Then comes the moment when the hot money evaporates.
There is a reason why Case-Shiller titled its summary presentation of the April housing market based on its 20-City Composite index "Rate of Home Price Gains Drop Sharply." The reason is simple: in April the housing market, while still preserving some upward momentum, appears to stumbled severely in April, with the Y/Y increase in the 20-City composite rising "only" 10.8%, down from 12.37% the month before, and the lowest annual increase since April of 2013. And this time there is no snow to blame it on.
- The Kerry Konfusion Kontinues: Kerry urges Kurds to save Iraq from collapse (Reuters)
- Abe Unveils Japan’s New Growth Strategy (WSJ)
- Because the recovery: Avon to Cut 600 Jobs as CEO McCoy Seeks to Trim Expenses (BBG)
- Iraqi Parties Pressure Prime Minister Nouri al-Maliki to Step Down (WSJ)
- Ukraine Rebels Call Cease-Fire to Match Government Truce (BBG)
- IRS accused of obstruction over lost emails in Tea Party affair (Reuters)
- IRS chief scorched as 'liar' (WND)
- Big Investors Missed Stock Rally (WSJ)
- U.K. Jury Finds Coulson Guilty of Conspiracy to Intercept Phone Voice-Mail Messages (WSJ)
- HSBC to halve countries served by private bank, sells assets (Reuters)
- Bond Market Has $900 Billion Mom-and-Pop Problem When Rates Rise (BBG)
Judging by the surprising reversal in futures overnight, which certainly can not be attributed to the latest data miss out of Europe in the form of the June German IFO Business Climate report (print 109.7, Exp. 110.3, Last 110.4) as it would be naive to assume that centrally-planned markets have finally started to respond as they should to macro data, it appears that algos, with their usual 24 hour delay, have finally discovered Dubai on the map. The same Dubai, which as we showed yesterday had just entered a bear market in a few short weeks after going turbo parabolic in early 2014. It is this Dubai which crashed another 8% just today, as fears that leveraged traders are liquidating positions, have surfaced and are spreading, adversely (because in the new normal this needs to be clarified) to other risk assets, while at the same time pushing gold and silver to breakout highs. Recall that it was Dubai where the global sovereign crisis started in the fall of 2009 - will Dubai also be the place where the first domino of the global credit bubble topples and takes down the best laid plans of central-planners and men?
It has gotten beyond ridiculous: a few short hours ago the yield on the 10 Year bond tumbled to a fresh low of 2.49% (and currently just off the lows at 2.50%), wiping out all of yesterday's "jump" on better than expected Durables and leading to renewed concerns about the terminal rate, deflation and how slow the US economy will truly grow. Amusingly, this happened just as US equity futures printed overnight highs. Doubly amusing: this also happened roughly at the same time as Spanish 10 Year yields dropped to a record low of 2.827%, or about 30 bps wider than the US (moments after Spain announced that loan creation in the country has once again resumed its downward trajectory and a tumble in retail deposits to levels not seen since 2008). Triply amusing: this also happened just about when Germany had yet another technically uncovered 30 Year Bund issuance, aka failed auction. So yes: nothing makes sense anymore which is precisely what one would expect in broken, rigged and centrally-planned markets (incidentally those scrambling to explain with events in bond world where one appears to buy bonds to hedge long equity exposure, are directed to the minute of the Japanese GPIF pension fund which announced it would buy junk-rated bonds to boost returns - good luck to Japanese pensioners).
The housing "recovery" since 2010 can be summarized in four phrases: diminishing returns, unprecedented central state/bank intervention, unintended consequences, end-game. The unintended consequences of the Fed's unprecedented interventions will rip the heart and lungs out of the housing market
Following the fourth consecutive decline in home prices as reported by Case Shiller (remember, it was the weather), it was inevitable that in the last month of Q1, when the weather warmed up and when Americans went on a spending spree that took their savings rate to the lowest since 2009, home prices, those tracked by the Case Shiller index, would post a rebound. Which they did: According to the just released Top 20 City Composite Index, home prices bounced by 0.88%, higher than expected, with the composite printing at 166.80, more than the 166.23 forecast, following fourth consecutive sequential declines. This represented a better than expected 12.37% annual price increase, even if the pace of annual price increases appears to be slowing: this was the lowest annual price increase since August.
