Revising Growth in the United States

Good day…And a Happy Thanksgiving to one and all! Turkey for me, turkey for you. The tradition at our house over the years was to tune into a radio station that always played Alice’s Restaurant at noon on Thanksgiving. Anyway, tomorrow is Thanksgiving; so as you travel over the river and through the woods to grandmother’s house, be careful!

As I said yesterday, the volume is thinning out as we head to what will be (for some people) a four-day holiday. And with the volume thinning out, a rumor began to hit the streets about a revision to the unemployment figures at the next release. This caused a bump up in the euro and the rest of the currencies. The dollar was sold, but again we are trading in such tight ranges these days, I think I would prefer to watch paint dry, rather than watch these tight ranges go on, day after day, after day.

The U.S. Economic Advisors did revise growth downward in the United States, for this year and next. So that had something to do with the dollar selling too. This revision brought back the thought that the Fed would have to cut rates in 2007. So…according to my previous thoughts, that rate cut would have to come in the second half of the year, as I’m still of the belief that there’s one more rate hike arrow in the Fed’s quiver!

As long time readers know, I am a huge fan of the Mogambo Guru. These same readers will also know then, that I am not a fan of Big Al Greenspan, or “Mr. Bubbles” as I like to refer to him. Well, this week the Mogambo said something that has made me laugh out loud every time I think about it. So, here we go…

This morning I see a Bloomberg story titled, “Bernanke’s Programs May Dilute Greenspan Intuition.” I’m laughing out loud reading this. Intuition? For what, creating Bubbles? Anyway…this is where the Mogambo comes in. I’m reading this title, and I immediately recall what the Mogambo called Big Al Greenspan…”The True Living Satan.” HAHAHAHAHA, that just cracks me up!

OK…today we’ll see the U. of Michigan Confidence report, which will probably goose the dollar a bit, as Consumer Confidence must be just soaring. Think about it…even with all the rain clouds on the horizon, consumers now have lower gas prices, and a rising DOW. Shoot Rudy, I bet Consumer Confidence will be off the charts! And that’s just peachy, eh? Don’t worry about the rain clouds until you are soaking wet!

While in New Orleans last week, I was able to listen in on my friend, John Mauldin’s talk regarding the “coming recession.” John had so many pieces of data that normally indicate a coming recession. I wonder if everyone had an opportunity to see this data. Would they still be so “confident”? Oh, well.

The Asian currencies seemed to get the biggest lift in the overnight trading. Japanese yen had really become undervalued – not only versus the dollar, but the euro too – and I’m sure some profit taking began to creep in. Whenever the Asian currencies put in a good performance, it carries over to the Chinese renminbi. I don’t know if you recall, but when China dropped the peg in July of 2005, they placed the renminbi in a basket of currencies.

The Chinese wouldn’t tell us which currencies are in the basket or what the weightings are, but what they have told us is that the renminbi would be allowed to move more on a percentage basis on a daily basis with the Asian currencies than it would versus the dollar. At this time, I wrote that the way to get renminbi moving faster then would be to get the Asian currencies moving versus the dollar. Well…Thai baht, and Sing dollars listened…but the Big Kahuna – Japanese yen – did not. And so, we’re stuck with the renminbi moving at a snail’s pace versus the dollar…UGH! But if we could get yen in motion versus the dollar…you never know.

Base metals really picked themselves up off the floor yesterday…nickel, copper, etc., all gained nicely, as supplies dropped. Whenever the base metals get moving upward, the markets give the “wink and nod” to the Aussie dollar. And so it was yesterday and overnight. The Aussie dollar has moved comfortably above the 77-cent level, and has pulled kiwi along for the ride!

I had no idea what was pushing the base metals down, as China’s economic growth, which demands base metals, was still posting a better than 10% clip. So now that the base metals are back on the rally tracks, the stars are back in alignment.

The base metals have given a lift to the precious metals too, with both Gold and Silver gaining on the day.

The only black eye in the currencies resides in Iceland. This is where, as I explained a week or so ago, Fitch (the rating agency) had taken a shot at Iceland again. So, the best performing currency of the past three months is now history, and the currency is losing ground once more. I don’t know what Fitch has against Iceland, but as I also said a week ago, I never see them ripping the United States for our deficits, and spending. Patience will be needed here to see if the storm passes. I have no idea if it will or not, but with yields above 12%, and the carry trade still a major factor, I would suspect the storm to pass.

Currencies today: A$ .7735, kiwi .6688, C$ .8750, euro 1.2880, sterling 1.9090, Swiss .8095, ISK 72.15, rand 7.1670, krone 6.41, SEK 7.0650, forint 200, zloty 2.95, koruna 21.70, yen 117.20, baht 36.55, sing 1.5550, HKD 7.7860, INR 44.80, China 7.8647, pesos 10.96, dollar index 85, Silver $13.08, and Gold…$628.10

That’s it for today…Except to once again remind you to travel safely this weekend! I hope you get to spend your Thanksgiving with family and friends; that’s what makes the day for me! Chris will have the conn with the Pfennig on Friday, so…Have a great Wednesday, Thanksgiving, Friday, and weekend!

Chuck Butler
November 22, 2006