It may be a new day for American politics, but it’s the same old story with economy, and this time it’s pretty ugly.
In only his second full day in office, Mr. Obama has been hit with news that U.S. builders broke ground in December on the fewest houses since record-keeping began, as sales and credit dried up, signaling the real-estate slump will keep hurting economic growth.
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During the month of December, new home construction fell 16 percent, a 50-year low. In the course of the past three years, the share prices of major home builders have cratered, down nearly 76 percent in value.
Home builders have been slashing prices, in hopes that record low interest rates will attract buyers. But with the flood of foreclosures and distress sales hitting the market, homebuilders have been unable to compete with the prices of existing homes, many of which have only recently been built.
More Dark Numbers
The woes of the home building industry have been compounded by a second government report that showed the number of Americans filing first-time claims for unemployment benefits rose last week, matching a 26-year high. According to a Labor Dept. report released today, initial jobless claims increased by 62,000 to 589,000, more than forecast, for the week ending Jan. 17.
The economic news from abroad is not much better.
In spite of the fact that interest rates are near zero, the cost of borrowing dollars overseas has jumped to a two-week high on concern that policy-makers simply have run out of room to further lower interest rates.
It’s a vicious cycle.
After seven weeks of declines, the London interbank offered rate, or Libor, is up for bank-to-bank three-month loans, just when homebuilders desperately need the rates to hold steady.
Will Government Seize the Banks?
The upswing in the Libor, which is also the benchmark rate for $360 trillion of financial products worldwide, is putting an added damper on financial companies already plagued by losses. The setbacks have caused them to retreat even further from bridge loans that might help homebuilders stay afloat until the housing market regains ballast.
The Brits have been especially hard hit by this downturn, with the pound sterling trading at a near 23-low against the U.S. dollar and Japanese yen. There are fears that the deepening financial crisis will force the British government to seize the country’s banks.
After reaching record highs during this past summer, the pound sterling has become the typhoid Mary of the currency market. Traders across the globe are unwinding their long positions in the British pound, and recommending that their clients do the same.
Obama Should Brace Himself
The immediate problem faced by currency traders is that after selling their pound positions, they don’t have any real safe haven for their assets other than the U.S. dollar. Right now, the immediate future of the greenback is not very promising.
Now that the President has been sworn in to office twice – after muffing his first attempt, the Chief Justice returned yesterday for a do-over – Mr. Obama better be ready, because it looks like economic numbers are worse than even the most negative of naysayers thought.
John Cohn is a senior partner in the Globe West Financial Group[ based in West Los Angeles. He may be contacted at www.globewestfinancial.com
