Consumer confidence, of course.

We recently vowed to stop calling our national brethren “consumers” in favor of less degrading words — like Americans, citizens or just plain-old people. Thus, we report the Conference Board printed a surprisingly optimistic gauge of American consumption attitudes (doesn’t that sound better?) yesterday. After two months of decline, the index kicked back up to 54.1, just shy of a 2009 high.

Coupled with the latest printing of the home price index, that was enough to keep this mega-bounce alive and kicking. The news shot the S&P 500 to a 1% gain within moments of yesterday’s opening bell, which eventually faded into a 0.25% advance. The index is up almost 4% in the last five trading days. The Dow hasn’t fallen for six days in a row.

We accept that improving consumption attitudes could bump stocks higher, especially retail. But we wonder… do consumption attitudes lead markets, or the other way around?

Seems like Joe Six-pack is routinely late to the party, no? We blew the post Lehman crash, stayed gloomy during the best of the stock rebound, got bullish in June when stocks went nowhere and lost confidence last month when the market shot up again.

So what does a big improvement in consumption attitudes tell us now? If anything, that the stock rally is about to cool off.

“Retail is a terrible business to be in during a recession,” says Dan Denning, belaboring an obvious idea that seems lost on the world right now. “Don’t forget the primary economic and social trend right now: People are reducing their debts. They are cutting back, becoming more frugal and learning to live within their means.

“Of course, we think this is happening. But it could be totally wrong. Maybe the credit cards are finding their second wind and consumers are gearing up for one last credit bender. But our suspicion is that you are in the middle of a generational/cyclical shift in the attitudes toward debt and that this is generally bad news for retail stocks.”

Source: Can Consumers Lead the Market?

Here it comes, slowly but surely: “We sincerely hope the U.S. fiscal deficit will be reduced, year after year,” China’s Assistant Finance Minister Zhu Guangyao said overnight after talks with Treasury Secretary Geithner. Could he lay it out any more clearly than this? “The Chinese government is a responsible government, and first and foremost our responsibility is the Chinese people, so of course we are concerned about the security of the Chinese assets.”

The Chinese now own over $801 billion in U.S. debt, nearly double their holdings at the start of 2007 and by far the world’s largest stash of American paper.
“We are committed,” responded Tim Geithner, “to taking measures to maintaining greater personal saving and to reducing the federal deficit to a sustainable level by 2013.” We have no idea what he might mean by that… the CBO still projects a $1.8 trillion budget deficit this year, $1.4 trillion next year, $984 billion in 2011 and $633 billion by the end of 2012. That makes the Bush administration look like penny pinchers, and is certainly not even in the realm of “sustainable.”
The U.S. government issued another $42 billion in 2-year notes today, the first of this week’s record $115 billion debt issuance.
“Debt is the story of today’s economy,” says Chris Mayer, echoing a theme of this year’s Investment Symposium. “There is still too much of it. Yet the mainstream view seems to be that more of same is the elixir to see us out of this bust. In fact, debt issuances by governments are hitting new records.

“The U.S. government is spending money hand over fist. That’s not new. The U.S. is hoping more foolish foreign central banks will line up and absorb the deluge for pitiful interest rates. The 2-year note sells for a yield of 1.1%.

“Maybe Washington will pull it off. But one day, people are going to demand a better rate to take the government’s paper. At some point, the market’s appetite for puny yields will go away. When that happens, interest rates will rise significantly and debt prices will crash. It’s not a matter of if, only when. To continue at this pace is clearly unsustainable.

“The crazy thing is that the U.S. government is not alone. Emerging markets are also issuing record levels of bonds. The Financial Times reports this morning that ‘the surge in issuance this year [hit] its highest point since records began in 1962.’ The biggest issuers include China, Brazil, Russia, South Korea and some of the Gulf states.

“Incredibly, most seem to look at these debt issuances as positives for the global economy. The FT, for instance, opined (in the middle of its news story) that the debt sales were ‘an encouraging sign for the world economy.’

“It’s a weird paradigm that thinks growing debt levels are a good thing for the global economy, but it is a mainstream view. Economists, lost in their models and abstract curves, preach the benefits of stimulus — printing money and spending and borrowing. And people seem to eat this up.”
Quick perspective: China’s Internet population grew 13.4% in the first half, to 338 million, says government-run China Internet Network Information Center. That’s more than the whole population of the U.S. Yet penetration rates there are just over 25%, compared with 75% in the U.S.
Here’s a headline we can’t resist: “Home Prices Rose in May,” trumpets The New York Times this morning. We understand… they’ve got papers to sell and a hell of a mortgage. But in reality, the U.S. housing market is only decaying at a slower pace. Today’s S&P/Case-Shiller home price index reading is par for the course for the last quarter… home prices and sales are still falling, just no longer accelerating into the abyss.

May registered a 16.8% annual decline in S&P’s 10-City Composite, with its 20-City just a bit worse. Even though that’s still a far cry from home price appreciation, May marks the fourth month in a row in annual return improvement. So raise your glass for a toast… here’s to four months of, ummm, home prices not registering record annual declines. (Better make it a double.)

“To put it in perspective,” says David Blitzer, steward of the index, “this is the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilizing.

