Archive - Oct 24, 2014 - Story

Having exploded 18% higher in August (driven by, um, record high prices), September's new home sales printed at 467k (against expectations of 470k) and August's surge to 504k was revised lower to just 466k (busting the biggest beat since 2005 meme) revised 7.5% lower. After August's reported 50% MoM rise in The West, the region saw the rate of sales slow in September. The median new home sales price (at record highs last month) fell 4% YoY to $259,000.

The bell has rung for Pavlov’s dogs twice before, but the meat of higher inflation has not been delivered. Now the bell is ringing for the third time. With the key driver of inflation events well beyond US shores, the inability of the Fed to generate the meat of inflation will be much more apparent on this occasion. After five and a half years of QE there is still no meat for the dogs: real rates of interest are rising rapidly and almost all financial market instruments are overvalued. If you believe that the correct price for financial market instruments is the price decreed by the Federal Reserve, you need to look at the chart above and ask yourself a simple question, ‘With inflation expectations back at 4Q 2009 levels, what evidence is there that QE works?’

• 25 BANKS SHOWN WITH CAPITAL SHORTFALL IN ECB TEST: DRAFT TEXT
• ABOUT 10 BANKS SAID TO BE IN TALKS ON CAPITAL SHORTFALL
• 105 EURO-AREA BANKS PASS THE ECB'S ASSESSMENT: DRAFT DOCUMENT
• ECB PRELIMINARY ASSESSMENT RESULTS SEEN BY BLOOMBERG NEWS

Many have recently drifted toward believing the Fed will be ‘lower for longer’.   My view is that the Fed will be ‘sooner, but slower’.  In other words, I expect the Fed to hike in March or sooner, but then run into problems that will slow the pace (and make it difficult to get to 1% by the end of 2015).  Moreover, today’s equity market ‘melt-up’ should be a warning sign to the Fed of the moral hazard, one-way, bubble-like conditions it has instigated.

It has been over six months since the Chinese housing bubble has popped. What's worse, as overnight housing numbers out of China confirmed, the government has so far failed to contain the fallout, and according to the National Bureau of Statistics, which is anything but, after a fifth straight monthly decline, Chinese home prices have now wiped out all price gains in the past year. This was immediately spun as bullish by media outlets and sellside experts as "raising expectations the government will have to implement more economic support measures to cushion the blow." I.e., buy stocks because central banks will push risk prices artificially higher yet again. In other words, bad is still good and failure continues to be success.

• Doctor with Ebola in New York hospital after return from Guinea (Reuters)
• Ebola Puts Spotlight on Bellevue, Key NYC Trauma Center (WSJ)
• Uber Driver Transported Ebola-Positive Doctor in New York (BBG)
• GOP Gains in Key Senate Races as Gender Gap Narrows (WSJ)
• ECB Tries for Third Time Lucky in European Stress Tests (BBG)
• Security tight in Canada as police probe Parliament gunman's ties (Reuters)
• Why Madrid's poor fear Goldman Sachs and Blackstone (Reuters)
• Fed’s $4 Trillion Holdings Keep Boosting Growth Beyond End of QE (BBG)

And just like that, the Ebola panic is back front and center, because after one week of the west African pandemic gradually disappearing from front page coverage and dropping out of sight and out of mind, suddenly Ebola has struck at global ground zero. While the consequences are unpredictable at this point, and a "follow through" infection will only set the fear level back to orange, we applaud whichever central bank has been buying futures (and the USDJPY) because they clearly are betting that despite the first ever case of Ebola in New York, that this will not result in a surge in Ebola scare stories, which as we showed a few days ago, may well have been the primary catalyst for the market freakout in the past month.