Chuck Butler

Front and center this morning, Julia Gillard became Australia’s first female prime minister after Kevin Rudd stepped aside as leader of the governing Labor Party, paving the way for the government to drop a controversial new 40% levy on mining profits that has damaged its standing in voter polls.

That’s right! Remember a week or so ago, I printed a quote from Bill Fleckenstein, who said then that it looked like the 40% mining profits tax was in jeopardy… So… All the damage the Aussie dollar (AUD) had to suffer because of the prospect of this tax was for naught… And caused large losses to Aussie dollar holders… That’s shameful!

The Aussie dollar is rallying this morning on the shake up in Prime Ministers and the thought that it was done to deep six the mining tax proposal… Good riddance!

What about the rest of the currencies, you may be asking at this point? Well… They seem to be trading in yesterday’s clothes once again. The Swiss franc (CHF) inches higher, but for the most part the currencies are flat compared to yesterday’s levels.

The other Big News yesterday was the awful New Home Sales data…

Well, boys and girls… The trap door on New Home Sales was sprung in May… Here’s the skinny as reported by the Commerce Department… “New home sales fell in May from a month earlier to a seasonally adjusted annual sales pace of 300,000. That was the slowest sales pace on records dating back to 1963.”

1963… The Beatles premiered here in the US on the Ed Sullivan Show! So, I guess we have quickly learned that without “government assistance”… Sales of new homes collapse, and sink 33% to the lowest level on record as potential buyers stop shopping for homes once they can no longer get government incentives.

Because the credit was eligible only up to an income cap of $125,000 for single-taxpayers and $225,000 for married couples, it had a disproportionate impact on homes sold for less than $300,000. New home sales above this price point have hardly budged for the past seventeen months!

Another government spending boondoggle like the $150 billion in tax rebates from three years ago… Or the Cash for Clunkers… Or the funding of Fannie and Freddie… Or the, oh forget it… I’m tired of pointing out these spending boondoggles and the markets not paying attention to them!

As Dieter would say… “I’ve grown tired of your babble… We dance now!”

In Canada yesterday… Retail sales declined 2.0% in the month of April, which almost fully reversed the 2.2% increase in March… This was NOT the retail sales data I was looking for! Taken with Tuesday’s print of CPI that was weaker, I would have to say without a doubt, that the prospects for a rate hike from the Bank of Canada at their meeting in July are slim and none… And slim just left town!

The Canadian dollar/loonie (CAD) weakened a bit on the disappointing retail sales print, and rightly so… But to me, it was a welcomed move, for it allows investors to buy some loonies at cheaper levels today!

I saw a list of reasons why Canada is a great place to be while reading an article by Eric Fry in yesterday’s issue of The Daily Reckoning titled, “Don’t Underestimate Canadian Economic Growth”… Among the many reasons were these two, which I really liked…

“4) Freedom to travel abroad where all countries welcome you and like you.

“5) A banking system that works. Sorry, no easy way to buy a home without 10% down at least.”

But here’s another that I came across… Canadian household net worth climbed to C$ 6.0-trillion in the first quarter…

Canadian household net worth increased by 1.3% ($74 billion) in the first quarter of 2010 to C$ 6.0 trillion. This marks the fourth consecutive quarterly improvement in household net worth and reflects a 96% recovery off the net worth lost during the recent economic downturn.

I tell you all this, not because I want to live there… But to illustrate to you why investors would look to Canada and the Canadian loonie…

The Fed’s FOMC meeting was quite interesting yesterday… And in the end, I do believe that my call several months ago – when everyone else was claiming that the US would be raising rates by now, and I steadfastly said, “no they won’t” – is looking bang on, eh?

The Fed left the rate unchanged, no surprise there… But they really pointed out that the economy was sputtering… And I now believe that their statement, “Rates would remain low for an extended period” now means, “For much longer!” At this point, who would argue with me regarding the Fed’s moves? I’ve been all over them like a cheap suit going back to August of 2007, and telling you what they were going to do months before they did it, and this “no rate hike for 2010” is just another feather in my cap!

And here’s another thing that I’ve said over and over again, until I’m blue in the face, and that is… That the US woes can’t be solved by a revaluation of the renminbi (CNY)… The Bloomie has a story this morning quoting a spokesman from the Chinese Foreign Ministry, who said exactly what I’ve been saying… “The US woes can’t be solved by a revaluation of the renminbi…and American leaders will help no one by politicizing the issue.”

He went further to say, “Renminbi appreciation cannot help to solve US problems of unemployment, overconsumption, and low saving rate.”

But… Unfortunately, it looks like that knucklehead Schumer is going to push for legislation that would punish the Chinese for the lack of renminbi appreciation.

