Foreclosure Life Raft; Price Wars at Walmart; Electrical Demand Drops Two Straight Years, First Since 1949

Citing reduced electrical demand American Electric Power will keep 10 units off line most of the year.

American Electric Power Inc., one of the nation's biggest power generators, says 10 of its smaller, coal-fired generating units will remain off line for much of the year because of lower demand for electricity.

The company said the units will be kept in "extended startup status," during off-peak months beginning Tuesday. The plan will allow the company to redeploy workers at several coal-fired units projected to run less frequently over the next few years.

During peak months of July, August and January, these units will be available as they have been in the past.

The recession has dampened demand for electricity, especially from industrial customers. Electricity demand fell for the past two years, the first time that has happened since 1949.

Price Wars at Walmart

Inquiring minds note Wal-Mart cuts prices to boost sales.

Wal-Mart is counting on $1 ketchup bottles and sub-$4 cases of Coke to re-ignite sales in America.

The sharp cuts at U.S. stores, which came ahead of the Memorial Day holiday weekend, have already pushed rivals such as Target into price wars. And the markdowns are expected to keep coming throughout the summer.

Wal-Mart is bearing the cost of some of the deep price cuts, not its suppliers, according to Bill Pecoriello, an analyst who heads ConsumerEdge Research LLC, based on discussions with industry officials.

According to Pecoriello, on a basket of five food items, from Coke to Lay's potato chips, the total price was $11.23 at Wal-Mart, 24 percent less than it was a year ago. It's also almost 14 percent lower than Kroger and almost 26 percent lower than Safeway, according to Pecoriello's estimates. The firm gathers pricing data representing 15,000 stores across the country.

That doesn't include Wal-Mart's move to lower cans of name-brand Coke and Pepsi further in the past few days, from the announced discounted price of $5 to as low as $3.77 in certain markets. The original price was $6.98 for a 24-pack.

Pecoriello noted in his report that Target was selling 12 packs of soda for $2, roughly matching Wal-Mart's price, while Kroger was selling 12 packs for $2.50, less than a year ago.

When an item you like is on sale, buy 5-10 times as much of it as you normally would, making a point to only buy items on huge sales. Otherwise, If you mind the price of meat, most everything else will take care of itself.

Please get a freezer for storing meat. Sale prices on meat have not gone up for a decade. Food is a tremendous bargain.

Foreclosure Life Raft

Sales at Walmart and Target are chicken feed compared to having a mortgage and not paying it. Please consider Owners Stop Paying Mortgage ... And Stop Fretting About It

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.

In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.

In Pinellas and Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. “The volume is killing us,” Judge McGrady said.

Even without the burden of paying $938 a month for her decaying house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they are spacing out their visits.

“The longer I’m in foreclosure, the better,” she said.

In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days. Defense attorneys stress they can keep this number high.

Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender.

Even if you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks, months or even years without paying your mortgage.”

For borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.

“I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’”

One and a Half Years of Not Paying Rent

The average length of time for the foreclosure process in Florida and New York is over 18 months. For Mr. Tsiogas who stopped paying $2,500 a month, that comes to $45,000 in found money.

That's quite a chunk of change to spend at Walmart or better yet to save up for a few year's rent when you finally do lose your property.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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GM Auto Sales Rise 17% - Not as Impressive as it Sounds

V-Shaped recovery proponents are crowing about auto-sales as GM U.S. Sales Rise 17%, Topping Analysts’ Estimates.

General Motors Co. posted a 17 percent increase in May U.S. sales, the first time the automaker topped analysts’ forecasts since January, as customers snapped up Chevrolet Equinox sport utility vehicles and Malibu sedans.

Deliveries rose to 223,822 from 191,875 a year earlier, the Detroit-based automaker said today in statement. GM was expected to report a 5.9 percent increase, the average estimate of five analysts surveyed by Bloomberg. Industrywide sales may match the longest streak of gains in a decade, analysts estimated.

Total sales of Chevrolet vehicles gained 31 percent from a year earlier to 167,235 vehicles, and GMC brand deliveries increased 26 percent to 30,160.

