Archive - Jun 26, 2013

Once again it seems cash is king if the housing recovery is to continue. Despite the surge in prices that we saw yesterday that reflected the long-forgotten days before mortgage rates exploded, the housing recovery meme remains loud and proud. But, mortgage applications are now down for 7 of the last 8 weeks and have collapsed a stunning 29% over that time. - the biggest plunge in 30 months. It appears that the 'rational' buyer has decided that higher rates are not the factor that drives them to snap up that surging priced home? Is it any wonder, as we noted here, in spite of being told every day how 'affordable' housing is with rates this low, their real purchasing power (given a limited budget as opposed to free money-based finance) has plunged by 16% (for now).

The problem here is not so much that the lies are told but that the lies are believed. Every politician on the Continent trumpets and echoes what they want you to hear and believe and then they expect you to act upon what you are told. Every media publication, as an example, repeats the official debt to GDP ratios as a matter of truth because that is what they are told. Then everyone is, "Shocked…Shocked" when the numbers do not add up and the bills that must be paid are so high because what is uncounted or what is lied about still has to be dealt with in the end. Will this ever be really recognized; we have no idea. Will people ever wake up; we cannot say. We can say this though. If they do Dante's Inferno will look like Paradise Lost.

Remember the key component of the Fed's baffle with BS strategy: namely "baffle with BS." Following yesterday's epic trifecta of economic growth when durables, housing and confidence data all slammed expectations, it was up to GDP to be the bad cop. Sure enough, following the already disappointing first Q1 GDP revision which revised the preliminary 2.5% number to 2.4%, today economists were expecting an unchaged print. Instead they got a crash to 1.77%. And on what? Why the collapsing US consumer whose true colors have finally come out in the final Q1 GDP revision: responsible for 2.40% of the GDP print in the first revision, Personal Consumption Expenditures tumbled to just 1.83% of GDP. In absolute terms, PCE plunged from 3.4% to 2.6% on expectations of 3.4%. There goes the buying power of the overlevered, undersaved US consumer.

If one thought the schizophrenic lies out of Europe between 2010 and 2013 were bad enough (the bulk of which it now appears were orchestrated by Mario Draghi), here comes China, a country which already has a "credibility" issue so to say, which has no choice but to lie as blatantly as possible in order to preserve some semblance of stability. The reason: as first forecast here months ago, and as has subsequently materialized, the credit/liquidity collapse in the country that lives and breathes on credit creation is rippling through the banking sector and causing unprecedented fallout for a financial industry that is already starved for every marginal yuan. Not unexpectedly following news that various retail and online banking services had been impaired in the early part of the week at China's biggest banks, now Caixin reports that banks are simply shutting lending to both businesses and individuals.

The Financial Times has revealed that Italy is facing losses of €8 billion due to derivative contracts that were taken out in the 1990s and that were restructured during the Eurozone crisis.

• Scalpel in Hand, Chinese Premier Li Stirs Reform Hopes (Reuters)
• Obama Sets Conditions for Keystone Pipeline Go-Ahead (FT)
• World’s Most Indebted Households Face Rate Pain (BBG)
• SAC Probers Weighing 'Willful Blindness' Tack (WSJ)
• Draghi Says ECB Ready to Act, Calls for Investment Over Tax (BBG)
• U.S. Tops China for Foreign Investment (WSJ)
• Basel Presses Ahead With Plans to Limit Bank Borrowing (FT)
• Gillard Ousted as Australia PM by Rival Rudd (FT)
• Japan Economic Strength Will Show in Stocks, Nishimura Says (BBG)

Once again it is all about central banks, with early negative sentiment heading into Asian trading - following the disappointing announcement from the PBOC about "ample liquidity" leading to the 6th consecutive drop in the Shanghai Composite while the PenNikkeiStock index tumbled yet again -  completely erased and flipped as Mario Draghi spoke, although not to explain his involvement with the latest European derivative window-dressing scandal, but to announce that he is, once again, "ready to act" (supposedly through the OMT, which despite the best hopes to the contrary, still DOES NOT OFFICIALLY EXIST) and that while it is up to government to raise growth potentials, growth would "partly come from accommodative policy." In other words, ignore all BIS warnings, for Europe's unaccountable Goldmanite overlord Mario Draghi continues to promise more morphined Koolaid (read record Goldman bonuses) to any banker that comes knocking.

The unintended consequences of a centrally-planned world continue to peek through at the most unexpected of place, as moments ago the Indian Ruppe just plunged to a new all time record low against the USD, with the USDINR rising over 60 for the first time, triggering stops and overriding any potential USD selling intervention that the RBI may have attempted just below the resistance level which took place 59.985 according to Reuters.

It was roughly four years ago when details surrounding such Goldman SPV deals as Titlos first emerged, that it became clear how for over a decade, using deliberately masking transactions such as currency swaps, Greece had managed to fool the Eurozone into believing its economy was doing far better, and its debt load was far lower than it actually was in order to comply with the Masstricht treaty's entrance requirements. As for the Pandora's Box that was opened following the disclosure of just how ugly the unvarnished truth in Europe is, following the Greek disclosure, leading to the general realization that the European experiment has failed and it is now only a matter of time before its final unwind, any comment here is unnecessary - ths has been widely discussed here and elsewhere over the past several years. Now it is Italy's turn. Overnight, the FT reported that "Italy risks potential losses of billions of euros on derivatives contracts it restructured at the height of the eurozone crisis."