A Pfennig For Your Thoughts

In this issue…

  • Confidence fuels the dollar…
  • Quaden is our new “Mr. Obvious”
  • A quote from Paul Volker…
  • Patience…

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And Now… Today’s Pfennig!

Everybody’s Confident!

Good day… Late start today, as I had to make a pit stop on the way to work… Well… The thin markets went the other way for the euro and other currencies yesterday, as the dollar recovered its lost ground… Consumer Confidence did soar, as expected, and as expected, it fueled the dollar’s recovery… This Consumer Confidence is crazy stuff… I just can’t believe that it is soaring, and that everybody is confident!

We’re still range bound though, as most trading desks are skeleton crews, and no one wants to make a large bet either way as we close out the books on 2005. ECB member Quaden said in an interview that “I can’t guarantee that interest rates will stay eternally at their current low levels.” WOW! What we have here is a real genuine genius! A New Mr. Obvious! Of course they can’t stay at these low levels!

OK… I’ll leave Mr. Quaden alone because his obvious thoughts have put the thought back into market participants’ minds that Eurozone rate are going higher in 2006, and that has been a good thing for the euro. But come on… Couldn’t he have been more original?

This morning we’ll see the December Chicago Purchasing Managers report, and it is expected to remain high at 60, falling just a bit from November’s 61.7. We’ll also see November’s Existing Home Sales, which are expected to show the housing market slowing down… But not by much… So no real indication here as to what’s really happening in the housing market… And that’s it for the year with regards to data… Next week, we hit ’em hard again with ISM, and a Jobs Jamboree, as it starts all over again!

Yesterday, I was reading my friend, John Mauldin’s, newsletter that can be found on his website: http://www.2000wave.com In the letter that he sends out weekly, he had a quote from one of my favorite Central Bankers of all time, Paul Volker… I just couldn’t let this one pass… It goes like this…

“I don’t know whether change will come with a bang or a whimper, whether sooner or later. But as things stand now, it is more likely than not that it will be a financial crisis rather than a policy foresight that will force change.” – Paul Volker

You know… What Paul Volker says really points out something that we need to be aware of as investors… You can have all your ducks in a line, but if the markets don’t see it that way the timing just might not be right… But in time… You’ll be proven correct…

My favorite economist, Stephen Roach of Morgan Stanley recently wrote: “A year ago, the macro debate was dominated by concerns over mounting global imbalances. Our 2005 outlook piece, modestly entitled “How to Fix the World,” probed in great detail the coming rebalancing of a lopsided world economy. The passage of time has not treated this outcome kindly. Global imbalances have continued to mount, but few seem to care these days. I suspect that 2006 will be a year when that ambivalence is shattered.”

This falls in line with our currency positions… All the things that I thought would happen in 2005 because of the Global Imbalances didn’t exactly come to fruition… Does that mean we should just forget about them? No! It just means that patience is required…

The Chinese renminbi continues to move higher VS the dollar, and last night it closed at yet another post-revaluation high @ 8.0709… I think that whole figure of 8 will be a difficult hurdle, but the Chinese have been quite steady Eddie with this move in the renminbi, so getting past 8 will eventually come around… Recall that I said that barring another revaluation by the Chinese, that the currency would move to 7.50 next year… So, it is certainly headed in that direction, eh?

Did you see the news blurb that Iran’s Deputy Oil Minister said that OPEC should cut production? With the price of oil seeing weakness, the hope is that a cut in production would stabilize prices…

Gold rose over $8 yesterday to a two week high of $518… I think people are really becoming aware of the hedge VS inflation that Gold provides… And at the same time, I believe that these same people are becoming aware of the fact that inflation in this country is high, and most likely to move higher!

Not much else to talk about, given the lack of new, volume and direction… So… Let’s head to the Big Finish!

Currencies today: A$ .7304, kiwi .6820, C$ .8580, euro 1.1840, sterling 1.7215, Swiss .76, ISK 63.68, rand 6.34, krone 6.77, forint 213.20, zloty 3.26, koruna 24.54, yen 117.70, baht 40.97, sing 1.6625, China 8.0709, pesos 10.77, dollar index 91.14, and gold…. $517.20

That’s it for today… Did you see that wild finish of the Alamo Bowl? Reminded me of the Cal-Stanford game when the band was out on the field etc…. Our EverBank Fantasy Football Championship Game was played last weekend, and Chris Gaffney’s team defeated Mike Meyer’s team by 3 points! So, congratulations to Chris! My team didn’t even qualify for the play offs! UGH! Oh, well… Have a great Thursday!

Chuck Butler
EverBank World Markets