A Pfennig For Your Thoughts

In This Issue..

  • Reporting from Jacksonville…
  • Boiling blood!
  • Koizumi steps out of bounds…
  • ECB and RBNZ rate hikes due for December!

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And Now… Today’s Pfennig!

Good day… Well… Here I am writing to you from my Hotel room in Jacksonville… I sure it’s just allergies, but my head feels like a rock, and I’m sneezing my rock head off! UGH! In a few hours I’m going to a meeting at Corporate HDQTRS, I sure don’t sound like I need to be doing that right now! I was lucky enough to see the Jacksonville Jaguars score 30 points for the first time in a month of Sundays yesterday… Thanks to my hosts for a great time!

Friday’s price action in the currencies was range bound, with no data to send the currencies on their way, and the data cupboard is bare this morning too. Right out of the starters blocks this morning though, there’s a story overnight that Japanese PM Koizumi, whom I’ve had nothing but praise for, has stepped out of line, and urged the Bank of Japan to wait on any rate hikes. Koizumi believes that the Japanese economy isn’t ready, and it would be premature to hike rates now.

This has pushed yen lower… The reason I say that he has stepped out of line, is that he knows all too well that he is very powerful at this time having won a landslide election, and his words speak volumes… But rate decisions are not his to make! That belongs in the Ministry of Finance, which operates the Bank of Japan… With the markets’ complete love affair with interest rates going on right now, this will not be a good thing for yen to have to digest… Hopefully, the tide will pass on this, without too much damage.

On Friday, I was reading a story, that just made my boiled by blood… Recall, last week, that I talked about a “new era”? And how I said I just couldn’t get my arms around that statement? Well… Friday, I stood up, at the desk, and said…”Doesn’t all this talk remind you of the late 90’s and early 2000, when the stock jockeys told us that it was a “new economy”? One that didn’t follow the fundamental rules that had been laid down for centuries? Remember the “new paradigm”? They told us that stocks selling at 300 times earnings were real, and to get used to the “new economy”….”

Well… We all know what finally happened to that new economy don’t we! Yes, after trillions of dollars were lost in the stock market sell off, people realized that they had been sold a some snake oil…

I then said, “this current situation, with the deficits, and the markets telling us not to worry, that they don’t matter, everything will be all-right, sounds very familiar doesn’t it?” Sure makes my blood boil!

This week, we will see the color of Retail Sales, which if I look at the BHI (Butler Household Index), it tells me that Retail Sales will be disappointing… For all the new readers, I use what I call the BHI, to give us an indication of the national Retail Sales… It’s simply a count or feel of the number of shopping bags that I see coming through my door each month… Last month was slow… So… There you go!

In addition this week, we’ll see PPI… And the Government’s attempt to pull the wool over our eyes again… I’m not even going to let this get to me this month… Inflation is what it is, and it’s out there, I don’t care what the data says!

President Bush is traveling to China this week… Not good timing for the Chinese considering the size of the trade surplus that was printed last week! I’m sure Bush will try to pry a straight answer from Chinese officials, but, in my opinion, he’s wasting his time… I just don’t see them as being pressured to do something. In this case I’m talking about another revaluation, or even floating of the renminbi VS the dollar… But, he’ll try anyway…

Oh, I do find it humorous that the Chinese did raise the value of the renminbi VS the dollar overnight to it’s highest value since breaking the peg on July 21st… A little gamesmanship? I think so!

In Euro-land… There’s been more tough talk regarding rates from the ECB… Last week it was Liebscher, and this morning it was Noyer telling a French newspaper that “vigilance is needed toward inflation”… We’re getting closer to that December meeting that holds all the cards as far as the euro is concerned… I believe the ECB will hike rates then, and a few more times before the end of June… This should be about the time the Fed has indicated that they’ve had enough, and will stop raising rates… The sentiment will have shifted then… Or at least that’s what I’m thinking!

Last week I told you that New Zealand’s unemployment rate had fallen to a 23 year low of 3.4% last quarter, and that the Reserve Bank of New Zealand(RBNZ) was watching this very closely… Well… After further review, I now expect the RBNZ to push rates higher once again at their next meeting in December… You may recall that I told you after the last rate hike that some observers were thinking it should have been a 50 BPS hike not 25 BPS… Well, the pressure will mount going into the next meeting for a 50 BPS hike… Right now, I’m not pinning my colors to that mast… Just 25 BPS for me… But that can change!

The Canadian political picture has gotten worse, however, this time, it’s not a political scandal… Just an early election probably slated for January if the NDP leader Jack Layton has his way this week… I don’t see all this as having too much affect on the loonie unless…. The Bank of Canada pauses in their rate hikes to see where the dust settles on the election. I’m not saying the BOC will pause… But if they do, that would be the only way the loonie does get affected by the early election.

Currencies today: A$ .7325, kiwi .6850, euro 1.1755, sterling 1.7465, Swiss .7635, rand 6.75, krone 6.626, forint 213.25, zloty 3.41, koruna 24.92, yen 118.30, baht 41.17, sing 1.7030, China 8.0831, pesos 10.68, and gold… $470.60

That’s it for today… I’ll be back in the saddle again tomorrow… I would look for gold to rebound this week given the PPI numbers, and all… How about those Missouri Tigers? Bowl Bound! No… Not a BCS bowl, I don’t know that I’ll live to ever see that! Well, gotta go, and get ready to report to HDQTRS…. Have a great Monday, and Week!

Chuck Butler
EverBank World Markets