Chuck Butler (The Daily Reckoning):
As I checked the currencies throughout the day yesterday, I noticed that as the day went on, the non-dollar currencies were stronger, led by the Big Dog, euro (EUR)… But then late last night, and I mean late last night, I checked them, and those gains had been wiped out.

So, when I arrived here this morning, I had one thing on the top of my list of things to do, and that was to find out what happened… Come on, I said to myself, it had to be more than the “risk on, risk off” stuff that’s been hanging over the markets like the Sword of Damocles! But, when you get right down to the nitty gritty, that’s all it was… For once again, there was some data, or story, or rumor, that spooked the markets into believing the global recovery isn’t going to happen, and the “risk off” came into play.

So what was it that spooked the markets… Well… The only thing I can find was the report yesterday about falling Housing Starts that Chris told you about… Did you know that about 14% of US homeowners were either delinquent on their mortgage or in some stage of foreclosure? That is the highest rate since the group started collecting the data in 1972!

But there was something else that was announced as the day went on, that I think probably spooked the markets more than anything else… And that is a key House panel approved two amendments to a sweeping financial-overhaul bill that would give federal watchdogs new authority to audit the Federal Reserve, and would establish a fund of as much as $200 billion to help dissolve large, troubled institutions. Rep. Ron Paul (R., Texas) offered the amendment seeking to subject the Fed to audits.

The House Financial Services Committee voted 41-28 to approve the amendments, wrapping up weeks of debate but postponing a final vote on the bill until after Thanksgiving.

OK… More deficit spending for sure, and I’m positive that this was “hung on this bill” to audit the Fed as the only way it would get through the gauntlet.
Click here to finish Mr. Butler’s article at The Daily Reckoning.

“[We] must control the risk of real estate loans,” said a mystery banker. “In the first half of the year, our country’s banking loans expanded rapidly… but the loans growth has led to accumulated risks also increasing.” Our man of the moment said his banking sector had become “not prudent and impulsive” in issuing loans for new housing projects, many of which have falsified their capital levels to meet current standards. He urged lenders to “strengthen risk management” right way, before they loan themselves into poor credit positions.

So who is he? Robert Shiller, who just recently suggested another housing bubble could be in the mix? Or maybe some vintage Ben Bernanke, circa 2007? Nope… Liu Mingkang, the head of China’s version of the FDIC, said the above over the weekend at a conference in Beijing. China bulls take heed.

And at the risk of belaboring the obvious — he’s Chinese. We know what kind of exigency would get an American regulator to speak out against a bubble in the making. We imagine it’s far more politically dangerous for a member of the Chinese government to publicly go against the grain.
Back in America, the housing market rejoices: Housing starts climbed an unexpected 3.6% in June. According to the latest from the Commerce Department, builders broke ground on new homes at an annual rate of 582,000 in June, well above the Street’s expectations and the “best” month for housing starts since November. Curiously, single-family homes led the way, with a 14% building boom from the month before. That’s the biggest one-month gain since 2004.

Of course, this is a “signal that the housing market was improving” in June, as The New York Times suggests. But we dug up a longer-term chart of housing starts this morning that didn’t inspire as much confidence. Starts may have come up from the deep blue abyss, but we’re yet to emerge from uncharted waters

And who says more housing starts are a good thing? We may be market simpletons, but we’re under the impression home prices are falling because demand is exceptionally weak and supply is exceptionally high. So explain to us again how adding more inventory to the 3.8 million existing homes on the market helps stop the bleeding.
Over 1.53 million homeowners were in the foreclosure process in the first half of 2009. That’s an all-time high, said RealtyTrac late last week — and up 9% from the last half of 2008 and up 15% from the same time last year.

Around 1.9 million individual properties are in some form of foreclosure, or one in every 84 U.S. properties. And we’re adding new homes at an annual rate of 582,000? Really, we must be missing something this morning.
The stock market is still giddy over recent earnings surprises. The S&P 500 finished last week up 7% after companies like Intel, Goldman Sachs, JP Morgan, IBM and Citigroup all beat earnings.

Today the market looks poised to finish in the black again. CIT, the commercial lender we discussed Friday looks like it might live to fight another day. The lender managed a last-minute debt-equity deal with bondholders that will give them another $3 billion to play with. (Look for this crisis to repeat in a couple weeks.) Still, the market has dodged a bullet, and is up about 0.5% as we write.
“In last week’s market, you could almost feel portfolio managers reacting to the prospect of missing a rally,”writes Dan Amoss, a former money manager himself. “Career risk drives many irrational investing decisions. And missing out on a rally is a cardinal sin for portfolio managers. This goes a long way toward explaining this week’s rally.

“The consensus seems to be looking for a return to something resembling the environment before the credit crisis. They’ll be waiting for a long time. Sure, there are still lots of wealthy people. But the essence of the financial crisis has to do with most consumers and businesses stretching their budgets and capital spending plans in unsustainable fashion. The next few years will reverse this trend, and we’ll continue to see economic development in emerging markets maintain pressure on commodity prices.

“Mr. Market is now testing the conviction of the bears. But through the rest of 2009, the momentum favors the bears. The stock market is far below its peak, but this is justified by long-term fundamentals. In fact, the recent rally has priced in very rosy earnings for many sectors and stocks, including our short ideas.

“Remain patient with your short positions. This rally will end soon enough, probably by the time the fourth branch of government — the mega banks — are done reporting their paper trading profits and we learn more about the bleak outlook for earnings in the real economy.”
Four more banks failed this weekend. Two in California, one in Georgia and another in South Dakota got the FDIC kibosh late Friday. That makes 57 failed financials for 2009, at an FDIC cost of over $13.4 billion.
After a long flight from Baltimore to Vancouver, we were able to move through Canadian immigration last night with relative ease, but many Czechs and Mexicans were suddenly not welcome. Just another sign of the times… the Canadian government recently legislated rules that prohibit any Mexican or Czechoslovakian from entering Canada without a visa.