Industrywide sales may have risen to an annualized rate of 11.2 million cars and light trucks for May, the average estimate of eight analysts. That would mark the eighth straight month of year-over-year gains, according to Bloomberg data.

The report speculated that Toyota sales may have risen 7.5%, Honda 22%, Nissan 11%, and Ford 16%.

Before everyone brings out the high-fives celebrating a miraculous recovery, let's put this rebound in perspective.

Light Vehicle Sales Autos and Trucks



Note the cash for clunkers spike at the end of the last recession bars.

The industry had impressive gains percentagewise, but sales are at early 1980's levels. This is hardly a V-Shaped recovery.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Subprime Goes to College; Students Buried in Debt; Who is to Blame?

Students fresh out of college, six-figures deep in debt, face decades of debt slavery. Both parents and students are wondering what went wrong. Please consider Placing the Blame as Students Are Buried in Debt.

Like many middle-class families, Cortney Munna and her mother began the college selection process with a grim determination. They would do whatever they could to get Cortney into the best possible college, and they maintained a blind faith that the investment would be worth it.

Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she's been enrolled in night school, which allows her to defer loan payments.

This is not a long-term solution, because the interest on the loans continues to pile up. So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up.

The Project on Student Debt, a research and advocacy organization in Oakland, Calif., used federal data to estimate that 206,000 people graduated from college (including many from for-profit universities) with more than $40,000 in student loan debt in that same period. That's a ninefold increase over the number of people in 1996, using 2008 dollars.

No one forces borrowers to take out these loans, and Ms. Munna and her mother, Cathryn, have spent the years since her graduation trying to understand where they went wrong.

She started college at age 17 and borrowed as much money as she could under the federal loan program. To make up the difference between her grants and work study money and the total cost of attending, her mother co-signed two private loans with Sallie Mae totaling about $20,000.

When they applied for a third loan, however, Sallie Mae rejected the application, citing Cathryn's credit history. She had returned to college herself to finish her bachelor's degree and was also borrowing money. N.Y.U. suggested a federal Plus loan for parents, but that would have required immediate payments, something the mother couldn't afford. So before Cortney's junior year, N.Y.U. recommended that she apply for a private student loan on her own with Citibank.

Over the course of the next two years, starting when she was still a teenager, she borrowed about $40,000 from Citibank without thinking much about how she would pay it back. How could her mother have let her run up that debt, and why didn't she try to make her daughter transfer to, say, the best school in the much cheaper state university system in New York?

The balance on Cortney Munna's loans is about $97,000, including all of her federal loans and her private debt from Sallie Mae and Citibank. What are her options for digging out?

Her mother can't help without selling her bed and breakfast, and then she'd have no home. She could take her daughter in, but there aren't good ways for her to earn a living in Alexandria Bay, in upstate New York.

Cortney could move someplace cheaper than her current home city of San Francisco, but she worries about her job prospects, even with her N.Y.U. diploma.

She recently received a raise and now makes $22 an hour working for a photographer. It's the highest salary she's earned since graduating with an interdisciplinary degree in religious and women's studies. After taxes, she takes home about $2,300 a month. Rent runs $750, and the full monthly payments on her student loans would be about $700 if they weren't being deferred, which would not leave a lot left over.

"I don't want to spend the rest of my life slaving away to pay for an education I got for four years and would happily give back," she said. "It feels wrong to me."

What Went Wrong?

Supposedly "Ms. Munna and her mother, Cathryn, have spent the years since her graduation trying to understand where they went wrong."

It should take seconds. Going $100,000 in debt to get an interdisciplinary degree in religious and women's studies seem rather foolish to say the least. Exactly what kind of job did Ms. Munna expect to get with that degree?

Now she is working for a photographer and it is plain to see her degree is totally useless.

Ms. Munna and her mom should look in a mirror to see who to blame.

Recognizing the Enabler

Although Ms. Munna should blame herself, there is a huge enabler of these kind of tragedies: Pell Grants and government loans.

Subprime Goes to College

Inquiring minds are reading the Eisman ira sohn conference slides and speech-5-26-10 presentation called Subprime Goes to College.




