New Home Sales Plunge!

Well… The chill in the air isn’t confined to the cold front that moved through the Midwest this week… The cold front’s chilly air has moved over the economic data here in the US and to a lesser extent, the dollar.

The dollar is weaker this morning versus the usual suspects, led by the euro (EUR), which has climbed and clawed its way back to above 1.27; and the commodity currencies look a bit healthier this morning, too. It’s all about the awful housing data that had printed two consecutive days this week. I’ll get to that in a minute, but first some observations from the Chuck flight deck…

I saw Fed Head, Richard Fisher (of the Dallas Fed) on TV Tuesday, and he said, “We should thank Ben Bernanke for bringing us back.”

My thought as I walked out the door, past the TV was “bringing us where?” I mean, so we should kick up our heels that:

1. The Cartel got involved in the markets and now is the owner of over $2 trillion worth of toxic waste bonds? And $2 trillion is their FLOOR!

2. The Cartel did over $300 billion of quantitative easing (QE) in March of 2009, and announced a week ago that they would continue to “support” Treasuries, which is Central Bank parlance for, more quantitative easing?

3. The Cartel has kept interest rates at zero for so long, and will continue to do so?

4. That Housing is circling the bowl once again?

5. That unemployment is 22%?

6. And now the Cartel is arguing among themselves as to how to stimulate the economy?

Oh trust me, folks, I could carry on, my wayward son, for a long time here… But won’t… I’m being watched these days, and don’t want to get my wrists slapped!

I will say, though, that I can’t believe the markets haven’t punished the Fed and the dollar for this second round of QE… The damage that this Cartel chairman has inflicted on the dollar will end up being the mother of all damage in the end.

Speaking of Housing… Did you strap yourself in for the New Home Sales for July report yesterday like I warned you to do? Good thing, because, following up on Tuesday’s print of July Existing Home Sales falling -27%!!! Yesterday we had New Home Sales “fall” -12.4% OUCH! That’s two consecutive days on Mr. Toad’s Wild Ride with housing…

So… I have to ask you this… Remember a couple of weeks ago, when US Treasury Secretary Geithner wrote an Op-Ed in The New York Times that was titled, “Welcome to the Recovery”?

Did that remind you of back in 2008 when then US Treasury Secretary Hank Paulson, and Ben Bernanke swore before Congress that Fannie Mae and Freddie Mac were “sound” and “well capitalized”… And a couple of months later they collapsed?

I just shake my head in disgust, but… Have to come back to today, and the fact is this… Housing is circling the bowl, and the recovery is nowhere in sight. Period.

Whew! I’m full of you-know-what and vinegar this morning!

I heard on the radio on the way to work today that a local mortgage lender was offering 30-year Conventional or FHA loans at 3.75%!!! WOW! Now, think about this for a minute, mortgage rates are at 1960 levels, and home prices have sunk by large chunks in the past few years. Sounds like a good time to buy a house, right? Well… Yes, if you’re qualified… Ahhh, that’s the cheese that binds right there, isn’t it? No longer are you able to get a home loan if you are not qualified, and with unemployment at 22%, and the number of people battening down the hatches right now, doesn’t leave many “qualified” people… It’s a vicious cycle, folks… But until people go back to work, housing is a victim…

And the housing problems are what I believe pushes the US back to negative growth… One of my fave economists, Nouriel Roubini, believes that US growth will go below 1%, and the chances of a double-dip recession are at 40%. I guess for once, I’m even more gloom and doom than Mr. Gloom and Doom, here… But he’ll come around…

Well, the two days of rides on Mr. Toad’s Wild Ride for housing, really got gold going again… Yesterday, gold advanced to the highest price in almost eight weeks, and the shiny metal is up a couple of bucks this morning, with silver really kicking some sand in the dollar’s face, moving back above $19 this morning!

The fear factor (i.e. the fear that the economy is really faltering) is the key here… Gold and silver are seen as stores of value, and wealth… So… When the economy of the US is circling the bowl, which will take the dollar, and stocks with it, and bonds are at minuscule yields, where does the intelligent investor go? They go to gold and silver!

