Housing Market

While popular perception holds that debt-ridden, broke millennials are the ones driving the rental market, the truth is far more nuanced... and depressing for those who still cling breathlessly to The American Dream. The truth is millions of Americans were reduced to neo-feudal serfs by the financial crisis, and how those who ruined the economy profited handsomely from the process.

• Anti-Trump Effort Launches Super PAC (WSJ)
• Muslims decry Trump's proposal to keep them out of US (AP)
• Debate Heats Up Over No-Fly List, Gun Sales (WSJ)
• OPEC Takes Down Oil Majors as Lower-for-Even-Longer Kicks In (BBG)
• Chinese Companies Are Trapped in IPO Logjam (WSJ)
• Republican Ted Cruz vaults into first place in new Iowa poll (Reuters)

The suicide rate in Alberta has increased dramatically in the wake of mounting job losses across the province. According to the chief medical examiner's office, 30 per cent more Albertans took their lives in the first half of this year compared to the same period last year. "This is staggering," said Mara Grunau, who heads the Centre for Suicide Prevention.  "It's far more, far exceeds anything we would ever have expected, and we would never have expected to see this much this soon."

Hong Kong's once-upon-a-time raging housing bubble just got its last rites after November home sales sank to a record low as an imminent interest rate in the US this month scared away prospective buyers. According to Land Registry data, reported by SCMP, November saw 2,826 registered residential transactions, down 14.4% from October and 41.7% less than in November last year. This was the lowest print in the history of the series.

"Like most turns in the credit cycle, it is uncertain exactly when the bottom will fall out of corporate credit markets, but the catalyst is likely to be an unexpected major event, perhaps even a single company getting into trouble. While we have been bearish on high yield for over a year now, we didn't think the conditions were yet ripe for a collapse. Now they're ripe."

- Ellington Management

The lack of fear in risky assets is another way of saying that risk premia have been low, or as we also like to put it, that complacency has been high. Not fully appreciative of this inherent risk, it seems many investors have refrained from rebalancing their portfolios, and bought the dips instead. We believe the Fed’s efforts to engineer an exit from its ultra-low monetary policy should get risk premia to rise once again, that if fear should come back to the market, volatility should rise, creating headwinds to ‘risky’ assets, including equities. That said, this isn’t an overnight process, as the ‘buy the dip’ mentality has taken years to be established. Conversely, it may take months, if not years, for investors to shift focus to capital preservation, i.e. to sell into rallies instead.

Who could have seen that coming? It appears, for America's northern brethren, low oil proces are unequivocally terrible. Against expectations of a flat 0.0% unchanged September, Canadian GDP plunged 0.5% - its largest MoM drop since March 2009 and the biggest miss since Dec 2008. With Canada's housing bubble bursting, it's time for the central planners to get back to work and re-invigorate the massive mal-invesment boom (and ban pawning of luxury goods).

Three weeks ago, we noted with some alarm that the number of women age 18 to 34 living with their parents is now the highest since record keeping began more than seven decades ago. Now, according to the latest data from the Commerce Department (which someone clearly forgot to double seasonally adjust), we discover that nearly a fifth of males aged 25-34 live in their parent's basement while the aggregate number for the 18 to 34 bracket inclusive of both women and men rose to 31.5% as of March.

Our condolences to the Fed: as Chinese buyers exit US luxury housing double time, watch as the bottom falls off the top in housing, and slowly at first then very fast drags the rest of the market lower, forcing the Fed to undo whatever tightening in monetary conditions it may have launched, or is contemplating.

• European stocks up, oil slides as concerns ease over Russia-Turkey tension (Reuters)
• ECB discusses two-tiered bank charges, broader bond buys (Reuters)
• New agonies, alliances as Fed debates post-liftoff plan (Reuters)
• A New Military Power Rises in the Mideast, Courtesy of One Man (BBG)
• Russia's Gazprom says halts gas supplies to Ukraine over payment (Reuters)
• Other central banks set to act, but Swiss policy cupboard bare (Reuters)

It had been a relatively quiet session overnight when as reported previously, the geopolitical situation in the middle east changed dramatically in a moment, when NATO-member country Turkey downed a Russian fighter jet allegedly over Turkish territory even though the plane crashed in Syria, and whose pilots may have been captured by local rebel forces. The news promptly slammed Turkish assets and FX, sending the Lira tumbling, pushing lower European stocks and US equity futures while sending 2 Year German Bunds to record negative yields.

"If you just exclude all the bad stuff, earnings look quite good."

Westerners have a deep history of a culture of myths (see Joseph Campbell).  We love to believe in Santa Claus, "The American Dream," the Tooth Fairy, housing market always goes up, and countless others.  So it's easy for us to be 'terrorized' by a myth; that hiding behind every corner are evil 'terrorists' waiting to blow themselves up because 'they hate our freedoms.' 

"The equilibrium, for now, is QE infinity – but political risk could be the breaking point"...