Ralph Shell @ 1:36 PM, Thursday September 23 2010
News on both side of the Atlantic confirmed this morning that the recent economic recovery is slowing, with elected politicians and their advisers all fearful they will soon be looking for a new line of work. With the exception of the French Manufacturing PMI, all the other German, Euro and French forecasts of future activity were signaling warnings of a pending slowdown. British Mortgage Approvals contracted a minor amount, and the Italian Quarterly Unemployment Rate went up a tenth to 9.5%.
In the US, the initial unemployment claims did come in higher than expected at 465K but existing home sales crept 7.6% higher in August, from the record July lows. This did not make much of a dent in the inventory of listed homes for sale, which now totals 3.98 million, a 11.6 month supply, and does not consider the supply of bank possessions and pending foreclosures lurking in the shadows. The Conference Board of US leading indicators came in at a positive 0.3%, better than expected, confirming the slow recovery will continue.
Years of governments and their people borrowing to buy votes today and pay it back tomorrow mat be reaching a crises stage resulting in some peculiar and unusual behavior. Earlier in the week there was a proposal floated in Britain that all private paychecks would first be paid to the British Exchequer, who would take the appropriate deductions and then wire transfer the residual amount to the wage earner. There was unrest in French today, as 232 groups of unhappy demonstrations protested the government's proposal to increase the retirement age to 62. I'm curious, do the French have so many paid strike days per year?
This week's absurdity was not confined to Europe. At the UN this morning President Obama, according to the Associated Press said: "America has joined with nations around the world to spur growth and
renewed demand that could restart job creation." Really? What jobs, besides more government bureaucrats are ever created by politicians?
Consider the 2,500 page health care law that people are only now finding what is in the bill. An editorial in Washingtonexaminer.com claimed: "
Obamacare imposes a huge nonmedical tax
compliance burden on small business. It will require them to mail IRS
1099 tax forms to every vendor from whom they make purchases of more
than $600 in a year, with duplicate forms going to the Internal Revenue
Service. Like so much else in the 2,500-page bill, our senators and
representatives were apparently unaware of this when they passed the
measure."
Unless Washington removes some of the burdens imposed on small business, the engine of job creation, unemployment will likely climb back above 10% nationally. But, it is hard to imagine how the US will be sucked into the abyss and the rest of the world will remain unscathed.
Sentiment and the consequent money flow has favored anything but the USD for weeks. We probably need a little more time to squeeze the last of the bears out and entice the trend followers back to the long side. Sentiment can be fickle however. Yesterday all was well with the Irish and Portuguese sovereign debt sales, but today fresh concerns have arisen. The yield on Irish government bonds has now gone to a new record, taking with it Portuguese CDS. The Irish Finance Minister hints that all the lenders to the Anglo Irish Bank will not get 100% of their money back.
The bearish euroland debt stories are of little concern to the new euro bulls, but the exporters in northern Europe have the most at stake with a the strong currency. It would not be surprising if some bear euro stories emerged over the week end. Currently we are standing aside, waiting for week end developments, and looking for a sell spot.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.