Housing Market

Marc Faber does not mince words. He believes the money printing policies of the Federal Reserve and its sister central banks around the globe have put the world's currencies on an inexorable, accelerating inflationary down slope. The dangers of money printing are many in his eyes. But in particular, he worries about the unintended consequences it subjects the populace to. Beyond currency devaluation, it creates malinvestment that leads to asset bubbles that wreak havoc when they burst. And even more nefarious, money printing disproportionately punishes the lower classes, resulting in volatile social and political tensions. It's no surprise then that he's feeling particularly defensive these days. While he generally advises those looking to protect their purchasing power to invest capital in precious metals and the equity markets (the rationale being inflation should hurt equity prices less than bond prices), he warns that equities appear overbought at this time.

 I believe Central Bank intervention is not a drug or “hit” for an addict. Instead, it is a cancer that has spread throughout the financial system’s psyche and which is killing the markets and Democratic capitalism.

Back in early February, Zero Hedge was among the first to suggest that abnormally warm temperatures and a record hot winter, were among the primary causes for various employment trackers to indicate a better than expected trendline (even as many other components of the economy were declining), in "Is It The Weather, Stupid? David Rosenberg On What "April In January" Means For Seasonal Adjustments." It is rather logical: after all the market is the first to forgive companies that excuse poor performance, or economies that report a data miss due to "inclement" weather. So why should the direction of exculpation only be valid when it serves to justify underperformance? Naturally, the permabullish bias of the media and the commentariat will ignore this critical variable, and attribute "strength" to other factors, when instead all that abnormally warm weather has done is to pull demand forward - whether it is for construction and repair, for part-time jobs, or for retail (and even so retail numbers had been abysmal until the just released expectations meet). Ironically, while everyone else continues to ignore this glaringly obvious observation, it is Bank of America, who as already noted before are desperate to validate a QE as soon as possible (even if their stock has factored in not only the NEW QE, but the NEW QE HD), that expounds on the topic of the impact of record warm weather. In fact, not only that, but BofA makes sense of the fact why GDP growth continues to be in the mid 1% range while various other indicators are representative of much higher growth. The culprit? Global Warming.

Yet another whistleblower has stepped up, this time one already known to the general public, and one that Zero Hedge covered just over a month ago: we refer to the case of former CBO worker, Lan T. Pham, who, as the WSJ described in early February, "alleges she was terminated [by the CBO] after 2½ months for sharing pessimistic outlooks for the banking and housing sectors in 2010" and who "alleges supervisors stifled opinions that contradicted economic fixes endorsed by some on Wall Street, including research from a Morgan Stanley economist who served as a CBO adviser." As we observed in February, "what is most troubling is if indeed the CBO is nothing but merely another front for Wall Street to work its propaganda magic on the administration. Because at the core of every policy are numbers, usually with dollar signs in front of them, numbers which have to make sense and have to be projected into the future, no matter how grossly laughable the resultant hockeystick." As it turns out, somewhat expectedly, the WSJ version of events was incomplete. There is much more to this very important story, one which has major implications over "impartial" policy decisionmaking, and as a result, Ms. Pham has approached Zero Hedge to share her full story with the public.

Much has been made recently of the government's renewed efforts to spark the housing market from its dismal slide, however we fear there are yet more unintended consequences lurking just around the corner. The various ideas being posited for a broad REO-to-rental program is one of these steps as BofA points out in accommodating the dramatic shift from ownership to renting (with 4.2mm new renters and 1.2mm fewer homeowners since the end of 2006). Of course removing foreclosures from the for-sale market reduces competition for voluntary sellers - which should help to support prices for non-distressed homes but here is where the crux of the unintended consequence lies. We have a squatter epidemic. There are millions of 'homeowners' currently living mortgage-payment-free (by choice) who will soon be forced (as the foreclosure process ramps up post-settlement) to pay rent (since they will not qualify for a mortgage). This will have the double whammy effect of reducing overall discretionary consumption spending (as rent is greater than 'free' - unless the cardboard box is preferable) and driving inflationary forces into rental costs (something we are already seeing). Of course these are the much larger second-order effects and we will only be told of the primary benefits of clearing foreclosure inventory, but at the margin (along with gas prices) the household will have less discretionary iPad-buying ammunition as opposed to more.

All you need to read.

• Obama, Cameron discussed tapping oil reserves (Reuters)
• Greek Bonds Signal $2.6 Billion Payout on Credit-Default Swaps (Bloomberg)
• China leader's ouster roils succession plans (Reuters)
• China’s Foreign Direct Investment Falls for Fourth Month (Bloomberg)
• Greek Restructuring Delay Helps Banks as Risks Shift (Bloomberg)
• Concerns Rise Over Eurozone Fiscal Treaty (FT)
• Home default notices rise in February: RealtyTrac (Reuters)
• China PBOC Drains Net CNY57 Bln (WSJ)

All you need to read.

Going into the US open, European equity markets have carried across some risk appetite from last night’s Wall Street news that 15 out of 19 major US banks had passed the Fed’s stress test scenarios. This risk appetite is evident in Europe today with financials outperforming all other sectors, currently up over 2%. Data released so far today has been relatively uneventful, with Eurozone CPI coming in alongside expectations and Industrial Production just below the expected reading for January. Taking a look at the energy complex, WTI and Brent crude futures are seen on a slight downwards trajectory so far in session following some overnight comments from China, highlighting the imbalance in the Chinese property market, dampening future demand for oil. Looking ahead in the session, the DOE crude oil inventories will shed further light on the current standing of US energy inventories.

"Rationalising away the imminent risk of inflation, the Fed leaves the door wide open for a QE3 announcement in April."

China is trying to tell you something, are you listening?

There was a time when Bank of America's archoptimist David Bianco would take any economic data point, no matter how fecal mattery, and convert it into 24-carat gold. Then, in late 2011 Bianco was fired because the bank realized that its only chance to persevere was if the Fed proceeded with another round of QE, (and another, and another, ad inf) and as such economic reporting would have to lose its upward bias and be reporting in its natural ugly habitat. And while many other banks have in recent days become content with every other central bank in the world easing but not the Fed in an election year due to the risks of record gas prices, BAC's push for QE has not abated and in fact has gotten louder and louder. So exposes us to some oddities. Such as the firm's 29 year old senior economist Michelle Meyer literally demolishing any myth that yesterday's job number was "good." Needless to say, this will not come as a surprise to Zero Hedge readers. Nor to TrimTabs, whose opinion on the BLS BS we have attached as exhibit B as to the sheer economic data propaganda happening in an election year. Yet it is quite shocking that such former stalwarts of the bullish doctrine are now finally exposing the truth for what it is. Presenting Bank of America as we have never seen it before - throwing up all over the Bureau of Labor Statistics.

All you need to read.

Consumer spending in the Netherlands has been weaker than other countries in the eurozone for the past ten year and is currently also lower than during the severe economic crisis of the early 80s according the Dutch Central Bank (DNB). They continue that the low spending is an important factor in the recession the Netherlands is now in. Dutch spending patterns have deviated from other European countries which is noteworthy since the Netherlands had one of the highest rates of eurozone countries between 1992 and 2001.