Sales of new homes rose for a fourth straight month in July and at their fastest pace since September 2008, while the inventory of unsold homes fell to the lowest level in 16 years, the government reported.

“These are great numbers, and they should definitely add fuel to the move higher in the market,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

“It’s all very positive, not just because of the macro implications but because they will drive consumer confidence numbers (higher).”

The Dow Jones industrial average <.DJI> added 19.57 points, or 0.21 percent, to 9,558.86. The Standard & Poor’s 500 Index <.SPX> rose 2.15 points, or 0.21 percent, to 1,030.15. The Nasdaq Composite Index <.IXIC> gained 5.05 points, or 0.25 percent, to 2,029.28.

Homebuilders were among the top gainers, with the Dow Jones home construction index <.DJUSHB> up 3.2 percent. Shares of D.R. Horton Inc jumped 5 percent to $13.70, and Pulte Homes Inc gained 3 percent to $13.45.

Buoyed by a surge in aircraft orders, durable goods orders jumped 4.9 percent, the largest advance since July 2007, after falling by a revised 1.3 percent in June, the government said.

Earlier, the Mortgage Bankers Association said U.S. mortgage applications rose for a second straight week, with demand for home refinancing loans rising to its highest level since early June.

Aug 26 (Reuters)

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

• The publisher of one of the world’s best known adult magazines, Playboy Enterprises Inc., (PLA) said it would be open to discussions about an outright sale after posting a wider fourth-quarter loss on weaker-than-expected revenue.  The company, which has been through a management shake-up including the resignation in December of longtime Chief Executive Officer Christie Hefner, posted a net loss in each quarter of 2008. A restructuring charge of $157.2 million, and other one-time costs, also hurt results, Reuters reported.

• Confronting its first quarterly loss in at least 15 years, Honda Motor Co. Ltd. (ADR: HMC) will scale back plans to make business jets and may offer voluntary retirements for the first time as it slashes costs in the United States.  The worst global financial crisis since the Great Depression has cut corporate demand for jets. The company will produce 70 to 80 jets a year for delivery from the end of 2010, compared with an earlier plan to make 100 planes a year, CEO Takeo Fukui said in a Monday Bloomberg News interview.

• After record investment losses and client redemptions cut assets by 37% in the second half of 2008, many hedge funds are looking to consolidate, Bloomberg reported.  As many as 40% of the 9,000 hedge funds and funds of funds may disappear in the next two years, according to Karamvir Gosal, a New York-based investment banker at Jefferies Putnam Lovell. While some will return money to investors and shut their doors, mergers and acquisitions will be more prevalent than in the past.

• JPMorgan Chase & Co (JPM) could modify more than the 600,000 mortgages it has already singled out for restructuring, CEO Jamie Dimon told CNBC in an interview yesterday (Wednesday).  JPMorgan and other major banks have announced plans to modify loans as unemployment has risen in recent months, raising concerns that more borrowers may start to miss payments on their mortgages. Dimon’s bank has agreed to renegotiate $70 billion in mortgages since October.

• Google Inc. (GOOG) wants to curb growth in the number of frivolous patent challenges it faces by fighting rather than settling lawsuits, Bloomberg reported.  Patent claims against Google rose to 14 last year from 11 in 2007 and three in 2006.  The company is going on the offensive to fight patent claims, a strategy the Internet-search giant says will deter frivolous lawsuits.  Google didn’t settle any patent suits last year.

• Mortgage applications filed last week rose a seasonally adjusted 45.7% compared with the week before, reflecting a spike in refinancings as interest rates fell, the Mortgage Bankers Association said yesterday (Wednesday). Applications to refinance existing loans jumped 64.3% on a week-to-week basis, and total application volumes increased an unadjusted 5.2% from the comparable week in February 2008. The rate on 30-year fixed-rate mortgages averaged 4.99%, down from 5.19% the previous week, MarketWatch reported.

Source: Global Investment News Briefs Thursday, February 19th, 2009

Good day…The dollar settled in at the slightly higher levels it reached Friday morning and is trading in a narrow range heading into a holiday shortened week. Trade desks across the globe will be mostly staffed by the backups as the big bosses take Christmas week off. Volume will likely be lighter, which can sometimes lead to an increase in volatility.