- Vietnam, China trade accusations after Vietnamese fishing boat sinks (Reuters)
- SEC Set to Spur Exchange Trading (WSJ)
- Bank of Japan quietly eyes stimulus exit (Reuters)
- Japan Risks Low Growth Even as Easing Spurs Inflation (BBG)
- Hello Japan: Bond Market Message to Fed: Your 4% Rate Outlook Is Too High (BBG)
- Malaysia, UK firm release satellite data on missing MH370 flight (Reuters)
- Fighting rages in eastern Ukraine city, dozens dead (Reuters)
- Bad Credit No Problem as Balance-Sheet Bombs Rally 94% (BBG)
- Draghi’s Asset-Backed Drive Rouses Academic Skeptics (BBG)
- For-Profit Colleges Face Test From State, Federal Officials (WSJ)
The melt up is accelerating and with the momentum tailwind back, newsflow is once again irrelevant: any news that are even remotely good are trumpeted, and any bad news - such as Europe's right storm rising in the northern states, and left storm surge in the states that demand more handouts from the northern states or China sinking a Vietnamese boat, the most serious bilateral incident since 2007 - are once again (and as usual) nothing more than a catalyst for even more liquidity injections. End result: the S&P futures this morning are 5 points above Goldman's year end target of 1900 and 45 points away from its June 30, 2015 target. Can this breakneck scramble on zero volume continue until Grantham's bubble peak level of 2,200 is hit? Well of course: after all anything goes in the centrally-planned new normal. To be sure, this is an equity only phenomenon: moments ago the Bund future hit its highest level since May 19, while the 10 Year remains unchanged at 2.53% as it continues to price in the new "deflationary" (and Japanese) normal. And as has been the case during all such divergences of late, either bonds or equities are making a horrible mistake: the question remains: who? Since all equities are doing is tracking FX pairs to the pip and have completely forgotten all about fundamentals, we have a pretty good idea what the answer is.
There's not much good news for housing these days. For a little while, the Fed's suppression of interest rates juiced housing enough to distract Americans from weak job creation and stagnant real wages. Don't have a job? No problem! Just borrow against the appreciation of your house to feed your family. But Yellen's interest rate wand looks to be out of magic. The government had a pipe dream of white picket fences for everyone. But Americans can't refinance their way to wealth. Especially in the Greater Depression.
Simply put, there is overwhelming evidence of inflation during the decade long era in which the central bankers have been braying about “deflation”. What is more worrisome, David Stockman presents some startling evidence of the complicity of the government statistical mills in using the inflation that is not seen (i.e. “imputed”) to dilute and obscure the inflation that is seen (i.e. utility bills).
Today's FOMC announcement may be one of the more anticlimatic (if long-winded) in a long time: consensus largely expects the taper to continue by another $10 billion, and the Fed will, erroneously, suggest that the economy is growing at a "modest" pace (if only one ignores such things as a complete collapse in US GDP growth due to harsh weather: who knew that all it takes to stop a $17 trillion juggernaut economy was cold winter weather), but it doesn't mean there can't be surprises. Courtesy of Bloomberg, here is a list of the key things to look for in today's statement.
Since it's not Tuesday (the only day that matters for stocks, of course), call it opposite, or rather stop hunt take out, day. First, it was the BOJ which, as we warned previously, would disappoint and not boost QE (sorry SocGen which had expected an increase in monetization today, and now expects nothing more from the BOJ until year end), which sent the USDJPY sliding, only to see the pair make up all the BOJ announcement losses and then some; and then it was Europe, where first German retail sales cratered, printing at -1.9%, down from 2.0% and on expectations of a 1.7% print, and then Eurozone inflation once again missed estimates, and while rising from the abysmal 0.5% in March printed at only 0.7% - hardly the runaway inflation stuff Draghi is praying for. What happened then: EURUSD tumbled then promptly rebounded a la the flash crash, and at last check was trading near the high of the day.
Even Case Shiller itself appears to have given up on housing as the driver of the wealth effect: "Five years into the recovery from the recession, the economy will need to look to gains in consumer spending and business investment more than housing. Long overdue activity in residential construction would be welcome, but is certainly not assured." And looking at actual city level data, we find that just 5 cities saw price increases in February; 13 of 20 cities saw their home prices decline.
- EU regulators unveil details of bank stress tests (FT)
- Just use NSAfari: U.S., UK advise avoiding Internet Explorer until bug fixed (Reuters)
- China’s Income Inequality Surpasses U.S., Posing Risk for Xi (BBG)
- US races to refuel infrastructure fund as revenue dries up (FT)
- New Era Dawns at Nokia as Company Appoints CEO, Plans $1.4 Billion Special Dividend, Share-Repurchase Program (WSJ)
- Obama reassures allies, but doubts over 'pivot' to Asia persist (Reuters)
- Dissent at SEC over bank waivers (FT)
- U.S. Banks to Help Authorities with Tax Evasion Probe (WSJ)
- U.S., Europe Impose New Sanctions on Russia (WSJ)
- Why the U.S. Is Targeting the Business Empire of a Putin Ally (BBG)
- Euro-Area April Economic Confidence Unexpectedly Declines (BBG)
- Bitcoin traders settle class actions over failed Mt. Gox exchange (Reut