We're Already in a Recession

Good day… And a Tremendous Thursday to you! Another great day here in New Orleans seeing all the customers/readers and talking to everyone. I have two things to do today… First I sit on an investment panel with two Big Names… Mark Faber, and Adrian Day. Then I’m the last speaker of the conference… You could say… Saving the best for last… OR… I prefer… Number 13 on the roster… But number 1 in the hearts of the fans!

OK… The dollar’s brief run on Monday has now dissipated into the atmosphere. The currencies are about back to where they were on Monday morning when I hit the “send” button, only to be surprised by the strength of the move down by the time I got to Phoenix… I mean work!

The euro (EUR), or Big Dog as I like to refer to single unit, is leading the pack of hungry wolves going after the dollar this morning. Yesterday, the rally in currencies really got a kick in the pants to move, when existing home sales fell more than expected. Recall, they were already expected to fall 6%… They fell 8%! OUCH! The Big Brokerage House that owns a Bull announced a loss for the last quarter, the first one in six years, and that didn’t help matters any either.

This housing report paints a dark picture for anyone thinking the housing meltdown was near a bottom… The downward trajectory of not only home sales, but home prices is staggering. I’m sure the Fed Heads made note of this report. The Fed meets next Wednesday… I still think they will cut rates by 25 BPS… And now… I think the markets are getting on board the rate cut ship with me… Ahoy mates!

Yesterday, I talked briefly about the Canadian dollar/loonie (CAD)… My friends, Jim and Brad Malcolm from Calgary were here and I got a chance to talk to them. They tell me that things in Calgary and the Alberta province as a whole are booming! The raw materials can’t get mined, dug up, drilled, and shipped fast enough to cover the demand. The loonie has it all going for it right now… I wonder when the Bank of Canada steps in to stem this rise and the potential for a meteoric rise?

The Reserve Bank of New Zealand left rates unchanged at their meeting last night… The statement following the announcement had familiar hawkish tones toward inflation… Which means that rates aren’t going down here in the near future.

Speaking of New Zealand… Bank of America’s research people are calling for an unwinding of the carry trades, telling their customers to sell kiwi (NZD) and buy yen (JPY)… Hmmmm… I’ve seen so many people get hurt calling the end to the carry trade, which seems to have a life of its own.

Yesterday, I told you that famous investment guru, Jim Rogers, had said the debasement of the dollar by the Fed, was out of control, and he was moving his dollars to China. I forgot to mention that he also said that he would be buying yen, and Swiss francs (CHF). He mentioned that the carry trade would unwind someday, and when it did, these two currencies that have been held down for so long, would rise quickly.

He didn’t call for the unwinding… He’s just preparing his investment portfolio for the time when the carry trade does unwind!

Oh… And one more quote from Jim Rogers, “The U.S. economy is undoubtedly in recession,” Rogers told the Telegraph in Hong Kong in an article published on its Website.

“Many parts of industry are actually in a state worse than recession. If it were not for (Federal Reserve Chairman Ben) Bernanke putting huge amounts of money into the market, the stock market would probably be down much more than it is.”

In the United States this morning, durable goods orders failed to reverse last month’s awful showing of a negative 4.9%… In fact that number was revised even lower to negative 5.3%. September’s number was a negative 1.7%… Worse than expected, I might add!

And the weekly initial jobless claims continue to slip. The four-week average climbed to 317K. In May it was 303.5K… Slip sliding away… Slip sliding away… Layoffs and shutdowns of investment/mortgage operations continue to plague the labor market, and add to the bad fundamentals of the U.S. economy.

Swedish krona (SEK) has come on strong this morning after printing a stronger than expected inflation report. Remember, about three years ago, this strange trading pattern entered the markets, with currencies, then it was the dollar getting bid up when inflation rose. This was in reaction to the fact that a central bank would follow that up with a rate hike. And so it is with Sweden… Which has been on my “Chuck’s Faves” list for three years now!

British pound sterling (GBP) is back to 2.05 this morning. It just keeps bouncing around 2.05… It’s either going to bounce higher or give up the ghost and slide… But for now… 2.05 looks great, eh?

Ok… Gotta get going.

Currencies today: A$ .9070, kiwi .7610, C$ 1.0385, euro 1.4310, sterling 2.05, Swiss .8570, ISK 60.60, rand 6.5940, krone 5.3850, SEK 6.4250, forint 175, zloty 2.53, koruna 18.89, yen 114.10, baht 31.55, sing 1.4560, HKD 7.7510, INR 39.49, China 7.4840, pesos 10.80, BRL 1.7860, dollar index 77.30, Oil $88.50, Silver $13.81, and Gold… $770.50

That’s it for today… It’s downright cold here in New Orleans! We walked a block to dinner last night and felt like it was winter! That’s really awful what’s going on out in Southern California… My thoughts are with those people, as blazes have forced 1 million people to evacuate. Please keep them in your thoughts too… I’m at the end of my four weeks of taking my cancer medicine for this phase… At this point, I can’t wait for my two weeks off that starts on Monday! OK… So have a Tremendous Thursday!

One very important thing… There will be no Pfennig tomorrow! I’ve got to be at the airport early, early tomorrow, so unless I stay up all night to write it… Anyway… A day off for you! I hope your Friday is fun… And weekend is wonderful.

Chuck Butler
October 25, 2007

The Daily Reckoning