… 3. Look to buy at some ridiculously cheaper prices along the way… And 4. We’ll have to be patient… Wait! I already said that one! Not to worry, I meant to repeat it, as it is that important!

Ever since the Fed pulled a rabbit out of their hat, with that 75 BPS out of meeting rate cut, our PR firm has been getting lots of requests for me to talk on radio shows. You see, the PR firm sent out my Pfennig from last week, when I was the first to say that I thought the Fed would feel the need to cut rates out of meeting… I guess I have to come up with something new to say, eh?

So, for all you listeners out there in radio land… I’ll be on the airwaves in West Virginia on WEPM Martinsburg, WV at 9:06 ET this morning… And on Friday, I’ll be on in Portland OR, KXL-AM at 1:45 pm ET… As I always kid… I’ve got the face for radio! I can hear that old bit… “Don’t be nervous, don’t be rocky, you’re a guest, disc jockey, now”

OK, back to your normal regularly scheduled shows. So… You know me… I like to check what my fave economist, Stephen Roach, has to say about things… And I think he nailed it with his thoughts about the Fed’s rate cut… Let’s listen in…

“I’m sort of worried that all they did yesterday was to hit the snooze button. (This is) excessive monetary accommodation that just takes us from bubble to bubble to bubble.”

Thanks Stephen!

You know, we all had great hopes that the Big Ben Fed would be “different” from the one of Big Bubbles Al Greenspan… But that dog’s not going to hunt folks… Big Ben is into blowing bubbles too.

Yesterday, the Congressional budget office issued released figures that show the current budget deficit will jump to $250 billion as the economy weakens… And that figure doesn’t include the $150 billion being thrown about as a number for the stimulus package. And I’ll let you in on a little secret… Do you promise not to tell? Listen, do wah do, let me whisper in your ear, do wah do, OK… Enough of that… Anyway, it’s not really a secret… But the expenses of the war we’ve been fighting for four years now aren’t a part of these numbers, folks… Imagine if they were!

One of my other fave economists, is Nouriel Roubini… And Roubini said yesterday that he sees a U.S. recession as “severe” causing a global slowdown. He said that the question is no longer a question of “hard landing” or “soft landing” it is now “how hard the landing will be”… and that the Fed’s move won’t do anything to avert a recession… “You can’t solve insolvency with liquidity”…

So, see folks… It’s not just me telling you these things…

Yesterday, Chris Gaffney and I were discussing the current recession, and Chris asked me if I thought the government stimulus package would help ease the recession pain. I pointed out to Chris that the $150 billion stimulus package is less than 1% of the total $15 trillion economy… That’s peanuts folks. Yes, $150 billion is a lot to put on the government’s books, but when you spread it out to all the folks, it just doesn’t cut the mustard as the “recession averting medicine” that the government and the mass media believe it will be.

Get ready to batten down the hatches folks…

OK, enough of all that!

Stocks came back strong yesterday afternoon, after spending the morning down over 200 points. So… If stocks came back strong, carry trades came back strong… And yen was sold… But the highlight of the day was the brief sighting of yen with a 104 handle earlier in the day!

Aussie (AUD) and kiwi (NZD) had a mini-comeback with carry trades. In Australia… Headline CPI rose by 0.9% in the December quarter, giving an annual rate of 3.0%. This report highlights that Australia, still, has an inflation problem… And points to a Reserve Bank rate hike in February.

The Reserve Bank of New Zealand left their official cash rate unchanged last night. So… High interest rates here will continue to underpin kiwi.

Swiss francs are heading back to 92-cents again… The on again, off again trading in Swiss francs gets your head spinning in circles… But if you buy francs and let them roll, you don’t worry about the “noise”.

As if Banks that dealt in subprime, CDO’s, and Credit Default Swaps didn’t have enough to worry about… French Bank, Societe Generale (SocGen) announced yesterday that they would have to take a 4.9 billion euro loss (that’s $7.15 billion in dollars) due to what they called an “exceptional fraud” by one of its traders. Ahhh, brings back memories of Nick Leeson doesn’t it? Rogue traders… You gotta love ’em! NOT! But it makes me think that there could be and probably will be more of these rogue traders out there. When you get down to it… Risk management procedures weren’t followed, or the managers were too caught up in their “bonuses” to look under the hood at the numbers.

And in a sign of the times… The Wall Street Journal is reporting this morning that Ford will announce an additional 13,000 more job cuts… OUCH! This brings the total to 44,000 jobs that have been cut at Ford in the past two years… But not to worry! I’m sure the Bureau of Labor Statistics will come up with some smoke screen to offset these job cuts. We can’t have the public getting scared, and moping around! They’ve got to “feel good” and spend, spend, spend!

OK… Today, we’ll see the color of the latest Existing Home Sales data… This piece of data has been all over the board lately, with higher sales followed by lower sales… The higher sales are generated by lower house prices though… So, that’s no reward…

And finally… China reported, last night, that their economy grew 11.2% in the fourth quarter of 2007, following up the 11.5% growth in the third quarter. That marks four straight quarters that China’s economy has grown more than 11%! WOW! They are amazing! The question here is how much will they suffer as the United States goes through their recession? I’m sure it will be significant. But I don’t think it will bring the Chinese economy to its knees.

This should grease the tracks for faster currency appreciation in the renminbi (CNY)… The Chinese are figuring out how valuable a strong currency is when fighting inflation. Inflation in China cooled to 6.5% versus 6.9% in the previous reading. So, look for more currency appreciation here… It’s slow, I know… But it’s there!

Oh, and one more thing… This just in… German Business Confidence rose from the ashes of a two-year low in the previous reading unexpectedly in January. The German Think Tank, IFO says that business confidence rose instead of falling as forecast in January, and this, they think, indicates Germany’s ability to withstand a U.S. recession I don’t think the “think tank” really thought that one through. Remember… One piece of data isn’t all that, just as one swallow doesn’t make a summer!

Currencies today: A$ .8735, kiwi .7675, C$ .9835, euro 1.4620, sterling 1.9580, Swiss .9180, ISK 66.50, rand 7.077, krone 5.51, SEK 6.4940, forint 176.40, zloty 2.4780, koruna 17.80, yen 106, baht 31.40, sing 1.43, HKD 7.8080, INR 39.45, China 7.2230, pesos 10.92, BRL 1.7920, dollar index 76.34, Oil $87.58, Silver $16.22, and Gold…. $893.70

That’s it for today… Man, I almost didn’t answer the bell this morning… I was in dreamland when the alarm went off, and for a minute I almost fell back into dreamland. That would have been sweet! My beautiful bride brought Little “D” – Delaney Grace – in to visit us in the office yesterday. Miss Delaney Grace brought that smile that lights up a room with her. Such a cutie! We were so busy on the phones, and the ladies here were trying to get their hands on that baby and answer phones at the same time… It was a scene! Well… Have to go, and get ready… I’ve got to put on that “radio face”! I hope your Thursday is tremendous!

Chuck Butler
January 24, 2008

The Daily Reckoning