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Will Those Boys in Washington Ever Learn?
by Stalion on Tue Jan 29, 2008 7:23 pm
Today's commentary is by Chuck Butler, President of EverBank World Markets.
Good Day...and a Terrific Tuesday to You!
On Friday, there was no data to view. So traders didn't have anything to really trade off of, and currencies drifted. But what we lacked for data last week, we'll more than make up for this week.
It started yesterday with the New Home Sales report (see Sean Hyman's comments below). And today, we're moving to Durable Goods and Consumer Confidence, heading into GDP, and the scheduled FOMC meeting on Wednesday, followed by Personal Income and Spend on Thursday. Finally Friday is a Jobs Jamboree Friday, along with ISM (manufacturing index). Whew! That just about wore me out right there!
The Asian currencies, which I believe are the next shoe to drop for the dollar, put in a strong performance last week. The Asian currency, I keep coming back to - the Singapore dollar - rose 1% just last week, The Japanese made a move vs. the U.S. dollar, and the Chinese renminbi has risen over 1% already this month. WOW!
Meanwhile, the Indian rupee gained back most of the small amount of ground it lost earlier in the week. So, go ahead, put some rupees in your big brown shoe!
Astute Radio Interviewer:
"Will This Stimulus Package Actually Work?"
I gave two more radio interviews on Friday, and one, if you can believe this was at 7:20 AM on a Sunday morning! The problem for me was I knew in the back of my head that I had to get up early on Sunday, so from 4 o'clock on, I couldn't sleep. UGH!
Anyway, the radio interviewers wanted to know about this "stimulus package" the government is trying to create. They kept asking me: "Will this stimulus package work? Will it avert a recession?" And in my opinion: It's too little, too late!
I told them: "The recession train has already left the station, so the stimulus package is too late!" The government bailout checks won't be mailed until May or June, which means that most people will be so behind at that time that they will simply sign over the check to the credit agency that's hounding them most! And to add to all that...the government added US$150 billion to a budget deficit that was already forecast to reach US$250 billion this year!
When will they ever learn? But not to worry folks, U.S. Treasury Secretary Paulson is hailing this stimulus package as the best thing since sliced bread!
What Inflation REALLY Means...
The Fed has turned its back on inflation folks. Here are some items that you won't see in the CPI data:
Grade-A Large Eggs: December 2006: US$1.54 a dozen. December 2007: US$2.10. Currently, US$2.73 a dozen. That's up 77% in two years!
White Bread: December 2006: US$1.13 a loaf. December 2007: US$1.28 a loaf. Currently, US$1.62 a loaf. That's up 43.3% in two years!
Whole Milk: December 2006: US$3 a gallon. December 2007: US$3.87 a gallon. Currently, US$3.93 a gallon. That's up 31% in two years!
Fresh Whole Chicken: December 2006: US$1.06 per pound. December 2007: US$1.17 per pound. Currently, US$1.19 per pound. That's up 12.2% in two years!
These are the things I talk about all the time, to show that you can feel the inflation eating away at your wallet. And this is just some simple food items. I'm not even talking about other items like: tuition, insurance, medical expenses, movie tickets, and so on...
Last week, there were rumors going around that the Fed panicked when they heard about the rogue trader from Societe Generale (SocGen). Supposedly, that's why they cut 75 BPS to save stocks here in the United States.
I'm not buying that one. The Fed's men may seem like dolts because they've turned their backs on inflation. But I don't think they were duped into that one. I think the Fed has their eyes on the credit crunch going on and is doing everything in their power to "inflate" the mortgage bubble again!
So that means, all those who believe the Fed cut 75 BPS to save stocks last week have simply disregarded the Fed's upcoming meeting, where I'm predicting the Fed will cut another 50 BPS off rates on Wednesday of this week. And all those who don't believe that, and believe that the Fed is reacting to a financial crisis in the United States, still have the 50 BPS rate cut on the board for Wednesday's meeting.
Seriously, I see a 50 BPS this week. And here again, I'm going out on a limb (not to worry, I found a big strong branch). I believe we'll see 50 BPS cut at the next two meetings following this week. So, add those together, carry the one, and you have 150 BPS still to go. That would bring rates here in the U.S. down to 2%.
A Super Ball Bounce in Gold
Meanwhile, how about that Super Ball Bounce in gold last week? Wow! Gold gained 3.3% in a week. And why not? Inflation is killing us, as I highlighted above. And inflation in China is high, along with India. Thus, traders are demanding the shiny metal as a hedge against inflation.
I've been telling people for more than five years now that gold is historically an excellent hedge versus inflation. Many laughed and said, "Well that's all fine and good, but we don't have any inflation!" Ha! Look who's laughing now?
