Pending Home Sales Collapse!

Good day… And a Tremendous Thursday to you! I sent an email to the Big Boss, Frank Trotter, yesterday, as he was in Jacksonville, and let him know that “The Eagle has Landed”. Yes, I made it into the office yesterday… Long pants and all! It was great to see everyone again… But as I’ve been saying now for a couple of months when someone tells me that’s it good to see me, I say… Thank you! It’s good to be seen!

I made it till noon… I could hear my recliner at home calling me for an afternoon nap! Hopefully, as I go along, this will all get back to normal! And when it does, I can thank God… My doctors… My family… And all the thoughts and prayers that were sent my way by friends, family, and Pfennig readers!

OK… Sorry for that long intro to the Pfennig today… Sometimes I just have things to say, and since it’s my newsletter… I say them!

The euro (EUR) and other currencies rallied versus the dollar all day yesterday after the latest pending home sales data printed. The report was awful, just awful! Pending home sales in July collapsed There’s just no better way to describe a 12.2% fall, when they were only forecast to fall 2.2%! It’s not a laughing matter… But I did chuckle at the thought that the Fed Heads thought the housing meltdown had bottomed out a couple of months ago! Geez Louise, what planet are those guys from anyway?

Oh… And here’s a memo to the Fed Heads. Since the trend in pending home sales tends to lead existing home sales by two months, the renewed collapse suggests another leg down in the pace of sales.

The Bank of Canada (BOC) left rates unchanged yesterday as I suspected they would. What I was most interested in was the BOC statement following the rate announcement. The BOC acknowledged that economic growth was stronger than expected in the first half of 2007 and inflation rates remain elevated. Yes, inflation is above to the BOC’s 2% medium-term target, which means their rate hikes are not over… It’s just a matter of timing, and with the volatility in the financial markets, and continuing tight credit conditions, the rate hike now just wasn’t going to happen. Or as my grandfather used to say, “That dog’s not going to hunt”.

So… That’s two down, two to go this week… The European Central Bank (ECB) and Bank of England (BOE) meet this morning, and neither one will do anything with rates given the same reasons I gave above as to why the Bank of Canada held “Steady Eddie” with rates this month.

On Tuesday, I thought we would see some weakness in the euro because of this non-move by the ECB, but after yesterday’s pending home sales collapse, it just proves once more that the fundamentals on this side of the fence are worse than on the euro’s side. So… Maybe we’ll have to wait for that blue light special on the euro!

Yesterday, I wrote about how quiet the lawmakers had become since the Chinese mentioned their “nuclear option”. A reader sent me a note that I thought was interesting…

“Your observation of the silence of the senators since the Chinese threatened the nuclear option reminds me of the early Bill Clinton days…probably about 1994. Bill was haranguing the Japanese about not buying our goods. I seem to recall that he took a trip to Japan to scold them in person. Then, the Japanese skipped two treasury auctions and Bill never uttered a bad word toward them for the remainder of his presidency.”

Yes… I’ve talked about this a couple of times in the past… Of how the Chinese get bashed, but Japan gets to skate through without a crack in the ice! Just why is that? On the surface you would say that it’s because the yen floats… But come on… Yes, the yen floats (JPY), but it is the most manipulated currency on the face of the planet! So… In essence, Japan is doing exactly what China’s doing… So why the difference? Do the Japanese have pictures of Paulson? HAHAHAHA!

The Fed’s Beige Book printed yesterday… And while this was put together on August 27th, I found it to be an interesting read, as nothing in the headlines of the report provide additional fuel for the Fed to cut rates on September 18. But I’m not going to let a little thing like the Beige Book get in the way of my call that I made yesterday that a rate cut on September 18 was a done deal!

And does this newspaper sound like the writer is a Pfennig reader or what? Here is a snippet from a report in the Asian Sentinel that Ty sent me yesterday… Judge for yourself.

