Contracts to buy US homes hits 2-year high in July

Americans signed the most contracts to buy homes in July than at any other point in the last two years, further evidence of a housing recovery.
The National Association of Realtors said Wednesday that its index of sales agreements for previously occupied homes jumped 2.4 percent in July to 101.7. That's higher than June's reading of 99.3. It's also the highest reading since April 2010, the last month that buyers could qualify for a federal home-buying tax credit.
A reading of 100 is considered healthy. The index is 12.4 percent higher than July 2011. It bottomed at 75.88 in June 2010 after the tax credit expired.
Contract signings typically indicate where the housing market is headed. There's generally a one- to two-month lag between a signed contract and a completed deal.
The Realtors' group said contract signings increased in July in all regions of the U.S. except for the West, which it said has a severe shortage of available homes for sale.
The increase is the latest sign that the home sales are finally rebounding five years after the housing bubble burst.
Last week, the National Association of Realtors said completed sales of previously occupied homes jumped 10 percent in July compared with the same month last year. Sales of newly built homes were up 25 percent in that same 12-month period.
Builder confidence rose this month to its highest level in five years. And the average rate on a 30-year fixed mortgage has been below 4 percent all year.
Home prices have also started to rise consistently, which could boost sales further in the months to come. The Standard & Poor's/Case Shiller index released Tuesday showed the first year-over-year increase in home prices since September 2010.
Still, the housing market has a long way to go to reach a full recovery. Some economists forecast that sales of previously occupied homes will rise 8 percent this year to about 4.6 million. That's still well below the 5.5 million annual sales pace that is considered healthy.
One trend holding back sales is that inventories of homes are low.
Overall, there were 2.4 million homes for sale in July, down 24 percent in the past year. It would take about 6.4 months to exhaust that supply at the current sales pace. That's just above the six months' inventory that typically exists in a healthy economy.

Isaac brings higher gas prices, south and north

Drivers are being hit with the biggest one-day jump in gasoline prices in 18 months just as the last heavy driving weekend of the summer approaches.
As Hurricane Isaac swamps the nation's oil and gas hub along the Gulf Coast, it's delivering sharply higher pump prices to storm-battered residents of Louisiana and Mississippi — and also to unsuspecting drivers up north in Illinois, Indiana and Ohio.
The national average price of a gallon of gas jumped almost five cents Wednesday to $3.80, the highest ever for this date. Prices are expected to continue to climb through Labor Day weekend, the end of the summer driving season.
"The national average will keep ticking higher, and it's going to be noticeable," says Patrick DeHaan, senior petroleum analyst at Gasbuddy.com
The wide storm shut down several refineries along the Gulf Coast and others are operating at reduced rates. In all, about 1.3 million barrels per day of refining capacity is affected. So, it's no surprise that drivers in Louisiana, Alabama, Mississippi and Florida saw gas prices rise by a dime or more in the past week.
But some states in the Midwest are suffering even more dramatic spikes. Ohio prices jumped 14 cents, Indiana prices soared 13 cents and Illinois prices jumped 10 cents on Wednesday alone according to the Oil Price Information Service. Days before Isaac is expected to douse those states with rain, the storm forced the shutdown of a pipeline that serves a number of Midwest refineries.
Drivers in the region were angry and confused. ""I saw gas in my neighborhood for $3.56 a gallon just Tuesday morning, and now I'm paying $3.95. It's terrible," said Mary Allen of Cincinnati as she paid $20 for just over five gallons of gas. She wondered how Isaac could drive up gas prices in Ohio — and then resigned herself to a holiday weekend without travel.
The price surge is happening at the wrong time and the wrong place for Dickson Stewart, a 56-year-old electronics consultant, who is driving from Minneapolis to Savannah, Ga. this week. He stopped at a BP station in downtown Chicago Tuesday — home to some of the highest retail prices in the country — and paid $4.49 a gallon to fill up his Jeep Wrangler.
Stewart expects gas prices to fall after Labor Day. Analysts say he's probably right.
As Isaac fades away, the summer driving season ends, and refiners switch to cheaper winter blends of gasoline, stations owners should start dropping prices. "There is some very good relief in sight," DeHaan says.
When Katrina hit in 2005, the national average for gas spiked 40 cents in six days and topped $3 per gallon for the first time. Isaac likely won't have the same result, though its full impact on the refineries is yet to be determined.
The refineries are not expected to suffer long term damage. But refiners decided to shut down or run at reduced rates to protect their operations.
These facilities consume enormous amounts of electric power and generate steam to cook crude oil into gasoline, diesel, jet fuel and heating oil. If a refinery loses power suddenly, operators can't properly clear the partially cooked oil out of pipes, and re-starting the refinery can take several days or even weeks.
In advance of Isaac, refineries instead conducted what is known as an orderly shutdown, so they can re-start as soon as the power supply is assured again. The Gulf refineries will likely stay off line for about three days.
Isaac cut into the amount of gasoline being produced, and raised fears that supplies could fall dangerously low if the storm proved worse than expected. When supplies drop or are threatened, wholesale prices rise. Then distributors and station owners have to pay more to fill up their station's tanks. They then raise their prices based on how much they paid for their current inventory, how much they think they will have to pay for their next shipment, and, how much their competitors are charging.
Prices spiked particularly high in the Midwest because Isaac forced Shell to close a pipeline that delivers crude from St. James, La. to refineries in the region.
Gasoline prices are particularly vulnerable to spikes around this time of year. Refiners keep a low supply of more expensive blends as driving season ends, knowing they'll soon be able to make cheaper winter blends of gasoline.
"We are really working with a just-in-time delivery system," said Tom Kloza, chief oil analyst at the Oil Price Information Service.
Pump prices were on the rise even before Isaac blew in. The average price for gas rose about 40 cents from July 1 to mid-August because of higher oil prices and refinery problems in the Midwest and West Coast. At $3.80 per gallon, the national average is the highest since May 1 and well above the previous record for Aug. 29, $3.67 in 2008.
Wednesday's jump of a nickel was the 10th biggest one-day jump on record, according to OPIS, and the biggest since the average price rose 6 cents on February 15, 2011 when turmoil in Libya was rising.
But prices could quickly come down if refineries can soon get up and running. Crude oil prices fell Wednesday and wholesale gasoline prices fell the past two days, suggesting the spike in retail gasoline prices could be short-lived. Americans will soon do less driving and the switch to cheaper blends will be well underway by mid-September.

