Turkey For Me, Turkey For You…

Good day… And a Happy Friday to one and all! A Fantastic Friday following Thanksgiving! I hope your Thanksgiving was grand… Mine was super! I also had an added bonus given that the cancer medicine I take hasn’t taken away by taste buds just yet in this last phase… I was able to taste all the great food my beautiful wife prepared for us! So, it was Turkey for me, Turkey for you, let’s eat turkey in my big brown shoe… The words of Adam Sandler kick of this Friday after Thanksgiving… Here we go!

The shoppers are out in force this morning… It’s one thing that I would rather be doing… Work… Than shopping… At least today! Later I love to buy gifts for people, but as we get closer to Christmas…

The currency markets were a non-event during the U.S. holiday yesterday, but once Asia got their hands on the dollar… Watch out! Early in the Asian session, the euro moved past 1.49… Sterling is 2.07, the Swiss franc is over 91-cents, and Yen moved into the 107 handle! But before you run to the fridge to pull out that piece of pumpkin pie you were saving for a celebration… The European session took all those gains away! UGH! And why not? What was the first thing that popped into your head when you saw those lofty figures on the currencies? That’s right… You were asking yourself if you should take a profit… Well… The Europeans did, and quite frankly they’ve gotten out of hand!

The euro for instance is barely holding on to 1.48 as I write, after experiencing the highs of 1.49 last night… Thin markets will do these kinds of tricks… But, what are the Europeans thinking?

It’s all Sub prime, all the time… Sub prime losses are beginning to really look ugly, and the markets, as I told you about last week, are priming the pumps for another rate cut from the Fed when they next meet on Dec. 11th. Wouldn’t it have been great if everyone would have just believed me when I said the Fed would cut 3 times before year-end, and sold dollars then? They would all be singing… We’re in the money… We’re in the money… That takes me back to many years ago when I first started in the investment business. I was working at Stifel Nicolaus and the boss there, Don Jackson, (long departed) used to whistle that song, We’re in the Money, whenever the stock market did well.. And it has stuck with me for over 34 years!

So… Let’s talk about the euro for a minute… I tell people all the time when they are trying to decide what currency mix they should invest in, that the euro is the second most liquid currency in the world… It has become the offset currency to the dollar… So, when you think of the dollar going down… Most likely the euro is going up…

Yes, the euro is a fiat currency just like every other currency.. But the difference with the euro resides in the Central Bank… The European Central Bank (ECB) has credibility oozing out of the walls of the meeting rooms they use to make their rate decisions… The ECB has done the absolute best job of providing price stability… I could go on and on, but I won’t bore you on this Friday morning with more of this… If you’ve read this newsletter since 2001, and decided to take a flyer on what I was talking about.. Euros going higher… You would be up approx. +70%… Where else can you get a return like that?

The important thing to remember here is that it has not been a ONE WAY street… In 2005, I had people wanting to string me up and let me hang high because the euro lost ground that year… But I kept to my guns and kept telling people that it was “dollar props” that would eventually go away, and that the weak dollar trend had not gone away…

So… If the euro and other currencies were once bathing in the glory of lofty numbers VS the dollar at one time last night, it means that they certainly have the capability to go there again… So… What then, would this profit taking sell off in Europe represent to us here in the U.S.? Ahhh grasshopper, you have learned well… That’s right… A buying opportunity, to pick up currencies cheaper than you would be able to buy them just last night!

OK.. I’ve got to share this with you… A reader sent me a note last night that goes… “On tonight’s nightly biz report, someone said that Bernanke won’t let down Xmas shoppers and celebrations–ergo, another rate decrease. So now it’s being pegged on the need to protect Xmas!

And then that was followed by one of the funniest things I’ve seen lately… It’s a spoof, but a very funny one… You take a cereal box, and instead of seeing Tony the Tiger on the front of the box, you see Big Ben Bernanke’s face… And the name of the Cereal is called… “Credit Crunch” I’m laughing out loud here, but there’s more! Then here are the funny adds all over the box… “A free helicopter inside”, “Fortified with Hedge Funds”, “now with sugar coated derivatives” LOL!

