Good day… I sure hope your weekend was grand. Our EverBank party went off without a hitch, and a good time was had by all! I spent a good portion of the weekend breaking up ice from my driveway. Usually I say, “that’s what spring is for” but this ice was dangerous. We had a wild day in the currencies on Friday, so we might as well head to the tape and get the week going!

Friday was Jobs Jamboree day, and the number of jobs surprised on the upside at 132K. Last month’s total was revised downward however, to a measly 79K jobs… And although the November total surprised on the upside, the all-important “unemployment rate” ticked up to 4.6% (from 4.5%). The markets weren’t sure exactly how to deal with this, so they fell back on fundamentals and sold dollars.

The dollar got sold further when the U. of Michigan Confidence report showed weakness, falling from 92 to 90. The euro was soaring above 1.33… And then turn out the lights, the party was over! Right about the time London was closing their books, and we normally see some book squaring, the dollar began to get bought. The turn-around was in place… I frantically searched the screens for some news… And sent out notes to my trader friends all around the world, but before I received their responses, I found the devil in the details.

Remember the old song you used to sing as a kid… Liar, liar, pants on fire, hang them on a telephone wire? Well… That’s what I was singing (really, you can ask Jennifer!) when I saw the Big Fat Liar talking about how “a strong dollar was in the best interests of the United States.” OK… You’re wondering whom I’m talking about, and why that is a Big Fat Lie… Right? Well… The “who” is… U.S. Treasury Sec. Paulson.

And it’s a Big Fat Lie because he was getting ready to go to China to try and convince them that their currency needs to be stronger versus the dollar. HOW COULD HE SIT THERE WITH A STRAIGHT FACE AND SAY HE WANTS A STRONG DOLLAR, WHEN HE WAS GOING TO TRY AND GET THE CHINESE TO BASICALLY MAKE THE DOLLAR WEAKER? I shake my head in disgust. And it’s not just disgust in our Treasury Sec., it’s also disgust in the traders and investors that “bought this lie and bill of goods” and bought dollars. What a trunk of junk!

So that’s the skinny on Friday. The euro was sold all the way back into the 1.31 handle, and all the other currencies followed with weakness of their own. So as we begin this week, the currencies are way cheaper than they were last week… And I see that as an extra special blue light sale!

OK… Enough on that! Let’s get current, and talk about this week!

First of all, we should see two rate hikes this week, with both Sweden’s Riksbank and Norway’s Norges Bank raising interest rates by 25 BPS. Good Show! Not only has the Swedish krona outperformed most currencies this year, now the Riksbank is raising rates. This should be a positive for the krona. I talked last week about the krona, quite a bit… On a sidebar… We offer it as a stand-alone currency and as a part of our EuroTrax and Viking index CD’s.

There will be a truckload of data in the United Kingdom this week starting with the most important inflation reading from November. I think we’ll probably see inflation in the United Kingdom remain well above the ceiling target of 2%, with November’s reading probably around 2.6%. We’ll also see unemployment data and retail sales this week. So, in the end, the “no further rate hikes” crowd will have found a corner to hide in, and the “there will be more rate hikes” crowd, which I am the founder of and run point for, will be crowing! And… If all this plays out the way I see it potentially playing out, it should be good for the pound sterling.

We’ll see retail sales in New Zealand too, which should continue to keep the fire lit under kiwi, and the call for more rate hikes.

In Germany, we’ll see the latest business confidence as measured by ZEW this week. This report has been a real bummer for the euro lately… And I think this report will show some reversal of the recent weakness.

And finally… On Friday, November Eurozone inflation will print… And this is the tricky one… The “experts” believe it will fall below the European Central Bank’s (ECB) ceiling target of 2%, falling to 1.8%. I say it’s tricky because the ECB is still on the rate hike warpath… However, don’t think for a moment that just because inflation has fallen below the ceiling target that the ECB is finished with rate hikes. You must recall that I’ve told you quite a few times that the ECB also uses money supply/credit as a tool for determining rate movements… And Money Supply/Credit is still running too high.

The data in the United States this week isn’t void of “excitement” or market moving stuff. For instance, tomorrow we’ll see the October Trade Deficit… And the big item of the week… The FOMC meeting. Wednesday will bring us November’s retail sales, which does include that crazy day after Thanksgiving Christmas shopping. Even with that… The BHI… (The Butler Household Index) tells me that Retail Sales will be disappointing. We finish the week with CPI, which basically is a crock as far as I’m concerned… But the markets get all lathered up about it… So… I have to play the game!

I just don’t see the Fed raising rates tomorrow at the FOMC… So that will make four consecutive meetings with unchanged rates. Now wait! Big Ben Bernanke is in China with Paulson this week, right? So… Who’s going to run the FOMC? OH NO! Anarchy in the making… FOMC coup? HAHAHAHAHAHA. No worries… This has all been discussed already… No rate hike, and we’ll get a “taped” message from Big Ben… “I’d like to thank the Academy…” No Wait! Wrong taped message!

One additional thought on the Paulson/Bernanke visit to China this week… During past visits by Treasury Secretaries, the governor is moved back on the renminbi to allow greater flexibility. It’s the Chinese version of “window dressing”… “curb appeal.” But the thing is… The renminbi does gain more versus the dollar during these visits. So we have that going for us, eh?

Currencies today: A$ .7835, kiwi .6883, C$ .8705, euro 1.3195, sterling 1.9495, Swiss .8295, ISK 69.60, rand 7.07, krone 6.16, SEK 6.87, forint 194.14, zloty 2.89, koruna 21.14, yen 116.90, baht 35.56, sing 1.5440, HKD 7.7725, INR 44.84, China 7.8350, pesos 10.8150, dollar index 83.40, Silver $13.71, and Gold… $626.25…

That’s it for today… Lots of “fun” in the markets this week! Our Rams are on Monday Night Football tonight. If they play like they did last week when I was there… They will get embarrassed tonight by “Da Bears.” My little buddy, Alex, had his first two basketball games of the year this past weekend. He sure is beginning to grow up right before my eyes… Have a great Monday and week!

Chuck Butler
December 11, 2006

The Daily Reckoning