“The U.S. economy has avoided a much-needed recession through a level of self-indulgence and hubris that makes 1990s East Asia look positively puritanical. Cheap money drove up house prices and enabled existing homeowners to borrow against the value of their properties, thus sustaining consumer demand. But the suckers who paid for this indulgence were the foreign lenders underwriting the U.S. current account deficit, now running at a stunning US$700 billion a year.

“Every effort to sustain house prices through cheap money may in turn sustain consumer demand for a while – but it will also sustain or even add to the current account deficit. The last serious Fed governor, Paul Volcker, has warned often enough that [a] current account deficit of 6 percent cannot be sustained for long, even by a country that thinks the international system allows it free rein to print money and assumes that Asia must save ‘excessively’ to enable an aging America to save very little.”

Here’s an un-delightful tid-bit for your morning coffee, that my friend Ed sent my way since I first reported that Sentinel Management Group, the money manager that had a run on their balances, about 10 days ago… Now, it seems they are “missing” $505 million dollars! What? How can one misplace $505 million dollars? An investigation by the National Futures Association, the self-regulatory group for the futures industry, uncovered the shortfall. I’d say that’s SOME SHORTFALL! Like in Charlotte’s Web… That’s SOME PIG!

And Ace Hardware Corp. must be using the same “new math’ Sentinel used, for Ace discovered a $154 million accounting shortfall while preparing to convert from retailer-owned to for-profit Corporation. Pretty sad to start out your life as a for-profit corporation with a $154 million hickey! Lucy… You got some ‘splainin’ to do!

Does this all sound eerily familiar? Like the corporate scandals of just a few years ago? Don’t tell me we’re in for another round of that stuff! I don’t think the dollar would stand a chance in the face of falling interest rates, and falling confidence in Corporate America. I mean, who’s going to invest here to finance our deficit, should we go through another bout of shaken confidence in Corporate America?

Over in Germany this morning, factory orders in July dropped the most in 16 years. Yikes! That’s not good… But then you have to think that with the strong euro some of this would obviously be in order. The news doesn’t seem to have affected the euro much, as market participants are too wound up over the ECB meeting that’s going on as I write.

We’ll get the Bank of England announcement first, followed by the ECB announcement 45 minutes later… Usually these are done after I’ve hit the “send” button on the Pfennig. And since it’s pretty cut and dried that neither one will change rates at this meeting, I won’t worry about keeping the Pfennig at the starting gate too long.

In the United States today, we’ll see the latest productivity data, the ISM non-manufacturing survey (service sector), and the weekly initial jobless claims. Since we have the Jobs Jamboree tomorrow, I would expect most to focus on that, and not these pieces of data today.

Currencies today: A$ .8260, kiwi .6910, C$ .9480, euro 1.3655, sterling 2.0250, Swiss .8310, ISK 64.30, rand 7.2370, krone 5.7840, SEK 6.8560, forint 186.80, zloty 2.7980, koruna 20.21, yen 115.10, baht 32.48, sing 1.5260, HKD 7.79, INR 40.8150, China 7.5410, pesos 11.08, dollar index 80.60, Silver $12.38, and Gold… $692.40 (look at Gold! Almost to $700 again! I told you last week that Silver and Gold were champing at the bit to rebound!)

That’s it for today… We’re finally getting some rain here in St. Louis. I know some areas have had more than their share of it this spring and summer… But not here! The Big Boss, Frank Trotter, had to go to the Washington D.C. Money Show all by his lonesome… And if I know him, he finished his presentation on the plane there! No worries for him though, he’s a professional speaker, and will do a bang up job, I’m certain.

My travel plans have been put on the back burner until I get healthy enough to go through airports, etc. I do believe that my first trip will be to the New Orleans Investment Conference next month though. If you’ve never been to that Conference, it’s the Granddaddy of Investment Conferences, and all the established guys you’d ever want to hear talk are there. So… What are you waiting for? Go to Google and put in New Orleans Investment Conference and you are on your way! With that said… Have a Tremendous Thursday!

Chuck Butler — Septemeber 06, 2007

The Daily Reckoning