Yen Rallies on Exporter Repatriation

Well, the G-20 has gotten a bit ugly, folks… Seems everyone just can’t seem to get along! Imagine that! 20 different countries, and now they want to be able to watch another country’s finances and comment on them! Oh, I can see that working out real well! NOT!

So… Yesterday, we had the dollar gaining back the ground that it had lost the previous day, but at the end of the day, it looked very much like the currencies hadn’t moved from morning to morning… And overnight didn’t bring about much movement… So… When you get to the currency round up below, you’ll see the dollar’s gains were small, and short-lived.

The UK and France are a bit upset with the US and the President’s plan to reduce the number of board members to the IMF, and guess who is on the chopping block? That’s right… The UK and France! I really don’t care about all this stuff, except to watch the saber rattling, and jockeying for “supreme leader”… But I won’t say anymore about that here.

I did notice thought that – just as I said months ago regarding the BRIC countries – that they would have to be reckoned with, due to their HUGE treasure chests of reserves, and the fact that they have a good portion of the world’s population… OK, where was I? Oh! I noticed that it was going to be announced today that G-20 was going to take over as the main forum for global economic coordination. They will take that over from the G-8…

Well, guess who’s a part of G-20 that wasn’t a part of G-8? The BRIC countries! They will have more say in what goes on economically! Just like I said they would! This is a big deal, in that this shifts the power from the rich countries to the emerging markets. Yes, the rich countries are still in the Group of 20… But, the emerging markets outweigh them now!

And already, we can hear China taking shots at the US… And, now that everyone can comment on other countries’ economies, the US took a shot at Germany, saying that they haven’t done enough to spur domestic demand. Germany’s chancellor, Angela Merkel, who is up for election on Sunday, shot back at the US, and said… “We should also look at imbalances between currency regions and not pick on specific countries within the Eurozone.”

OK… Let’s talk about something else… I was reading The Financial Times last night, and came across a story that really said something… Here it is…

“Losses on loans at US banks and other lenders rose to $53 billion in the first quarter, almost triple the previous high, reached in 2002, said a group of regulators, including the Federal Reserve and the Federal Deposit Insurance Corp. Nonbank lenders, particularly hedge funds, hold $1 of every $3 in troubled loans and 47% of all distressed loans. Loans made to media and telecommunications companies were in the worst state. Lending to the financial-services sector was the next worst, followed by loans to property companies.”

But Hey! According to people in power – who should know better – it’s time to sound the all-clear horn!
And that brings me to something I wrote about the other day, regarding the delayed foreclosures… A reader was kind enough to send me this, which might explain the delays…

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new US residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.

And… As another reader pointed out to me… It sure doesn’t make the holder of the loan any richer to foreclose on it, given the state of the housing market today.

OK… Enough of that! Yesterday, I talked about how Japanese yen (JPY) was living right these days, rallying when the dollar is weak, and rallying alongside the dollar when it’s not! Well… One of the reasons this could be happening with regularity, is that it is believed that Japanese exporters are repatriating their profits, as their fiscal first half ends this month.

So, does that mean the rug gets pulled out from beneath yen next week? Hmmm… I don’t think so… I think that the one thing that’s really underpinning yen right now is this newfound appreciation by the Bank of Japan for yen strength! Just last night, Japan’s Finance Minister Hirohisa Fujii reiterated his opposition to intervention in foreign- exchange markets.

Now, I don’t know how long the exporters in Japan are going to go along with this newfound appreciation for yen strength… But for now… Yen is on the verge of gaining even more ground.

In New Zealand overnight… The string of good data prints ended with a thud! New Zealand’s trade deficit widened almost double what was expected! UGH! Remember, New Zealand has to import lots of things, and when the exports of wool, dairy, and lumber aren’t strong, their deficit gets whacked! So, New Zealand would always have a trade deficit… But, at times it gets completely out of hand, and this is one of those times. Kiwi (NZD), got taken to the woodshed after the report printed, as well it should!

The Swiss National Bank (SNB) had a board member giving an interview last night, and when asked about the SNB’s repeated jawboning to get the franc (CHF) weaker, he had this to say… “With regards to the Swiss franc this means that we counter an appreciation of the franc against the euro decisively.”

Now, that’s a horse of a different color! All this time we were led to believe that the SNB would intervene to get the franc weaker versus the dollar! No wonder the franc has kicked some dollar tail lately, without a peep from the SNB… The franc was allowed to get stronger versus the dollar, as long as the euro (EUR) was moving in the same direction, same general percentage move versus the dollar!

Our mortgage production guru, Stacy Blair, was talking the other day in a meeting, and mentioned that mortgage rates had edged down again, and production was picking up once more. Well, that plays well with a story I read last night… The average interest rate for US home mortgages fell to less than 5%, and loan applications surged 13%, the Mortgage Bankers Association said. The nationwide average rate on a 30-year fixed-rate mortgage declined to 4.97%. The application surge amounted to a 50% increase compared with the end of June.

OK… So… I would guess that most of that stuff is re-financing loans, but hey! Like I told everyone on our desk six months ago, when the rates were in the 4% region… Go refinance your home loan! And then put the money you save each month in savings!

We get back to some data in the US today, and I think that it could have a lot to do on whether the currencies rally or not versus the dollar. Durable Goods Orders for August prints first, and is expected to really fall back from July’s strong 4.9% print… August is expected to print just a 0.4% gain for Durable Goods… That won’t get the “strong recovery flag wavers” out, and that won’t be good for the non-dollar currencies.

Then later we get the U. of Michigan Consumer Confidence report, which could turn things around for the non-dollar currencies, as the consumer confidence report is expected to be strong… Why? I have no idea… (Besides the obvious, stock strength.)

We’ll also see New Home Sales data for August…

Have you noticed the collapse of the oil price? Pretty steep drop in just a couple of days! I told you the other day that the G-20 might put pressure on commodities… Oil is off, and gold has fallen back below $1,000 wink, wink.

So… To recap, the dollar’s rally was stopped short. The G-20 is the new global economic monitor, and the US is ticking off the UK and France, regarding seats on the IMF board. G-20 is getting hot and heavy… Japanese exporters are repatriating their profits thus propping up yen… And, New Zealand’s trade deficit widens again.

The Daily Reckoning