Canadians say political and economic strife in both nations has caused a wave of immigrants seeking refugee status, many of which are bogus. So the Canadian government drafted the law last Monday and enacted it on Tuesday… Canadian diplomats in Mexico City have been ripping their hair out ever since:

The scrum for last-minute visas at the
Canadian embassy in Mexico City

Heh, nothing stokes a free market like sudden and severe travel restrictions.
We’re in Canada this week for our Investment Symposium (more below in the P.S.) and got a visceral reminder of the loonie’s recent strength. 98 cents to the U.S. dollar at the airport currency exchange! No thanks… we’ll wait till we stumble upon a bank.

The Canadian dollar is once again rapidly approaching parity. The ol’ loonie is officially at 90 cents today, up a full cent since Friday and about a nickel in July. Most of the loonie’s strength can be attributed to dollar weakness. Since breaking through that historic barrier at 80 last week, the dollar index has been in steady decline. It’s at 78.9 today, nearly a two-month low.
Oil’s recent stabilization has been helping out the Canadian dollar, too. Light sweet crude traded as high as $64 a barrel today, a $4 bump from last week’s low.
Gold is performing nicely as the U.S. dollar falls. The spot price is up $20 from Friday’s low, to $955 an ounce.
“The first thing to understand,” writes Mr. Byron King, “as an old geology professor at Harvard once told me, is that ‘gold is where you find it.’ And the second thing to understand is that no matter where you look, gold is hard to find — and getting harder.

“In the past decade, gold-related exploration efforts and expenditures have increased dramatically. I’ve seen numbers adding up to tens of billions of dollars poured by mining companies into gold exploration.

“But despite the best efforts of the global mining industry, world gold production has DECREASED since early in this decade. Take a look at the chart below, depicting world gold production 1850-2008.

“I love this chart. I could spend all day discussing it. For example, look at the very steep rise in gold output during the 1930s. That was during the depths of the worldwide Great Depression. In both the U.S./Canada (blue area), and the rest of the world (gray area), people were digging more and more gold. The Soviets (purple area) increased their gold output too, courtesy of Joseph Stalin and his Gulag. Desperate times call for desperate measures, I suppose. Will that sort of history repeat this time around?”

If it does, will you be ready? Check out Byron’s favorite gold plays here.
“To back up Mr. Shiller,” writes a reader in response toRobert Shiller’s call that the new wave of “cheap” homes might cause another housing bubble, “I was Skyping a friend in Phoenix last week, and they were all excited that they just bought a foreclosed home for a ‘steal,’ with an 80/20 FNMA-backed mortgage. Not five minutes later, I read the 5 article regarding that the Phoenix market is still dropping. I still don’t think that many people (my friend included) get it that prices can still drop, and that just a 10% drop wipes out almost all their equity, since they will have to pay some sort of 6% commission. I myself have seen a greater than 20% drop on my very expensive house in Atlanta, costing me hundreds of thousands of dollars.

”My wife is an agent, and she has counted three (yes, three) home sales in our area in six months. Two of them were foreclosures. The unsold homes continue to accumulate, and the market is moving toward ‘the only sale is a short sale.’ I live in Augusta, and my prayers go to my neighbor who was just transferred up to an area outside of Detroit. I can see the wealth destruction personally, and can only imagine the nationwide ramifications.”

Source:   China’s Bubble Warning, New Home Paradox, Gold Production Sea Change, Vancouver Updates and More!

Good day… We had just an amazing weekend of weather here in St. Louis, and this morning is shaping up to be another beautiful day. Friday turned out to be a beautiful day for those who have taken our advice and diversified their holdings out of the dollar. Risk aversion was placed on the back burner again, and investors moved money back out of the dollar into higher yielding currencies. The dollar and yen got sold but all other currencies rallied, and investors also turned back toward gold pushing the metal above $950 for the first time in over a month.

So what caused all of this confidence? First, the housing data released Friday morning in the US showed a slight pick up in both building permits and housing starts. While the housing markets have a long way to go, the data have given investors an indication that construction may have found a bottom. Not to throw cold water on investors confidence in the building numbers, but while the residential market may be bottoming out, the commercial market continues to tumble. I spoke to a good friend over the weekend who is a commercial real estate developer down in Memphis. He told me that his development pipeline has completely dried up, and even the brokerage side of his business has slowed. The only part of his business which has picked up is the marketing of foreclosed properties. He has shifted his concentration to helping banks and lenders ‘work out’ of commercial projects which they have taken back onto their books. The economy has kept most companies from opening new stores, and many continue to shut down under performing ones. My good friend tells me most of the people he talks to don’t believe the commercial real estate market will turn around until the end of next year. Not good news for the banks who are still reeling from the residential real estate bust.

But I digress. Investors weren’t focused on the commercial real estate market on Friday, they were just happy to see a possible bottom in the residential sector. Their confidence was boosted further after rumors spread that CIT would likely be saved from bankruptcy. Sunday these rumors were confirmed as it was reported that the CIT Group board had reached an agreement with bondholders that should keep the struggling business lender out of bankruptcy court. According to the Wall Street Journal, the deal won’t permanently fix the company, but it buys time for the lender to restructure itself.

We have blasted the administration in the past for the way they are handling the economy, so to be fair I will have to give them kudos for the way they handled the CIT meltdown. Instead of throwing good money after bad (the taxpayers have already given CIT $2.23 billion of TARP funds), Geitner and Bernanke passed on an AIG type bailout, and even stayed away from arranging a Merrill Lynch style ’shotgun wedding’. Instead, they did exactly what they should have done and let the markets rescue CIT. It is still yet to be seen if the restructuring will ultimately work, but it is good to see the private capital markets are being left to their own accord, without intervention by the Fed. (Yes, I know the Fed is still involved, but not AS involved as they could have been!!)

The Euro climbed on Friday on some good economic reports. It was reported early Friday that Europe posted a trade surplus for a second month in a row. May’s trade surplus rose to 800 million euros as exports fell less than imports. The data add to evidence that commerce with the rest of the world will likely pull the Euro region out of the recession. Another report showed German producer prices fell at the fastest rate in more than 40 years last month as energy costs declined and demand weakened. The June decline of 4.6% from a year earlier was the biggest drop since December 1968. Lower producer prices are a good for the European economy where industrial production rose for the first time in nine months in May and manufacturing orders in Germany increased the most in two years.

