Retail Sales Disappoint

Good day… And a Thunderin’ Thursday to you! Michael Phelps didn’t swim in any finals yesterday, so no gold for the United States! I’m just floored by this kid! My oldest son, Andrew, was a pretty good swimmer in his day, but my goodness, this kid is on a different planet!

OK… Well, front and center this morning, we have a report that just printed that shows U.S. Home Foreclosures rose 55% in July. Bank seizures almost tripled according to RealtyTrac Inc. That’s sad folks, simply sad. I look at this report and shake my head in disgust for Alan Greenspan. Yes, Big Al Greenspan is the root of all evil in the housing meltdown. Sure there were the greedy folks that booked loans that shouldn’t have and all that, but down at the root of the meltdown you’ll find Big Al’s picture!

But dollar bulls are still dancing in the streets, as the dollar continues to maintain the ground it has gained versus the euro (EUR) and other currencies in the past three weeks. I talked to a guy yesterday and he asked me how I was doing with all this dollar strength. I said, “Dollar strength? The dollar isn’t ‘strong’ by any stretch of the imagination; it’s simply stronger than it was, which isn’t saying much considering how weak it had gotten.” And that about sums it up, folks. So, with that, I’ll head to the Big Finish, and go back to sleep… Thank you, you’ve been a great audience; I’m here all week; try the veal!

HA! Had you going there for a minute, eh? Nah, I couldn’t be that short-n-sweet! Besides, who would talk to you about the -0.1% showing of retail sales yesterday? Yes, retail sales printed negative -0.1% in July, but if you take out the meltdown in auto sales, retail sales would have been positive! Now… Let me ask you something here… What did I just do there? Yes, that’s right, I did what the media always does to put lipstick on the pig. (I did it on purpose to have this discussion!) Why would we care if auto sales were taken out, etc. etc.? If they were included on the way up, they should be included on the way down! That’s so typical of how we view things these days… If it makes us feel bad or makes us work harder, just take them out. We grow seedless watermelons… We take pulp out of orange juice… We don’t count “unemployed people who’s benefits have run out”. We take food and energy out of inflation calculations…  Oh, I could go on there, but you get my drift.

Retail sales were disappointing, just as I thought that they would be. Looks like the “fluff” from the stimulus checks has all gone through the wringer! And credit cards are getting maxed out. Shoot Rudy, even American Express, who you would think would have more upscale card holders, are reporting a huge increase in late payments. So… Where does the U.S. consumer turn for money to spend now? I hate to have to say it, but retirement money is the next pile of cash to get raided. Shoot Rudy, if the government can do it, why not it’s citizens? Think about that one for a minute… OK, stop! I had to stop thinking about that, because it scares the bejeebers out of me!

Gold finally showed some life yesterday rising $18 at one point in the day. I was telling a customer yesterday that it appears to me that gold and Aussie dollars (AUD) have been tarred with the same brush, and so… If gold recovers, as I believe it will, it should take Aussie dollars along for the ride… But that’s no given! So don’t be firing off emails to me telling what a dolt I am for saying that “would come true”, if it doesn’t. I’m just painting pictures here, and my picture shows gold and Aussie dollars as closely related trading-wise at this time.

The Aussie dollar did see some love (finally!) with the rise in gold yesterday… But, there are rumors going ’round that someone’s underground, and… That Japanese are beginning to sell their Aussie dollar holdings. Now, wait a minute there! I wrote about this yesterday as something to look for, but didn’t believe it would really take hold at this time, and then rumors get started? Hmmmm… Has the Pfennig grown to have the reach to start rumors? Now, that would simply blow me away! I doubt it could happen, as this is just my little old newsletter that I share with a few hundred thousand readers each workday! I don’t give any credence to those rumors at this point.

In the Eurozone this morning, we had a flash estimate of second quarter GDP print right in line with expectations at 0.2%, or 1.5% year-on-year. Nothing to write home about, but not negative! And not the Armageddon that the traders have been pricing into the dollar/euro. But before the euro could add to yesterday’s small rise, Eurozone CPI printed softer than expected at -0.2% for the month of July, bringing the annual inflation rate to 4%.

