Archive - Mar 2012

For months we have been saying that there is no housing recovery, and what little buying interest there was was driven purely by abnormally warm weather and still record low interest rates. Well, the seasonal aberrations are now over, and normalcy can return, but not before much demand was pulled forward (Cash for Caravans? Money for McMansions? Shekels for Shacks? Dough for Dumps?) to December-February courtesy of "April in January" and mortgage rates soaring to well over 4%, leading to a major tumble in MBA new home and refi mortgage applications (as noted here "So Long Housing - Mortgage Applications Collapse, And Sentiment Update"). So we won't repeat ourselves, intead we will give the podium to CNBC's Diana Olick who now finds empirical evidence of what we have been saying all along. From Olick:  "Housing was charging back. Spring sprung early. Sentiment among home builders doubled in six months. Any talk that the fundamentals might not be supporting the sentiment was met with harsh criticism. And then suddenly it wasn’t. A slew of new housing data last week disappointed the analysts and the stock market, and all of a sudden you started to hear concern that maybe housing wasn’t exactly in a robust recovery. From home builder sentiment to housing starts, to home builder earnings right through to sales of newly built homes, there was not one hopeful headline in any of it (except perhaps if you invest in rentals, as multi-family housing starts made more gains, but that is a contrary indicator to housing recovery)." And from the ground:"And then an email from a Realtor in New Jersey: “Just reviewed March buyer clicks, Google’s analytics on all the sites we monitor – March is turning out to be the weakest month since last October re: Buyer interest."

Big picture: the markets are being held together via a very tenuous balancing act on the part of EU leaders and the world Central Banks. The short-term bias will be bullish due to the factors listed above. But big trouble is lurking just beneath the surface. And should anything upset the current balance being maintained, we could see some real fireworks in the markets in short order.

The Dallas Fed Manufacturing Outlook just came with its largest miss of expectations in 9 months - and biggest drop in 7 months.. A 10.8 print vs expectations of 17.0 dropped the index back to its lowest since December and keeps the 'good is good but bad is better' dream alive we assume and markets are entirely unfazed. The 'hope' sub-index printed higher which accounts for some of the reaction but we note that New Orders went negative, Average Workweek plummeted to its lowest in at least six months (and the number of employees also fell), and Prices Paid jumped but Prices Received dropped for the first time in three months (more margin pressure). This makes 14 of the last 16 macro data prints in the US a miss - but Ben is here to save us from considering the harsh reality of our quagmire.

While much heart palpitations are generated every month based on how much of a seasonal adjustment factor is used to fudge US employment, many forget that a much more serious long term issue for the US (assuming anyone cares what happens in the long run) is a far more ominous secular shift in US population - namely the fact that everyone is getting fatter fast, aka America's "obesity epidemic." And according to a just released analysis by BNY ConvergEx' Nicholas Colas, things are about to get much worse, because as the OECD predicts, by 2020 75% of US the population will be obese. What this implies for the tens of trillions in underfunded healthcare "benefits" in the future is all too clear. In the meantime, thanks to today's economic "news", fat people everywhere can get even fatter courtesy of ever freer money from the Chairman, about to be paradropped once more to keep nominal prices high and devalue the dollar even more in the great "race to debase". Our advice - just pretend you are going to college and take out a $100,000 loan, spending it all on Taco Bells. But don't forget to save enough for the latest iPad, and the next latest to be released in a few weeks, ad inf.

Pending Home Sales missed expectations by the largest amount since September of last year and printed negative (-0.5%) versus hope of +1.0%. It seems our self-fulfilling housing recovery is not so self-fulfilling or recovering...this makes 13 of the last 15 macro data prints in the US a miss. What is perhaps most surprising is the fact that this is from our old friends - the NAR - who seem comfortable 'fabricating' whatever number they need and in a wonderful ignorance of the reality of the situation (or uncomon confidence in extrapolating exceptional trends), Larry Yun (NAR Chief Economist) notes "The spring home buying season looks bright because of an elevated level of contract offers so far this year" which seems odd given the fall MoM and the clear warm-weather demand-pull that has occurred (but we assume he is spinning the better-than-expected YoY data that marked a pick up from the last abyss we saw in home sales). We also note that while YoY comps are the positive spin, the Jan print was almost the highest 'rise' seasonally for January of the last 10 years and this print (for Feb) is well below seasonal average (and near the worst of the last 5 years).

I have always wanted to be liked and respected.--Juice

While it appears to us that Bernanke's message was loud and clear, there are those who need validation and peer-confirmation. Such as that from the firm whose alumni run the Fed, namely Goldman Sachs. Below is Jan Hatzius' take on the "surprising" Chairman speech which essentially said QE can and will come at any time there is a downtick in the market, masked by the unemployment rate rising to its fair value, as estimated by Gallup, somewhere around 9%.