Is a Double-Dip in the Global Economy Possible?

China’s export growth shows major slowdown as some reports indicate a 9.2 percent drop from one year prior. Retail sales rose 13.1 percent but also fell short of analyst’s predictions. In a recent briefing, Gao Hucheng, China Vice Commerce Minister stated that China continues to maintain confidence that they will reach their projected growth target of 10% for the year. Money, European Union Sales, and Retail Suppliers have all seen downslides in growth from prior year figures for China. Numerous large global economies are facing declines and stagnation in growth forecasts. The bottom line is that the figures represent signs that the global economy is weakening.
China is ‘Missing the Mark’ for Numerous Forecasts

China represents the world’s second largest economy is experiencing the worst export growth since 2009. Additionally, a visible dip in new yuan lending in July showed the lowest monthly figures since September 2011. M2 which is the broadest measure of the money supply came in at 13.9 percent last month against a predicted 13.8 percent gain. Local currency lending in China was significantly lower at 540.1 billion yuan than Bloomberg News Survey’s predicted at 919.8 billion. Li-Gang, Hong Kong based leader of the Greater China Economics at Australia & New Zealand Banking Group, Ltd. says that “there’s a risk of a ‘hard landing’ and the government may lower banks reserves requirements as soon as today.”

The main concern is the decline in exports although Vice Commerce Minister Gao Hucheng voices confidence that China will still achieve the 10 percent goal for trade expansion this year. This is in the face of Chinese sales to European Union countries falling 16.2 percent for the previous month. The Central Bank of China stopped gains in the yuan during the first half of 2012 which gave some reprieve to exporters that are facing a deteriorating global demand. Li & Fung Ltd., the world’s largest retail clothing and toy supplier dropped drastically. Li & Fung Ltd. supply goods to retailers such as Target and Walmart and the economical downslide in the United States contributed to the slump experienced by exporters in the first half of the year.
Additional Global Effects of Euro Debt Crisis are Visible

Nearby Singapore also experienced a shrinking in its economy by 0.7 percent in the last quarter, less than the projected 1.1 percent. In France, the second largest European economy is weathering industrial stagnation as of June which lends to the possibility that France is heading toward their first recession in three years. Elsewhere, the Russian Central Bank opted out of raising loan rates for an eight month in row, trepidation over inflation risks due to higher interbank rates and weak harvests which can both lead to a constraint in lending growth. In Canada, the unemployment rate held steady at 7.2 percent in July while the Brazilian unemployment rate dropped to 5.7 percent for a third month in June. Germany underwent an unexpected slowdown in inflation from 2 percent in June to 1.9 percent in July. Overall China is facing export deceleration at a slowdown rate of up to 7.4 percent for the quarter. Much uncertainty remains and is centered on the risk presented by the European debt crisis and the negative effects that it may have on global economies.

