Jim Dandy to the Rescue

Good day… And a Wonderful Wednesday to you! It’s with a bit of sadness that I write today. It’s been 19 years, but today my oldest sister, Brenda, would have been 57. I think of her often, but especially today, her birthday.

Not to worry though… I’ll get to the meat of this, which is what you expect when you subscribe!

OK! Focus on currencies and economies!

Well… The currencies added to their rebound yesterday as the euro (EUR) climbed all the way back to 1.4605 at one point in the day. There was some profit taking at the end of the day, and the euro settled in at 1.4570. Still, all-in-all, a nice strong rally… The best day this month!

The euro received some wind in its sails after the latest confidence report – as measured by the think tank, ZEW – surprised on the up side, rather than fall as forecast. I’m not one to think that this will continue… So this was a “one and done” for this data, I think… But, the euro did gather some wind in its sails, and that’s all fine with me!

Overnight the currencies didn’t really move either way, as it looks like traders are waiting on retail sales before giving any currencies a direction. Japanese yen (JPY) did gain a bit though after Japan printed wholesale prices that rose at the fastest pace in a quarter century for January… WOW! Producer prices rose 3% in January and that follows at 2.6% gain in December… Japan has inflation, Japan has inflation! Can you believe that? WOW!

Now, will this be enough to get the Bank of Japan (BOJ) off their duffs and raise rates? I doubt it, again! UGH! The BOJ is so spooked by the threat of a global recession that any hint of slowdown will probably get them to cut rates rather than raise them! So… The yen gets no love from the BOJ… And the carry trade gets to live another day!

Yesterday, Fed Head, Yellen, spoke and once again, you have to ask yourself just what the heck are these people smoking? Yellen, tried to talk the talk, and in this case the talk was about how the United States will avert a recession. Again, Janet, WE’RE ALREADY IN A RECESSION! All this Fed Speak about avoiding a recession in the past week just really illustrates how disconnected they are with the “real world”… It’s not all Phillips Curves, and CPI!!!!!

Also yesterday, Warren Buffett, who’s been in the news twice in a week, rode his white horse in to rescue the bond insurers. He offered up $800 billion of Berkshire Hathaway’s cash to cover the liabilities of the bond insurers. However, his money will only help on the municipal bond side… Not mortgage backed bond side.

So… The markets took the wink and nod from Mr. Buffett that it was OK to take on risk again, and they ran with it! What I mean here is simple… By making this move, Mr. Buffett has shown a willingness to take on risk… And that makes it easier for the “little guys” to do the same… Stocks went wild… Jim Dandy to the rescue, Jim Dandy to the rescue, go Jim Dandy, go Jim Dandy!

Today, we’ll see the color of the latest retail sales number for January. The Butler Household Index (BHI) tells me that this will be a very disappointing number for the economy… Probably falling -0.4% (the experts have it falling 0.3%) with auto sales, or better said, lack of auto sales pushing that overall number to the red… Just another nail in the economy’s coffin.

Have you seen all the sabre rattling from the oil producers this week? First we have Chavez, rattling his oily sword, and threatening to stop sending oil to the United States… And then we have the members of OPEC rattling their oily swords on a threat to price oil in euros instead of dollars.

We’ve all heard that second threat a few times in the past, eh? This time, OPEC says they “could price oil in euros” but it would “take time” – about a decade is their estimation. Shoot Rudy! In ten years, we’ll probably be in the middle of a strong dollar trend, and why would they do it then?

The only reason they want to do it now, is the fact that they are seeing red! Losses are mounting for the OPEC members as their dollars are losing value every day… Poor, Poor pitiful OPEC…. NOT!

Looks like the folks over at Credit Suisse have been reading the Pfennig lately. They made a call last night for the euro to reach its lowest level against the dollar since October over the next three months, as the European Central Bank is forced to reduce its interest rates. Now… Where have I heard that call before? Hmmmm… Could it be… RIGHT HERE!

