RIP - The Super SIV

Good day… And a Thundering Tremendous Thursday to you! I hope your Christmas was something special. It sure is good having a “little one” around to lift the spirits of everyone at Christmas! Next year ought to be even better with little Delaney Grace around!

The dollar drifted while I was away, with the bias to buy dollars. No big rally for the currencies like in other years. I read an article today that really got me fired up… The Big Brokerages like the ones we’ve been talking about that are taking infusions of cash from Sovereign Wealth Funds, are now saying that this will continue, and thus we should see an end to the dollar weakness in 2008.

I would bet a dollar to a Krispy Kreme that these guys calling for a dollar rebound are long dollars!

Oh Geez… Because these knuckleheads all had to beg for help… Oh never mind, I just don’t want to get into this stuff… But if they are all saying it, then it’s like a self-fulfilling prophecy. These guys are calling for a 3.3% rise in the dollar next year. Of course they don’t say when that happens… And I, for one, wouldn’t be surprised to see a 3.3% rise after the euro (EUR) hits 1.50!

I also made a mistake yesterday when I told Chris that Merrill Lynch had received a cash infusion from Thailand… It was Singapore.

Chris sent me a note yesterday following up on something I wrote about earlier this month… “And remember that SUPER SIV that you wrote about last month? We predicted it wouldn’t get off the ground in this month’s Review and Focus, and our prediction looks to be coming true. From Investment News Daily:

“‘Bank of America, Citigroup Inc. and JP Morgan Chase & Co. scrapped the much-ballyhooed Super SIV on Friday, according to an announcement from Bank of America.’

“‘The U.S. banks have abandoned their “Super-SIV” plan to create an artificial market for each other’s nontradable mortgage-backed securities,’ observes our colleague Dan Denning from his perch in Melbourne, Australia.

“‘Apparently, it is a lot easier to borrow several billion dollars from a sovereign wealth fund and sell equity in your firm, instead.

“‘Existing shareholders are already sitting on falling share prices. Now they face dilution in their shares. The upside? The banks get recapitalized, rather than being dismembered and sold off piece by piece to the highest bidder.'”

Thanks to Chris for sending that along to me… We take care of each other like that whenever the other person is coming back after having time away.

Did you see the note I had sent Chris yesterday regarding credit card debts? One of my fave reads is The 5 Minute Forecast. Ian and Addison from The 5 Minute Forecast did some further research into this problem I brushed over yesterday… So for those of you keeping score at home… Here’s what they had to say at “The 5″…

“Americans were at least 30 days late on over $17.3 billion in credit card payments in October – up 26% from the same time the year before. Likewise, the total funds in default rose to nearly $961 million, an 18% increase year over year.”

So let all those knuckleheads out there tell you that everything’s coming up roses… (I can hear that music in my head from Gypsy!) Sooner or later love is gonna get ya… And sooner or later the music is going to stop, and not everyone’s going to have a chair!

And yes… The Sovereign Wealth Funds will continue to throw good cash at ailing firms, thus bringing funds into the country. But the other shoe is dropping, and you have to wonder when they stop and say, “Wow I could have had a V-8!” Things here are going to get pretty ugly before they come up roses. So, Gypsy, and Baby June will just have to wait!

Home prices in 20 metropolitan areas fell in October by 6.1%, the most in at least six years! OK… All those thinking like me must think that sooner or later, homeowners that are so far under water, and behind in their payments will just begin to walk away from their homes. I mean the homes are going to be worth less than the note they carry on them… This is so sad… It really is… But the fact remains that this is not going to help the mortgage/housing meltdown one iota, and all this will cut spending. And add all that credit card debt, and you’ve got a recession brewing.

This home prices news sent the dollar down yesterday, but not by much as the Big Boys aren’t back to their respective desks yet. However, overnight, the Asians thought it best to sell dollars once again, and the euro has climbed all the way back to 1.45!

Today, we’ll see durable goods orders for November, and the latest consumer confidence report. I would expect to see consumer confidence fall further from last month’s decline to an index number of 87. None of this should be good/friendly to the dollar.

China’s renminbi (CNY) shot higher yesterday and overnight, as the country’s leaders are seeing that the 6.2% gain versus the dollar in 2007, has done little to slow down exports. The Chinese officials are also looking straight down the barrel of some very high inflation. So… A rising renminbi will continue to be featured on the currency menu in China.

Speaking of China… I see where the Chinese are going to abolish an old tax on imports of base metals. Talk about giving commodities a shot in the arm! This could be the straw to stir the drink for commodities, folks… For instance, copper and nickel both rallied strongly on the news. Have you heard the news, there’s good rockin’ at midnight? That’s what base metals dealers are singing this morning!

I also noticed yesterday that Chris talked about the Canadian dollar/loonie (CAD), and how nice it was to see it gain some ground. Well… Let me take you back to a month or so ago, when I said that we’ve seen the top for the loonie at this time. It will take gold moving past $850, and oil moving past $100 to light a fire under the loonie again. So, when Chris wrote that the loonie had gained, I immediately looked over to oil, and saw that it had risen past $96 again… And gold? Ahhh grasshopper, there it is back from the battering it took earlier this month, and is back above $825… I love it when a plan comes together!

OK… First day back… Gotta cut me some slack, Jack… I’m going to head to the Big Finish, and put this one to bed…

Currencies today: A$ .8725, kiwi .7676, C$ 1.0175, euro 1.45, sterling 1.99, Swiss .8690, ISK 63.20, rand 6.9080, krone 5.53, SEK 6.52, forint 175.29, zloty 2.4950, koruna 18.33, yen 114.30, baht 30, sing 1.45, HKD 7.7975, INR 39.40, China 7.3150, pesos 10.83, BRL 1.7690, dollar index 77.15, Oil $95.96, Silver $14.80, and Gold… $828

That’s it for today… Sorry for the late arrival of the Pfennig on Monday. The gatekeepers apparently were all out of the office for the Christmas holiday. I hope you liked the Christmas Pfennig. That gets harder to do every year… I ought to start writing it around Halloween, maybe then it wouldn’t be so difficult! I sure enjoyed my Christmas vacation… Got a chance to see friends, family, the whole shootin’ match… I overdid it a couple of days, and my leg let me know all about it… I’ve got to stay off of it more… That’s what the doctor says… So… I will! I sure hope you have a Tremendous Thursday!

Chuck Butler
December 27, 2007

The Daily Reckoning