Excerpts from Subprime Goes to College

As long as the government continues to flood the for-profit education industry with loan dollars, and the risk for these loans is borne SOLELY BY students and the government… THEN the industry has every incentive to:

• Grow at all costs
• Compensate employees based on enrollment
• Influence key regulatory bodies-Manipulate reported statistics and other regulatory measures

All to Maintain Access to Government Money.

“It's about the numbers. It will always be about the numbers.” -Bill Brebaugh, head of University of Phoenix Corporate Enrollment

Boiler room tactics:

• Ashford University (BPI) former enrollment counselor - “Every 6 months we get a review that looks at how many students we enrolled and what percentage of them finished their first class. As long as they finish their first class we get full credit and after that they are not our problem…”


• “We are under so much pressure we are forced to do anything necessary to get people to fill out an application…”


• It’s a boiler room –selling education to people who don’t really want it.”


• APOL former enrollment counselor - “The EC [enrollment counselor] review matrix is all smoke and mirrors so we could fly under the radar of the DOE…”

Accreditation…the inmates running the asylum

In many instances, for-profit institution’s representatives sit on the boards of their own Accrediting body, inevitably influencing the approval process and oversight of their own institutions!

Department of Education Losses

DOE will face nearly $275B in defaults over the next 10 years on a half-a-trillion dollars of lending to the For-Profit Industry

Projected Cumulative Stafford Loans (in $ Billions) and Cumulative Defaulted Dollars for For-Profit Education Students, 2007 - 2020$

Kill the Pell Grant Program

I have written about this many times before, most recently in For Profit Schools Turn Students Into Debt Zombies; It's Time To Kill The Entire Pell Grant Program.

Rather than throwing hard earned taxpayer dollars at programs that invite fraud and make debt zombies out of students, it's time to kill the program entirely. Instead, Obama wants to expand the fraud, even indexing the fraud to inflation.

Education is not the answer when the cost is $100,000 for totally useless degrees.

Inquiring minds might also be interested in Debt for Diploma Schemes and the Cookie Monster Principle

Government meddling enabled this mess, and the best cure (although it will do nothing for Ms. Munna) is to shut off all student aid programs, offer more online programs at low cost, fire needless administrators, and get rid of bloated pension plans for teachers.

Instead, Obama is compounding the failures of the disastrous Bush administration "No Child Left Behind" program.

The president wants to throw still more money at the problem. This will do nothing but increase the profits at questionable schools, jack up the pay of administrators, and make more student debt zombies.

The student vote turned out overwhelmingly for Obama and his policies are helping make them debt slaves for life.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Czech Republic President says 'The Euro Zone Has Failed'

Has the Euro Zone "project" been a success or a failure? Václav Klaus, president of Czech Republic makes a solid case 'The Euro Zone Has Failed'

As a long-standing critic of the idea of a European single currency, I have not rejoiced at the current problems in the euro zone because their consequences could be serious for all of us in Europe—for members and non-members of the euro zone, for its supporters and opponents. Even the enthusiastic propagandists of the euro suddenly speak about the potential collapse of the whole project now, and it is us critics who say we have to look at it in a more structured way.

Extensive studies published prior to the launch of the European single currency promised that the euro would help to accelerate economic growth and reduce inflation and stressed, in particular, that the member states of the euro zone would be protected against all kinds of external economic disruptions (the so-called exogenous shocks).

This has not happened. Economic growth in Europe has been slowing down since the 1960s, thanks to the increasingly damaging economic and social system which started dominating Europe at that time.

The European "soziale Marktwirtschaft" is an unproductive variant of a welfare state, of state paternalism, of "leisure" society, of high taxes and low motivation to work. The existence of the euro has not reversed that trend. According to the European Central Bank, the average annual rate of growth in the euro-zone countries was 3.4% in the 1970s, 2.4% in the 1980s, 2.2% in the 1990s and only 1.1% from 2001 to 2009 (the decade of the euro). A similar slowdown has not occurred anywhere else in the world (speaking about "normal" countries, e.g. countries without wars or revolutions).

