House prices - with respect to both levels and changes - differ widely across OECD countries. As a simple measure of relative rich or cheapness, the OECD calculates if the price-to-rent ratio (a measure of the profitability of owning a house) and the price-to-income ratio (a measure of affordability) are above their long-term averages, house prices are said to be overvalued, and vice-versa. There are clearly some nations that are extremely over-valued and others that are cheap but as SocGen's Albert Edwards notes, it is the UK that stands out as authorities have gone out of their way to prop up house prices - still extremely over-valued (20-30%) - despite being at the epicenter of the global credit bust. Summing up the central bankers anthem, Edwards exclaims: "what makes me genuinely really angry is that burdening our children with more debt to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing." It's not different this time.
While it isn't news to regular readers, the fact that one of the key pillars of the "housing recovery" (the other three being foreign oligarchs parking cash in the US courtesy of an Anti Money Laundering regulation-exempt NAR, foreclosure stuffing and, of course, the Fed's $40 billion in monthly MBS purchases) have been the very biggest Wall Street firms (many of whom had to be bailed out the last time the housing bubble burst) who have also become the biggest institutional landlords "using other people's very cheap money" to buy up tens of thousands of properties, appears to still be lost on the larger population. Intuitively this is to be expected: in a world in which the restoration of confidence that a New Normal, in which everything is centrally-planned, is somehow comparable to life as it used to be before Bernanke, is critical to Ben's (and the administration's) reflationary succession planning. As such perpetuating the myth of a housing recovery has been absolutely essential. Which is why we were surprised to see an article in the very much mainstream, and pro-administration policies NYT, exposing just this facet of the new housing bubble, reflated by those with access to cheap credit, and which has seen the vast majority of the population completely locked out.
Common wisdom, which in this market of media-led hope and hysteria rapidly becomes the meme-du-jour, is that, as American Banker puts it, for banks that are currently earning slim yields on stagnant pools of loans, higher interest rates are a welcome prospect. However, in reality (that annoying fact-based world in which we really live) Net Interest Margins (NIM) are not so simple and linear and in fact. There is simply a lot of noise in NIM figures. Data over the last decade or so hints that there is a positive link between how steep the yield curve is and how wide net interest margins are - which makes sense to the extent that banks lend long and borrow short - but imbalances in the durations of assets and liabilities are risky and a more important factor for short-term changes in margins is whether banks are positioned to be hurt or helped by a simultaneous move in rates across the curve. The bottom line - rising rates and steepening curves do not infer higher NIM - facts are facts.
Today, there is almost zero truth in mainstream media. The fascist corporate-banking-government machine has ensured that mainstream media has now become the official department of propaganda, not only in political news, but also regarding nearly all financial news as well.
May was Iraq’s deadliest month in nearly five years, with more than 1,000 dead – both civilians and security personnel -- in a rash of bombings, shootings and other violence. As we read each day of new horrors in Iraq, it becomes more obvious that the US invasion delivered none of the promised peace or stability that proponents of the attack promised. We must learn the appropriate lessons from the disaster of Iraq. We cannot continue to invade countries, install puppet governments, build new nations, create centrally-planned economies, engage in social engineering, and force democracy at the barrel of a gun. The rest of the world is tired of US interventionism and the US taxpayer is tired of footing the bill for US interventionism.
This is no time to be complacent. Massive economic problems are erupting all over the globe, but most people seem to believe that everything is going to be just fine. In fact, a whole bunch of recent polls and surveys show that the American people are starting to feel much better about how the U.S. economy is performing. Unfortunately, the false prosperity that we are currently enjoying is not going to last much longer. Unfortunately, the majority appear to be purposely ignoring the economic horror that is breaking out all over the globe.
While the new normal knee-jerk reaction to the dismal ISM print was the bad-is-good surge in buying, it seems reality is setting in...
UPDATE: BIST-100 Closes -10.47% - Biggest drop since March 2003
Until mid-last week, the Turkish equity market was up 90% from the start of 2012 and up 19.5% in 2013. Of course, why not. Global easy money and a nation in the middle of economic and geopolitical hotspots - buy it with both hands and feet. However, it appears reality is starting to sink in. Last week's (and ongoing) social unrest is beginning to take the shine off the hot-money flows. The broad Turkish stock market is now down 17% from its highs last week (very reminiscent of Japan) having given up in 3 days the gains from the first five months of the year. Turkish bond yields also spiked (moar hot-money outflows from 'reaching for yield') by their most on record (71bps) to 6.78%.
