Home Sales Sink, Consumer Confidence Plummets, SWFs Buy Banks, Gold Sets a Record, and More!

by Addison Wiggin & Ian Mathias

  • Consumer confidence falls, takes housing with it… Mish on a phrase you should get used to hearing
  • Dollar sinks to another record low… Look at what’s happened in just three weeks
  • Gold stays in the $730 range… and sets a record of its own
  • Sovereign wealth funds’ incredible newfound influence in the banking sector… does Singapore control your bank?
  • BHP Billiton confirms massive resource find… details below

U.S. “existing home sales” fell 4.3% in August
, to a 5.5 million annual rate — the slowest pace since the same time in 2002.

The National Association of Realtors, which publishes the measure, says the number has now dropped six months in a row. Sales are down over 12% since this time last year.

Lennar, the nation’s second largest homebuilder, reported its worst quarterly results in the company’s 53-year history yesterday.
The builder lost over $513 million in Q3.

“This was Lennar’s worst-ever quarterly report,” writes Mish Shedlock, providing these details:

  • Sales down 44%
  • Loss was $513.9 million ($3.25 per share)
  • Land write-offs were $3.33 per share
  • Jobs slashed 35%; more job cuts coming
  • New orders fell 48%.

“Lennar had to increase the incentives it offers from $35,900 to $46,000 per home,” Mish notes. “And they are now No. 7 on the credit default swap list. The higher up the list, the more likely the market perceives risk of default.”

“Heavy discounting by builders, and now the existing home market as well, has continued to drive pricing downward,” said Lennar chief executive Stuart Miller. “Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancelation rates.”

“Get used to hearing statements like, ‘Confidence in housing remains low.’ Similar statements are starting to spread to other areas of the economy,” writes Mish.

See: Why Your Home Will Be Worth 43% Less by 2011

U.S. retail sales fell 1% last week
— the second consecutive time. Forecasts from Lowe’s and Target confirm the trend. Both retailers announced yesterday that earnings would not meet forecasts.

Thus… shocker… consumer confidence has fallen to a near two-year low.
The Conference Board announced yesterday that September consumer confidence scored a 99, down from 105 in August and well below analyst expectations of 104.

“Weaker business conditions combined with a less favorable job market,” says Lynn Franco from the Conference Board, “continue to cast a cloud over consumers and heighten their sense of uncertainty and concern… Looking ahead, little economic improvement is expected, and with the holiday season around the corner, this is not welcome news.”

Confidence fell abroad yesterday, too.
The Ifo index of German business confidence hit a 19-month low. According to the index’s spokespersons, ze Germans are concerned about a strong euro and the rising cost of eurozone credit. They expect exports to get hit the hardest.

Both German and French economic officials have called for rate cuts at the ECB’s next meeting, Oct. 4, to ease the pain.

Despite the pall of gloom over the euro business environment, the euro broke through its old high of $1.415
and traded just a breath below $1.42 midday yesterday.

The euro has gained 5 cents on the dollar in the last three weeks.

The British pound gave back a cent overnight amid continued instability in the English financial sector. Nevertheless, the pound will still fetch you $2.01. The yen gained some ground, up to 114.

All told, the dollar index remains in the dumps at 78.

Gold is as jumpy as a kernel of corn in a hot greased skillet this week.
Traders popped the metal as high as $736 on Monday. Then it simmered down to $722 yesterday. As we write, it’s back up to $732.

But here’s an important observation from Adrian Ash at BullionVault.com
: “The gold market has stayed above $700 for 13 consecutive days. The spike of May 2006 managed just four sessions above that level. The all-time top of January 1980 saw only five days running when gold prices topped $700 per ounce.”

This rally has a much more solid base to it than ever in gold’s history.

We’ve been following sovereign wealth funds with heightened interest of late.

Here’s more news: As an asset class, reports the Financial Times this morning, the SWFs have invested $35 billion in banks, securities houses and asset managers in less than two years.
Morgan Stanley analysts recently guessed that $26 billion of these investments were made in the last six months alone.

Temasek, the Singapore wealth fund, has 38% of its portfolio in banks and other financial stocks. “These sovereign wealth funds are buying banks,” says Christopher Hancock, “for the same reasons we recommend them in Free Market Investor:

1) Income: They offer solid dividend income.