Now, 4% is still leaps and bounds above the 2% ceiling target for inflation that the European Central Bank (ECB) hangs on to… So… In my mind, that should keep interest rates right where they are. However, traders whom I’ve really come to the realization are not mental giants, are looking at this downward move in inflation as a reason the ECB could lower rates. Again, I’m not buying that line of reasoning either! Geez Louise, serenity now!

Some of the euro’s performance problems in the past few days have been affected by the meltdown in pound sterling (GBP)… You know, I’ve explained these cross trades to you before, so I won’t go deep into this, but all these currencies are tied together by cross trades. As American investors, we only concern ourselves with the dollar versus another currency… But in the currency world, there are more cross pairs of currencies than you can shake a stick at. It’s just that way. So sometimes a currency is dragged down by the outstanding cross trades it has against it… When I travel with the FX University people I’ll make a point of explaining crosses!

Anyway… Pound sterling has been doing a “Wicked Witch of the West” and melting… I’m melting; I’m melting. Oh what a world, what a world! Who would have thought a little girl… I don’t mean to make light of sterling’s problems, so I’ll stop with the Wizard of Oz stuff. However, it is melting away, and there’s nothing the Bank of England (BOE) can do about it. I told you yesterday that the BOE had slashed their growth forecast for the United Kingdom and that was on a day that saw inflation rise. Uh-Oh! This means stagflation for the U.K. and that’s not a good thing. Of course I truly believe that’s what’s in our future here in the United States, too… But that’s a different discussion, as this is about pound sterling! Pound sterling is going to be facing an uphill battle versus the dollar, euro and yen (JPY) this year.

The Brazilian real (BRL) has been able to hold its ground pretty good versus the dollar during this dollar rally. The real is the “darling” of emerging market currencies these days… And why not? The economy is juiced, and the central bank is doing what it can to control inflation. Interest rates are high enough to attract investment, and so on and so on.

Today in the United States we’ll see the data cupboard yield July’s CPI report along with the Weekly Initial Jobless Claims, which lately have been going in the wrong direction. But first, the stupid, CPI report. The experts forecast that CPI for July will show an increase of 0.4%, bringing the annual rate to 5.1%… But hear me know and listen to me later, the media will only talk about the “ex-food and energy” number of 0.2% and an annual rate of 2.4%.

OK… If we see an up-tick in inflation, the dollar will get an additional boost… Because… The mental giants will see this as paving the road to higher interest rates here in the United States. Of course, they are forgetting all the bad stuff going on that would get worse should rates go higher in the U.S., but don’t let that get in the way of their thought process!

I had better get to the Big Finish this time, as I’m beginning to get cynical and when I do that, who knows what might get typed by my big fat fingers!

Currencies today 8/14/08: A$ .8770, kiwi .7025, C$ .9435, euro 1.4920, sterling 1.8750, Swiss .92, ISK  80.75, rand 7.8345, krone 5.3720, SEK 6.2825, forint 159, zloty 2.2180, koruna 16.29, yen 109.60, baht 33.72, sing 1.4080, HKD 7.81, INR 43, China 6.8615, pesos 10.14, BRL 1.6115, dollar index 76.33, Silver $14.92, and Gold… $833.41

That’s it for today… I got great news yesterday afternoon, as it was decided after all that I DON’T have to go to Orlando all next week! YAHOO! Chris and Jen will be going to Orlando, thus leaving the desk quite short handed, but I’ll be here as the anchor! Tomorrow morning I will be doing an interview on a radio show that I’ve been on several times in the past… Here’s the skinny: KRCN-AM’s Business for Breakfast (Longmont, CO) Fri, 8/15: 10:34 am CT/ 9:34 am MT. It will be a quickie 5-minute deal, so be there or be square! We’ve been experiencing some unbelievable Chamber of Commerce type weather for St. Louis in August, and I’m loving it! I will take the kudos for bringing it back from San Francisco with me! On that note, I’ll hit the send button… I hope you have a Thunderin’ Thursday!

Chuck Butler
August 14, 2008

The Daily Reckoning