“While many indicators are showing signs of life in the U.S. housing market, we should remember that on a year-over-year basis, home prices are still down about 17% on average across all metro areas, so we likely do have a way to go before we see sustained home price appreciation.”
Stocks managed to eke out a small gain yesterday, even though blue chip earnings were a bust. Traders clung to the new home sales jump and shrugged off bad numbers from Honeywell, Aetna and Verizon. The S&P 500 inched up 0.3%.
“The stock market has abandoned rationality,” declares Dan Amoss. “Sure, it usually rallies ahead of evidence of measurable progress in the economy, but the rally from March to May had already priced in a strong ‘V-shaped’ recovery, which will, obviously, not happen. At best, we’re in for years of stagnation and lower living standards as society inflates away, pays down or writes off bad debts.

“The recent rally, starting on July 13, has raised the bar for corporate earnings over the next few quarters even higher, setting market participants up for another round of disappointment.

“In the financial, REIT and consumer discretionary sectors, the market completely detached from reality. Part of this can be explained by the growth of program trading based on backward-looking statistical inputs, part by the triumph of technical analysis over critical analysis, and part by the herd behavior of fund managers.

“Regarding the triumph of technical analysis over critical analysis, ridiculous notions like the following are clearly driving the market higher: ‘We just broke through ‘resistance’ at 950 on the S&P 500, so therefore, it’s a mathematical certainty that we’ll go to 1,050 or 1,100.’ This kind of ‘analysis’ is dangerous. When we all start watching and reacting to charts and stop thinking critically about what stocks are intrinsically worth based on reasonable assumptions about the future, the adjustment process back to reality can be violent and painful. The 1987 crash is a case in point.”

We’re putting the final touches on a new special report from Dan on the next big-name company to blow up. We’ve got to keep the details under our hat for a little while longer, but for now, let’s just say it’s a very significant and influential bank. More to come…
The SEC added more restrictions to short selling today.The process of naked shorting — selling stocks short without locating shares to borrow — is now officially illegal. It’s a reasonable rule, but we doubt it will make much of a difference… remember that the SEC has enforced a temporary ban on naked short selling since September 2008. Ironically, the worst of the credit crisis sell-offs came right after the ban.

But here’s one that gets us a little nervous: The SEC said it is “increasing transparency around short sales.” Essentially, the commission is going to require institutional-size shorters to provide daily trading reports, which it will make public one month in arrears (without the names of the investors or institutions). From a reporter’s perspective, it’ll certainly be interesting. But why are we keeping tabs on something that’s supposed to be legal? Will rabid buyers get the same treatment?
Speaking of short plays, the U.S. dollar is still in hot water.The dollar index briefly made a new 2009 low this morning of 78.3. Having found support there in the past, the index was quick to bounce back to a still-low 78.7.
The dollar’s spring back put the hurt on gold. After holding steady for the last week or so around $955 an ounce, the spot price is down to $944 as we write.
Crude oil is declining too. The light sweet variety is down a buck and change today, to $66 a barrel.
Sugar is the commodity du jour. At 18.45 cents a pound, sugar’s up 56% in 2009, to a three-year high. There’s a shortfall of the stuff in India, interestingly the world’s largest sugar consumer. And recent dollar weakness/energy price appreciation has added fuel to the fire.
Finally, the truth comes out: “I was not going to be the Federal Reserve chairman who presided over the second Great Depression,” Ben Bernanke told PBS at a recent town hall-style interview. We imagine the appearance was designed to boost his public image and cement his coming reappointment… looks like that might have backfired.

“Did he really think that comment through?” asks Byron King. “It’s so reminiscent of President Nixon, many years past… ‘I’m not going to be the first American president to lose a war,’ said Milhous of the police action in Vietnam. Goes to show you… just wait awhile and these public officials will give you grist for the mill.”

A few more quotes from the interview that we’ll be keeping on file:

“I have a lot of confidence that within a few years that we will be not only back on track but that we will be growing strongly again.

For the next couple of years, “inflation will be quite low.

And just for the mental image: “I had to hold my nose and stop those firms from failing.”
In the mailbox today, the sarcasm floweth:
“C’mon, admit it, you’re wrong,” writes a reader responding to yesterday’s 5. “Just ask Cramer: The bottom was in March. The housing bottom was hit a month ago… green shoots poppin’ up everywhere… Look at all them positive bottom lines. Soon we will be living in a carbon-free world with inexpensive health care for all, while maidens paid for by the government with our grandchildren’s bucks slowly drop grapes into our mouths.

“We can live in housing paid for by the government on land owned by the government. I wonder if we get a choice of color for our tents. Will they furnish chemical toilets or will we even have a pot to piss in? The recession is over… cause the depression starts and the Chinese take possession of Amerika in lieu of payment for what is owed.”
“You guys are so far off base!” claims another. “The ‘cash for clunkers’ program is another cash cow for Goldman Sachs: Securitize buying up thousands of ‘85 Chevys from Grandma, who has never heard about the program; sell them to Uncle Sam (aka GM/Chrysler); and give away the purchased upgrades for a charitable deduction. Everybody wins.”

Source:  China Warns (Again), The Housing Faux-Recovery, Three Sectors to Short and More!

As Chris reported, its been a relatively quiet week in the economic report department here in the US but we did have some housing data as the MBA mortgage application and May’s home price index figures were released yesterday. Both measures were positive but obviously far from what would be considered knights in shining armor. Mortgage applications did rise for a third consecutive week, 2.8% over the previous, but was lower than last week’s figure of 4.3%. Falling prices are making properties more affordable, but record foreclosures and surging unemployment are impacting more and more Americans as the uncertain future is forcing those who can, refinance, instead of testing the real estate market. Economists expect prices will continue to keep falling as sales of distressed properties, which more than 1.5 million properties received a default/auction notice or were seized by the bank so far this year, act as an anchor preventing much in the way of improvement.