Not even the expected convergence of inflation rates has taken place. Two distinct groups have formed within the euro zone—one (including most of the countries of western and northern Europe) with a low inflation rate and one (including Greece, Spain, Portugal and Ireland) with a higher inflation rate. We have also seen an increase in long-term trade imbalances. There are countries where exports exceed imports and countries that lastingly import more than they export. It is no coincidence that the latter countries also have higher inflation. It has no connection with the world-wide crisis. This crisis "only" escalated and exposed longtime hidden economic problems; it did not cause them.

Even Otmar Issing, the former member of the Executive Board and chief economist of the European Central Bank, has repeatedly pointed out (most recently in a speech in Prague in December 2009) that the establishment of the euro zone was primarily a political, not an economic, decision. In such a situation, it is inevitable that the costs of establishing and maintaining it exceed its benefits.

It is evident that the euro—the European single currency—and the currently proposed measures to save the euro do not represent any "salvation" for the European economy. In the long run, it can be saved only by a radical restructuring of the European economic and social system.

The Czech Republic has not made a mistake by avoiding the membership in the euro zone. I am glad we are not the only country taking that view.

That is a lengthy snip from a lengthy, extremely well written article. Inquiring minds will give the article a closer look.

I am inclined to agree with everything Václav Klaus said. Here are the main points.

Václav Klaus: The European "soziale Marktwirtschaft" is an unproductive variant of a welfare state, of state paternalism, of "leisure" society, of high taxes and low motivation to work.

Mish: We have the same problem in the US. Unfortunately President Obama has embraced the welfare state led by his support of public unions. How dense can one be to not see that Greece has failed?

The ECB kicked the can down the road. Now it's a far bigger can. For more on this line of thinking please see France Worries About AAA Rating; UK Economists Urge Greece to Abandon Euro; Spanish Prime Minister Losing Support

President Obama seems hell bent on insuring the US becomes the next Greece. Hopefully the next Congress puts an end to it.

Václav Klaus: The establishment of the euro zone was primarily a political, not an economic, decision. In such a situation, it is inevitable that the costs of establishing and maintaining it exceed its benefits.

Mish: Actually the Euro came about as a result of a currency union, not a political union. However, the decision was certainly political in nature. Politicians are always looking for the proverbial free lunch. There is no such thing. While the politicians in every European country were in favor of it, the general population was not.

The result is a "union" of sorts that favors exporters like Germany over the importers like Greece and Spain. In the end, the whole mess will collapse. The cost of a Spanish bailout will be much greater than Greece. The real fireworks have yet to begin.

In contrast, the US has a genuine political union, but the same stupid mentality of bailing out failed banks, failed insurers, failed automotive companies, and failed pension plans.

Everything is done to protect the banks and the wealthy in the US just as it is in Europe.

Václav Klaus: The Czech Republic has not made a mistake by avoiding the membership in the euro zone.

Mish: I concur. Moreover, the UK avoided a mistake as well. Certainly the UK has massive problems. Fortunately for Britain, the Euro isn't one of them.

Václav Klaus: Europe will have to decide whether to centralize itself politically as well. Europeans don't want that because they know (or at least feel) that it would be to the detriment of liberty and prosperity. There is, however, a real danger that the politicians will do it anyway—behind the backs of those who elected them. The recent dealings in EU headquarters in Brussels—literally behind closed doors—about the aid package for Greece demonstrated that there is no democracy there. The German-French tandem made the decision on behalf of the rest of the euro-zone countries, and I am afraid this will continue.

Mish: The entire bailout scheme was meant to protect German and Especially French banks. For more details, please see Euro Bailout Plan is all about Rescuing Banks and Rich Greeks.

Václav Klaus: So much political capital had been invested in its [the Euro's] existence and in its role as a "cement" that binds the EU on its way to supra-nationality that in the foreseeable future the euro will surely not be abandoned. It will continue, but at a very high price—low economic growth. It will bring economic losses even to non-members of the euro zone, like the Czech Republic.

Mish: Agreed. The Euro itself will survive. How many countries are in the Eurozone is the question in debate. The more countries that remain in the Eurozone, the bigger the price.

