The Fed Leaves Rates Unchanged...

Good day… Well… Things have calmed down in Thailand, as the military has announced elections for next month, thus keeping their promise to return power to the people. The Thai baht has recovered a chunk of its lost ground too… I saw something yesterday that caught my eye… The ratings agency, Fitch, came out and said Thailand’s coup could be a positive development…

The Fed Reserve kept the lid on interest rates again yesterday, as expected… They have one more meeting before the election in November, given my conspiracy theory, that would mean the Fed would also keep a lid on rates at that meeting too. The Fed’s statement following the announcement was basically unchanged from last month’s explanation of the decision to keep rates unchanged. The Fed says they will keep an eye on the data… Well, isn’t that special? Our Central Bankers are going to watch data… Why don’t they just all go out and get gussied up so they can look good watching their data!

OK… I didn’t want to go there… But before I knew it, the words were typed… Must be that evil twin of mine going to work on my fingers again! Anyway… The point I was going to make is that by the time the Fed meets again, and keeps rates on hold, the ECB will have raised rates once again… Hmmm… The Tale of Two Cycles continues…

The currencies didn’t take the news of the steady Eddie rate decision by the Fed as any reason to rally… And they didn’t… However, the euro has moved higher overnight, as the thought in the markets, that the Fed must see the economy really slowing down… This thought has slowly crept into their gray matter, but the important thing is that it DID FINALLY CREEP IN!

So… The euro has put on its rally shoes, and has slowly moved out onto the dance floor… I’m still waiting for it to really cut loose, and get the locomotion going with sterling, Swiss, Sweden, Norway, all hanging on and dancing in step. So… Make certain you keep a space on your dance card open for any of those currencies!

I can hear all the young people right now, wondering what the heck I’m talking about here with a dance card… Ahhh grasshopper, ask someone older… Could give you an excellent opportunity to have a meaningful conversation with a grandparent!

OK… Back to currencies… You know… In recent trading, it has been a tag-team of euro and sterling taking turns gaining VS the dollar… Sterling has been very resilient, although it continues to struggle any time it gets close to going back over the 1.90 handle… I would take this struggle as a sign that it is building a strong base just below the 1.90 handle that will be used as a springboard to higher levels once the euro is really struttin’ its stuff on the dance floor!

Another thing to keep in mind is the report yesterday that the Bank of England voted unanimously to raise rates last month… No dissenters… That tells me that there’s another rate hike on the way before year-end… (probably in November)…

I hate to go somber news, but someone has to do it! The Commodity currencies of Australia, New Zealand, Canada and South Africa, can’t seem to catch a break these days… Only Australia is still on the rate hike clock… And Commodities continue to get sold… It’s not a meltdown… It’s not a reversal of the Commodity Bull Market trend at least in my opinion it’s not…

You know… We’ve been through these sell offs in Commodities a few times in the past 5 years… In April of 2004, I was in Tucson when I saw a story in the USA Today, that China was going to slow down. That led to a Commodity sell off, but they rebounded big time… In the spring of 2005, we saw the same type of sell off, only to see them rebound again… I’m going to put this one down as the same type of sell off…

But as I keep telling people… There is a line drawn in the sand, and either you believe that Commodities have had their day at their run is over, or you don’t believe that… Either way though… EverBank’s MarketSafe Commodity/Resource CD plays on both sides of that line in the sand! 100% principal protection, and a participation in the Commodities market, without market risk… An attendee at the Agora Wealth Symposium in Vancouver came up to me and wondered why people weren’t lined up at my table to buy this CD…

Bank of Japan Gov. Fukui was back on the soap box last night talking about how BOJ rate tightening will be “slow”… The doves were jumping all around in happiness, and the hawks were taking the speech as a sign that rates will be moved higher again in December… Now, that’s slow isn’t it? August to December for 25 BPS? I would think so… However, if the BOJ does decide to wait until next year, then that will be a signal that “slow” is going to be “real slow”… That scenario won’t be good for the yen… So let’s hope Fukui’s “slow” means December!

With things in Thailand calming down… The Asian currencies have decided to rally. The renminbi has reached yet another new record level since the peg to the dollar was dropped last year… There were all kinds of reports yesterday about how the Asian currencies would get taken to the woodshed because of the coup in Thailand… They kept pointing at how Thailand was the linchpin in the Asian Crisis of 8 years ago… Well… They should have done some additional research to find that Asia is a completely different place now… The huge reserve positions, and the economic growth in Asia is a completely different scenario than right before the Asian crisis…

Speaking of Asia… Have you noticed the Indian rupee lately? After falling as low as 47.05 on July 20th, it has slowly recovered to trade this morning at 45.85… A nice recovery, eh?

Today’s data docket finds the Weekly Initial Jobless Claims, Leading Indicators for August, and the Philly Fed Index for the first two weeks of this month. Leading Indicators have been awful lately, but the markets just don’t give a hoot, which is strange given what this data is telling us… And the Philly Fed Index is expected to back off last month’s jump… This one could give the dollar fits if it does fall to the level that is forecast… (14 from 18.5 last month)

This is the last data for this week… So tomorrow should be about as exciting (trading wise) as sitting in bumper to bumper traffic, with your radio on the blink! Next week, we’ll digest a bunch of housing data, and Consumer Confidence, which I don’t even want to get into yet….

Currencies today: A$ .7555, kiwi .66, C$ .8905, euro 1.2735, sterling 1.8985, Swiss .80, ISK 70.15, rand 7.40, krone 6.50, SEK 7.24, forint 216, zloty 3.09, koruna 22.32, yen 116.75, baht 37.36, sing 1.58, HKD 7.7825, INR 45.85, China 7.9233, pesos 10.94, dollar index 85.48, Silver $11.08, and Gold $581.60

That’s it for today… My beloved Cardinals’ magic number to clinch the Central Division is 5… We’ll limp into the playoffs this year, as opposed to sailing into the playoffs the last two years… Draggin’ the line this morning, especially after tweaking my back working outside last night… UGH! Hopefully, I can get revved up with a currency rally! Have a great Thursday!

Chuck Butler
September 21, 2006

The Daily Reckoning