Rumors
"Yesterday, pending sales of homes fell through the floor, but the previous month's tally was revised up, thus making the two months 'a non-event'. But consumer credit for November jumped up to $15.4 billion! WOW!"
by Chuck Butler In This Issue… - What's up with the renminbi?
- Getting out the tall waders…
- Gold and silver streaking higher!
- Aussie retail sales are strong!
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Now… Right out of the starters blocks this morning, I'll ask anyone that is my age to answer this question… What was the first thing you thought of when you read the Pfennig's title today? Ahhh… That great, awesome, rock album by Fleetwood Mac vintage 1975-ish… Thunder only happens when it's raining. OK… Back to the real reason for the title… There are rumors going 'round someone's underground, and Countrywide is denying market speculation that it might seek bankruptcy protection, after their shares fell to the lowest level in nearly eight years yesterday. Oh, and just a look back to last spring, when Paulson and Bernanke assured us the housing meltdown had bottomed, and that it would not spill out into the economy. Who would believe anything these guys tell us now? And then there's Paulson, and didn't I tell you we would have to get out the tall waders yesterday? Paulson told us the economy is doing fine… Yeah, and I've got some swampland he'd be interested in buying too! The other rumor is a story from the U.K. Telegraph regarding China and the renminbi (CNY). Let's listen in… "The People's Bank of China may at last be substantially revaluing its currency - even if officially it has told no-one. "Dramatic changes in recent months and especially the last week in the crawling dollar peg the Central Bank sets for the renminbi are leading to cumulative shifts in its rate. "The changes this month alone would see a 15%-16% hike on an annualized basis, and markets are starting to estimate that the gain may be as much as 9% over the year. "That would bring the total change since the government abandoned the fixed peg in July 2005 to nearly 20%." OK… What did I tell you last week with my 2008 thoughts? That I look for the renminbi to gain 10% versus the dollar this year… Then comes this report by the U.K. Telegraph. So… Yesterday, pending sales of homes fell through the floor, but the previous month's tally was revised up, thus making the two months "a non-event". But consumer credit for November jumped up to $15.4 billion! WOW! I can't wait to see what December's tally looks like! NOT! The currencies however, remained in a tight range all day. I think we're going to be stuck with this trading pattern for the rest of the month, until we get to the FOMC meeting in the last week of the month, and the Jobs Jamboree that follows a few days later. As I said yesterday, there are rumors (there's that word again!) of a 50 BPS cut. I'm not pinning my colors to the mast of a 50 BPS cut just yet… I don't think the Fed wants anyone to think they panicked. But if it happens… The dollar is in for a ride on the slippery slope! The stock market had a rough day again yesterday, and that meant carry trade currencies were in play again. I had someone ask me if I really thought that people took trades off and put them on that fast. Well… Hedge funds are dealing in such large numbers that a pip here and a pip there, and they make or lose a ton of money… Otherwise, I'm usually talking about profit taking… And those people don't take them off and put them on like eating Krispy Kremes! Gold hit another new record high yesterday over $880 an ounce! Folks… We're getting very close to $900… And from there, $1,000 does look as preposterous as it did when gold was $260 an ounce not that long ago. Shoot Rudy, just a year ago, gold was $650 an ounce! Over a $200 increase in one year? Amazing! Simply… Amazing! OK, my continuing education in economics went well yesterday… We talked about everything, and learned a few new things to use when explaining things. For one thing, I was explaining my thoughts to the Pittsburg Post-Gazette on Friday, in which I said that food inflation has come to us by way of ethanol… Supply and demand… And all that… But my professor added that rising global wages are coming into play too. Thus, that Argentine beef costs so much! So see… You learn something new every day… Or at least you should seek to learn something new every day! There was more Fed Speak yesterday… Fed Head, Plosser, said the "economy may need further rate cuts." Yeah, it needs them like a hole in the head, but that's what we're looking at folks… More rate cuts, and higher inflation. And in a case of "where were you when I needed you?" Clifford Bennett, Sonjay Capital's Chief Economist, told Bloomberg TV last night that the dollar is still overvalued, and that we can't use traditional models and that by year-end 2008, the euro (EUR) could be 1.57 to 1.62! This guy is singing from the same song sheet as I am regarding the dollar in 2008, and a rebound in commodities, and a rebound in the Aussie dollar (AUD)… So… Here's to great minds thinking alike! HAHAHAHA! I'm sure this guy would say… Hey! What's this Chuck guy doing crashing my "great mind party"? And on that note… Australian retail sales gained for a sixth month in November, advancing 0.8% from October. I'm telling you now, so you can hear me later… The Reserve Bank of Australia (RBA) will be raising rates this quarter… And think of what that might do to a currency that already enjoys a big rate differential to the U.S. dollar, while the U.S. dollar's rate goes lower, and lower, and lower. And finally… In an attempt to be "fair"… I'll give you a story that opposes my thinking regarding a recession, which I believe we have already entered the door to. Sixty-two economists have been surveyed and their consensus is that the United States will skirt a recession as consumer spending slows but doesn't collapse. Hmmm… I wonder where they believe the consumer's next pile of cash to spend is going to come from… Stock bubble? Done that, bought the T-shirt. House ATM? Dry to the bone. Savings? Ahem… We don't save any longer. Credit Cards? With the rate of credit cards in arrears more than 90-days I would think these are maxed out too. No… I just wonder where that pile of cash is going to come from to keep the economy afloat. Because 70% of GDP is consumption… And talking about a country's wealth going down the drain… As I've told you many a time in the past… Consumption does not create wealth. And on that uplifting note (NOT!) I'll head to the Big Finish. Currencies today: A$ .8845, kiwi .7720, C$ .9980, euro 1.4715, sterling 1.9650, Swiss .90, ISK 62.92, rand 6.8310, krone 5.36, SEK 6.3915, forint 172.87, zloty 2.4425, koruna 17.6550, yen 109.40, baht 29.55, sing 1.43, HKD 7.8050, INR 39.28, China 7.2620, pesos 10.92, BRL 1.76, dollar index 76.16, Oil $97, Silver $16 (hey! Look at Silver!), and Gold… $886 That's it for today… silver and gold are sure blazing new trails, eh? WOW! Our new Jr. Salesperson started yesterday. That gives us two new people in the past month… We spent the morning trying to figure out where we would put them, as the desk is maxed out! Just trying to make sure our customer service is top notch. How about my Missouri Tigers? Finished the year rated #4! WOW! It's been quite exciting for a long time fan of the Tigers to watch this past year, especially given my situation… OK… It's humpday… So I hope you have a Wonderful Wednesday! P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed. Editor's Note: Chuck Butler is the senior vice president of EverBank World Markets. He oversees the trading desk and operations for over 12,000 individual and corporate clients, both in the United States and abroad, who look to EverBank for FDIC-insured World Currency Deposit Accounts, and Single-Currency and Index CDs .
Chuck is the author of The Daily Pfennig, which is reposted here at The Daily Reckoning. His respected analysis is frequently quoted in or referenced by: the Wall Street Journal, U.S. News and World Report, CBS Market Watch, USA Today, CNNfn, the Chicago Tribune and many other publications. | 