Speaking of home prices, May’s number showed the smallest annual drop in 10 months as prices declined 5.6% year over year and actually rose by 0.9% from April, but every region of the US still saw declines in May from a year earlier. Former Fannie Mae economist, Thomas Lawler, was quoted as saying “The distress in the housing market was not caused by unemployment, but now we are seeing a wave of delinquencies and foreclosures by people who, if they had kept their jobs, would be unlikely to default.” It appears that he shares our view in that as unemployment continues to rise, pressure on a sustained recovery will continue to mount. I agree with those that say the real estate market is improving…the numbers are not as bad as what we’ve seen in the past, but the bottom line is that prices are still falling…not exactly what I would consider a recovery just yet. Until we see unemployment fall to a sustainable number and the fear of layoffs along with job cuts subside, I just don’t see enough consumers rushing out and putting themselves on the line for their most expensive purchase…a home.

I guess this leads me to the reports due out today as we see the weekly jobless numbers and existing home sales for June. Although the initial jobless claims and the continuing claims are both expected to come in worse than last week, the existing home sales are estimated to show a bit of an increase. The trading pattern that has been in place for a while now, that being good news for the US causes dollar selling and bad new leads to buying of the dollar, shouldn’t see any deviation as risk aversion remains in control. Assuming my crystal ball is plugged in, any improvement in these numbers would send the dollar down today if investors get that warm and fuzzy but according to most economists, not much in the way of surprises one way or the other would be in the cards.

Chuck forwarded some comments made by Stephen Englander, chief currency strategist at Barclays, emphasizing that the dollar is expected to weaken as considerable skepticism about US monetary policy mounts from foreign investors. Without further ado, here’s Chuck…

“Here’s something I came across that plays well with what I’ve been telling you all for years now… Let’s listen in first, and then review what I’ve said over and over again…

“He (Bernanke) provided a very clear discussion as to what the mechanics of pulling out would be, but I don’t think that’s the question the market is asking,” Englander said. “Until there’s a clear path to withdrawing from the quantitative easing, we’re going to see foreign investors demanding a risk premium, if not on U.S. interest rates, then on a weaker dollar to equalize expected returns between U.S. assets and foreign assets.”

Sound familiar? Of course it does! I’ve said over and over again through the years that when a country has a financing problem it has two choices… It can raise interest rates on the bonds they sell, risking the awful affect on their economy… OR… They can devalue the currency, thus making it cheaper to buy the bonds used to finance the deficit… In this case… It’s the dollar… And any government would always choose the devaluation of the currency over wrecking the economy… Wrecking the economy doesn’t get them re-elected!”

Obviously, the broad expansion of the deficit has become a huge topic for not only foreign investors, but also those of us right here in the US. Here’s another note Chuck sent last night for me to share with you all:

“I have a friend who has been the leading doctor in the attempt to discredit the National Health Care Plan… I heard last night that the President said that if we didn’t implement National Health Care we wouldn’t be able to deal with our deficits…

That’s a bunch of malarkey! Here’s my good friend, Doc. Dave…
“The underlying method of cutting costs throughout the plan is based on rationing and denying care NOT PREVENTING health care need. The plan’s method is the most inhumane and unethical approach in cutting costs. The rationing of care is implemented through The National Health Care Board, according to the plan. This illustrious Board “will approve or reject treatment for patients based on the cost per treatment divided by the number of years the patient will benefit from the treatment.” Translation…..if you are over 65 or have been recently diagnosed as having an advanced form of cardiac disease or aggressive cancer…..dream on if you think you will get treated…..pick out your box. Oh you say…this could never happen……sorry….this is the same model they use in Britain.”

So… You can side with the President, speaker Pelosi, and others when they try to jam this down the throats of Americans… Or you can side with a doctor that has fought against this from the beginning because of the inhumane way it treats American citizens in need of health care!

I’m not one to make this letter political… But trust me on this, the gauntlet has been put before us, and we can decide if we want additional spending or not… Because no matter what the President says, once Congress gets a hold of a bill, the costs multiply by tens! If not hundreds! And we are in no position, as a country, to take on additional deficits!”

The foundation for a longer term weak dollar has been in construction for quite some time and the current fundamentals and now policies appear to be opening the eyes of many worldwide. The currency market seems to have taken notice as we have established a fairly strong base in many currencies. For instance, the euro has been comfortably trading close to the 1.40 handle, give or take a couple cents on either side, for a couple of months now. I look back to the end of 2004 when the euro was setting record highs at 1.35-1.36 and thinking then that prices at 1.40 would be a moon shot. Fast forward to today and 1.40 is kind of seen as ho-hum. I guess the point I’m trying to make here is even though we saw considerable dollar strength in the second half of last year, we have settled in a spot where if we do see another considerable selling run of the dollar, look out.

As I touched on earlier, the currency market was a non-event yesterday as most currencies traded within a range of .25% to the dollar but the rand was again the winner of the day. The rand gained another 1.25% as money is still flowing into the South African market from investors seeking higher yield. This is one of the more volatile currencies so extreme caution and an iron stomach are needed. There is not any middle ground for the currency so extreme movements up and down are the norm.

Speaking of another high yielder, Brazil’s central bank slowed the pace of rate cuts by only dropping .50% to a record low of 8.75%. They had cut rates by at least one full point following the four policy meetings so far this year and cited these reductions have had enough impact to warrant a smaller cut. This outcome has economists thinking rates may be at the bottom and some even see rates at 10.5% by next July if inflation begins to creep higher. Lower borrowing costs and taxes as well as increased government spending has supported domestic demand so far, causing the OECD to call for a 4% gain in GDP next year.

