Open Mouth…Insert Foot!

Good day… And a Terrific Tuesday to you! This is the 6th remembrance of the awful atrocities that were committed against innocent Americans on 9/11/01. I’d like to take a moment of silence in their honor, and pray that we never, ever experience any thing like that on our soil again.

Well… Without data, the dollar drifted on Monday, with the bias to sell dollars hanging over the dollar bulls like the Sword of Damocles. The negativity toward the dollar is building a head of steam in the pressure cooker the dollar is swimming in these days. There’s just no one, except the ultra-contrarians who keep saying the dollar is going to rally, and believe me they are dwindling each and every day, that isn’t dissin’ the dollar.

We had some Fed Heads out on the speaking circuit on Monday, and man… These guys and gals would be far better keeping their mouths shut, because that way they wouldn’t be able to put their feet in their traps! Here’s an example of what I’m talking about…

Federal Reserve Bank of Atlanta President Dennis Lockhart said that data now shows that job growth started weakening in June and declined to stick with his assessment that there are no “conclusive” signs of a slowdown beyond housing.

“Last Thursday, I said in a speech that I have not seen conclusive signs of weakness in the broader economy,” Lockhart said in prepared remarks in Atlanta today. “Friday’s data, however, shows employment was beginning to soften back in June. This news should be evaluated with recently positive reports in retail sales.”

That’s it, Mr. Lockhart, try to spin it so the last thing people see is the “positive reports in retail sales” comment. Good trick… I learned that one in Public Speaking 101, too! But, before you go pinning your colors to the mast of retail sales, you might want to take a look around you, and do a little research. Yes, consumers are still spending… But at the same time, one has to wonder where the money is coming from! The ATM’s (houses) are dry as a bone… And the credit cards? Well, late payments are on the rise… Oh… And payroll? It seems that we don’t make any more today than we did five years ago!

Yes, Mr. Lockhart… I suspect you’ll be making another speech soon, and recanting that comment too! Or… Just wearing a T-Shirt that says: “Open Mouth… Insert Foot!”

Oh… And did you hear about this rumor? There’s a rumor hitting the streets that the Fed met with representatives of the Bank of England (BOE) and European Central Bank (ECB) last week in London, to discuss a deal for all three to cut rates in concert with each other to prevent a complete collapse of the dollar. Now… I don’t know any more about this, but doesn’t that make sense for the Fed to attempt something like that? Can’t you just envision this meeting in a poorly lit back room, with each representative wearing sunglasses, and a shredder working overtime in the corner of the room?

And… Just when you thought the housing meltdown couldn’t get any worse, here’s something to change your mind… According to the Mortgage Bankers Association, a seasonally adjusted 0.65% of loans on one-to-four-unit residential properties entered the foreclosure process during the period, the highest level in the survey’s 55-year history. In the first quarter, when the previous record was set, 0.58% of loans entered the process.

OK… Onto other things… The Canadian dollar/loonie (CAD) pushed past 95-cents again yesterday after oil prices rose to within spittin’ distance of the record $78.47… (Actually 50-cents) but who’s talking about oil prices these days? It’s almost as if it’s flying below radar, stealth like… Maybe someone will realize that this is just another nail in the economy’s coffin when it hits $80!

Anyway… I meant to really shine the light on the loonie there, but got off on a tangent with the oil price stuff. What’s really strange is that you just don’t see a lot of investors rushing to buy loonies… Gold is over $700, oil is heading to $80, and the demand for other energy sources like Natural Gas continues to be strong, and all of this juices up the Canadian economy, and when the economy gets juiced… The loonie follows.

And since we’re talking about reaching spittin’ distance of something… How about that euro (EUR)? The single unit is now within 50-cents of its all time high versus the dollar! WOW! ECB President, Trichet is scheduled to speak today… I don’t expect anything major to come out of the speech, but there’s a chance he’ll try to rev up the euro’s motor again by talking hawkish and all that. I think he’ll give us a hint of what the ECB expects to do with interest rates in the coming months… So, as long as he keeps the Pandora’s Box of interest rate hikes open… The euro should look to move higher.