The rally by the Swiss franc was dampened by intervention as the Swiss National Bank sold the currency to halt its rise. The sales, which occurred over the past few weeks, were the SNB’s first solo currency market interventions since 1992. While they have been able to beat back the currency markets for now, the SNB doesn’t have deep enough pockets to fight a long protracted war against the currency market. As Chuck has pointed out several times in the past, intervention can move the market in the short term, but it takes a very large amount of reserves and an iron willed effort to fight the longer term trend. The Swiss franc will likely keep pace with the Euro, as both gain vs. a falling US$.

As investors regained their confidence, the higher yielding currencies of Australia and New Zealand advanced. Both currencies moved up over 1.5% vs. the US$ and hit the highest levels in two weeks vs. the Japanese yen. The Canadian dollar also rallied, completing its first five-day increase since May. A run up in crude oil helped strengthen the loonie by over 4% vs. the greenback last week.

Chuck is waking up in Vancouver this morning, his favorite city located north of St. Louis. While he spent most of the day yesterday traveling, he was able to send me the following from David Rosenberg, who is usually pretty good with his thoughts….

“It is the second anniversary of the credit crunch and after all of the fiscal and monetary policy initiatives, the best we get are “green shoots” and now that story is getting stale. Go back two years and you will see that the Fed Funds rate was 5.25%, Today it is zero. The fiscal deficit was 2% of GDP two years ago. Today it is 13%. Mortgage rates were 6.5%. Today they are 4.7%. Homeowner affordability with all the government measures is 70% stronger today than it was then too. The Fed’s balance sheet then was $850 Billion. Today it is bloated at $2 Trillion. The government has tried just about everything. Or has it? What if we were to tell you that the one policy tool that is unchanged since the summer of 2007 is… The U.S. dollar? It is exactly the save level now, on any trade-weighted measure, as it was back then. The greenback is struggling at the 50-day moving average, and this could well be the next policy shoe to drop… ”

David makes an excellent point. In spite of all of the negative numbers with regard to the US economy, the value of the dollar is basically unchanged over the past two years. This is bound to change, as US policy makers will have to let the dollar fall in order in the face of rising inflation and skittish foreign investors. As we have repeatedly pointed out, the administration has three choices with regard to the tremendous debt load which has been built up in recent years. 1) They can increase revenues (yes, they are increasing taxes, but these increased taxes are already spent on the new health care program). 2) They can decrease expenditures (big government is back, expenditures aren’t going to fall anytime soon!). 3) They can let the dollar fall in order to pay back the debt with cheaper dollars (the most likely scenario!!).

As always, we encourage you to protect yourself from the eventual drop in the value of the dollar by diversifying your investments into other currencies and gold or silver.

We start what looks to be a pretty light week of data here in the US with the Leading Indicators index which will be released later this morning. This is the Conference Board’s gauge of the economic outlook for the next three to six months and is expected to show an slight increase. If so, it would be the first time the index has shown three consecutive months of increases since 2004. But even those that are expecting the index to show another rise are preaching caution. Most economists believe that even if the index indicates the recession is ending, recovery will be slow. High unemployment and cautious consumers will keep the US economy under pressure.

After today, the markets will have to turn their attention to the weekly jobless claims to be released on Thursday as tomorrow and Wednesday will only bring the ABC consumer confidence number and MBA Mortgage application data neither of which are closely watched. We will also get more data on the housing market on Thursday with the release of Existing home sales data. Friday will close the week out with the U of Mich confidence number. As I said, should be a rather slow week on the data front. Now on to the currency wrap-up:

Currencies today 7/20/09: A$ .8113, kiwi .6535, C$ .9057, euro 1.4216, sterling 1.6522, Swiss .9366, rand 7.9646, krone 6.3411, SEK 7.7407, forint 192.16, zloty 3.0236, koruna 18.1879, yen 94.61, sing 1.4399, HKD 7.750, INR 48.255, China 6.8320, pesos 13.26, BRL 1.9261, dollar index 78.92, Oil $64.74, 10-year 3.69%, Silver $13.7175, and Gold… $952.98

That’s it for today… As I said in the opening paragraph, the weekend weather was just phenomenal here in St. Louis. I competed in another triathlon yesterday, and did ok; not a personal best, but ran through some pretty bad leg cramps. Congratulations to my training partner, Matt B. who ended up the overall winner. And a big congrats goes out to Tom Watson, who just missed an 8 foot birdie put to become the oldest person to win a major. It is an inspiration when a guy almost double the age of his competitors can go out and beat all but one! Hope everyone has a great start to your week and a Marvelous Monday!!

Source: Risk Aversion Disappears Again

Monday
Earnings Announcements: Walgreens (WAG)

Tuesday
Economic Reports: Existing Home Sales

Earnings Announcements: Oracle (ORCL)

Wednesday
Economic Reports: Durable Orders, New Home Sales, FOMC Rate Decision

Durable Orders are expected to fall dramatically since last month. I am not sure if this is due to no more income tax refund checks to spend on big ticket items or not, but with Personal Spending for May expected to increase, a drop in Durable Orders is surprising.

New Home Sales are expected to climb this month, and after last weeks surprise in Building Permits and Housing Starts, I have a hard time trying to figure out the New Home Sales report. If I had to pick, I would expect the report to meet or beat expectations. Just a gut feeling.

The FOMC Rate Decision is announced at 2:15, and I don’t expect a change to be made to the current 0.0-0.25 percent rate

Earnings Announcements: Monsanto (MON), Rite-Aid (RAD),

Thursday
Economic Calendar: Q1 GDP Final

Expectations are for no revision to the first quarter GDP figure. At this point, I doubt there would be a surprise showing improvement. If anything, the report may show a tenth of a point or so larger contraction for the first quarter GDP.

