On Monday of this week the Australians raised interest ratesand sent their dollar soaring against the U.S. dollar. On Thursday they announced that employment actually rose 40,600 when the consensus had been for a decline of about 10,000. The unemployment rate also fell to 5.7% from 5.8% the prior month. If they raised rates when most were looking for an increase in the total number of people out of work, expect another rate increase before the end of the year. Korea, Brazil and Russia are among some other countries that have seen better job numbers as well. If this interest rate movement is the beginning of a trend the dollar is in trouble. The Fed's job is price stability but they may want to coordinate with the Treasury to see what they should do before too many decide to make their investments elsewhere.
While exports are helped by a slumping currency, investment is driven away.
Sooner or later a declining currency will make financial assets unattractive as well.
We may have seen an early warning sign of that in the results of Thursday's 30 year Treasury bond auction. This was the first auction in a long while that would be given a "C" grade at best. The bid to cover was 2.37 and that compares to a nine auction average of 2.44. Indirect buyers (which includes foreign buying) were about 35% of the total and that pales to the nine auction average of 43.8%. A defense of the dollar will most probably not be on any politicians agenda before the midterm elections.
The stock market is up and one relatively poor auction doesn't negate the fact that interest rates are down and the deficit is being funded. But I am getting very worried about tomorrow. No nation has ever achieved economic prosperity by allowing its currency to be debased. ECB President Trichet said he has full faith in Geithner's and Bernanke's statements about the Administration's desire for a strong dollar. I wish I could get inside his head and see what he does.
Initial unemployment claims were the best they have been since the start of the year. But they still totaled 521,000, down 33,000 from the prior week. The four week moving average I like to look at was down 9,000 to just under 540,000. Initial claims have been range bound between 550,000 and 600,000 since June. This is the second time they have dipped below 550. We need a decisive break below this range and a move to the low 400,000's (still a horrific number) or this will be a jobless recovery unlike any we have seen.
We have no sign yet of the inventory restocking cycle I have been hoping for. Wholesale inventories were released Thursday and fell -1.3%. The number was probably skewed by the cash for clunker program but not enough to account for the whole 1.3%. Wholesale inventories were down -1.6% last month as well so it's getting to be a long waiting game.
It looks like the Senate Finance Committee is going to report out a health reform bill that will come in below the Administrations target of $900 billion. They claim it will reduce the deficit by $81 billion over 10 years. I don't know a lot but I know it will cost a lot more and that it will increase the deficit at the end of the day. This stuff always does. And Nancy Pelosi is now on the "extend the first time home buyers credit" bandwagon. Senator Dodd as well so while it's not a second stimulus, it is an extension, and with mortgage rates below 5% we can expect better housing news in the months ahead.
And is it really possible there are 6600 home foreclosure filings a day as the North Carolina Center for Responsible Lending asserts.
They say there have been two million foreclosures year to date. It's hard to believe.