Good day… And a Wonderful Wednesday to you… Instead of a “turn around Tuesday”, we’re seeing a whiplash Wednesday! And for once in a month of Sundays, the Big Dog, euro didn’t lead the other little dogs (currencies) off the porch to chase the dollar down the street!

No… This time it was the currencies of Australia and New Zealand that led the charge VS the dollar… The euro has taken up the charge since opening the doors to a new day of trading in Europe, so… It looks like it’s a “take the dollar to the woodshed day”…

OK… Let’s start first with the goings on yesterday and then build to a big crescendo! Yeah, right, like I can do that! HA! Any way…

As a reminder, yesterday we had the Russian rate cut, and the Japanese Fin Min giving the dollar a boost… We then saw some data that at first glance seemed to be good, but a quick look under the hood told the markets otherwise… Home Prices fell in July VS June, but are still down 13.3% VS last year… And Consumer Confidence surprised everyone by falling this month. It was expected to gain. So… As the day went on, it just didn’t look like the U.S. data would be strong enough to cause dollar selling…

But then, overnight, we had a strong Retail Sales report in Australia, and a strong Business Confidence report in New Zealand, and the “global recovery thoughts” were back on! Game on, as Wayne and Garth would say! Yesterday morning, the Russian rate cut said “step back on the thoughts for a global recovery”… And then overnight, the reports from Australia and New Zealand said, “step forward on the thoughts for a global recovery”!

And so it is… We end the month, and quarter with the dollar on the losing end VS many currencies… This marks the second consecutive quarter of dollar losses… Does that sound like a trend to anyone? To me, I do not consider this to be a “new trend”, but instead, simply a return to the underlying weak dollar trend, that went dormant for 6 months while the world sorted out the financial meltdown.

This is where, when I go out on the road and speak to people, I say that trends are not One Way Streets… There can be volatility within the trend. And thus this explains the 6 months from August of 2008 trough Feb of 2009… For most people that got into diversification using currencies and precious metals, they saw it for what it was, and simply battened down the hatches, and looked for deep discounts to add to their diversification… For some people, who got in for all the wrong reasons, and never thought about diversification, then they panicked and sold out at losses… For those that battened down the hatches, they were rewarded with this latest 6-month move… And that’s all I’m going to say about that!

The boys and girls over at the IMF are trying really hard to keep the currencies in check and not let this become another rout on the dollar. The IMF issued a statement saying that there are still risks in the global recovery… Unfortunately, for the IMF, nobody is listening to them, judging from the dollar selling I’ve seen since I came in this morning!

Hey! I don’t give the French much credit for anything… But I did see last night that they are cutting taxes on business! WOW! What a novel idea! And one that I think would behoove the current U.S. administration to follow… This is really a great way to get real traction in the economy… Give Businesses more room to breathe, and they will hire people, expand capital purchases, etc. Good show!

Yesterday, I was interviewed by Reuters for a story on dollar / yen… I was then quoted in a story that ran later in the day. I had said when I hung up the phone, that it would have been easier if the writer had just read the Pfennig that day! All I did was tell them what I had already told you in the Pfennig much earlier in the day! But… It was great to see my name in a national story anyway, eh?

OK… Getting back to Aussie and Kiwi… The Aussie Retail Sales report for August climbed .9%, erasing the -.9% loss in July! This report plays well with the recovery story and the thoughts that the Reserve Bank of Australia (RBA) will raise rates before year-end…

New Zealand saw their Employment Confidence Index climb to 103 last quarter, from 96.1, the previous 3 months… The report showed that 32.2% of companies surveyed, expected sales and profits to rise over the next 12 months… I know that doesn’t sound like a resounding vote of confidence, but the previous number was 26%… So that’s quite a jump!

Of these two, I expect The RBA to lead with the rate hikes, while the Reserve Bank of New Zealand (RBNZ) will drag its feet… They don’t need the kiwi to start rising aggressively, as exporters in New Zealand are having a tough time now, with kiwi as strong as it is now!

Whenever the Commodity Currencies of Australia and New Zealand have good performances VS the dollar, the other Commodity Currencies get to play along… So that means the performances VS the dollar of Canada, South Africa, Norway, and Brazil have been good.