Václav Klaus: It is evident that the euro—the European single currency—and the currently proposed measures to save the euro do not represent any "salvation" for the European economy. In the long run, it can be saved only by a radical restructuring of the European economic and social system.

Mish: I could not possibly agree more. Please send a message to President Obama that the US needs a radical restructuring as well. The best way is in the next election. Please throw the bums out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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China Denies Speculation about Diversifying from Euros; Oil in Euros Revisited; No Good Currency Choice Except Gold

A year ago the talk of the town was how governments would abandon the US dollar in favor of Euros and this would be the death of the dollar. At that time China denied speculation it was diversifying out of the dollar. Look at how things change.

Now China denies speculation is it diversifying out of Euros. Please consider China Euro Policy Denial Prompts Detection of Changes.

The euro weakened 2.4 percent against the dollar last week even after China’s State Administration of Foreign Exchange, which manages the country’s $2.4 trillion of reserves, denied speculation that it was diversifying away from European bonds. The 20 percent depreciation from last year’s peak in November has demonstrated the limits of the euro as a reserve currency to rival the dollar as well as the European Central Bank’s ability to defend its legal tender.

A net 105 billion euros ($129 billion) flowed out of the region’s fixed-income markets on an annualized basis in the first three months of the year, signaling a “broad shift” in appetite for euro-denominated assets, according to Nomura Holdings Inc. The region attracted a net 225 billion euros from foreign debt investors in 2009.

“It’s clearly the case that there’s been an element of foreign central banks slowing down their euro purchases,” said Jens Nordvig, a managing director for foreign-exchange research at Nomura in New York. “The institutional framework is being questioned, the credibility of the ECB is being questioned, and all that uncertainty is really fueling an asset allocation shift away from the euro zone.”

“There’s a growing realization that the outlook for the currency is bleak,” said Samarjit Shankar, a managing director for the foreign exchange group in Boston at BNY Mellon. “There is evidence that central bankers and reserve managers are trying to diversify away from euro.”

“Both the dollar and the euro have structural debt problems but at least Europe is doing something about it,” said David Bloom, global head of currency strategy at HSBC Holdings Plc in London. “The pendulum will swing against the dollar later this year as people realize that the U.S. has even bigger problems than the E.U.”

HSBC predicts the euro will end the year at $1.35 as the U.S. mid-term elections in November shift attention to the nation’s inability to reduce a deficit projected to reach $1.5 trillion this year.

The number of wagers by hedge funds and other large speculators on a decline in the euro stood at 106,736 contracts more than those anticipating a gain on May 25, near the record 113,890 on May 11, according to data from the Washington-based Commodity Futures Trading Commission. As recently as December, bullish contracts exceed bearish ones by 22,151.

“The move lower in the euro is not just speculation,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. “There has been an asset allocation away from euro. The problem is deeply rooted and fundamental in terms of unsustainable fiscal deficits.”

Crude Priced in Euros

Flashback October 06, 2009: Anyone remember the Ridiculous Hype Over Secret Oil Meetings that oil priced in Euros would kill the dollar?

It made no more sense then than it does now, which is to say "none".

What matters (as we have clearly seen) is willingness to hold a currency, not a pricing unit on oil or anything else.

Euro Weekly Chart



click on chart for sharper image

This morning the Euro printed a fresh new low below 1.2120 before bouncing.

Euro 30 Minute Chart



There are now so many Euro bears, a bounce is quite possible.

One of the reasons I liked the US$ index at 75 was sentiment on the dollar was so bearish. Now the opposite is true.

However, It is important to realize that crashes do not occur in overbought conditions, but rather oversold ones. It will not be a good sign if the ECB decides on currency intervention.

My position is such intervention never works.

No Good Currency Choice Except Gold

It's hard to have a real love affair with dollars, especially at this level. However, it is harder (for the time being) to have a love affair with the Euro.

With property bubbles in Canada, Australia, and China it sure is hard to like the Loonie, the Australian dollar, or the Renminbi (Yuan).