Then… I see a story on CNN regarding a “Santa Rally” for stocks, it goes like this… “sing it with us: You needn’t watch out. You might as well cry. You might as well pout I’m telling you why. Santa Claus ain’t coming to town.”

The creative minds are out in force this morning! And that’s good, because I’m dragging the line this morning… I don’t normally like those middle of the week holidays, for the way I feel the next day… Dragging the line… Making a living the old hard way… Takin’ and giving by day by day… There you go, a little Tommy James on a Friday morning after Thanksgiving!

OK, back to currencies! The pound sterling has gotten taken to the woodshed in the European session after traders saw the latest printing of U.K economic growth, which surprised everyone by unexpectedly slowing down. The third QTR GDP slowed to the weakest pace in a year, which is what the Bank of England (BOE) was trying to accomplish by raising rates so high this year… This is more fuel for the rate cut campers to burn in the U.K. and pound sterling will suffer from all this, as Carry Traders get out of the currency due to the risk of rate cuts…

Across the channel, the European Central Bank (ECB) doesn’t have things cut so clear for them… On one hand, inflation is inching higher… And on the other hand, economic growth is slowing… What’s a Central Bank to do? Well… If I were running the ECB I would be pounding my fist on the table to emphasize their goal of maintaining price stability and not worrying about economic growth!

I would point out how German Import Prices increased the most in almost a year in October, and remind my fellow ECB ministers how import prices are a good indicator of future inflation… I would point out how the price of oil, the main culprit in the higher import prices, is not going to have a major downward price change any time in the near future! And once again remind them that if it wasn’t for the strong euro, which many of the ministers whine about all the time, those import prices would be much higher than the 2.3% rise from a year earlier!

The Chinese renminbi hit a new record (since the drop of the dollar peg) VS the dollar overnight… As I keep saying over and over again, this dance is gonna be a drag… No wait! I keep saying over and over again that this what to expect from the renminbi… Slow, calculated moves VS the dollar… Eventually, you see a nice gain… So far this year, it’s been about 6%… Nothing to write home about, but then when I see the headlines I saw yesterday morning that said the S&P 500’s gains for the year have been wiped out, 6% doesn’t look to shabby, eh?

And the price of Gold has moved back over the $800 level, and the price of oil continues to eat away at the dollar…

Before I go to the Big Finish, I wanted to mention that a reader took exception with my calling the Fed Heads liars on Wednesday… OK, so maybe I was a little hard on the Beaver, eh? I’m still not happy with them… And haven’t been for a real… Long… Time!

Currencies today: A$ .8725, kiwi .7525, C$ 1.0150, euro 1.4810, sterling 2.0585, Swiss .9070, ISK 62.75, rand 6.8050, krone 5.4330, SEK 6.3030, forint 173.77, zloty 2.49, koruna 18.0550, yen 107.90, baht 31.32, sing 1.4425, HKD 7.7760, INR 39.70, China 7.3980, pesos 10.97, BRL 1.7740, dollar index 75.19, Oil $96.69, Silver $14.56, and Gold… $810.40

That’s it for today… I got a little carried away at times this morning, but it’s the day after Thanksgiving, I can do that! I’m interested to see the scene at work this morning… You see we share our parking lot with a Best Buy, and Sports Authority… I hope I don’t have to fight for a parking spot! Tomorrow night is the BIG GAME for my beloved Missouri Tigers… I can hardly stand waiting for this game to take place… I’m nervous by confident they will show the country what a good team they are! And if they win… I’m going to San Antonio to watch them play in the Big 12 Championship Game next week! WOW!

So… Please put something black or gold or both on for me tomorrow to show your support of my Missouri Tigers! Now… Where’s my box of “Credit Crunch” cereal, I’m hungry! I hope you have a Fantastico Friday and Wonderful Weekend!

Chuck Butler
November 23, 2007

The Daily Reckoning