Housing Starts Tumble, Miss Most Since January 2007; Permits Have Biggest Two-Month Plunge Since LehmanSubmitted by Tyler Durden on 07/17/2014 08:55 -0400
"Epic disaster." Those two words best explain what just happened with US housing starts and permits in June.
While the news was reported earlier this week, it is perhaps notable that what was once considered the leading US tech company has also succumbed to the great "jobless" US recovery (in which the US economy is somehow adding 200K+ jobs every month even as it is firing millions). Furthermore, what was supposed to be 6,000 layoffs has just tripled to 18,000, which also happens to be the largest round of layoffs in MSFT history, surpassing the previous record of 5,800 set back in 2009.
"I hope we can all agree that once in a century emergency measures are no longer necessary five years into an economic recovery," begins Stan Druckenmiller as he unleashed a torrent of uncomfortable truthiness on a crowd of Fed apologists stunned by his reality check that the Federal Reserve is putting the economy at risk by continuing its aggressive market intervention.. Blasting the counterfactual "mob", Druck slams, "To economists and Fed officials who continually cite that we are better off than we would have been without ZIRP for long I ask why is that the relevant policy time horizon? Five years after the crisis and with growing signs of economic normalization it seems to be time to let go of myopic goals." Simply put, Druckenmiller concludes, rather ominously, "I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy."
There has been much discussion as of late about the end of the current quantitative easing program and the beginning of the Federal Reserve "normalizing" interest rates. The primary assumption is that as interest rates normalize, the financial markets will continue to rise as economic growth strengthens. While this certainly seems like a logical assumption, is it really the case?
The sell off was greeted by Chinese buyers as Chinese premiums edged up to just over $1 an ounce on the Shanghai Gold Exchange (SGE).
Gold price drops this year have led to a marked increase in demand for gold as seen in very large increases in ETF holdings (See chart - Orange is Gold, Purple is absolute change in gold ETF holdings). The smart money in Asia, the West and globally continues to use price dips as an opportunity to allocate to gold.
For the 3rd month in a row, Industrial Production missed expectations as hopes and dreams of follow through in Q2 remain dashed on the shores of hard data. IP rose 0.2% (missing the 0.3% expectation) and May's jump was downwardly revised to 0.5%. What is stunning is that Industrial Production has slowed its gains from the polar-vortex Q1 into a much more economically frigid Q2. Capacity Utilization also missed expectations. Perhaps most worrying is the manufacturing industry's mere 0.1% gain in June - the slowest increase since January.
If last week's big "Risk Off" event was the acute spike in heretofore dormant Portugese bank troubles (as a reference Banco Espirito Santo has a market cap at the close last night stood at around €2.1bn ($2.9bn), contrasting to Goldman Sachs ($78.1bn) and JP Morgan ($220.5bn)), then yesterday's acceleration in the Portuguese lender's troubles which as we reported have now spread to its holding company RioForte which is set to default, were completely ignored by the market. Today this has conveniently flipped, following a Diario Economico report that Banco Espirito Santo has the potential to raise capital from private investors. No detail were given but this news alone was enough to send the stock soaring by nearly 20% higher in early trading. Still, despite the "good", if very vague news (and RioForte is still defaulting), Bunds remained bid, supported by a good Bund auction, in part also dragged higher by Gilts, which gained upside traction after the release of the latest UK jobs report reinforced the view that there is plenty of spare capacity for the economy to absorb before the BoE enact on any rate rises. Also of note, touted domestic buying resulted in SP/GE 10y yield spread narrowing, ahead of bond auctions tomorrow.
One of today’s most common economic fallacies is that the soaring stock market is evidence of economic recovery. Nothing could be further from the truth. The Fed’s balance sheet has grown more than fourfold since 2008 — to $4.3 trillion — and was used to prop up the “too big to fails.” That money had to go somewhere. Paper money promotes the “quick buck” syndrome like narcotics peddling and hookers on the streets. In a paper money society, the social order visibly deteriorates. Fiat promotes an illusory reality where non-substance like financial speculation and gambling replaces the substance of industrial production and long-term value.
Financial markets are complex in normal times. When government is actively supporting them, they only become more so and more dangerous. If today’s financial markets were rated like movies, they would be rated “R” (perhaps, “X”). Whether the “R” stands for risky or restricted is immaterial.
Sometimes, with the stock market doing its best imitation of the Energizer bunny, we forget just how extraordinary are the times in which we live. We’ve been lulled to sleep by the relentless and mesmerizing march higher of stocks and all manner of risky assets. Maybe it’s just that having lived through two booms and busts already that people have come to believe that another boom in risky behavior is not just the new normal but the old one as well. And having survived the last two busts, none the wiser apparently, everyone figures we’ll survive the next one too. Maybe. Or maybe people just don’t realize how truly weird things are right now. Some suggest there is no reason prices can’t continue to go higher; however, the supply of greater fools however is not unlimited and at some point reality and rationality will return, likely with a vengeance.
Who best to summarize what Yellen just said (aside from Bernanke of course, however he will demand at least $250,000/hour for his profound insight), than the bank which actually runs the NY Fed: Goldman Sachs. So without further ado, here is Goldman's Jan Hatzius on what Yellen really said. "BOTTOM LINE: The Q&A of Yellen's semi-annual monetary policy testimony contained a few bits of interesting information, including a slightly hawkish shift in her description of when FOMC participants think the first rate hike may occur."
With The Fed proclaiming bubbles in some of the most-loved segments of the stock market and explaining that the economy is doing "ok" but they must remain dovish for longer for feasr of "false dawns"... what better time than now to dump $2.3 Billion notional in futures... of course the dump in gold's anti-status quo price coincided with an odd v-shaped recovery in stocks... Gold remains above its pre-June FOMC levels still.
Fed Chair Janet Yellen will provide Congress with an update on the state of the economy, how rosy the future is, why she needs to keep rates lower for longer, and that there are no bubbles (oh apart from in bonds which everyone should sell because we need the collateral). These are her first comments since the FOMC press conference in mid-June and stocks have soared since then (as bond yields have tumbled) and she will have to tread a fine line between exuberant over headline job improvements and the need to keep over-inflated bubbles pumped full of cheap/free money for longer...
It started as a discussion about the reality of inflation versus propagandized "noise" and devolved into what is possibly Rick Santelli's most epic rant.
When we first brought the transformation of the American economy into a part-time worker society in 2010, many scoffed and suggested that when the 'recovery' really gets going the temp jobs will all be morphed into high-paying full-time jobs. That hasn't happened, and in fact, as we noted most recently, it's got worse. As Mort Zuckerman blasts in his rampagingly honest WSJ Op-Ed, "Most people will have the impression that the 288,000 jobs created last month were full-time. Not so." And more directly, "most Americans wouldn't call this an economic recovery." The lack of breadwinners working full time is a burgeoning disaster that we have covered extensively. There are 48 million people in the U.S. in low-wage jobs, resulting, as Zuckerman concludes, "Faith in the American dream is eroding fast."