Sales of existing homes rose for a third consecutive month in June to an annual rate of 4.89 million, which was better than the forecast of 4.84 million that most economists were expecting. May’s figure was actually revised down to 4.72 million from the original posting of 4.77, so the month on month rise came in much higher at 3.6% than the expected 1.5% increase. June is traditionally seen as one of the busiest months in the real estate market as families try to make the adjustment in between school years so it wasn’t exactly a surprise to see better than expected numbers.

Lower borrowing costs, foreclosure driven price declines, and tax incentives also contributed to these higher numbers. This is certainly good news to hear and I hope the bottom has already passed us by or is near, but as I mentioned yesterday, I won’t get too excited until unemployment gets back to a supportive level and the full backing of the consumer underpins this move. If anything, this may end up being a protracted bottom and a slow road to normalized levels.

We also had the weekly initial jobless and continuing claims released yesterday but was overshadowed by the positive housing numbers that came out. The initial jobless figure came in 30,000 higher than last week to 554k but continuing claims backed off a bit to 6.23 million from last week’s revision up to 6.31 million. Bernanke said earlier this week that job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending. With that being said, it still looks like we have plenty of breakers to get through before we reach the safety of calmer waters.

Today doesn’t bring us much in the way of reporting as the only data due out is the final printing of the U. of Michigan consumer confidence number for July. The preliminary figure was released a couple of weeks ago and fell more than forecast to 64.6 from June’s 70.8 reading. This generally isn’t a big market mover but its expected to settle in a tad higher at 65. This one is a tough call as the stock market has risen quite a bit in that time period but we’ll see if job and income concerns keep this month’s number grounded. Since this is all we get today, it will be interesting to see how much attention the markets give this report.

Just as we saw the Dow hit the 9000 mark for the first time since January and the euphoria of the housing market has gained momentum, well respected economist Nouriel Roubini, had a different take on things. In a report released today, concern was expressed that a perfect storm of fiscal deficits, rising bond yields, soaring oil prices, weak profits, and a stagnant labor market could blow the recovering world economy back into a double dip recession. He went on the to say that its getting more likely unless a clear exit strategy from the massive monetary and fiscal stimulus is outlined even before it is implemented. I guess the moral of the story here is to proceed with caution and buckle your seat belt because the ride could get bumpy.

Moving on to currencies, the Swedish krona and the Canadian dollar both posted 1% gains yesterday while the Japanese yen, New Zealand dollar, and Swiss franc rounded out the bottom. The two currencies at the top of the list had much different reasons for ending the day where they did as the krona traded higher primarily on the back of risk appetite. As investors feel more comfortable with buying riskier assets, the thinner traded currencies like the krona, benefit even though Sweden’s unemployment rate rose for a second month in June to 9.8%.

The Canadian dollar, on the other hand, rose to a 7 week high as the central bank said the recession is nearing an end brought on by higher commodity prices and consumer confidence. The central bank kept rates at the record low of .25% a couple of days ago and reiterated they will stay there for a while unless inflation becomes a problem. Since Chuck is across the border in Canada right now, it’s a perfect time to get our daily dose:

“I was reading the local paper the other day, and the business section had a big story on the Bank of Canada’s (BOC) Gov. Carney and how he vows he will intervene to keep the loonie from going higher… In the last two days since that story appeared, the loonie has done nothing but gain vs. the green/peachback… 91-cents it traded through yesterday! I can’t help but think that traders are beginning to believe that Central Bankers are imitating the boy who cried wolf… We had the Brazilian Central Bank, the Swiss National Bank, and now the BOC… They all are giving verbal warnings about traders taking their currencies higher…

The Central Bankers do this under the disguise of “we don’t want deflation in our economy” opting for the weaker currency to introduce inflation… I think this is all a smokescreen! I think this is a coordinated effort to keep their currencies from going hog-wild VS the dollar… The Central Bankers all know that the dollar is teetering, and without speed bumps we could see a mad exit for the door for dollar holders… Just what I think… Nothing more, nothing less… Just my thoughts… ”

Thanks again Chuck, its always great to get your insight. Since we’re already talking about central bank intervention, I saw a report today that has some looking for the Swiss National Bank getting back into the game. According to the Big Mac index, which is a purchasing power parity figure using the cost of a Big Mac as the measure, the Swiss franc is the second most expensive in Europe. Its just a fun little tid bit I thought would be good to break the monotony. Anyway, the Swiss franc is largely influenced by the euro and risk appetite so while the SNB may step in, there’s really no way to stop the moving train. As Chuck has said many times before, the markets have much deeper pockets than a central bank.

As I got to the office yesterday, the euro was hovering around 1.42 and climbed just shy of 1.43 to 1.4291 before we saw the profit taking drag it down to 1.4150 on my out the door. I saw a report where the euro had established a base at 1.4050 and calls to buy on dips, which is certainly a strategy that would be consistent with our views. As I touched on above, the Asian and overnight markets have run things right back to the levels from yesterday but as the European traders hand the books to those in New York before heading out for the weekend, the dollar is still getting sold. Don’t look now, but I see the euro at 1.4250…hopefully we can hold on to this and finish the week on a positive note. It looks like the euro is also getting some help from within as reports showed the contraction in European manufacturing and services slowed more than expected and German business confidence improved.

While I’m talking about Europe, we had some positive new come out of the UK as retail sales quadrupled the estimate and surprised the markets with a June gain of 1.2%. Year over year sales are actually up 2.9% and has economists looking for a near zero GDP figure in the second quarter. HSBC actually raised their forecast for the pound from 1.60 to 1.75 by year end 2010 and justified the call by saying the likelihood of an interruption in the asset buying program from the BOE could be as soon as next month. They also feel rates will rise before the Fed but this is a long way off and a lot can happen. Just like the US, I don’t see enough at this point to be comfortable buying this currency, but hey, we’ve been early on some calls too.

One of our newest multi-currency CDs, the Global Power Shift CD, has also been keeping the phones busy lately. With commodities and commodity based currencies leading the charge, it seems like we talk about at least one of them everyday, so I thought I would give it a mention. This CD combines the Australian dollar, the Brazilian real, the Canadian dollar, and the Norwegian krone into one instrument and just provides you with a little bit of everything…not a bad way to provide that hedge against a weakening dollar and gain exposure to commodities at the same time. Well, its about that time and I need to wrap it up so on to the big finish…

Currencies today 7/24/2009: A$ .8170, kiwi .6573, C$ .9214, euro 1.4230, sterling 1.6462, Swiss .9353, rand 7.7236, krone 6.2308, SEK 7.4710, forint 188.04, zloty 2.9538, koruna 17.9280, yen 94.86, sing 1.4407, HKD 7.7500, INR 48.2750, China 6.8316, pesos 13.1903, BRL 1.8991, dollar index 78.686, Oil $67.25, Silver $13.7850, and Gold… 952.86

That’s it for today…its your Friday!! I just wanted to send congrats toward St. Louis native Mark Buehrle, pitcher for the Chicago White Sox, as he became the 18th player to throw a perfect game…truly a remarkable feat. Our office has a team in a local kickball league so I wonder if our pitcher, Tim Smith, was able to match that performance…lol. It was a rough go this morning as the words just didn’t come all that easy for me but hopefully I was able to make some sense of it all. Alright, its really getting late so I need to get going here. Have a great Friday and a wonderful weekend…Until next time.

Source: Today’s Pfennig Friday, July 24, 2009

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sounds like everyone is on the same page to me…

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

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

Source: A Broken Record