Earnings Announcements: Con-Agra (CAG), Palm (PALM)

Friday
Economic Reports: Personal Income and Spending, Michigan Sentiment

As mentioned earlier, Personal Income and Personal Spending for May are both expected to show an increase. I guess the surprise is that the expected increase in spending is larger than the expected increase in income. With money tight for everyone, an increase in spending is quite surprising.

The Michigan Sentiment reading is expected to show no change since the last report, which is about what I expected. With rising gas prices, uncertainty about the economy and slowing  job losses, the consumer has many offsetting considerations.

Source: Will Housing Continue Its Uptick? GDP Could Scare The Market on Thursday

Good day… And a Wonderful Wednesday to you! A total reversal of Friday’s risk assets sell off was the soup du jour for Tuesday… This is beginning to remind me of a Wayne and Garth street hockey game… Here comes a car… Game off… Game on…

So, as I just said, Tuesday saw the currencies trade right back to the levels they enjoyed VS the dollar last Thursday, before risk assets began to sell off on Friday. These are the types of trading patterns you normally see when the assets involved are getting ready for a break out… A jail break… Tonight there’s going to be a jail break!

OK, I’m not saying that the jail break takes place tonight, I just broke out in a song from the 70’s… That’s all… Seriously though, I hope we’re seeing a return to fundamentals.

Speaking of fundamentals… I guess yesterday just shows me that I shouldn’t (and neither should you!) pay attention to the cable news, eh? OK, remember yesterday, I said this: “I saw a news story on the TV yesterday that said “Home Builders were seeing a pick-up of new homes being built”… Well… That should be our indication that Housing Starts for April will be stronger! See how easy this stuff is? HAHAHAHAHA!”

And what happened? The government reported that construction on new housing projects slowed to a record-low pace in April. Don’t expect Housing to lead us out of this recession / depression folks!

Stocks rebounded too along with currencies yesterday… Long time readers will recall that I’ve pointed my finger at the PPT a few times in the past… Well, I’m pointing it again! Don’t know what I’m talking about here? Well, you see the PPT (Plunge Protection Team) was created by President Reagan after the stock market crash of 1987. It consists of major players (financial institutions) and their job, when called on, is to provide support for a falling stock market. And, what’s the reason for me thinking this has happened now? Well, Friday you would have thought the stock rally was over, but an “Indian election result pulls U.S. stocks out of the fire?” I’m not buying it! This rally has somebody’s finger prints all over it…

A news story at the top of the screen this morning says, “U.S. said to consider stripping SEC of power, shifting duties to the Fed.” Hmmm… Doesn’t that bother you? We had this independent regulator (yes they dropped the ball with Madoff, among other gaffes), and the Gov’t is thinking about shifting it to the Fed? Yes, I know the Fed is not a Government division… But… I don’t like a regulator being directed by the institutions that own the Fed… It’s like giving the fox the keys to the hen house!

OK… A week or so ago I talked to you about the 200-day moving average… Explained it all, and told you how the dollar index had fallen through its 200-day moving average, which would indicate further declines for the dollar index. On May 8th, the euro moved higher through its 200-day moving average and then went on to gain almost 2%… There’s another currency that’s moving stealth-like up to its 200-day moving average… The pound sterling! Here’s the skinny as I see it… Pound sterling’s 200-day moving average is 1.5554, the current level of pound sterling is 1.5480… Within spittin’ distance!

And while we’re following price charts… I see where a new “player” has jumped on the Chuck, Mogambo, Bill Bonner, and others Gold Bandwagon! Gold has gained 6.8% since the last low on April 17th, and an analyst at BNP Paribas believes this is an indication that Gold will trade to $1,096 in the coming months, as long as it does NOT fall below key support at $880…

Charts people are interesting, in that they can come up with things that you can’t see with the naked eye!

All I know is that the fundamentals point to a higher Gold price, and fundamentals are what cause trends to happen, and together they are the straw that stirs the drink… Everything else is just an explanation of what happened or what they “believe” will happen. But none of it takes place without the fundamentals creating a trend…

And speaking of Gold and fundamentals… Recall, that I’ve coined Gold the “uncertainty hedge”… And this morning we have more “uncertainty” in the world… According to the Washington Post, Iran has fired a test missile overnight that has a range of 1,200 miles, enough to reach Israel or Southern Europe…

The data cupboard is empty today, so we’ll have to depend on a testimony by Treasury Sec. Geithner to the Senate Banking Committee on TARP… Speaking of TARP, I read a story last night, in between innings of a 3-0 shut-out victory by my Cardinals over the Cubs, that detailed how some Major Banks are discussing the repayment of TARP with the Treasury Dept. I see the Treasury Dept balking at this… Why? Because, the Gov’t wants control of these institutions, folks… And they can’t have control over them if their tentacles aren’t all intertwined in the banks…

I know that this is a touchy subject… But here’s another example of the Gov’t taking over control… The Senate overwhelmingly passed a bill that would sharply curtail credit card issuers’ ability to raise interest rates and charge fees… Yes, these institutions took advantage of people for years… But! They also provided credit to people that “signed the papers agreeing to the terms” I’m NOT talking about whether its right or wrong to raise interest rates on credit cards to “stupid” levels… I AM talking about the Gov’t dictating to the bank that issued the credit, and is on the hook for the credit, just how and how much interest rates will be raised…

OK… Let’s talk about something else, that stuff gets my blood pressure rising! How about…. Oh, yeah, the Aussie dollar (A$) saw a bit of selling overnight after Australia printed a less than stellar consumer confidence report. I guess all the money the Gov’t of Australia had sent out to consumers is gone, spent, put in coffee cans and buried in the back yard, and now the consumers are sad… You give money to people for no reason, and it’s like a drug, they want more and more… I like the A$ for the prospects related to China’s economic recovery… But beyond that, Australia seems to be struggling, and it will take a Chinese recover to overcome this struggle…

And, in India… The rupee has not been able to add to its gains that followed the election results this weekend… But, I think it’s more a case of stopping to catch its breath, and not a road block.

