Just a thought, but maybe we should call our Federal Reserve Chairman the “Bernanke-nator.” As Kyle Reese said in the original Terminator movie … “Listen, and understand. That terminator is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever, until your dollars are worthless.”
Okay, the last part of that quote was ACTUALLY “until you are dead.” But you get the idea. Ha-ha!
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Okay, so that’s not the headline you’re going to read on the wires. But really, his speech at the Conference on Asia and the Global Financial Crisis in Santa Barbara, California is very academic. It’s focused on longer-term trade and growth issues, and frankly, I don’t see any explicit or implicit comments directed at the markets besides the following summary paragraph. And even that paragraph basically just restates the “on the one hand, on the other hand” view about stimulus — without giving any indication as to whether Bernanke is migrating toward one camp or the other:
“Despite the initial successes of Asian economic policies, risks remain. As in the advanced economies, unwinding the stimulative policies introduced during the crisis will require careful judgment. Policymakers will have to balance the risks of withdrawing policy support too early, which might cut short a nascent recovery, against the risks of leaving expansionary policies in place for too long, which could overheat the economy or worsen longer-term fiscal imbalances. In Asia, as in the rest of the world, the provision of adequate short-term stimulus must not be allowed to detract from longer-term goals, such as the amelioration of excessive global imbalances or ongoing structural reforms to increase productivity and support balanced and sustainable growth.”
Bottom line: I doubt these comments will do much for the beleaguered dollar, which was weakening into the release of Bernanke’s remarks at 11 a.m. Indeed, I believe Bernanke’s silence on the greenback speaks volume about how much he cares (read: not at all, as I spelled out last week).
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You have to love it: The just released Fed minutes from the September 22-23 meeting are looking unbelievably dovish. Some Fed members were reportedly even open to INCREASING the size of MBS purchases. This from a Fed whose quantitative easing policies are driving the dollar into the crapper. Seriously? Meanwhile, the Fed minutes note that “with the significant under-utilization of resources expected to persist through 2011, the staff forecast core inflation to slow somewhat further over the next two years from the pace of the first half of 2009.”
In other words, if you think this Fed is going to tighten rates anytime soon, you have to be nuts!
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We’re getting some more U.S. economic data and the tone overall is okay. Retail sales dropped 1.5% in September as the Cash for Clunkers program expired (Auto sales plunged 10.4% on the month). But that was actually better than the -2.1% reading that was expected. If you take out autos and gas, sales were actually up 0.4%, double the 0.2% economists were looking for.
Import prices rose 0.1% in September, slightly below the 0.2% rise that was expected. If you strip out all oil, you get a 0.4% rise in import prices. That’s the biggest increase since July 2008.
Interesting to watch how the dollar behaves here. The Dollar Index is plumbing new depths, but the yen is trying to hold here. I wouldn’t be surprised if it turns out the Japanese are intervening. But they’re fighting a losing battle in my view.
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There’s an interesting debate going on in D.C. right now over the FHA loan program. FHA was a non-player during the housing boom because private lenders were falling all over themselves to offer crappy loans to crappy borrowers. Now they’re out of the business … and all those crappy borrowers are going to FHA instead. FHA volumes are surging, and questions are being raised about whether FHA has the reserves to cover the rise in defaults resulting from its easy money lending.
Will a bailout be required down the road? Only time will tell. But my opinion is that FHA is taking on too much risk given our recent disastrous experience with low down payment lending to borrowers with questionable credit. So the chances are better than even we will. More from a Washington Post story below:
“A former Fannie Mae executive warned a House panel Thursday that the Federal Housing Administration is destined for a multibillion-dollar taxpayer bailout in 24 to 36 months, an analysis that the agency’s top official immediately dismissed as “completely unfounded.”
“At a hearing before a House Financial Services panel, Edward J. Pinto predicted that the FHA will suffer $40 billion in losses, leaving it unable to cover its bad loans without taxpayer help. Pinto, a real estate finance consultant who served as Fannie Mae’s chief credit officer from 1987 to 1989, said he testified so lawmakers would “not be able to say that no one told them of the magnitude of the impending losses.”
“His testimony came at a sensitive time for the FHA, which faces increased scrutiny now that it has backed nearly a quarter of all loans made this year. The loans it insures are the sole source of financing for most people who lack good credit or cannot make hefty down payments. But its defaults have been climbing, raising concerns that taxpayers may be forced to kick in if bad loans overwhelm the FHA.
“The agency recently said that a soon-to-be-released audit will show that its reserve fund has fallen below the level required by law, meaning it will not be enough to cover 2 percent of all outstanding FHA mortgages.
“But absent a catastrophic decline in home prices, “we will not need a bailout,” FHA Commissioner David H. Stevens told the panel.”
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What a morning for the U.S. dollar … a bad one, that is. It’s getting hammered against all the major currencies, with the Australian dollar leading the way, thanks to a semi-surprise rate hike by the Reserve Bank of Australia. Unlike our “all easy money, all the time” Federal Reserve, the RBA is joining minor countries like Israel in taking baby steps toward higher rates. The RBA raised its cash rate target by 25 basis points to 3.25%.
