While the market will look with some last trace of hope to Obama's return from Hawaii to D.C. today, the reality is that even the mainstream media, which had so far gotten everything about the cliff spectacularly wrong (proving that sample polling and actual "predicting" are two very different things), is waking up and smelling the coffee. As Politico reports, "nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year. Unlike the bank bailout in 2008, the tax deal in 2010 and the debt ceiling in 2011, the Senate almost certainly won’t swoop in and help sidestep a potential economic calamity, senior officials in both parties predicted on Wednesday. Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered. House Republicans already failed to pass their “Plan B” proposal. And now aides and senators say the White House’s smaller, fall-back plan floated last week is a non-starter among Republicans in Senate — much less the House. On top of that, the Treasury Department announced Wednesday that the nation would hit the debt limit on Dec. 31, and would then have to take “extraordinary measures” to avoid exhausting the government’s borrowing limit in the New Year."
Case-Shiller Posts 9th Consecutive Increase Driven By Phoenix, Detroit - Back To 2003 Levels, NSA DropsSubmitted by Tyler Durden on 12/26/2012 10:39 -0400
As was expected, the October Case Shiller data showed that the recent transitory pick up in the housing sector, now that both REO-to-Rent and Foreclosure Stuffing, not to mention unparalleled debt forgiveness by virtually every bank has been thrown at the housing problem, continues with a ninth consecutive month in Top 20 Composite Index increases, rising 4.3% in October. On the other hand, based on the NSA data, the 4th consecutive dead cat bounce may be coming to a much expected end with October NSA data posting the first sequential decline since March. What drove the pick up in Seasonally Adjusted data? Nothing short of yet another housing bubble in the much beloved speculative areas such as Phoenix and Detroit, where home prices rose by 21.8% and... 9.9%. Yes: apparently one can pay for mortgages with foodstamps now. Other places such as Chicago and New York were not quite so lucky, with the average price declining by 1.3% and 1.2% in the past 12 months. What remains unsaid - very much on purpose - is that the shadow inventory problem is only getting worse, as we reported a week ago, when we showed that nearly half the market cap of Bank of America is in 6 month + delinquent mortgages, or mortgages that are not yet in foreclosure but virtually certainly will be, and will also be discharged.
The market grudgingly comes back to work today, overdosed on caffeine and other alkaloid derivatives, a day when traditionally everyone calls in sick, as absolutely nothing has been resolved over the Fiscal Cliff with just 3 real trading sessions left in the year. And the likelihood that no real trading will take place is very high as both the House and Obama are still out of town, although the latter will take a late night AF-1 trip back to D.C. to rekindle rumors of an imminent 11th hour deal. It is increasingly looking as though the E-bay market, when all real trading take places at 3:59:59 pm, will manifest itself at the calendar level too, with either a market surge or plunge in what appears to be the last trading day of the year. One can only hope if the news is negative that it has a hard limit like the ES limit down plunge last Thursday.
As DB's Jim Reid summarizes, "it is fair to say that newsflow over the next 72 hours will be fairly thin before we head into a tense final few business days of the year." It is also fair to say, that the usual tricks of the new normal trade, such as the EUR and risk ramp as Europe walks in around 3 am, precisely what happened once again overnight to lift futures "off the lows", will continue working until it doesn't. In the meantime, the market is still convinced that some compromise will appear miraculously in the 2 trading sessions remaining until the end of the year, and a recession will be avoided even as talks now appear set to continue as far down as late March when the debt ceiling expiration, not cliff, will become the primary driving power for a resolution. That said, expect to start hearing rumors of a US downgrade by a major rating agency as soon as today: because the agenda is known all too well.
As of late there has been a flood of commentary written about the housing recovery pointing to the bottom in housing and how the revival in housing will drive economic growth in the years ahead. It is true that the revival in the housing market is a positive thing and is certainly something that everyone wants. However, the hype surrounding the nascent recovery to date may be a bit premature. Much of the current buying in the housing market has come from speculators and investors turning housing into rentals. This, however, has a finite life and rising home prices will speed up its inevitable end as rental profitability is reduced. Furthermore, the majority of home building has come in multifamily units, versus single family homes, and that segment has been growing faster than underlying demand. It is important to understand that housing will recover - eventually. However, the reality of that recovery could be far different than what the current media and analysts predict. The point here is that while the housing market has recovered - the media should be asking "Is that all the recovery there is?"
It wouldn't be Europe if the insolvent continent did not announce, to much pomp and circumstance, another final rescue for a broke country which was nothing but a short-termist can kicking exercise. It also wouldn't be Europe if the leaders did not do much if any math when coming up with said "rescue", and it certainly wouldn't be Europe if the initial EURphoria following such an announcement was not promptly faded. Sure enough, all three have now occurred with the EURUSD soaring to over 1.3000 in the moments after last night's soon to be obsolete announcement, only to see a gradual and consistent sell off over the next several hours, dropping to a week low of just under 1.2940 as details emerged that... there were not details. To wit, as Market News reported:
- EU COMMISSION: FUNDING FOR GREECE DEBT BUYBACK NOT WORKED OUT YET
In other words, the use of funds for the third Greek bailout has been more than detailed. The only tiny outstanding issue - the source of funds.
