Good day... And welcome to the last week of July. I spent the past week
fishing with my son and father-in-law up in Manitoba, Canada. We had some great
weather and caught an absolute ton of walleye and Pike. My son caught a pike
almost as long as he is tall. Just a great guys' trip; but enough about my time
off, I'm back at work now, so lets get to the currency markets.
The dollar continued to slide throughout Friday's trading as concern of
further U.S. credit losses trumped some negative data released in Europe. The
dollar dropped for a second day against the euro after a story in the Financial
Times quoted Gary Stern, president of the Federal Reserve Bank of Minneapolis,
saying the credit crunch will worsen. Nothing new here, but as Chuck stated in
Friday's Pfennig, currency traders continue to play the game of "Who's Data Is
Worse," with the U.S. economic data coming in even worse than the rest of the
world.
Data released Friday showed U.S. new home sales fell less than expected to
530k, down 0.6% from last month's numbers. The Senate passed the massive
housing-rescue legislation, which had made it through the House on Wednesday.
President Bush dropped his opposition to the bill last week, so I would expect
him to sign it quickly. The bill offers emergency funding to Fannie Mae and
Freddie Mac along with establishing a $300 billion fund to help struggling
homeowners. As regular readers know, Chuck is no fan of this bailout, and he
sent me the following comments last night:
"The currency markets were dominated by a bias to buy dollars based on the
Housing Legislation that passed last week... It's just another "bailout"... I
don't care how much lipstick they put on this pig, it's still a pig! Here's the
skinny on the bailout...
"The bill features a combination of tax relief for homeowners, a new
regulator for Fannie Mae and Freddie Mac, and a $300 billion program to avert
foreclosures. Also included is a dramatic Treasury Department proposal to help
restore confidence in Fannie Mae and Freddie Mac by increasing their $2.25
billion lines of credit with the Treasury, as well as allow the government to
potentially buy an equity stake in the firms.
"Another $300 billion to help out... Another $300 billion added to the $150
billion we already added to our debt earlier this year with stimulus checks...
Where does this end? Well... I'll tell you where it looks like it's all going to
end... Can you say, 'We live in a banana republic?'"
Apparently the currency markets agree with Chuck, as they have reversed all
of last week's dollar gains, which occurred in some part due to this massive
bailout plan.
The euro is stronger this morning in spite of a fall in German consumer
confidence to the lowest level in five years. Soaring energy prices have sapped
purchasing power in Germany, Europe's biggest economy.
