Sorry I did not post yesterday, I was at the Ron Paul rally in Boca Raton. It was fun meeting a real fiscal conservative who knows how to get this country and consequentially the world out of the economic grave it has dug for itself. It appears that one hot shot trader at France’s second biggest bank, Societe Generale is responsible for losses of over $7 billion. The bank will probably stay in business due to loans from the ECB but this kind of nonsense provides clear evidence as to why we need to enact Dr. Paul’s reforms immediately and let these banks sink or swim on their own. Otherwise it is just rewarding a child who has been naughty, and you are encouraging them to misbehave again. The head of Societe Generale called the trader’s actions irrational, underlining just how irrational traders can be. Meanwhile the South African power company cut electricity production and has caused gold to hit a new all time high as a result. It turns out that it’s hard to mine gold without electricity, go figure. Good thing the government was responsible for South Africa’s and two thirds of Africa’s power supply. Of course you can’t blame the South African government solely for the record prices; you also have to blame the U.S. government as well for creating the Federal Reserve Bank. Their emergency cut really seals the fat of the dollar which was in the midst of a rally when the decision was announced. U.S. existing home sales came out weaker than economists expected but inline with the worse than forecast reading I had envisioned. German IFO surprised to the upside earlier in the day Thursday and coupled with the weak home sales data really helped the euro regain the ground it lost last week. The Swiss franc also benefited from the news, coming within 10 pips of the high it set against the dollar earlier in the month. Japanese inflation continues to build actually exceeding economist forecasts on a country wide basis. This is core CPI too which indicates that companies are passing off their higher production costs to consumers and that leads the common man to perceive there is inflation in the economy which invariably leads to more inflation. This is a good reason to buy yen because it is now only a matter of time before the Japanese raise rates. I would say there is a good chance of this happening next month and if not in February then certainly by March. Further narrowing the interest rate gap between the British and U.S. who are eagerly cutting rates and spurning further unwinding of the carry trade. After the 1,000 point bounce the stock market is resuming its downward course and this is yet another reason why the yen is attractive. Today the strength of the Canadian dollar was evidenced by the negative CPI reading. This is the six consecutive month of a negative core reading and it is enough to make me jealous. This is mainly due to the lack of domestic price pressures from consumption because of Canadian’s buying abroad (clothing and car prices fell) and Canadian retailers slashing prices to remain competitive. A strong currency also helps decrease the cost of commodity’s which are priced in U.S. dollars such as gasoline and oranges. This CPI level is well within the comfort range of the Bank of Canada and gives them a green light to cut rates again. This data put the brakes on the USD/CAD rally that was occurring prior to the news release. Next week should be intersting as well with the yen poised to rally again and the dollar on the ropes once more. Even the pound which has been out of favor lately is rallying agaisnt it.