There is some risk in the currency markets today though… First, we have some data due, and second we have Fed Vice Chairman Donald Kohn, and European Central Bank (ECB) President, Trichet, due to speak today… Could this be more Central Bank parlance for propping up the dollar, that is seen as being on the skids again this morning? I think it just might… Especially, if Kohn doesn’t mention that the Fed is going to keep rates at near zero for some time to come. If we don’t hear that… Then I think the “con” is on to prop up the dollar…

But don’t let that bother you too much… These guys can only affect the currencies for short periods of time with their verbal jawboning… After that, they need to walk the walk with coordinated intervention, if they’re going to talk the talk!

Speaking of the data… We’ll see the color of the 2nd QTR GDP, and the wild and wacky ADP Employment Change reports… The Chicago PMI (manufacturing for that region) will also show its colors… All of these are expected to show improvement in the U.S. economy… And, if the trading pattern remains in place… Any signs of improvement in the U.S. economy normally results in more dollar weakness!

So… In the end, the data inducing dollar weakness, might be offset by the Central Bank jawboning… In which case, we’ll spend the day in a tight trading range for sure! But what happens if Kohn and Trichet, don’t support the dollar in their speeches? Then it will all be up to the data!

This morning, Canada will print their latest GDP report… The forecasts are for a very weak report… I’m going to go out on a limb, yes it will be a big fat one to support me, and say that I expect Canada’s GDP to surprise on the up-side… If so, the loonie would look to add to gains it already has booked this morning VS the dollar.

With the Commodity Currencies on the rise this morning, Gold has returned to $1,000! Gold remained below $1,000 for about 5 days, in which there were ample opportunities to buy the dips below $1,000…

And… As we close out the month and quarter, the Russian rate cut is all but forgotten about, which is exactly how I told you it would play out… The global recovery theme is back with a vengeance!

OK… I’m going to step up on the soap box now, so if you do not care to listen to another Chuck soap box rant, then skip ahead two paragraphs!

You know… We wouldn’t be having these discussions about dollar weakness every day, if the Budget Deficits weren’t piling up on top of other deficits… Hey! Remember when I used to take the previous administration to the woodshed for piling up $450 Billion dollar Budget Deficits? Well, that certainly seems to be but a drop in the bucket of the nearly $2 Trillion Budget Deficit that will post this year, and the forecast for $9 Trillion more in the next 9 years…

That all leads me to this… We need to express to our representatives in Washington D.C. that is very important, and the they should focus their attention on this first and foremost! I doubt that we’ll ever get there again, but, wouldn’t that be nice for our grand kids? I just don’t understand why we go around spending money on this that and the other things, and don’t ever stop to think about the immoral things we are doing to our future generations… I guess I mean to say that the “we” I’m talking about is not you and me! It’s the knuckleheads in D.C… That is, other than Ron Paul, who seems to be the only person in D.C. that understands all this deficit spending…

Ok, down from the soap box now… You’re free to move about the Pfennig!

To recap… Aussie and kiwi lead the currencies higher VS the dollar overnight, after each respective country printed a strong economic report, thus putting the global recovery thoughts back on track. We have data, and Central Bank speeches to navigate through today. The non-dollar currencies close a second consecutive quarter of gains VS the dollar, and Gold has returned to $1,000….

Currencies today 9/30/09: A$ .8835, kiwi .7220, C$ .9330, euro 1.4665, sterling 1.61, Swiss .9725, rand 7.4240, krone 5.7675, SEK 6.96, forint 183.90, zloty 2.88, koruna 17.1570, RUB 30, yen 89.50, sing 1.41, HKD 7.75, INR 48.11, China 6.8264, pesos 13.48, BRL 1.7870, dollar index 76.56, Oil $67.78, 10-year 3.31%, Silver $16.48, and Gold… $1,003.45

That’s it for today…Be sure to make today a Wonderful Wednesday!

Chuck Butler

Source: Whiplash Wednesday!

They’re at it again.

This time, the flashy headline writers grabbed onto the latest report from the National Association of Realtors, which stated that existing home sales climbed for the third straight month, and at a faster pace than economists expected.

And they were out in force again when the Commerce Department said new U.S. home sales saw an 11% bounce in June. On an annualized basis, that equated to 384,000 homes – 9% higher than estimates.

Collectively, new and existing home sales hit the highest level in eight months in June.

Sweet! Hand me some champagne – let’s celebrate. Or maybe we should hang on a sec… there’s a problem with these headlines. Here’s what you need to know about the real estate market, and what we really should be looking for.

