Existing home sales in the Toronto area came in at 6,681 in October, down 21% from year-ago levels.  Meanwhile, the supply of backlog is growing inexorably — active listings surged 21% to 18,305 units from 14,771 in October 2009.  The average number of days that homes for sale have been sitting on the market is up 19%, to 31 days, versus 26 days a year ago.  Average selling prices are still 5% higher today than they were a year earlier, but the bloom is off the rose and that pace is poised to reverse in coming months.

More:

In this issue of Breakfast with Dave

• While you were sleeping: risk trade is clearly on again — equities are surging across the globe and bond markets are getting clobbered; U.S. dollar is breaking down; commodities are well bid

• Thoughts on QE2: the Fed is clearly trying to reflate asset values in order to generate a more positive wealth effect on personal spending and pull down the cost of debt to re-ignite business “animal spirits”

• More thoughts on QE2: in some respect, the Fed did as little as possible yesterday. What good is another handful of basis points decline really going to do for the economy?

• When bullish is bearish: chasing the market is human nature, but this behaviour is very important for investors

• Long/short strategies from the Challenger report: the Challenger layoff/hiring report contains some nice details at the industry level

• ADP private payroll result was better than expected; but we are not that excited

• U.S. service sector humming

• Factory orders point to upward revision to U.S. Q3 real GDP

,,,,read summary HERE

….read Full Report HERE

*Note: Peter Schiff Michaels Guest again on Money Talks this weekend as his Interview Oct. 23rd was cut short.  Listen Live (Saturday @ 9:30) HERE

Michael Campbell: Peter you were worried about the US dollar and real estate in 2006, 2007, well in advance of 2008. Where do you see us at right now in the US economy and the global economy?

Peter Schiff: Well the US economy is a complete disaster in the aftermath of the 2008 financial crisis. The crisis was caused by bad monetary and fiscal policy that artificially inflated a real estate bubble and we had a federal reserve, that kept interest rates too low. We had a congress that subsidized the extravagant borrowing on the part of home buyers and we had a thorny economy where we borrowed too much, we didn’t produce enough and the government through its monetary and fiscal policy is refusing to allow market foreces to correct the underlying imbalances in the US economy.The economy is in worse shape now than it was in 2008 the only thing propping us up is foreign buying of US dollars. China, Japan, South East Asia are buying up treasuries, buying our dollars and artificially sustaining our economy and that is what the problem is with the global economy. The fact that they’re propping up the US economy is a huge burden on the rest of the world and the longer they prop us up, the more pain we are going to be spreading throughout the world. The key to global economic growth is for the world to allow the dollar to fall and to stop lending money to the US government.  To stop buying US treasuries, the US mortgage backed securities. To force the American government to stop spending money, to force the American citizens to start saving instead of spending and to force congress to reform our laws so we can go back to a nation of productive citizens instead of a bunch of reckless spenders.

MC: To solve a debt crisis by getting into more debt? That just doesn’t make any sense intuitively.

Peter Schiff: The worst part about it is it’s now the government that’s going into debt on behalf of American citizens who are already up to their eyeballs in it. We have a currency crisis coming in the United States and we have a sovereign debt crisis. It’s all going to hit some time in the next couple of years and it’s going to be horrific. I mean far more is going to be lost when the dollar collapses and the bond market collapses. When we saw this first in the real estate bubble or the dot com bubble.

MC: What are the ramifications for your clients in this kind of an environment. What kind of advice do you give them?

Peter Schiff: Well I’m telling my clients to get out of the dollar for ten years. We’ve been buying gold, silver, energy agricultural commodities oil and gas. I’ve been investing heavily in Asian economies South East Asia China Singapore Hong Kong and we’re investing in Scandinavia. We’re investing in Australia in New Zealand and up your way in Canada. We are doing whatever we can to avoid the US. As I said I think it’s a train wreck. And a lot of people will lose a lot of money and wealth. I think most Americans are going to get wiped out because we are going to destroy the value of the dollar.

You can read more of Peter Schiff’s commentary on his Euro Pacific Capital website HERE

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This is it — the hot news that Wall Street was waiting for with bated breath.

News flash:
$600 billion Fed funny money! Big LIE!

This is it — the hot news that Wall Street was waiting for with bated breath.

Fed Chief Bernanke’s going to buy another $600 billion in Treasury securities to pump liquidity into the economy.

But it’s all one big, fat lie.

Here’s why:

First, because the whole concept of “buying Treasuries” is a smokescreen. What Bernanke is really doing is running the money printing presses, and it’s no secret. Even the emperor himself knows he has no clothes.

Second, because Bernanke also knows — all too well — that he’s not truly pumping money INTO the U.S. economy. In reality, the U.S. economy is leaking like a sieve. So for all practical purposes, he’s pumping the money OUT OF the U.S. economy — to countries overseas.

