NAHB

There was non-Fed news in the overnight market. Such as Nikkei reporting that Germany's Angela Merkel was the first G-8 member to be openly critical of Japan's credit-easing policy "that has led to the yen's weakening against major currencies" in what was the first shot across the bow between the two export-heavy countries. Not helping risk in Asia was also news that China May new home prices rose in 69 cities over the past year, compared to 68 the prior month, thus keeping the PBOC's hands tied even as the liquidity shortage in traditional liquidity conduits continues to cripple the banking system and forcing the Agricultural Development Bank of China to scale back the size of two bond offerings today by 31% "as the worst cash crunch in at least seven years curbs demand for the securities." Rounding up Asia were the latest RBA meeting minutes which noted the possibility of further weakness in AUD over time, adding downside pressure on the currency and pressuring all AUD linked equity pairs lower. Still, the USDJPY caught a late bid pushing it above 95 on some comments by the economy minister Amari who said that the government would not be swayed by day-to-day market moves and the BOJ "should continue making efforts to convey its thinking to markets" adding the government was not making policy to pander to markets, confirming that Japan is making policy solely to pander to markets.

Equity markets were very much in a land of their own relative to broad risk asset classes all day until the FT's Harding "mo' Taper" memo hit and slammed reality back into the herding masses. Still convinced that the Fed will 'only' taper if the data confirms it, we suspect the broad market is missing the signals from broken markets and frothy levels that mean the Fed will use the modest improvements as a crutch upon which to jawbone tapering into our minds. Today's price action was - in the words of the great Bob Pisani, "just silly." A ramp out of the gate following Japan's lead which followed a Hilsenrath-inspired ramp-job from Friday combined with a beat for NAHB (and Empire Fed) sent all the high-beta into overdrive (builders +2.2%) - but nothing else was really moving (FX was relatively flat, bonds went sideways, commodities wriggled in a small range). The Harding hit and we gave back all the post-Hilsenrath gains, 330-ramped to VWAP and held it magically into the close (though the USD ended at its lows of the day, bond yields at their highs, and credit markets at their lows).

First it was the "most important" payroll print in years, then the "most important" retail sales number, and now we are just days ahead of the "most important" FOMC statement in years as well, as the fate of the centrally-planned markets lies in the hands of Bernanke's decision to taper, or not to taper. The main catalyst for now still appears to be an ongoing wrong interpretation of Hilsenrath's Thursday blog post in which some still see reaffirmation by the Fed that it won't taper, when all the Fed's mouthpiece said is that the short-end would be anchored even as the long-end is allowed to rise. Looking at the well-known no volume levitation futures action, which in the overnight session has wiped out all of Friday's losses and then some simply due to a 2.73% rise in the Nikkei overnight back above 13,000 driven by the USDJPY briefly regaining 95.00, the market has made up its mind (if only for the time being) that whatever decision the Fed takes regarding the monthly level of liquidity injection is a bullish one. At least until it changes its mind next.

In a world in which fundamentals no longer drive risk prices (that task is left to central banks, and HFT stop hunts and momentum ignition patterns) or anything for that matter, it only makes sense that the day on which Japan posted a better than expected annualized, adjusted Q1 GDP of 3.5% compared to the expected 2.7% that the Nikkei would be down, following days of relentless surges higher. Of course, Japan's GDP wasn't really the stellar result many portrayed it to be, with the sequential rise coming in at 0.9%, just modestly higher than the 0.7% expected, although when reporting actual, nominal figures, it was up by just 0.4%, or below the 0.5% expected, meaning the entire annualized beat came from the gratuitous fudging of the deflator which was far lower than the -0.9% expected at -1.2%: so higher than expected deflation leading to an adjustment which implies more inflation - a perfect Keynesian mess. In other words, yet another largely made up number designed exclusively to stimulate "confidence" in the economy and to get the Japanese population to spend, even with wages stagnant and hardly rising in line with the "adjusted" growth. And since none of the above matters with risk levels set entirely by FX rates, in this case the USDJPY, the early strength in the Yen is what caused the Japanese stock market to close red.