The “Real” Story Behind The Real Estate Sales Numbers

While an 11% rise in new home sales within the real estate market certainly makes for good reading, it doesn’t mean much when it’s not put into perspective.

And the reality is that for a start, year-over-year sales are still down 21%. In addition, while it may well be a good time to grab a bargain, the government wants to hammer the point home by offering puffy incentives and tax credits when buying real estate.

But perhaps the most notable reason for the sales rises is the home defaults…

• Foreclosures hit a record over the first half of 2009, swamping the market with homes and pushing down prices.
• And as the National Association of Realtors notes, the percentage of homes sold as foreclosures totaled 31% in June. Although the rate is declining (down from 50% earlier this year), it’s still a hefty amount.

To understand how real people are being affected by the nascent housing recovery, look no further than the troubles Treasury Secretary Tim Geithner has had in trying to sell his house.

Frustrated at not being able to sell his $1.6 million New York mansion after three-and-a-half months on the market, Geithner has yanked down the “For Sale” sign. And that’s after he and his wife lowered the price to below what they paid for it in 2004. Having taken out a $1.25 million mortgage at the time, they’re now apparently renting the home at a loss.

Doesn’t Tim read the papers?

He didn’t seriously expect to sell Fort Geithner in such a short time in a market like this, did he? It’s tough out there, mate. First, you have to persuade buyers that it’s worth shelling out $1 million-plus for a house.

Then you need to convince them that the plans you have for the recovery will help the U.S. economy. But I digress. Haven’t we just seen some positive data for the real estate market?

Putting Perspective On The Price Figures

Last week also saw the release of the latest S&P/Case-Shiller Home Price Index – a closely watched gauge that monitors home prices in 20 major U.S. metropolitan area housing markets.

• Naturally, many outlets led with the news that the index registered a 0.5% rise in home prices in May, compared with April – its first monthly increase since July 2006.
• In addition, May marked the fourth straight month that the annualized rate of decline has slowed, with 17 of the 20 cities notching improved prices.

Good news, for sure. But let’s put it in context. The market hasn’t magically rebounded with a vengeance. In April, the year-over-year decline was 18.1%. May’s year-over-year figure rolled in with a 17.1% drop.

So while prices did rise month-to-month, the truth is that the real estate market isn’t exactly growing, nor are prices appreciating. It’s just stabilizing and beginning to undo some of the brutal damage from the past few years. Prices are still falling over the longer-term, albeit at a slower pace.

As S&P index chairman David Blitzer says: “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.”

And speaking of that, government figures show that the median sale price of a new home in June was $206,200, down 5.8% from May and 12% lower than June 2008.

You might say I sound more bearish than a Rocky Mountain grizzly, but it’s important to inject some perspective into the story, rather than just blindly absorbing the media reports.

What Will It Really Take For The Housing Market To Grow?

As I’ve said before, for the housing market to truly start growing again, it’s going to require a few key things.

• First, we need to see a reduction in the bloated number of available homes on the market. In that respect, it’s good to see the huge foreclosure rate declining, but those homes still need to be sold and prices still need to rise. And when you’re talking about a meaningful upswing, that brings me to another crucial requirement…
• As Tim Geithner just discovered, this is not an easy climate in which to sell a house. Buyers are strapped for cash and able to call more shots in a depressed market. Sellers are frustrated and forced to lower their asking prices to market value (and even that is often hard to gauge with the number of “distressed” sales – i.e. short sales or foreclosures).

Buyers and sellers alike will need to see U.S. job market growth in order to restore some confidence, not to mention wealth. Ironically, the precipitous plunge in the housing market has played a huge part in eroding both.

For example, home prices declines were partially responsible for a $13.9 trillion drop in household net worth during the first quarter, according to the Federal Reserve. And ominously, both the Fed and many economists believe the unemployment rate will top 10% by 2010.

There are other factors, of course. But these are two of the most critical ones that absolutely need to be part of the equation. And while the latest batch of more positive housing data is certainly good news, a real recovery will take time.

Meantime, if you’re looking for a bargain in the New York area, give Tim Geithner a call.

Good investing,

Martin Denholm

Source: Don’t Celebrate Housing’s Recent Uptick Yet

Good day… And a Terrific Tuesday to you! Well… Let the Data flow begin! And let Big Ben Bernanke’s “green shoots” wilt under the bright summer sun! Not that I want to see the U.S. in economic muck, but come on! He was banging the drum for these “green shoots” when they simply looked like weeds to me, and I just think for him to say those things when I believe he knew better was wrong… Very Wrong!

