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 Butlerfor The Daily Reckoning
Chuck Butler is President of EverBank
Maybe you’ve got your charts upside down. The Aussie dollar is lower now than before.
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