Third and most important, the “big number” — $600 billion — is meaningless. The Fed says quite bluntly that they will …

In other words, they’ll blow right past the $600 billion mark whenever and however they darn please.

State of Shock and Awe

Meanwhile, yesterday’s elections have left one political party in a state of shock and the other basking in the warm glow of success. And our readers are not the least bit surprised!

Thanks to our special polls — both among our own readers and nationally — we were able to tell you, well ahead of time, that fiscal conservatives would sweep into Washington, and that the entire government would end the day deeply divided.

In the House of Representatives, Republicans rule. In the Senate, the Democratic party held on by the skin of its teeth, but without a true, operational majority.

That means Congress is now officially OUT of the stimulus and bailout business. It also means that many in Congress will be fighting to actually reduce government spending at every opportunity.

Most importantly, it means all the gas that was fueling the meager recovery of the past two years is no more. President Obama couldn’t push a new spending bill through the new House or Senate even if his life depended on it!

And that leaves the White House
with a serious problem …

Obama & Team know that the 2012 presidential campaign effectively starts TODAY … that voters will hold the president personally responsible for turning the economy around … and that ANY FAILURE TO SLASH UNEMPLOYMENT WILL DOOM THEIR CHANCES in the next election!

But new spending bills are no longer a possibility. So that leaves the president with one and ONLY one weapon of last resort: The Federal Reserve.

That’s why today’s Fed announcement — that it will print only $600 billion to buy Treasuries and other securities — is just a down payment. Merely a small tip compared to the truly big money-printing binge yet to come.

Look: In the world we just left behind, Congress and the Treasury Department led the charge on stimulus:

• Congress passed spending bills.
• The Treasury borrowed the money to pay for them.
• The Fed’s role was merely to buy Treasuries with newly-printed money in order to keep interest rates low.

Now, in the new world that has just dawned, the game has changed. Radically! Congress and the Treasury are on the sidelines. The responsibility for stimulating the economy now falls on the Fed ALONE.

That’s why you need to take today’s Fed announcement with a grain of salt. Yes, the Fed is firing up the printing presses again. Yes, it will use that money to buy treasuries and other securities. But …

My point: Anyone who really believes that the Fed will only print a mere $600 billion this time is missing the point. It will take many times that amount to buy Obama a second term! The bottom line …

Every dollar you earn and own
is about to be gutted of its value.

Even just the dollars the Fed has printed so far are ALREADY driving the price of essential everyday items through the roof.

Just since last July, margarine prices have risen 6 percent. Women’s dresses are up 6 percent. Beer is up 6 percent. Milk prices have risen 6.5 percent. Candy is 13 percent more expensive. Butter is up 19 percent. Shoes are up a whopping 45 percent. All in just over four months!

Now, with the Fed set to flood the world with unbacked paper dollars, it’s time to get ready for even greater destruction of your buying power … an all-out assault on your standard of living … a brutal frontal attack on your financial security.

Plus, this sea change in the management of the U.S. economy will have an enormous impact on every investment market. It will impact stocks … bonds … foreign currencies … precious metals … oil and other commodities, especially food.

And by doing so, it will create some of the greatest profit opportunities any of us has ever seen.

Our next new presentation to help
you profit is just days away!

As you read this, we’re working nonstop on a brand-new presentation entitled “The $3 Trillion Lie.”

In it, we show you precisely HOW this destruction of the dollar will affect the investment markets. And we also show you how much you could earn by making the right moves now.

We’ll send you a special email inviting you to view this crucial strategy update within the next few days. So be sure to watch your inbox!

Best wishes,

Larry

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

QE2 risks Currency Wars &  Dollar Hegemony End

The Federal Reserve is expected to announce a new round of bond-buying today to lower long-term interest rates to boost the economy.

Ahead of the Fed’s 2:15 p.m. announcement, here’s a rundown of the key issues:

The Fed’s “QE2” risks accelerating the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard, or a multi-metal “bancor” along lines proposed by John Maynard Keynes in the 1940s.

China’s commerce ministry fired an irate broadside against Washington on Monday. “The continued and drastic US dollar depreciation recently has led countries including Japan, South Korea, and Thailand to intervene in the currency market, intensifying a ‘currency war’. In the mid-term, the US dollar will continue to weaken and gaming between major currencies will escalate,” it said.

David Bloom, currency chief at HSBC, said the root problem is lack of underlying demand in the global economy, leaving Western economies trapped near stalling speed. “There are no policy levers left. Countries are having to tighten fiscal policy, and interest rates are already near zero. The last resort is a weaker currency, so everybody is trying to do it,” he said.

Pious words from G20 summit of finance ministers last month calling for the world to “refrain” from pursuing trade advantage through devaluation seem most honoured in the breach.

