Archive - Aug 16, 2013

That Housing Starts and Permits both missed expectations modestly is not a surprise: after all, NAHB hopium confidence aside, the builders have realized which way the interest-rate wind blows and grasp very well that in a rising rate environment demand for housing will go the inverse of up. Sure enough, housing starts rose from an upwardly revised 846K to 896K, missing expectations of a 900K print, while Permits rose from 918K to 943K, also missing the expected 945K print. Both misses were neglibile and largely covered by seasonal adjustments. However what really captures the dynamic behind the housing situation is the read-through into single (family) and multi-unit (investment rental properties). It is here that the divergence was most profound and tells a tale of one housing bubble which has popped, and another which is still going strong, if tapering.

If there is one day when the pent up tensions on both sides resulting from the Egyptian coup over a month ago may boil over and lead to an all out civil war (still unclear how John Kerry would "define" that one) today may be that day, as Cairo is braced for what may be the most violent confrontations yet with supporters of the deposed president Mursi calling for “day of rage” protests after Friday prayers, and the Egyptian polic (now using live ammo) and army set to crush any such "illegal" protests. Since millions are set to hit the streets, there is no way this will have a peaceful outcome.

Think the market is liquid? Think again, especially if you are one of the unlucky ones who bought into the SAC get rich quick dream and now just want to get your money out of the world's most notorious hedge fund. According to Bloomberg, the CT firm that has been branded by the government as a "veritable magnet for market cheaters," has "refused clients’ requests that the firm speed up payouts on the billions of dollars earmarked for withdrawals, according to three people familiar with the discussions."

Harping on about rhapsodious aspirations and opportunity knocks at the door of the youthful unemployed of Europe. 

• Critics Decry Risks Posed by Link Between China's Banks and Bonds (WSJ)
• U.S. retailers say uneven recovery keeps consumers cautious (Reuters) - er, what recovery?
• Easy Credit Dries Up, Choking Growth in China (NYT)
• Fed's Bullard Floats Idea of Small Cuts to Bond Buying (WSJ)
• EU wants one definition of bad loans for bank tests (Reuters) - because in Europe they can't even agree what an NPL is...
• Nagasaki Bomb Maker Offers Lessons for Fukushima Cleanup (BBG)
• With Gmail Overhaul, Not All Mail Is Equal (WSJ)
• Snowden downloaded NSA secrets while working for Dell, sources say (Reuters)
• Apollo co-founder buys into New Jersey Devils (FT)
• Republicans to vote on debate boycott because of Clinton programs (Reuters)
• J.C. Penney Heads for Ninth Quarter of Plunging Sales (BBG)

As it turns out, just as we had suspected, the 6% move in the Chinese A-shares index, was nothing more than a CNY7 billion (just over $1 billion) fat finger in the "arbitrage system" of Everbright securities. And just what system is that - if the market is about to sell off do a smash-the-open to kill all downward momentum, and as for the losses from the trade, well there is a PBOC to foot the costs? Also, if all it takes to move a multi-trillion stock market is just a $1 billion "fat finger", imagine what $85 billion per month would do...

Starting with the Asian markets this morning, it appear the roller coaster ride for markets continued overnight. Asian equities started the day trading weaker but shortly after the open though, all of Asia bounced off the lows following the previously noted surge in Chinese A-shares soaring more than 5% in a matter of minutes in what was initially described as a potential “fat finger” incident. As DB notes, alternative explanations ranged from a potential restructuring of the government’s holdings in some listed companies, to market buying ahead of a rate cut this coming weekend. All indications point toward a fat finger. The A-share spike has managed to drag other indices along with it though some gains have been pared. Yet for all the drama the Shanghai Composite soared... and then closed red. The region’s underperformer is the Nikkei (-0.75%). Elsewhere, the NZDUSD dropped 0.5% after a magnitude 6.8 earthquake struck the city of Wellington this morning. Looking at the US S&P500 futures are trading modestly higher at 1660. Looking ahead to today there is very little in the way of Tier 1 data to be expected. Housing starts/permits from the US and the preliminary UofM Consumer Sentiment reading for August are the main reports. The moves in rates and perhaps oil will probably offer some markets some directional cues.

One solution to Leviathan on the loose!