While "risk-on, risk-off" has been an oft-repeated mantra in this period of extreme monetary policy machinations, it would appear the most relevant factor in the last six months is in fact "Abenomics-on" as a concerted plan to devalue the JPY has provided ammunition for carry traders to rampage through every dismal risk asset in the world. After collapsing through the Maginot Line of 100 on May 9th, JPY has rallied back and spent the last two weeks fighting over 101. It appears, given today's shift back under 100 that, for now, Abe is going to need a bigger boat. It seems, as with the Fed's balance sheets, that it's not about the 'stock' of USDJPY (level) but the 'flow' (depreciation rate) if risk assets are to continue their march ever higher in the face of a not-so-bullish reality. As one would expect, NKY futures and US (and European) equities are fading fast along with this 'driver'.
Technically we’re all poorer than we were before 2008 happened. Most of us are making less money. And we’re spending more just trying to get by thanks to higher food, energy, and healthcare prices. Heck, housing is now even soaring again, pricing most beginning homebuyers out of the market.
While we are told day-after-day just how 'fixed' Europe is; just how 'past the crisis' they are; and just how close to banking union; the reality is the nations of Europe are as disparate as they have ever been. We discussed the dismal unemployment picture last week, but one glance at the chart below will highlight the growing divergence between the haves and have-nots in Europe. As Bloomberg's Niraj Shah notes, unemployment rates are diverging at record levels in the euro area.
- BIS lays out "simple" plan for how to handle bank failures (Reuters) - Are we still holding our breath on Basel III?
- Deficit Deal Even Less Likely - Improving U.S. Fiscal Health Eases Pressure for a 'Grand Bargain' Amid Gridlock (WSJ)
- IRS Faulted on Conference Spending (WSJ)
- Deadly MERS-CoV virus spreads to Italy (CNN)
- Turkish PM Erdogan calls for calm after days of protests (Reuters)
- Financial system ‘waiting for next crisis’ (FT)
- Russia to send nuclear submarines to southern seas (Reuters)
- China Nuclear Stockpile Grows as India Matches Pakistan Rise (BBG)
Nothing like a solid dose of schizophrenia to start the week, following Chinese PMI news which showed that once again the Chinese economy was both contracting and expanding at the same time. Sure, one can justify it by saying HSBC looks at smaller companies while the official data tracks larger SMEs but the reality is that just like in the US, so China has learned when all else fails, baffle with BS is the best strategy. As a result the media is attributing he drop in European stocks to the weaker than expected China PMI, while the green prints in US futures are due to... stronger than expected China PMI. There were no split-personalities in Japan, however, where Mrs. Watanable's revulsion with recent euphoria led the Nikkei to tumble over 500 points, to closed down another 3.72%, and is now on the verge from a 20% bear market from its May 23 multi-year highs. The fact that the USDJPY reached within 3 pips of the Abenomics "fail" zone of USDJPY 100 didn't help overnight sentiment.
The Flash PMI had already 'warned' of a contractionary print but the final May HSBC Manufacturing PMI is now the lowest in a year at 49.2. The last two months have seen this measure of the Chinese economy plunge at its fastest rate since March 2011. Of course the 'official' data still remains a handsome 50.8 (not contracting at all) but the underlying data of the HSBC/Markit index is just as awful with little in the silver-lining camp to save the day (or night). Employment dropped, new export orders and total orders fell, purchasing activity fell, with only a meager rise in output saving the index from a more precipitous decline. Output prices also plunged (but input prices dropped on the back of cheaper raw materials - particularly base metals) and inventories rose (in a lack of demand manner as opposed to 'if we build it' perspective according to HSBC). So, once again, just as in Q1 2012 (before the reality swoon) China is both expanding and contracting...
After giving the world, or at least 99.4% of it (i.e., those non 0.6% who control $87.4 trillion of global assets), hell for the past 8 years, this is Ben Bernanke's conclusion of his speech during the baccalaureate ceremony at Princeton earlier today.
Congratulations, graduates. Give 'em hell.
Straight from the Chairsatan's mouth... Because it wasn't enough for once Princeton economist who has never traded a security in his life to take over the bond (and stock) market, crush the market's primary discounting function, and make an absolute mockery of price discovery for the 5th year running, here comes an entire graduating class of up and coming Chairsatans to perpetuate Bernanke's legacy. One couldn't make this up.