I remembered Doug's words and bought Paladin Resources when it fell to A$0.009 per share. I just cashed out with a 3,100% profit! My mortgage is now paid off…Thanks Doug! - C.L., Osaka
Chuck Butler
Two decades ago, Chuck Butler embarked on his extensive career in foreign investments as the Directo... More
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01/26/2006
The Daily Pfennig 1/26/06: Housing Begins to Soften...
A Pfennig For Your Thoughts
In This Issue...
- Existing Home Sales fall 5.7%!
- Using houses like ATM's...
- Rates remain on hold in New Zealand...
- Asian currency strength on the move...
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And Now... Today's Pfennig!
Housing Begins To Soften...
Good day... Well... The euphoria over the soaring Business Confidence in Germany didn't have any staying power, and as I said yesterday, the black box trades took care of the rest... Profit taking that walked the line of a complete sell-off took hold of the currencies yesterday... But then, they had run up quite fast in the first 3 weeks of this year, so yesterday's selling was probably in line with a correction...
Here in the U.S., we saw Existing Home Sales and the sight wasn't pretty... Add the 5.7% drop in December Existing Home Sales to the 8.9% drop of December New Home Sales, and the picture isn't pretty... Now, this data is not your typical big market mover... But given the fact that recently everyone's sensitive toward housing, these two pieces of data could go a long way toward pushing the Fed to call off the rate hike dogs... I doubt it, but it could...
Speaking of Housing... I saw this yesterday and it sent chills down my spine... Are you ready to have the bejeebers scared out of you? Here's the skinny... My favorite economist Stephen Roach, wrote this in his 1/20/06 newsletter on Morgan Stanley's website...
"According to Federal Reserve estimates, equity extraction by U.S. households topped $600 billion in 2005 -- more than enough to compensate for the shortfall of earned labor income. Comforted by this asset-based injection of purchasing power, consumers had little compunction in stretching traditional income-based constraints to the max. The personal saving rate fell deeper into negative territory than at any point since 1933, and outstanding household sector indebtedness -- as well as debt service burdens -- hit new record highs."
He said.... $600 billion had been taken out of houses last year! And someone chastised me once last year when I said that people were using their houses like ATM's...
Oh... And fueling all of this were the low bond yields... With the 10-year Treasury trading around 4.45% yesterday, it was still 40 BPS below the level it traded before the Fed began its rate hike parade 18 months ago! Of course, it will be interesting to see what happens in the next couple of months, as $169 billion in debt is issued this quarter, 17% more than was issued in the first quarter of 2005. Of that $169 billion, $85-88 billion will be in the 10-year Treasury... So... I look for this yield to finally crack and go higher...
Oh... And don't forget that your friendly neighborhood Gov't administration is still telling you that the Budget Deficit is going to be cut in half... Of course they probably forgot the Medicare spending bill they passed last year, and the decision to assist in the redevelopment of the Gulf Region... By the way... The 2006 budget is projected to be larger than 2005's!
OK... Enough of the depressing news here... The Reserve Bank of New Zealand (RBNZ) met last night and decided to leave rates unchanged, which was of no surprise to me... What did surprise me, though, was this statement from RBNZ Gov. Bollard... "we do not expect to raise the OCR further in this cycle." (The OCR is the Official Cash Rate, or simply, their key interest rate)... So... Right about the time I was ready to book a flight to New Zealand and look up Mr. Bollard for a piece of my mind, he came back and said this to make everything OK... "Certainly we see no prospect of an OCR easing, given the relatively high medium-term inflation outlook. An early decline in interest rates, as expected by some in the financial markets, would risk reigniting spending and hence inflation pressures."
So... My thoughts that I put down in a past Pfennig that I didn't see rates coming down in New Zealand anytime soon, as the RBNZ had worked so hard to get spending to slow down, they wouldn't reverse that on a dime.... Looks like it was bang on! That's good, too, because I'm not sure that I have enough pieces of my mind to give any away these days! So... In the end... Kiwi rallied!
Another currency that rallied last night, and has been in rally mode since the calendar turned to 2006, is the Thai baht... The baht has moved over 5% so far this year! Is the Asian currency move finally taking shape? Well... It sure looks as though that's what's happening... Look at the region's currency moves... Rupiah is up 5%, S. Korean won is up over 4%, Sing dollar is up over 2%, and even Japanese yen is up over 1.5%... Investment flows into the region have been strong and should continue to underpin these currencies...
Of course, of those mentioned above, only Thai baht, Sing dollars, and Japanese yen are liquid, forward-trading currencies that we can deal in... So, the region still has some growing up to do with regard to mature currencies that can trade with the big boys!
In Australia overnight, I saw a report showing headline inflation falling in the December Quarter .5%, moving the annual inflation rate to 2.8%... Good show! It's finally below 3%... But since it's so close to 3%, I doubt there are any thoughts toward a rate cut... So... Just like kiwi, the Aussie dollar will remain underpinned by high interest rates, without the fear of a rate cut coming soon!
Before I head to the Big Finish today, I thought I would bring you one more thought from Stephen Roach, who was heard speaking in Davos, Switzerland, on the Global Imbalances... "We never know what will cause a break, but we know that it can't go on indefinitely."
Currencies today: A$ .7555, kiwi .6890, C$ .8690, euro 1.2255, sterling 1.7875, Swiss .79, ISK 61.15, rand 6.0850, krone 6.59, forint 203.71, zloty 3.1250, koruna 23.19, yen 115.60, baht 38.90, sing 1.6210, China 8.0620, pesos 10.5160, dollar index 88.45, and gold... $559.50
That's it for today... Durable Goods Orders today... Shouldn't be dollar friendly... Things are heating up on the desk again, I think that investors that have been sitting on the sidelines in dollars are waking up to the fact that 2006 is going to be very different from 2005! Still waiting to hear a Davos snippet from Soros... Have a great Thursday!
Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837
www.everbank.com
PFENNIG DISCLOSURE