I came in this morning, and turned on the currency screens to see that the dollar has taken a step back for the 4th consecutive day VS the euro. The single unit is up to 1.41 again, as it makes those probes out beyond the 1.35-1.40 trading range we’ve had in place now for some time. Yield demand is what’s driving the dollar downward, and while the euro doesn’t exactly have a “yield differential” to the dollar, the thing to remember, as I always tell you… The euro is the “offset currency” to the dollar. So, just by nature of the crosses to other currencies, the euro benefits whenever the dollar is sold.

So… If Yield Demand is what’s beating the dollar up like a rented mule (no animals were hurt here, just a saying… ) Then the “high yielders” should be doing the beating… And as I look at the currency screens, that’s what I see! The Aussie dollar is trading above 81-cents, kiwi above 65-cents, rand is 7.75, and the Brazilian real which has to fight with the Central Bank for every inch of gain VS the dollar, is holding its own right now… A month ago, I was telling you about the gains VS the dollar since March 1st… Well, an updated look at the 3-month gains tells us that the move against the dollar has continued… Albeit with several steps backward along the way!

Shoot Rudy! Even the beaten and left for dead Mexican peso has rebounded in recent days as the “other” high yielders drag the peso along for the ride.

4 months of gains VS the dollar doesn’t exactly qualify this move as a “trend”, which is normally associated with long sweeping moves. This does look as though it could become a “trend” though, as it has all the qualities of a long sweeping move, just concentrated in a 4-month span… Like, when a “trend” is in place, it’s not a One-Way street, there’s volatility within the trend… And we’ve certainly experienced that! Personally, even if this does turn into a long sweeping downward move for the dollar, I would just say that it’s a return to fundamentals, and not a new trend… Simply a return to the underlying weak dollar trend that began in 2002, and saw a pause in 2005, and then another one from July 2008 to March of 2009…

OK… Remember when I made such a BIG DEAL out of China and Argentina agreeing to swap currencies in trade settlement and remove dollars from the equation? I told you then that China was trying to gain a wider acceptance for their currency, the renminbi. And… That China had locked up Southeast Asia with similar agreements, which led me to believe that since they had traveled to South America, that Brazil could be next in line… And, the rumors began circulating…

Mom… He’s doing it again! Yes… China and Brazil have agreed in principle to remove dollars from trade settlement, and replace them with renminbi and reals respectively! This follows up what I told you about 10 days ago, and that is that China had become Brazil’s number one trading partner, knocking the U.S. down a notch. So… If that’s so, it’s not like we’re talking small sums of money folks… No, this is the BIG KAHUNA for China, and that not so big kahuna for the U.S. / dollar…

So, while China claims to be on the dollar’s side, and “see’s no alternative currency”… They are working to get their own currency in the mix… Looks like it’s all a “plan” to me, folks… Before we know what hit us, renminbi will be everywhere!

But… Still manipulated as to it’s value VS the dollar by Chinese officials. So… Don’t think, for now any way, it could all change though, that you should sell everything you own and go out and buy truck loads of renminbi… I think you would find yourself to be a bit disappointed… That is, unless you have time on your side… Time is on my side, yes it is…

I got a HUGE kick out of my friend, The Mogambo Guru, reading his weekly letter on the Daily Reckoning site (www.dailyreckoning.com) I’m looking forward to catching up with the Mogambo in Vancouver in 3 weeks time. We keep missing those opportunities to meet up, with first my cancer, and then his stroke… But, there we will be together, two of the biggest smart alecs you’ve ever met in your entire life… I need to see if he’s up to going on the road with me to do a two-man show! HA! Any way… The thing I was going to talk about was that the Mogambo, told his readers yesterday, that in his latest visit to John Williams’ web site: Shadow Stats, he was surprised to see that inflation is really running at 6%, which is quite different from the stupid CPI the Gov’t tries to shove in our faces of -1.3%! Here’s the Mogambo…

“As for inflation, his calculation of the Consumer Price Index “reflects the CPI as if it were calculated using the methodologies in place in 1980,” which I note is back when inflation was a measurement of the change in prices of things that you buy, and not, as it is now after the villainous Alan Greenspan and Michael Boskin came up with their ludicrous “hedonic” measurements of inflation with which to disguise it.”

