Congress Ducks Tax Cut Extensions

Gerri Willis talks about Congress' dodge of the tax cut issue, leaving Americans at risk come tax season.  Congress definitely failed to do their job, now the topic will get tabled till well after the elections and into next year.

3 Wholesale Credit Unions Bailed out by Federal Government

Currency, Inflation, Stocks and Bonds

In this video, with Peter Schiff and CNBC Panel of guests, great discussions cover currency, inflation, stocks and bonds.  Important points are made in this first segment as to where we are going economically and possible pitfalls in each asset class.

The 2nd video discusses moves in gold and where it could go and why it is going up.  Gold is linked to inflation in commodities and its link to its currency value (as the fed prints more dollars, people are looking for a more stable currency).  All three guests believe gold and silver are running up due to global fiat currency destruction.  Each guest recommended diversification into foreign stocks as well,  to hedge against inflation. 

August New Home Sales

The New Home Sales numbers are out for the month of August.  The New Home Sales number reflects the annualized number of new single-family homes that were sold in the previous month.  The forecast called for 292k of new home sales and the actual headline number was 288k, which obviously did not meet forecasts.   Junes actual headline number of 276k was revised to 288k, which makes Augusts number unchanged from June's (assuming the revision doesn't change it).  This is more of an indicator of economic health than existing home sales (in my book) as it also reflects employment opportunity (or lack of) due to the construction of new homes.  Existing home sales is more limited to benefiting the financial sector (and we all want to do that).

Figure 1

Lets be honest though, with the amount of inventory in the housing market, we really don't need more housing coming into the market further devaluating our home prices.  This is the problem with the constant growth machine.

Year-over-year (Aug2009-Aug2010) we see the Northeast had a relatively steady growth in new home sales suffering only a -5.71% dip YoY, the midwest was hit the hardest in new home sales with a -61.76% decline in new home sales, the West reduced by -50.70% and the South reduced by -39.18%.  The upside is in the areas reducing construction is that it helps hold current inventory prices up (not including foreclosures and short sales, which are pulling prices down everywhere).  The negative is that this impacts jobs in those regions of the country (re: plumbing, electrical, HVAC, construction, financing, utility and etc) potentially creating more foreclosures and short sales due to higher unemployment, not to mention the reduced anticipated state revenues from would be new homeowners.

Figure 2

Bank Failures Update

This week two more banks failed.  This week the Washington state lost North County Bank and Florida lost Haven Trust Bank Florida.  This brings the total banks failed in 2010 to 127.

 

Dollar Continues to Lose Value

Gold spiked to an all time high last night of 1301.50, while the dollar continues to fall against major currencies.  Seems to be massive printing from having to float various markets (housing, stock, bond and etc) is devaluing the dollar considably.

 

Remember the currency in the first part of the pair is the one going long and in the second position is the one going short [1st/2nd].  For example EUR/USD above the upward momentum means that the EUR is appreciating against the dollar.  In the case of USD/CHF, the dollar is losing value vs the CHF (swiss franc).

August Durable Goods

The Durable Goods and Core Durable Goods Orders numbers came in this morning for the month of August 2010.  A Durable good is a good that does not quickly wear out, or more specifically, one that yields services or utility over time rather than being completely used up when used once.

Core Durable Goods Orders is the change in total value of new purchase orders placed with manufacturers for Durable Goods, excluding transportation items (so orders like aircraft are kept out of this as they are considered too volatile and can distort the underlying trend).  The Core Durable Goods Orders number was forecast to come in at 0.9% and the actual headline number was 2.0%, which was a beat (so good news on the Core Durable Goods Orders front).

Durable Goods Orders is the change in total value of new purchase orders placed with manufacturers for Durable Goods (including aircraft).  The Durable Goods Orders number was forecast to come in at -0.9% and the actual headline number was -1.3% which missed forecasts (obviously aircraft skewed this number).

