Retail Sales Soar

Good day. Well, how was your Valentine’s Day? Good, I hope! It sure was a good day for January’s retail sales here in the United States. Wow! I did get several explanations on the gift cards. It seems we don’t do any double dipping. So, we’ve got that going for us, eh?

Yes, January’s retail sales came in at +2.3%. It is a surprisingly high figure. I guess the U.S. consumer hasn’t finished spending, but then, I’m reminded of the fact that a star shines the brightest right before it burns out! But, let’s give credit where credit is due. The U.S. Consumer was able to find additional room in the house ATM to draw funds, and they spent them as if they were going out of style!

When I saw the results come through, I was fearful that the dollar would really swing a big hammer. But after an initial sell off in the currencies, they came back, and finished the day even stronger (slightly) than they began the day! This price action really led me to believe that the markets had already “priced in” a good result, and therefore no big deal! Amazing! But I won’t argue with the results!

Today is a biggie…not only will we see data on Net Foreign Security Purchases (NFPS), industrial production, and (my fave) capacity utilization, we’ll also be listening in on Big Ben Bernanke’s first testimony to Congress on the economy. There are a lot of different thoughts going around about Big Ben’s “mettle.” Sure, he has the academics to do the job, but will he continue to make statements that drive the markets crazy? Recall the “we have a thing at the Fed called a Printing Press” speech? Or, how about the speech where he got his nickname, “Helicopter Ben”? I hope you see what I mean.

The NFPS is a biggie on its own. The “experts” are forecasting a number of $76.2 billion, down from last month’s $89.1 billion. Not since May of last year have we seen this number below $80 billion, which is just about enough to cover the monthly current account deficit and foreign direct investment. The “net number” sure seems to be trending the wrong way. The move has been subtle, as if not to stir the pot, but I’m watching. I see that the trend has been downward since hitting a high of $104.2 billion in October. What does this tell us?

Well, as a whole, it really doesn’t tell us anything, yet. But the conspiracy theories can come out of the walls and paint some really ugly pictures for the dollar. I won’t go there yet, but you all know that I’ve wondered for some time just how much longer the Bretton Woods II currency agreement between the U.S. and the Asian Central Banks was going to continue. I wonder if we’re seeing signs that it is unraveling? Probably not, but it’s worth thinking about!

The United States wasn’t the only country to see a strong retail sales figure, yesterday. New Zealand saw December quarter retail sales climb 1.1% versus the September quarter. These are the things that keep the Reserve Bank of New Zealand (RBNZ) from cutting interest rates. This economy is teetering from the weight of the high interest rates, but will not give up the “good times” ship. However, I see the RBNZ cutting rates later this year. And when they do, the world’s investors are going to look under the sheets, and see a very ugly current account deficit. I know that the interest rate here keeps the investment interest alive. But that’s now…by the end of 2006, the covers will have been pulled back!

China is back on the minds of U.S. lawmakers, and now things are beginning to look like protectionism measures are going to eventually be introduced. U.S. Treasury Secretary Tim Adams, has sent out a survey to investors, strategists, and academics in New York and Washington, to assess the probably market reaction if the department cites China in the semiannual report as a “Currency Manipulator.” If the United States cites China as “currency manipulator,” lawmakers will be right there to introduce tariffs and protectionism measures.

OK. Let me ask this question to the “smart people in the U.S. Treasury and the lawmakers”: So, you’re going to tick off the country that has kept your “Ponzi scheme” alive? You are willing to anger the country that buys your low-yielding Treasuries month after month? I sure hope the Untied States doesn’t come to that. Calling China a “currency manipulator” will be like opening Pandora’s box of bad things that normally are kept way back in the deep, dark closet!

I think the Chinese have allowed their currency to gain versus the dollar at a reasonable pace, but I guess reasonable isn’t good enough for the U.S. Treasury and lawmakers.

I saw this story yesterday, and it caught my attention for a couple of reasons. It seems that India may invest $1 billion in the Canadian Oil Sands.Here’s the skinny:

“India may invest as much as $1 billion to develop oil-sands projects in Canada within the next 12 months,” the Wall Street Journal said, citing an Indian government official it didn’t identify. “India and Japan sent delegations to Alberta to study the area and visit scientists researching extraction of heavy oil, known as bitumen.”

The metals markets are trying to stabilize and recover. Metals as a whole began stabilizing yesterday afternoon, and that should lead to some life being pumped back into the precious metals of gold, silver, platinum, and palladium. Of course, if Big Ben paints a picture of run-away inflation today in his testimony, we could see these metals, especially gold, recover quickly.

The Bank of England was in the news overnight with a statement that they expect the U.K. economy to grow at a faster rate than its historical average, this year. Hmmm, I wonder where that puts the people calling for a rate cut here in March? That report does not suggest that there is a rate cut in the cards. I would have to say that the Bank of England slammed the door on the rate-cut talk! Therefore, the pound sterling won’t have that albatross hanging around its neck for a while!

Currencies today: A$ .7420, kiwi .6775, C$ .8675, euro 1.1915, sterling 1.7405, Swiss .7650, ISK 63.83, rand 6.1050, krone 6.8225, forint 211.02, zloty 3.17, koruna 23.8750, yen 117.50, baht 39.35, sing 1.6270, China 8.0469, pesos 10.5070, dollar index 90.54, silver $9.32, and gold. $545.85

That’s it for today. I had a wonderful meeting yesterday with one of my favorite economists. I’ll just say that there was nothing to change my mind regarding the direction of these fiscal and monetary policies! Are you watching the Olympics? I’m sure glad they added those X-games sports to the winter games! I’m looking forward to the Investment University Conference in Delray Beach, Florida, next month (I’ll sneak in a few spring training games, too!). Have a great Wednesday!

Chuck Butler
February 15, 2006

The Daily Reckoning