The IMF Agrees With Chuck!

Good day… And a Terrific Tuesday to you! A day of profit taking yesterday saw the euro (EUR) lose 1-cent of the ground gained overnight… But, the IMF has thrown a cat among the pigeons this morning and the euro is back on the rally tracks. So… Let’s go to the tape!

Well… As long time readers well attest, I don’t normally agree with the IMF… But in today’s case I believe the IMF has been reading the Pfennig! You see, Deputy Dawg… I mean, Deputy Managing Director, Lipsky said in a speech that was delivered by the IMF’s Deputy Director for Asia Pacific, that, “We see serious risks to the financial system”.

That’s what I keep saying folks… I can’t believe that little old me (HA!) sitting here in St. Louis Mo. (home of the 10-time World Champion Cardinals), can see the risks that still remain and the high priced, well educated, BIG Boys on Wall Street don’t see them. Well, anyway, the IMF sees them too… Maybe it’s sort of like the ghosts that some people see and others don’t.

Anyway… The IMF speech has the dollar going to the woodshed once more, and don’t look now, but the euro isn’t the only beneficiary of this trip to the woodshed by the dollar. The Aussie dollar (AUD), which I highlighted in yesterday’s Pfennig – and in the just written and sent to press Review & Focus – is pushing open the door to 96-cents!

The Reserve Bank of Australia (RBA) released the minutes of their last meeting last night, and there was this revelation that the RBA Board, “spent considerable time discussing the case for a further rise in the cash rate” in May. Well, you know my feelings here… I’ve gone on record saying the RBA would raise rates again… And now that the rest of the world has seen this statement by the RBA, they decide to join me on the Aussie dollar bandwagon! I can see parity to the green/peachback in the Aussie dollar’s future… Let’s hope it doesn’t fizz out before reaching that lofty level!

It’s not like 96-cents for the Aussie dollar isn’t lofty! It represents a 24-year high!

OK… From what I can tell… The euro did hit a rough patch overnight when the business sentiment in Germany, as measured by the Think Tank ZEW, saw some weakness… But then, turned on a dime when ZEW President Franz made comments that he expected the European Central Bank (ECB) to raise rates “in the near future”.

So the euro has the IMF statement and the ZEW statement going for it today… No wonder the 1.56 handle has been taken out and is halfway to 1.57 as I write.

With the Big Dog (euro) off the porch and chasing the car (dollar), all the smaller dogs get to get off the porch and stretch their legs too. That includes Norway (NOK), Sweden (SEK), and Switzerland (CHF)… Norway and Sweden have long been faves of mine and are perfect alternatives to those that don’t believe in the “euro story”.

Switzerland, after seeing parity to the dollar earlier this year, has not fared well lately. Although, let’s not get too jaded with that kind of talk… If you took Austin Powers and thawed him from a deep freeze from the ’70s, he would be quite surprised to see the Swiss franc at 96-cents!

The Swiss franc’s performance today can be traced back to two consumer bell-weather stocks Home Depot and Target. If these reports come in strong, stocks should take off, thus leaving “risk” in its rear view mirror… And that means more carry trades. However, if these two come in weak with their earnings reports, risk could get put back in the markets and Swissie and Japanese yen (JPY) would look to do well.

No big surprise here, but the Bank of Japan (BOJ) left rates unchanged last night. The vote was unanimous. The domestic data warrants a rate hike… But the BOJ is steadfast in their assessment that rates should not be raised at this time. Talk about a shot in the arm for yen if the BOJ would ever wake up and smell the coffee!

Speaking of coffee… I gave up drinking coffee late last year. It was not a difficult thing to do… I just miss having a cup of coffee on my desk to sip throughout the morning. Instead, like this morning, I stopped to get a bottle of orange juice… I don’t know why I got off on this tangent… Better get back to the task at hand!

Leading indicators printed yesterday and weren’t as awful as last month’s print of -0.1%… April’s number printed at +0.1%. So… For the last two months, leading indicators are flat… And that’s just about how I see the economy going forward… Flat.

Today, we’ll see the stupid PPI print. I just finished the Review & Focus, and went through all the changes that were made to CPI back in the ’90 s at the insistence of Big Al Greenspan… So… If I feel that CPI is stupid… The PPI gets tarred with the same brush. But, the markets follow the data, so I have to too.

PPI for April is expected to print at 0.4%, thus making the annual number 6.7%. That’s pretty high, and doesn’t give those that follow these two pieces of data a warm and fuzzy about the future of CPI. But don’t worry about that folks… The government tells us inflation isn’t a problem… At least that’s what the Federal Reserve tells us every time they cut interest rates.

But then we have little old me (HA!) and John Williams of Shadow Stats fame. I’ve used John Williams’s’ numbers before… But since I’m talking about inflation here I thought I would use his numbers again. Using 1990 methodology, Shadow Stats shows consumer inflation at 11%… Not the less than 4% the stupid CPI keeps telling us exists.

Tomorrow, we’ll see the color of the latest FOMC meeting minutes… The Fed Heads playing games with our futures is how I see it… Especially after reading most of Bill Fleckenstein’s book, Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve. If you’ve ever wondered why I pound on the Fed and Big Al all the time, then you only need to pick up this book and read it. It will leave you with a feeling of betrayal by the Fed and Big Al… And make you wonder how the heck he ever got called “maestro”!

But enough of that; I could go on for hours… But I won’t. I don’t have the time or the space to do so!

So… As I head to the Big Finish, I still seeing a nice rally by the currencies… So… Let’s go!

Currencies today 5/20/08: A$ .96, kiwi .7765, C$ 1.0105, euro 1.5660, sterling 1.9645, Swiss .9610, ISK 73.80, rand 7.6460, krone 5.00, SEK 5.9210, forint 156.78, zloty 2.1660, koruna 16, yen 103.90, baht 32, sing 1.3660, HKD 7.80, INR 42.60, China 6.9725, pesos 10.38, BRL 1.65, dollar index 72.44, Oil $127, Silver $17.07, and Gold… $907.07

That’s it for today… We actually had a FULL desk yesterday, with everyone in their places with bright smiling faces! WOW! That only lasts through today though… I guess that’s what happens when you experience growth like we’ve had in the past three years. More people equals more vacations! My last day of taking the cancer meds for this phase is tomorrow.  At this point, I can taste sweets and beer, that’s it… Which is not a good combination for someone my size! But at least I’m still hanging in there, if the medicine is helping with that, then I don’t care about the side effects. OK… Enough… Time to hit the send button… You’ve been a great audience… Try the veal, I’m here all week! And… I hope you have a Terrific Tuesday!

Chuck Butler
May 20, 2008

The Daily Reckoning