The core number looked better due to removing aircraft, but if you removed defense as well (to see how the commercial economy is doing then you get a number of -1.23%.  Hence defense spending propped up the Core Durable Goods Number, which is not a bad thing as defense spending is a part of our overall economy.  Categories doing well for new orders were; Primary metals, Fabricated Metals, Machinery, Computers and Electronics, and Electrical Equipment/Appliances.  Categories that did badly were Transportation (including motor vehicles) and Capital goods.  

The categories increasing in orders make sense as stores ramp up inventory for the Christmas season.  We'll have to see how this trends out over the next few months.

Larry Kudlow Finally Coming to Reality

It's about time main media is coming out and voicing a concern about the dollar.  Yup, the Goldielocks economy was never there!  We have been artificially inflating our economy since 2000 (and more than likely, much earlier than that), thereby deflating our currency making us all much poorer in the process.  Now the dollar is at risk of losing its reserve status and if we keep moving down this path, it most likely will.

Stealth Monetization

Zerohedge recently had a post called "Stealth Monitization" that explains how the Fed and the To Big To Fail ( or TBTF) Banks are monetizing debt, debasing the currency and propping up the Bond Market.  Lets run through this briefly using quotes from the article as Tyler Durden does this very well.

See, the TBTF banks get money for free from the Fed, and then they turn around and lend it to the Federal government by way of buying Treasury bonds. Treasury bonds are paying absurdly low yields, because they’ve been bid up so high by all those freshly minted dollars that the Fed printed up. But to the TBTF banks, it doesn’t matter how low the Treasury yields are—it’s still guaranteed profits. Lending money to the Federal government is totally safe.

Circle of Life

This is because the Fed lends the money it prints at 0.25% to the TBTF banks.  These Banks then can buy Treasury Bonds at a higher interest rate from the Treasury.  Banks get to keep the difference.

Over the past few months, we have seen two things occurring simultaneously: Treasury bond prices are rising (and therefore their yields are declining), and the dollar has been falling against all commodities and all other major currencies.  This is a contradiction. This cannot be happening simultaneously for any sustained length of time—unless there is some exterior factor making this contradictory situation happen. 

Treasury Bond Yields

Bond Money Flows

 For proof on the statement that the dollar has been falling against commodities and other major currencies see post titled "Gold Surges and Dollar Dives" to see charts.

It is a contradiction because, if over a sustained period of time the dollar is losing value against commodities and other major currencies, then it would not make sense for investors to be putting more money into Treasuries and bidding up their prices. Not when their yields are at such absurdly low levels.

 In the beginning of the article by Tyler Durdan, he makes a statement that fiat currencies have been stable for 40 years and works like a charm.  I think he is alluding to when a central bank and the Fed do not get together as he makes this statement toward the end.

Stealth monetization: That’s what’s bidding up Treasuries, even as the markets are losing faith in the dollar.

Faith in the dollar is all that really gives it its value and the fact (pointed out by Chris Martenson of the Crash Course) that the IRS only takes payment in dollars, which also gives it its value.  Faith though not only involves Americans to have faith in it (great sign me up), but Foreign countries as well (bummer).  I have really summarized his article for clarity, if you want a more in-depth read, please click here.

Monthly Existing Home Sales

The Augusts existing home sales number came out today, which is an annualized number of residential buildings that were sold during the previous month, excluding new construction.  The forecasted number for August was 4.11 million and the actual headline number was 4.13 million.   The market took this as a positive sign in the face of negative news on initial unemployment claims.  This 4.13 million headline number beat the July's revised number of 3.84 million.

In the release Lawrence Yun, NAR Chief Economist said the following:

Home values have shown stabilizing trends over the past year, even as the economy shed millions of jobs, because of the home buyer tax credit stimulus. Now that the economy is adding some jobs, the housing market needs to steadily improve and eventually stand on its own.

