07/27/10 St. Louis, Missouri – Yesterday morning I told you that the currencies, for the most part, were flat… That didn’t last too much longer… The US printed what the media and markets thought was a fabulous New Home Sales report, and the rally in risk assets was “on”! With stocks and currencies in rally mode, gold and silver backed off… I’ll talk about that trading theme we’ve seen lately in a minute, but first… Let’s talk about the housing data…
It’s true that the new home sales in June jumped 23.6% to 330K units from May’s downwardly revised record low of 267K units. The rise beat market expectations for an increase to 312K units.
The better-than-expected rise in new home sales in June follows the large downward revision to the previous month’s already record low, but still represents the second lowest pace of new home sales since records began in 1963.
Think about that for a minute, folks… Whenever you see a piece of data print and it looks too good to be true, it probably is. First you have to see what the increase is compared to… In other words, what time frame… Because anything that does year-on-year, will be comparing current data to the “absolute worst data” in the depths of the current recession, before the Government spending, stimulus, and economic “tricks” began to get played…
And let’s not forget that to sell those homes, builders had to slash prices once again… The average price for a new home has now fallen to 2003 levels… Although I don’t like to talk about this, but the price slashing does go along with my call that home prices will continue to fall… UGH!
So… Everyone was all excited about the new home sales data, but forgot to look under the hood… I really don’t think that getting all excited about the second worst pace of new home sales since records began in 1963 is anything to get me all lathered up!
BUT! The euphoria got the risk assets of stocks and currencies rallying again, so what-ev-er!
Now, let’s come back to the trading theme that we’ve seen recently regarding the euro (EUR) and gold… Both are offsets to the dollar, so when you see the euro in rally mode, it only makes sense that gold should be in rally mode, too… But that’s not been the case recently… Give or take a day here and there, when these two didn’t trade this way… If the euro rallies, gold declines versus the dollar… It’s as if the markets are saying, “we don’t need gold, if the euro is going to chase the dollar”…
But, I’ve got news for these knuckleheads… The euro is NOT out of the woods, and to put all your eggs in the euro’s basket, instead of allocating some to gold’s basket, is just not a wise move, in my opinion…
Eventually, this trading theme will correct… Which means these two (gold and euros) will return to trading side-by-side versus the dollar… When? I have no idea… But it will happen… That I’m sure of!
The euro has broken above 1.30 this morning, while I’ve been typing my fat fingers to the bone; let’s see how long it remains there before being “shot down.”
After the new home sales data yesterday, and the risk assets of stocks and currencies began to rally, it meant that those currencies that received all the love during the “risk off” days, like dollars, yen (JPY), and Swiss francs (CHF), all were sold… And are weaker this morning.
The Canadian dollar/loonie (CAD) sure isn’t weaker! The loonie is back above 97-cents versus the dollar to the south of Canada. Oil is back above $79 this morning, which has been a steady climb for the past couple of weeks. And any time the price of oil is rising, we should see the bias for a stronger loonie!
Speaking of bias… The South African rand (ZAR) is on a tear lately, as it recovers to a 3-month high… I did see something that caught “my eye” yesterday… And that is that S. African unemployment was 25% WOW! That’s awful! But at least they come out and say so! Here in the US we have unemployment near those levels, but the government only reports it to be 9%… Go figure…
There are all kinds of rumors swirling around the markets today about the Brazilian real (BRL), and whether or not the Brazilian Central Bank (BCB) is going to step in to stem the real’s two month rally. The BCB could intervene and sell reals, in an attempt to keep the currency from getting too strong. You know where I stand on this, folks… It’s wrong! It’s wrong for a central bank to debase its own currency, and if they sell it, doesn’t it send the message to the markets that they don’t want it, so why should you?
So… Let’s hope the BCB keeps out of the intervention game, for the real has wild enough swings day-to-day; it sure doesn’t need its central bank adding to the volatility!
Yesterday, I just kept seeing headline after headline about how the Eurozone Bank stress tests weren’t tough enough… However, I did see something from Deutsche Bank that led me to believe that at least it was on terra firma… Deutsche Bank printed a better-than-expected second quarter earnings report, but more importantly, they also revealed their holdings of debt from the (GIIPS)… Deutsche Bank confirmed that their exposure to this debt was minimal…
Now… Isn’t that interesting… The rumors were that German Banks held tons of GIIPS debt, but a bank as large as Deutsche Bank said their exposure was minimal…
Then there was this… I saw this while going through The Wall Street Journal… The title is: “A Taxing Divorce”…
“US Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke have been in sync on most issues during the past three years, but recent comments from the officials suggest they are on opposite sides of a tax issue, according to The Wall Street Journal. Bernanke told lawmakers that he supports continuing tax rates that expire early next year. Geithner, on the other hand, said those tax rates should be allowed to expire.”
Interesting, eh? Yes, I saw a quote from Geithner about how the wealthy had to pay more taxes…
A memo to Tim Geithner… If you pay them, I’ll pay them…
To recap… The risk assets of currencies and stocks rallied yesterday after new home sales data captured the imagination of the markets. Gold followed the trading theme we’ve seen lately, selling off when euros rally. Oil is back above $79, and that has the loonie in rally mode, and the rumors are swirling regarding Brazil’s Central Bank and whether or not they will attempt to stem the real’s recent rise.
Chuck Butler
for The Daily Reckoning
Chuck Butler
Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter, which is reposted here at The Daily Reckoning. With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News and World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune. Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.
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Woah, you really stepped out on a limb there with “your” claim that home prices will continue to fall. In related news, the sun rose again today.
It is unfathomable that anyone would invest in any fiat currency at this point…except for the ludicrously incompetent/corrupt heads of systemic banking branches – Like the doufus that penned this article.
Chuck Butler,
I enjoy reading your posts.
Fiat currencies are not going to die a sudden death, they are going to age to death.