If you were expecting the week to begin with a new age of thrift, prudence, and frugality, too bad! Australians opened their wallets and shelled out nearly $20 billion in retail spending in May. It was a one percent increase over the month before. It is also a testament to the power of government to distort reality by giving away other people’s money.

This denial of reality should be interesting to watch. When a credit bubble deflates and an economy breaks its addiction to reckless debt, the sensible thing to do (since you’re repairing your balance sheet) is dial things back a bit. Save. Cut back on the gadgets. Eat more staples. Wear a sack cloth.

But if you still believe that you can get something for nothing-well then yes-you’d continue to borrow and spend like a madman.

Speaking of borrowing, we’ll have an idea tomorrow of whether borrowing costs are headed up, down, or nowhere. The Reserve Bank of Australia meets to determine the price of money (in whatever mysterious way it manages to do this).

It will have to consider another piece of data from last week: a 12.5% seasonally adjusted decline in building approval for new homes. This is a provocative little nugget, isn’t it? That’s a steep month-over-month drop. Year-over-year, total approvals for new homes fell 22.4%. But wait…there’s more!

Approvals for multi-unit “other” dwellings fell 43.6% month-over-month and 57.5% year-over year. We assume this means multi-room apartments and not houses. But either way, that kind of one-month decline looks an awful lot like hitting a brick wall. The Australian Bureau of Statistics says that’s the lowest level of approvals since 1987.

What could it mean? There may be a perfectly reasonable explanation for such an ugly number. One that comes to mind immediately is that developers think there is plenty of existing inventory already (much of it unoccupied). With a large supply on hand, why build more?

Another reason is that developers don’t expect prices to rise higher. Why add more new housing stock if you conclude that A.) the housing market is adequately supplied (not short, as is so often claimed) and B) the demand for new mortgages (new housing finance) is also going to fall off a cliff when the first home buyer’s grant expires or interest rates begin rising (whichever comes first).

Dan Denning
for The Daily Reckoning Australia

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By Chuck Butler, Daily Pfennig

Good day… And a Terrific Tuesday to you! Quoting one of my all time fave Christmas songs, Baby, it’s Cold Out There! Winter has arrived, and I had to drag out the big heavy winter coat this morning. So… The seasons pass us, which is a good thing, because without winter, we couldn’t have spring, and spring training!

OK… Right out of the starters blocks this morning, the Reserve Bank of Australia (RBA) pulled the rug right out from under the “high yield status” of their economy, with another HUGE rate cut overnight… This time, the RBA cut 100 BPS, to an internal cash rate of 4.25%. This brings the total since September to 300 BPS! WOW! Talk about effectively unwinding seven years of tightening! The statement following the rate announcement leads me to believe that the RBA is probably finished cutting rates for now… It will be a wait-n-see what happens globally, before the RBA entertains any talk of further rate cuts… At least that’s my opinion!

Had a long talk with the legal beagles yesterday… The just don’t like what / how I say things. This all stems from complaints we’ve received that claim that, “I give investment advice”. Of course when the currencies were going up, up, up and away, in my beautiful balloon, for 6 years, we didn’t hear of any complaints or claims that I was “giving investment advice”… Any way… It is what it is… I call it “Market Commentary”… And everything I say is “Chuck’s opinion” not that of EverBank’s and the last time I looked… Opinion is: not to provide investment advice or to manage your money – THOSE ARE DECISIONS THAT YOU HAVE TO MAKE.

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Well… Now that I’ve said all that… Guess what finally happened yesterday, that I’ve said was the case since January? Yes, the National Bureau of Economic Research (NBER) finally came clean and said that the U.S. has been in a recession since December, 2007. Here’s where I could go totally sophomoric on you and say, “I told you so!” but I won’t, no wait, I already did! But, that’s not my intention. I only carry on about his because recently I’ve had a few people tell me that I have no foresight, and that I merely react to things… Hmmm… I said this was a recession 11 months ago, long before the un-dynamic duo of Paulson and Bernanke would admit it, and long before your friendly neighborhood economist would admit it, and way before the NBER, the official arbiters of this call, admitted it. Read more….