Last week, we heard about how China had passed the U.S. as the number one trade partner of Brazil… Now, I’m hearing about how Brazil and China are in discussions to form a currency swap line, just like the one China signed with Argentina two weeks ago. These currency swap lines are HUGE folks. Because, it allows the two parties doing trade with one another to eliminate the use of dollars, and only use their own respective currencies. That means, China reduces its exposure to the dollars! And if China has less dollars to spend on U.S. Treasuries, that’s not a good thing! But, almost important as that, is the thought that China is spreading the use of their currency… This thought plays well with the idea that China proposed last month… That the U.S. dollar be replaced as the world’s reserve currency.

China has now signed currency swap agreements with: Indonesia, Malaysia, Hong Kong, South Korea, Belarus, and Argentina, with Brazil waiting in the wings…

And then there was the price of Oil… I filled up the Pfennig-mobile this morning, and noticed gas prices had gone up… Well… When I came in and checked the screens, I saw the price of Oil had reached $60 again! Oil prices have been rising very slowly in recent weeks, and long side of those rising Oil prices, we have rising Canadian loonie prices! I’ve said this more than once over the years… The Canadian dollar / loonie is so energy driven, and recent moves are a prime example!

Currencies today 5/20/09: A$ .7720, kiwi .6035, C$ .8670, euro 1.3665, sterling 1.5480, Swiss .9040, rand 8.4350, krone 6.45, SEK 7.6775, forint 203.40, zloty 3.20, koruna 19.52, yen 95.70, sing 1.4610, HKD 7.7525, INR 47.48, China 6.8250, pesos 12.95, BRL 2.04, dollar index 81.91, Oil $60.69, Silver $14.34, and Gold… $932.40

Source: Game On!

Earnings Announcements: BKS, FL, GME

Monday

Earnings Announcement: LOW

Tuesday

Economic Reports: Building Permits, Housing Starts

Expectations are for both of these reports to show a modest improvement versus the previous month. With the deteriorating housing market, I don’t think these reports will meet expectations. Until the existing inventory is whittled down, these reports should show a drop in permits and starts. Of course, I have been wrong before, but I can’t imagine any builder wanting to add more inventory to the drastic oversupply right now.

Earnings Announcements: HD, HPQ

Wednesday

Economic Reports: FOMC Minutes

The market will scour these minutes for any indication of the Fed’s future course on interest rates. With inflation a growing concern, this becomes an even more important ‘heads up’ for possible moves.

Earnings Announcements: TGT, SKS, LTD

Thursday

Economic Calendar: Philadelphia Fed

This report will give some insight into the manufacturing sector in the tri-state area. Is it possible the report will show some good news? Perhaps. The report is expected to show a reading of -18, which is a marked improvement from last month’s reading of -24.4. The report is moving in the right direction, which means less contraction in the manufacturing sector.
Source: Housing Back In The News, More Retailers Report Earnings

• The index that measures pending sales of previously owned homes rose 3.2% in March on the renewed confidence of first-time buyers. Meanwhile, the U.S. Department of Commerce reported that U.S. construction inched 0.3% in March, the first increase in six months, Reuters reported.

• Famed investor and chairman of Templeton Asset Management Ltd. Mark Mobius said emerging-market stocks may “break out” into a bull market at the end of the year. “We are at the base building period for the next bull market,” Mobius, who helps oversee $20 billion in emerging market assets at San Mateo, California-based Templeton, said yesterday (Monday) in an interview with Bloomberg. “What I see happening is perhaps this continuing till the end of the year, and then a break out.”

• Cost cutting measures helped Sprint Nextel Corp. (NYSE: S) post an unexpected quarterly profit excluding items, but the company also lost its highest amount of customers. “There are no clear signs that the business has made its turn,” Piper Jaffray analyst Christopher Larsen told Reuters.

• The Bovespa, Brazil’s benchmark index, hit a seven-month high yesterday (Monday), pushed by analysts’ expectations that Brazil’s economy will contract less than forecast. Analysts also expect commodities to continue jumping on global growth prospects, causing the country’s top commodities producers to see stock gains, Bloomberg reported.

• Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) Chairman Warren Buffett blasted bankers, insurers and regulators and said their shortcomings caused the worst recession in half a century.  As he hosted a record 35,000 people at the company’s annual meeting in Omaha, Nebraska on Saturday, Buffett said Wall Street sold subprime mortgage “sewage,” blamed the media and regulators for missing the danger, and lambasted bankers for being blind to the possibility that housing prices could fall, Bloomberg reported.

• Liberty Media Corp (NASDAQ: LCAPA), controlled by cable pioneer John Malone, said on Monday it plans to split off the DirecTV Group Inc (NASDAQ: DTV) satellite TV operator into a separate company combined with other media assets.  Liberty plans to combine the top U.S. satellite TV provider with assets that include Game Show Network, FUN Technologies and three regional sports networks, Reuters reported. Liberty owns a 54% economic stake in DirecTV.

• U.S. airlines face a potential liquidity crisis if revenue keeps falling while credit markets remain tight, Reuters reported.  If revenue does not increase this year, carriers may breach the minimum liquidity covenants enforced by their creditors, who then may accelerate the loan and force a default. “If revenue doesn’t stabilize and capital markets remain constrained, then I think it’s certainly possible that we’ll see increased risk of a covenant breach for a couple of carriers moving into 2010,” said Fitch Ratings analyst Bill Warlick.

• Health Minister Jose Cordova said most of Mexico’s businesses will reopen in two days as the pace of new swine flu infections slows, putting an end to a five-day shutdown of most businesses enacted to stop the spread of the illness, Bloomberg reported.  Mexicans will return to work on May 6 except in areas of the country where new infections continue to rise. Authorities haven’t yet decided whether schools will reopen May 6, he said.

Source: Investment News Briefs Tuesday May 5, 2009

Editors Note: With their investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world.