Taiwan intervened on Monday to cap the rise of its currency, while Korea’s central bank chief said his country is eyeing capital controls as part of its “toolkit” to stem the flood of Fed-created money leaking out of the US and sloshing into Asia. Brazil has just imposed a 2pc tax on inflows into both bonds and equities – understandably, since the real has risen by 35pc against the dollar this year and the country has a current account deficit.

“It is becoming harder to mop up the liquidity flowing into these countries,” said Neil Mellor, of the Bank of New York Mellon. “We fully expect more central banks to impose capital controls over the next couple of months. That is the world we live in,” he said. Globalisation is unravelling before our eyes.

Each case is different. For the 40-odd countries pegged to the dollar or closely linked by a “dirty float”, the Fed’s lax policy is causing havoc. They are importing a monetary policy that is far too loose for the needs of fast-growing economies. What was intended to be an anchor of stability has become a danger.

Hong Kong’s dollar peg, dating back to the 1960s, makes it almost impossible to check a wild credit boom. House prices have risen 50pc since January 2009, despite draconian curbs on mortgages. Barclays Capital said Hong Kong may switch to a yuan peg within two years.

Mr Bloom said these countries are under mounting pressure to break free from the dollar. “They are all asking themselves whether these pegs are a relic of the past,” he said.
China faces a variant of the problem with its mixed currency basket, a sort of “crawling peg”. Commerce minister Chen Deming said last week that US dollar issuance is “out of control”. It is causing a surge of imported inflation in China.
Critics in the US Congress say China could solve that particular problem very quickly by letting the yuan rise enough to bring the country’s $180bn trade surplus into balance.

They say the strategy of holding down the yuan to underpin China’s export-led model is the real source of galloping wage and price inflation on China’s eastern seaboard. The central bank has accumulated $2.5 trillion of foreign bonds but lacks the sophisticated instruments to “sterilise” these purchases and stem inflationary “blow-back”.

But whatever the rights and wrongs of the argument, the reality is that a chorus of Chinese officials and advisers is demanding that China switch reserves into gold or forms of oil. As this anti-dollar revolt gathers momentum worldwide, the US risks losing its “exorbitant privilege” of currency hegemony – to use the term of Charles de Gaulle.

The innocent bystanders caught in the crossfire of Fed policy are poor countries such as India, where primary goods make up 60pc of the price index and food inflation is now running at 14pc. It is hard to gauge the impact of a falling dollar on commodities, but the pattern in mid-2008 was that it led to oil, metal, and grain price rises with multiple leverage. The core victims were the poorest food-importing countries in Africa and South Asia. Tell them that QE2 brings good news.

So the question that Ben Bernanke and his colleagues should ask themselves is whether they have thought through the global ramifications of their actions, and how the strategic consequences might rebound against America itself.

From today’s Breakfast with Dave: Market Musings & Data Deciphering

There are just some articles that are worth reading and re-reading. What I’m talking about are some of the columns that found their way into yesterday’s WSJ editorial pages. Agree or disagree, but they were brilliant, particularly Why Obama is No Roosevelt by the venerable Dorothy Rabinowitz and Democrats Can’t Blame the Economy by Fred Barnes on page A21. The analyses are simply phenomenal. Obama’s Next Worry: A Restive Left Flank by John Fund on page 19 was not that far behind. If you missed these — I read them on the flight back from Boulder — I highly recommend that you get your hands on them.

It is hard to disentangle the effects of investors’ high hopes that the Fed’s looming QE2 program will work and how a GOP victory will shape the political outlook, in terms of what has really helped the stock market turn in back-to-back months of really solid gains.

My sense is that the expectations of a shifting political backdrop have been more dominant. Now I fully subscribe to the view that gridlock is not a good thing when the economy is suffering from a variety of intense structural problems and yet strong and effective leadership is lacking. But the market seems to be viewing the mid-term election as a barometer of Barrack Obama’s potential to be a two-term president. According to an Associated Press poll, 51% of Americans believe he does not deserve another chance in 2012 and amazingly, 47% of Democrats want him challenged in the primary, which would be a death-knell since in the past 50 years, every president that faced a fight for the party nomination lost the election (Ford, Carter and Bush senior). There are all sorts of stuff like this in the John Fund piece.

That aside, Mr. Market likes the fact that the Republicans are now going to assume control over the legislative agenda — oversight and expropriations to be precise. The push for “card check” unionization will be set back, and union political contributions are likely to be curtailed. Mr. Market probably does not mind at all that labour’s influence over the policy agenda is about to be rolled back. The beleaguered banks could emerge here as a big winner if the GOP translates into fewer teeth for the SEC in its quest to enforce the recently-legislated Dodd-Frank financial regulation bill. Foreclosure moratoria, supported by the likes of Harry Reid, are far less likely to re-emerge. Little wonder, then, that the NYT reported that 71% of financial sector donations are now being diverted to the Republican campaign compared to 44% a year ago.

