What Data Are You Using Ben?

Good day… And a Happy Friday to one and all! When you open this email I will have already boarded a plane, and headed home… So… If I missed something that happened from 3 am PST on, it will have to wait until Monday!

Well… I have a question for Big Ben Bernanke… What data are you really going to focus on to determine your next rate hike? You were the one that said the data would determine the next rate move, right? So…. What’s it gonna be boy? The strong inflation number from Wednesday, or… The awful Weekly Jobless Claims and the fall of Leading Indicators on Thursday?

The currencies did recover a bit on Thursday, especially after the fall in Leading Indicators… The Conference Board’s index of leading indicators fell 0.1% in April, weaker-than-expected, with market participants looking for a gain of 0.2% in the index. 6 of the 10 indicators that make up the leading index declined in April including consumer expectations, capital goods orders and building permits.

These are big things to worry about, folks… So don’t get your strong dollar flag out of the closet… Because this is the type of stuff that is going to hurt the dollar as we go forward! I’m not going to sit here and preach about a slowing of the U.S. economy going forward… I’m just going to say in a year from now… “I told you so”!

Good news from Japan tonight… Japan’s economy grew at a faster than expected rate in the first quarter, heading for its longest postwar expansion, as consumers and companies increased spending. This is great timing in that I believe the Bank of Japan is going to very well spring a rate hike on us at their next meeting… Talk about a market moving event!

However, the Bank of Japan did unanimously vote to keep rates at zero at yesterday’s meeting, and that has taken some of the steam out of yen and euro… I think traders got ahead of themselves thinking the rate increase would come now and really built up trading positions in these two currencies… This has been unwound overnight, and we’ll end the week on a sour note for the first time in over a month…

Yes… The Fed may very well continue their interest rate hikes… However, as I’ve told two very large crowds down here in Las Vegas… The markets are looking forward, and they believe, at this point, that they see the end of the rate hikes… Oh, sure, the Fed might raise one or two more times, but if the markets perceive an end to the rate hikes, they will begin trading as such… And if the Bank of Japan comes through with a rate hike, and the ECB does their rate hike thing in June, the negative momentum for the dollar will begin to pick up steam!

I was doing some quick reading yesterday, and saw that the French had begun their whining about the euro’s strength… However, today I saw a report that basically said the Germans weren’t concerned (yet) about the euro’s strength… Since Germany’s economy is much larger that that of France’s… I would go with the German statement!

Look… Think about this for a minute… Or… Hear me now, and listen to me later… There’s a lot of volatility in the currencies these days, which makes it quite tricky as to which day you buy… But… Don’t let that get you down, or concerned… It is what it is, and when all the dust settles at the end of the year, I don’t see any other outcome for the dollar but to have depreciated by an appreciable amount!

Hey! I see where Mr. Bubbles… Our former Fed Chairman, Big Al Greenspan was spouting off today about the housing sector… He thinks that since he created the bubble in housing, he might very well be the authority on the subject! Big Al, said on Thursday that the “extraordinary” boom in the U.S. housing market in recent years is over.

Gee, Wally, don’t you feel better? Not quite Beav… Remember… Big Al is the person that told us he “couldn’t tell a bubble until it was over”… And since the most definitive he ever got on the housing bubble was to say that it had gotten “frothy”… I don’t think it qualifies as him recognizing a bubble! He as clueless as… Well, you provide your own word there… Regarding housing!

In response to Senators Schumer and Graham going back to the whining table regarding China… Chinese President Hu Jintao has stood firm against US demands to significantly revalue China’s currency as a way of reducing his country’s vast trade surplus with the United States. Hu said last night that “China was not ready for a drastic change in the value of renminbi currency. Our goal is to keep the renminbi exchange rate basically stable at adaptive and equilibrium levels.”

Schumer & Graham had better be prepared to eat some crow over this, as the U.S. isn’t going to tick China off with tariffs, and the Chinese aren’t going to throw the U.S. a bone!

I’ve got a plane to catch… So see you later!

Currencies today: A$ .7610, kiwi .6210, C$ .8910, euro 1.2755, sterling 1.8730, Swiss .82, ISK 71.60, rand 6.42, krone 6.1180, forint 206.80, zloty 3.09, koruna 22.19, yen 111.90, baht 38.15, sing 1.5860, INR 45.55, China 8.022, pesos 11.15, Silver 12.52, and Gold… $681.70

That’s it for today, and this week from Las Vegas… I’ll be back in the saddle on Monday morning… Thanks to all of you who stopped by the booth and asked how my beautiful bride was feeling… She’s better… It’s been a rough week for everything, so I’ll be glad to close the door on this week! Have a great Friday and weekend!

Chuck Butler
May 19, 2006

The Daily Reckoning