Housing Starts Still Collapsing

Good day… And a Tub Thumpin’ Thursday to you! No earth shattering moves in the currencies overnight like yesterday morning, so we’ve got that going for us! Hey! I heard from my friend The Mogambo Guru yesterday… He tells me that he’s doing fine, and that it was his third heart attack, and that he’s the proud owner of five cardiac stents now.

The Mogambo brings many smiles to yours truly, and the people on our trading desk, so that’s good news… Not that he’s had three heart attacks, but that he’s doing fine!

OK… Currency traders and participants tried to take profits yesterday, and some did, but the currencies, for the most part, remained range bound on the day, after the big move the previous night. Once again, stocks have rebounded the past couple of days, and that has put carry trades back on the table. And, we all know what that means, right? Yes, that means the low yielding currencies get sold (read Japanese yen (JPY), and Swiss francs (CHF) and the high yielding currencies get bought (read Aussie (AUD), kiwi (NZD), and even Iceland (ISK). This carry trade has had more comebacks than a retired heavyweight boxer!

Yesterday, we saw U.S housing starts continue to collapse when the March reports printed. Both housing starts and building permits showed a 59% fall from the high two years ago. Let me put this in perspective… In previous crashes, the decline from peak to trough has been 40-60%, so we are on the verge of breaking all records for a down-move. Nice to know that the men put in place to protect the economy, thought this meltdown had “bottomed” last August, eh?

After the report, Reuters reported that Fed Head Mishkin, was overheard saying, “THERE IS ROOM TO LOWER FEDERAL FUNDS RATE IF NEEDED”… This is what I’ve been talking about folks… The U.S. rates are going lower, and you can take that to the bank! OK, well… Maybe the legal beagles won’t like me saying that, so, let’s just say, I think that you should think that U.S. rates are going lower.

And rates in the Eurozone, Norway, Sweden, Australia, and New Zealand are remaining unchanged… And in some cases may see additional hikes.

Well, the high price of oil, has finally pushed across to consumer inflation… (Of course you and I know it already did, but the stupid CPI report is just now showing it, but not much of it!) CPI pushed higher in March to 4%, which is exactly where the “experts” forecast it to come in. You’ve got to love it when a plan comes together, eh? Of course over at the Shadow Stats, John Williams, has calculated consumer inflation using the 1980 methodology, and shows inflation much higher. Can you say, 12%? I knew you could!

You know me; I’m such a nut over inflation that this kind of information just gets me so riled up and yelling at the walls! Why will no one that’s running for President talk about this? Because… That would not make you “feel good”, and you sure wouldn’t vote for someone that didn’t make you feel good, right? Well, that’s what they think! Oh… And price of oil went up again yesterday, to $115! OUCH!

So… Remember when the euro (EUR) banged around 1.48, it seemed forever before finally moving past 1.50? I think it’s doing the same thing now, hanging around 1.58-59. 1.60 is a HUGE psychological level, so when it hits it, it could bounce back and forth as black box trades are executed… But think about that for a minute… 1.60 for the euro is practically double what it was in 1999/2000… Unbelievable! But… Look for some verbal intervention from the European Central Bank (ECB) at 1.60… Nothing serious, just some jawboning.

With every passing day, G-7 gets smaller in the rear view mirror, and their change of wording in the communiqué… Almost as though, it didn’t happen… But once again, I have the feeling that the markets just didn’t get what G-7 was saying… But talking the talk, without walking the walk isn’t going to get it done. In other words, they can talk about a stronger dollar, but unless they are willing to put some of their hard earned cash at work, intervening, I don’t think currency participants are going to pay attention.

The Canadian dollar/loonie (CAD) pushed past parity for the first time in a month yesterday. It’s back below this morning, but this move yesterday illustrates what I’ve been talking about for a month or so… The loonie has the commodities providing a floor, which will underpin the currency, while the Bank of Canada (BOC) cuts rates, keeping the loonie from going much higher. So… A trading range around parity is what I see for loonies for the time being.

I see by my trusty screen that shows me year-to-date returns on the currencies that the Swiss franc is still the best performing currency this year, followed by Swedish krona (SEK), Norwegian krone (NOK), euro, Danish krone, Japanese yen, Aussie, and kiwi… (G-10 currencies) I was asked last week to list my top six favorite currencies… So off the top of my head I said… Swiss francs, Japanese yen, Norwegian krone, Swedish krona, euro, Aussie… That’s pretty amazing that my top six is eerily similar to the official top nine.

I think if we could go back into the past, you would see that my top six hasn’t changed this year. A positive balance of payments goes a long way toward making a currency strong, and if you look, all of these have a positive balance of payments except Aussie.

The price of gold (and silver) surged yesterday after the housing starts report. Gold has been waiting for more “bad” news in the United States to move higher. I’m not suggesting here that gold will only move higher on “bad” news… But “bad” news does help put the focus back on gold, which is trading well below the $1,000 oz. figure it achieved last month. With inflation surging… One would think that would be enough for gold to move higher. We’ll have to see, eh?

Well… The euro has seen some selling since I came in this morning and started to write. Overnight it hit a high of 1.5985… But right now, before I head to the Big Finish, it’s barely holding the 1.59 handle. I don’t see any news on the euro that would explain this selling, so… We’ll have to keep an eye on this today.

Currencies today 4/17/08: A$ .9365, kiwi .7885, C$ .9975, euro 1.5910, sterling 1.9790, Swiss .9955, ISK 73.75, rand 7.8630, krone 4.9660, SEK 5.90, forint 158.90, zloty 2.1470, koruna 15.67, yen 102.25, baht 31.45, sing 1.35, HKD 7.7920, INR 39.91, China 6.9830, pesos 10.46, BRL 1.6640, dollar index 71.59, Oil $115.08, Silver $18.53, and Gold… $947.05

That’s it for today… The Big Boss, Frank Trotter was just on Fox News, Business for Breakfast. He was talking about Bank Earnings… I received a call from a guy associated with the Glenn Beck show yesterday. Apparently, Glenn Beck recently read Craig Karmin’s excellent book, Biography of the Dollar which features me in Chapter 6 – and after reading the book, Glenn told his producer to get in touch with me! WOW! First it was the NY Times Magazine, and now Glenn Beck, that found me in the book. Thanks again Craig! The producer said he wasn’t sure if I would be on the CNN TV show or Glenn’s radio show. I was quick to inform the producer that I have a “face for radio!” OK… Yours truly is sneaking out today to head down to the ballpark for an afternoon game Cards/Brewers. I love day baseball… To me, it’s when the game should be played! So… I’ve got to get going here… I hope your Thursday is Tub Thumpin’!

Chuck Butler
April 17, 2008