With not much else currency wise, I came across yet another story promoting the commodity currencies. As China’s demand for raw materials continues to feed infrastructure growth, currencies such as Australia and Canada would stand to be direct benefactors. The biggest provider of pension plans in Australia has called for the loonie to once again hit parity and the Aussie to float up to the 90 handle. I don’t disagree with that assessment as commodity rich countries and those with sound fundamentals will be in a much better starting position than most, but only time will tell. Interest rate differential should also come back into play, especially if the US keeps rates where they are for an extended period of time. Guess which countries are the ones discussing rates hikes for next year…yep, it’s several of the commodity currencies.

Before I head to the big finish, I’ll leave you with the second installment from our big boss, Frank Trotter. Let’s see what Frank has to say:

“It is still beautiful here in Vancouver. In the vertical downtown, with steel and concrete building, architects have gone to extreme lengths to add water follies – waterfalls, streams, pools and trickles to tie the outdoors into the bustling downtown. Fifteen minutes away by ferry and bus we entered the forest at the salmon hatchery and walked down along the stream, across the Lions Gate bridge and back to reality. While we walked the US dollar continued to trickle downhill as Mike surely will report. While the crystal ball is a bit clouded it’s hard for me to see anything but decline for the next 3 -5 years.”

Sounds like everyone is on the same page to me…

Currencies today 7/23/09: A$ .8182, kiwi .6598, C$ .9098, euro 1.4217, sterling 1.6507, Swiss .9350, rand 7.6961, krone 6.2728, SEK 7.5695, forint 190.73, zloty 2.9858, koruna 18.0164, yen 94.44, sing 1.4413, HKD 7.7500, INR 48.4637, China 6.8309, pesos 13.2362, BRL 1.9038, dollar index 78.80, Oil $65.25, Silver $13.7775, and Gold… 952.70

That’s it for today…It was another busy day yesterday as the MarketSafe BRIC CD continues to gain traction and today doesn’t look to be any different. We’re going to be a bit short on the desk today and I already have a stack of stuff to do, so I should probably be hitting the send button right about now. Thursdays have become breakfast sandwich day on the desk so I can’t wait for that bag of goodness to arrive in a little while. Anyway…have a great day and a Terrific Thursday…

Source: A Broken Record

Yes, for those “old rockers” from the 70’s like me… That’s Uriah Heep, at their best!

OK… So, welcome to July! The last day of June was quite the volatile one to say the least! There we were waiting for the S&P/CaseShiller Home Price Index to print, and show that home prices were still down by quite a bit, when it did, it did, it printed at -18.12%… But! The media was all over that like a cheap suit, clamoring that the spiral down in Home Prices had come to and end! Which, may be true… But wouldn’t you want to wait to see if next month’s report confirms it? And… By the way… Since when does -18.12% fall in home prices beckon a rally? Yesterday, would be that answer!

So… The currency rally that was going on for a 4th day, was quickly wiped out, Ventures style… What? Don’t know who the Ventures are? Boy, you really missed a lot of great instrumentals! Any way, the euro sunk like the Titanic from a level of 1.4130 to 1.40… The iceberg that caused this mess was simply the fact that traders, etc. believe the U.S. is on its way out of this mess… Of course, they must not be Pfennig readers, because… They would have read yesterday how I detailed the monthly numbers and showed how even with the spiral down in Home Prices ending, it would take until 2011 before the Home Prices got back to zero!

But NOOOOOOO!!!! They couldn’t read it until late yesterday afternoon, because… Houston, we had a problem, with the Pfennig’s delivery yesterday… See, how I’ve mellowed? I’m not even going to rant about this… Instead, I’ll just remind everyone that whenever the Pfennig doesn’t show up in your email box, you can most likely find it to read on the Pfennig’s website, where you can view that “glamour shot” of me, and archives of the Pfennig! You can find it here: www.dailypfennig.com —- Hope that helps!

OK… Well… After the thrill is gone, and the dust settled on all that yesterday, the euro is leading the other currencies higher once again… Here are a few things that have caused a sell-off of the dollar overnight once again…

Not that I’m a fan of his… In fact, I don’t really care at all… But George Soros, normally has some interesting things to say, that end up being bang on… So here are a few one liners from a speech by George Soros yesterday… I believe this sounds very much like the things I tell you, have told you, and will continue to tell you…

SOROS SAYS SEES A “STOP-GO” ECONOMY GOING FORWARD
SOROS SAYS SELF-CORRECTING MARKETS IS A MISCONCEPTION
SOROS SAYS INFLATION FEARS WILL DRIVE UP RATES AS MARKETS REVIVE, CHOKING OFF GROWTH
SOROS SAYS CURRENT SUPER BUBBLE MADE POSSIBLE BY PAST INTERVENTION, EFFORT TO RESOLVE PREVIOUS BUBBLES
SOROS SAYS FORMER FED CHAIRMAN GREENSPAN REFUSED TO ACCEPT RESPONSIBILITY FOR STOPPING BUBBLES

And then there was Alice Rivlin, she of former Budget Director, and former Fed Reserve member, fame, had a few things to say to the House Budget Committee… Good stuff, but you have to wonder if anyone was paying attention! Here’s Alice!

“The long term budget outlook: impending
catastrophe”

“No one needs to remind this Committee that the outlook for the federal budget is worrisome indeed, scary. Long before the financial crisis and the current deep recession, this Committee was anxiously pointing out that current federal spending and revenue policies are on a risky, unsustainable course. Promises made under the major entitlement programs (especially Medicare and Medicaid) will increase federal spending rapidly over the next couple of decades, as the population ages and medical spending continues to rise faster than other spending. Federal expenditures are projected to grow substantially faster than revenues, opening widening deficit gaps that cannot not be financed.”

