It's a Fed-Speak Friday!

Good day… And a Happy Friday to one and all! No three-day weekend this week, UGH! But next week will be short and sweet for me, as I leave on Wednesday, to a hopefully sunny and warm Jupiter, Florida!

That dip in the euro that I talked about yesterday being short term in my opinion, turned out to be just that! Short term! It didn’t take much of the morning for the euro to get back above 1.31, and then improve on that move most of the day. Unfortunately, the stronger move has seen some pressure this morning, as German business confidence declined by more than expected.

Another thing running against the wind for European Central Bank (ECB) rate hikes, is the fact that inflation in the Eurozone has probably dipped below 2%, which as we all know is the ECB’s ceiling target. And if you’ve been paying attention in class, you’ll have your hand up in the air, Arnold Horshack style… Call on me! Call on me, Mr. Kotter! OK… You have the picture now… So… There you are with your hand up in the air, wishing I would call on you, so you could say, “But, Chuck, haven’t you told us over and over again that the ECB uses inflation and money supply as their tools for rate hike decisions? And isn’t money supply in the Eurozone quite high?”

Ahhh… Grasshopper, you have learned your lessons well. I want to let you in on a secret that many people don’t know (or have no idea about…even well known economists). Here you g Money supply is the root of inflation, period! Take that one to your professor and watch his reaction.

So… With money supply still quite high in the Eurozone, the rate hikes are still on the docket.

Besides… The Eurozone economy is shaping up nicely. Forget about this business confidence report that printed this morning, this economy is set for a good sustainable recovery. Look at the fourth quarter report card: Germany’s GDP +0.9%, France’s +0.6%, Italy’s +1.1%, and Spain’s +1.2% (annualized). These are quite impressive.

Speaking of GDP growth… It sure looks like the strong figure that posted in the United States in the fourth quarter is going to be revised downward. So… All those dolts buying dollars… Put that in your pipe and smoke it!

So… We get the Fed Heads on stage today. As I told you yesterday, Fisher and Yellen will speak today, and both are expected to talk about their uneasiness with rising prices in the United States. But what about talking about money supply? Now that’s a discussion I would love to listen to! Shoot Rudy, I’d even listen to Big Al Greenspan, if he was going to talk about money supply and why the United States doesn’t post it for the public to see anymore. And more importantly, why it continues to run so freakishly high!

The dollar could obviously gain some traction if Fisher and Yellen are compelling in their speeches today. Which means the currencies could end the week on a sour note. Buying opportunities… Is what that would mean for me!

Gold took a breather yesterday after that moon shot on Wednesday. Shoot, Wednesday’s move was a week’s worth of movement! So I’m not surprised by the lack of follow up yesterday. I recently put together some content on gold for a newsletter writer, and while there can’t be much more said about gold that hasn’t already been said by many… I did mention that the Powder Keg in the world today, is reason enough to own gold! And that would be in addition to the fact that gold holds its intrinsic value and has been proven to be an effective hedge versus inflation.

I know, I bet you are thinking right now that I’m going to get on my soapbox and talk about EverBank’s MarketSafe Gold CD, and how it has 100% principal protection, and follows the price of gold. But no…I won’t get into that. WAIT! I just did!

The strong gold price has really helped the South African rand rebound. Aussie dollars have seen some additional strength on the gold move too.

My friend the Mogambo Guru had a great line in his weekly newsletter. You know how I’ve always said that I don’t know why the media has an axe to grind about the U.S. dependence on foreign oil, but never talks about our dependence on foreign investment? Well… The Mogambo said it best, as he usually does. He called the U.S. economy the Blanche Dubois economy, “Dependent on the kindness of foreign governments!” HAHAHAHAHAHA! That cracks me up!

I saw that the Italian PM Prodi resigned yesterday. Don’t get all caught up in the crazy talk about Italy leaving the euro and stuff. It’s not happening. And as for the Prodi resignation… If I have a euro for every time there’s been a political shake up in Italy over the years, I might be able to retire early! No worries… It’s just Italian politics.

So… With no data in the United States today, and little else to talk about, I think I’ll head to the Big Finish, and then wait for my bagel buddy, Michelle!

Currencies today: A$ .7895, kiwi .7055, C$ .8620, euro 1.3120, sterling 1.9590, Swiss .8065, ISK 66.50, rand 7.0860, krone 6.15, SEK 7.0925, forint 192.60, zloty 2.96, koruna 21.61, yen 121.35, baht 33.50, sing 1.5310, HKD 7.8090, INR 44.25, China 7.7439, pesos 11.02, dollar index 84.35, Silver $14.30, and Gold… $678.30

That’s it for today… Some sad news this morning as Dennis Johnson the former NBA player has died at 52. He was part of one of my all time fave teams… Bird, McHale, Ainge, Parish, and Johnson… 1984 Celtics. When Ben Kerner took our St. Louis Hawks to Atlanta, I became a Celtics fan, which as a youngster was a good thing, because they always seemed to be the team on TV. And the team that won! I know that’s not reality, it’s just my perception as a youngster! Have a great Friday and weekend!

Chuck Butler — February 23, 2007

The Daily Reckoning