And… He also found that unemployment, which I tell you all the time is very, very, very, and maybe one more very, understated by the BLS, is… At 20%… 1 in 5 are unemployed…

So… Thanks to the Mogambo, and John Williams for giving us data that backs up what I’ve been spouting off about!

This morning, Norway got the data flow going early with Norwegian retail sales surprising to the upside in May, rising 1.9%! The experts had forecast a -.2% decline… This rise in May gives brings the year-on-year figure to a negative -1%, which still sounds bad… But much better than what was forecast… -3.2%!

Norway seems to be just sailing along, out to sea, without any wind in its sails, not joining the other Commodity Currencies like Aussie, kiwi, and South Africa and Brazil… I think that won’t last too much longer… You see, Norway had a governor put in its currency when it’s neighbor, Sweden experienced bad times due to the Latvian banking crisis… So, as more and more miles of road get put between the thoughts of Latvia and Sweden, the better it will be for Norway… That… And… Getting Oil’s price back to the rally mode!

Canada is another currency that is not gaining along with the other Commodity Currencies, even with Oil moving higher again… Here’s the diff… Those other Commodity Currencies all have YIELD! While Norway and Canada do NOT! However, having said that, I just don’t see these two energy driven currencies wallowing around in the mud too much longer. Playing catch-up with Aussie and the rest of the bunch will be difficult though, and the “other” Commodity Currencies have such a big head-start!

OK… Time for the data set-up for today…

The S&P/ CaseShiller Home Price Index for April will print this morning, and is expected to show a decline of -18.6%, which those that wear rose colored glasses will say, “Hey, Chuck, that’s down from previous declines”… To which I will respond… Yes, it is… But, not much… And if you chart out the monthly prints you’ll see that it hit the low of -19.01% in Jan… February’s print was -18.67, and March’s print was -18.7%, you’ll have to agree with me that the move to “down from previous declines” has been quite slow, eh? And… At this pace it would take until 2011 before we got back to 0% YIKES! So… While you’re wearing those rose colored glasses you might, just might, want to dig deeper into the data before you start sounding the “all’s clear horn”!

We’ll also see Consumer Confidence, which, because of the better times in stocks, is expected to inch upward to an index number of 55.3 VS 54.9 in May… While this data is more like what I believe it should be, it’s still higher than I would think… But then, so are stocks!

And… Then there was this… Recall last week, when Big Ben Bernanke gave his impression of Sgt. Schultz, when asked about pressuring Bank of America (BOA) to take over Merrill Lynch, claimed he “knew nothing”! I thought that he had thrown former U.S. Treasury Sec. Paulson under the bus… Well, today, Paulson will appear before the same committee that’s looking into this mess, that BOA Chairman Ken Lewis claims to have happened. I wonder what Paulson’s thinking after hearing Big Ben last week? I guess we’ll find out today!

It’s the last day of June, my younger brother David’s birthday… David was born when I was nearly in high school, while my youngest brother, Mike was born while I was in high school! Anyway… What I was going for with the last day of June, before my mind wandered, was that it will close the books on the 2nd QTR… And soon enough, we’ll begin to see earnings reports for the quarter… Should be interesting…

Currencies today 6/30/09: A$ .8140, kiwi .6520, C$ .8675, euro 1.4125, sterling 1.66, Swiss .9255, rand 7.7435, krone 6.3955, SEK 7.6630, forint 193, zloty 3.1555, koruna 18.3360, yen 95.80, sing 1.4465, HKD 7.7499, INR 47.90, China 6.8305, pesos 13.12, BRL 1.9565, dollar index 79.64, Oil $71.67, 10-year 3.48%, Silver $14, and Gold… $940.75

That’s it for today… Whew! What spanking by the Giants last night! OUCH! It’s bad enough to get shut-out on two hits, but when the other team hangs 10 on you… Like I said, OUCH! Now that’s going to leave a mark! Tomorrow, we turn the page on the calendar to July, which means the All-Star Game is almost here! I’m as excited as a kid at Christmas for this… You’ll have to look for me at the Home-Run Derby, and All-Star Game… I’ve got some primo tickets right at the end of the visitor’s dug-out (3rd base line), 2nd row! Now, you know why I’m so excited! Well, that’s enough of that… Mary and Suzy Q are here, so that must mean that I’m late! So… Let’s make this Tuesday Terrific, eh?