Hmmm… Sounds like me too! Is this “sound like Chuck day?” HA!

OK… Enough of all that, I don’t want anyone to get hurt, and I should have told everyone to put away the sharp objects before reading!

In other data yesterday, Consumer Confidence took a step backward, and fell in June to 49.3 from May’s figure of 54.8… Maybe those that were surveyed has just read Alive Rivlin’s talk to the House Budget Committee! Seriously though, this was a surprise, given the fat that the DOW gained 838 points in the 2nd QTR! At least, that’s what the Wall Street Journal said!

Today, we get a truckload of data starting with Challenger Job Cuts, and the ADP Employment Change. Those are followed by the ISM Manufacturing Index, Construction Spending, Pending Home Sales and Vehicle Sales… Not a lot of “major” data prints, but still stuff to check the pulse of the economy.

I was talking to my good friend, and an economics professor at a prestigious University, yesterday, and she mentioned that “this piece of data is questionable as to the inputs”… I said to her… “What piece of data isn’t questionable these days?”

OK… The “demand for high yield” was put on hold yesterday… But it will return, or at least I should say I think it will return… I don’t know for sure to say “it will”, so had better make the legal beagles happy… That’s funny! To say that they would be “happy” with me… They cringe, and get very uncomfortable every day when they read the Pfennig! HA!

But you know me… I’m just trying to provide Market Commentary, and other things that I think are important, well, important to me that is!

Like… A long time reader sent me a note yesterday, and said, “hey Chuck, did you see the story in the Wall Street Journal (WSJ) on Foreign Demand for Treasuries?” Well, I hadn’t and went immediately to the WSJ, and there it was… Tucked away in a corner so that no one would see it, if they weren’t looking for it… A story, by Min Zeng, titled, “Is Foreign Demand As Solid As It Looks?

These are the things that really TICK ME OFF folks, so stay with me on this… Basically, as we all know the U.S. Treasury Auctions have been getting “covered” easily recently… And foreign demand was listed as the reason… Which would have been the exact opposite of what I was saying about foreigners shying away from Treasuries…

Here’s the skinny… But I’ll let Min Zeng tell it, since he did the research and brought this to the public, even though it was tucked away so no one would notice!

“But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.

The new definitions are deep in the arcane world of Treasury auctions. The change involves buyers who place orders through primary dealers. Those had been counted as direct buyers, but as of June 1 they were classified as indirect buyers, making that group larger than before. Because investors view that group as being dominated by foreign buyers, they assumed foreign demand was higher.”

>>>> OK, back to me… Ahhh, so that’s what’s going on… The Treasury “moved the goal posts on us”… As Sylvester would say… That’s despicable! Why isn’t someone in Washington D.C. shouting from the roof tops about this? Oh, that’s right, they’re all in cahoots!

This is HUGE folks… So… When the markets were thinking that foreign demand was increasing, it was actually, as I had said, shying away from Treasuries! Which, if the market participants are thinking that as long as foreigners are “buying into our deficit spending” then the dollar will be on terra firma, but instead are getting “duped” by the U.S. Treasury, you would think that someone would have some xplainin to do… Right Lucy?

And here’s another thing that just ticked me off when I read it this morning… Recall, last week I told you about how someone in China was dissing the talk that China’s stimulus was working, and that China would not be recovering, which sent the Aussie dollar to the woodshed until this news had passed? Well… Talk about egg on their face! Here’s the skinny…

China’s manufacturing expanded for a fourth month in June… The official Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May… And just like here in the U.S. any reading above 50 is thought to show manufacturing is expanding… The manufacturing index in the U.S. is around 44, so… We DO have the tale of two economies…

In one corner, we have the Chinese who have spent about $585 Billion worth of renminbi in stimulus, and are seeing the results… Whereas in the other corner we have the U.S. who have spent… More money than you can shake a stick at, and are not seeing green shoots like they “think they are”, instead they see dandelions, and weeds!

And the currencies of Australia and New Zealand have responded positively to this news from China…

And since I’m talking about China, might as well check on the other members of the BRIC’s (Brazil, Russia, India and China) Brazil’s real just posted its best quarterly performance on record, and India was Asia’s 3rd best performing currency, and if you throw out the two currencies above India that are illiquid, South Korea, and Indonesia, India was the best performing currency in Asia in the second QTR…

And the people over at the Royal Bank of Scotland (RBS) believe that the rupee won’t stop here… RBS issued a research report calling for a record 11% gain by the rupee in the 3rd QTR… I bet this news is music to the ears of my colleague on the “other” newsletter that I write… The Currency Capitalist… (to find out more: https://www.web-purchases.com/CUC/WCUCJ900/landing) My colleague, Ashish Advani, at the Sovereign Society, has been saying the rupee would be a strong performer for months now!

Here’s something you might want to be aware of, regarding the New Zealand dollar / kiwi… About $4.5 Billion in kiwi Uridashi and euro kiwi bonds denominated in kiwi will expire next month… I’m told that this is more than 4 times the size of a usual monthly expiration of bonds. This could very well be the hoola hoop the Reserve Bank of New Zealand (RBNZ) is looking for, given their wish that kiwi would weaken…

Royal Bank of Canada’s Currency guru, Sue Trinh, says that kiwi weakness could be beneficial to Aussie dollars, as the Japanese are leaning toward Aussie over kiwi these days…

Sounds about right to me!