Chuck Butler, President
EverBank World Markets
--------------------------------------------------------------------------------
Making 'Cents' of the Headlines
It's Official: 2007 Was the Worst Year
for Home Sales Since They Kept Records
From our Currency Director: Sean Hyman
What Happened:
Yesterday, the New Home Sales in the U.S. came out for last month. According to the numbers: 604,000 homes were sold in the United States. With December's numbers, that officially makes 2007 the worst year for home sales since they started keeping records.
Not only are the numbers of sales dropping but also the "prices" of the average sale. For instance, the median house price dropped a whopping 10% last month. That's the biggest decline in 37 years.
What I Say:
So what's the problem? Yes, rates are dropping. Yes, people can get home loans cheaper than they could even months ago (from an interest rate stand point). However, who wants to go out and buy an asset that is falling in value consistently each month...especially when it's usually your biggest cost and investment? Evidently, not too many people. And frankly, I can't blame them.
Dropping interest rates helps. But ultimately, home prices need to stabilize to bring confidence back into the housing market. With lending requirements stiffening up lately, this will make it an uphill battle.
There will be more foreclosures to come, which will further erode consumer sentiment and consumer spending.
Right now, there's a lethal combination happing in America. You've got falling stock market prices, falling house prices, lower consumer spending and higher unemployment. That's a deadly combination if I've ever heard one. So this picture has to change to turn the U.S. and global economy around.
The housing market will eventually recover. So will stocks, unemployment, etc. However, there are no short-term fixes for these problems. Unfortunately, they all take quite a bit of time to work themselves out.
Eventually, the stimulus package from the government and more rate cuts will help. It's likely we're in for an ugly ride though until all of those start to take effect in the economy. It's looking like the rebate checks from the government won't make it to the public before May or June.
According to a forecast by the Mortgage Bankers Association, existing home sales will drop 13%, the group said on January 14th. Unfortunately, I believe they are right.
So expect the near-term to continue to be choppy in the financial markets. Volatility will continue.
Yen carry-trades such as EUR/JPY will continue to suffer as stock prices head lower around the world. The Nikkei was down over 500 points again yesterday. These huge drops could continue as the global economy aches until the U.S. economic condition improves.
Given this outlook, expect the U.S. Fed to cut rates once again tomorrow by yet another 25 to 50 basis points.
Good Day...and a Terrific Tuesday to You!
On Friday, there was no data to view. So traders didn't have anything to really trade off of, and currencies drifted. But what we lacked for data last week, we'll more than make up for this week.
It started yesterday with the New Home Sales report (see Sean Hyman's comments below). And today, we're moving to Durable Goods and Consumer Confidence, heading into GDP, and the scheduled FOMC meeting on Wednesday, followed by Personal Income and Spend on Thursday. Finally Friday is a Jobs Jamboree Friday, along with ISM (manufacturing index). Whew! That just about wore me out right there!
The Asian currencies, which I believe are the next shoe to drop for the dollar, put in a strong performance last week. The Asian currency, I keep coming back to - the Singapore dollar - rose 1% just last week, The Japanese made a move vs. the U.S. dollar, and the Chinese renminbi has risen over 1% already this month. WOW!
Meanwhile, the Indian rupee gained back most of the small amount of ground it lost earlier in the week. So, go ahead, put some rupees in your big brown shoe!
Astute Radio Interviewer:
"Will This Stimulus Package Actually Work?"
I gave two more radio interviews on Friday, and one, if you can believe this was at 7:20 AM on a Sunday morning! The problem for me was I knew in the back of my head that I had to get up early on Sunday, so from 4 o'clock on, I couldn't sleep. UGH!
Anyway, the radio interviewers wanted to know about this "stimulus package" the government is trying to create. They kept asking me: "Will this stimulus package work? Will it avert a recession?" And in my opinion: It's too little, too late!
I told them: "The recession train has already left the station, so the stimulus package is too late!" The government bailout checks won't be mailed until May or June, which means that most people will be so behind at that time that they will simply sign over the check to the credit agency that's hounding them most! And to add to all that...the government added US$150 billion to a budget deficit that was already forecast to reach US$250 billion this year!
When will they ever learn? But not to worry folks, U.S. Treasury Secretary Paulson is hailing this stimulus package as the best thing since sliced bread!
What Inflation REALLY Means...
The Fed has turned its back on inflation folks. Here are some items that you won't see in the CPI data:
Grade-A Large Eggs: December 2006: US$1.54 a dozen. December 2007: US$2.10. Currently, US$2.73 a dozen. That's up 77% in two years!
