A month ago, Zero Hedge observed the collapse in March real estate prices and number of transactions in Beijing (here and here), speculating that this could be the beginning of the end of the Chinese real estate bubble. Today, courtesy of the Hong Kong land registry service, we find that the drubbing has shifted from mainland China to Hong Kong. "The number of sale and purchase agreements for all building units received for registration in April was 10,386 (-23.1% compared with March and -27.4% compared with April 2010). Among the sale and purchase agreements, 7,635 were for residential units (-27% compared with March and -37.6% compared with April 2010)." This number of transaction is the lowest since March 2009. As for the actual money changing hands: "the total consideration for sale and purchase agreements in respect of residential units was $39 billion (-24.8% compared with March and -26.8% compared with April 2010)" - another low, as this is the biggest Y/Y drop since June 2010. Yet, not too surprisingly, the actual prices of real estate remain sticky. As Bloomberg reports: "Housing prices in the city, ranked the world’s most expensive place to buy a home by Savills Plc (SVS), have gained more than 55 percent in the past two years on record-low mortgage rates and an influx of buyers from China. The government in November increased property transaction taxes and pledged to boost land supply amid public protests that housing prices are becoming unaffordable and as the central bank warned about the risk of a “credit-fueled property bubble.”" The reason for this is that despite the cash-n-carry scheme described by Sean Corrigan recently, credit was suddenly become so scarce that it is only available to the wealthiest, who in turn are not, for now, in urgent need of hitting bids, thus preventing prices from attaining market clearing levels.
Equity underperformed credit as HY put in its worst close-to-close widening in two weeks and filled the gappy gamma-driven chasm from last week. CMBX activity starting to signal systemic fears perhaps and a pick up in vol skews (downside protection bid) remain worrisome as so many under-currents indicate less than stellar confidence.
As the U.S. economy fails on a systemic level, it is pushing individuals into a deep sense of failure. Feelings that one has failed one's family and oneself can feed a despair profound enough to trigger thoughts of suicide, and for many vulnerable people, thoughts lead to action. In a terrible irony, those who do take their own lives are often those with the highest sense of responsibility and highest personal standards; their sense of failure is crushing in ways that less responsible, more laissez-faire people cannot imagine. The systemic failure of the U.S. economy is pushing many to the brink of despair, as they interpret their own financial failures as personal rather than as the result of a system-wide decline stretching back decades. The need to explain this systemic failure is part of what drives me to write this blog day after day, month after month, year after year--to help people understand the roots of our national and global failings.
Unless we, as a Country, decide to "go Luddite" that is...
In “Fight of the Century”, Keynes and Hayek weigh in on these central questions. Do we need more government spending or less?
As one of my readers noted, single family foreclosures have boosted the multifamily rental market, and of course, speculators are doing the bubble thing again. Damn, that was quick. But what happens when interest rates go up, stagflation becomes more prominent, or housing brings us back to recession (that is assuming you believe we ever left it). Alas, I'm getting ahead of myself...
Stock and credit markets closed weaker today as Europe came back to the party from their long weekend. Equities underperformed credit (beta-adjusted) and HY underperformed IG as we see the debt-equity relationship starting to wave caution flags and skew compression enabling some downside.
Bubble, Bubble, Real Estate Toil and Trouble: Macro Climate for Real Estate Still Sucks, Despite New BubblesSubmitted by Reggie Middleton on 05/03/2011 13:16 -0400
A reader wrote me complaining about the nonsensical bubble blowing in multi-family properties before the last bubble was even finished bursting. I feel his pain. Let’s run through a quick pictorial of how I see the macro climate for real estate as of right now…Everybody is getting squeezed, businesses, consumers, homeowners… Everybody!
Sterling Tumbles As UK Double Dip Comes Back With A Vengeance After PMI Misse, Comes Lowest In 7 MonthsSubmitted by Tyler Durden on 05/03/2011 07:15 -0400
After a few less than negative pieces of economic data out of the UK came out recently leading some to believe that the UK appreciation is a safe bet in advance of what seems an imminent BOE hike, today all the GBP bulls got another cold dose of reality after the PMI came at 7 month lows. From Reuters: "Manufacturing activity grew more weakly than expected in April, at its slowest pace in 7 months, and a sharp slowdown in new orders cast a cloud over a sector that has been a rare bright spot in the UK economy. The Markit/CIPS manufacturing PMI headline index, published on Tuesday, fell to 54.6 in April, its lowest since September, from a downwardly revised 56.7 in the previous month and well below the 56.9 consensus forecast in a Reuters poll on Friday." So to update: Japan slashes growth forecasts, Europe is overheating and due for a major monetary tightening, China already is (although the PBoC it pushed the parity to just above 6.50 last night so as not to seem too desperate), and the UK is in shambles. And somehow reverse decoupling is still expected to work? Judging by the now traditional futures levitation each and every morning the answer is a resounding yes.
Stocks and spreads lost ground today following an ebullient pre-open and relatively stable start as early up-in-quality themes played out. Breadth in credit was positive but low beta considerably outperformed high beta and there was notable net selling in the secondary corporate bond market especially in the Financials and Consumer NonCyclical sectors.