I am going to assume Mr. Yun did not see the employment numbers prior to making this statement as initial claims spiked up and 465,000 people initiated an initial unemployment claim in the past week (12,000 more than the prior weeks revised number).  NAR President, Vicki Cox Golder, said the following about the housing market:

People understand the good affordability conditions with stable home prices in most areas, but they’re concerned about the economy and speculation on Wall Street

We need to stick with the facts about the long-term value of homeownership and avoid unrealistic assessments. Tight credit and slow short sales are ongoing problems – expediting short sales will help the market to recover more quickly.

The price range that sold a majority of the existing homes were houses priced between 0 - 500K ( 89% of the sales) and 500K+ ( 11% of the sales) U.S. wide.  The chart below shows the sales distribution based on house prices.

 

Weekly Initial Claims Up

The weekly initial unemployment claims were released today and were worse than expected.   Remember initial claims is the number of persons who filed for unemployment insurance for the first time in the prior week. The forecasted  number was 451k and the actual number came in at 465k.  The prior weeks number was 450k was revised to 453k this week showing an actual increase of 3k over the number released last week.  This added 12,0000 workers who filed for unemployment in the past week using the revised number and 15,000 workers who filed over the reported number last week.

Figure 1 shows the Actual vs. Forecast as well as the 4 week moving average.  Figure 2 shows the actual vs. the forecast and Figure 3 shows the delta between actual and the revision to show how the error in reporting is contracting or expanding (a phenomena that has actually increased in the past year or during our "Recovery").

Figure 1

Figure 2

Figure 3

Money Flows (Mutual Funds and Bonds)

I find it astounding that the stock market is holding up and even increasing in value (recognizing it is still moving in a channel, but upwards) as the flight from Mutual funds has continued for the 20th consecutive week. This week we had another $3.6 Billion leave Mutual fund (thus the stock market).  So exactly what or who is buying up all these stocks that is driving the Dow towards 11,000.  It concerns me because if the market has departed from general understanding (fundamentals, inflows, outflows), then the rug can be pulled out from under you at any time with no indications prior.  While domestic mutual funds saw and outflow of $3.6 billion, Foreign funds saw an inflow of $582 Million dollars.

Bonds saw a inflow of $7.375 Billion in Taxable bonds and $375 Million into Municipal bonds, thus perpetuating what some are calling a bubble in the bond market.  

When you take a look at the total outflows in the Mutual funds to the total inflows in the Bonds, you observe that money is flowing out of stock market and into the bond market.  

After seeing the total money flows chart, you begin to wonder, where the money is coming from to hold up the stock market.  The health of the economy or economic fundamentals surely don't support what the market has done or is doing currently (regardless of what those who got it wrong in 2007 say on CNBC).

Mike Maloney Schools Bankers

You really need to watch these videos in their entirety to understand the current currency crisis and where we are going with it.  You'll learn how currency is printed into existence in our country.

Robin Griffiths on Paper Currencies

Home Prices Down Again

The HPI (Housing Price Index) measures the change in the purchase price of homes with mortgages backed by Freddie and Fannie in the previous month.  The HPI was worse than the forecasted number of -0.1% coming in at -0.5%.  The HPI is looked at as an indicator of economic health as higher prices attract investors and spur industry activity.  We need to realize that our house is not an investment, it is a place to live ( I see this as faulty thinking).  It is no shock that prices came down as inventory on the market is very high and increasing due to foreclosures, failure to turn over those foreclosed properties and continued construction of new homes that are not needed.

ALERT: Revisions in home prices in June were much worse than what was reported for June (reported was -0.3% and revised was -1.2%)

Humorous Fed Video

Just to add a little humor in a time of nothing but bad news, here is a funny video I came across and wanted to share.  In times of great stress, you have to keep your sense of humor.

AIA: Architecture Billings Index shows contraction in August

CalculatedRisk posted an article today on news out of Reuters showing a continuing contraction in the month of August for commercial real estate investment.  The Architecture Billings Index has had a value below 50 since January of 2008, indicating falling demand.  [ Read more ... ]

Gold Surges and Dollar Dives

Over the past week and a half Gold has been surging to new highs each day and the dollar is diving further and further against other major currencies as well as in the dollar index.  Gold hit a high of 1296.80 as of this writing and predictions are for it to cross 1300 by this week (not to far to go on that prediction).  The dollar is feeling weakness due to greater possibilities of QE2 and the FED keeping the Fed funds rate where it is (Along with bailout dollars that the President has introduced recently, there seems to be no end to the deficit spending. oops we're not supposed to call it a bailout).  You can see by the following chart that Gold has breached its prior ceiling and is flying higher.

