Inflation Ascends All Over!

Good day. Another hot day, and another day of geopolitical tensions running hot. As I’ve said since North Korea decided to play deaf and not listen to the rest of the world by firing missiles in the Sea of Japan, geopolitical tensions are going to rule the roost with regard to currencies. Well, for that part, it will hurt stocks, and help government bonds, too.

Yesterday, we saw U.S. PPI rise by a faster-than-expected 0.5% in June, while the core PPI rose 0.2%. These are both in line with the consensus forecast. I have to say that I just don’t get why anyone would pay attention to the core PPI or core CPI numbers. And, I really don’t care about them at all. But the markets do care, and I care about the markets. So, therefore, I carry on.

However, even though the above-consensus reading in the all items PPI indicates CPI will also be above consensus, we’ll just have to wait-n-see, eh? Well, we won’t have to wait that long. CPI for June will be printed this morning bright and early. Is there any among us that doesn’t believe CPI will be strong? Is there any among us that doesn’t believe the number is even close to the actual number for inflation? I think Big Ben Bernanke has been reading his Pfennig, and doesn’t believe it. That’s why he keeps the dust covers pulled off the rate hike machine. And will keep them off for his August FOMC meeting. But what then? That’s the $64 question!

After the CPI printing, we’ll get to hear what Big Ben has to say to Congress when he makes his report on the economy and monetary policy. All ears will be hanging on every word. The markets will decide what direction we go with currencies for the day. But then, we’ll get back to the geopolitical tensions.

In Germany this morning, June’s PPI came in much higher than expected at 6.1%! Anyone doubting the ECB was going to raise rates again at their meeting on August 3, 2006, is now going back to change their mind! In this year of demented thought process, higher inflation usually helps a currency instead of what it historically would do, as everything is centered on higher interest rates.

I fought the law, and the law won. Yes, I fought the markets on this for nearly two years, saying that rising interest rates to catch up with inflation should be no bargain for the currency. But, like I said, in this year of demented thought process, the markets have changed that. So, I’m throwing in the towel, and will play along with them. Yahoo! Inflation is going higher, that means the currency is going to get stronger, because interest rates will have to be raised. Yahoo!

Yesterday, I told you about how U.K. inflation jumped over the Bank of England’s ceiling target of two percent. So, in keeping with this DTP (demented thought process), sterling was well bid yesterday. It remains that way, as the Bank of England is probably looking at their calendars right now trying to figure out just how soon they can raise rates!

The same can be said for the Reserve Bank of Australia, after seeing inflation jump last week. I fully expect the Reserve Bank of Australia to raise rates at their next meeting in August. Once we get past this risk-aversion phase we’re in right now, I can see the dollar getting hit on all sides: Asia, Europe, South Pacific, and Canada. Of course, I don’t know that this will happen, and neither does anyone else. It just looks that way to me.

Japanese officials just can’t seem to keep their collective traps shut! OK, alright already with the yen bashing! I told you last week that the Bank of Japan would come out and try to throw the markets off the scent of any additional rate hikes. And it looks like they have succeeded. Big Time! My Conspiracy Theory about Japan sure doesn’t look so kooky now, eh?

So, how about that new MarketSafe CD? Did you have a chance to think about it, massage it…throw it up against the wall? If not please do so. I think it’s a real humdinger of a MarketSafe CD!

One more thought on the Bank of England before I head to the big finish. A news story just flashed across the screen, and said that the Bank of England’s policymakers vote 7-0 for unchanged rates. I bet those policymakers were real proud of that news story, after seeing inflation jump to 2.5% yesterday, 0.5% over their ceiling target! Not! They should be so ashamed of themselves!

Currencies Today: .7455, kiwi .6225, C$ .8785, euro 1.25, sterling 1.8290, Swiss .7965, ISK 74.85, rand 7.19, krone 6.37, SEK 7.41, forint 222.40, zloty 3.33, koruna 22.765, yen 117.50, baht 38.20, sing 1.5950, INR 46.99, China 8.0028, pesos 10.93, dollar index 87.14, silver $10.61, and gold $622

That’s it for today. I’m still working on my last presentation/workshop for the Agora Wealth Symposium in Vancouver next week. Gone for a week there, back for a week, then gone on my summer vacation! I’ll really be ready for that vacation then! Hopefully the heat will have backed off by then, too! It’s Wired Wednesday. So, have a great Wednesday!

Chuck Butler
July 19, 2006