Backing The Fed Into A Corner...

Backing The Fed Into A Corner...

Good day... From the looks of the trading yesterday, I would think that most lead traders were still at the Hamptons! Very sluggish, range bound trading, with the euro gaining back to 1.25 a few times, only to be taken back below the handle each time. The ISM Servicing Index was strong, and that gave the dollar bulls a reason to smile.

As Bill Bonner of the Daily Reckoning [link to dailyreckoning.com] has told us for a couple of years now... That the U.S. has become a servicing country, and no longer a manufacturing country... The Manufacturing Index fell... The Servicing Index gained... But I´m going to go out on a sidebar here, step up on the soapbox and let loose...

In my own humble opinion...I´m not happy with the service that companies are providing these days... It just seems as though the customer has taken a backseat to what profits can be made... I don´t think that bodes well for a country that´s gone to servicing instead of manufacturing...

OK, I´m back now, please don´t send me any emails ripping me on that statement, I´m just stating a point of view from one person...

I see where U.S. lawmakers, from both parties I might add, are down on their knees asking, urging, pleading with the Fed Reserve to pass on the rate hike Sept 20... I think this is a big mistake... Even if the Fed was thinking they would pass this month due to the hurricane destruction, devastation and loss, they can´t now... If they did, the markets would view them as having no autonomy, no credibility... And that´s a baaaaaaaaadddddd thing... Recall the mess the euro was in after first being introduced, it was all a reflection of the lack of ECB credibility. (the ECB is the European Central Bank) So... Here we are... The lawmakers have just backed the Fed into a corner...

And since I was the first one to call for a pause from the Fed, I´ll now say that I don´t think they will or can now due to the backing into a corner by the lawmakers.

We could get a hint of what the Fed is thinking today, as Chicago Fed head Moskow will speak later... Former Fed Head, McTeer said on CNBC yesterday that he saw no need for the Fed to raise rates this month... So... This next FOMC has become a line in the sand, hasn´t it?

And... Since this has become a market moving meeting, I suspect, we´ll see the currencies range trade until then... No reason to buy the dollar (not that there were to begin with), and no reason to think it´s going to get sold ahead of the meeting... SIRT... For new readers... SIRT stands for Stupid Interest Rate Talk... It has got a grip on the currencies again...

The Bank of Canada (BOC) meets today to discuss interest rates... And here... I believe they will raise rates... With the price of oil, and natural gas remaining high, inflation pressures could become a problem if the BOC doesn´t get a handle on it now... The BOC has been OK... I think they could have moved off the easy credit, low interest rates sooner... But that´s just me... I look for the BOC to raise rates today, and for the loonie to push even higher...

More good new from the South Pacific overnight, as Australia´s 2nd QTR growth accelerated 1.3%... As I said yesterday, I believe the rate cut talk here can now be put to bed, and talk of a rate hike be awakened... Of course interest rates aren´t the only support the Aussie dollar receives... As I´ve stated many times... Commodity Prices really give the Aussie dollar a kick whenever it´s needed... And I read last night that the CRB Index is up 20% in the last year... See... I wasn´t just making up those stories of Commodities rising in price!

Speaking of Commodities...

We´re beginning to watch gold more these days (you might expect some announcements for new products coming pretty soon - hint, hint). When we think about this market we naturally turn to analyst who have been following gold and related industries for many years. We were impressed with the latest edition of the International Speculator edited by long time acquaintance Doug Casey and the article "What´s Holding Gold Back" If you want to see the article you can subscribe online now and receive a 30 day trial subscription

[link to www.caseyresearch.com]

Getting back to currencies before I head to the Big Finish... The Thai baht really had a strong move overnight, after the Bank of Thailand raised their 14-day repurchase rate 50-BPS...

And of note... One currency we don´t really follow, but is part of the Asian region, the Indonesian rupiah... I mentioned last week that I thought the selling there was overdone, and wasn´t a reflection on the entire region... Well, the selling did abate for a couple of days, and now the Bank of Indonesia raised interest rates to 10% to keep the sellers of their currency at arms length...

Currencies today: A$ .7690, kiwi .7070, C$ .8420, euro 1.2475, sterling 1.8415, Swiss .8080, rand 6.33, krone 6.26, forint 195.62, zloty 3.14, koruna 23.42, yen 109.80, baht 40.96, sing 1.675, China 8.0925, pesos 10.67, dollar index 86.61, and gold... $444.20

That´s it for today... Sad news yesterday as one of my favorites shows as a youngster, Gilligan´s Island, saw it´s lead actor, Bob Denver (Gilligan) pass away... Of course, we also knew him as Maynard G. Krebs, on Dobie Gillis... The piece of data I dislike the most, Productivity, prints today... But not really a market mover... Have a great Wednesday!


[link to www.dailyreckoning.com]