White Bread: December 2006: US$1.13 a loaf. December 2007: US$1.28 a loaf. Currently, US$1.62 a loaf. That's up 43.3% in two years!
Whole Milk: December 2006: US$3 a gallon. December 2007: US$3.87 a gallon. Currently, US$3.93 a gallon. That's up 31% in two years!
Fresh Whole Chicken: December 2006: US$1.06 per pound. December 2007: US$1.17 per pound. Currently, US$1.19 per pound. That's up 12.2% in two years!
These are the things I talk about all the time, to show that you can feel the inflation eating away at your wallet. And this is just some simple food items. I'm not even talking about other items like: tuition, insurance, medical expenses, movie tickets, and so on...
Last week, there were rumors going around that the Fed panicked when they heard about the rogue trader from Societe Generale (SocGen). Supposedly, that's why they cut 75 BPS to save stocks here in the United States.
I'm not buying that one. The Fed's men may seem like dolts because they've turned their backs on inflation. But I don't think they were duped into that one. I think the Fed has their eyes on the credit crunch going on and is doing everything in their power to "inflate" the mortgage bubble again!
So that means, all those who believe the Fed cut 75 BPS to save stocks last week have simply disregarded the Fed's upcoming meeting, where I'm predicting the Fed will cut another 50 BPS off rates on Wednesday of this week. And all those who don't believe that, and believe that the Fed is reacting to a financial crisis in the United States, still have the 50 BPS rate cut on the board for Wednesday's meeting.
Seriously, I see a 50 BPS this week. And here again, I'm going out on a limb (not to worry, I found a big strong branch). I believe we'll see 50 BPS cut at the next two meetings following this week. So, add those together, carry the one, and you have 150 BPS still to go. That would bring rates here in the U.S. down to 2%.
A Super Ball Bounce in Gold
Meanwhile, how about that Super Ball Bounce in gold last week? Wow! Gold gained 3.3% in a week. And why not? Inflation is killing us, as I highlighted above. And inflation in China is high, along with India. Thus, traders are demanding the shiny metal as a hedge against inflation.
I've been telling people for more than five years now that gold is historically an excellent hedge versus inflation. Many laughed and said, "Well that's all fine and good, but we don't have any inflation!" Ha! Look who's laughing now?
Chuck Butler, President
EverBank World Markets
--------------------------------------------------------------------------------
Making 'Cents' of the Headlines
It's Official: 2007 Was the Worst Year
for Home Sales Since They Kept Records
From our Currency Director: Sean Hyman
What Happened:
Yesterday, the New Home Sales in the U.S. came out for last month. According to the numbers: 604,000 homes were sold in the United States. With December's numbers, that officially makes 2007 the worst year for home sales since they started keeping records.
Not only are the numbers of sales dropping but also the "prices" of the average sale. For instance, the median house price dropped a whopping 10% last month. That's the biggest decline in 37 years.
What I Say:
So what's the problem? Yes, rates are dropping. Yes, people can get home loans cheaper than they could even months ago (from an interest rate stand point). However, who wants to go out and buy an asset that is falling in value consistently each month...especially when it's usually your biggest cost and investment? Evidently, not too many people. And frankly, I can't blame them.
Dropping interest rates helps. But ultimately, home prices need to stabilize to bring confidence back into the housing market. With lending requirements stiffening up lately, this will make it an uphill battle.
There will be more foreclosures to come, which will further erode consumer sentiment and consumer spending.
Right now, there's a lethal combination happing in America. You've got falling stock market prices, falling house prices, lower consumer spending and higher unemployment. That's a deadly combination if I've ever heard one. So this picture has to change to turn the U.S. and global economy around.
The housing market will eventually recover. So will stocks, unemployment, etc. However, there are no short-term fixes for these problems. Unfortunately, they all take quite a bit of time to work themselves out.
Eventually, the stimulus package from the government and more rate cuts will help. It's likely we're in for an ugly ride though until all of those start to take effect in the economy. It's looking like the rebate checks from the government won't make it to the public before May or June.
According to a forecast by the Mortgage Bankers Association, existing home sales will drop 13%, the group said on January 14th. Unfortunately, I believe they are right.
So expect the near-term to continue to be choppy in the financial markets. Volatility will continue.
Yen carry-trades such as EUR/JPY will continue to suffer as stock prices head lower around the world. The Nikkei was down over 500 points again yesterday. These huge drops could continue as the global economy aches until the U.S. economic condition improves.
Given this outlook, expect the U.S. Fed to cut rates once again tomorrow by yet another 25 to 50 basis points.