Hard pressed to find anything remotely exciting today. Equities losing a little shine, but understandable given last week’s 5% rush (and 14% tightening in Credit). Bonds stuck in range. Fiscal Cliff hailing back (in yet rather timid manner, though). Waiting on Greek rescue revelations. Yawn!
"Sailing" (Bunds 1,41% -3; Spain 5,6% unch; Stoxx 2542 -0,4%; EUR 1,296 unch)
Gold edged down on a Monday as speculators took their profits as prices rallied on thin volumes on Friday to their highest in a month on technical buying. A strong fall in the greenback triggered rapid gains in commodities and options-related buying on Friday. Tonight US Congress will meet to attempt to devise a plan to avert the US fiscal cliff which will throw the US into a spiral of tax hikes and budgetary cuts that will lead the US economy deeper into a recession this January. Another short term ‘resolution’ will almost certainly be achieved which will allow the US to keep spending like a broke drunken sailor and which will again store up far greater fiscal and monetary problems. The scale of these deep rooted structural challenges is so great that they are likely to affect the US sooner rather than later. Global investment demand for gold remains robust with the amount in exchange-traded products backed by the metal rising 0.1% to 2,606.3 metric tons.
Another week begins which means all eyes turn to Europe which is getting increasingly problematic once more, even if the central banks have lulled all capital markets into total submission, and a state of complete decoupling with the underlying fundamentals. The primary event last night without doubt was Catalonia's definitive vote for independence. While some have spun this as a loss for firebrand Artur Mas, who lost 12 seats since the 2010 election to a total of 50, and who recently made an independence referendum as his primary election mission, the reality is that his loss has only occurred as as result of his shift from a more moderate platform. The reality is that his loss is the gain of ERC, which gained the seats Mas lost, with 21, compared to 10 previously, and is now the second biggest Catalan power. The only difference between Mas' CiU and the ERC is that the latter is not interested in a referendum, and demand outright independence for Catalonia as soon as possible, coupled with a reduction in austerity and a write off of the Catalan debt. As such while there will be some serious horse trading in the coming days and week, it is idiotic to attempt to spin last night's result as anything less than a slap in the face of European "cohesion." And Catalonia is merely the beginning. Recall: "The European Disunion: The Richest Increasingly Want To Fragment From The Poorest" - it is coming to an insolvent European country near you.
After an almost uninterrupted period of decline over the last few years, US home prices now have some positive momentum. For one, the S&P/Case-Shiller index of property values in 20 cities has seen its highest increase in more than two years. In addition, JP Morgan CEO Jamie Dimon recently stated that his bank was seeing a surge in mortgage applications. And perhaps most importantly, the National Association of Realtors has reported that the nation’s inventory of homes on the market has dropped to its lowest level since March 2006, while the median home price is 11.3% higher than a year ago. These are definitely good signs for housing. But remember, nothing goes up or down in a straight line. Just like a stock market that suffers a serious crash, housing has been due for an upward correction. But it is a false premise to conflate ‘rebound’ with full blown ‘recovery’. The market could just as easily improve, then decline once again in a few months’ time. Positive data is great, but doesn’t necessarily portend long-term growth.
Or to put in another way, by Christmas we may very well see Case-Shiller and other indicators of home prices headed back down, erasing the gains made in housing during 1H 2012.
It feels different this time. It also 'looks' different this time in that our 'recovery' just is not bouncing back from its Friedman-ite 'plucked' level to rise phoenix-like back to Potential GDP - as it is 'supposed' to. In an excellent two-part animated series, Stanford's John 'Rule' Taylor and Russ Roberts discuss this recovery's differences along many variables including GDP trend reversion, percent of the population that is working and, economic growth overall. They then go on to discuss potential reasons for this sluggish recovery; the ongoing slump in construction employment, the effect of housing prices on saving and spending decisions by households, and this recovery's having been preceded by a financial crisis. Taylor rejects these arguments, arguing instead that the sluggish recovery can be explained by poor economic policy decisions made by the Bush and the Obama administrations. Simple, clear, 20 minutes of Sunday evening preparation for the week.
Another fairly uninspiring day.
In absence of hard data, subject to rumours and sentiment, as well as sudden “squeezes” or “sell-offs”, albeit in very tight ranges.
Mood maybe less rainy then yesterday, but, call me a bear, it doesn’t feel very convincing out there.
Uninspiring day. Light ROff, but nothing major.
In absence of hard data, subject to rumours and sentiment.