Are we all wealthier because the Dow is at ~ 15,000? Should Katee Sackhoff be the next Fed Chairman?
As Mike "Hidden Secrets Of Money" Maloney has said many times before, the economic crisis of 2008 was only a speed bump on the way to the main event. He believes that before the end of this decade there will be an economic crisis so historic that it will eclipse the crash of 29 and the subsequent great depression. He also believes it is both unavoidable and inevitable, because it is merely the free market releasing the stored up energy from decades of economic manipulation. As Maolney notes, "the best investment that you will ever make in your lifetime is your own financial education," and the following provides a succinct reminder of the top reasons to buy gold and silver...
If yesterday's collapse in September existing home sales was indicative that Housing is tumbling and it means the Fed will not taper until mid 2014 sending the S&P to a new record high, today's August Case Shiller, which beat expectations of a M/M increase of 0.65% with a 0.93% print, and an increase of 12.82% Y/Y, probably means that the economy is very strong and will send the S&P to an even newer recorder high, since both bad and good news send only one signal to algos: buy. What is amusing is that while the NAR's September fiasco was attributed to "concerns" over a government shutdown, the two month delayed Case Shiller print, which was for August, will be spun as no fears of a government shutdown in August, or something.
For those curious what Bernanke's market may do today, we flash back to yesterday's AM summary as follows: "Just as it is easy being a weatherman in San Diego ("the weather will be... nice. Back to you"), so the same inductive analysis can be applied to another week of stocks in Bernanke's centrally planned market: "stocks will be... up." Add to this yesterday's revelations in which "JPM Sees "Most Extreme Ever Excess Liquidity" Bubble After $3 Trillion "Created" In First 9 Months Of 2013" and the full picture is clear. So while yesterday's overnight meltup has yet to take place, there is lots of time before the 3:30 pm ramp (although today's modest POMO of $1.25-$1.75 billion may dent the frothiness). Especially once the market recalls that the NOctaper FOMC 2-day meeting starts today.
The 19% increase in the Case-Shiller home price index since March 2012 is widely thought to have boosted the prospects for overall household spending via the “wealth effect” transmitted by rising prices and cash out refinancing. But as Bloomberg's Joseph Brusuelas notes, claims that spending is about to snap back should be interpreted with caution.In fact, there is little evidence that the bottoming out of cash out refinancing is translating into rising demand for the moribund service or non-durable retail sectors. Perhaps a lesson for Ms. Yellen here?
When we actually start the Q3 earnings cycle for financials, watch for the word “surprise” in a lot of news reports and analyst opinions
If anyone had reservations about the monthly Case-Shiller report, or at least the logic in the methodology used by the S&P data collectors, we present Exhibit A, which should solidify any such doubts. Below we show Detroit "home prices", which according to the just announced July NSA data, soared even higher, to level of 90.8, which just happens to be a 17% increase Y/Y, and the highest print since August 2008. Bankruptcy? Pfft - who cares when the government is funding Blackstone REO-to-Rent made-to-flip purchases.
There was something for everyone in the just released July Case-Shiller house price index. On one hand, on a year over year basis, the NSA Composite 20 city index rose 12.39% in July, up from 12.07% in June, and in line with expectations of a 12.40% increase. This was the highest annual price increase since the start of the great financial crisis. On the other hand, the same Composite-20 Index increased by just 0.62% in July on a SA M/M basis, missing expectations of a 0.80% increase, and down from the 0.88% increase in June. This was the third consecutive miss on a M/M basis, and while the Case-Shiller index continues to still rise, the momentum as can be seen in the chart below, is starting to fade, with the monthly increase posting at the lowest rate since September of 2012 when the rise was 0.52%.
Everything was proceeding according to central-plan with a gradual rise in risk and a decline in the USD until 4 am Eastern, when the German IFO Business Climate data was released and missed across the board (107.7 vs Exp. 108.0; Current assessment 111.4 vs Exp. 112.5; Expectations 104.2 Exp.104.0), reminding everyone now that Merkel is cemented for the near future, the immediate prerogative for Europe is to get the EUR lower, one way or another. A returning bid to the dollar also has pushed 10 Year yields under 2.70%, while once again sending various EM currencies sliding, and bringing back cross asset volatility to a world whose Sharpe ratio over the past several months has plummeted into negative territory. Increasing concerns about a government shutdown (misplaced) will likely prevent a solid bid from developing under markets.
Bubbles are on a lot of minds lately. Bonds. Housing. Stocks. Are any of these in a bubble? How do we decide? Both the stock market and the dollar price of gold are influenced by monetary creation. As long as money continues to be created, we should expect both to increase in price. There have been times in the past when the money blew up the stock market much more rapidly than gold, and if that were to happen again, there may be an arbitrage opportunity. Such does not appear to be the case today. In a time of monetary or credit creation, there are opportunities to preserve wealth through investments in productive enterprises as well as gold. Unfortunately, it is difficult to distinguish between enterprises that are truly productive and those which merely look productive as long as the credits keep flowing.
The July statement from the FOMC presented the following snapshot of the economy, "Information received since the Federal Open Market Committee met in June suggests that economic activity expanded at a modest pace during the first half of the year. Labor market conditions have shown further improvement in recent months..." but as Stone McCarthy notes, tomorrow's FOMC post-meeting statement could well be less upbeat in tone, with hints of a slowing in the pace of improvements in the labor market, housing, consumer and business spending, and inflation remaining well below the 2% goal. A look at the housing and spending data certainly raises eyebrows but it is clear that the Fed remains cornered by deficits, sentiment, technicals, and international ire.
Investors need to stop listening to the happy talk coming from the economists, and start focusing on what banks and other lenders are saying and doing operationally to adjust for the mortgage market of 2014 and beyond.
With the Case-Shiller 20-City index up double-digits for the 4th straight month, Bob Shiller has some choice words for the CNBC interviewers about the 'housing recovery'. "Housing is a market with momentum," he notes, "and right now, the momentum is up;" but he adds that while house prices are 'recovering', he remains much less sanguine about this recent move. But it is once he has explained the potential concerns that may weigh on the housing market that Shiller comes into his own as he explains "none of this is real, the housing market has gotten very speculative."
Must see clip as Shiller scoffs at the current sentiment, the resurgence of 'flipping', and that the housing market is "driven by irrational exuberance."
A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of.
Wonder why the Fed and the banks are so desperate to reflate the second housing bubble, to the delight of flippers and taxpayer consequences (deja vu) be damned? Simple: as Goldman points out in a note released last night, "without the boost from housing, real GDP growth would fall below 1% this year." That's the revised GDP by the way, the one that now includes iTunes song sales and underfunded pension plans in the sumtotal. Which in reality means that ex housing, GDP would almost certainly be negative. So the bigger question is what happens to housing which has already seen a shock to the system following the surge in interest rates in the past month and which hobbled both homebuilders and mortgage applications? This is what Goldman sees there: "On house prices, we have started to see the first signs of deceleration and expect a slowdown from the 10%+ pace observed over the past year. Our bottom-up house price model projects 4-5% annual growth rate in the next two years." Alas, since prices moves from top and bottom inflection point never happen in a straight line as everyone rushes to buy, or sell as the case may be, resulting in a skewed and pronounced move, once the reality seeps in that the artificial housing 'recovery' is over, watch what happens when everyone rushes for the door. That goes for GDP as well.