2) Diversification: International banks offer great currency diversification, as they derive revenues from a host of countries around the globe. Good inflation hedge.

3) Political Say: Banks have implicit power over a host of political priorities. It gets you a seat at the table so to speak. When the Rockefellers made money in oil, they moved to banks.

4) Longevity: Banking isn’t going anywhere. Politicians come and go. Banking houses usually stay much longer than the empire they help to build.

“Banking is the one industry that weathers time, financial meltdowns, empire collapse, wars, etc. It’s the one business that all other businesses depend on.”
See: Free Market Investor

The U.S. markets played dead yesterday.
Neither the Dow nor S&P gained or lost much more than 0.1%. The Nasdaq “surged” ahead 0.5%.

BHP Billiton upgraded its copper, uranium, and gold resources at Olympic Dam by a remarkable 75% this morning.
Australia’s most famous miner now claims over 7.7 billion dry metric tons of resources, up from 4.4 billion in its last report.

BHP also increased their estimate on gold reserves. They have nearly doubled, from 17 million to 30 million ounces.

“Of course, saying something is there and actually producing it economically are two different things,” says our man down under Dan Denning. It could take BHP a decade to produce the resources it announced today. But “It’s a huge signal to global investors that Australian resources are as abundant as they are lucrative.”

BHP stock has climbed 8% since the possibility of this upgrade dribbled out on Monday.

As we suspected, the GM strike ended quickly.
At 3 a.m. this morning, the UAW union and GM stuck a deal. GM will have to stuff tens of billions of dollars into UAW trust funds, and in return, UAW members will go back to getting paid $70 an hour to watch robots build Chevy Malibus.

“Your subheadline “Home prices in July fell to 16-year lows” is inaccurate and misleading,”
writes a reader. “What is true according to the chart you present: Home appreciation/depreciation rates fell to 16-year lows.”

The 5 responds:
Ugh. We stand corrected. In our rush to get The 5 out for your lunch break yesterday, we missed this detail. Apologies.

“I just wanted to thank you dearly for introducing me to Ron Paul a couple of months ago,”
writes apolitically inspired reader. “You had a link to a video showing this man giving his Texas straight talk to the establishment. I was so impressed with the freshness and integrity of this man, I began to read everything I could on him.

“The other day, you mentioned no one is balking about the North American union. Well, Ron has been hammering home the dangers of that, as well so many other dangers we face every day, such as the Fed-created inflation.
Here is a nice clip

from the other day as Ron takes on Bernanke about the moral hazards of the Fed.”

“Thanks to great publications like yours, he now has proliferated among the Internet circles of informed people. I remember your words to the effect that if everyone who said he couldn’t win actually voted for him, he would probably win. Well, that statement inspired me.

“I have gotten involved with over 47,000 grassroots activists at
http://www.ronpaul.meetup.com

. That’s 923 cities, more than all other candidates combined. We are hitting the streets and making a real difference.
http://techpresident.com

shows him leading all Republicans in using the Web to gain his presidency.

“And when the third-quarter contribution numbers are released, the mass media won’t be able to ignore him anymore.”

The 5 Responds:
When we interviewed Dr. Paul for the documentary we’re making, he said he was optimistic about the response his campaign has gotten from young people. “They inherently understand the need to limit the size and scope of government. Even a fifth-grader can see that what we do in Washington is an affront to liberty.”

Alas, the media will continue to ignore Ron Paul… he’s too much of a threat to the political class upon which they feast. Frankly, we don’t think he stands a chance. But we do enjoy watching him stick it in the craw of both major parties. And his harangues of Greenspan through the years on C-SPAN are worthy of prime time on Comedy Central.

Regards,

Addison Wiggin
The 5 Min. Forecast

P.S. Dr. Paul’s YouTube postings have stirred up a wide cross-section of society…
from soccer moms to skate punks, cowboys, libertarians, paleocons, young liberals and anarchists. Race doesn’t seem to matter either. “Freedom unites people,” Ron says. If you’re so inclined, you can learn more about Ron Paul here:

http://www.ronpaul2008.com

rspertzel

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