I want to clear something up that I apparently left readers confused about yesterday, regarding Swiss francs (CHF) and Japanese yen… These two currencies have been held back for so long due to the carry trade, but as the carry trade unwinds, we should look for these two to rebound and have strong performances in 2008… Remember back to 2006, when I “adopted” Norway (NOK) and Sweden (SEK) as my “poster currencies” for 2006? Well, Swiss and Japan are my “poster currencies” for 2008.

Am I clear? Crystal!

And just to prove that there’s never a “one-way currency bet”, the Chinese renminbi (CNY) has recently backed off it previous highs versus the dollar. We’ve seen this a few times since the renminbi dropped the peg to the dollar in July of 2005, but for the most part these “speed bumps” put in place by the Chinese government, haven’t really been anything awful to speak of… The currency weakens for a few days by the same small lots it usually gains by, and then when the government feels that it has made its point, that speculators shouldn’t take renminbi trading as a “one-way bet”, the renminbi gets back to gaining versus the dollar. It’s strange but true. We’ve seen it before… Been there done that, bought the T-Shirt!

Gold gave back some ground that had previously been won yesterday. The Buffett plan to rescue the insurers is seen as the culprit here. The “mental giants” thinking is that with Buffett coming in on his white horse, it will prop up investor confidence, thus removing the need to buy gold as a safe haven. Hmmm…

Gold also has seen four consecutive months of reduced imports by India. There was a report about two weeks ago that came across my desk that highlighted the fact that Indian housewives were selling gold. I have to think that this will reverse itself as we head into the late spring and early summer, when gold purchases in India usually reach a fever pitch.

And did you see the size of the hickey on GM’s neck yesterday? YIKES! GM posted a net loss of $722 million in the fourth, compared to a $950 million gain a year ago! For the whole year, GM posted a loss of $38.7 billion. Obviously there were some charge offs included… Might as well, eh? I mean if you’re going to have egg on your face for a loss, you might as well pile on all the stuff you’ve had hidden in the deep dark closet and get it over with!

Unfortunately, I doubt any carmaker is going to be walking on the sunny side of the street for some time… Instead, they’ll be singing the blues.

And then finally, before I head to the Big Finish… Just another sign of the times… Home foreclosures surged in the largest metro areas here in the United States during 2007. Realty Trac (the realty data firm) said yesterday that large cities in California, Ohio, Florida and Michigan were the hardest hit. That seems pretty obvious to me, but then sometimes these things get overlooked… Sort of like… If the professor on Gilligan’s island could make a radio out of a coconut, why couldn’t he fix a hole in the boat?

Currencies today 2/13/08: A$ .90, kiwi .7860, C$ 1.00, euro 1.4580, sterling 1.9615, Swiss .9075, ISK 67.10, rand 7.6450, krone 5.4760, SEK 6.41, forint 180.14, zloty 2.4650, koruna 17.50, yen 107.25, baht 32.10, sing 1.4170, HKD 7.80, INR 39.79, China 7.1970, pesos 10.76, BRL 1.7510, dollar index 76.35, Oil $93, Silver $17.11, and Gold… $907

That’s it for today… I just found out that I’ll be heading to the St. Pete area in April to talk at the Investment U. Conference in place of Frank. So, let’s see… I’ll be in Florida three times in March, and then in April. I might as well move there! What, and miss all this lovely freezing cold, ice and snow weather here? Never! HA! I have some exciting news to announce! There’s a book that’s been written by Craig Karmin, a Wall Street Journal writer, called The Biography of the Dollar… It will be available on February 26th, but you can pre-order it today on Amazon… If you do, you might want to check out Chapter 6. It features a guy that has promoted non-dollar investing and diversification for years… Guess who? It’s Me! WOW!

And they say the good news comes in bunches… I received my advance copy of Craig’s book yesterday, and then later in the morning I received word from my friend, Addison Wiggin, that his revised/updated copy of his best seller from 2004, The Demise of the Dollar, is ready to go to print. I’m excited to see this for two reasons… First, Addison is a phenomenal writer… And two… I put together the foreword for the book! WOW! He’s everywhere, he’s everywhere!

OK… Enough back slapping… Time to go to work! I hope you have a Wonderful Wednesday… Time to hit the send button!

Chuck Butler
February 13, 2008

The Daily Reckoning