Housing Plunges

And Now… Today’s Pfennig!

Housing Plunges!

Good day… And a Terrific Tuesday to you! Boy, oh boy, did I make a major birthday faux pas yesterday! My good friend, and colleague for a good number of years now, Chris Gaffney celebrated his birthday yesterday! Chris is 10 years younger than me… So maybe in 10 years, he’ll understand how I could have forgotten to mention his birthday yesterday!

Well… It was a good currency day for Chris’s birthday. I told him I had the euro (EUR) rally just for him! And rally it did… But it couldn’t ever get past the 1.48 figure… 1.4795 was the highest I saw it trade. But still… That’s more than 3/4 of a cent yesterday. Not bad, eh?

The HUGE Data week got off to a bad start for the dollar and U.S. economy yesterday when New Home Sales for December plunged 26%! December’s fall put 2007 on the map as the largest fall on record! And home prices? Well, home prices for 2007 put in the poorest showing since prices fell by 2.4% during the 1991 housing downturn. This isn’t even the “bottom” yet folks… Not even the “bottom”… YIKES!

The currencies weren’t all that rallied yesterday, as gold and silver took center stage too! Gold hit another new record high of $929.20 yesterday… I was doing an interview with a Detroit newspaper writer yesterday regarding gold. The writer wasn’t really familiar with gold, so he called me! I told him about the store of wealth that gold represents… The safe haven and inflation hedge titles it carries… And then I told him that right now, I believe we’re seeing people buy it for all those reasons, and one more… Momentum.

A reader sent me a note yesterday and said that my old fave, Katie Couric, talked about the rise of gold on the CBS Evening News on Friday night. When that happens, people that had never even thought about buying gold are digging up the coffee cans in the back yard to buy some gold!

Speaking of Katie Couric, her old pals on the Today Show, highlighted EverBank yesterday as a bank with high rate CD’s. Of course they were talking about U.S. dollar CD’s, but there we were, on National TV… WOW!

There was an article in the USA Today yesterday that sounded like I could have been the ghostwriter! The story is titled, “An Economic Mistake” and it’s talking about non other than the stimulus package. The writer was upset with lawmakers for adding another $150 billion onto the budget deficit. Let’s look at a snippet…

“In general, government policy should be judged by its effects on the incentives to work, save, invest, and increase productivity and output. This fiscal stimulus package would do almost none of the above.

“Politicians, in election years especially, feel compelled to be seen as doing something in response to the general concerns of their favored constituencies. Mr. Bush’s and Ms. Pelosi’s fleeting moment of bipartisan agreement might look good on TV, but it’s still an economic mistake.”

OK… Back to me… In a quiet story yesterday, the President asked for an additional $79 billion in war funding. That didn’t get the media’s attention like the “feel good story” stimulus package!

The high yielders are back again… Aussie (AUD) and kiwi (NZD) have both enjoyed a return to the spotlight. But be careful here… There was a story yesterday regarding a couple of fund managers that decided Aussie and kiwi yields were at too big of a spread to the United States to pass on the currencies.

I sill believe the Aussie story… I like that the latest trade deficit narrowed… I like that the central bank is going to have to raise rates again… I like the close ties to exports to China… I like Aussie dollars… However…

I believe we have to be careful here, Aussie and kiwi are tied up in the carry trade.

With the high yielders back and dancing in the streets, Japanese yen (JPY) has backed off. It’s a game of give and take, how much can you take? I hope a lot, because this is going to go on and on and on, like the Energizer Bunny!

Investors in U.S. assets are bracing for another rate cut from the Fed, which will come tomorrow, although the meeting actually begins today. Yes, this is one of those two day meetings, when the Fed Heads sit around and the only sounds you hear are: “You sank my battleship!” HA! What would ever take these guys two days to discuss is beyond me… But they do these two day meetings a couple of times in a year, so whatever!

The Fed will cut rates tomorrow… Will it be 25 or 50 BPS? I say 50 BPS.

If it’s just 25 BPS the markets will be disappointed. Personally, I wish they wouldn’t cut rates. I wish they wouldn’t have cut them last week. I have a major dislike for inflation, and that’s just what these rate cuts are opening the door for… No, they are throwing open the door!

I heard a great tag line yesterday… “You want bubbles in your champagne glass, not in your investment portfolio”. That’s a good one! Bubbles Greenspan, has handed the bubble wand over the Big Bernanke, and he’s trying his hand at blowing bubbles.

The data cupboard yields durable goods and consumer confidence this morning. With all the gyrations going on in stocks these days, I just can’t believe consumer confidence will be good.

Everything seems to be getting put on “hold” as of now though… On “hold” until the Fed announces its rate cut tomorrow afternoon.

The President’s State of Union address last night really pushed for the stimulus package. He mentioned something that I was going to talk about last week, and plum forgot… And that is… Adding stuff on the stimulus package bill. It’s common for this to happen… And if lawmakers and lobbyists start trying to weigh down the stimulus package bill with other “stuff” it could delay it getting through even more… And that would delay the checks getting out, which right now won’t happen until June! Some help that’s going to be, eh?

Someone asked me if I could talk a bit about the Canadian dollar/loonie (CAD)… Hmmm… Well… No worries! However, sometimes I feel like a broken record, repeating myself, over and over… No worries! I’m on it!

The loonie has seen better days for sure, but let’s not get too down on the loonie. I recall, and not too long ago, when the loonie was trading at 65-cents! It’s now trading near parity. The problem for the loonie is that it is getting tugged on both ends. The Bank of Canada’s rate cuts and the idea that Canada gets tarred with the same brush as the United States is trying to pull the loonie down… While commodity prices continue to rise, and a strong economy is trying to pull the loonie higher. Which one will win? That’s for the markets to decide, my friends.

I’ll hit on the Asian currencies before I go to the Big Finish this morning… Remember “Mr. Yen”? Years ago, the Japanese Finance Minister, Sakakibara, was known for his ability to steer yen in any direction. He was known as “Mr. Yen”. Well, “Mr. Yen”, is trying his hand at directing Chinese renminbi (CNY)… That’s right, “Mr. Yen” said last night that he believes the renminbi will gain more than 10% this year.

Well… That’s all fine and good, considering I said that a month ago! “Mr. Yen” is probably a closet Pfennig reader! Seriously though… Renminbi has already gained 1.4% in the first three weeks of this year! WOW! So… In the end, 10% might turn out to be a conservative call!

Currencies today: A$ .8895, kiwi .7795, C$ .9995, euro 1.4775, sterling 1.9880, Swiss .9150, ISK 64.50, rand 7.1350, krone 5.4480, SEK 6.4015, forint 175, zloty 2.45, koruna 17.50, yen 106.60, baht 31.41, sing 1.4180, HKD 7.8040, INR 39.40, China 7.1940, pesos 10.87, BRL 1.7790, dollar index 75.56, Oil $91, Silver $16.67, and Gold… $925.60

That’s it for today… I have to give an economic update to the crowd this afternoon, and I haven’t prepared anything for it. I guess I’ll just “wing it”. After all the radio and newspaper interviews lately, I should be able to do that in my sleep! So, I missed Chris Gaffney’s birthday yesterday… And he didn’t let me forget about it either! We’re going out to dinner tonight so I’ll buy him a beer, and maybe he’ll settle down. Next week, I’ll be in Orlando for the World Money Show… Hope to see you there! And… I hope it’s warm! Time to go… I hope your Tuesday is Terrific!

Chuck Butler
January 29, 2008

The Daily Reckoning