A Pfennig For Your Thoughts

In This Issue..

  • Profit taking stops the rally!
  • More muddle through data…
  • No more M-3…
  • Swiss and ECB rate hikes coming?

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And Now… Today’s Pfennig!

A Deep Conspiracy Story…

Good day… And a Happy Friday to one and all! The currencies put in a nice performance yesterday VS the dollar. The euro was up to 1.1760 when I signed off last night and headed home. However, in the Asian session, the euro, and other currencies that had rallied, saw a ton of profit taking, and we’re sitting about where we were yesterday morning all over again.

The data yesterday here in the U.S. was more same-o, “muddle through” for the economy… Industrial Production rose just .9%, and Capacity Utilization remained below 80%… The Philly Fed Index fell to 11.5 from 17.3… U.S. Oct housing starts fell more than expected to the lowest rate since March. And U.S. Oct building permits fell more than expected to 2.07 million (consensus 2.16 million, prior 2.22 million). The 6.7% decline in permits represents the largest fall since September 1999, and both reports are strong indications that the housing market is beginning to cool its heels…

This “muddle through” data, was the fuel to push the dollar lower yesterday, before profit taking saved the greenback in Asia.

Speaking of Asia… There was no announcement yesterday by the Chinese regarding that rumor that I mentioned yesterday, but we’ve still got today to get through while President Bush is still visiting… The Chinese announced their last revaluation on a Friday… In case you missed class yesterday, I’m talking about a rumor that was going around on Wednesday night that Chinese Premier Wen Jiabao has called an emergency meeting on renminbi and the dollar ahead of President Bush’s visit to China this weekend.

Obviously, we’re talking about the Chinese revaluing the renminbi as a gift to their visitor… I’m on the side of the ledger now that thinks “why worry”? It’ll happen when the Chinese decide to do it, and not when the markets think they will…

OK… I was going to let this slide on by, but one too many of you thought it was important to mention, and then… I read a story last night that would make conspiracy campers like me happy! What I’m talking about is the announcement by the Fed Reserve that they would cease to publish the M-3 money supply aggregate. When I first heard this news I thought, no big deal, nobody really pays attention to this number any longer, as most only focus on M1 and M2 money supply reports… But then I read this… Ready conspiracy campers?

Here’s the theory… The Fed is removing the data so that the Plunge Protection Team can hide their market manipulative, equity buying activities… OK, you’ve never heard of this so-called Plunge Protection Team? Go to Google and put that term in, it’s pretty amazing… But again it’s the stuff that conspiracy campers love! This is how Robert McHugh of Safehaven.com tells it… “you see, one of the key differences between M-2 and M-3 is repurchase agreements. This is perhaps the most obvious reporting item where the Plunge Protection Team’s market buying transactions show up. If they no longer report this item, folks like us who monitor the growth of M-3 for clues as to when the PPT is likely to buy the market, we’ll have a harder time reporting the fact before, or even as, the PPT buys. Investors will be left more in the dark to any secret rigging of the stock market.”

See… That’s stuff is deep… But it’s interesting, and since it’s right up there on my hit parade I thought I would share it with you!

I received a few comments the other day from people that thought I had no right to question the data reports the U.S. has been printing… The Labor reports, that don’t count unemployed people after their unemployment benefits end… The inflation reports that take housing, and other key ingredients to the end number out of the report… And then the other day, the NFPS, when I can pull the list of countries that own Treasuries, and see that there were no major changes… Well… I don’t know why everyone isn’t questioning these reports!

Whew brother! I’ve got the engine revved up this morning! And did I ever stir up a hornet’s nest yesterday with the announcement that we could now do Icelandic krona CD’s! We’ve been waiting for this currency to become fully liquid and forward trading for over 4 years, and it’s finally here! The phones were ringing with trade orders, and the web, project/product, and marketing people were all over it like Velcro, so… Hopefully it won’t be long before Iceland shows up on the web site, rate sheets, and the on-line application!

In case you weren’t paying attention yesterday, the Icelandic krona has been a very strong performer VS the dollar in recent years, with a 17% move VS the dollar in the last 2 years! Oh, and it has only lost .50% VS the dollar this year… GDP is strong in Iceland, and the interest rate on a 3 month CD is 8%! Don’t wait! Lock in this great rate of 8, today!

In Canada yesterday, the September reading of the Canadian International Security Transactions, illustrated what I’ve been telling you about, and that is… the buying of Canadian securities is strong! Foreign demand for Canadian securities rebounded more than expected to C$4.9 Billion… Both stock and bonds were purchased. Obviously this is a backward looking report, but recall how strong the loonie moved during September, and now you can see part of the reason why… Which if you recall, I kept telling you that oil wasn’t the only thing behind the move…

In Switzerland yesterday, the Swiss National Bank (SNB) Gov. Hildebrand was speaking and had some interesting things to say that should underpin the franc… Hildebrand said… “inflation outlook signals need to tighten monetary conditions” and “current monetary conditions not justified for a period of economic recovery” those statements led to this one, which was the kicker… “convinced that Swiss interest rates are below the equilibrium level” So… The Swiss franc has that going for it!

ECB member Axel Weber also expressed concern regarding the inflation outlook for the Eurozone… “Of course that unsettles us as a central bank” Weber said in an interview… I’m still keeping a light on for an ECB rate hike in December, although the majority of those thinking the ECB will hike rates believe January is the earliest… I just think that too much “tough talk” by the ECB has been made, and now they need to back up that “tough talk” with a rate hike… I told you this before, but my dad used to tell me, that when the talking is over you had better back it up, or no one is going to listen to your barking again! I still think by the end of June 2006, ECB interest rates will be 2.5%…

I also look for ECB President Trichet to give us a hint or two when he speaks to the ECB Parliament on Monday…

All-in-all… Stocks, bonds and commodities have all rebounded this week, and if it weren’t for the Asian profit taking last night, I could have added currencies, and that would have made a GREAT WEEK! Next week will be thin on volume with the Thanksgiving Holiday on Thursday… Next Friday will be null and void of volume… Could be a great day for a revaluation don’t you think?

Currencies today: A$ .7320, kiwi .6870, C$ .8425, euro 1.1690, sterling 1.7145, Swiss .7560, ISK 61.95, rand 6.72, krone 6.74, forint 216.17, zloty 3.40, koruna 25.10, yen 119.10, baht 41.22, sing 1.70, China 8.0845, pesos 10.66, and gold… $488.65

That’s it for today… We’re going to do another MarketSafe Gold CD for December… If you missed the first two, it’s not too late! My beloved Missouri Tigers play their last conference game tomorrow VS K-State, sure would be nice to finish 7-4 guys… And id you see that our hockey Blues finally won a game the other night? They ended a, oh I don’t know how many games in row losing streak! The Big Boss is back in the office today, welcome home Frank! Have a great Friday and weekend!

Chuck Butler
EverBank World Markets