Retail Sales Today

Good day… One day closer to spring, eh? One day closer to Chuck’s Spring Vacation! YAHOO! And that will take us right into opening day for baseball, which is actually opening night this year for my beloved Cardinals! Like a kid at Christmas, I am when it comes to opening day!

The currencies didn’t do much yesterday, except yen and sterling. Yen appreciated back to the 117 handle, while pound sterling lost one whole figure. Was this unwinding of yen/sterling carry trades? It sure looked like it to me from my view in the cheap seats.

But just one pair being unwound? That sure seems strange to me. But then stranger things have happened, eh? We’ll have to keep our eyes on this one, as I just can’t get my arms around the fact that with all the cross trades in the market these days, that this one pair would only be affected. This could just be one entity unwinding… Like a hedge fund… So, I’ll keep watching this one, to see if this really is what it appears to be.

In the South Pacific, where one would normally first look to see if carry trades are unwinding, with respect to the New Zealand dollar/kiwi, we saw none of that! In fact, kiwi gained a bit overnight after their January retail sales report printed stronger than forecast. Retail sales for January grew at 0.5%, which represented the eighth increase in the last nine months. To me, this only gives the Reserve Bank of New Zealand (RBNZ) a pat on the back for raising interest rates last week. But kiwi gained on the news, and I’m not one to throw myself under a speeding bus!

I don’t think this gives the RBNZ any fodder to want to raise rates again, solely on this data. The RBNZ isn’t going to fall into that trap. I haven’t always agreed with RBNZ Governor Bollard’s actions, but he’s smarter than that!

In Australia, business confidence really jumped in February to a ten-month high. There was more good news from Australia overnight, as job vacancies climbed 3.4%. This is a little different way to think about it, but the way it works is that, as jobs are created and not filled, it creates a vacancy. So, to think about it further, it means the Australian economy is creating jobs faster than they can be filled! WOW! Good Show!

How about that price of gas lately? Keeps going higher again. Crude has backed off the $61 level it had two weeks ago… But gas keeps creeping higher. Oh, but don’t worry about that, because according to the Governor there’s no inflation problem in the United States. Nah… Nothing to worry about.

Well… I bet you were scratching your head after that last paragraph. Come on! I’m being facetious. Of course there’s inflation! It’s everywhere, and you and I know it. We just have to convince the government accountants of that!

Speaking of inflation… Where has all the inflation gone? Long time passing. In the Eurozone? Well… Take a strong euro… Mix it with a Central Bank that didn’t allow rates to stay long too long like another Central Bank we all know and love, and shake that up with a dash of strong export growth, and inflation is below their ceiling target of 2%. Now, money supply is still strong, but will soon fall. Here’s my view on that…

As I’ve reported over and over again, Germany added to their VAT (TAX) in January. The European Central Bank (ECB) seeing this, and worry about the increase to the VAT slowing the growing economy, made sure there was enough money supply to keep the economic growth ship out to sea. Now that the ECB sees that the German economy has weathered the storm, I would fully expect them to signal to banks that the spigot has been shut down… Just my thoughts on it…

OK… Does this mean that the ECB is finished with rate hikes? Not so fast! As I told you last year, the ECB will not stop till they reach 4%, which is now only 25 BPS away. Seems like a long time ago we started down this road of ECB rate hikes.

This morning, German investor confidence – as measured by the think tank, ZEW – rose more than expected this month. Another sign that the VAT storm has been weathered. The confidence index rose to its highest level since last July. The reading, for those of you keeping score at home, was 5.8. It was 2.9 in February… And the “experts” had forecast a 3.2… So a good showing all around, eh?

Recall yesterday I told you how I expected Norway’s Norges Bank to raise rates on Thursday of this week, and I said Sweden’s Riksbank wouldn’t be far behind? Well… Add more fuel to that thought, as Sweden reported this morning that their January CPI had risen to 1.3%. I know that doesn’t sound bad, but the Riksbank is adamant about providing price stability. So, I’m sticking to my story about another rate hike from the Riksbank this year.

Yesterday the United States printed a $120 billion budget deficit for the month of February. No biggie, right? Deficits don’t matter, right? HAHAHAHAHAHA! Deficits won’t matter when pigs fly!

Today, we’ll see the color of the February retail sales here in the United States. As I said yesterday, the BHI tells me to look for a slight increase over January’s 0% showing. But still nothing to get all lathered up about. You see, I think that all the money from houses has been spent. There’s not going to be any more any time soon either! And now with the subprime meltdown… Oh brother can you lend me dime? This subprime meltdown is going to get really ugly folks. So batten down the hatches.

And that battening down of the hatches is what will bring the economy to its knees… In my opinion anyway!

Currencies today: A$ .7850, kiwi .6945, C$ .8560, euro 1.3170, sterling 1.93, Swiss .8165, ISK 67.28, rand 7.3810, krone 6.1410, SEK 7.06, forint 189.65, zloty 2.9510, koruna 21.43, yen 117.15, baht 33, sing 1.5280, HKD 7.8140, INR 44.19, China 7.7440, pesos 11.14, dollar index 83.89, Silver $13, and Gold… $650.40

That’s it for today… Again, the interest in our new EverBank Japanese REIT MarketSafe CD has been great… But don’t forget about the EverBank MarketSafe Gold CD… We’ll actually have a full desk today with everyone in their places with bright shiny faces! YAHOO! Have a great Tuesday!

Chuck Butler — March 13, 2007

The Daily Reckoning