There is a growing hope that the Tea Party has tapped a raw nerve and will serve as a lightning rod for change. And change is needed in a really big way when one considers the financial strains that mandatory entitlements, such as Social Security, will pose as the demographics, in terms of an ever-higher dependency ratio, ascends further. These mounting “locked in” fiscal costs have to be addressed as do the $3.5 trillion of actuarially unfunded state/local government pension plans. Social contracts will have to be re-written — perhaps with implications for contracts with bondholders.

But hope is never a good strategy. Results are what matter. It took two full years for the Reagan rally to really take hold. An economy growing at a 7% clip in the aftermath of the 1980-82 malaise and an unemployment rate that came crashing down more 300 basis points from the highs certainly helped. So, while there is hope that the stage is being set for meaningful political change in 2012 (where the Republicans stand a very good chance of reclaiming BOTH the House and the Senate) the near-term outlook is muddled. Investors should not lose sight of the fact that the recovery is so listless that we are only one negative shock away from tilting the economy back into contraction mode.

Let’s not forget, we have a weakened U.S. president and a lame-duck Congress on our hands at a time when some serious decisions have to be made that could make-it-or-break-it in terms of a ‘double dip’. Unless the Bush tax cuts are extended, 150 million people will be facing a higher tax bill starting January 1. If exemptions are not passed, then 29 million Americans will fall into the Alternative Minimum Tax (AMT) trap (seven times as many as this year). If left untouched, the estate tax rate jumps to 55%. And, another two million folks are about to roll off the extended jobless benefits, with an income drain estimated at $30 billion dollars, if not more — and at a time when rising food and energy costs are bound to divert consumer spending away from discretionary and cyclical consumer spending.

As for the Federal Reserve — on this score, it is not at all obvious that QE2 is going to have that much of an economic impact; the economy hardly lacks ultra-low interest rates nor does it suffer from a lack of liquidity. As an aside, according to various macro models, even a $500 billion package would exert just a 0.25% positive impact on GDP growth (see more on page C1 of the WSJ). The markets are operating efficiently. This was not the case with QE1 when mortgage spreads and corporate bond spreads were in the stratosphere and the capital markets were closed for business.

Is another 50bps cut to the general level of interest rates from their current record-low levels, at the margin, which is what a $500 billion QE2 plan would entail, really convince debt-strapped consumers who are focused on balance sheet repair to go out and borrow and spend more? Or will it entice capacity-idled companies that are already sitting on a trillion dollars in cash to go on a spending and hiring spree (today’s WSJ cites a survey showing that corporate R&D spending has declined for the first time in over a decade)? Even before today’s FOMC meeting, companies like Northrop Grumman was floating a $500 million 5-year note at a yield of 1.85%! Are the banks, who just sat on excess reserves the Fed plowed into the financial system in early 2009, going to unclog the credit channels when nearly one-in-three American households have a sub-620 FICO score and 25% of outstanding mortgages are “upside down”? Hardly likely.

Maybe the Fed will successfully bring risk asset values above their intrinsic levels to induce a more positive “wealth effect” on spending, but that has proven to have been a failed strategy over the last 15 years, which only ended in tears. Why go there again unless this is for short-term expediency? Maybe Bernanke et al will manage to depreciate the U.S. dollar even more but this risks a trade backlash from other countries, not to mention enticing speculative capital flows to emerging markets where inflation pressures are starting to intensify (and met with tightening measures out of China, India and Australia). The Fed simply does not have the appropriate tools to deal with the myriad of structural hurdles facing the economy, ranging from housing, to debt, to commercial real estate, to state and local government cutbacks and fiscal disarray, to excessive regulation, and the list goes on.

Moreover, if we are talking about the Fed having a really meaningful impact, like enacting a policy that can actually close the output gap completely and totally limit deflationary risks, the numbers we have seen are in the range $4 to $5 trillion worth of asset buying from the central bank. Imagine a Fed balance sheet so big it would be half the size of the overall economy. Yikes! Just the thought of it makes me want to go out and buy more gold and silver mining companies.

What really caught our eye was what Robert Gordon, the Northwestern professor who sits on the NBER (National Bureau of Economic Research) business cycle dating committee, had to say to the NYT on this matter:

• “There is a substantial chance that the U.S. economy is headed into a lost decade, similar to what Japan has experienced in the past 15 years, possibly with zero inflation instead of actual deflation. But the consequences for the U.S. population will be much more severe than in Japan because of our higher unemployment rate, our lack of a social safety net, our system that ties medical insurance to employment instead of making it a right of citizenship, our greater inequality and our higher level of poverty.”

Ouch. Talk about being blown away.

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