>> Housing Bottom Coming in 2015?

Housing Market Bottom Predictions
There have been a few predictions on the housing market bottom: 2009, 2010, & 2012?


Dallas Fed Housing Market Bottom Prediction: 2015 with further 33% price drop?
The Dallas Federal Reserve recently came out with an interesting report recently on the path to a healthy housing market. Some interesting excerpts:

• Public policy goal of increasing the U.S. homeownership rate collided with a huge leap in financial innovation.
• 9.1 million homes were built between 2002 and 2006, a period when 5.6 million U.S. households were formed.
• Real home prices rose 85% to their highest level in August 2006. They have since declined 33 percent.
• Mean reversion: home prices still must fall 23% if they are to revert to their long-term mean; chart below:

Other Observations & Implications from the Economic Letter

• In 2008, 33% homeowners devoted at least a third of household income to housing; 12.5% were burdened with housing costs of 50 percent or more
• in a best-case outcome, 20 to 25 percent of modifications will become permanent. Failed modifications suggest that, without strong income growth, the bounds of affordability can be stretched only so far.

A final note:

With nearly half of total bank assets backed by real estate, both homeowners on the cusp of negative equity and the banking system as a whole remain concerned amid the resumption of home price declines.

Continue reading the economic letter here

>> The real dollar story

The dollar has been in news in the last few months, with a lot of people calling out saying "the dollar is dead" and "lets have a new reserve currency". So far:


The Dollar's Days are over?
(1) Reuters says Dollar to eventually lose grip on commodity trade

(2) The Independent had news about a "profound" financial change in recent Middle East history wherein Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Read more here

(3) Financial Express says gulf states considering dollar alternative for oil trade, gold jumps

(4) Even the UN says the world should ditch the dollar!


The China Perspective
(1) China not happy with the US Dollar, wants an alternative to the dollar

(2) China is also is not happy with the probable fall in the dollar!
Mike Pettis is one of the world's top economist's, and to quote him: "The Chinese are worrying about future weakness in the dollar (which hurts their reserves) while complaining about current strength (which hurts exports)!"

Here is an excerpt of a comment from Mike Pettis on why it is improbable that the Dollar will not be removed from the status of a reserve currency:
""There has been for decades talk about creating an international reserve currency and it has never really progressed," said Michael Pettis, a finance professor at Peking University's Guanghua School of Management. Managing such a currency would require balancing the contradictory needs of countries with high and low growth or with trade surpluses or deficits, Pettis said. He said the 16 European nations that use the euro have faced "huge difficulties" in managing monetary policy even though their economies are similar. "It's hard for me to imagine how it's going to be easier for the world to have a common currency for trade," he said"


Will the Fed save the dollar?
Earlier this year:
(1) On March 19th this year, the 'Rambo' Fed, determined to avoid a repeat of the great depression committed to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion. This may more than double the Fed’s balance-sheet assets by September to $4.5 trillion from $1.9 trillion! Bye-bye dollar?

(2) Also earlier this year, the Fed agreed to currency swaps earlier in the year: From this bloomberg article:
""The Federal Reserve and four other central banks announced a currency swap arrangement that will give the U.S. central bank access to as much as $285 billion in euros, yen, British pounds and Swiss francs. ""

The official purpose of such short-term agreements is to finance short-term capital flows; but swap agreements can also be misused to facilitate large interventions in foreign exchange markets. Is this the reason behind this act?

This of course has been tried before, from 1936 to the present the Exchange Stabilization Fund has participated in over a hundred credit or loan arrangements with foreign governments or central banks. What did this attempt to prop the dollar lead to? Here's what happened - the treasury was subsequently forced to issue foreign currency-denominated debt (The Roosa bonds in the 1960s and Carter bonds in 1978) to repay swap drawings.

Here are the details from the Dept. of Treasury website.

{ Recommended reading: A very good article describing this entire chain of events in detail: Fed tries to boost the dollar. }



Putting the Dollar's fall & Gold's spike this week into perspective
Oct 6, 2009: The Independent reported about a dollar alternative to set the value of oil trades. This set in motion the immediate fall of the dollar and a jump in the price of gold.

This was then officially denied by several sources.

Oct 8, 2009: Asian central banks intervened heavily in the currency markets on Thursday to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China. More detail here.

Meanwhile, Tyler Durden speculates that there could be a potential deal between US & China to let the dollar slide more slowly, more here.

Or could this all really be an organized short on the dollar? Soros had made $1 billion in 1 trade shorting the British pound in the 1990s, so the possibility remains that someone had an interest in the dollar falling; we shall know with time.


Conclusion - So What is the Dollar story?
We started out with news about calls to replace the dollar with another reserve currency. We also saw that several parties have both short-term as well as long-term interests in the fall of the dollar.

My opinion is that the calls for replacement of the dollar as the reserve currency is noise which will die out with time, there seems to be a low probability of that happening. Meanwhile I expect a slow slide in the dollar, coupled with deflation that has started to continue for some time to come.

( Why deflation? Thats a discussion for some other time :-) )

>> Fiat Currencies in motion

Major governments have been printing money over the last few months. Lets take a peek into what this is doing to the major currencies.

(I) British Pound
FXB (CurrencyShares British Pound Sterling Trust ETF) has fallen dramatically in the last few months, here is the all-revealing chart-
















(II) Japanese Yen
FXY(CurrencyShares Japanese Yen Trust ETF), meanwhile, has been on a

















(III) US Dollar

Both the UUP(PowerShares DB US Dollar Index Bullish Fund) as well as UDN(PowerShares DB US Dollar Index Bearish Fund) are at an interesting juncture.

It wouldnt be fair not to look at the $USD chart :) -

There has been a flight to the dollar despite the "weak fundamentals", however this may continue for longer than one thinks. It would be prudent to keep an eye on these charts to keep on top of an impending change in trend, short-term or long-term.

Finally, the picture is more interesting when looking at what gold does in conjunction with the USD. Take a peek into that is an older blog post : >> Gold Makes a Move - Short Term Trade?