But the housing numbers really caught me off guard. Existing home sales jumped a tremendous 5.1% in February, clearly above all expectations. But Chuck pointed out that the almost 1/2 of the sales were either foreclosures or short sales, hardly what you would call a “rebound” in home sales! And these additional existing home sales came at deep discounts. The median price for an existing home fell 15.5% in February 2009 to $165,400 as compared to $195,800 in February of 2008.

Investors are desperate for any sign the housing crisis may be coming to an end, so the housing report was greeted with enthusiasm in the markets. This is the second positive report for housing in the past two weeks, as Mike reported housing starts for February came in much better than expected last week. I don’t mean to rain on everybody’s parade, but this is looking a lot like a sucker’s rally to me. Traders had become overly pessimistic, and traders who don’t want to miss out on the next big rally jump back into the market on the smallest kernel of good news. Unfortunately, I don’t think the good news will continue.

I don’t expect today’s housing data to surprise the markets, as we will see the House price Index which is expected to have fallen by almost 1% MoM. We will also get the ABC Consumer Confidence number which will likely show a another drop. Tomorrow will bring more negative data with the release of Durable goods orders here in the US which is expected to show a drop of 2.5% in February after a 5.2% fall in January. More housing numbers will be released on Wednesday which could confirm yesterdays surprise uptick in the housing market. Thursday will bring us the big kahuna for the week, with the release of 4th quarter GDP along with the weekly jobless claims.

I got a call mid morning from another WSJ reporter by the name of David Gaffen who wanted to know what the new Tarp plan meant for the dollar. In particular, he wanted to know why the dollar was rallying at the same time we were seeing a major rally in stocks and a sell off in bonds. I explained to him that today’s movements just didn’t fit the ‘normal’ trading pattern which we had established for the dollar. The equity markets looked like investors were confident that the Geithner plan would finally thaw the credit markets. But if investors confidence was returning, why was the dollar strong? Well the explanation was pretty simple: investors were taking profits from last week’s dollar weakness, and moving these profits back into the stock market. I explained that this move wouldn’t have legs, and the dollar will likely see more selling over the next few days. You can read the entire article by David Gaffen at http://blogs.wsj.com/marketbeat/2009/03/23/the-new-tarp-good-or-bad-for-the-dollar/.

Yesterday afternoon I spoke to a gentleman who is a ‘workout’ expert for commercial real estate. Banks seek out his expertise in turning around failed or near failing commercial properties. Needless to say, business is booming, and in his opinion it will only get better. He says banks have been knocking down his door to try and help them ‘work out’ of some major commercial projects. He predicts that during the next several months we will begin to hear about some major commercial projects going belly up. I know commercial real estate is already starting down in the St. Louis area, but he claims this is only the beginning. Many of these projects have been just hanging on, hoping consumers will return with Obama’s second stimulus. But the newest stimulus doesn’t put money in consumers hands, so these commercial projects will have to fold.

While the housing market is showing some indications that a bottom could be near (not in my opinion, but some data does look positive), the commercial real estate market is just beginning its dive. Banks who are finally ridding themselves of toxic home mortgages will now have to deal with even more toxic commercial loans.

So what did all of this new found excitement on Wall Street do to the currency markets? As I mentioned earlier, the dollar began the day weaker; probably due to profit taking. As the day wore on, investors started to return to the higher yielding currencies, with Australia topping the return charts again. This was the 10th day in a row for gains in the AUD$ vs. the US$, its longest winning streak since October 2007. The relatively high yields available in Australia combined with improved commodity markets are the major reasons for the continued strength of the Aussie dollar.

Both the New Zealand dollar and Swedish Krona were also stronger, rising over 2% in the past 24 hours. The Canadian dollar extended its two week advance vs. the US$ jumping up an additional 1.5%. Even the Brazilian real, which had been slipping lately enjoyed a day in the sun. Much of this recent strength is related to the beginning of a commodity rebound. Precious metals and oil have both rebounded recently with the prospect that global demand will begin to pick up later this year. Continued investment into infrastructure improvements should help revive demand, as the US and China have announced plans to spend $1.4 trillion on roads, bridges, schools, and hospitals. Crude oil has rose to the highest level in almost four months, another good sign for commodity based currencies.

But commodity prices are the only thing stoking this latest commodity currency rally. With the Fed turning toward additional stimulus in the form of quantitative easing, currency traders are looking toward countries who are maintaining current interest rate levels. With deflation seemingly taking a back seat, and inflation coming back into the picture, countries which have resisted dropping rates to near zero have much better prospects. These include some of our favorites including the Australian dollar, Swedish Krona, and Norwegian krone.

An associate of mine, Keith Rigdon, sent me an article which appeared in the online version of Time magazine yesterday. The article’s title says it all: “Why the Norwegian Krone is the World’s Safest Currency”. The article, written by Adam Smith, draws heavily on research done by HSBC. The main reasons given by HSBC are well known to Pfennig readers. “Norway’s budget and current-account surpluses are the biggest among nations with the 10 most traded currencies. Factor in the country’s $350 billion sovereign wealth fund pumped full of the country’s oil revenues, and the cost of insuring against government default in Norway – a key measure of a currency’s safety – is the lowest of those countries” writes Smith.

According to the article, the series of interest rate cuts over the past several months have started to work. This “makes it unlikely Norway’s central bank will need to revert to quantitative easing, the modern day equivalent of printing money that’s currently in fashion from the US to the UK.” According to HSBC, “the Norwegian krone is probably the best currency in the world.”

You can read the full article at the following URL: Http://www.time.com/time/business/article/0,8599,1887090,00.html

China’s central bank Governor Zhou Xiaochuan was in the news again yesterday. He suggested the IMF should look to create a ’super sovereign reserve currency’ that is not connected to any individual nation. Sounds like China is continuing to look for alternatives for their $1.95 trillion of reserves. They will present their proposals to reform the IMF at next month’s Gorup of 20 meeting. While a super sovereign reserve currency is probably a ways away, it is obvious that China is wanting to find alternatives to their huge investments in the US$. Not a good sign for the green/peachback.