According to Barron's as much as 91% of “triple” ETF’s might be owned by individual investors.  That figure seems shocking, and as the article admits, could be wrong, but it is scary.  The activity in TVIX the past few weeks does indicate a strong retail presence – we would like to think professionals didn’t bid something up to an 80% premium to NAV, knowing that the share creation process could be re-instated, virtually assuring that the premium would collapse to 0. We don’t see a need for these products except for small retail investors who can’t get leverage any other way, and we suspect they don’t understand how these things really work, as they are the most likely to buy and hold these things.

Earlier this morning, strategically timed just in advance of the Chairman's tacit admission that everything attempted to date has once again failed to stimulate the economy as now both housing and soon employment have resume their drop, New York Fed released a note titled "Prospects for the U.S. Labor Market" which in not so many words explains why there are none. While the analysis is the same that has been presented here over and over, confirming that the jobs recovery has been anything but, and thus setting the stage for today's Bernanke preannouncement to either a March NFP miss or more QE at the April FOMC meeting as Bill Gross tweeted yesterday, it has one chart that shows why when it comes to restoring a virtuous cycle this time is different, and why endless central planning may have finally broken traditional economic assumptions. The chart below is perhaps the only one worth noting. Spot the odd "recovery" out.

Treasuries have rallied on the hope being handed out by Bernanke, recovering overnight losses after gains from last week moving more Goldman muppets back into pain. What's different this time from last week's rally is the notable underperformance of the long-end relative to the front-end. While still red from Friday's close, 2s through 7s are almost back to unchanged and 4-5bps off overnight high yields. 30Y however is still +4.5bps and only 1.5bps off the high yields overnight. 2s10s30s has fallen notably (which should be risk-negative) but for now - all the equity market can see is a centrally planned equity market rally to float all boats. It seems to us that the long-end remains stuck in the mud on long-run worries over the print-big-of-go-home attitude that was just reaffirmed.

Decrypting the subtle nuances of Bernanke's speech this morning was hardly a surprise. The key is 'unemployment' and whether its structural or cyclical - we'll ease anyway (just in case). Debase first or most  or lose... 86 mentions of 'unemployment', No mention of 'inflation', and no mention of 'oil-price-inspired-consumption-slump' or 'debase'. 'Structural' 16: 'Cyclical' 8

Curious why futures and PMs both soared out of the gate at 8am? Look no further than the Chairman of the Federal CTRL-Preserve who is speaking at the National Association for Business Economics and just made a very strong hint that the New QE (or is that the NEWER QE) is coming. And there are those mocking Bill Gross for saying the April FOMC would lead to the next QE announcement (something we expounded on extensively yesterday). And here is the most idiotic statement uttered by the Fed: "If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited.  Even if that proves to be the case, however, we should not conclude that nothing can be done." Recall what JPM said about central planning breaking the virtuous cycle just two days ago. The Fed has just admitted it... but it does not mean that the Fed will be forced to print print print infinitely more. After all, it's all there is.

Confirming once again that when it came to last year's LTRO desperation, the operation was nothing but the latest attempt at filling liquidity holes at insolvent banks, and nothing to do with facilitating lending, is the interview by Helsingin Sanomat with ECB council member Joerg Asmussen, according to which there would be no more LTROs until the ECB found out what it is the LTROs actually do. From Bloomberg: "The European Central Bank won’t provide more long-term loans until it has studied how the funds are distributed into the economy, council member Joerg Asmussen told newspaper Helsingin Sanomat. “We need to see how this liquidity feeds through over the next few months,” Asmussen said, according to a transcript of an interview with the Finnish newspaper on March 24 and published today." Well supposedly this means that with everyone now looking the ECB squarely in the eyes while also looking askance at $10/gallon European gas, there will be no more LTROs "for at least a few months" as the ECB actually figures out what it has done. Which also explains why the need to redirect from one bailout process, now topped out as the LTRO no longer is pushing the European economy higher, to another: the old narrative of EFSF+ESM expansion, so prudently picked up over the weekend by Angela Merkel.

• BOJ Crosses Rubicon With Desperate Monetary Policy, Hirano Says (Bloomberg)
• Europe’s bailout bazooka is proving to be a toy gun (FT)
• Monti Signals Spanish Euro Risk as EU to Bolster Firewall (FT)
• Merkel set to allow firewall to rise (FT)
• Banks set to cut $1tn from balance sheets (FT)
• Supreme Court weighs historic healthcare law (Reuters)
• Spain PM denied symbolic austerity boost in local vote (Reuters)
• Anti-war movement stirs in Israel (FT)
• Obama to Ask China to Toughen Korea Line (WSJ)
• Pimco’s Gross Says Fed May ‘Hint’ at QE3 at April Meeting (Bloomberg)