“Meanwhile, anyone who believes that the worst is over for real estate should keep an eye on New York City’s terminally bloated market. It has not crashed yet, but the likelihood that it will seems as certain a bet as that the sun will rise tomorrow. Last week’s report that prices are up while unit sales are down was regarded, incredibly, as evidence that the Big Apple might somehow be immune to the crash that has already spread to most other big cities. We are asked to believe that the high level of foreign ownership is what is keeping NYC’s housing prices buoyant. But if that were true, then how to explain the fact that Citigroup shares, which are heavily owned by foreigners whose pockets are almost infinitely deep, have fallen by nearly 70%?  

In fact, signs of an impending collapse in New York City real estate have been masked by the sale of a relative handful of apartments at exorbitant prices in the $25 million-$40 million range. Despite this, in the broad middle of the market – i.e., run-of-the-mill co-ops valued at $1.5 million to $3 million — buyers have peen pulling back in droves. Under the circumstances, only an imbecile could believe that NYC real estate will somehow weather the devastation of Bear Stearns, Merrill Lynch and hundreds of other financial firms both big and small…..”

Rick Ackerman.

“Steve Hanke, an economics professor at Johns Hopkins University in the United States, agreed that international action, as well as expansionary fiscal policy in Japan and Europe, were needed to help put a floor under the dollar.

Countries including China and Middle East nations that have large holdings of dollars in their reserves should pledge not to talk about diversifying their portfolios while action is being taken to stabilise the U.S. currency, Hanke told the conference.

Gulf countries in addition should stop talking about de-pegging their currencies from the dollar.

“It’s unproductive and creates a great deal of short-term volatility in the dollar,” he told the Credit Suisse Asian investment conference.

Adams said the dollar was likely to remain under pressure for the next few months because of uncertainty about when the U.S. business cycle will bottom out and how far the Federal Reserve will cut interest rates.

But he said the currency would find its footing, as the American economy is still fundamentally stable and the United States is one of few countries that will be able to keep absorbing huge global capital flows….”

More here from Reuters at GATA.org

A lot of people think there’s no inflation yet and that the current scenario is only deflationary. Monetary reserves are contracting, they say. They point to the Fed’s open market operations as a form of adjustment (taking money from banks with bad debt by buying up mortgage debt and giving to banks in good shape through the sale of Treasuries).

Steve Saville points out why their argument is wrong and why inflation exists along with asset deflation:

“Many pundits still treat M1’s growth rate as an important indicator of monetary conditions on the basis that the amount of ‘narrow money’ is supposed to have a substantial influence on the total supply of money due to the famous “money multiplier” effect. In fact, some well-respected analysts have expressed concern that the lack of growth in the narrowest measures of US money supply over the past couple of years means that Fed policy has been excessively restrictive. But these analysts are failing to appreciate that regulatory changes made by the Fed in the early 1990s caused M1 to become a shadow of its former self with respect to its usefulness as a general monetary indicator.

In rough terms, the rules were changed in the early 1990s to allow banks to dramatically reduce the amount of money held in the form of reserves at the Fed by “sweeping” money from checking accounts (components of M1 that are subject to reserve requirements) into savings accounts (non-M1 components of M2 for which there are no reserve requirements). For example, you might think you have a checkable deposit at your local bank, but in the bank’s books you probably have a zero-interest CD (the type of deposit that has no reserve requirement). Whenever one of your checks is presented the bank’s software “sweeps” the relevant amount of money from the zero-interest CD you never knew you had into the checking account you thought you had.

These rule changes have made commercial banks more profitable because money held in reserve at the Fed is money that doesn’t generate income for the banks; and this, of course, is why the changes were made in the first place.”

Steve Saville in The Speculative Investor

“Major Trends – Inflation, interest rates etc
I am relying on previous analysis that the graph below illustrates on interest rate and inflation expectations in that once the US economy stabalise’s from the dropping like a stone phase, the Fed will reign in inflation during 2009, especially as the high rates of inflation from earlier months leave the 12month indices. The consequences of this is for a US dollar bottom BEFORE the event – sometime this year and therefore become a disinflationary contributor to inflation during 2009.”

Read more of this interesting analysis at GoldSeek.

“– The U.S. dollar will continue to fall against other currencies.
— Oil will march toward $150 a barrel and other commodity prices will continue to increase, as investors race toward holding real things instead of currencies.
— Gold will march toward $1,500 an ounce as worries about the debt contagion spread.
— Last week, the Euro zone of 15 countries became worth more than the U.S. dollar zone, and will continue to be used as a preferred reserve currency, thus aggravating the U.S. dollar’s decline.
— Central banks outside the U.S. will be forced to cut interest rates as the Americans must to prop up economies.
— Banks and brokers around the world will be shakier and more bailouts — possibly another on Wall Street — will occur.
— Canada’s spoiled chartered banks/brokers will start their whining to merge again, blaming the crisis as another lobbying technique.
— The credit bailout plus the U.S. Presidential election will postpone the bankruptcies, foreclosures and writedowns that must be made in mortgages in order to clean up the housing market. And a lousy housing market means the recession will take root in the U.S. and elsewhere.
— Canada and Australia are lucky. Both will continue to boom, along with commodity prices, and the Canadian dollar will move up in tandem.
— Economics will trump Iraq in the U.S. political contests this summer, forcing McCain to choose Romney as a running mate and the Democrats to sharpen up their CEO cred too.”

More by Diana Francis at The National Post.

Comment:

Since I posted this, the well-staged “rescue” by the Fed has occurred and gold has fallen dramatically, the commodity currencies and commodities along with it.

Is this the end of the PM (precious metals) bull? Probably not. We’re approaching the season when gold sells off, usually; we’ve had such a big run that a technical correction was long overdue. Add to that the intense safe-haven buying of recent months, and a downward move was inevitable. Especially with the dollar putting in its own technical recovery.

Note however, that the dollar’s recovery is only likely to be against the majors, like the Pound and the Euro, and the commodity currencies. Against the Yen and Franc, it’s likely to continue to weaken, with some technical bounces along the way.