My Forex Online Views: Perspective is Everything

Wednesday, May 27, 2009

So – We saw yesterday that things are not as rosy in Euro land as people thought, I even wrote about it too, but it gets a bit worse. As it happens the German Economy shrank by again the first quarter of 2009 by 3.8% (6.7% for the year) which is the largest decline since the two Germany’s, East and West, were unified in 1990. What this says is that things are still getting worse. To top off that bad news, a German Finance official made a comment about the stability of German banks. He was quoted as saying “the toxic assets will blow up like a grenade” although later he denied saying that --- one listen to the audio that was played on the radio (BBC, of course) confirms that he did not say that. What he did say was “…the bad assets that the banks have on hand are liable to explode like a grenade if it is not addressed in a more aggressive manner.” Sounds the same to me.

In the US, the stock market rallied after consumer confidence numbers rose reflecting that American consumers are optimistic about the future of their shopping. Who wouldn’t be? Have you seen the sales that are going on in the few stores left in America’s big, huge iconic malls? Traders get so excited over the smallest of things. They pumped up the stocks because of consumer confidence but neglected the more alarming data of housing and unemployment. Yesterday also saw the release of housing data which suggests that the price drop in America’s real estate market has not neared a bottom yet – and the forecast from the real estate community is that it won’t any time soon.

Fact is, with the Federal money given out during the stimulus phase, or as I like to call it, hand-out at the expense of taxpayer phase, builders are incentivized to just build. The numbers released yesterday showed that there is a big discrepancy between demand and available units being built. The market is being supplied with 600,000 plus new units – but the demand barely covers 300,000 of them. This alone does not take into consideration what is already on the market, or what is being foreclosed on. This was a housing start data and it showed that the stimulus is only stimulating the builders while the overflow would serve to further lower prices in the communities they are being built in.

Take San Diego County for example; in Oceanside, one of the wealthier, more exclusive areas, there is a house that was built three years ago – beautiful house – 4000 square feet inside – a mini-mansion by many standards which was sold for 1.75 Million Dollars in 2006. The bank took possession of the house and it is now on the market for 600,000 Dollars – almost 1/3rd of the original price.

So, when a consumer sees those prices they get excited and feel optimistic – “I can own that once unreachable house for so much less” – and they tell the pollster who calls them about how they feel and they say, “I feel great, I feel like things are picking up” – but talk to the banks about their toxic assets like the 1.7 million dollar house they are still trying to unload for 600,000 and the picture is completely different.

Those of you reading my Forex Online blogs know better – and if the rest of the trading community could see it – well, perhaps you won’t see these wild swings over nothing.


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