Healthy economy equals quiet bulletin board

[dai bread]

Something fishy is going on. 1 NZD buys 0.80 USD today. If the US economy is strengthening, our dollar should be falling against the greenback, but it's rising. Granted our interest rates are a lot higher than yours, and that may be driving the exchange rate, but it's never the whole story.

I still have lot of USD left over from my trip in 2010. If I cash it in, I'll lose about 10%. So hurry up, please, and strenghten your economy!

[Shapley]

I've also wondered why the Euro isn't falling against the dollar. Given all the turmoil over there, the dollar should be strengthening.

[Giant Communist Robot]

You guys missed my post about the Fed deliberately pushing the dollar down. And things are not great, just getting better. Skeptics abound.

[Shapley]

No, I've seen the posts about the Fed pushing the dollar down. My question regards how the Euro is staying up. Viagra?

[Haggis@wk]

No, I've seen the posts about the Fed pushing the dollar down. My question regards how the Euro is staying up. Viagra?

It seems fairly simple. Europe has not printed money, yet. One of the big discussions in Europe has been a proposed QE 2-style response to the current crisis. German is standing firm against printing new money while our own mint is melting down the presses in an attempt to meet the Treasury secretary's demands.

I suspect that if they do print more Euros then you'll see some movement towards equality. But right now, Merkle et al have the plates hidden somewhere and are refusing to let them out.

[Shapley]

Well, as noted before, governments basically have two tools available to regulate the value of their fiat monies - the size of the supply and the interest rates at which they'll lend it. Both are typically adjusted in response to demand, not to create or remove it.

It would seem to me, with all the talk about the 'collapse of the Euro', demand would be curtailed regardless of efforts to shore it up. I can only assume there is a relatively stable balance between the pessimists who want to get shed of their Euros, and the optimist who see the turmoil resulting in a rebound.

Or it could be simply that they don't see a viable alternative currency. The confidence in the Euro may be shaken, but not so badly as it is in the Dollar and the Renminbi, for example...

[Giant Communist Robot]

It seems funny to say that contrarians would view today's really good jobless report as definitive evidence things are improving, but the consensus discounts it. Looking at leading indicator indices one sees that the Conference Board deduces things will only get better, and the ECRI has called a recession. The Conference Board has announced a reformulation of their index, and in their abstract is included a graph showing their current index and the new. Due out in a couple of weeks, the new index does indeed show the economy will slow.

Statistically Durable Goods is the most important leading indicator of the GDP, and fundamental to that is manufacturing and industrial production. Looking at two very important surveys, the Empire State and the Philadelphia Fed, I see slowing growth and a mildly positive outlook. What's new? At any rate, I find them difficult to interpret due to mixed signals.

[Giant Communist Robot]

Europe has not printed money, yet.

Their idea at the moment is to borrow their way out of trouble.

[Giant Communist Robot]

Statistically Durable Goods is the most important leading indicator of the GDP

Maybe I need to clarify. Among the components, Durable Goods has the highest correlation; and I call it a leading indicator because it's released monthly, whereas the GDP is quarterly. Calling it a LI is something I made up and I should be more careful about things like this. Anyway, looks good to me.

[Giant Communist Robot]

Headline CPI now shows four consecutive months of disinflation. I know the thought of this makes some people happy, but they fail to realize this is a symptom of trouble.

[Giant Communist Robot]

Watching the housing market, as I said I would, the numbers for Existing Home Sales are up. Right around where they were expected. Prices are up 2.3%, although y/y they are still down. Supply is down, too. This is what inflection points look like--but more likely it's consolidation and firming of the market.

[Giant Communist Robot]

No, I've seen the posts about the Fed pushing the dollar down. My question regards how the Euro is staying up. Viagra?

Think of this as a see-saw, with the dollar on one seat and the Euro on the other. Then, the Fed pushes the dollar down. And then China accuses us of currency manipulation. When you think of the value of the Euro, you do so in dollars.

[Giant Communist Robot]

Something fishy is going on.

You betcha. A basic idea of forex is the currency is proxy for the economy. Does this look like floating rate exchange? Now, about that Renminbi....

[Haggis@wk]

Supply is down, too.

Only artificially so, banks are still refusing to put 600K+ foreclosed houses on the market for fear what that would do to prices. That won't last. If something can't last forever it won't.

[Giant Communist Robot]

Only artificially so

That doesn't change the picture. I don't think banks can dump because their balance sheets are too fragile. Current supply is down to 6.2 months, the lowest reading since 2006. What you are saying is if things were different, the reading would be different. But it's not. The number is what it is.

[Haggis@wk]

...The number is what it is.

I agree, from the same article you quoted.
However, prices in many markets have continued to fall amid a steady stream of foreclosures. A large backlog of potential foreclosures that haven't yet been taken back could still push down prices. The median sales price in December was $164,500, down 2.5% from a year earlier. For all of 2011, the median was $166,100, the lowest since 2002.

The Robo-signing scandal is over, all those delayed foreclosures (estimated to be 2+ million, that's in addition to the 600K+ the banks are holding back) will/have started in 2012.

Let's not pretend that 600K number is insignificant, when, since the great Depression, have banks held property off the market? That's why I used the word "artificially" carefully. Let's recognize it for what it is.

We have a housing bubble in which banks are manipulating the current prices of houses by arbitrarily withholding houses from the market. That's a disaster in planning and I think a disaster will occur. Not all banks are monolithic in their marketing decisions; I suspect more than a few are getting nervous and are already considering putting houses on the market before prices decline, as I said, a bubble.

The only housing industry indicators that means anything are simple; housing prices increase and mortgage rate go up.

Without either of those two any other number is, as you indicated, "the number is what it is"

[Giant Communist Robot]

I think a disaster will occur.

So that's your call, eh?

[Shapley]

We have a housing bubble in which banks are manipulating the current prices of houses by arbitrarily withholding houses from the market.

We've had a 'housing bubble' for decades, supported the government's crazy notion that aiding people who can't afford the overpriced homes by financing them is a good idea. That crazy notion hasn't gone away or been altered by the events. The banks know the houses are overpriced, but can ill afford to let them self-correct, at least not rapidly. As a result, they are withholding them.

I don't think they are trying to maintain the bubble. I think they are trying to gradually deflate it, rather than letting it pop.

[Giant Communist Robot]

I think they are trying to gradually deflate it, rather than letting it pop.

That's what I was thinking. I'd be surprised if bankers were unaware of the situation or did not realize there are things they can do to save their necks.

[Shapley]

I think they are resigned to the fact that they are going to lose money on those pieces of real estate. Their objective, it seems to me, is to spread those losses over several quarters, or several years, so they can be offset by gains in other areas.

If you have eat a crap sandwich, it's probably better to eat it a few bites at a time, washing it down with something more palatable, than to swallow the whole thing in one sitting...