Is Italy Sinking into the Economic Mire?

In a year’s time, Italy’s economy dipped twice as much as predicted by the Italian government of techocrats. The financial hit spread itself around to include agriculture, industry and services. Italy was down close to 0.8 percent in the GDP after the first quarter in 2012. It was the country’s fourth drop in a row. A survey of analysts came close, saying Italy would fall 0.6 percent, but it was worse than even they expected. The country hasn’t seen a fall like that since 2009.
While the drop is startling, it should be noted Italy’s economy has dragged for more than 10 years. Financial investors are worried. Prime Minister Mario Monti is having a difficult time of it, trying to cut the deficit 0.1 percent of the GDP by 2014. Italy needs public financing from Monti’s European partners. It’s benchmark bond yields are still sitting at nearly 6 percent, and acquired growth was negative. And, if in the next two quarters, the GDP reads flat, it will down a total of 1.9 percent since last year.
Austerity Measures for Italy

Monti claims he will step down next spring as the new election begins. At the end of 2011, he made more than 20 billion euros in cuts to stave off a debt crisis, but the package was flawed because of its compounding tax hikes. The cuts only pushed Italy further into the recession, and dampened the spirits of consumers. Consequently, 2012 will see an influential dive in spending per capita, the first of its size since post war, the retail confederation projected. Italy’s economy is very inefficient, some say. It has failed in the areas of infrastructure development, research investment and market reforms. Italy also has an above average deficit. Last year, the country’s ranking was 87th in the world.

Factors surrounding the debt crisis include the financial forecasts that based everything on debt issue costs. In the second quarter, Italy experienced earthquakes in Emilia. Italians aren’t saving anymore. They don’t have the money to save or invest, and earlier this summer, Italy paid its highest interest rates so far this year. Taking all that Italy has lost and most likely continue to lose, its double-dipped in recession. Unemployment is heading toward 10.4 percent for 2012, and 11.8 in 2013, but hitting a peak of 12.4 percent in the fourth quarter of 2013.
Gold Reserves in Italy

The business lobby, Confindustria, criticized the labor reforms that were recently approved by parliament. The lobby stated the reform was “inferior to expectations and the needs (of the market), and risks increasing complications.” There is no available data from the effects of the reform, but it is far removed from Italy’s impressive holdings. Italy is home to the world’s third largest gold reserve; an innovative business community; and industrious agricultural wine communities. Italy is the world’s largest producer in wine. The country is also savvy in the automobile industry, appliances and fashion. Post war was a turning point because industry abruptly replaced agriculture. The country itself was devastated in post war.

Italy continues to lead in world trade and exports. It continues to live by very high standards, perhaps deceiving the perception that it is enjoying the world’s eighth highest quality of life. The southern part of the country is underdeveloped and poor. Further issues holding the country up from advancing are political corruption, organized crime and unemployment.

Today's oil price

$95.02 per barrel

Daily change of 1.31 ( 1.36% )
Oil Quote Updated Aug-29-12 11:30 AM

The Benefits of US Bailouts

Three to four years ago, the United States Government took the bailout avenue for major companies like GM Motors, and financial institutions. There are several reasons why the government chose to provide assistance to the banks and corporations that were desperately in need of funds. The government also designed and implemented other programs within the bailout to make it even more effective.
The Economy

Any government’s purpose is to provide for the whole of its population, not just the few. If it makes sense to provide funds because a corporation is in need of a loan, the government takes into account the impact the corporation’s closing will have on the employees, and other factors. In this instance, the U.S. was not only concerned about the employees. The neediest banks that used the bailout, and received approximately $45 billion in aid, were Bank of America and Citigroup. It may seem like a lot of money, but didn’t come close to American International Group, which required $182 billion. This, coupled with overseas banks failing as well, could have collapsed the economy, causing massive devastation.
Employment

An falling corporation generally shaves off the number of its employees to save money or it finds another way to downsize, such as closing store outlets. For example, GM identified more than 2,000 locally-run dealerships to close. The corporation not only stuck the small dealerships with hundreds of specialty tools they could no longer use, it contracted to independent sign construction dealers, who were directed to visit each location and physically destroy GM’s signs. But, GM also has a couple of hundred thousand employees, and is known as the world’s largest automaker. In effect, it was a wise decision to save GM as a whole, instead of just the small dealerships.
Legislative Action