So… I guess that China’s announcement last Saturday to allow more renminbi flexibility is a thing of the past now, for there is this saber rattling in Congress, and now calls for this all to be discussed at the G-20 meeting this weekend.

I guess this qualifies as a “too much, too little, too late” for the Chinese… But I wish these knuckleheads in Washington DC would stop and listen to what the Chinese have been telling them for years now… “Get your house in order!”

Before I head to the Big Finish… I wanted to include a snippet from yesterday’s newsletter that’s written by my friend, David Galland… He’s talking about things going on here in the US:

“And it’s not just economics. Over the weekend I re-read both the Declaration of Independence and the Bill of Rights, and it struck me that if the Founding Fathers were alive today, they would be considered terrorists and rounded up. Furthermore, because the Bill of Rights has been all but voided at this point, they might be dropped into the equivalent of a dark hole with no right to a speedy trial, or any trial at all, for that matter.

“Trading our freedoms for security is a bad decision because, in the end, the nation will be neither free nor secure. Much in the same way that, to paraphrase one sage, a government that habitually saves all fools from their bad decisions, ultimately creates a nation of fools.”

Then there was this… According to The Wall Street Journal… “The FDIC said the fund, which is under water by about $21 billion amid a surge of bank failures, won’t reach its statutory minimum funding level (1.15% of insured deposits) for at least seven years. Even if the economy somehow muddles through the Gulf oil disaster, the still-gathering euro crisis and who knows what else, the FDIC’s estimate puts a full deposit fund recovery off till the first quarter of 2017, all else equal.”

To recap… Australia has a new Prime Minister that has removed the ads for the mining tax… The Aussie dollar has responded positively. The rest of the currencies are pretty flat to yesterday’s levels. The Fed is not so “cocky” about the economy any longer. Canada prints a disappointing retail sales report, and New Home Sales plunged 33% in May!

Chuck Butler
for The Daily Reckoning

You May Also Like:


Commodity Currencies Rebound Versus the Dollar

Chuck Butler

Well… Instead of a “turn around Tuesday”, we’re seeing a whiplash Wednesday! And for once the Big Dog (euro) (EUR) didn’t lead the other little dogs (currencies) off the porch to chase the dollar down the street!No… This time it was the currencies of Australia (AUD) and New Zealand (NZD) that led the charge versus […]

Chuck Butler

Chuck Butler is President of EverBank

  • Dean

    Maybe you’ve got your charts upside down. The Aussie dollar is lower now than before.

Recent Articles

Laissez Faire
How to Get Free Airfare to Almost Anywhere in the World

Chris Campbell

Traveling the world can be expensive. Between airfare, dining costs and hotel accommodations, travel expenses can add up quickly. And the last thing you want on your vacation is to be stretched too thin. Chris Campbell explains how you can eliminate one of the biggest travel expenses entirely, with one simple trick. Read on...


1990s Flashback: A Blueprint for the Current S&P Rally

Greg Guenthner

The S&P finally closed above 2,000 yesterday - a new all-time high. And that has some investors comparing it to the heady days of the late 1990s, when the S&P soared through 1,000 and didn't bother to look back. But as Greg Guenthner explains, that run up wasn't without its pitfalls, and this one won't be either. Read on...


Why “Fair-Weather Investing” is a Winning Strategy

Matt Insley

A "fair-weather fan" is someone who only roots for his team when the team is winning. And while that's usually a derogatory term, Matt Insley explains why, at least when it comes to investing, being a "fair-weather fan" can be the best strategy to making huge gains in any kind of market. Read on...


5 Min. Forecast
Buffett’s Juicy Deal with Burger King

Dave Gonigam

The S&P got back over the 2,000 hump and actually managed to close there by day's end. Dave Gonigam examines the buzz on Wall Street that accompanied the move higher - and takes a closer look at Warren Buffett's role in the Burger King takeover of Canadian doughnut maker Tim Hortons. Read on...


What Back to School Bureaucracy Can Teach You About Markets

Chris Mayer

Public companies operate mostly for their own sake, representing the vested interests of their management teams. So much so that shareholders are often little more than an afterthought. As an investor, it's important for your to seek out those companies that have your interests at the forefront. Chris Mayer explains how to find them...


5 Min. Forecast
“Neofascism” in 2014 America

Dave Gonigam

The fall of the US dollar-based monetary system will happen much like Hemingway's description of how one goes bankrupt: "gradually, then suddenly." And, as Dave Gonigam explains, when the inevitable finally happens, there's one group of investors who will be happy they listened to folks like Jim Rickards. Read on...