Housing Market

• Turn to Religion Split Bomb Suspects' Home (WSJ)
• The propaganda is back for the 4th year in a row: Spring Swoon Sequel No Reason for Economic Growth Scare in U.S. (BBG)
• Bernanke Jackson Hole Absence Contrasts With Greenspan Adulation (BBG)
• Large economies promise to boost growth (FT)
• Tata Faces Crisis as $20 Billion Spent on Water (BBG)
• U.S. Eyes Pushback On China Hacking (WSJ)
• Fed's Bernanke sees no U.S. inflation risks: Nowotny (Reuters)
• Austerity on Trial With U.S. Versus Europe Amid New Evidence (BBG)
• Eurozone anti-austerity camp on the rise (FT)
• Spain Aims to Soften Budget Cuts (WSJ)
• Japan's Aso Calls Recovery 'Few Years' Away (WSJ)
• BOJ Said to Consider Price Forecast Upgrade (WSJ)

With no macro data on the docket (the NAR's self promotional "existing home sales" advertising brochure is anything but data), the market will be chasing the usual carry currency pair suspects for hints how to trade. Alas, with even more ominous economics news out of Europe, and an apparently inability of Mrs Watanabe to breach 100 on the USDJPY (hitting 99.98 for the second time in two weeks before rolling over once more), we may be rangebound, or downward boung if CAT shocks everyone with just how bad the Chinese (and global) heavy construction (and thus growth) reality truly is. One asset, however, that has outperformed and is up by well over 2% is gold, trading at $1435 at last check, over $100 from the lows posted a week ago, and rising rapidly on no particular news as the sell off appears to be over and now the snapback comes and the realization that Goldman was happily buying everything its clients were selling all along.

"This could be even bigger than the US housing crisis," warns senior Chinese auditor Chang Ke, as his accounting firm has all but stopped signing off on bond sales by local governments (as we warned most recently here). As the FT reports, Zhang's firm "audited some local government bond issues and found them very dangerous," as they don't have strong debt-servicing abilities. "It is already out of control," he continues, "the only thing you can do is issue new debt to repay the old," he said. "But there will be some day down the line when this can’t go on." With more than 2,800 counties having discovered the investment-vehicle-bond (a way to avoid the prohibition or directly raising debt), Zhang notes that this "frightening" evolution has led to a situation where he puts little faith in the government guarantee, advising that "when the time comes, it won’t be the government that assumes responsibility. It will be the accounting firms and the banks that do."

Back in 2010, Goldman's Jan Hatzius, fresh on the heels of QE2, committed rookie Economist mistake 101, and mistook a centrally-planned market response to what then was a record liquidity infusion, for an improvement in the economy (a move we appropriately mocked at the time, as it was quite clear that the Fed's intervention meant the economy was getting worse not better). It took him about 4 months to realize the folly of his ways and realize no recovery for the US or anyone else was on the horizon. He then wised up for a couple of years until some time in December he did the very same mistake again, and once again jumped the shark, forecasting an improvement to the US economy in 2013, albeit in the second half (after all nobody want to predict an improvement in the immediate future: they will be proven wrong very soon) based on consumer strength when in reality the only "reaction function" was that of the market to the Fed's QE4 (or is it 5, and does it even matter any more?). Four months later we get this...

We all know that double digit inflation in HPA is not a good thing for the long term recovery of the housing market. 

Yes, there was economic news overnight, such as a Eurozone and UK CPI, both of which came in line with expectations (1.7% and 0.4% respectively), and a German ZEW which confirmed Europe's accelerating deterioration, tumbling from 48.5 to 36.3, far below expectations of a 41.0 print (somehow the huge miss has managed to push the EURUSD up by 60 pips to an overnight high of 1.31 but this is merely the pre-US open manipulation to ramp US equities higher), just as there was news that Angela Merkel's support for a Cyprus bailout is growing (was there an alternative?), and that as part of their ongoing investigation into Italy's repeatedly insolvent Monte Paschi, investigators had seized €1.8 billion worth of assets from Nomura Holdings, and that Spain as usual sold more Bills than expected, driven by oversize Japanese and Pension Fund purchases, but what everyone has been looking for is whether the relentless and record rout in gold is over. For now, it appears that is the case, with gold printing an overnight low of just over $1320 and ramping higher ever since, up 3% so far and rising.

The problem with cutting the links between risk and consequence and the real economy and the stock market is that a market deprived of feedback from reality is prone to disorderly disruption. Why is this so? Participants make decisions based on the information made available to them. If the information from the real world is suppressed or limited, then the decisions made by participants will necessarily be misinformed, i.e. wrong.  If feedback from the real world is suppressed, then decisions will necessarily be bad. The only choice for participants who have lost faith in central planning's promise of permanently higher markets will be to abandon the manipulated markets entirely.

For the fourth month in a row, NAHB's sentiment index missed expectations. With 'real' data on the housing recovery beginning to fade, we now see confidence in the sustainability of the 'recovery' starting to fade. Today's NAHB print is the lowest in six months and is the fastest 3-month drop since June 2011.

