Will London's current property bubble play out to be one of the most costly ever and end up costing UK and foreign investors billions?
For the second night in a row, China, and specifically its currency rate which saw the Yuan weaken once more, preoccupied investors - and certainly those who had bet on endless strenghtening of the Chinese currency - however this time it appeared more "priced in, and after trading as low as 2000, the SHCOMP managed to close modestly green, which however is more than can be said about the Nikkei which ended the session down 0.5%. Still, the USDJPY was firmly supported by the 102.00 "fundamental" fair value barrier and as a result equity futures, which had to reallign from tracking the AUDUSD to the old faithful Yen carry, have been propped up once more and are set to open at all time highs. If equities fail to breach the record barrier for the third time in a row and a selloff ensues after the open in deja vu trading, it will be time to watch out below if only purely for technical reasons.
Case Shiller Has Second Consecutive Monthly Decline, Warns Of "Bleaker Picture For Housing", Momentum GoneSubmitted by Tyler Durden on 02/25/2014 10:28 -0400
While the sell-side community urgently continues to pimp Seasonally Adjusted Case Shiller data, despite the Case-Shiller index creators' own wishes that NSA data be used, it is becoming increasingly difficult to mask the fact that home price momentum is fading. This is precisely what one sees when looking at the change in unadjusted prices, which in December posted the second sequential decline in a row, dropping by -0.08%, following a -0.05% drop in November for the 20-City Composite index, and the biggest sequential decline since November 2012. The annual increase of 13.42% was in line with the expected 13.4%, and was the third month in a row of declines in annual house prices, something we have known for a while, and which the 2 month delayed Case Shiler index finally confirmed. Finally, we are grateful to Case Shiller for being the first to admit that it was not all the weather: "Some of the weakness reflects the cold weather in much of the country. However, higher home prices and mortgage rates are taking a toll on affordability." Let's hope there is no rain in the Spring and sun in the summer then as everything else is already bad and getting worse.
- Turkish PM says tapes of talk with son a fabrication (Reuters) but opposition confirms authenticity, and national TV carriers cut parliament when played live
- Inside the Showdown Atop Pimco, the World's Biggest Bond Firm (WSJ)
- Ex-Jefferies Trader’s Customers Say Lies Common Tactic (BBG)
- Bitcoin exchange Mt. Gox disappears in blow to virtual currency (Reuters)
- The messenger mania is spreading: SoftBank Said to Seek Stake in Naver’s Line Messaging Unit (BBG)
- Ukraine Replaces Central Bank Head (BBG)
- Yup, an actual headline: Harsh weather tests optimism over U.S. economy (Reuters)
- Hiring of Law Grads Improves for Some (BBG)
- Easy Currency Bet Gets Harder as the Chinese Yuan Tumbles (WSJ)
- In Ukraine turbulence, a lad from Lviv becomes the toast of Kiev (Reuters)
All eyes were on China overnight, where first the PBOC drained a quite substantial CNY 100 billion in liquidity via 14 day repos in the month following the biggest credit injection on record, pushing those worried about China's credit schizophrenia to the edge, and then things got even more bizarre when in an act of clear PBOC intervention, the CNY dropped to the lowest since August 2013 as concerns about the global carry trade's impact on China (as noted here previously) start to reverberate. We will have more to say about China's Yuan intervention, but what should be noted is that the Shanghai Composite has tumbled nearly 10% in the past week, and was down another 2% overnight and is once again just barely above 2000, a level it can't seem to get away from for years (which is fine: recall that the real bubble in China is not the stock but the housing market). Chinese property stocks dropped to 8-month lows as concern continues about bank's withdrawing some liquidity for the asset class.The USDJPY drifted along and after rising to a resistance level of about 102.600 has since slide just shy of its 102.20 support area which means US equity futures are now in the red, and concerns that the S&P 500 may not close at a new record high are start to worry the technicians.
Reality will reassert itself in 2014, with lemmings, flippers, and hedgies getting slaughtered as the housing market comes back to earth with a thud. The continued tapering by the Fed will remove the marginal dollars used by Wall Street to fund this housing Ponzi. The Wall Street lemmings all follow the same MBA created financial models. They will all attempt to exit the market simultaneously when their models all say sell. If the economy improves, interest rates will rise and kill the housing market. If the economy tanks, the stock market will plunge, creating fear and killing the housing market. Once it becomes clear that prices have begun to fall, the flippers will panic and start dumping, exacerbating the price declines. This scenario never grows old.
