Waiting for Data

Good day… And a Terrific Tuesday to you! Rested and ready to go! I’m rested and ready to go today, after spending yesterday with my feet up to get the swelling out of my leg and foot… I have an appointment with the oncologist and blood doctor this Thursday, so I wanted to get that down before that visit.

The currencies didn’t move much yesterday and if anything inched backwards instead of forwards from where I left off yesterday morning. Overnight the currencies did much of the same… It was a downright boring 24 hours in the currencies! Looks like everyone is waiting for tomorrow’s print of retail sales in the United States. So, this is the last “get out of jail free card” for the economy this week… Tomorrow we’ll see the color of retail sales, which I’ve already said will be very disappointing. Thursday we’ll see the latest rot on the Trade Deficit, and Friday, we get Industrial Production, Capacity Utilization, and Consumer Confidence…

None of these will do the economy any favors, and by the time you head to the pubs on Friday, another nail will have been driven into the economy’s coffin… Where that leaves the dollar, is anyone’s guess. To me, I would think it leaves the dollar with a trip to the woodshed… But here lately, things haven’t been what they are supposed to be… So, we’ll have to wait-n-see!

Last night, Fed Head Poole, with whom I disagree with time and time again, was trying to convince people that the United States will probably avoid a recession because of the Fed’s interest rate policy. What is this guy smoking? We’re already in a recession, how can you avoid something when you’re already in it? Poole is retiring at the end of March, I wonder who will take his place, and, I wonder who, who wrote the book of Love? No wait! I just want to know who will take his place? (I hear a song there too!)

Today, Fed Head Janet Yellen will speak about the economy. The last time she gave us her two cents worth, it was quite dovish… I don’t expect any change of heart here… I doubt Yellen will upset the Fed’s rate cut applecart!

Remember a couple of years ago in August when the Bank of England (BOE) cut rates and I just about had a cow over the move? Then remember how I kept saying the BOE had egg all over their faces because inflation kept creeping higher, and eventually, the BOE had to reverse that rate cut, and hike rates?

I wonder if we’re there again? Yesterday, January Producer Prices came in much stronger than expected. Stronger to the tune of a 16-year high! I wonder if they’ll be singing… You go back, Jack, do it again, wheel turning round and round, you go back, Jack, do it again…

Anyway… The data pushed sterling (GBP) higher on the day… But right now, sterling needs all the love it can get!

The South Pacific currencies of Australia (AUD) and New Zealand (NZD) refuse to let unwinding carry trades affect them in an adverse manner. Their rate differentials to not only the United States but the other major money centers of the world, Europe, London, and Japan are underpinning the currencies, and allowing them to make small gains each day.

Personally, I can see Australia weathering the unwinding carry trade storm, but New Zealand? I just don’t see it happening. Australia’s trade deficit is narrowing, New Zealand’s isn’t… Australia’s interest rates are still rising are still rising, New Zealand’s aren’t… But, right now, interest rate differentials are the cat’s meow, and that is good for kiwi!

I was the moderator for a panel of “FX Experts” on Saturday… And I asked each one to give me a couple of pieces of data that investors should look for that would “move” currencies. Each of the three gave me the same answer – interest rates. Hmmmm, I thought… So, I asked them, “If interest rates are so powerful, and I agree that they are (but not everything) how would you explain Japanese yen’s (JPY) rally from 125 to 106 in the last six years”.

Obviously none of them were Pfennig readers because none of them could really offer up an answer. I wasn’t trying to stump them; I just wanted their opinion on how yen overcame zero interest rates!

I bet I’m not asked to moderate a panel again!

At the Town Hall meeting of EverBankers, I repeated my call that I see the possibility of a mini dollar rally in the spring leading up to the European Central Bank’s (ECB) first rate cut – and that we could see the euro (EUR) backing off to 1.40 before turning around again. I’ve seen a few calls out there that don’t agree with that thought. These people believe that the euro will trade to 1.50-1.55 before ending the year on a sour note. Well, either way, euro holders will benefit, eh?

I also repeated my calling out of Swiss francs (CHF) and Japanese yen as the currencies to watch this year as carry trades unwind. I think the people over at Commerzbank have been reading the Pfennig, because I see where they issued a report to investors saying the same thing about Swiss francs and Japanese yen.

Staying with the Money Show stuff… Last week, our N.Y. account opening guru, Michelle Nucci, told me she was sleeping like a baby at the hotel. I later thought… I wonder why people say that they sleep like a baby when babies wake up every couple of hours or so?

At the G-7 meeting this past weekend, the finance ministers estimated that subprime losses might be greater than current assessments, and that set off safe haven buying in gold on Monday… The story I told you about yesterday regarding IMF gold sales, had little impact on the day’s trading. I guess gold traders don’t expect the United States to allow the IMF to sell gold this year. It is an election year… And strange things go bump in the night during election years!

There was some news of refinery problems yesterday, along with the ice-cold weather here in the United States, and those items lifted oil up on the day. Whenever oil and gold get moving together, the moves are strong, and yesterday was no exception.

I read a story where the writer weighed in with his opinion on oil prices last night… Here’s a snippet… “Big jumps in the price of oil in 1973, 1980, and 1990 were followed by recession. The price jumped $40 from 2003 to 2007, but at least as of last year, did not cause recession.”

It didn’t? What do you call negative growth? What do you call ISM manufacturing and services to fall off the cliff? What do you call the Fed needing to cut interest rates by 125 BPS in the month of July? What do you call negative job creation? I call it recession! And last year’s jump in the price of oil had a big hand in helping us get into our recession clothes!

But I understand the writer’s point… The “official” calling of a recession hasn’t happened yet… So… I’m not really calling out the writer, I’m simply pointing out that by my point of view, oil prices have helped us to go into recession!

My friend, John Mauldin, sends out an email once a week called “Outside the Box” the email contains a piece on the economy or other pertinent item, written by someone else… This week’s edition, has a wonderfully written piece by one of my fave economists… Nouriel Roubini… It’s called “The Twelve Steps to Financial Disaster”.

It contains a ton of stuff that I talk to you about daily that I foresee happening. Mr. Roubini obviously does it professionally! He goes very deep into the subjects, etc. It’s not “seashells and balloons” people… It’s some real dire stuff he’s talking about… So if you’re in the mood for something like this… Click here…

So… Hi Ho, Hi Ho, it’s off to work I go… Time for the Big Finish!

Currencies today 2/12/08: A$ .9045, kiwi .79, C$ 1.00, euro 1.4515, sterling 1.9470, Swiss .9090, ISK 68.75, rand 7.81, krone 5.5190, SEK 6.4840, forint 181.80, zloty 2.4850, koruna 17.69, yen 106.90, baht 32.29, sing 1.4180, HKD 7.7980, INR 39.65, China 7.1840, pesos 10.76, BRL 1.7690, dollar index 76.62, Oil $93.57, Silver $17.55, and Gold… $924.40

That’s it for today… Feb 12, two days before Valentine’s Day… And President Lincoln’s birthday… Next year it will be the 200-year celebration of his birthday. I find it a shame that we don’t celebrate Lincoln’s birthday; instead we throw President Washington’s birthday together with Lincoln’s and call it President’s Day… But is that really the way it should be done? Anyway… Next Monday is President’s Day… Before that we have Valentine’s Day! Are you ready? You had better be! The cards in the stores have all been gone through now… It’s too late to have flowers delivered… Good Luck! Time to go! I hope you have a Tom Terrific Tuesday!

Chuck Butler
February 12, 2008