And then there was this… OK, you all saw that Bernie Madoff was given 150 years in prison… Did you see that his wife, Ruth, reached an agreement with the authorities to return all of her wealth except $2.5 million that she got to keep? The thing that I still don’t get is how there aren’t more people going down with the ship on this one… I’ve been in the back office of brokerage firms, ran a margin dept, etc. and know this wasn’t just Bernie and his accountant… There was a lot of wool pulled over many eyes… And this will be the next step in the investigation by the U.S. officials… To see, who else knew what… If a whole stable full of people aren’t found to have known, then I’ll be surprised…

Currencies today 7/1/09: A$ .8045, kiwi .6410, C$ .8640, euro 1.4050, sterling 1.6430, Swiss .9220, rand 7.7675, krone 6.39, SEK 7.6337, forint 192.50, zloty 3.1390, koruna 18.3315, yen 96.90, sing 1.4475, HKD 7.75, INR 47.90, China 6.8330, pesos 13.18, BRL 1.9515, dollar index 80.11, Oil $71.27, 10-year 3.54%, Silver $13.67, and Gold… $931.20

That’s it for today… So sorry about the tardiness of the Pfennig yesterday, but I can’t do anything about it when we have technical difficulties… You know that I get up before the milkman, and the paper man, to get here to write it… It wasn’t like I was dilly-dallying around and didn’t get it done until 5 in the evening! HA! I see that my little buddy, Alex, got a 2nd and 3rd in backstroke and freestyle respectively at his latest swim meet. Really long time readers might recall when Alex’s older brother, Andrew was a highly decorated swimmer, and I would write about his swimming records… And their sister Dawn, also was a medal winner as a young girl! So… It’s now up to granddaughter, Delaney Grace to carry on the swimming tradition! HA! Cards lose again… UGH! OK… Time to try to get this out the door, hopefully it will go without a hitch… But whether it does or doesn’t it won’t stop me from having a Wonderful Wednesday… How about you?

Source: The U.S. Treasury Moves The Goal Posts

Standard & Poor’s/Case Shiller 20-city home price index fell 0.6 percent in April, after a 2.2 percent decline the month before. Economists expected an April drop of 1.8 percent

“It’s a little better than expected, but not much. On a top to bottom basis, home prices are down 30 plus percent, which underscores the amount that home prices have to climb to get to normal territory,” said Dan Greenhaus, an analyst at Miller Tabak & Co in New York.

“While they’re better than expected in the short term, in the larger sense the housing market remains under great pressure.”

On this last day of the quarter, fund managers often enhance portfolios as part of “window dressing” by selling losing stocks and scooping up the winners. The process can add to volatility.

Analysts noted the shortened week could lead to thinner volumes and increased volatility. U.S. markets will be shut for the U.S. Independence Day holiday on Friday.

S&P 500 futures rose 2.20 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futuresgained 29 points, and Nasdaq 100 futures added 2.75 of a point.

The S&P 500 is up 16.2 percent so far this quarter, putting it on track for its best period since the fourth quarter of 1998, when the index jumped nearly 21 percent. The S&P 500 has gained 37 percent since hitting a 12-year closing low in early March as early signs of an economic rebound surfaced.

NEW YORK, June 30 (Reuters)

American home prices just suffered their worst quarter in recorded history.

That’s the word from the National Association of Realtors today… the median home price fell 14% from the first quarter of 2008 to the first three months of 2009, to just $169,000. Of the 152 metropolitan areas surveyed by the NAR, just 18 registered annual price gains. Nearly half of all sales during the first quarter were foreclosed properties or short sales. A whopping 3.7 million previously owned homes are still on the market.

Is this rock bottom for U.S. housing? Ehh… probably not.

After staying flat for most of the ’90s, the Case/Shiller home price index more than tripled during a 10-year boom. If this “credit crisis” is what people say it is — a generational calamity, Bill Bonner’s “Depression with a capital ‘D’” — then a mere 26% retrenchment from the peak seems kind of… lame. Even the Dow managed a bigger fall than that.
If you’re a real estate opportunist (or just looking for a damn cheap house), you might want to check out Saginaw, Mich. The median existing home price there during the first quarter was a stunning $30,300, the lowest in the U.S. We won’t pretend to know what’s going on over there, but geez… they’re practically giving ’em away.

And if you’re also a newshound, like us, Saginaw might bring back the memory of this little love shack:

Back in October 2008, a Chicago woman famously bought this Saginaw home on eBay for $1.75. Ouch.
Foreclosures set a new record in April, says a separate report from RealtyTrac today. 342,000 homes were in some form of foreclosure last month. That’s one for every 374 homes in the U.S. — just in April. Over 1.3 million homes have now been lost to foreclosure since the housing correction began in August 2007.
A study out today shows that minorities are suffering the worst of the housing crisis. The homeownership rate among all Americans has fallen 1.7% from its 2004 peak. But for black households, the rate of ownership has plunged 3.8%, more than double the national average. Native-born Latinos have it even worse — down 4.6% from their high.

According to Pew Research, this rise and fall among minority homeowners was directly correlated with the popularization of subprime lending. “Blacks and Hispanics were more than twice as likely to have subprime mortgages as white homeowners, even among borrowers with comparable incomes,” reports The New York Times. (Queue the predatory lending lawsuits.)

