Existing Homes and Prices Fall Again!

Good day… A one-half of the time rainy Holiday weekend was fun. But now that I look back on it, too short! Sounds more and more all the time like retirement is just around the corner for me, eh? Trust me, it just sounds that way!

Friday’s currency action was null and void of any activity; the markets’ participants had simply “gone fishing”! We saw some rotten existing home sales data, but even that couldn’t kick-start the trading. Yesterday’s trading was short of a quorum, as the U.S., U.K., and Switzerland were all on holiday.

So, we head into this holiday-shortened week, and it should be a doozy! The calendar shows economic data, Central Bank meetings, and all sorts of other stuff going on this week, and not just here in the United States. The fun will be spread throughout the world!

The highlights of the week in the United States will be the personal consumption data (PCE) due out Thursday, followed by the May Jobs Jamboree on Friday. Until then, we’ll see consumer confidence today for May, which is expected to gain. Oh, that’s right… Gas is headed to $4 or maybe even $5 per gallon in some states, housing still hasn’t found a bottom, the war continues, but we’re confident, right? NOT! But these dolts that get the survey sure are happy as clams about the whole situation!

I’m waiting for the printing of Germany’s May CPI (inflation) report this morning. It will probably remain below 2%, but forget about that playing any importance in the European Central Bank’s (ECB) rate decision due June 6th. Money supply for the Eurozone is still above 10%. The ECB has got to rein in that money supply with their rate hikes to gain any major traction versus inflation. Don’t get me wrong here, the ECB has done a wonderful job of providing price stability to date, but with energy prices going through the roof, they had better remain ahead of the inflation 8-ball, and not fall behind it like their counterparts across the Atlantic did!

Tomorrow, the Norges Bank (Norway’s Central Bank) will meet, and hopefully THIS time they’ll raise rates and issue an apologetic statement regarding their last meeting when they failed to raise rates. Oh, we know they won’t do the latter… Let’s just hope they do the rate hike!

There’s also Eurozone CPI due out this week along with European manufacturing surveys… So, a busy week all around, eh?

OK… Let’s skip backwards to Friday’s U.S. existing home sales. We had already seen new home sales rise, but only because of huge price drops. Existing home sales slipped further in April adding to March’s revised 7.9% drop. The report was softer-than-expected with the “experts” expecting no significant change in the sales pace. As if existing homes sales slipping further wasn’t bad enough news, along came the news that the average resale home price was 2.7% below the recent high.

Price cuts are stimulating activity in new home sales, but in the existing home sales the combination of stalled subprime lending and tepid price adjustments resulted in a slower sales pace and boosted the stock of homes available for sale. Here’s where I really have a problem with consumer confidence going higher and higher, but this inability to sell existing homes so that owners can move into their brand spanking new McMansions, is going to put a real stinger on the economy… But don’t let that get in the way of a “feel good” story with consumer confidence, eh?

I saw this headline over the weekend (OK it was raining, so I looked on the Internet for some stories!) “U.A.E.’s Dollar Peg ‘Not Untouchable,’ Bank Head Tells Magazine.” Hmmm… I wish these guys would just do what they keep threatening to do. Or else, it will become a case of the “boy who cried wolf.”

Recall last Friday’s Pfennig spending time talking about the Eurozone’s positive balance of payments? Talk about timing! Look what just printed… The Eurozone’s March current account, that’s what! How about a current account surplus of 5.4 billion euros? The trade surplus continues to surprise many due to the strength of the euro (EUR)… But, remember 80% of trade in the Eurozone is among the members of the Euro-club, which is why I believe the Eurozone will not be harshly affected by a downturn in the United States.

Pound sterling (GBP) is moving higher again in reaction to an interview with David Blanchflower of the Bank of England (BOE). Blanchflower said in his interview that he voted for a rate hike for the first time since joining the Monetary Policy Committee (MPC) last June, to show people that the BOE is “on the case” about inflation. “I felt it was important to let people know that inflation expectations have to remain anchored”, said Blanchflower.

I find that to be commendable of him… But apparently, he didn’t have enough power to persuade enough MPC members to join in on raising rates last month! I do, however, believe the MPC will hike rates in June.

I’ve been singing the praises of the Indian rupee (INR) for some time now – and it appears that others are catching on as capital flows into India are so strong right now, that it is giving the currency traders a bit of feeling like they are in charge now, and not the Central Bank/or government. They feel as though the capital flows into India will outweigh the Central Bank’s efforts to stem the currency’s rise.

There’s danger in feeling like Superman, when you are well aware of the fact that the Central Bank does have an ample supply of kryptonite! However, I’ve always said that the markets’ pockets are deeper than any Central Bank, so… I’ll just play along with the rise in the rupee which is near a nine-year high, and has put a 7.5% gain versus the dollar on the tote board this year!

The Canadian dollar/loonie (CAD) continues to keep the ball in its court, and scoring versus the greenback. Oil, natural gas, base metals… Just keeps this currency juiced!

I see where The Reserve Bank of New Zealand (RBNZ) will continue to have Allan Bollard as its governor, as Bollard was reappointed to another five-year term. I like Bollard… I think he does a good job, except when it comes to protecting the value of the currency. By that I mean, that he is always talking about reducing the level of kiwi (NZD). I just wish he would agree with me, that a strong kiwi is in the best interest of a country that has to import just about everything under the sun and moon. No reason to import other countries’ inflation, Allan!

OK… The week is all set up and ready to begin trading. Are you ready?

Currencies today: A$ .8210, kiwi .7290, C$ .9240, euro 1.3490, sterling 1.9860, Swiss .8175, ISK 61.75, rand 7.11, krone 6.00, SEK 6.85, forint 185, zloty 2.83, koruna 20.97, yen 121.40, baht 32.90, sing 1.5270, HKD 7.8180, INR 40.49, China 7.6490, pesos 10.7850, dollar index 82.18, Silver $13.05, and Gold… $659.50

That’s it for today… It’s been a week since we made the announcement about us buying some of NetBank’s businesses, including their deposit book. Not much news in the markets regarding this deal, and not much talk among customers, but don’t let that lack of coverage water down this deal. This is huge for EverBank! OK… Chris will have the conn on the Pfennig tomorrow, as I will be away from the office. Hopefully, I’ll return on Thursday. Have a great Tuesday!

Chuck Butler — May 29, 2007

Chuck Butler — May 05, 2007

The Daily Reckoning