Theme of the day again: NZD strength. NZD/JPY and NZD/USD two of the biggest % gainers on the day. EUR/NZD, AUD/NZD the biggest losers on the day, all in NZD strength.

General euro weakness abounds across the board.

NZD GDP expands the first time since the March 08 quarter.

BOE voted 9-0 to keep rates on hold.

Fed announces interest rates today @ 2:15pm EST. No change expected BUT it’s what they say in their statement that could make a difference. Supposedly, they’ve been talking with bond dealers about taking some of the stimulus back out of the economy. We’ll see if there’s any mention of this today.

Tomorrow: German IFO, U.S. Unemployment Claims, U.S. Existing Home Sales, G-20 meeting starts.

NZD going up on milk? Recovering Dairy prices could help New Zealand. Fonterra says that global dairy prices may make a slow, gradual recovery. Since they are one of NZD’s biggest companies & exporters of one of their biggest products…that’s a good sign for NZD.

kay, the recovery will not be “V” shaped.  It may not be “W” shaped, so today’s media experts now refer to the recovery as “U” shaped, even if it is an extended “U.”

Well, one thing is for sure, the longer this recession-recovery goes on, the smarter the Oracle of Omaha looks.  Yes, Warren Buffet has a way of putting his finger on the pulse of the economy.  Frankly, the real mystery is why everyone else either does not see what he sees or why they are unable to express their vision as succinctly as the Oracle.

For the past three months, every time Buffett has appeared on CNBC he stresses one consistent symptom.  Hey guys and gals, listen up will you!  This guy gets it, plain and simple.

This recession was in large part caused by faulty and probably unscrupulous lending practices that inflated the value of the residential real estate market and loaded the banks with toxic assets.  The Oracle has said repeatedly that this recovery will not take hold until the excessive residential real estate inventory is brought under control, meaning sells out.  Everything else may be “less bad,” a popular news slogan these days, but that simply stands for baseless.

This recovery has no foundation until the existing residential real estate market is cleared up and moved out.  And, even the Oracle admits that the depth of the backlog may be bigger than expected.

As more and more residential mortgages fail and as more than 1 in every 355 homeowners is in the foreclosure process, the inventory ceiling has yet to be identified.  Buffett does not get too specific about this figure, but the facts are the facts.  There is at least one year’s worth of inventory backed up now.

Are Housing Starts Really Encouraging?

The Commerce Department released figures showing that new housing starts increased by 1.5% from July to August.  The seasonally adjusted rate is now at 598,000.  New building permits rose sharply by 2.7%.  Year-over-year permits applications were 37.3% ahead of last year.  On the surface, that looks like good news.

However, single family home construction actually declined by 3% to a seasonally adjusted rate of 479,000 units.  The figure had risen each of the previous five months.

Earlier in the week, this was precisely what Buffett had predicted.  In order to clear out the excess residential inventory, new single family housing starts needs to suffer further.  It is becoming increasingly evident that government initiatives are driving the recovery, not national or global economic growth.  Joseph Brusuelas of Moody’s Ecconomy.com explained; “We are at the stage where an economy exits recession.  The recovery is going to be moving along due to policy initiatives and inventory restocking.  It’s a U shaped recovery with some parts of the U a little bumpy.”

The rise in housing starts is partly fueled by the upcoming November 30^th expiration of the first-time homebuyer’s $8,000 tax credit.  On Thursday, Treasury Secretary Timothy Geithner reported that the administration has not decided to renew the first-time homebuyers tax credit or any version thereof.  This tax incentive is responsible for more than 375,000 single-family sales so far this year.  Real estate lobbyists have been pushing an expanded version of the tax credit that would put more money on the table and would not be limited to first time buyers.

The ball seems to be in the hands of the Federal Reserve, who meets next week.  As Chairman Bernanke has indicated, the recovery is underway.  The Federal Reserve is believed to be more interested in finalizing an exit strategy rather than pumping more money into the economy.

This is bad news for the 9.7% of Americans receiving unemployment benefits.  It is also bad news for the housing market.  The majority of existing home sales are in the low-end, first home buyer price range.  In addition to the first time buyer, 33% of home sales are distressed sales, meaning either facing foreclosure or already in the system.

Would someone please tell Secretary Geithner that a 2010 tax credit is absolutely necessary.  Let’s get this U moving upwards.  Rather than pull back from the tax credit policies of the past, let’s expand them and put some fuel on the fire.  This is important work.  Tim, talk to the Oracle of Omaha!

Almost all currency talk these days revolves around the three ugly ducklings, the US$ (deficits), the Euro (stagflation) and the Yen (worsening economic outlook). Of course, with 75 percent of all savings in the world denominated in US$, the greenback deserves all the media coverage it gets. A lot of ink gets also dry on the issue of the revaluation of the Chinese Yuan.
Bud did you ever read about the currency of a major nation that excels in high GDP growth while managing to lower inflation at the same time? A country that is building up its foreign exchange reserves relatively faster than China and improving its trade account, all built on private enterprise with only 12 percent of GDP coming from government spending.
“Bharat“, as it is called locally, won’t mean much to the most of us, but India does. The biggest democracy in the world has – almost unnoticed by the rest of the world – undergone the most dramatic change of all developing nations.
The south Indian town Bangalore has replaced Silicon valley as the place where the majority of revolutionary computer based science is taking place. Bombay, now called Mumbai again, rivals London in the density of mobile phone users per square mile. Mittai Steel last year became the largest privately owned steel conglomerate in the world. And with an upwardly mobile middle class numbering hundreds of millions the future looks at least as promising as that of China.
Indicators confirm this picture of a flourishing economy awash in money and on a sustainable path of growth. Foreign currency reserves grew an astonishing 30 percent to 127 billion US$ in the 12 months to February 2005. And this excludes the huge mountain of gold hoarded by the 1.2 billion Indians. GDP growth slowed to a healthy 6.6 percent from 8.1 percent in 2003. Industrial production nevertheless rose 8 percent but consumers didn’t have to feel the heat: consumer prices rose a modest 4.2 percent after 3.8 percent in the preceding period. Despite record purchases of durable goods Indians know there is no lasting prosperity without adequate savings. They are prepared for any inflationary onslaught coming along with a possible overheating of the economy: Indias bullion gold imports rose from 200 to 600 tons in the last four years, making the country the number one gold buyer in the world.
They might not drive airconditioned SUV’s, but in terms of gold – the only form of money surviving 6000 years of money’s history without any longer term devaluation - they are a lot richer than the citizens of the US, who are only sitting on mountains of paper.
The foreign exchange markets have already paid their respect by revaluating the Indian Rupee by roughly 10 percent against the $ in the last 24 months. Namaste!