Gold and silver is surging as central banks begin to realize that Gold and silver is a currency and the currency that everybody trusts worldwide.  The following chart is the Dollar index showing a large retreat in the past few days.

As you can see below the dollar is down against these major currencies (these are daily charts) and per ZeroHedge is down compared to every major currency.

Maps of USD and EUR weakness can be obtained at he following ZeroHedge Link.

Jim Rickards on Gold and the Currency Crisis

I think a lot of people think  that Gold and Silver is just a commodity play.  The problem is, during this currency crisis (which is still running full steam) Gold/Silver is actually acting as a currency.  You cannot spend it like a dollar in the US, but you can sell it prior to making a purchase and the spend in dollars.  In some countries Gold/Silver are accepted as currency as well.   More central banks and high end investors are purchasing gold for that reason.  Jim gives some insight on how it could be used in the future.

FOMC Keeps Rates Steady

The FED announced today that they will keep the Fed Funds Rate steady (who would have thunk it?).  The FED also announced that if it were necessary it would take further steps in the markets.  This is the last meeting before the Nov 2nd elections, therefore the FED has elected to take a wait and see approach.  The stock market reacted positively to this and surged up 10,765, Gold also reacted positively to this by surging up to a new record 1290.30.  The 10 Year Treasury Bond took a nose dive in response to the FEDs position.

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Yesterday's Confusing Market Action

It would seem that yesterdays rise in the market seems to be perplexing many.  Some believe it was accelerated short covering due to massive short interest.  With the number of retail investors who have withdrawn from the markets (backed by the outflows in mutual funds still occurring in September and largely in August) and the lack of any real great news worth of yesterdays run up, where did this uptick come from?  The interview with the president was not that uplifting and if you listened carefully he said that we have more money going out for programs than coming in.  Well in everybody else's book that means your bankrupt.  More perplexing is data on the Wall Street Journals site (pointed out by the folks at Zero hedge) that shows outflows were greater than inflows, so what pushed the market up.  Here is the data:

I don't know about you, but a negative money flow should have equalled a down market, not an up.  Both total money flows and block trades are in the negative.  This is very perplexing.  I looked back a few days to a down market to verify that this should be the case and sure enough looking at positive days you should see an up day and with negative flows you should see a down day.  So, something seems a miss here.  

Monthly Housing Starts and Building Permits

Housing is a very confusing area these days.  The building permits number came out essentially flat (slightly up) meaning that not many new building permits were applied for in the previous month.  Forecast called for .56M and the actual was .57M, up from the previous .56.  Housing Starts was actually up from a forecast of .55M to .60M (previous was .54M).  This is a surprising number considering the number of foreclosures on the market flooding the market with inventory.  The scary thing is that it is hard to believe this is coming from any real new demand as the their is so much inventory (and more coming on every day) in the economy.  Remember that housing starts is the number of new residential houses starting construction during the previous month.  This is only going to add more inventory to the market which will contribute to the fall in house prices.  Now new information coming forth that some of the banks foreclosing on properties and may not have had clear title to these properties is muddying the waters.  Also, GMAC Mortgage putting out a letter to freeze all foreclosures (even ones in progress or about to finish) for some unknown reason (to include upcoming foreclosures).  One can only imagine that they realized they don't have clear title or maybe some other event is on the horizon.  [ Read more on GMAC ... ]

Stealth Inflation

You know, there has been a lot of talk lately that we are experiencing deflation and that we shouldn't worry about inflation.  Economists have been saying that when going into or are in a recession you see deflation, not inflation.  Well, yes and no.  Yes, housing values have gone down in price (no brainer there, it was the catalyst for the recession).  Generally it would also make sense that gas prices and non-currency related commodities would also come down in price based on demand.  Although no significant change has occurred in gas prices in this decline.   Sugar, Coffee, Corn, Wheat and Oats have done nothing but go up.

