As I left you Thursday, the dollar was fighting back after being beaten around the head and shoulders all week. The "save the dollar from the free fall" work did its job yesterday… But that should be short-lived, in my opinion, as the U.S. fundamentals continue to show rot on the dollar's vine.
On Monday, I talked about the existing home sales data that would print today. I know at this point Monday seems like a month of Sundays ago, but the data will finally print today. Existing home sales for April is expected to fall another 1.6% for the month. This would bring the total of existing homes sold annually to 485 million, which would be the lowest level since they began keeping records like this in 1999.
And… If existing home sales fall, that tells me that the meat of the problem, inventories, will probably grow. The amount of housing glut - the overbuilt situation - is the main problem in the United States right now, with regards to housing… And we all know what happens when you have a glut of something and you can't sell at the going price… The price has to come down… It's that simple.
So… The "make us feel good" dynamic duo of Bernanke and Paulson can tell us all they want that the housing meltdown has bottomed (they're on record as saying this as long ago as last August)… They're still dead wrong!
Yesterday, I actually heard on the TV, some dolt talking about how the weekly jobless claims were stronger than forecast… The weekly job losses totaled 365K, versus the forecast of 373K… GIVE ME A BREAK! The data was BAD! Don't try to put lipstick on this pig; it's still a pig!
I received an email from a chartist that said the recent reversal in gold spelled bad things for the dollar. His charts show that gold should return to around $950, and that will push the dollar down again. This would play well with my thought that the euro (EUR) is looking like it wants to go back to 1.60 in the short term. But that's the charts… And you know me; I'm not a chart person. But I like it when the charts agree with the fundamentals… That's a "perfect storm" brewing right there, folks!
Hey! Somebody finally has the intestinal fortitude to stand up and say… ENOUGH! OK, what's Chuck talking about now, I can hear you saying… Well, I'm talking about the price of oil. After hitting $135 yesterday, the price of oil fell to $131.98. This has gone too far too fast. I'm not saying that oil can't go higher… I'm just saying that the fundamental data this week wasn't THAT BAD!
I met an "insider" to the oil business last week in Las Vegas, and I asked him what the economic price of oil was… You know… What does it cost to get the oil out of the ground… The equipment, the studies, and everything that goes into it? He said, that he thought it would be around $90 per barrel. So… Then, on top of that, you get the refining costs, and the speculation and you get $132 oil… Obviously, those calling for $40 per barrel oil again, are dreaming. All the leaves are brown, and the sky is gray, I can't go out on a winter's day… I'd be safe and warm, if I was in L.A. California Dreamin' on such a winter's day.
That's a fave song of mine… And over the years, if someone makes me play the guitar for them, that's the song I play and sing. So, it's always on my mind.
OK, now that was interesting… I was talking about the price of oil, and started singing California Dreamin'… Well, it's all tied together folks… You just have to search for the tie.
Before I leave oil… There's a great article this week in the Economist on the weak dollar and the price of oil. One camp says that the weak dollar leads to higher oil, and the other camp says that higher oil leads to a weaker dollar. You should check it out!
The Aussie dollar (AUD) has had quite a week. I find this to be very exciting in that the Aussie dollar played second fiddle to New Zealand kiwi (NZD) for six years. But the tables are turned now, as Australia has the ability to fill China's raw materials needs, which gives them the ability to reduce their deficit situation. Interest rates are high here, and aren't going anywhere… And maybe even up, if anything. The markets are waking up and smelling the coffee on this one too, as I said yesterday some LARGE BANKS had talked up Aussie. We'll see more of this, as we go along, as they all want to jump on my bandwagon now!
All the euphoria in the markets yesterday for the New Zealand budget got water thrown on it last night by the Finance Minister, who claims the markets have "overreacted to the budget". Unfortunately, for the Finance Minister, the cow is out of the barn already on this one, and kiwi is getting marked up.
It's also been a strong week for the two carry trade currencies, Swiss francs (CHF) and Japanese yen (JPY), as U.S. stocks saw some strong selling. I highlighted this thought early in the week, saying that if stocks sold off - and I thought they would, given the earnings reports of Home Depot, etc. - it would help these two rebound. Yen has gone from 105 to 103.50, and Swiss francs have gone from 95-cents to 97-cents.
Swiss National Bank (SNB) President Roth, is high on my Hit Parade today, as he just told the markets that "fighting inflation ensures financial stability". WOW! Now, there's a central banker!
I did a long-winded explanation of the changes that were made to CPI in the '90s at the request of Big Al Greenspan, in June's Review & Focus. So, if you're an EverBank World Markets customer, you should see that in your mailbox the first week of June. I think you'll be very interested in these changes… Which is why I pin my colors to the mast of John William's Shadow Stats figures, who uses 1990 methodology to calculate inflation, before these changes were made. His figures show inflation is 11%, and moving higher!
So… Our central bank hasn't done a very good job of providing price stability/fighting inflation, have they?
I could go on here… But I don't think I will do that today. This is going to be a Fantastic Friday, so no use in getting my blood pressure rising! Instead, I think I'll just go to the Big Finish, and work toward getting out of here today and get my Holiday weekend going!
Currencies today 5/23/08: A$ .9615, kiwi .7865, C$ 1.0140, euro 1.5730, sterling 1.9820, Swiss .9725, ISK 72.10, rand 7.65, krone 5.03, SEK 5.9125, forint 155.80, zloty 2.1650, koruna 15.97, yen 103.50, baht 32, sing 1.36, HKD 7.80, INR 42.80, China 6.9410, pesos 10.37, BRL 1.6570, dollar index 72.13, Oil $131.98, Silver $18.09, and Gold… $924.50