Souce: A Week Dominated By Data

Investors better get used to a new theme on Wall Street. As the economy emerges from its defensive shell and money begins to flow to the areas of least resistance, reading and hearing the term “divergence” will be a common occurrence.

Anybody that has ever sat through a basic economics course knows money always heads to the areas that offer the most beneficial risk/reward structure. If two potential investments have the same risk, the choice with the highest return possibility will always be the winner.

The real estate industry is obviously not immune to the phenomenon.

As mortgage rates continue to climb – they’re up almost a full percentage point in the few months – investors will begin to rethink their plans. It is horrible news for a real estate industry that is praying it has seen the worst of the decline.

When mortgage rates were at or below historic lows, the risk/return ratio was the most attractive it has ever been in most of our lifetimes. With 30-year rates as low as 4.61%, Americans realized they had a great deal on their hands, even if home prices were still dropping.

But now that rates are back above 5.5% and rising, the situation has changed dramatically. Even a 100-basis point surge has had profound effects on the mortgage market. Potential buyers lost an estimated 10% of their buying power. Instead of looking at a $200,000 house, now they can afford a home worth $180,000.

Refinancers have come and gone

The folks with fixed mortgages in the 6%, 7% and even 8% range were the ones truly taking advantage of the historic-low rates. When rates dipped towards Obama’s 4% target (still a pipe dream) homeowners lined up to refinance at the low rates.

But now that rates have gone higher, the gush of activity has dried up. The Mortgage Bankers Association’s refinancing index recently slumped by 11% to a seven-month low. Even with the slowdown, refinancing makes up nearly 60% of all mortgage activity, proving the real estate market is nowhere close to healthy.

While rising interest rates are bad for the folks buying, building and selling homes, it is great news for other folks. Commodities, international investments and even select banking stocks will surge as interest rates fall.

For some I-told-you-so proof, the Treasury just finalized an “awful” bond auction, selling 10-year notes at 3.99%. The market dropped nearly 70 points on the news. Meanwhile, a recent recommendation to TFN Strategic Trader subscribers designed to take advantage of the situation is up 236%.

The next six months will be a fight between the “haves” and the “have nots.” Investors positioned to take advantage of rising rates will do well. But on the opposite end of the divergence spectrum, folks that took the Feds word and said rates would remain low are going to be wondering what in the world just happened.

It is not over yet. The real estate industry is going to take it on the chin once again. If this nation is truly dependent on home values rising, this recession is not going anywhere anytime soon.

Source: It’s Official, Divergence is the New Norm

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.

Source: Housing Bottom Still Out of Sight

But wait! If you are thinking this is terrible, stop and reflect. You could be falling into the same error that people looking at Ford’s old price chart are making.

We have a tendency to think that a past high was properly achieved. If all goes well, a stock… indeed housing stock… will get back to that hallowed spot where it “belongs.”

The government named its housing office the Office of Federal Housing Enterprise Oversight (OFHEO—even its initials aren’t clever). Despite the clunky name, though, the website is pretty cool. You might want to look at trends in your home state. While you are at it, check out California, the poster child for falling home prices.

Yes, California’s average home price fell 15.8% in the second quarter of 2008. If that represents the sky falling, those clouds are still in the stratosphere. If you look back, you will see that in 2005 California home prices rose (from the first quarter to the fourth) 26.2%, 25.6%, 20.2% and 21.1%. That comes to a 131% increase in the price of a California home in one year! The trend continued into 2006 with another 18.3%, 13.8%, 9.03% and 3.94%. That’s a 252% gain in two years.

Clipping a mere 16% off that trend is like trimming the eyelashes on a poodle. Check the website and see how your state is doing: http://www.ofheo.gov/hpi.aspx

Source: Look Deeper Into Housing Numbers And You Will See A Different Picture

Clearly, we were correct. Although gasoline prices have hit the $4 market in many places, this is hardly the peak. Even though gas prices rose for 14 straight days – a streak 6that ended last week – oil prices have continued their surge, as well, meaning prices at the pump still haven’t caught up with oil prices.

Here’s the question many are asking now: Will Memorial Day represent the peak in gas prices (not very likely)? Or will July 4th now become the new target date for those energy prognosticators?

With investors and traders alike returning from the long holiday weekend, oil-and-gas prices will remain high on their radar screens. For now, those “low supply/high demand” naysayers seem to be winning out over the “weak dollar/speculation” conspirators and gasoline prices in excess of $4.00 a gallon are now a fait accompli.