We have not seen a total deflation story in prices though, we see products going down in price slightly or staying the same with one key difference, size.  Yes it would seem size or quantity of the products has been reducing yet the prices are staying the same (called Stealth Inflation).  In case you haven't noticed here are a few examples:

  

Recently we noticed a box of Kleenex is 20 tissues less.  And before you think this is all about toilet paper and ice cream, well here is a short list of some products that have changed size but not price.  

Chart courtesy of Consumer Reports

There are many other examples, but I think point made.  You might think, well the price is staying the same or in some cases maybe went down a smidge, how harmful is it?  Well a few things; first, even though your paying the same price for the product, your getting less which means you'll be back for more sooner than later (this is a subtle way to increase prices on you without you really noticing); second, CPI is calculated on price changes, well if the price stays the same or comes down a bit (less than the amount they are shorting you) then CPI is unchanged.  Remember, CPI (Consumer Price Index) is a gauge that is used to formulate the cost of living allowance for those in retirement on social security.  Their benefits don't increase if the prices stay the same.  This seems very disingenuous and seems to be going unnoticed.  I know, it is hard to keep up with, because we are all getting our savings hit from so many directions these days.  

UK Proposes all Paychecks go to the State First

Wow, this is a radical move by the UK.  Basically UK employers would send paychecks directly to the UK government, the government would then assess taxes and send the remainder to the employee.  This is a trend that I hope the US government doesn't find neat.  This will tick off every American.  The following is a direct quote from the article.

The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.

Exactly what does this solve that W2's and your tax per paycheck isn't doing already.  They go on to say that this will provide the government the ability to tax employees in real time.  Well, if your in sales and get a large commission once at the beginning of the year and they establish in "Real Time" that your rate is now much higher and the rest of the year is flat, well then you will have forcibly overpaid.  Sure you should get a refund, but what did real time do for you there?

HMRC estimated the potential savings to employers from the introduction of the concept would be about £500 million ($780 million).

But the cost of implementing the new system would be "phenomenal," Bull pointed out.  

Wow, sounds like they just took the cost of payroll process from employers and put it on taxpayers heads (which means your really taking home less, because you have to fund this a process once done by your employer).  I seriously doubt it will save employers that much as they still have a responsibility to track that money, not to mention HR calls escalating on late payments or issues.  Sounds like the taxpayers there are about to get looted.  But that is austerity in action for you ( O wait, no its not, that will just cause their spending to go up).   Again this is just a proposal, but for the UK taxpayers sake lets hope they don't do it.  [ Read more ... ]

Chinese Renminbi Bought for Reserves by Malaysia

Zerohedge released a post based on an article in the financial times discussing a recent transaction Malaysia made with China.

Malaysia bought renminbi-denominated bonds for its reserves, marking a significant advance for Beijing’s attempts to internationalise the use of its currency, pitched by Chinese policymakers as a long-term rival to the US dollar.

This is very significant as it strengthens the Renmimbi against the dollar (something the US may embrace, as this is something they have been wanting), but it also sets a precedence the worlds government may follow as well bringing the devaluating Dollars reserve status into further question (already under heavy scrutiny).  Malaysia has already embraced gold as a currency as parts of Malaysia are allowed to use either fiat currency or gold for transactions.  A lot of changes happening and coming in the currency wars.  [ Read more ... ]

Illinois' Pension Fund Death Spiral Revisited: "10 Years Of Money Left"

Zerohedge came out with a story today talking about the health of Illinois Pension fund.  The theme in this article is that if the fund does not get funding from the state and has to only rely on employee contributions then the fund only has a life of about 10 years or less.  [ Read more ... ]