The essence of the matter is there is really nowhere to hide, except gold.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Updated Interactive Map of Failed Banks, Includes Failures for May 21 and May 28; Texas Ratios, Capitalization Ratios, etc, for Failed Banks

Following is a visualization of bank failures this year. A quick look at the Texas Ratios and other data will show you why they failed. List is sorted by date. Hover over the fields in the list box for any bank that failed this year, to see bank assets, loans and leases, deposits, and much more data.

As is always the case with these interactive visualizations, Please give them an extra few seconds to load.

Thanks to Ellie Fields and Ross Perez at Tableau Software for help with the display!

We hope to update this list every Monday or Tuesday going forward. Also I hope to have new Texas Ratios for all banks through the first quarter of 2010 sometime soon.

Note: A few state banks and S&Ls may not display on the list for lack of data. Here is the Failed Bank List from the FDIC.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Australia Holds Rates at 4.5%; Canada is First G-7 Country to Hike

Australia may have seen its last rate hike for quite some time. Today the Reserve Bank of Australia Holds Rate at 4.5% to Gauge Market Turmoil.

Australia’s central bank left its benchmark interest rate unchanged and signaled it may keep borrowing costs steady in coming months as it assesses the impact of the most aggressive rate increases in the Group of 20.

Governor Glenn Stevens and his policy-setting board kept the overnight cash rate target at 4.5 percent, the Reserve Bank of Australia said in a statement in Sydney today. The decision was predicted by all 22 economists surveyed by Bloomberg News.

“They’re not going to be looking to hike interest rates for the next couple of months,” said Ben Dinte, an economist at Macquarie Group Ltd. in Sydney. “But at the same time they’re still commenting on the terms of trade and inflation. While they’re on hold, they’re not ruling out further increases later this year or early 2011.”

Stevens increased rates from a half-century low of 3 percent in early October, citing surging Asian demand for Australian commodities and a jobs boom that has pushed down unemployment to around half that of the U.S. and Europe.

The interest-rate moves helped stoke a 27 percent gain in Australia’s dollar in the 12 months through April 30, making it the second-best performer among the world’s 16 most-traded currencies. The currency has since pared around half of those gains as European Union policy makers moved to prevent a potential Greek debt default.

Canada is First G-7 Country to Hike

In what is likely a symbolic measure more than anything else, Canada Hikes Interest Rate to 0.5%

Canada on Tuesday became the first Group of Seven nation to raise interest rates since the global financial crisis, but said any further hikes would depend on global economic conditions.

The Bank of Canada increased its key interest rate by a quarter point to .50 percent from a record-low rate of .25 percent. It said the decision to raise rates still leaves considerable monetary stimulus in place.

Economists widely expected the central bank to raise rates after the country's economy grew 6.1 percent in the first three months of this year, emerging from the global downturn faster than the U.S.

"While Canada joined with other countries in taking interest rates down to virtually zero the sense of crisis was never as great here," said Avery Shenfeld, senior economist at CIBC World Markets.

Shenfeld pointed out that the central bank didn't include the usual statement about further rate hikes being required.

"They've left themselves an out to stop after one trivial move if financial markets and commodity markets continue to tell them that the global economy is going in the other direction," Shenfeld said.

With GDP growing at 6.1% the central bank sure seems tepid with this policy decision.

Could it be the Canadian Central bank does not believe the recovery? Or is is the Canadian Central Bank fears the busting of Canada's housing bubble.

My bet is both. Regardless, it's far too late to do anything about Canada's property bubble. It's a case of Hosed in Canada; Housing Crash is a Given.

Canadian Dollar Weekly



The Canadian dollar did not approach the 1.10 area it hit in October, 2007. The factors in play now are energy and metal prices, Canada's interest rate at .5%, and Canada's housing bubble.

Falling crude prices , tepid rate hikes, and a bursting of the property bubble all weigh against a strengthening Loonie.

Australian Dollar Weekly



The same factors are in play in Australia as with Canada in regards to the strength of the Australian dollar. One difference is Australia has plenty of room to cut, Canada does not.

The next set of moves by the Reserve Bank of Australia will likely be lower along with a weakening housing market. Expect to see the Australia dollar weaken as well if the reserve bank aggressively cuts rates hoping to keep the property bubble alive.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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