Waiting on Big Ben

Good day… And a Happy Friday to one and all… A Fabulous Friday to boot! The markets will be paper thin today, with the bond market closing at noon, and so on, ahead of the three-day Labor Day weekend. The markets seemed to be thinning out yesterday from my view in the cheap seats!

The dollar lost ground as the day went on, but as I said yesterday, no huge moves either way expected with the Holiday trading going on.

There were some interesting stories that hit the news wires yesterday. However, the one that really caused a knee jerk reaction in the markets was the report that nerve gas had been discovered at the U.N., and evacuations were going on. However, it was soon discovered that this was gas that was stored there that was taken from Iraq. The all clear horn sounded.

The dollar, by all rights, should have rallied yesterday on the news that second quarter GDP was being revised upward to 4%. This was, however, less than the 4.1% the “experts” forecast. I want to point something out in this report… I’m always telling my audiences that a strong GDP is great… But what is the makeup of that GDP? The reason I ask this is that in the United States, a large portion of GDP has been Government spending… And one what? Well besides all the other pork and barrel programs, we still have a war going on.

So… As I look at this number, I noticed that consumer spending, usually a large portion of GDP, was little changed from the last report, which means it rose only 1.4%. So, unfortunately for us, this GDP is not the stuff that strong economies are made of, and if anything it’s totally unsustainable… And inflationary!

Weekly jobless claims went up last week. Some people, including the Fed Heads, were probably surprised by this rise, but like I said the other day, the Fed still thinks job growth is “healthy”. Have they got a surprise waiting for them!

Speaking of the Fed, Big Ben Bernanke is scheduled to speak at the Jackson Hole boondoggle today. The markets are frothing at the mouth thinking that he will give an indication of the Fed’s next move, which they are hoping is a rate cut… Some of these guys are even saying that Big Ben could deliver an out of meeting rate cut at the boondoggle! HAHAHAHAHAHA! What planet are they from?

Ok… There are some rumors going round (I promise I won’t go into a song here) that there are a ton, and I mean a ton of options making a statement – $4.5 billion options bet on catastrophe within four weeks. OK I’M NOT SAYING I KNOW THIS TO BE TRUE! I’m simply reporting a rumor in the markets… The theories on this are really out there.

We’ll be looking for the latest printing of GDP in Canada this morning. I’m sure it will continue to be positive, probably not positive enough to get the Bank of Canada (BOC) to raise rates again though. Things could always look brighter, but for now, Canada (CAD) is still at the front of the class along with euros (EUR), Norway (NOK), Sweden (SEK), Swiss (CHF), and a few others. The current account surplus is growing, and you know how much weight that carries with me when it comes to valuation of a currency!

Alrighty then… Yesterday I told you about the guy from Barclays that was the former head of Collateralized Debt Obligations (CDO’s) first resigning last week, and then disappearing? Mr. Cahill… Well… As my friend Ed Bonawitz said yesterday, “The plot thickens”… And I love this stuff! Conspiracy theories…

Anyway, the plot thickened when it was reported that the Bank of England (BOE) loaded 1.6 billion pounds (that’s 3.2 billion in dollars) to an unspecified borrower. Doesn’t it make you wonder just what bank borrowed that money? Could it have been Mr. Cahill’s former employer? Does it have anything to do with him going missing? Ah grasshopper… We’ll search the news wires for answers, and report back to you on Tuesday!

OK back to reality… And that is, the fact that the euro has been hanging around this town on the corner, no wait… Hanging around the 1.3680 figure for the past week… Sometimes players get antsy and blow off their positions, and the euro weakens, but remains within spittin’ distance of this figure. So… What’s next? I would think that a breakout to the upside is possible with the next rest stop being 1.38. That’s just how I’m viewing it.

It won’t get there today, for this is the Friday before a three-day holiday weekend. However, Big Ben Bernanke could push the envelope here with a statement about lower rates. If that happens, and I don’t think it will, we could see a big move yet today… But I doubt it… No, we’ll all fold up the tents around noon, and start all over again on Tuesday!

On a final note, and one that’s just an observation, and not of currencies… Remember about a year ago and all the major cities were announcing how they would have citywide WI-FI available within a year? Hmmm… I read a story in my local paper yesterday that made me laugh at the dolts who planned it for St. Louis… It seems the WI-FI providers were going to use street lamp poles as their conduit for delivering the WI-FI… But after a year, they just now found out that during the day, the lamp poles are not supplied electricity!  Back to the drawing board, eh?

I realize this is shorter today… I planned it that way! Yeah right… Just out of things to talk about, so I’ll head to the Big Finish!

Currencies today: .8235, kiwi .7090, C$ .9495, euro 1.3695, (the euro just popped up 30 ticks!) sterling 2.0215, Swiss .8315, ISK 62.90, rand 7.1180, krone 5.8150, SEK 6.8540, forint 185.30, zloty 2.80, koruna 20.2825, yen 116.40, baht 32.45, sing 1.5220, HKD 7.7970, INR 40.80, China 7.5460, pesos 11.04, dollar index 80.71, Silver $12.06, and Gold… $676.90

That’s it for today… I really dropped the ball yesterday, and forgot to wish my latte’ buddy, Michelle, a happy birthday! See what happens when you’re not in the office! I also want to send out a great big good luck to my friend Chris Gaffney, who will be competing in a triathlon this weekend… I tell him all the time that this stuff is not good for him, but he doesn’t listen… Of course look at him, and then me… Also… Good wishes and thoughts go out to John Kaupisch’s mom, who had surgery this week… Time for me to hit the “send” button, so have a Fabulous Friday, and Wonderful Weekend… A 3-Day weekend!

Chuck Butler
August 31, 2007

The Daily Reckoning