• Venezuela Says Chávez Successor Wins Vote (WSJ)
• China growth risks in focus as first quarter data falls short (Reuters)
• Japan Gets Calls From U.S. to Europe Not to Drive Down Yen (BBG)
• EU Set to Clash on Bank Deal as Germany Sees Treaty Limit (BBG)
• Dish Launches $25.5 Billion Bid for Sprint (WSJ)
• Commodities Tumble, Stocks Slide as China Growth Slows (BBG)
• Top fund managers take home $8bn less (FT)
• Obama Programs Derided by Republicans as Pejorative Entitlements (BBG)
• Gene swapping makes new China bird flu a moving target (Reuters)
• McDonald's Cranks Up The Volume on 'Value' (WSJ)
• UK pension deficits set to rise by £100bn (FT)

In the past six years the Post Office has lost $41 BILLION and they have a cumulative deficit of $36 billion.
The Post Office will lose another $10 to $15 billion this fiscal year.
They have $15 billion of debt on their balance sheet, with $9.5 billion payable in the next 9 months.
$33.9 Billion of payments for pension and health benefits for retirees, all due within the next 5 years.
$25 billion for workers compensation and sick leave payments.

Ever since Moody's head economist Mark Zandi, together with Princeton's Alan Blinder, authored a paper in July 2010 titled "How We Ended The Great Recession" (which incidentally is wrong on two key counts: i) it is a great depression not recession, and ii) it has not ended) it became clear that the Keynesian sycophant would not rest until he somehow found a way to penetrate deep inside one or more of the darkest administrative orifices of the Obama regime. Surely, Zandi must have been heartbroken when it was not him but Jack Lew picked to replace Tim Geithner - a post the Keynesian had a desperate craving for. Yet his recent appointment to head up the ADP "payroll" joint venture, which was nothing more than a test of his propaganda skills, should have given us advance notice something was cooking. Further notice should have emerged when the US Department of Injustice launched its rating agency witch-hunt campaign only against S&P, not Moody's, where the abovementioned Zandi still officially works. Last night all of this finally fell into place, when the WSJ reported that Zandi has emerged as the leading candidate to head the FHFA - the regulator in charge of the two zombiest of zombie US institutions: the still insolvent Fannie and Freddie, in the process kicking out current FHFA head Ed DeMarco who recently emerged as Obama's persona non grata number 1 for his stern refusal to espouse socialist practices and wholesale debt forgiveness and principal reduction.

Sam Zell: "This is a very treacherous market," thanks to the giant tsunami of liquidity, "the problems of 2007 haven't been dealt with," and given the poor macro data and earnings, "we are suffering through another irrational exuberance," leaving the entire CNBC audience speechless when he concludes, "the stock market feels like the housing market of 2006." 

MERS: The Center of the Mortgage Scam

Back in late 2010, there was much hope that as a result of the unfolding robosigning "Linda Green" scandal, not only would banks would be forced to fix their ways by incurring crippling civil penalties (because not even the most optimistic hoped any bankers would ever face criminal charges for anything), but that the US housing market may even reprice to a fair price as for a brief moment there nobody had any idea who owned what mortgage. Ironically, what did end up happening was to provide banks with a legal impetus to slow down the foreclosure process to such a crawl that an artificial backlog of millions and millions of houses at the start of the foreclosure process  formed, bottlenecking the foreclosure exits even more and in the process providing an artificial, legal subsidy to housing prices manifesting itself best in what is erroneously titled a "housing recovery" for many months now. What this did was to allow banks to aggressively reprice the mortgage-linked "assets" on their balance sheets much higher, and in the process unleash much capital, primarily for bonus and shareholder dividend purposes. Yet this epic self-benefiting act did not come without a cost. Yes, it turns out the banks will have to fork over some out-of-pocket change to put not only the robosigning scandal behind them but the indirect housing subsidy from which they have benefited to the tune of hundreds of billions. That quite literally change, which is what the final cost of the release and bank indemnity amounts to, is roughly $300 for each of the affected borrowers!

"The stress is beginning to show," Kyle Bass warns during a wide-ranging interview with Bloomberg TV. "The beginning of the end," is here for Japanese government bonds as he notes that while quantitiavely it is clear they are insolvent, "the qualitative perception of participants is changing." But away from Japan specifically, there is a lot more on the Texan's mind. "Things go from perfectly stable to completely unstable," very quickly; even more so after 20 years of exponential debt build-up and Keynesian cover-ups; and it is this that he warns complacent investors that it is "really important to think about the capital at risk in your strategy." For this reason he prefers to hold gold rather than Treasuries, as, "when you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don't have a great answer for you other than you should maintain a position." His discussion varies from housing's recovery to structured credit liquidity "money is being misallocated by the printing press" and the future of the GSEs, concluding with the rather ominous, "at some point in time, I would much rather would own gold than paper. I just don't know when that time is."