Who's Selling Treasuries?

Good day… And a Happy Friday to one and all! A Fabulous Friday to boot! Well… It’s a Jobs Jamboree Friday too! So, look at all the fun and happiness we can have in one day! YAHOO! No three-day weekend though… I’ve said it before, and I’ll say it again… I love those three-day weekends!

OK… Yesterday I reported to you that pending home sales had collapsed… Today? Well, unfortunately I have to report to you that second quarter mortgage delinquencies rose to 5.12%, a high since June 2002, but still below the 2001 peak of 5.35%. Uh-Oh… A couple of weeks ago I reported that foreclosures were up 93%… So, it’s all going bad in the housing sector, but HEY! Remember… The Fed, and U.S. Treasury Secretary Paulson told us not to worry, that housing had bottomed out, and it wouldn’t have a negative affect on the economy.

Oh, and don’t feel too badly about the data, because the government tells us that productivity increased last month. Of course I say that with tongue in cheek, because you know my feelings about productivity. It just reports that some poor worker had to work more hours!

But, here’s my thought on these two pieces of data… Both point to a Fed rate cut… Housing is circling the bowl, and rising productivity is an inflation fighter. So, the Fed will feel a warm and fuzzy about cutting rates on September 18th.

And that, my friends, is the thought that entered the minds of Minolta. No, wait… The minds of the market participants, and that’s the main reason the currencies rallied strongly throughout the day yesterday… In fact, at one point in the day, the euro (EUR) re-visited the 1.37 handle! But the move to 1.3710, brought about some profit taking… But it sure was nice to see that handle again!

There was some bad news down under in New Zealand, as the ninth finance company in New Zealand has gone into receivership in the past 16 months. I’ve been beaten about the head and shoulders the past six months by people that kept pointing to kiwi (NZD) and saying, “You don’t know what you’re talking about! Look how strong the currency is! It’s outperforming Aussie!”

This was all in reaction to the things I kept saying about how Aussie (AUD) had better fundamentals than New Zealand which was taking the currency form of HGH, the carry trade. I pointed to New Zealand’s debt, which hasn’t gotten better, but no one wanted to hear about it. But look at the story above… You can’t tell me there isn’t rot on the vine there! So… As long as the carry trade lives… Kiwi will continue to perform, but let the carry trade unwind, and we’ll see an exaggerated reaction much like three weeks ago, when the risk in the market rose, and carry trades began to get unwound.

But how about Aussie? In the past two days they have inked deals to be: 1. THE uranium dealer to Russia… And 2. THE natural gas supplier to China, with a five-year deal.

The Chinese and Australians have become “tight”… And just a note of cocktail trivia… All of the metals handed out at the Chinese Olympics in 2008 will be made of materials purchased from Australia!

OK… File this story under the heading of… THIS COULD BE VERY SERIOUS…

Yesterday I told you about a couple of corporations that need to go back to school and learn how to account for cash. But over at the Fed… What they’re missing isn’t cash… Here’s the skinny.

Data from the New York Federal Reserve revealed that since late July, central banks around the world have pulled $48 billion from U.S. Treasuries, with a $32 billion fall in the last two weeks. Could this be China dumping Treasuries?

One analyst sees it that way. “David Powell, an economist at New York-based IDEAglobal, called Beijing out as the culprit. In a note to clients, Mr. Powell said that the bond sales coincide with moves by Beijing to kick off a $300 billion sovereign wealth fund.”

We won’t know for sure until the TICS report on this month is printed two months down the road… By then it could be much like being bombed by a stealth bomber… Once you see it… It’s too late!

OK… Onto the Jobs Jamboree this morning. The consensus is for a rise of 100K in job creation for August. But I’m here to tell you that even that awful number looks high to me. I’m thinking 75K… And If I’m right… I’ll be letting the Fed Heads know all about that faux pas by them too! Remember in their last notes they said the labor market was firm? Yeah… And like I said then… They obviously aren’t paying attention to all the mortgage divisions announcing layoffs!

And… If the job creation is strong? Well… I have to eat some crow, but not before going to the Bureau of Labor Statistics’ web site to see how many jobs were created out of thin air by the birth/death model!

Oil prices went up again yesterday after a report showed U.S. supplies fell more than expected last week. That’s the eighth decline in the last nine weeks. And during hurricane season… Uh-Oh, folks… This will spill over to home heating prices, so get your delivery soon!

And looky here! Gold is back trading over $700 this morning! You’ve gotta love it! Well, that is if you’ve paid any attention to people like Doug Casey, Bill Bonner, and myself in the past couple of years and already hold gold. For those of you who didn’t… You can’t blame me!

OK, I’ll end today’s Pfennig with a recap of the ECB and BOE meetings yesterday. First the Bank of England (BOE)… The BOE left rates unchanged, as suspected, but for the first time since 1999, that I can recall, the BOE issued a statement following the meeting justifying their decision. I found the statement to be somewhat silly though… I guess what they were attempting to do was to keep the rate hike door open, and let the markets know that they are aware of the credit crisis, etc. going in the markets… But, they just never really got around to saying that, which makes the statement kind of clunky at best.

The ECB also left rates unchanged, as suspected, but did a much better job of explaining what’s going on than the BOE. ECB President, Trichet, was firm in his statement that the ECB had not given up on raising rates this year. He went further to say that he will bring back the words “strong vigilance” if and when necessary… So, there you go! When you hear those words you’ll know… The ECB is ready to hike rates again!

Because both Central Banks left the door open, they did not leave their currencies out on a line. And when the U.S. data came through so rotten to the core, it was rally time for euro and sterling (GBP) once again.

Oh, and I almost forgot! Sweden’s Riksbank meets today… And I’ve said for a month now that they would hike rates… I just hoping that they don’t get cold feet, since the BOE and ECB left rates unchanged yesterday. Come on Riksbank do your thing… Do what you wanna do.

And one more thing… I promise… These thoughts just keep shootin’ into my head, zing, there’s another one! I need to get a recorder to keep all of these thoughts! OK, enough silliness, the one more thing is that a year ago, I wrote that the Chinese renminbi (CNY) would be trading in a year’s time at 7.50… Well… It didn’t quite make it, but it’s still setting new records every day, and last night it hit 7.5350… So, it’s still on it’s way to 7.50. And what have I said all along about renminbi? You have to have patience.

Currencies today: A$ .8275, kiwi .6910, C$ .9515, euro 1.3690, sterling 2.0220, Swiss .8335, ISK 64.25, rand 7.2050, krone 5.7760, SEK 6.8180, forint 186, zloty 2.7820, koruna 20.1850, yen 115.05, baht 32.50, sing 1.5250, HKD 7.7860, INR 40.65, China 7.5350, pesos 11.06, dollar index 80.45, Silver $12.60, and Gold… $704.50

That’s it for today… Thanks to Cheryl and Ann, we had not one but two German Chocolate cakes (my fave) in the office yesterday. Yummy! Then we had pizza for lunch… I had to get out of there before my stomach exploded! Besides I was tired! My little buddy’s first tackle football game was scheduled for tomorrow, but the other team called to cancel. And finally, tomorrow is out little town’s musical sunset in the park, just a great time with neighbors, and a wonderful fireworks display afterward. Good luck to by beloved Missouri Tigers as they travel to Oxford Mississippi for a Saturday night game. Have a Fabulous Friday and Wonderful Weekend!

Chuck Butler — September 07, 2007

The Daily Reckoning