Confused about the latest disconnect between reality and propaganda, this time affecting the (foreclosure-stuffed) housing "recovery" which has become the only upside that the bulls can point to when demonstrating the effectiveness of QE now that the latest attempt at economic recovery has failed miserably both in the US and globally? Gluskin Sheff's David Rosenberg is here to clear any confusion.

A bad day all around. Liquidation continued from Asia and commodities were Baumgartner'd - especially gold and silver, suffering their biggest single-day drop in 30 years. Weak NAHB data stalled any BTFD in stocks and despite a couple of tries at EUR ramps, stocks had their biggest drop in 5 months. The horrible acts in Boston seemed a catalyst for late-day weakness in stocks but there was no bid and heavy volume as homebuilders were hit their hardest in 10 months and US equity indices plunged into the close. Dow Transports had its worst day in 17 months. Away from stocks, FX markets were just as volatile with JPY's 2-day rally the biggest in 35 months (and AUD the biggest down day in 5 months). Swiss 2Y rates dropped to their lowest of the year and US Treasuries were relatively calm (though bid) until Boston hit and then dropped 3-4bps on the day. VIX also surged higher by 5.2 vols to 17.25% (its highest since the Italian elections).

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.

While China's trifecta miss of GDP, Retail Sales and Industrial Production all coming lower than expected was likely a factor in the overnight rout of gold, the initial burst of selling started well before the Chinese data hit the tape, or as soon as Japan opened for trading with forced financial institution selling to prefund cash for any and all future JGB VaR-driven margin calls. It was all downhill from there, literally, with overnight selling of gold punctured by brief burst of targeted stop hunting, sending the metal down $116 per ounce, as spot touches $1385 after trading nearly at $1500 yesterday and down $200 in 4 days. End result, whether due to a re-collapsing global economy, margin calls, fears forced Cyprus gold selling will be imposed on all other insolvent European countries, coordinated central bank slams, hedge fund positioning, long unwinds, liquidations, fears about future demand, or whatever the usual selling suspects are, is that gold tumbles an unprecedented 7.8% on 230,000 contracts in one day, and well over 10% in two days, pushing the yellow metal 14 day RSI band to 18, meaning it is now most oversold since 1999. In brief, it is an all out panic, with Goldman still telling clients to sell, i.e., buying every shiny ounce all the way down (not to mention India, where accordingto UBS Friday demand was double the average).

Despite the market knowing better, the so-called housing recovery has hit a speed-bump (or brick-wall). Goldman's housing swirlogram shows that the revisions from an exuberant few months into January 2013 have dragged the reality of the 'recovery' rotating into full-blown 'expansion' to a crumble back into 'contraction'. Of course, we have seen homebuilder stocks exuberant like this before in the face of disappointing facts, but even the NAHB (desperate to portray confidence) is 'admitting' things are not as rosy as all-time highs in stocks might suggest.

For a few wondrous moments around 1430ET the Dow and TRANnies were green and all was well and the world could rest assured that government stealing private property was nothing to worry about. Then it seems some odd tin-foil-hat-wearing blog did the math to figure that there is no way the Cypriots get the vote. VIX had not been partaking of the exuberance BTFD rally as it seemed evident that managers chose to 'hedge' as opposed to 'sell'. Shortly after Europe closed, it was notable that market breadth shifted decidedly weak - though the indices pushed on higher until green was reached. Risk was highly correlated across all asset-classes today but shortly after Europe closed the USD began to rise once again. Gold notably outperformed (especially given USD strength), bonds were bid, and financials underperformed all day (as homebuilders managed gains on the worst NAHB print in six months). We suspect the afternoon was a little more reality than the morning's knee-jerk and volume dominated the last hour's dump. VIX bid to 12-day highs over 13.60% (+2.3 vols).