Going a little long this morning, so I’ll get to the currency wrap up now:

Currencies today 3/23/2009: A$ .6994, kiwi .5654, C$ .8160, euro 1.3535, sterling 1.4666, Swiss .8878, rand 9.4611, krone 6.3442, SEK 8.0223, forint 222.38, zloty 3.3544, koruna 19.8690, yen 98.07, sing 1.5097, HKD 7.75, INR 50.66, China 6.8295, pesos 14.247, BRL 2.2449, dollar index 83.84, Oil $53.40, Silver $13.51, and Gold… 930.43

Source: The Treasury Secretary Rides to the Rescue

So… If this is a depression, and I believe it is, and no amount of Gov’t intervention will help it, only make the “bottom line” worse… How long will this last? Oh my! Now, that’s a question for a “real economist” not just one that plays the part on TV or through a free newsletter… But since you asked… It will last several years… Or until the un-thinkable happens… And I think you know what I’m talking about here… But since I don’t want people thinking I’m a _ _ _ monger, I won’t even go down that path… Just know that if this is a depression it will last for some time, and all the Gov’t intervention will be akin to re-arranging the deck chairs on the Titanic!

Well… The currencies remained in a very tight range yesterday, with the euro and other currencies trading stronger in the overnight markets. The story / rumor fueling the euro’s bounce off of near 3-month lows yesterday, is speculation that Germany plans to help ease the financial turmoil in the Eurozone, and eastward… I told you yesterday that I didn’t want to have to say it, because this is against my thoughts on how these things should work, but that the Bundesbank needed to get involved. Well, the rumors are they will… Remember, that the Bundesbank is Germany’s Central Bank, and the most powerful Central Bank in Europe. There’s a press conference scheduled for this afternoon in Germany (will be this morning for us!) and it is expected that Germany’s chancellor Angela Merkel will announce the plans to ease the financial turmoil then.

This rumor has really pulled the euro up off the mat, as it was about to get pinned by the dollar. So… I sure hope that Merkel doesn’t disappoint the markets, or else the euro will be thrown right back into the ring with the dollar, and that hasn’t worked out too well for the single unit so far this year…

And when the euro gets going VS the dollar… The rest of the currencies come out of the woodwork… But the one currency I want to talk the most about here is the Norwegian krone… I’ve gone through all this before, so I won’t keep beating the dead horse (no animals were hurt here!)… But! I do need to point out that Norway, to me, rises above all other fiat currencies because of their fiscal position, that didn’t just happen for them, they planned, and plotted this for years…

And, since Swiss francs had been hit so hard by the news over the weekend regarding the European loan losses, this news, benefits the franc too.

Well… President Obama signed the new Mortgage Bill yesterday… Recall, that a mortgage bill was done last July, and was touted as the “cure” to what ailed the housing market… Well, that certainly didn’t come to fruition. One has to hope that this one does… But, you know me, and I just can’t sit by idly and watch, as once again the majority of people in this country get steam rolled…

Chuck! Get down off the soapbox! This has no place in your letter on currencies and economies! Chuck, you can have those types of discussions with whomever wants to listen to you carry on… But not here! So, get back to the task at hand!

Whew! OK, I’m back now… The data cupboard is chock-full-o-data today, with the Weekly Initial Jobless Claims front and center this morning. We’ll also see the Philly Fed Index (manufacturing), PPI (wholesale inflation), and Leading Indicators. In addition, a Fed Head (Lockhart) is speaking on the U.S. Economy today. The Weekly Initial Jobless Claims, which have totaled more than 600K the last two weeks, is forecast to keep the streak of 600K weekly claims going. This is really “bad” folks… With this kind of rot on the labor vine, one has to wonder what the March print of the Jobs Jamboree is going to look like… Recall, that Jan’s number was an awful looking 598K jobs lost… And we weren’t printing Weekly Initial Jobless Claims of 600K per week in January! Makes you cringe… But, then the Jobs Jamboree is two weeks away…

Japanese yen has really fallen on a sword this past week, as it now appears that Japan has some real problems with Credit-Default Swaps, just like we had here in the U.S.! Credit-Default Swaps on the books reached their highest level in 4 years here in Japan this week, and that means that people are betting on Japan having a worse time with their economy than Europe and the U.S. I think it is more tied to by belief that I told you about a week or so ago, and that is what I believe to be an end of the carry trade unwinding, which benefited the yen to the heights of 88… But now, with yen falling back to 93, one has to wonder if my belief is taking place…

Yesterday morning, I left you with Gold having seen a bit of profit taking and losing $6 in morning trading… Well, that $6 loss was wiped out immediately after the signing of yet another spending bill (the mortgage bill) in the U.S. Late in the afternoon, I yelled over to Jen and Kristin, to check out Gold, as it had rallied all the way to $987.90! WOW! But, in the overnight markets in Asia, more profit taking took place and Gold is trading at $976, down over $8… I think the Asians thought that the move to near $990 and then onto a return to $1,000, had gone too fast… And I truly believe that the Gold WILL return to $1,000, but not without a fight, as I believe it will take more than one attempt by Gold traders to push it past $1,000… You have to believe that profit taking all along the way will be in order, and thus the two opposite trades will offset each other… But, as I said above, I truly believe it will revisit $1,000, so eventually Gold will break through the resistance…

The NY Times yesterday had a feature story by Lord Rees-Mogg… And he had many things to say, but the thing I think hits the nail on the head the best is this snippet… “For individuals, gold remains the best insurance against future shocks and the best store of value.”

Recall the other day, I wrote about the Japanese Finance Minister Nakagawa’s actions at the G-7 meeting in Rome last weekend… My friend, Bill Bonner of the Daily Reckoning, (www.dailyreckoning.com) had this to say about Nakagawa that I found to be bang on!

“Things are so bad in Japan that the finance minister, Shoichi Nakagawa decided to drown his sorrows in drink. Alas, he chose the G7 meeting – at which he represented his country – to get drunk. Now, according to the New York Times, he is being forced to quit.

From what we can tell, Nakagawa is the only G7 finance minister who should stay on the job. The rest of them clearly don’t know what’s going on. Otherwise, they’d be drunk too.”

