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1. Dollar Hits 14-Year Low Against British Pound
2. Are Banks Manipulating the Bond Market?
3. New Home Sales Dip as Inventories Build
4. GDP Revised to 2.2 Percent Growth
1. Dollar Hits 14-Year Low Against British Pound
The U.S. dollar slid to a 14-year low against the British pound in trading this
morning. That's the ninth consecutive day that the dollar traded lower against
the pound. But is the slide almost over?
The dollar cratered against the pound as traders speculate that the Bank of
England, Britain's central bank, will continue to raise interest rates into next
year, says Bloomberg. The U.K. housing market, unlike in the U.S., continues to
be red hot. Plus, the chancellor of the Exchequer said economic growth is on
pace to exceed the government's forecast.
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However, the dollar inched up in trading today, buoyed by news that the U.S.
gross domestic product grew at a faster pace than first reported. The U.S.
economy expanded at a 2.2 percent rate, up from the previous estimate of 1.7
percent. News like that usually signals that the economy is healthy enough for
the Fed to raise rates.
In addition, Federal Reserve Chairman Ben Bernanke cautioned that inflation
remains "uncomfortably high," implying that the Fed has no plans to cut interest
rates in the near future.
Andrew Wilkinson, editor of Wilkinson's Hedge Fund Investing service, told his
subscribers this morning to short the British pound. While, Wilkinson is
confident the long-term direction of the dollar is down against most major
currencies, he says that the pound's rally against the dollar has gone too far
too fast for it to last.
Wilkinson explains, "Right now the dollar has no friends":
- While incumbent Treasury Secretary Hank Paulson chimes about a strong dollar
being in the interests of the U.S., you can't hide the fact that a weak dollar
is great news for exporters. So don't expect the government or the Fed to
intervene.
- Interest rates may have peaked in the U.S. — meaning the yield differential
between the greenback and other currencies is fading. Next week the European
Central Bank (ECB) may raise their benchmark rate to 3.5 percent.
- China's finance minister recently warned over holding dollar reserves when the
unit faces a potential decline ahead."
However, he says the British pound is "overbought" and he's "betting on a
correction soon." HFI subscribers are sitting on $2,640 in potential profits if
the trade reaches Wilkinson's target.
Editor's Note:
2. Are Banks Manipulating the Bond Market?
There are just 22 investment banks allowed to buy bonds directly from the
Federal Reserve and resell them to clients such as mutual funds, pension funds,
foreign investors, and others. The Treasury repurchase, or "repo," market
finances U.S. deficits and keeps the economy running.
So what would happen if any of the investment banks were manipulating the
market?
Fortune magazine reports that there are rumors that UBS, one of the 22
investment banks, is manipulating the repo market. There are whispers that the
Securities and Exchange Commission is investigating UBS for possible market
manipulation. The SEC declined to comment to Fortune. UBS would only tell
Fortune that it is cooperating with "a government investigation."
Fortune explains how the market can be manipulated with this example: "Sometimes
a dealer with big brokerage and lending operations (let's call it
Bank A) will learn that a rival (Bank B) is going to need a certain issue by a
certain date. Bank A can quietly try to snap up a big portion of that issue.
Then, when Bank B goes into the market trying to find those bonds, it will
encounter a dearth of sellers and will be inclined to pay a premium for them."
Points out Fortune, "Taking big positions isn't in itself illegal, but using
inside info to manipulate the market is." As one of just 22 banks privy to the
inner workings of the bond market, UBS would have that insider knowledge.
Fortune says that the 22 primary bond dealers met with the Interagency Working
Group on Market Surveillance — which includes officials from the Fed, the New
York Fed, the SEC, the Commodities Futures Trading Commission (CFTC), and the
Treasury — to discuss market manipulation. Out of that meeting came a decree
that no bank would be allowed to hold more than 35 percent of any single issue.
Manipulation of the bond market carries with it some dire consequences for the
U.S. Treasury's deputy assistant secretary for federal finance, James Clouse,
put it this way: "If the integrity of the secondary market were to be
compromised, many investors could well migrate away from Treasuries."
No Treasury buyers would mean that the U.S. wouldn't be able to finance the
lifestyle to which it has grown accustomed. Taxes would increase, social
programs would be bankrupt, and interest rates would shoot sky high, not to
mention the value of the dollar would be pretty much worthless.
Stay tuned.
Editor's Note:
3. New Home Sales Dip as Inventories Build
Sales of new U.S. homes dipped in October and inventories rose, but builders
boosted prices by over $30,000 per unit after a sharp decline in home prices a
month earlier, a government report showed Wednesday.
New single-family home sales declined 3.2 percent in October to an annualized
rate of 1.004 million units from a downwardly revised rate of 1.037 million in
September, the Commerce Department said. Analysts polled by Reuters were
expecting October sales to ease to a 1.044 million rate from a rate of 1.075
million in September.
October sales were down 25.4 percent compared to a year ago.
The median sales price of a new home rose more than 13 percent to $248,500 in
October from $218,200 in September as builders were able to boost prices despite
a modest decline in the rate of sales. October's median home price was the
highest since they reached $257,000 in April.
The supply of homes available for sale in October at the current sales pace rose
to 7 months' worth from 6.4 months' worth in September. There was a total of
558,000 homes available for sale at the end of October, down slightly from the
562,000 reported in September.
New home sales in the Northeast dropped 39 percent in October and they dropped
5.6 percent in the Midwest and were down 1.7 percent in the South. The West,
which saw an increase of 3.2 percent, was the only region to see a rise.
The Commerce Department's take on new home sales in October came a day after a
real estate trade group said U.S. existing home sales rose modestly, breaking
six months of declines. The National Association of Realtors said home resales
rose to an annual rate of 6.24 million from a 6.21 million pace in September.
© 2006 Reuters
Editor's Note:
4. GDP Revised to 2.2 Percent Growth
The U.S. economy grew faster than first thought in the third quarter on strong
business investment, even as the housing sector posted its biggest decline in
more than 15 years, the government said Wednesday.
Gross domestic product, which measures total economic activity within U.S.
borders, expanded at a 2.2 percent annual rate during the third quarter, higher
than the 1.6 percent gain first estimated and above Wall Street expectations for
a 1.8 percent gain.
The third quarter gain was still weaker than the 2.6 percent advance in the
second quarter.
Business investment was stronger than first thought during the third quarter,
according to the Commerce Department report, which was the second estimate of
the third quarter figures after an initial report issued last month.
Nonresidential investment, which serves as a proxy for business spending, rose
at a 10 percent annual rate, up from the 8.6 percent rise first estimated.
Corporate profits during the quarter, after taxes, advanced by 4.6 percent. That
was far above the scant 0.3 percent advance in the second quarter and
surprisingly higher than the 0.4 percent gain economists in a Reuters poll were
expecting.
Investment in housing tumbled by 18 percent during the quarter, a slightly
bigger decline than the 17.4 percent decrease in the government's earlier
estimate. It was the biggest decline since a 21.7 percent slide in the first
quarter of 1991.
Consumer spending, which accounts for roughly two-thirds of national economic
activity, advanced at a 2.9 percent annual rate during the quarter, a weaker
reading than the 3.1 percent advance first estimated.
A key inflation measure favored by the Federal Reserve — personal spending
excluding food and energy — advanced at a 2.2 percent rate during the quarter,
down slightly from the 2.3 percent first estimated and close to Wall Street
expectations.
So-called core prices, measured on a year-over-year basis were up 2.4 percent,
the same as first estimated and the strongest rate since 1995.
© 2006 Reuters
Editor's Note:
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