Housing Market

China may raise the quota on a critical debt swap plan by as much as CNY1 trillion, underscoring how important its success is both in terms of kicking the can for the country's heavily-indebted local governments and in terms of jumpstarting the credit creation machine. Meanwhile, an effort to encourage ABS issuance is sputtering amid rising NPLs.

When the "very serious people" start to admit that the entire house of cards was held together with nothing but bullshit and propaganda, it may be a time to panic...

Following the March pending home sales report which saw growth moderate after February's 3.6% surge to 1.1%, the flurry of contract signings, not actual purchases, in April rebounded by 3.4% - the biggest jump since September 2012 - far above the 0.9% consensus estimate and 14% higher than a year ago, pushing the pending home sales index to 112.4, the highest level since 2006. The driver: pending sales in the Northeast, which soared 10.1% from the month before, and 9.4% from a year ago.

Courtesy of central planning, virtually every single capital market has become an illiquid penny stock, with wild swings from one extreme to the other, the latest example of this being the Shanghai Composite, which after soaring 10% in the past ten days, crashed 6.5% overnight tumbling 321 points to 4620 after it briefly rose just shy of 5000. This was the biggest drop since January 19 when the Composite dropped 7.7% only to blast higher ever since. Putting the "plunge" in perspective, now the SHCOMP is back to levels not seen in... one week.

“Things always become obvious after the fact” – Nassim Nicholas Taleb

“Facts do not cease to exist because they are ignored.”  – Aldous Huxley

On Tuesday, Deutsche Bank agreed to a $55 million SEC settlement tied to allegations it hid billions in losses by mismarking its crisis-era derivatives book. The bank has always contended its valuation methodologies were sound. Here is the real story...

"Right now, we’re living in a make believe world. Debt can’t be the main source of growth. Without a pick-up in final demand a lot of bad debts are out there. As long as you have excess capacity in the commodity production you have bad loans throughout the system. That means you have governments who can’t repay their debt without selling new loans and all their bad loans are funded by the central banks.... I think a global recession is inevitable...You just can’t devalue your way to prosperity. As long as the number of shares keeps declining, stock prices are going to go up and nobody cares [but] in the long term there has to be a major correction."

Earlier this month we learned that in 21 out of the 26 OECD member countries that have a minimum wage, working 40 hours per week at the pay floor would not be sufficient to keep one's family out of poverty. Now, we discover something even more shocking...

The rising risk to the housing recovery story lies in the Fed's ability to continue to keep interest rates suppressed. It is important to remember that individuals "buy payments" rather than houses. With each tick higher in mortgage rates so goes the monthly mortgage payment. With wages remaining suppressed, 1 out of 3 Americans no longer counted as part of the work force or drawing on a Federal subsidy, the pool of potential buyers remains tightly constrained. While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2015 and beyond - the lack of recovery in the home ownership data suggests otherwise.

The only remarkable macroeconomic news overnight was out of Japan where we got the Q1 GDP print of 2.4% coming in well above consensus of 1.6%, and higher than the 1.1% in Q4. Did it not snow in Japan this winter? Does Japan already used double, and maybe triple, "seasonally-adjusted" data? We don't know, but we do know that both Japan and Europe have grown far faster than the US in the first quarter.

Less than a week ago, fresh from the aftermath of the recent dramatic six-sigma move in German Bunds, one of Europe's largest banks openly lamented that so far the ECB's QE had done absolutely nothing: "two months of QE for nothing." And lo and behold, as if on demand, overnight the ECB confirmed it had heard SocGen's lament when just before the European market open, ECB executive board member Benoit Coeure delivered a speech at the Brevan Howard Centre for Financial Analysis (appropriately named after a hedge fund) at Imperial College Business School (not to be confused with the July 26, 2012 Mario Draghi "whatever it takes" speech which also took place in London) in which he said that the ECB intends to "frontload" i.e., increase, its purchases of euro-area assets in May and June ahead of an expected low-liquidity period in the summer.

As the economic calendar slowly picks up following the NFP lull, we are looking at a busy week both globally and in the US, where an army of Fed speakers culminates with a Yellen speech on Friday at 1pm in Rhode Island.

With equities having long ago stopped reflecting fundamentals, and certainly the Eurozone's ever more dire newsflow where any day could be Greece's last in the doomed monetary union, it was up to gold to reflect that headlines out of Athens are going from bad to worse, with Bloomberg reporting that not only are Greek banks running low on collateral, both for ELA and any other purposes, that Greece would have no choice but to leave the Euro upon a default and that, as reported previously, Greece would not have made its May 12 payment had it not been for using the IMF's own reserves as a source of funding and that the IMF now sees June 5 as Greece's ever more fluid D-day. As a result gold jumped above $1230 overnight, a level last seen in February even as the Dollar index was higher by 0.5% at last check thanks to a drop in the EUR and the JPY.

Not content with building single-family houses (and WinSun's own office), WinSun recently made history when it demonstrated the world's first entirely 3D-printed five-story apartment building and a 1,100 square metre (11,840 square foot) villa, complete with decorative elements inside and out.

A look at the economic data and market psychology as a new week begins.