Treasury Cuts Its Borrowing Need Estimate By Half, To Suspend State, Local Gov't Funding Due To Upcoming Debt Ceiling BreachSubmitted by Tyler Durden on 05/02/2011 15:35 -0400
After announcing it issued $265 billion in marketable debt to fund $445 billion in financing needs (including the wind down of $195 billion in SFP cash management bills), the Treasury has just announced it expects to need just $142 billion in Treasury issuance in the April-June quarter. This ridiculous amount is more than 50% lower than the previous estimate of $299 billion disclosed on January 31, and confirms that the Treasury is now scrambling to appear prudent to Congress with its debt needs. That it will need far, far more at the end of the day is beyond question. The reason for the over 50% plunge in borrowing needs "largely relates to higher receipts and lower outlays." Well, that's great - perhaps the treasury can explain why its preliminary cash need for the July-Sept quarter are $405 billion (compared to $396 billion a year earlier). Altogether, this advance estimate is ludicrous and shows that Geithner has totally lost a grip on reality. Yet on the other hand, in order to make his point, the market needs to crash (just like the May 6th crash killed any hope of an Audit the Fed bill). Looks like risk is duly noting its duty to act appropriately when record 2011 bonuses are at stake.
A "Confuzzled" Einhorn Compares Melt Up Market To Charlie Sheen, Gives Up On Hedging: Goes Long, Keeps GoldSubmitted by Tyler Durden on 05/02/2011 14:23 -0400
From the just released Greenlight Capital letter: "Much like Charlie Sheen, who seems to believe that all publicity is good publicity, recent market behavior suggests that we are in the part of the cycle where “all news is good news.” This was true for the broad market, which shrugged off the continued escalation of commodity prices, unrest in the Middle East, a catastrophe in Japan, tightening monetary policy outside the United States and a deceleration of domestic economic growth....this quarter we were repeatedly confuzzled when we read company news announcements that we expected to cause falling stock prices, only to see them rise instead – and sometimes sharply at that. Nonetheless, we believe that this environment is cyclical, and that it will continue this way... until it doesn’t. Since we don’t expect to be able to call the turn, we believe our best course is to concentrate on generating better alpha." In other words, shorting is for wimps. It appears everyone has now given up on hedging. Last time this happened was in the summer of 2008 when nothing could dent the market.
The April ISM is out, and while it confirms last week's declining Chicago PMI data and the fact that the Japanese contraction has not even remotely impacted US businesses yet (and it will), the recent weakness predicted by various Fed diffusion indices is being confirmed. The ISM came at 60.4, a decline from 61.2 in March, primarily a a result of a fall in Production (-5.2), New Orders (-1.6) Supplier Deliveries (2.9) and Imports (-1.0). All of these metrics will drop far more once the Japanese contraction is truly appreciated. On the other hand, inventory restocking is still working its artificial growth miracles, rising by 6.2 to 53.6. Yet the most important metric as always remains the Price Paid, which after rising once again from 85.0 to 85.5, above expectations, is at the highest since July 2008. Then again, by now our thesis of (more than) transitory inflation can be appreciate by everyone.
When the current stock market bubble pops, the last shreds of the Fed's legitimacy will be blown away. Strip away all the distractions, and the Fed's entire campaign to "restore confidence" and "animal spirits" so that the "recovery" magically becomes "self-sustaining" is based on one thing, and only one thing: the current stock market rally. The equities rally is the only metric of "success" the Fed can point to that isn't risible. Once the rally implodes, so too does whatever remains of the legitimacy of the Fed and the Federal agencies which have aided and abetted the Fed's unprecedented propaganda campaign to replace economic reality with happy-happy "managed perceptions." The "news" is always good, because who knows what the people might do if the flimsy official facades sway in the breeze of truth and then collapse in a heap? They might demand new leadership and systemic changes that would disrupt the cozy Status Quo partnership of cartel-crony Capitalism, Wall Street and the Central State fiefdoms.
It is not easy to destroy the greatest empire in the history of mankind. The 20th Century was the American Century, but as with all empires, the combination of hubris, monetary debasement, imperial overreach and delusional overconfidence have set in motion the inevitable downfall of the American Empire. The policies, decisions, beliefs, and institutions implemented over decades have led the country to the threshold of financial disaster. Based on my observations, a catastrophic combination of demographics, fiat currency debasement, titanic levels of debt, smothering taxation, power in the hands of the few and Wall Street greed have led us to peak Empire. It will be downhill from here as we experience collapse, revolution and ultimately, retribution for the guilty and presumed guilty. I have already addressed the Baby Boomer generation’s contribution to our current plight, to the delight and accolades of Boomers across the land in For a Few Dollars More – Part One. The Boomers were a victim of their size and the timing of their arrival on the scene of empire collapse. Their delusions of debt based wealth and me first attitude could not have been satiated without the creation of the Federal Reserve and the institution of the personal income tax in 1913.