The data calendar is empty today, but chock full tomorrow and Christmas eve. Markets will be closed on Christmas day, and most will be closed again on the day following Christmas (known as boxing day). GDP, Personal Consumption, U of Michigan consume confidence, New Home Sales, Existing Home sales, House price index, Richmond Fed Man. Index, and ABC Consumer confidence numbers will all be released tomorrow. On Christmas eve the US will release MBA Mortgage applications, Personal Income, Personal Spending, PCE deflator, Durable Goods orders, and the weekly jobs numbers will all be released. I told you we will be packing in a weeks worth of data in the next two days!!

So what will all of this data mean to a thin currency market? I expect all of this data will show a US economy which is continuing to weaken. 3rd quarter GDP is expected to show a drop of .5%, and Personal Consumption is expected to have dropped 3.7% during last quarter. The housing industry continues to weaken, which will be reflected in this week’s data. Personal Income is expected to be flat, with spending in the US to show a slight decrease. Durable goods orders will probably show a drop of 3%, and the weekly jobs data will end the data packed two days showing further weakness in the US labor market. The bias for the US$ will continue to be negative, as the next two days of economic data will confirm just how bad the state of the US economy is.

As I mentioned earlier, the currency markets have been trading in a tight range with the Commodity currencies of the Canadian dollar, South African Rand, and the Australian dollar leading the pack. The Japanese yen weakened slightly, trading back above 90 yen per dollar. The yen weakness came as investors slowly moved back into risk trades as a US bailout of GM and Chrysler moved closer to reality. The yen stayed lower vs. the US$ as China announced an interest rate cut in order to try and support its economy.

The dollar weakened a bit vs. the Euro which held just above 1.40 during early European trading. According to a story on Bloomberg by Stanley White, the Euro will likely rise to $1.50 in the next two weeks. The relative strength index for the Euro moved above 50 which illustrates the Euro is gaining momentum. The Fibonacci series of numbers says we are in a bullish trend, with resistance at $1.50 near a 150 percent projection of the euro’s rise from its Dec. 4 low of $1.225 to its Dec. 16 high of $1.4147. White goes on to report the 14 day relative strength index shows the euro will start heading higher after a short correction.

The Australian and New Zealand dollars rose as the Feds bailout moved investors back toward higher risk trades. These currencies have been two of the biggest recipients of ‘carry trade’ flows, and the expected rescue of US automakers gave currency investors confidence to move back into these higher yielding currencies. Even after aggressive rate cuts in both South Sea nations, benchmark rates are still over 400 basis points better than in the US. If commodity prices can start to rebound, the combination would be very good for both the AUD$ and NZD$. I still favor the Australian currency vs. the kiwi, as New Zealand has a much larger current account deficit, which will need to be funded with foreign capital flows.

China’s central bank cut interest rates for the fifth time in three months to try and support growth. Chinese leaders have stated they want to keep growth in the world’s fourth biggest economy from dropping below 8%. The IMF predicts they will be unsuccessful, as a recent report released estimates 2009 Chinese growth at 5% to 6%. But the People’s Bank of China is going to continue to try and meet their goal, using a combination of economic stimulus spending, lower deposit requirements, and easier credit. Mike Meyer tells me we have been fielding a number of callers selling their Renminbi deposits after Dr. Steve Sjuggerud suggested investors exit their positions. While I don’t disagree that there are probably many currencies which will outperform the Renminbi, I do think the Renminbi will continue its slow ascent vs. the US$.

The Indian rupee fell sharply after its recent move to a 2 1/2 month high vs. the US$. The selling was probably due to importers taking advantage of the rupee’s strength to lock in rates. The rupee touched 46.86 in trading on Friday, the highest since October 3, rebounding more than 8 percent from a record low of 50.615 on Dec. 2. Trading in the forward markets indicate the rupee will recover slightly from where it is trading now.

Currencies today 12/22/08: A$ .6861, kiwi .5755, C$ .8299, euro 1.3976, sterling 1.4807, Swiss .9096, ISK 176.5, rand 9.6712, krone 7.0286, SEK 7.7487, forint 189.52, zloty 2.9259, koruna 18.784, yen 89.96, baht 34.55, sing 1.449, HKD 7.75, INR 46.02, China 6.8512, pesos 13.12, BRL 2.3644, dollar index 80.88, Oil $42.95, Silver $10.965, and Gold… $842.52

Source: Currency Markets Stabilize