More Bad Data for the U.S.

Good day… And a Wonderful Wednesday to you! Well… The euro (EUR) set yet another new record versus the dollar at 1.4150 late yesterday afternoon… And why not? The housing data was awful, and consumer confidence actually fell! So, the negative data continues to build against the dollar… Don’t look for the rate cut to actually have an affect on the economy and data for six months.

OK… Let’s go to the tape on the data and see what rot is on the vine there. Existing home sales fell 4.3% in August to an annualized 5.50 million units. The weakness in sales was relatively broadly based with inventories of unsold homes continuing to rise. The measure of the months’ supply of unsold homes jumped to 10.0 from 9.6 in July, which represented the highest level for this measure since records began in 1999.

Good thing the Fed saw the “bottom” of housing a few months ago! HEH, HEH…

The other piece of data was consumer confidence, which I was ready to throw in the “stupid data bucket” along with CPI… But, the data redeemed itself! The Conference Board’s consumer confidence index fell to 99.8 in September. The market was expecting a decline to 104.0. The index was at its lowest level since November 2005. The details of the report showed that the present situation index declined to 121.7 from 130.1 in August. The outlook for the future was less optimistic with the expectations index dropping to 85.2 from 89.2 in August. The difference between the jobs plentiful and the jobs hard-to-get indices, a correlate of employment growth, dropped 4.2 points from August.

So… It doesn’t look rosy for job creation going forward… Not that the past has been any bed of roses either!

So… These two bad pieces of data outweighed the one bad piece of data from Germany that I talked about yesterday, and that put the euro on top for the day! Whew! I wish it were all that easy!

I will be on Bloomberg TV tonight! I think they have arranged for some dark lighting to hide my face! Seriously though, I will have a “pre-interview” this morning, and I hope to be able to tell the producer that I want to talk about how difficult it is going to be to continue to attract financing for our current account deficit, especially with deposit rates lower. And that alone will be enough to keep the dollar on the slippery slope downward.

Hopefully, if it all turns out OK, our marketing/Web people will be able to get the video clip, and put in on our web site for all to enjoy! I also have an interview with Ticker Magazine tomorrow, so there’s no let-up in the demand for stories about the weak dollar, eh?

OK… Enough self-promotion! But before I go on… I want to mention again, that my friend, Addison Wiggin, and his partner Ian Mathias do a great job with their 5-minute Forecast each day. They frequently use stuff from my Pfennig, but that’s not why they do such a great job… You have to check it out!

Alrighty then… The IMF is putting its own two cents toward analyzing the U.S. housing meltdown. Let’s listen in to see what this group, which has long been a “believer” of the Fed and Treasury’s “feel good” propaganda, has to say…

“Downside risks have increased significantly,” said the group, “and even if those risks fail to materialize, the implications of this period of turbulence will be significant and far-reaching. The potential consequences of this episode should not be underestimated and the adjustment process is likely to be protracted… The losses in the financial markets and bank balances will take some months to become totally evident.”

Let’s stop talking about the “bad stuff” in the United States and start talking about the “good stuff” eh? Like this story… Japan’s August trade surplus was three times higher than economists predicted, as car and steel shipments jumped and import growth slowed.

This puts the trade surplus at yen 743.50 billion or in dollar terms $6.5 billion. Of course, Japanese yen is the most manipulated currency on the face of the planet, and this is the reason why… They keep yen weak… And the trade surplus soars.

So, apparently U.S. consumers are still spending, given the 4.6% rise in August of shipments to the United States.

The Canadian dollar/loonie (CAD) saw some weakness after Bank of Canada’s (BOC) Governor Dodge spoke yesterday and talked about the loonie. Here’s Governor Dodge… “In recent days, the Canadian dollar has moved sharply above the trading range assumed in the July MPRU, and we need to look at the causes of this strengthening, should it persist. And, as always, we need to assess the effect of movements in the exchange rate on the balance of aggregate demand and supply in the Canadian economy.” (The MPRU is the Monetary Policy Review)

Governor Dodge also talked about how the interest rate was appropriate for the inflation level. Here I think he’s wishing on a star… But that’s just me! I believe Mr. Dodge will have to revisit the rate hike table to fight inflation pressures from rising commodity prices…. But not willingly!

There’s word overnight that the Indian Central Bank has stepped in to stem the rupee’s (INR) rise… Don’t panic here… The Indian Central Bank has done this several times in the past couple of years. Their move lasts about as long as the attention span of a toddler. I used to say as long as a Jennifer Lopez wedding, but she “fixed” that!

So… Here we are… The euro has hit another record level overnight, and once again we see it slide back from that record on profit taking. But after the profit taking is over, the single unit moves higher than the previous record… I just think the markets are ready to take the dollar lower… But at a very slow pace, so that the Central Banks around the world don’t get a rash and start intervening!

Today for instance, we’ll see data that probably won’t be dollar friendly, and the greenback should lose further ground, much like yesterday after the consumer confidence and existing home sales data left a sour taste in the dollar bulls’ mouths. August durable goods orders will print this morning, and the “experts” think they will have fallen 4.0% OUCH! Ooooh, that’s going to leave a mark on the dollar!

Tomorrow we’ll see the color of the final second quarter GDP, which will probably settle in at 3.8%. Expect the third quarter GDP to show some real rot on the vine. We’ll also see the all-important personal consumption, which is a better gauge of inflation, but still hokey.

Well the electricity just went out here at home… I’m really sitting in the dark now! I’ll pack up, head to the office and finish the Pfennig there… See you in a bit…

OK… I’m back now… In the saddle at the office… First time I’ve been the first one in the office in three months! This is all very much the same… Me typing my fat fingers to the bone, and the radio playing some old songs, with no one to bother me!

There’s a Central Bank meeting going on right now in Saudi Arabia. Recall last week that the dollar got thumped hard when the U.K. newspaper, Telegraph, printed an article that said the Saudi Central Bank had not lowered interest rates along with the United States, thus signaling a break of the peg to the dollar. Well… I guess we’ll find out today if that’s really the case or not. If the Central Bank says that they intend to keep the peg, the dollar could get some love… But if the Central Bank doesn’t even mention it… The conspiracy bugs will come out of the wallboards, and the dollar will lose more ground… Or, at least, that’s how I see it!

Before we head to the Big Finish… I wanted to mention that I’ve seen more than one ECB member out talking about inflation this week. One even said that the strong euro wouldn’t be all that’s needed to combat higher inflation! OK… You’ve got to put two and two together here… But in my mind, these words tell me the ECB is considering another rate hike! Watch out dollar if that happens!

Currencies today: A$ .8730, kiwi .7425, C$ .9925, euro 1.4130, sterling 2.01120, Swiss .8550, ISK 62.10, rand 6.9740, krone 5.5205, SEK 6.5290, forint 177.70, zloty 2.6750, koruna 19.5510, yen 115.25, baht 31.65, sing 1.4970, HKD 7.7650, INR 39.72, China 7.51, pesos 10.9180, dollar index 78.50, Silver $13.44, and Gold… $730.90

That’s it for today… Suzy Q just came in, and was surprised to see my car here first. I assured her that I’m not getting back to beginning work this early… Just dealing with no electricity at home! So… Bloomberg TV tonight… This ought to be interesting! I saw investment analyst, and commodity king, Jimmy Rogers on Bloomberg TV the other night! Oh, and he said that the commodity bull run will now last another 15 years! WOW! Oh well… Hope it turns out OK… And I hope you have a Wonderful Wednesday!

Chuck Butler
September 26, 2007

The Daily Reckoning