Meanwhile, the commodities market is in an uproar over a report in the Independent newspaper in the U.K. It suggests foreign countries — especially oil producers in the Gulf region — are trying to hedge out dollar risk by selling their goods in a basket of currencies, rather than just greenbacks. Gold prices have soared to a fresh all-time record high this morning on the news, while oil is also popping and the dollar is getting clubbed. More from that story below:
“In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
“Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
“The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.”
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The latest data on home prices from S&P/Case-Shiller was just released. It showed prices down 13.3% in July from a year earlier in the 20 metropolitan areas tracked by the group. That was a smaller rate of decline than the market was looking for (-14.2%) and a smaller decline than we saw in June (-15.4%). On a monthly basis, prices rose 1.61%. That was the third gain in a row after a multi-month string of losses.
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August new home sales figures inched higher, but only because of revisions. The raw number of sales missed forecasts. Details below …
* New home sales rose 0.7% to a seasonally adjusted annual rate of 429,000. But the “increase” stemmed from a downward revision to July’s number (to 426,000 from 433,000). Sales missed the average forecast of economists polled by Bloomberg (440,000). At the same time, May and June sales figures were revised higher (by 5,000 and 9,000 units, respectively). Confused yet?
* Regionally it was a mixed bag. Sales fell 5.8% in the Midwest and dropped 16.3% in the Northeast. They were flat in the South and up 12.2% in the West.
* The raw number of homes for sale continues to decline. It dropped to 262,000 from 270,000 in July. That’s the lowest reading since November 1992 (a tie). You have to go all the way back to February 1983 to find a lower number. The months supply at current sales pace indicator of inventory fell to 7.3 from 7.6, the lowest since January 2007.
* The median price of a new home dropped 9.5% to $195,200 from $215,600. That’s the lowest level since October 2003. On a year-over-year basis, prices fell 11.7%, the second-worst decline for this cycle.
New home sales continue to stabilize, but at extremely depressed levels. And it’s taking significant price cuts to move product off the lot, so to speak. The median price of a new home plunged by almost 12% last month, the second-biggest year-over-year drop of the cycle. That leaves new homes at the cheapest level in almost six years.
The good news? Those price cuts and dramatic cutbacks in home construction are clearing out inventory in a big way. We now have the fewest new homes for sale in this country since November 1992. That month was a tie, by the way. We haven’t seen a lower reading since Ronald Reagan’s first term as president. The existing home market remains oversupplied, but even there, inventories appear to have peaked. This will lead to a gradual stabilization in construction and sales, followed by pricing (with a lag).
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The August existing home sales figures were just released. Here’s what the numbers looked like:
* Existing home sales fell 2.7% to a seasonally adjusted annual rate of 5.1 million units from 5.24 million in July. That was below the 5.35 million units that economists were expecting.
* Single-family sales dropped 2.8%, while condo and cooperative sales fell 1.6%. By region, sales fell in most parts of the country. They were down 3.1% in the South, 2.2% in the Northeast, and 6.6% in the Midwest. Sales gained 2.7% in the West.
* The raw number of homes for sale dropped 10.8% to 3.622 million units from 4.062 million in July. Supply was off 16.4% from a year earlier. The months supply at current sales pace indicator of inventory dropped to 8.5 from 9.3. Single family inventory fell to 8.2 from 8.5, while condo inventory slipped to 12 from 14.5.
* The median price of an existing home dropped 2.1% to $177,700 from $181,500 in July. That was down 12.5% from $203,200 in the year-ago period.
The existing home market hit a speed bump in August. Sales fell for both condos and single family homes, and in three out of four regions the country. It shouldn’t be much of a surprise to see sales take a breather after four straight gains, including the biggest monthly rise ever in July.
There was also some encouraging news on the inventory front. The raw number of homes for sale dropped more than 16% year-on-year, while the month supply at current sales pace indicator fell to its lowest level since April 2007. So yes, the August figures are somewhat disappointing. But no, they don’t derail the overall recovery thesis.
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The latest Fed meeting just wrapped up. And just as I expected, policymakers decided to keep the liquor flowing and the music playing as loud as possible!
Specifically, the Fed kept its interest rate target unchanged at 0% to 0.25%. It also signaled that it planned to maintain “exceptionally low levels of the federal funds rate for an extended period.” That’s as close as the Fed comes to yelling “Party on!”
As a result, we’ll likely see the dollar continue to fall … commodities continue to rise … and all asset classes inflate. The Fed is effectively printing money out of thin air and handing it to speculators the world over. That’s driving down the value of the dollar and driving up the nominal price of assets.
This is the same garbage policymaking that helped inflate the tech bubble and the housing bubble. But you know what? The Fed never learns! It just keeps going back to the old playbook. We don’t have to like it. But we do have to accept it, at least as long as Helicopter Ben is in the driver’s seat.
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