And the only ethnicity to not see homeownership rates decline? Latino immigrants, with the lowest rate of all groups studied, have managed to maintain a homeownership rate of 44.7% since peaking in 2007. (Ugh… and queue the flood of hate mail into our humble inbox.)
The credit crunch has hastened the predicted demise of Social Security and Medicare. The Obama administration admitted yesterday that they now expect Medicare to run out of money in 2017, two years sooner than the Bush administration predicted in 2008. Social Security’s imminent insolvency was bumped up four years, to 2037. That’s all under the assumption, naturally, that the economy will recover by the end of 2009.

Even those already sucking the government teat got a dose of bad news. Social Security trustees now predict, for the first time in over 30 years, that recipients will not receive any cost of living increase next year, or in 2011.

In just seven years (2016), the Social Security trust will enter deficit. Eight years at the current pace and Medicare will be totally wiped out. When do you think we’ll start worrying about it… 2015? What a mess.
Last month’s budget deficit was the first April loss since 1983. We hit most of the details of the latest deficit yesterday, but felt obligated to raise this one point today: How can Uncle Sam possibly lose money during tax month? Only the U.S. government can “earn” $266 billion in one month (mostly our confiscated income) and still end up $20 billion in the hole.
All the above is weighing heavily on the market today, but the latest retail sales numbers are pushing traders over the edge. Retail sales fell 0.4% in April and were revised down to a 1.3% decline in March, the Commerce Dept. said today. The Street was expecting flat sales this month and no March revision.

Declines for both months proved to be the last straw for an already nervous market. After registering small gains yesterday, the Dow and S&P 500 raced down almost 2% at the opening bell this morning.
“Who’s surprised?” asks our currency man Bill Jenkins in response today’s retail “shock.” “Economists predicted a rise in sales from last month, but based on what? Here’s the bottom line: 3 million more people have been added to the lines of the unemployed since the beginning of 2009. I’m not sure where a person learns the following lesson, but apparently not in Keynesian Economics 101. So our readers can learn it here: Unemployed people spend no money. (Or at least they spend a lot less, if they have any sense.) Less spending equals fewer sales.

“As of the first quarter, we have already had record budget deficits, and Moody’s has announced that with the planned and continued spending, America puts at risk her AAA bond rating. What will happen to the dollar then? Dollar weakness is going to shock the world even more than today’s shocking sales numbers. Get ready to short the dollar aggressively.”

Need a hand trading currencies? Then definitely check out Bill’s Master FX Options Trader. His strategy is one of the only ways to profitably trade worldly monies without taking on loads of leverage. Details here.
But don’t short the ol’ greenback just yet. Today’s equity decline is doing wonders for the dollar. After cratering at a four-month low of 81.9 yesterday, the dollar index is back up to 82.5 this morning.
“One of the most exciting growth industries,” writes Jim Nelson, finding opportunity amid today’s sell-off, “is Far East Internet service providers. According to internetworldstats.com, 73.8% of Japanese and 76.1% of South Koreans are on the Internet. Even about one in every four Chinese citizens has Internet access. But too many forget that these superpowers aren’t the only places where you can make big money.

“Indonesia has the world’s fourth largest population, over 200 million people, but it ranks No. 16 in GDP purchasing power. Internet access is trailing in the region, with just 10.5% of its population online.

“But it’s the growth that impresses us. In 2000, only 2 million Indonesians had the Internet. That number is going to reach 25 million this year. That’s a massive growth rate… and serious investing opportunity.”

Jim just gave his readers a solid dividend-yielding play in this sector. If you’d like to get the details, be sure to check out his Lifetime Income Report.
Oil is holding up today, even though stocks are in the dumps. As we write, the front-month contract is actually up about a quarter from yesterday’s close, to $59 a barrel.
“Take your coal profits and run,” Bryon King told his Outstanding Investments readers late yesterday. “Coal is besieged. The coal industry wrestles daily with weak demand due to the U.S. economic slowdown. At the same time, the build rate for coal-fired power plants is at a historic low. Sure, in ‘ordinary’ times, coal might stage a comeback. But these are not ordinary times.

“The ‘rock that burns’ is under attack from many quarters of the environmental movement. Primarily, coal is guilty of the environmental sin of emitting carbon dioxide when burned — much more, pound for pound, than natural gas or oil. But it’s not just coal. Coal ash is also under attack, as are the many other byproducts of coal combustion (mercury, arsenic and much else).

“Is the anti-coal movement over the top? Yep. Is the anti-coal ‘science’ valid? Some of it is good; some is dramatically bad. Will the U.S. economy benefit from a precipitous rush away from burning coal? Nope. Will many Americans eventually look back and regret it if the current anti-coal frenzy prevails? Probably.

“But for now, I’m not going to get into the whole scientific and economic debate over the merits of the anti-coal claims. I’m just going to say that if you have a chance to make money in your coal positions, you should take it and move onto other ideas.”
It’s a great day to own some gold. The spot price has perked up $20 from yesterday’s low, now at just over $925 an ounce.
“You asked a question yesterday,” a reader writes: “‘Would you expect more credit card losses during this recession (aka the credit crisis) or the tech bust?’

“For what it’s worth (not much, as it is only my gut-feeling guess), here’s an extreme answer. I expect that the chart you’ve provided will hit 20-30% by the time it is all over, many years from now. Unlike any previous recession/depression, the use of credit cards today is at an all-time high globally, particularly in the U.S. As such, The Daily Reckoning Dicta No. 2 as provided by Mr. Bonner comes into play: ‘The force of a correction is equal and opposite to the deception that preceded it.’

“And with the marginal utility of debt approaching zero with each passing day, one may even be enticed to provide a higher number than merely 20-30%, but I do not wish to go that far into the gloom.”

The 5: Thanks for the forecast.