If a third of all US homes cannot trade due to being underwater or not sufficiently above water to clear closing costs, then the US economy is going to suffer
The Fed tightens by a little (sorry, tapering - flow - is and always will be tightening): markets soar; Turkey tightens by a lot: markets soar. If only it was that easy everyone would tighten. Only it never is. Which is why as we just reported, the initial euphoria in Turkey is long gone and the Turkish Lira is basically at pre-announcement levels, only now the government has a furious, and loan-challenged population to deal with, not to mention an economy which has just ground to a halt. Anyway, good luck - other EMs already faded, including the ZAR which many are speculating could be the next Turkey, and certainly the USDJPY which sent futures soaring last night, only to fade all gains as well and bring equities down with it.
And the hits just keep on coming: after the atrocious Durable Goods number, it was the turn of the Case Shiller housing data, which reported what many already knew - in November the 20 City Composite index (the Non-seasonally adjusted version which as the report's authors acknowledge is the accurate one) posted its first monthly decline, dropping modestly from 165.9 to 165.8, or down 0.06%, since November of 2012. And while on an annual basis, the increase was still a solid 13.71%, up from October's 13.61%, these backward looking numbers will quite soon turn sharply negative once the sharp bounce in 2013 - driven not by a housing recovery but by institutional all cash buyers and foreign money launderers seeking to park their cash in the US - get anniversaried.
- Emerging markets pray for Wall Street tumble (Reuters)
- Yellen Faces Test Bernanke Failed: Ease Bubbles (BBG)
- Samsung sets new smartphone sales record in fourth quarter, widens lead over Apple (Reuters)
- China’s Foreign-Reserves Investment Chief Said to Depart Agency (BBG)
- China’s Rescue of Troubled Trust May Stoke Risk-Taking (BBG)
- Ukraine PM Azarov offers to resign 'to help end conflict' (Reuters) ... And Russia says may reconsider aid if this happens
- But... but... it was all gold's fault: India Unexpectedly Raises Rate as Rupee Risks Inflation Goal (BBG)
- Former Belgian king 'boycotting' public events after complaining £760,000 is not enough to live on (Telegraph)
- Greek disposable income tumbles 8% in Q3 (Kathimerini)
Real estate bubble, sub-prime mortgages, securitized products and their derivatives were largely responsible for the ultimate collapse, leading us to the economic conditions of today. Policy makers and investors alike were, and still are, basing their actions on a false set of commonly accepted myths.
In order to achieve the greatest risk/reward asymmetry from the 2014 single-family housing stimulus “hangover”, or “reset”, happening right now you must change the way you think about this asset class. When doing so, clarity emerges (at least to us)... This housing market is “resetting” right now; for the third time in six years. It might look and feel a little different, but as we detail below, it’s not really different this time around.
The financial crisis is surely a touchy subject at the Fed, where the biggest PR challenge is “bubble blowing” criticism from those of us who aren’t on the payroll (directly or indirectly). But Foote, Gerardi and Willen are, of course, on the payroll. They tell us there’s little else that can be said about the origins of the crisis, because any “honest economist” will admit to not understanding bubbles... " Unfortunately, the study of bubbles is too young to provide much guidance on this point. For now, we have no choice but to plead ignorance, and we believe that all honest economists should do the same." This smells to us like a strategy of gently acknowledging criticism (of the Fed’s interest rate policies), while at the same time attempting to neutralize it.
Although the U.S. stock market continues to hit new nominal highs on a nearly daily basis, the U.S. economy bumps along at a lackluster pace. This disconnect has been achieved by a massive Fed experiment in monetary stimulation. Through the combination of seemingly endless maintenance of zero interest rates and the injection of some $1trillion a year of synthetic money into fixed-income markets, the Fed is hoping that the boom it is creating on Wall Street will lead to a boom on Main Street. In reality, this a very dangerous economic gamble of enormously high stakes. As we have seen in the recent past, financial bubbles can leave catastrophe in their wake.
Faith in the current system is as high as it has ever been, and folks don't want to hear otherwise. If you're one of those people who thinks it prudent to have intelligent discussion on some of these risks -- that maybe the future may turn out to be less than 100% awesome in every dimension -- you're probably finding yourself standing alone at cocktail parties these days. A helpful question to ask yourself is: if I could talk to my 2009 self, what would s/he advise me to do? Don't put yourself in a position to relearn that lesson so soon after the last bubble. Exercise the wisdom to look like an idiot today.