Hey! Recall about a month ago when the markets almost melted down, and Central Banks around the world had to inject liquidity? The Indian rupee (INR) got caught up in the emerging markets’ sell off, and flight to safety. I said at the time that I believed that rupees would come back… And come back strong they have! It’s just funny to me that a lot of these currencies are going strong, and you just don’t hear the mass media talking about it.

My chartist friend sent me a note about gold… I saw the email, and knew it would be a good one! He said that the price breakout in gold recently has reset some targets. He believes his charts tell him that $730 is now in view. And achieving that level would lead to a move to $745! WOW! Now, you know me, I’m not a chartist, strictly fundamentals for me… In this case, we’ve got the fundamentals and the charts in alignment with the stars… When the moon is in the seventh house, and Jupiter aligns with mars… And so on… The karma is flowing folks… Are you flowing with it?

Big Ben Bernanke is scheduled to speak today, but don’t expect anything earth shattering from him… His topic today, I hear your asking? Global Imbalances: Recent Developments and Prospects… OK… I’m sure glad I don’t have a ticket to that one! That sounds much like Chinese water torture! But then… I used to be the one guy out there swinging my hammer at Global Imbalances and the rest of the world didn’t care… So, maybe I would find this speech interesting… Probably not though!

Speaking of Global Imbalances and China… These two go together like peas in a pod, and while China has done what it could to relieve these imbalances by allowing the renminbi (CNY) to gain versus the dollar… The move just hasn’t been as quick as most would have liked to see it.

Oh… And the lawmakers like Schumer and Graham must be seeing red this morning, as China’s trade surplus widened by 33% last month, to $24.97 billion, the second-highest monthly total.

And then there was this question that keeps popping up in my email box from readers… “Chuck, if the United States is going to experience a recession, won’t that bring the rest of the world down too?” You know the old saying, if the U.S. sneezes, the rest of the world catches a cold. Ahhh grasshopper… This was once true… But we could very well see something different this time around, based on the fact that global growth is strong, and has probably not been this strong during a U.S. recession in the past.

The other thing that’s different is regional trade… Take the Eurozone for instance – 80% of the trade that goes on in the Eurozone stays in the Eurozone. You know sort of like, what happens in the Eurozone, stays in the Eurozone… Asia is much like that, but not to that scale… China’s trade surplus isn’t just with the U.S. folks…  Hope that helps!

We’ll see the color of the latest trade deficit here in the United States this morning, and don’t look for the government to pull any rabbits out of their hats here like last month. The cost of oil, as we talked about above, is pushing the envelope on the trade deficit here. I expect for it to push back above $59 billion for the month, and maybe even get close to $60 billion again. This won’t be dollar friendly, as if the dollar has any friends these days!

Currencies today: A$.8265, kiwi .6960, C$ .9540, euro 1.3815, sterling 2.03, Swiss .8435, ISK 65.10, rand 7.2160, krone 5.5860, SEK 6.7530, forint 185.37, zloty 2.7460, koruna 19.9720, yen 113.50, baht 32.30, sing 1.5230, HKD 7.7840, INR 40.55, China 7.5220, pesos 11.12, dollar index 79.73, Silver $12.75, and Gold… $713.40

That’s it for today… A good visit to the cancer doctor yesterday… They stuck me with needles though. I have to say that I’ve had more needles stuck in me since June than I’ve had all of my life put together! But hey! If it makes me better… I go every three weeks now that I’m on the cancer medicine, so I’ll bore you with updates every three weeks! We looked at the calendar yesterday and saw that it’s only two more weeks before our Jennifer returns to the desk from maternity leave. Somebody said, you’re happy, and I bet she’s bumming! Either way it will be great to have the whole desk back in their places with bright shining faces! Looks like my Cardinals were just teasing us, they are pretenders, not contenders this year. UGH! Oh well, wait till next year! Have a Terrific Tuesday!

Chuck Butler — September 11, 2007

The Daily Reckoning