Yesterday… We saw Housing data, that showed Housing Starts had fallen a seventh straight month in January… Here’s the Wall Street Journal’s take on the data… “Home construction fell a seventh straight month during January and a sign of future building tumbled as high inventories and the recession sent builders into further retreat. Housing starts decreased 16.8% to a seasonally adjusted 466,000 annual rate compared to the prior month, the Commerce Department said Wednesday, much worse than Wall Street expected. Year over year, housing starts were 56.2% below the pace of construction in January 2008.”

Boy… Wouldn’t you like to have former Treasury Sec. Paulson, or Fed Chairman in a locked room, where you wouldn’t leave until you got the truth from them? I say this, because when I was looking at the Housing data, these two clowns flashed across my memory, for it was these two clowns that told us in August of 2007 that the subprime problem would not spread into the rest of the economy… And then a few months later, Paulson told us that the Housing market had hit bottom!

Oh, and one more thing while my memory is flashing me pictures and quotes from Paulson… When asked how the Treasury had come up with the figure of $700 Billion for the TARP program… Paulson was heard to say, that it was just a number that he pulled out of the air… Oh BOY!

Well… The Budget Deficit continues to grow… Let’s see what the tote board has so far… $1.2 Trillion forecast by the Congressional Budget Office, $787 Billion in the “new and improved stimulus package, $350 Billion of TARP left over to be spent this year, and now $75 Billion in the mortgage bill… Getting closer to a $2.5 Trillion Budget Deficit with every passing day… And still, the dollar, holds on… Apparently, dollar bulls don’t see what I see here…

Currencies today 2/19/08: A$ .6490, kiwi .5160, C$ .80, euro 1.2690, sterling 1.4385, Swiss .85, rand 9.98, krone 6.85, SEK 8.5770, forint 235.80, zloty 3.6675, koruna 22.5250, yen 93.70, sing 1.5250, HKD 7.7540, INR 49.62, China 6.8355, pesos 14.55, BRL 2.3280, dollar index 87.20, Oil $35.63, Silver $14.26, and Gold… $981

Source: Euros Get a Boost From A Rumor

In a wholesale attempt to crush the housing bust in its tracks, Obama revealed his $75 billion Homeowner Affordability & Stability Plan to allow 4-5 million so-called “responsible homeowners” to refinance their homes with lower interest rates and help a further 3-4 million lower their monthly mortgage payments.

It’s all designed to help fend off the dreaded specter of foreclosure, which engulfed two million Americans in 2008 – with the plan symbolically announced in Arizona, home to one of the highest home foreclosure rates in the nation.

It’s also well-timed in terms of beefing up support for the plan, amid more gloomy housing market figures from the Commerce Department today…

Housing Market Takes A Tea Break As Builders Down Tools

With housing demand in the dumps and prices still heading south, 2009 got off to a dubious start with the news that the pace of new home construction slumped to its lowest level since 1959.

Notwithstanding the effect that colder weather has on homebuilding, the figures were poor across the entire country still showed huge drop of almost 17% from December to an annual rate of 466,000 and was 12% lower than economists expected. To put that in perspective, homebuilders broke ground on 906,200 new properties in 2008 – and that was a record low. It means that over the past three months of double-digit declines, housing starts have sunk at an 86% annual rate over that period.

Not only that, building permit applications also slid by 4.8% to a record low of 521,000 units.

While the headline figures make for grim reading, it’s worth remembering that with the economy in recession, you wouldn’t expect them to be rising, or even flat. With demand tanking and prices falling, homebuilders have “downed tools” and are more focused on shifting excess existing inventory.

And while Obama may not be able to ride to the rescue on the construction and permits situation right away, his plan today does intend to help Americans already crippled by the real estate mess.

And it will need to, if these figures from Credit Suisse (NYSE:CS) are anything close to accurate…

“Unraveling Homeownership, The Middle Class… And The American Dream Itself”

The two million Americans who faced foreclosure proceedings in 2008 will seem like small potatoes if the Credit Suisse report, released last month, holds true.

It said the number could rise to as many as 10 million over the next few years, depending on the severity of the recession.

And even though the president puts the figure at closer to six million, it’s no wonder that Team Obama is swinging into action.

Calling it a “crisis which is unraveling homeownership, the middle class, and the American Dream itself,” Obama’s bold plan would see the government subsidize his efforts (hey, remember to leave a few more billion for the auto industry, guys).

It’s then hoped that by allowing certain homeowners to refinance and reducing monthly payments, it will help stabilize the market. In return, homeowners would give up a little of their home’s equity by way of repayment.

In short…

• Borrowers who owe more than 80% of their home’s value would be eligible to refinance and lower their monthly payments.
• Through subsidizing interest rates, at-risk borrowers could reduce their monthly payments to no more than 31% of their income. This proposal has drawn understandable criticism from sensible, solvent borrowers, who rightly ask why they don’t get a break for managing their money properly.
• The proposal expands previous rescue efforts by placing emphasis not only on those who have already defaulted on their payments, but also those who are at risk of doing so while still up-to-date. Mortgage servicers will be offered $1,000 incentives to modify agreements of defaulters and those at risk, and any institution that accepts federal funds will be required to abide by a loan modification system.
• The plan will double the financial aid for America’s two big mortgage lenders – Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), who have suffered hugely at the hands of the housing bust themselves – so they can increase the number of mortgages they offer. A restriction that doesn’t allow the two to guarantee refinancing on mortgages worth more than 80% of a home’s value will be removed under Obama’s plan and the government’s guarantee against their mortgage losses will swell to $400 billion.

The goal of this aggressive plan is simple: To arrest the housing market’s deep slump by attacking the foreclosure rate. Or in Obama’s words, allowing “millions of families stuck with loans at a higher rate to refinance” and “give millions of families resigned to financial ruin a chance to rebuild.”

Time will tell whether it ends up being the housing market’s version of “Little House On The Prairie” or “The Money Pit.”

Source: $75 Billion To Help Fix The U.S. Housing Crisis