Which One Will They Use?

Good day…Another day at the Money Show here in San Francisco. I rode the trolley car the other day, and took a ferry across the bay. My little buddy and my beautiful bride rode bikes across the Golden Gate Bridge to Sausalito, so we’ve done the “tourist” thing!

Yesterday, I left you with a PPI report that was all over the place. Here’s the skinny…normally you hear me rant about how the media and the markets don’t use the “overall” number in the inflation reports; they like the “core” which takes out food and energy. This always bugs me to no end, because it’s not like we don’t use food and energy in our daily lives. Energy touches just about everything!

Today, the media and the markets have decided to use the “overall” number in the CPI report, because it tells them something that makes everyone “feel good.” On the whole, CPI fell 0.5% (as you know, because the price of oil has dropped considerably). Now, the “core” number came in at a positive 0.2%, which would not be a “feel good” story. So…drum roll please! They have decided to use the “overall” number this month! Good gracious, will these people ever make up their minds?

Never mind that the 0.2% rise in the core inflation rate in September put it even further above what is considered the Fed’s comfort level at 2.7% annualized. Pick and choose your poison, I say.

Normally I don’t pay that much attention to CPI, since it is one of the most trumped up, cooked and massaged numbers you can get…but this changing horses in the middle of the stream by the media and markets just got my blood boiling!

The dollar was weaker most of the day yesterday, and then again this morning, until the housing starts data just printed. Looks like the housing bubble had some patches applied to it, and received some new air to re-inflate it even bigger! United States housing starts rose 5.9% in September! WOW! I’m not sure how that happened, but just like I always tell you, a star shines the brightest just before it burns out!

Oh…and it looks like the housing bubble just developed another hole, as building permits fell 6.3%…EEEEEE! That looks ugly, and indicates to me that this report is a rogue report, and that the housing bubble is going to be in need of more patches soon.

So…we have the currencies backing off a bit…but nothing to write home about.

Last night there was a story in a Japanese newspaper that said the Bank of Japan would more closely monitor the accumulation of yen carry trades, which initially sent yen higher versus the dollar in the early Asian session. However, the Bank of Japan immediately denied this report, and so those yen trades are being reversed at this time.

Over in the United Kingdom, where I’ve been touting a rate hike at the November meeting, the Bank of England (BOE) released the minutes of the last meeting and it had a very hawkish tone to it. In fact, two members of the Monetary Policy Committee did vote for a rate hike last month. I would think this report would be excellent window dressing for the markets to guide them to buy sterling. “Excellent Ted…Most excellent Bill!” (OK, if you don’t have youngsters that watched Bill & Ted’s Excellent Adventure, you have no idea what that tangent was. Sorry!)

Canada received some good economic data today. It seems like a month of Sundays since that has happened. Canada’s Leading Indicators rose 0.4% in September, which confirms to me that their economy continues to exhibit decent momentum. However, I don’t know if this will be enough to stop the slide in the Canadian dollar/loonie…this currency is in need of a fix from oil and natural gas.

It’s time for me to head to the Big Finish, as this writing on the road is a real tough row to hoe (at least for me that is). Technical issues are a pain!

Currencies today: A$ .7540, kiwi .6635, C$ .8770, euro 1.2525, sterling 1.8685, Swiss .7870, ISK 67.99, rand 7.57, krone 6.7775, SEK 7.40, forint 212.49, zloty 3.11, koruna 22.63, yen 118.95, baht 37.39, sing 1.5760, HKD 7.7848, INR 45.37, China 7.9066, pesos 10.82, Silver $11.85, and Gold…$595

That’s it for today. My colleagues here in San Francisco dragged me to yet another sushi restaurant last night, but I don’t eat bait! So…on the way home, I had to find a late night place to get “real food.” A good time was had by all though, as we watched the Cardinals beat the Mets. Now if we can only hold on for one more win! I’ve got to go meet Chris for breakfast before I head out this morning. Panama tomorrow…sure hope I’ve brought enough clothes! Have a great Wednesday!

Chuck Butler
October 18, 2006

The Daily Reckoning