The "Wave" Is On!

Good day. Well, I made it back from Atlanta, unscathed. Thanks to our wonderful travel people! A week at home that ends with Mother’s Day, and then I’m back on the road for the Las Vegas Money Show. It’s the biggest show, with the most attendees, so I’ve got that going for me!

How about that euro? Don’t know if you’ve see the price performance of the single unit since Friday, and I won’t even make you skip down to the currency round up. Euros are trading 1.2775 versus the dollar! You know, back on November 28th, 2005, I wrote about how two major currency dealers had announced that they were switching to euros, and I coined that announcement as “attempting to start the wave.”

Just like the kids at a stadium attempting to start the wave, there were a few starts that didn’t get everyone’s attention. But then, look at it go! Since November 28th, 2005, the euro has gained a total of 8.2% versus the dollar. I’d have to say the “wave” has gotten everyone’s attention now, and – wait, it’s my turn to stand up and throw my hands in the air. OK, I’m back now.

A little fun on a Monday morning that sure looks fine. Friday, I have traveling on my mind. Speaking of Fridays, last Friday, of course, was a Jobs Jamboree that came in very disappointing to the multi-rate hike campers: 200,000 jobs were expected to have been created in April, and only 138,000 made the list. I’m not even going to mention the fact that if the Bureau of Labor Statistics hadn’t added over 270K jobs, that the number would have been negative. Ooops, I just did! Anyway, this data sent the dollar running for the hills on Friday.

However, you know me, I don’t really get into counting how many “jobs” were created when we don’t know what kind of jobs there were. I prefer to look at the average hourly earnings, which ticked up in April. One would have the thought the “multi-rate hike campers” would have focused on that data, for it certainly tells us there will be some wage inflation. But, you live by the sword; you die by the sword. Traders and dollar bulls have focused very strongly on the jobs created each month, and it jumped up and bit them on Friday!

I find the euro’s move even more amazing given the fact the FOMC will meet this week. I don’t see any other outcome that could be considered other than a rate hike. However, could this be the last arrow in the Fed’s quiver? Las week, I told the “crowd” in Atlanta that I thought it to be “prudent” to pause after this rate hike. I said that we should sit back, take a look at the landscape, and see what all these rate hikes have done to the economy.

I think the markets are thinking the same way, and that’s why the euro continues to burn a path back to 1.30.

OK. The euro isn’t the only currency taking liberties with the dollar these days. Japanese yen is really picking up steam, and has moved to within spittin’ distance of the 110 handle. I’m wondering when the Bank of Japan (BOJ) will get the wink and nod from the Ministry of Finance to intervene. We all know that it’s coming, don’t we! However, keep this in mind: a couple of years ago, the yen was the subject of the Bank of Japan’s attention and they sold truck-loads of yen to keep it weak. But, it didn’t keep the yen from its appointed rounds, and it got down to below the 105 handle.

You have to look at any BOJ intervention with the yen as an opportunity to buy at a cheaper level than the day before! Oh, look! I just saw a comment come across the screen that Japanese Officials see the rapid move of the yen as “undesirable.” Maybe for them, but not for us – and more importantly, not the current account deficit!

The data cupboard is spilling out onto the floor this week, with so many pieces of data. I already told you about the FOMC meeting, but we also have the monthly budget statement, which is expected to be getting close to $100 billion for one month (it’s expected at $95 billion). We’ll also see retail sales, which means I need to look at the BHI (Butler Household Index) – and the BHI tells me April’s retail sales could be a humdinger! The monthly trade deficit is next on the docket, and is expected to get back to enlarging each month! There are other little pieces of data, but I won’t bother with them.

Well, China came back from their weeklong holiday, last night, and for the first time in a week, the renminbi was able to move. It gained a bit versus the dollar, and looks like it will probably lose the eight handle by then end of the month. That move will be quite psychological, I think.

Remember when I told you about the euro being the Big Dog on the porch, and all the other European currencies were the little dogs? I told you then that when the Big Dog decided to chase the dollar, the little dogs could leave the porch, too. That’s exactly what has happened! Switzerland, Norway, Sweden, Denmark – they’ve all seen their currencies rise versus the dollar, again. Who let the dogs out? Now, if we could get that Icelandic krona to run with the dogs a little faster, the stars would be in alignment, and the karma would be flowing, dude!

Iceland’s central bank will meet on May 18th, 2006, to discuss rates. I can only think of one thing they would discuss: Not if they raise rates, but how high!

Gold has backed off a bit (-$3.50), overnight. The only story I could find on it involved the thought that technical indicators show that it could be overbought. Of course, the important thing to think of here is that the statement says: “it could be.” It didn’t say: “it was.” However, as with all the over small corrections we’ve seen with gold for the last four years, it will probably be short lived!

Currencies today: A$ .7740, kiwi .6383, C$ .9050, euro 1.2775, sterling 1.8675, Swiss .82, ISK 71.35, rand 6.03, krone 6.0880, forint 203.57, zloty 2.99, koruna 22.12, yen 111.05, baht 37.45, sing 1.5650, INR 44.86, China 8.007, pesos 10.8475, dollar index 84.86, silver $13.77, and gold $680.50

That’s it for today. My beloved Cardinals finally turned their road trip around, over the weekend. I was beginning to worry! I saw some friends in the business in Atlanta. It was good to see Bob Meier, Rick Rule, Steve Belmont, and of course, Junior! Good stuff! It will feel good to sit at the desk for a week, so it’s good to be back! Have great Monday and week!

Chuck Butler
May 8, 2006

The Daily Reckoning