Hoping the Bank Of Japan Doesn't Disappoint

Good day. Well, for some of you this is the second Pfennig in your box this morning! Yesterday, I did send an announcement of our new product that I hinted about all last week. Oh, some people chastised me for doing so, but, as I told each and every one of them, I promised Pfennig readers, a long time ago, that I would notify them first! And so I did! You received the news before the mainstream media. You received the news before anyone else! That was my promise to you!

The currencies put in a “good day at the office” on Friday, gaining across the board versus the dollar. However, the yen has been sold overnight as, once again, Prime Minister Koizumi tried to jawbone the currency weaker. This has been his prerogative for some time now! Again, I think that the more he tries to talk down the currency ahead of the Bank of Japan meeting, the more chances there are that the BOJ will change their zero interest-rate policy!

Recall that I told you recently that if there’s a central bank that can disappoint when everyone and their brother thinks they will not, it’s the Bank of Japan. And herein lies the problem: I have to warn you about the Bank of Japan’s meeting this week, for if they decide that there is no imminent need to change their currency policy, the yen will suffer in the short term.

You know, there is a lot of talk about the “PortGate” going on right now, but as I see it, none of it is dollar friendly. Let me take you back in time to a place that’s far away: the year 2001. The U.S. invokes tariffs on imported steel and thus, the end of the strong U.S. dollar trend! Protectionism is a slap in the face of what everyone calls “flexible currencies,” because it’s like saying, “Go ahead and hit the ball, but we’ve taken the bats and gone home!” And so too is the “PortGate.”

This is all too familiar. It smells like protectionism, acts like protectionism and looks like protectionism. Now, don’t get me wrong – I don’t think it to be wise for foreign corporations to own our ports! Given the atrocities on 9/11, I especially don’t think it wise for the U.S. to allow this to happen. But now that it has gone to this, I’m just trying to tell you how I think the markets are going to react to it, and I think they are going to think protectionism. Currency markets do not like protectionism!

So, how about that announcement yesterday that EverBank World Markets can now offer Gold and silver? Now, EverBank and EverTrade have your precious-metal needs covered! You can get a principal protected MarketSafe Gold CD. You can get an allocated or unallocated amount of physical Gold and Silver (in a non-FDIC insured account), and over in our affiliated brokerage (again, non-FDIC) EverTrade Direct, you can get a Gold ETF! This has been a long time coming. Long-time readers of the Pfennig might recall when I first told them that we were going to begin offering precious metals. That was so long ago, I had hair! Good things come to those that are patient, right? Well, I can’t say we were overly “patient,” but…Oh, never mind, all that “waiting” doesn’t matter anymore now that we’re offering it!

Whew! I was about to go off a an ugly tangent there, but decided in the nick of time to go another direction.

The Bank of Japan isn’t the only central bank meeting this week. The Reserve Bank of New Zealand (RBNZ) will meet, and most likely keep rates at current levels. As I told you some time ago, the RBNZ has worked very hard over the past two years to slow down spending, they are not going to relax rates (cut) and wipe out all that hard work! Rates should remain the same here and that bodes well for the kiwi. The highest interest rates in the industrialized world continue to support the kiwi, but I remain steadfast that this currency is going to suffer further losses, due to its inability to correct the huge negative balance of payments that is now approaching 8% of GDP!

The Bank of England’s Monetary Policy Committee also meets this week on Thursday, and they are also expected to keep rates unchanged.

Thailand’s Central Bank will meet on Wednesday, and I do expect them to raise rates again, which should only be baht positive! If the central bank does raise rates, it will show the markets that they are not going to get bogged down by the political tensions in the country and that they are going to go about their work! Again, that should only be baht positive!

The euro is trying to hold on to the 1.20 level this morning, after trading all the way up to 1.2093, overnight. Eurozone retail sales fell the most in eight months during February, and this report has caused the euro to sell off from that overnight high down to 1.2030, right now. OK. As I’ve said before, one swallow doesn’t make a summer, and so too, one bad report doesn’t mean the Eurozone economic recovery is going down the drain. This is one bad report versus a dozen good reports recently. So, use this mini sell off as an opportunity!

Have you heard about Minneapolis Fed Bank President Gary Stern? Well, here’s the skinny: He and his bank board members believe that 13 consecutive quarter point rate hikes are enough. They thought they would send the FOMC a message saying just that by asking the FOMC to keep their discount rate at 5.25%, even though the rest of the Fed Banks all asked for 5.50%. So, we have dissenting Fed presidents? Very interesting!

Oil and base metals have all edged higher. This is good for the commodity currencies and gold and silver! Speaking of silver, when is the SEC going to approve that silver ETF? Seems like the ball has been in their court for some time now! Oh well, it will eventually be available, but the point I want to make is that the hype that is building regarding the silver ETF really has silver moving up.

The data cupboard is almost bare today, with only factory orders for January on the docket. So, we won’t get any direction from data today. Later this week, we’ll see the latest trade deficit.

Currencies today: A$ .7450, kiwi .6620, C$ .88, euro 1.2035, sterling 1.7550, Swiss .7710, ISK 66, rand 6.2250, krone 6.6350, forint 211.87, zloty 3.1710, koruna 23.73, yen 117.10, baht 38.75, sing 1.6240, China 8.0365, pesos 10.58, dollar index 89.70, silver $ 10.18, and gold $566.20

That’s it for today. The Big Boss, Frank Trotter, is back in saddle today after a week on the road. We’ll need him to help out, given our latest product announcement! One more week until I head to Florida to see my beloved Cardinals. Oh, and to work too…at the Investment U. Conference at Delray Beach (had to add that last part in for the Boss! HA!). Have great Monday and week!

Chuck Butler
March 6, 2006

The Daily Reckoning