Eurozone Economy Looking Good

Chuck Butler - Tue 27 Feb, 2007

So... With money supply still quite high in the Eurozone, the rate hikes are still on the docket. Besides... The Eurozone economy is shaping up nicely. Forget about this business confidence report that printed on Friday....

The dip in the euro last Thursday was short term in my opinion, it turned out to be just that! Short term!
It didn't take much of the morning for the euro to get back above 1.31 against the dollar, and then improve on that move most of the day. Unfortunately, the stronger move saw some pressure on Friday, as German business confidence declined by more than expected.

Another thing running against the wind for European Central Bank (ECB) rate hikes, is the fact that inflation in the Eurozone has probably dipped below 2%, which as we all know is the ECB's ceiling target. And if you've been paying attention in class, you'll have your hand up in the air... Call on me! Call on me!
OK... You have the picture now... So... There you are with your hand up in the air, wishing I would call on you, so you could say, "But, Chuck, haven't you told us over and over again that the ECB uses inflation and money supply as their tools for rate hike decisions?

And isn't money supply in the Eurozone quite high?"
Ahhh... Grasshopper, you have learned your lessons well. I want to let you in on a secret that many people don't know (or have no idea about...even well known economists). Here you go. Money supply is the root of inflation, period! Take that one to your professor and watch his reaction.

So... With money supply still quite high in the Eurozone, the rate hikes are still on the docket.
Besides... The Eurozone economy is shaping up nicely.
Forget about this business confidence report that printed on Friday, this economy is set for a good sustainable recovery. Look at the fourth quarter report
card: Germany's GDP +0.9%, France's +0.6%, Italy's
+1.1%, and Spain's +1.2% (annualised). These are
quite impressive.

Speaking of GDP growth... It sure looks like the strong
figure that posted in the United States in the fourth
quarter is going to be revised downward. So... All
those dolts buying dollars... Put that in your pipe and
smoke it!

What about talking about money supply? Now that's a
discussion I would love to listen to! Shoot Rudy, I'd
even listen to Big Al Greenspan, if he was going to
talk about money supply and why the United States
doesn't post it for the public to see anymore. And 
more importantly, why it continues to run so 
freakishly high!

Gold took a breather on Friday after that moon shot
last Wednesday. Shoot, Wednesday's move was a week's
worth of movement! So I'm not surprised by the lack of
follow up on Thursday. I recently put together some
content on gold for a newsletter writer, and while
there can't be much more said about gold that hasn't
already been said by many... I did mention that the
Powder Keg in the world today is reason enough to own
gold! And that would be in addition to the fact that
gold holds its intrinsic value and has been proven to
be an effective hedge versus inflation.

The strong gold price has really helped the South
African rand rebound. Aussie dollars have seen some
additional strength on the gold move too.

My friend the Mogambo Guru had a great line. I've
always said that I don't know why the media has an axe
to grind about the U.S. dependence on foreign oil, but
never talks about our dependence on foreign investment?
Well... The Mogambo said it best, as he usually does.
He called the U.S. economy the Blanche Dubois economy,
"Dependent on the kindness of foreign governments!"
HAHAHAHAHAHA! That cracks me up!

I saw that the Italian PM Prodi resigned last week.
Don't get all caught up in the crazy talk about Italy
leaving the euro and stuff. It's not happening. And as
for the Prodi resignation... If I have a euro for every
time there's been a political shake up in Italy over
the years, I might be able to retire early! No
worries... It's just Italian politics.

Regards
Chuck Butler
for The Daily Reckoning

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