Tuesday, December 19, 2006


Bargain Hunters Were Delighted With The Selloff

MarketWatch reports on the currency markets. "The dollar fell against the euro Tuesday after a key survey of Germany's business climate rose to its highest level in 16 years, boosting expectations interest rates in the eurozone would climb further next year. The decline in the dollar comes even after U.S. government reports showed producer prices soared in November, rising at the fastest pace in decades, while construction of new homes rebounded last month."

"The PPI report 'really plays a second fiddle to the CPI data,' said Matthew Strauss, senior currency strategist at RBC Capital Markets. The consumer price index, released last Friday, show inflation at the retail level running lower than expected for November."

"'In comparison, on the Europe side, we had very good Ifo data from Germany,' Strauss said, referring to the latest gauge of business sentiment."

"In New York trading, the dollar was quoted at 117.9 yen, compared with 118.05 yen late Monday. The euro changed hands at $1.31, compared with $1.3098. The British pound traded at $1.9664, compared with $1.9482. The dollar changed hands at 1.2131 Swiss francs, compared with 1.2216 francs."

"The dollar may weaken to around $1.34 versus the euro, $1.99 against the British pound, and 115 against Japan's currency by the end of December, Strauss said."

From Bloomberg. "Inflation is a greater risk to the economy than slower growth, and the Federal Reserve may need to raise interest rates if price increases don't subside, Federal Reserve Bank of Dallas President Richard Fisher said."

"'The risk of unacceptably high inflation still outweighs the risk of substandard economic growth,' Fisher said today. With inflation 'too high,' Fisher said he would 'have no choice but to advocate tightening monetary policy further if inflation does not ratchet downward.'"

"Gold futures closed with a more than $7-an-ounce gain Tuesday, marking their first winning session in four as silver prices rebounded from a seven-week low. 'Today's surprisingly high inflation figures are spurring the metal markets higher as the U.S. dollar drops on the news,' said Peter Spina, chief investment strategist at GoldSeek.com."

"'It is not hard to get into the market which has corrected back to the low $600s; bargain hunters were delighted by the sell off,' he said. But 'gold may falter on this rise and require a short-term period of consolidation around the lower $600s before marching back up,' he said."

"Gold for February delivery rose $7.50 to close at $625.40 an ounce on the New York Mercantile Exchange after trading as high as $625.70. The contract, which closed Monday under $618 at a seven-week low, had tallied a loss of $14.50 over the past three sessions."

"March silver also climbed 18.5 cents, or 1.4%, to end at $12.71 an ounce, rebounding from a 3.5% drop in the previous trading day. March palladium gained $4.30 to end at $329.25 an ounce and January platinum rose $16.40 to close at $1,118.50 an ounce."

The Associated Press. "The Thai government said it would lift controls on foreign investment in stocks after the market plunged nearly 15 percent on Tuesday, rattling regional bourses amid worries about a repeat of the 1997 Asian financial crisis."

"Finance Minister Pridiyathorn Devakula said that the controls - announced just a day earlier, would remain on foreign investments in bonds and commercial paper as part of central bank's measures to stem the surge in the Thai baht, which had risen to a nine-year high versus the dollar on Monday."

"Investors dumped stocks in Hong Kong, India, Indonesia, Malaysia, South Korea and the Philippines amid contagion concerns that the plunge might to spread through the region and trigger the kind of slump that enveloped Asia nearly ten years ago."

"Effectively, the central bank's new rules meant that if a foreign investor allocated the equivalent of 100 million baht to the Thai bond market, the investor could only buy 70 million baht of bonds, while the remainder would be withheld by the central bank, earning no interest."

"If the investor wanted to withdraw the money in less than a year, only two-thirds of the amount withheld would be returned, an effective 10 percent tax on the initial investment amount."

"David Cohen, chief of Asian economic forecasting for Action Economics in Singapore, said the worries may be unfounded because the situation in Thailand now is fundamentally different from the events surrounding the 1997-98 Asian financial crisis."

"The big problem ten years ago was currency weakness; now, it's currency strength. 'I would emphasize the contrast to the situation in '97 and '98. The measures the Bank of Thailand felt obliged to impose were to resist the appreciation of their currency,' Cohen said."

'Today's surprisingly high inflation figures..."

Where's that mutual fund manager who cut his gold holdings to focus on the strong USD? Oh, right, that was last week. LOL
Thailand is an export economy. Period. They're not a services economy, and there are barely any knowlege workers. The rise in value of the Thai Baht *is* a dangerous state for the Thai economy and puts the balance of trade in jeopardy. Yes, its completely opposite from the situation in 1997, but the fears are hardly "unfounded". Thailand cannot afford to place its exporters at a global disadvantage and the markets are responding appropriately and accordingly. Thai CB action to correct the imbalance is basically an effort at controlled Baht devaluation. ...And we know how those go. I don't think this story is anywhere close to being "over" -- especially given the jitters over '97-'98.
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