Chinese Currency Action

Gold at 1500 by Christmas

Currency Wars Continued

Things are heating up with China, as the US is disappointed in the lack of appreciation in the Renminbi vs. the US Dollar.  Per a recent article entitled "US-China clash over yuan escalates, risking superpower standoff" Tim Geithtner made the following statement to congress:

“The pace of appreciation has been to slow. The undervalued renminbi helps China’s export sector. It encourages out-sourcing of production and jobs from the United States. By continuing a rigid exchange rate, China is impeding the adjustments needed to secure sustainable global growth,”

Japan intervened in the forex markets this week in response to a stronger Yen vs. the US dollar thanks to two events; the US devaluation of the dollar and China's purchasing of the Yen (creating stronger demand for the Yen, thereby causing the Yen to rise).  Japan bought the US Dollar and the Euro selling off the Yen, to cause its currency to devalue considerably ( in a very small period of time).  The US House Ways and Means committee calls this move "very disturbing".  Geithtner continues:

“The US trade deficit with China is widening, yet the Chinese are still accumulating reserves at remarkable rate, beyond their needs. They know that growth in China’s coastal provinces is their passport to political stability, but this is incompatible with US political stability,”

Wow, China is making moves that is not in our interests, who would have thunk it.  Well not all the blame can sit with them, we did put policies in place to allow US manufacturing jobs to go overseas with no recourse and tried to become a mostly service economy ("you want fries with that").  Last I looked we are still the major consumers of products and we could have put tariffs in place that helped even out the playing field.  As we have farmed out most of our agriculture, manufacturing and such we put ourselves in a position where if we try to put tariffs in place, to even the playing field, we could get cut off on imports.  We need to strengthen our Agricultural and manufacturing base to make America great again (You know create jobs, produce food for the US and create real wealth for hard working Americans).

China, Russia and some other developed countries have already announced support for an alternative reserve currency and a recent article called "Will Europe Join in Promoting the SDR as the Global Reserve Currency?" points out that China, Russia and others would support an reformulated SDR with a broader representation of currencies, gold and silver.  Now, European countries are are subtly rallying to support this effort as well.  This is something that the US and the UK is fighting and trying to delay for obvious reasons.

All this activity is really going to make for some interesting forex markets.  For anyone investing in the forex markets these issues are going to cloud technicals in the forex markets and creating a lot of volatility making it much tougher for investors to make sound decisions.  Your either going to get wiped out of your account within hours or obtain considerable gains in very short periods of time (re. Japanese intervention).

Dylan Ratigan and Peter Schiff on the Economy

Peter Schiff explains what changes need to happen in the economy for it to recover. Dylan and Peter debate the class wars (rich vs poor) vs. the culture warfare (those who compete and those who cheat). Peter talks about what needs to change in our economy to make it better, correcting markets and stop corruption.  If we don't change things, he believes our children's generation and small business leaders will be forced to go to other countries for opportunity.

European Union Debt Problems

Ron Paul on the Economy and Policy

Is this a Test from the Fed?

ZeroHedge came out with an article on based on information out of MS (Morgan Stanley) earlier this week which had an effect on the markets as a whole.   The information from MS was that the fed would inject 1 trillion in POMO purchases.  What is POMO you might ask?  The acronym stands for Permanent Open Market Operations and is the buying or selling of Treasury securities on an outright basis adds or drains the reserves available in the banking system.  This is done to offset imbalances in the FEDs balance sheet.  A purchase of 1 Trillion dollars means that somewhere in their he is offsetting a 1 Trillion dollar loss or upcoming loss.  MS told the markets Tuesday the 14th this purchase was going to take place on the September 21st.  Markets sold off, gold climbed and the dollar plunged.  Quickly thereafter MS recanted what they said which subtly reversed the stock market after (gold held its own and the dollar still ended down for the week).  ZeroHedge believes that the real event will take place in November after the elections.  I believe this could be the case and that this was a test to see how the market would react.  To announce something like this, the FED must need the injection into his balance sheet, but cannot accomplish if it will have a significant impact on elections. [ Read more ... ]