Archive - Nov 26, 2013 - Story

Plan in the works to decontaminate Fukushima's J-Village in time to reopen it as soccer facility ahead of 2020 Olympics.

— SNA Japan (@ShingetsuNews) November 26, 2013

Concluding the trifecta of today's housing data, we present perhaps the most authoritative report on what is actually going on in the market, that by RealtyTrac. What RealtyTrac has to say is in direct contradiction with both the Permits and Case-Shiller data, both of which are now openly reliant on yield-starved institutional investors dumping cash into current or future rental properties. In fact it's worse, because if RealtyTrac is accurate, the great institutional scramble for any housing is now over - to wit: "Cash Sales Pull Back From Previous Month, Still Represent 44 Percent of Total Sales Institutional Investor Purchases Plummet Nationwide...  Institutional investor purchases represented 6.8 percent of all sales in October, a sharp drop from a revised 12.1 percent in September and down from 9.7 percent a year ago. Markets with the highest percentage of institutional investor purchases included Memphis (25.4 percent), Atlanta (23.0 percent), Jacksonville, Fla., (22.2 percent), Charlotte (14.5 percent), and Milwaukee (12.0 percent)." And plunging.

It's a full-on "Baffle with BS" onslaught this morning. On one hand, the Case-Shiller Top 20 Composite Index rose by 13.3% Y/Y, better than the 13.00% expected, and the highest annual price increase since 2006. Unfortunately, the ramp is coming to an end, especially since the touted NSA data shows that monthly price increases have slowed for the fifth consecutive month, and stood at just 0.7%. At this rate the sequential price change in October will be negative. This is further reinforced by today's "other" housing report: the September FHFA House Price Index, which unlike Case-Shiller rose 0.3%, below expectations and in line with last month. So on one hand home prices are better than expected, on the other: worse. Clear as mud.

Call it the last hurrah for Private Equity and hedge funds as they scramble to "telegraph" that there is still some interest in rental property conversions. Despite ever louder cries that the REO-to-Rent and the general surge into rental properties is over (see our report on RealtyTrac's latest data due out shortly), as many PE firms seek to cash out and to flip their existing exposure, today's Housing Permits number for October showed just the opposite.  Because while permits for single-family housing units was virtually unchanged month over month, barely rising from 615K to 620K on a seasonally adjusted annualized basis, it was the structures with 5 units or more, aka rentals, that exploded by the most in the past two months going back all the way to 2008.

As we showed very vividly yesterday, while the world is comfortably distracted with mundane questions of whether the Fed will taper this, the BOJ will untaper that, or if the ECB will finally rebel against an "oppressive" German regime - with $3.5 trillion in asset (and debt) creation per year, is China. China, however, is increasingly aware that in the grand scheme of things, its credit spigot is the marginal driver of global liquidity, which is great of the rest of the world, but with an epic accumulation of bad debt and NPLs, all the downside is left for China while the upside is shared with the world.  Which is why it was not surprising to learn that China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales.  And while we are confident Chinese financial geniuses will find ways to bypass this attempt to curb breakneck credit expansion in due course, in the meantime, Chinese liquidity conditions are certain to get far tighter. This is precisely the WSJ reported overnight, when it observed that yields on Chinese government debt have soared to their highest levels in nearly nine years amid Beijing's relentless drive to tighten the monetary spigots in the world's second-largest economy.

• M&A Mystery: Why Are Takeover Prices Plummeting? (WSJ)
• Hedge-Fund Fight Club Traded Illegal Tips Not Punches (BBG)
• Speed Traders Meet Nightmare on Elm Street With Nanex (BBG)
• A new wave of U.S. mortgage trouble threatens (Reuters)
• Penny Lane: Gitmo's other secret CIA facility (AP)
• US hardens threat to leave Afghanistan with no troops (WSJ)
• Russian Prison Stuns Captain of Greenpeace’s Bombed Ship (BBG)
• ECB's Weidmann Warns Central Banks Might Be Too Dominated by Fiscal Concerns (WSJ)
• China Air Move Splits Japan as Carriers Obey New Rules (BBG)
• Inside the Breakup of the Pritzker Empire (WSJ)

If yesterday Goldman was pitching going long of the S&P in AUD terms (the world renowned Goldman newsletter may cost $29.95 but is only paid in soft dollars) as its first revealed Top Trade of 2014, today's follow up exposes Top Trade #2: which is to "Go long 5-year EONIA vs. short 5-year US Treasuries." Goldman adds: "The yield differential between these two financial instruments is currently -61bp, and we expect it to reach around -130bp. On the forwards, the differential is priced at around -95bp at the end of 2014 at the time of writing. We have set the stop-loss on the trade at a spread of -35bp. The choice of Treasuries over OIS or LIBOR on the short leg is motivated by the fact that yields on the former could underperform more than they have already in relative space as the Fed scales down its asset purchase program."

In fitting with the pre-holiday theme, and the moribund liquidity theme of the past few months and years, there was little of note in the overnight session with few event catalysts to guide futures beside the topping out EURJPY. Chinese stocks closed a shade of red following news local banks might be coming  under further scrutiny on their lending/accounting practices - the Chinese banking regulator has drafted rules restricting banks from using resale or repurchase agreements to move assets off their balance sheets as a way to sidestep loan-to-deposit ratios that constrain loan growth. The return of the nightly Japanese jawboning of the Yen did little to boost sentiment, as the Nikkei closed down 104 points to 15515. Japan has gotten to the point where merely talking a weaker Yen will no longer work, and the BOJ will actually have to do something - something which the ECB, whose currency is at a 4 year high against Japan, may not like.