Source: The Housing Bottom, Doomed Entitlements, Retail Sales Suffer, Sell Coal and More!

Good day… And a Wonderful Wednesday to you! We received more rain yesterday, and the spotting of a twister less than five miles from our office! I’m beginning to feel as though we should be gathering up the animals in twos. The old saying, “right as rain” is losing favor on the list of things I say!

Yesterday, I left you with the thought that the London traders had been buying dollars since they arrived back from their three-day Holiday weekend. The U.S. traders did the same… And I believe profit taking was the order of the day. Unfortunately though, it left the euro (EUR) down one-cent on the day.

The data for the U.S. yesterday wasn’t anything that would lead one to buy dollars, but that’s the game that people play now, every night and every day now… So, let’s go to the tape on the data and be finished with that!

First off, the Case/Shiller Home Prices data showed more rot on the housing vine, as their 20-city home price index fell 14.4%y/y in March – a new record low in data back to 2001. Las Vegas led the way (-25.9%), with Miami a close second (-24.6%).

You can’t tell me the housing meltdown has “bottomed” – not with data like this! And… You can’t tell me that consumers are not being just beaten around the head and shoulders daily with gas prices, food prices, falling house prices, and debt up to their eyeballs!

Speaking of consumer debt… I’ll bet a dollar to a Krispy Kreme that the next big shoe to drop will be the “maxed out” credit cards that consumers have been busy running up, since their “ATM” (house) has closed. I’m not wishing this to come true, folks… I’m simply talking about what I see happening. Sure hope I’m wrong about that one, because credit card debt is the absolute worst thing to have hanging over your head!

OK… Down from the soapbox, and back to the data… The U.S. Conference Board’s consumer confidence fell more than expected in May from 62.8 to 57.2. This is a new low for the data since October 1992, and a depth surpassed only during and just after the depths of recessions since 1970. Need more data that spells “recession”?

Speaking of a recession… A reader sent me a note yesterday saying he was surprised that I didn’t mention that George Soros and Warren Buffett were both “Pfennig readers”, since both were quoted in Europe Saturday as saying that the United States is in a recession, and both said it will be long and deep.

Alrighty then! Hey! My friends down under sent me a note that said they fully expect the Reserve Bank of Australia (RBA) to increase interest rates 50 BPS before year-end. That’s two 25’s… With the first coming in August. Basically, I agree totally, and think these rate hikes will grease the tracks to parity for the Aussie dollar (AUD).

The news didn’t help the Aussie dollar yesterday though, as it looks as though the selling of the Big Dog (euro) affected all the little dogs, even down under!

I’m going to step up on the soapbox again here folks… So if you don’t want to subject yourself to more “Chuck’s views” then skip ahead. OK… If you’re reading this, then that means you’re ready… So, here goes… I was reading stories on the Internet last night and seeing how bloggers and writers are ripping the oil companies. Hmmmm… I guess the “rippers” don’t realize that the guys that head the oil companies don’t own them! The oil companies are owned by pension funds – you, me, and the guy down the street that cuts his grass with his shirt off! We even had some dolt representative from California mention “nationalization” for the oil companies. Of course, she called it “socialism”… Doltness showing there, folks… I shake my head in disbelief.

OK, I’m back now… I have more to say on the subject, but I had better stop there!

In the overnight markets of Asia and London, we haven’t really seen much movement to follow on yesterday’s selling, which is why I believe it was profit taking. Most of the “Big Boys” were out on Friday and Monday… So when they came back and saw the levels, they said, “By Joe, let’s take a profit or two”!

The only currency to see more slippage was the Japanese yen (JPY), with a little slippage from Swiss francs (CHF), as stocks were back en vogue yesterday, and thus the carry trades were back at work.

And the yen’s losses weren’t just against the dollar. Yen is losing lots of ground to the euro again. The losses to the euro had stopped for a while, but they are back!

So… The bad earnings reports of the past 10 days are swept under the rug, eh? Let’s go buy stocks again, the coast is clear! UGH!

Gold saw an end to its rally yesterday too, with a $14 sell off… UGH! The gold sell off also coincided with a big drop in oil price the past few days. Of course, the oil price sell off is the only “welcome” price drop! Oil has dropped from $135 last week to $127 this week… I guess maybe someone in the oil biz got the memo that U.S. drivers are putting the brakes on and not driving so much. Who can? Not with gas prices around $4!

OK, I know that those that own Prius cars can, but you are a very low minority of drivers…

In Germany this morning, we’ve seen some data that should keep rates right where they are if not eventually push them higher. I’m talking about inflation data. Five of the six German regions have reported higher inflation this morning – which points to an increase of 0.06% month-on-month. The consensus was for an increase of 0.04%, so this upside surprise reverses the sharp fall we saw in April. I knew that the April number was questionable.

Norway’s Norges Bank is expected to leave rates unchanged this morning… However, with oil prices being what they are, I expect the Norges Bank to revisit the rate hike table this summer… And that thought should underpin the krone (NOK).

Fed Head Fisher, one of the two dissenting votes of the last rate cut, will speak today. He will speak on “inflation and debt”. This ought to be interesting folks.

Today, we’ll see the color of the U.S. April durable goods, which is not expected to be a “warm and fuzzy for the economy” data print. The forecast is for a decline of -1.5%… But, hear me now and listen to me later… If the print is really this bad, the media will sweep it under the rug, or spin it to sound like good times at Ridgemont High!

So… There you have it! The currencies are drifting about, and are waiting for new signs to give them direction. With that, we’ll head to the Big Finish.