Housing Market

Hours after the IMF cut its global economic growth forecast yet again (which for the permabullish IMF is now a quarterly tradition as we will shortly show), now expecting 3.5% and 3.7% growth in 2015 and 2016, both 0.3% lower than the previous estimate (but... but... low oil is unambiguously good for the economy) and both of which will be revised lower in coming quarters, and hours after China announced that its entirely made up 2014 GDP number (which was available not 3 weeks after the end of the quarter and year) dropped below the mandatory target of 7.5% to the lowest in 24 years, it only makes sense that stock markets around the globe are solidly green if not on expectations of another year of slowing global economies, which stopped mattering some time in 2009, but on ever rising expectations that the ECB's QE will be the one that will save everyone. Well, maybe not everyone: really only the 1% which as we reported yesterday will soon own more wealth than everyone else combined and who are about to get even richer than to Draghi.

Following last week's Swiss stock market massacre as a result of a central bank shocker, and last night's crack down by Chinese authorities, it almost appears as if the global powers are doing what they can to orchestrated a smooth, painless (as much as possible) bubble deflation. If so, what Draghi reveals in a few days may truly come as a surprise to all those- pretty much everyone - who anticipate a €500 billion QE announcement on Thursday.

While a record amount of ink has been spilled praising the benefits of plunging crude price on the US consumer, so far this has manifested merely in soaring consumer confidence, if not in an actual boost to retail sales. Less has been written about the adverse side-effects of plunging oil, even though by now even the most “undisputed” permabulls have been forced to admit that the imminent collapse in capital spending is truly “unprecedented”, a phrase Goldman uses in the chart below.  So what does plunging CapEx actually mean for the economy, aside from a major haircut to 2015 GDP, and what other areas of the economy will be affected by the Saudi Arabian scorched earth war on the US shale industry?

"Why stand on formalities? Let's get the ball rolling right now," Mr. Obama said at a recent stop in Tennessee. In previous years, As Dow Jones reports, the content of the speech was a closely guarded secret, leaving reporters, politicians, lobbyists and interest groups scrambling for tidbits and gossip in the days and weeks leading up to the event. But this year, much of Mr. Obama's policy wish list and broad themes will be well-known when he walks onto the House floor next week. Here is what the president is widely expected to focus on in his address next week...

The 30 Year U.S. Treasury bond yield hit 2.35% yesterday. Long term interest rates are not controlled by Yellen. They reflect the economic prospects of the country. When they are rising it means the economy is doing well. When they are plummeting to all time lows, the economy is either in recession or headed into recession. Take your pick. No amount of government data manipulation, feel good propaganda spewed by the captured mainstream media, or Ivy League educated Wall Street economist doublespeak, can change the fact this economy is in the dumper and headed much lower. The Greater Depression is resuming its downward march toward inevitable war.

For the 2nd month in a row, home prices in Calgary - corporate hub of Canada's oil industry - have fallen. This is the biggest 2-month-drop in almost 2 years (and comes on the heels of yesterday's news that Suncor is slashing jobs and capex). As Bloomberg reports, Bank of Canada Deputy Governor Tim Lane said yesterday development of the more expensive deposits are threatened by lower crude oil prices. "The dive in energy prices will put pressure on house prices in the Western provinces in the coming months," warns one economist and as the following chart shows, more pain is likely...

While earlier today the MBA came out with some absolutely ridiculous numbers namely that there was a 49.1% surge in mortgage applications in the week ended January 9, this was, as Stone McCarthy reported, due largely to seasonals. To wit: "The MBA's broad mortgage application index soared 49.1% last week. While we think much of the increase is a response to lower mortgage rates, we also think the application data are still subject to some holiday-related noise." So what is really going on with that all important metric for the US housing market: mortgage originations? For the answer we go to the biggest mortgage originating bank in the US itself, Wells Fargo. Here is the answer:

It is that time of the year when the President of the United States delivers his annual "State Of The Union" address. Despite the nation's voting choice in November, President Obama's retooled message is, "The American resurgence is real... Don't let anybody tell you otherwise." The question is whether the majority of the voting public will agree with the President's new message? Before he takes to the podium with his bullish optimism, he might want to consider the following charts...

The Long/Short Strategy for the New Reality
1. Go long companies that cater to the 1%.
2. Short companies that cater to the middle class.
3. Go long companies that cater to the poor.

Will we never learn? "Helping more folks in Phoenix realize the American Dream and own their own home."

Welcome to the new old normal 'Murica... buy those homes... lever up... spend the HELOC... die a debt serf...

• French policewoman killed in shoot-out, hunt deepens for militant killers (Reuters)
• The Bold Charlie Hebdo Covers the Satirical Magazine Was Not Afraid to Run (BBG)
• Evans Says Fed Shouldn’t Rush Rate Rise as Inflation Undershoots (BBG)
• Oil holds above $51 as traders search for floor (Reuters)
• Gross Helps Fuel New Fund With His Own Cash (WSJ)
• ECB warns Greek funding access hinges on keeping bailout (Reuters)
• Greece Jolts QE Juggernaut as ECB Gauges Deflation Risk (BBG)
• Analysts Say There's No Telling How Low Oil Prices Could Go (BBG)
• Scientists find antibiotic that kills bugs without resistance (Reuters)

No reason to sell.  No reason to buy.  That about sums it up.  Unfortunately, that is about as optimistic a scenario as we can come up with, supported by equally optimistic growth expectations. In reality, the market has no support.  We can only hope that it will not crash at the first sign of trouble. There are always good reasons to own a home, a place to raise a family. However, home ownership via extremely leveraged financing carries enormous and unprecedented risk. We think many potential buyers recognize the risk and are correctly staying out of the market. The new normal in real estate terms is unlikely to be what the market is hoping for.

But the oil-price crash was supposed to goose consumer spending.

Having warned of the "terrifying consequences" of oil prices staying this low, DoubleLine's Jeffrey Gundlach, in an extensive interview with Finanz und Wirtschaft, warns he is "beginning to see signs of investor concern around the edges about the health of the economy and about the financial system. Historically, when junk bonds give up the ghost and treasuries remain firm, it is a signal that something is not right." Touching on everything from a string dollar to Indian stocks, and from Oil to bonds, and The Fed, Gundlach concludes, "the only places where there is inflation is in places that are painful. Raising interest rates against that backdrop seems like a poor idea. So I just hope the Fed thinks carefully about what it is doing." Boxed-in much?

The surreal nature of this world as we enter 2015 feels like being trapped in a Fellini movie. The .1% party like it’s 1999, central bankers not only don’t take away the punch bowl – they spike it with 200% grain alcohol, the purveyors of propaganda in the mainstream media encourage the party to reach Caligula orgy levels, the captured political class and their government apparatchiks propagate manipulated and massaged economic data to convince the masses their standard of living isn’t really deteriorating, and the entire façade is supposedly validated by all-time highs in the stock market. It’s nothing but mass delusion perpetuated by the issuance of prodigious amounts of debt by central bankers around the globe. But now, the year of consequences may have finally arrived.