Remember a few years ago, when I told you that gold was becoming an investment choice by many investors because gold no longer had to compete with deposit rates at banks? (Except EverBank!) Well, the bond bubble just keeps inflating, and as it does, yields on bonds continue to fall, thus allowing gold and silver to compete with bonds now too!

Well… Another reason for dollar weakness this morning, I’m told, is that the markets are convinced that Cartel Chairman, Big Ben Bernanke, will use his Jackson Hole speech tomorrow to lay the groundwork for further easing here in the US… Yes, it’s boondoggle time in Jackson Hole, WY this weekend, with central bankers, economists, and other guests getting together to talk about economies… OOOOOHHHHH sends shivers up my spine! Where do I sign up to get invited to that boondoggle? NOT!

OK… So… I see that the dollar is rallying back, moving the euro from 1.2745 to 1.2710, and the trading looks to be one-way right now… So, maybe traders thought the move against the dollar was too much…

No matter what the euro and other currencies do today, it doesn’t change the overall picture for them versus the dollar… I had a few guys come up to me at the San Francisco Money Show last week, and tell me that they believed that all currencies were going to devalue along with the dollar… First, I wondered if they had all read the same story… But then I would say to them… “That may be true… But a race to the bottom is being won by the dollar, so why not take advantage of that?”

I really don’t believe in all currencies devaluing together… You can’t get these guys to agree on anything when G-7 or G-10, or G-20 meet, how would you get everyone together to agree to something like that? Sounds far-fetched to me!

There was no follow up to the news I brought you yesterday that the Japanese Finance Minister, Noda, had greased the trap that I believe is being set for investors flocking to Japanese yen (JPY) with the belief that Japanese officials won’t do anything about the strength of the yen… And yen is basically flat on the day.

Yesterday, S&P downgraded Ireland’s credit rating… This was a blow to Ireland and the Eurozone, and now is being called “not realistic” by the Irish Government. Apparently there are some economists and analysts that agree with the Government on this… But nonetheless, S&P downgraded Ireland’s credit rating… And that put a dagger in the heart of those that believed bond yields spreads between Ireland and Germany would narrow…

Again with the ratings agencies! I’m not even going to rail on them this morning, I think  my dear readers know where I stand with these ratings agencies!

And for those that continue to believe that China’s economy is about to collapse… China’s biggest automaker posted a 35% increase in profits for the 1st half of 2010! That’s $118 million in profits… Sure doesn’t sound like things are bad enough to stop people from buying new cars in China!

The data cupboard will yield the Weekly Initial Jobless Claims this morning, which are expected to remain near 500,000… Tomorrow is the second print of second quarter GDP. Just a refresher… The first print was 2.4%… I told you when it printed that it would be revised down, and tomorrow, I expect the revision to come in with a number less than 2%, but could very well plunge to 1.4%… OUCH! Of course, this is all water under the bridge, as it happened so long ago… In the second quarter, I had eye surgery, and that seems like a year ago to me!

Speaking of data… I forgot to mention to you that the New Home Sales report represented the slowest month of New Home Sales since 1963! OUCH! Now that’s going to leave a mark!

Another economic report that points to a double dip, printed yesterday… US Durable Goods Orders for July printed weaker than expected, in spite of a surge in aircraft orders… The data was up 0.3%, but given the aircraft orders, should have been much stronger… So… When you take out the “one-time” aircraft orders, Durable Goods were down big!

Then there was this… Demand for physical gold in the second quarter rose by 36%! And when you take into account the dollar value of the ounces purchased it equates to a 77% increase! WOW! My friend, David Galland, reported yesterday that the amount of gold held by ETF’s grew by 414% in the past year! DOUBLE WOW! Here’s some more from my friend and one of my fave writers, David Galland… “For all the reasons that Aristotle enunciated, gold is viewed in a class of its own, and so has an unblemished history as a universally accepted store of value. And, thanks to its portability, divisibility, durability, and consistency, it has also always been looked upon as a convenient form of money.”

Nicely said David…

To recap… New Home Sales plunged 12.4% in July, following up on the plunge of 27% in Existing Homes. The fear factor for the US economy has put some pressure on the dollar, albeit soft pressure, not deep tissue! Gold has gained quite a bit the past two days on these awful housing reports, and the physical demand for gold continues to be quite strong.

Chuck Butler
for The Daily Reckoning