Housing Market

Speculative bubbles that burst are often followed by an echo bubble, as many participants continue to believe that the crash was only a temporary setback. But, echo bubbles aren't followed by a third bubble.

While we know now that Greece is irrelevant, and China is irrelevant (fdrom what we are told by talking heads), it appears the commodity carnage of the last few months is relevant for at least one nation. Having already warned about Australia, it appears New Zealand has got nervous:

*NEW ZEALAND CUTS KEY INTEREST RATE TO 3.00% FROM 3.25%, FURTHER EASING LIKELY AT SOME POINT

The Central bank blames softening economic outlook driven by commodity price pressures. Kiwi interestingly popped on the news to 0.66 before fading back a little, despite RBNZ noting a further NZD drop is necessary.

This seemingly inexhaustible credit line is now drying up, with severely negative consequences for oil producers with debt that's coming due. The row of dominoes swaying unsteadily in these stiff winds won't take much to topple.

Two sides separated by the money line.

Due to significant retail participation and the fact that the equity mania in China has served as a distraction for a nation coping with decelerating economic growth and a bursting property bubble, some (and we were among the first) began to suggest that the broader economy and indeed, social stability, may be at risk in China if stocks continued to fall. The extent to which this suggestion represented a real concern (as opposed to the ravings of a tin foil hat fringe blog) was underscored by the extraordinary measures China adopted in a desperate attempt to stop the bleeding and, later by several sellside strategists who began to warn about possible spillovers into the real economy. Now, with Beijing still struggling to restore the stock bubble, the first signs of knock-on effects are beginning to emerge.

A conventional housing recovery in the US is now dead: the builders have spoken and what the next generation wants is to rent, not to buiy.

After weeks of overnight turbulence following every twist and turn in the Greek drama, this morning has seen a scarcity of mostly gap up (or NYSE-breakding "down") moves, and S&P500 futures are unchanged as of this moment however the Nasdaq is looking set for another record high at the open after last night's better than expected GOOG results which sent the stop higher by 11% of over $40 billion in market cap. We expect this not to last very long as the traditional no volume, USDJPY-levitation driven buying of ES will surely resume once US algos wake up and launch the self-trading spoof programs. More importantly: a red close on Friday is not exactly permitted by the central planners.

And so the 2015 season of the Greek drama is coming to a close following last night's vote in Greek parliament to vote the country into even more austerity than was the case before Syriza was voted into power with promises of removing all austerity, even with Europe - which formally admits Greece is unsustainable in its current debt configuration - now terminally split on how to proceed, with Germany's finmin still calling for a "temporary Grexit", the IMF demanding massive debt haircuts, while the rest of Europe (and not so happy if one is Finnish or Dutch) just happy to kick the can for the third time.

The problem with these policy extremes is that they are so painfully visibly acts of central-planning desperation. If things are as positive as we're told, then why are central planners forced to impose such absurdly extreme policies to keep the status quo from imploding? If these policies worked, why are interest rates still pegged to zero after six years of "growth" and the inflation of monumental asset bubbles? If these policies don't work (and they obviously don't, otherwise the authorities could have normalized interest rates and ceased quantitative easing, stock purchases, plunge protection schemes, etc. many years ago) and central planners keep doing more of what has failed, then the only possible conclusions are...

"I think that if Greece were to leave the Euro things would get very complicated for them... and this would create the same very unhealthy situation as we have in Argentina. Why? If people start storing value in a foreign currency, in this case Greeks using Euros, this will create a huge lack of transparency and affect normal trade flows and transactions. And we know that the parallel economy in Greece is already quite large the way it is. So imagine an exponential version of that. It would be a very difficult period for Greece."

What happened in the China stock market is the latest culmination of the slippery slope of governmental and central bank intervention in financial markets.....

Bob Shiller moves beyond his normal fence-sitting perspective and goes full Marc Faber in this brief clip. Noting that his CAPE indicator of equity market valuation is flashing red (highest since 1929, 2000, and 2007), Shiller warns it is "when people jump into stocks even though they know valuations are high... that's a bubble," slamming CNBC's rosy perspective reflecting that this is the same as the dotcom rise. Notably he warns specifically "The US equity market is one of the highest in the world," and now is a good time to diversify away from it. Additionally Shiller warns of the slowing momentum in the housing market... warning that mean-reversion is likely with risk for further decline.