Far in excess, in fact. Money Morning Investment Director Keith Fitz-Gerald, a longtime energy bull who first predicted triple-digit oil prices back in 2002 (a correct projection, as we know), is now predicting that oil prices will reach $225 a barrel within a just few short years.

New earnings releases this week will reveal how both discounters and high-end retailers are being impacted by both the sluggish economy and rising gas prices. Costco Wholesale Corp. (COST), Sears Holdings Corp. (SHLD) and Tiffany & Co. (TIF) all report, though investors increasingly seem to be welcoming such profit news with a collective yawn these days. Consumer confidence and personal income/spending give investors a more accurate view of the mindset of the consumer, who, after all, accounts for as much as 70% of the U.S. economy’s gross domestic product (GDP). Investors also get a reminder of the weak first-quarter activity, with a revised the revised release of GDP (originally reported as +0.6%); since many analysts believe a buildup in inventories pushed the number up above where it should have been, the revised statistic could be much lower – meaning that renewed talks of a U.S. recession are sure to follow.

The Federal Reserve Bank of New York will host a conference at the Colombia Business School with New York Fed President Timothy F. Geithner and Donald L. Kohn, the vice chairman of the Fed Board of Governors, pontificating on money market issues (as well as other timely topic). Finally, with U.S. Sen. Barack Obama very close to wrapping up the Democratic presidential nomination, his policies on taxes, the economy, entitlements, drilling, globalization, and other key issues will dissected much more now than ever before in the past.

Market Matters

Memorial Day 2008 could not get here soon enough for investors (or at least for the declining numbers of consumers who still could afford to take advantage of this long holiday weekend).

After a week of obsessing over gas prices, they can analyze how those (pessimistic) travel prognostications actually panned out. For 16 straight days, AAA reported record prices at the pumps with the recent average of $3.875/gallon getting dangerously close to the dreaded $4 per gallon mark (as we noted, that psychologically important barrier has already been eclipsed, in many places). AAA even predicted that Americans will travel less this Memorial Day than they did last year, the first such decline since 2002. A Deloitte & Touche LLP survey projected that 23% of folks have changed their plans because of the rising prices, with 12% of respondents canceling their vacations, altogether. While some analysts targeted Memorial Day as the date for gas prices to peak, others are now looking at 4th of July, Labor Day, and beyond.

In reality, the jury is still out for the energy sector altogether. In one group, analysts say that crude prices (which actually punched through the $135 a barrel level this week) still have a ways to go. They claim that supply will not keep up with the summer demand and point to the recent inventory levels, which have unexpectedly fallen of late. Demand in such developing nations as China continues to rise, and the devastating earthquake has only made matters worse. Additionally, some believe that the International Energy Agency is preparing a very pessimistic report on global supply/demand issues as it conducts a thorough review of the world’s largest oil fields.

On the other hand, another group of analysts believe the declining dollar and sheer speculative pressures have more to do escalating crude prices than do actual supply concerns. They scoff at any real rationale for prices rising $4 in one day, $9 in one week, and $16 in one month. But while some feel that the elevated prices are not economically justifiable, they cannot predict with any accuracy when this “speculative mania” will end.

According to one, “it’s a fool’s errand to try and figure out when it’s going to be over. [After all], Internet stocks took a year and a half to explode.”

Some oil-industry executives even believe that the politicians are to blame and are pushing for Congress to lift the “tree-hugger” ban on domestic drilling in certain environmental regions – instead of begging “friends” in Saudi Arabia to increase production. Of course, that’s more than a bit self-serving on the part of the oil companies.

Retailers highlighted the corporate news last week. Home Depot Inc. (HD) reported a 66% decline in income, while Target Corp. (TGT) announced weaker sales, as well. On the other hand, BJ’s Wholesale Club Inc. (BJ) reaped the benefits of shoppers traveling the discount route, and surprised investors with much-higher-than-expected profits. Hewlett-Packard Co. (HPQ) recognized strong overseas sales, while U.S. automaker Ford Motor Co. (F) warned that its future looks bleak as drivers shy away from the gas-guzzling sport-utility vehicles and perennially popular Ford F-150 pickup trucks that have comprised a major slice of its business in favor of more-economical cars and hybrids that are a lesser part of its business mix. Ford’s shares skidded 4.1% Friday after the company backed off its oft-repeated objective of returning to profitability in 2009.