Housing Market

The Phoenix housing market has a special place in the heart of housing bubble watchers: together with Las Vegas and various California MSAs, this is the place where the last housing bubble was born and subsequently died a gruesome death which nearly brought down the entire financial system. Which is why the monthly WP Carey report on the Greater Phoenix Housing Market is of peculiar interest for those who want to catch a leading glimpse into the overall state of the bubble US housing market. As hoped, this month's letter does not disappoint. What we find is that while equilibrium prices have been largely flat month over month, and are up 6% on an average square foot basis from a year ago, something very bad is happening with a key component of the pricing calculation: demand has fallen off a cliff.

We track US power consumption on a weekly basis as reported by Barron’s, as we believe this information provides insightful – albeit sometimes "noisy" and seasonally unadjusted – clues about the performance of the economy over time. The expectation is that a more robust economic environment requires more power, although factors like colder winters and warmer summers relative to the norm can greatly skew the analysis. With that in mind, let’s have a look at the weekly historical performance of this indicator going back to 1995.

A look at key events and data in the week ahead.  

Overview of the price action in the forward exchange market and a look ahead.  

A money-laundering butterfly flaps its wings in China... and the US housing market crashes?

Institutionalizing the speculative excesses that inflated the previous housing bubble has fed magical thinking and fostered illusions of phantom wealth and security.

For all those upwardly mobile middle class Americans (amazing they still exist under the current central planning regime which takes from the middle class and gives to the ultra rich and uber poor) who are eager to buy a better house, and suddenly find themselves priced out due to an ongoing surge in the prices of ultra-luxury segment, here is what you need to know: blame China.

Once again, US equity futures are roughly unchanged (while Treasurys have seen a surprising overnight bid coming out of Asia) ahead of an avalanche of macroeconomic news both in Europe, where the ECB will deliver its monthly message, and in the US where we will shortly get jobless claims, ISM non-manufacturing, trade balance, nonfarm payrolls, unemployment, average earnings, Markit U.S. composite PMI, Markit U.S. services PMI due later. Of course the most important number is the June NFP payrolls and to a lesser extent the unemployment rate, which consensus expects at 215K and 6.3%, although the whisper number is about 30K higher following yesterday's massive ADP outlier. Nonetheless, keep in mind that a) ADP is a horrible predictor of NFP, with a 40K average absolute error rate and b) in December the initial ADP print was 151K higher than the nonfarms. Those watching inflation will be far more focused on hourly earnings, expected to rise 0.2% M/M and 1.9% Y/Y. Should wages continue to stagnate and decline on a real basis, expect to hear the "stagflation" word much more often in the coming weeks.

Answer: Everything. Just as he did January 2008...

The smart money had a goal, which it now reached via the “multiplier effect.”

• Ceasefire over, Ukraine forces attack rebel positions (Reuters)
• No Good Iraq Options for Obama as Russia, Iran Jump In (BBG)
• Japan’s Cabinet Agrees to Allow Military to Help Defend Allies (BBG)
• Obama says to reform immigration on his own, bypassing Congress (Reuters)
• South Stream Pipeline Project in Bulgaria Is Delayed (NYT)
• Foreign Banks Still in the Dark About Missing Metals in China (WSJ)
• Quelle indignity: several bankers at French bank BNP Paribas will face demotions and cuts to their pay and bonuses (FT)
• Symantec Warns of Hacker Threat Against Energy Companies (BBG)
• Shrinking Office Spaces Slow Recovery (WSJ)
• Rand Paul Slams ‘Fat Cats’ With Hedge Fund in Top Donors (BBG)

Janet Yellen is an officious school marm. She constantly lectures us on Keynesian verities as if they were the equivalent of Newton’s Law or the Pythagorean Theorem. In fact, they constitute self-serving dogma of modern vintage that is marshaled to justify what is at bottom an economic absurdity. Namely, that through the primitive act of banging the securities “buy” key over and over and thereby massively expanding its balance sheet, the Fed can cause real wealth - embodying the sweat of labor, the consumption of capital and the fruits of enterprise - to magically expand beyond what the free market would generate on its own steam. Dr. Yellen, of course, claims there are no financial bubbles to worry about because the Keynesian bathtub of potential GDP has not yet been filled to the brim. Perhaps she would like to put in a bid for one of these homes...

Today, we can finally end any debate on the topic of just where the world's illegal money comes to roost. The answer: ultra-luxury real estate, primarily in New York, courtesy of a report in New York magazine that catches up with what we first said in the summer of 2012, and which is titled, appropriately enough: "Stash Pad."

• Facebook Researchers Manipulated News Feeds in 2012 Study (BBG)
• Argentina at Brink of Default as $539 Million Payment Due (BBG)
• Hedge fund correlation risk alarms investors (FT)
• As China Flexes Muscle, Obama Frets Over Rival’s Weakness (BBG)
• As caliphate declared, Iraqi troops battle for Tikrit (Reuters)
• Dubai Caps Worst Month Since 2008 as Real Estate Stocks Tumble (BBG)
• Russian Advisers Ready Iraq to Use New Combat Aircraft (BBG)
• Blackstone Readies Big-Bet Hedge Fund (WSJ) - so what was GSO?
• Pope says communists are closet Christians (Reuters)
• Thomson Reuters revising FX trading standards (Reuters)

• Yellen Spending Recipe Lacking Key Ingredient: Bigger Wage Gains (BBG)
• Ukraine signs trade agreement with EU, draws Russian threat (Reuters)
• GM Documents Show Senior Executive Had Role in Switch (WSJ)
• Australian Report Postulates Malaysia Airlines Flight 370 Lost Oxygen (WSJ)
• World’s Biggest Debt Load Lures Distressed Funds to China  (BBG)
• GPIF Rushing Into Riskier Assets Before Ready, Okina Says (BBG)
• Japan Prices Rise Most Since ’82 on Tax, Utility Fees (BBG)
• Italian Debt Swells to Rival Germany as Bond Yields Slide (BBG)
• China’s Manhattan Project Marred by Ghost Buildings (BBG)
• BOE's Carney Says Rates Won't Rise to Levels Previously Considered Normal (WSJ)