Despite the short-term memory-losing recency-biased perspective that a 2-day rally in stocks has seemingly set in investors' minds, Citi's FX Technicals group remains concerned that the S&P 500 is stretched by historical standards. At this point, they add, the S&P is more stretched than in 2007 and a bit less stretched than 2000 with the line in the sand around 1,700.
The point isn't that "the Fed can't do that;" the point is that the Fed cannot create a bid in bidless markets that lasts beyond its own buying. The Fed can buy half the U.S. stock market, all the student loans, all the subprime auto loans, all the defaulted CRE and residential mortgages, and every other worthless asset in America. But that won't create a real bid for any of those assets, once they are revealed as worthless. The nuclear option won't fix anything, because it is fundamentally the wrong tool for the wrong job. Holders of disintegrating assets will be delighted to sell the assets to the Fed, of course, but that won't fix what's fundamentally broken in the American and global economies; it will simply allow the transfer of impaired assets from the financial sector and speculators to the Fed.
Reality will reassert itself in 2014, with lemmings, flippers, and hedgies getting slaughtered as the housing market comes back to earth with a thud. The continued tapering by the Fed will remove the marginal dollars used by Wall Street to fund this housing Ponzi. The Wall Street lemmings all follow the same MBA created financial models. They will all attempt to exit the market simultaneously when their models all say sell. If the economy improves, interest rates will rise and kill the housing market. If the economy tanks, the stock market will plunge, creating fear and killing the housing market. Once it becomes clear that prices have begun to fall, the flippers will panic and start dumping, exacerbating the price declines. This scenario never grows old.
Across the spectrum of the US, Europe and Japan we have seen we see many stock markets that are “bending” towards pivotal supports and, Citi's FX Technicals group notes, A break below these supports, if seen, would suggest that we could see much more significant corrections lower across the board - "Any which way you look at it this market has a lot of potentially concerning developments but all the 'bricks' have not yet quite fallen into place here." However, as they add, VIX is showing such as move that "if seen" would almost certainly suggest a high to low move in the S&P of "double digit percentages."
Previous month's epic miss and hurriedly revised expectations from UMich confidence was 'baffled with schizophrenic bullshit' when the Conference Board printed at near record post-crisis highs earlier in the week. It is perhaps not unexpected that despite a drop MoM, following the huge miss last month that UMich confidence would very modestly beat expectations. As in the last 2 cycles, we saw an echo surge in confidence and that has now (just as in the last two cycles of confidence) begun to fade. Both current conditions and economic outlook fell MoM.
If a third of all US homes cannot trade due to being underwater or not sufficiently above water to clear closing costs, then the US economy is going to suffer
Housing Bubble 2.0: "More Flipping, Bigger Profits, In Less Time" With 156,862 Homes Flipped In 2013Submitted by Tyler Durden on 01/30/2014 11:43 -0400
The topic of home flipping is not new here ("Flip That House" In These Bubbling Cities, Housing Bubble 2.0 Edition: "25 Markets Where Flipping Homes Is Most Profitable", etc) - indeed that best-known flashback of the last housing bubble is easily one of the best indications just how fragile the current housing bubble truly is as investors gobble up real estate not with the intention of keeping it but merely to sell to the next greater fool, in the process setting marginal prices based purely on the availability of cheap money, money which has now been tapered by $20 billion in the past two months. However, to get the full picture on just how pervasive "house flipping" has become, we go to the source, RealtyTrac, which has just released its 2013 summary of this troubling trend.
- Only time will define Bernanke's crisis-era legacy at Fed (Reuters)
- Record Cash Leaves Emerging Market ETFs (BBG)
- Investors Look Toward Safer Options as Ground Shifts (WSJ)
- Fed Policy Makers Rally Behind Tapering QE as Yellen Era Begins (BBG)
- Rating agencies criticise China’s bailout of failed $500m trust (FT)
- Russia to await new Ukraine government before fully implementing rescue (Reuters)
- U.S. readies financial sanctions against Ukraine: congressional aides (Reuters)
- Companies resist president’s call for minimum wage rise (FT)
- Secret Swiss Funds at Risk as Italy’s Saccomanni Visits Bern (BBG)
- Top Democrat puts Obama trade deals in doubt (FT)
- Erdogan to Give Rate Increase Time Before Trying Other Plans (BBG)
Don’t you just hate the smuggish guys that sit behind desks and that say ‘I told you so’? There’s probably only one thing you hate more and that’s the racers that are running to predict the end of the world. Doom and gloom.
Yesterday, the moment when the Turkish Central Bank intervention was jinxed was clearly marked by SocGen's fawning Benoit Anne, who said "In any case, I definitely feel much better about the TRY, at least on a tactical basis. Hence we just entered a long TRY/ZAR targeting a tactical move to 5.10. The TRY crisis is over." To which we responded: "As for the "TRY crisis being over" let's wait to see what the "popular" response is to this epic rate hike first thing tomorrow when Turkey awakes, shall we, and let's revisit the TRY crisis in 2-3 weeks when the country's housing market crumbles, when the economy grinds to a halt and the political crisis goes from worse to worse-est." We didn't have to wait more than 12 hours. As of this moment, the entire Central Bank move has been faded.
SocGen's Exuberant Response To The Turkish Action: "Governor Basci, You Have Avoided A Domino Crisis In EM"Submitted by Tyler Durden on 01/28/2014 18:49 -0400
"Governor Basci, you have avoided a domino crisis in EM.... I definitely feel much better about the TRY, at least on a tactical basis. The TRY crisis is over." - SocGen
The topic of China's real estate bubble, its ghost cities, and its emerging middle class - who now have enough money to invest and have piled into houses not stocks - and have been dubbed "fang nu" or housing slaves (a reference to the lifetime of work needed to pay off their debts); is not a new one here but, as Bloomberg reports, the latest report from economist Gan Li shows China’s households are massively exposed to an oversupplied property market.
The President will do his best to put a positive spin on the current economic environment and the success of his policies to date when he gives his speech tonight. However, how you define the current environment may have much to do with where you fall in current income distribution. This was a point made by Mr. Boyer: "In 2012, the richest 10 percent of Americans earned their largest share of income since 1917, said Emmanuel Saez, an economist at the University of California at Berkeley. Meanwhile, Census Bureau statistics showed that real average income among the poorest 20 percent of families continued to fall each year from 2009 to 2011." As with all things - it is the lens from which you view the world that defines what you see. In the end, it will be whether we choose to "see" the issues that currently weigh on economic prosperity and take action, or continue to look the other way. History is replete with examples of the demise of empires that have done the latter.
Confidence is soaring (or sliding) depending on what survey you choose to believe. The UMich confidence's collapse (the biggest miss in 8 years) has been matched by more 'baffle 'em with bullshit' as the Conference Board beats expectations by the most in 5 months and pushes back towards 2013 highs (near the highest in over 5 years). Both the Present situation and Expectations rose notably - despite 1.4 million people losing their benefits, a lackluster holiday season for retailers, and stagnant incomes - but the Present Situation index rose to the highest since April 2008.