Back in 1989, President George W. Bush signed the Financial Institutions Reform Recovery and Enforcement Act after the savings and loan industry was awarded a bailout. The government fine tuned the regulations in the hopes the Act would prevent further collapses. It abolished the Federal Home Loan Bank Board and Federal Savings and Loan Insurance Corporation. The government created several bodies to perform specific functions. The Office of Thrift Supervision, Federal Housing Finance Board and the Resolution Trust Corporation, and gave more responsibility to Freddie Mac and Fannie Mae to provide mortgage support to families that made low to moderate incomes.

In addition, the TARP, the Troubled Asset Relief Program, was a move the government made in the face of the sub-prime mortgage crisis. The program was endorsed into law in 2008 at a higher ticket than the Congressional Budget Office estimated earlier this year, which was $431 billion. The program allows for $700 billion for mortgages, securities and additional financial issues that could affect market stability. The assets have to be “troubled” to receive the assistance of TARP, and banks are not allowed to use the program to recoup losses.
Investment Return

The government makes loans with interest in bailouts through TARP. The U.S. and foreign banks were bailed out for a total of $245 billion. Dividends, interest and other income have amounted to approximately $13.7 billion in the $169 billion that has been paid back. Another $4 billion came back for warrant proceeds. A recoupment provision in TARP focuses on the repayment to taxpayers. Once TARP reaches its 5-year anniversary, the Office of Management and Budget must submit a financial report on TARP to Congress. The provision prevents TARP from increasing the national debt.

The impact of supply and demand on the exchange rate

The exchange rates of currencies are affected by many factors like inflation, economic stability, interest rates, government intervention and monetary policies. These factors influence the supply and demand for a particular currency and the exchange rate is affected as a result. Generally, a currency that is in high demand has a more valuable x-rate with foreign currencies. On the other hand, a currency that has a large supply will not have a great of an exchange rate with other currencies.
Trading Currencies

The forex market can be a complex arena. Forex trading involves the relationship between one currency to another and this is why currency quotes are given in pairs. The currency market frequently uses the U.S. dollars to quote currency pairs because it is accepted worldwide. For example, a quote for the currency pair EUR/USD is 1.3428 meaning that 1 euro costs 1.3428 dollars. Other examples of currency pairs are GBP/USD (British pound and U.S. dollar) and USD/JPY (U.S. dollar and Japanese yen).
Supply & Demand

The fundamental law of supply and demand is relevant in the currency market just as it is to services and good. Currencies that are in high demand have a higher value than currencies that are in low demand. In addition, a large currency supply will reduce its price. The forces of demand and supply are complex and are influenced by many players including consumers, governments, corporations and foreign investors. As an example, the increase in the U.S. dollar may be due to a greater demand by foreign investors who purchase U.S. financial instruments like bonds and stocks.
Intervention by the Government

Government intervention can directly impact the demand and supply of a currency, thus affecting the price of the currency in the markets. Governments may choose to intervene in order to protect their interests. For example, the Japanese government decided to exchange 4.5 trillion yen for U.S. dollars in 2011 in order to keep the price of the yen low. In this case, the Japanese government wanted to stop the price of the yen from increasing in order to keep its exports prices low. On the other hand, the purchase of U.S. dollars by the Japanese government reduced the supply of the dollar and increased its value.
Economic Factors

There are several economic factors that affect the demand and supply for currencies. For example, a country with higher interest rates draws more foreign investors who are seeking greater returns. This results in the increase of demand for that currency. Other economic factors that affect demand and supply include inflation and the political and economic environment. Generally, the less stable the economy of a particular country is, the lower the demand for the currency is. In this instance, it is usually more expensive to purchase the currency because of the low supply as the transaction costs to purchase the currency are higher.
Ask and Bid Quote

One way to determine the demand and supply for a particular currency is to look at the spread between the ask and the bid price. Generally, a currency that is in high demand will have a smaller spread between the ask and big price than currencies with low demand. As an example, the spread for USD/JPY and EUR/USD is fairly small and is measured in fractions of a percent – these currencies have a high liquidity. This allows currency traders to easily get into and out of trades. On the other hand, currencies that have low liquidity usually have a low demand and high supply. These currencies will have larger spreads between the ask and bid prices.