As expected, it is all about Cyprus this morning, and overnight, and just as naturally it wouldn't be a centrally-planned market without the generic BTFD overnight ramp attempt, which we got from the EURUSD, as the pair rose from sub 1.29 to 1.2973, which also pushed the US futures up to nearly fill half the overnight gap lower. Citi explained this, observing the "EUR/USD squeezed higher on reports Cyprus bailout terms may be eased, CitiFX Wire says", but it did add that "selling was likely to materialize; flow has 60% bias in favor of downside, Seeing heavy net selling, mainly from leveraged funds." Naturally, the market does what it does best - clutches at straws, although not even this centrally-planned market could ignore news that today's Cyprus parliament vote has been cancelled, that banks will likely remain closed tomorrow, and that a vote may not happen until Friday, which likely means the bank holiday is about to stretch to one week, and possibly much longer as Cyprus is terrified to open its banks to the fury of scrambling "bank-runners." Things started to get interesting following another RIA report citing finance minister Siluanov, that Russia may reconsider its role in the Cyprus rescue following the bank tax. Siluanov added that bank tax breaks the plan for joint steps on Cyprus and that the decision was made without Russia.

I really need to stop being so pessimistic. I’m getting richer by the day. My home value is rising at a rate of 1% per month according to the National Association of Realtors. At that rate, my house will be worth $1 million in less than 10 years. Every mainstream media newspaper, magazine, and news channel is telling me the “strong” housing recovery is propelling the economy and creating millions of new jobs. Keynesian economists, Wall Street bankers, government apparatchiks and housing trade organizations are all in agreement that the wealth effect from rising home prices will be the jumpstart our economy needs to get back to the glory days of 2005. Who am I to argue with such honorable men with degrees from Ivy League schools and a track record of unquestioned accuracy as we can see in the chart below? These are the facts. But why trust facts when you can believe Baghdad Ben and the NAR? It’s always the best time to buy.

It seems that as long as lumber futures are rising they are an excellent indicator of the strength of the housing recovery, but once they show any weakness, it is technical or negligible. A few things we know: inventory is epically low; homebuilder stocks are priced for perfection (and missing); NAHB confidence is rolling over; and now Lumber futures have tumbled by the most over the last five days in 15 months. So much for a sustained 'recovery'.

In the aftermath of yesterday's surge in German hopium measured by the ZEW Economic Survey which took out all expectations to the upside, it was inevitable that the other double-dipping country, France, telegraphed some optimism despite a contracting economy and would follow suit with a big  confidence beat, and sure enough the French INSEE reported that February business sentiment rose from 87 to 90, on expectations of an unchanged number. And the subsequent prompt smash of investor expectations in Switzerland, where the ZEW soared from -6.9 to +10.0 tells us that something is very wrong in the Alpine country if it too is trying so hard to distract from the here and now. And while one can manipulate future optimism metrics to infinity, it is reality that is proving far more troublesome for Europe, as could be seen by the Italian Industrial Orders print which crashed -15.3% Y/Y on expectations of a smooth -9.5% drop, down from -6.7% previously. Since industrial orders are a proxy for future demand, a critical issue as Italy enters 2013 after six consecutive quarters of economic contraction and with no relief on the horizon, it is only fitting that Italy should shock the world with an off the chart confidence beat next.

With the honey badger market continuing to be completely dislocated from absolutely every piece of underlying data (except for German hope and confidence reported earlier this morning), moments ago the NAHB housing market index printed at 46, on expectations of an increase from January's 47 to 48. This makes it the first drop in the index in 10 months, and the first drop to expectations since April 2012, which in turn sent the ES to fresh highs (don't ask). And while we are confident the decline will be blamed on such unpredictable aberrations as snow in January and February, a meteor shower in Russia and, of course, Bush, despite last February's print posting a solid rise from 25 to 28, perhaps the more worrying indicator was that the component gauging traffic of prospective buyers slipped a whopping 4 points to 32. The drop matched the biggest sequential declines going back all the way to 2007. And now back to your pre-spun housing recovery.