Housing Market

In Canada, there seems to be a cult belief that housing simply will not correct. They are full on drinking the good old tasting real estate Kool-Aid. Canada has enjoyed many years of the global commodities boom and now finds itself contending with a market full of debt and inflated housing values. Short of oil rising back up to $80 a barrel or higher, Canada is likely going to face some short-term pain. The housing market is due for a correction.

The US dollar closed higher against all the major currencies during the holiday shortened week. The lack of liquidity may have exaggerated the weakness of Swedish krona and Norwegian krone, the poorest performing major currencies.  Both lost about 1.5% against the greenback. 

The least weak currencies were in the dollar-bloc. The Canadian and New Zealand dollars were practically flat, and the Australian dollar slipped 0.2%.   The euro and sterling slipped about 0.5%, while the yen shed 0.7% of its recent gains. 

• Russia says NATO turning Ukraine into 'frontline of confrontation' (Reuters)
• Oil Drillers Under Pressure to Scrap Rigs to Cope With Downturn (BBG)
• Demonstrators Defy NYC Mayor's Call to Suspend Police Protests (BBG)
• U.S. to send more private contractors to Iraq (Reuters)
• ISIS Shoots Down Jet From U.S.-Led Coalition, Syrian Monitors Say (NYT)
• Russians Race to Secure Mortgages Before Costs Spiral (BBG)
• Abe Brings in Former Soldier Nakatani as Defense Minister (BBG)
• At Coke, Newest Flavor Is Austerity (WSJ)
• Fear and retribution in Xi's corruption purge (Reuters)
• UBS Raises Flag on China’s $1 Trillion Overseas Debt Pile (BBG)

Having exuberantly reached its highest level since September 2013 last month (despite the total collapse in mortgage applications), it appears the ugly reality of the housing market has peeked its head out once again. As prices rose, existing home sales plunged 6.1% - the most since July 2010 (against an expected 1.1% drop) to 4.93mm SAAR (the lowest in 6 months). As usual there is an excuse for this carnage... NAR's Larry Yun blames the stock market (and rising home values). Quite a conundrum for the Fed...

Despite the authorities' best efforts to keep everything orderly, we know how this global Game of Geopolitical Tetris ends: "Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out."

"I’m tired of being outraged!"

Previewing today's market: near record low liquidity, with chance of ridiculous volatility in the Ruble, energy and equity markets. While no doubt today's main event will be the "considerable" FOMC announcement and the Fed's downward-revised economic projections followed by Yellen's press conference, what traders will be most excited by is that, finally, Jim Bullard will no longer be bound by the blackout period surround FOMC decisions, and as such can hint of QE4 again at his leisure during key market inflection (i.e., selling) points.

For those wondering if the CBR's intervention in the Russian FX market with its shocking emergency rate hike to 17% overnight calmed things, the answer is yes... for about two minutes. The USDRUB indeed tumbled nearly 10% to 59 and then promptly blew right back out, the Ruble crashing in panic selling and seemingly without any CBR market interventions, and at last check was freefalling through 72 74 76, and sending the Russian stock market plummeting by over 15%.

The biggest event of the coming week is surely the FOMC announcement on Wednesday, when as most expect, will see the Fed's language shifting from "considerable time" to "patient." But while "most" also expect this to be the preamble toward Fed hiking rates in mid-2015, some disagree.

• Sydney Siege Sparks Muslim Call for Calm Amid Backlash Fear (BBG)
• Oil Spilling Over Into Central Bank Policy as Fed Enters Fray (BBG)
• Biggest LBO of 2014: BC Partners to acquire PetSmart for $8.7 billion (Reuters)
• Tremble algos: the SEC has hired... "QUANTS" (WSJ)
• When the bubble just isn't bubbly enough: There’s $1.7 Trillion Locked Out of China’s Stock Rally (BBG)
• Oil price slide roils emerging markets, yen rises (Reuters) - may want to hit F5 on that
• Libya Imposes Force Majeure on 2 Oil Ports After Clashes (BBG) ... and will resume production in days
• Amid Crisis, Pimco Steadies Itself (WSJ)

After the worst week for stocks in years, and following a significantly oversold condition, it will hardly come as a surprise that the mean reversion algos (if only to the upside), as well as the markets themselves (derivative trading on the NYSE Euronext decided to break early this morning just to give some more comfort that excessive selling would not be tolerated)  are doing all they can to ramp equities around the globe, and futures in the US as high as possible on as little as possible volume. And sure enough, having traded with a modestly bullish bias overnight and rising back over 2000, the E-Mini has seen the now traditional low volume spike in the last few minutes, pushing it up over 15 points with the expectation being that the generic algo ramp in USDJPY ahead of the US open should allow futures to begin today's regular session solidly in the green, even if it is unclear if the modest rebound in the dollar and crude will sustain, or - like on every day in the past week - roll over quickly after the open. Also, we hope someone at Liberty 33 tells the 10Y that futures are soaring: at 2.13% the 10Y is pricing in nothing but bad economic news as far as the eye can see.

Here we go again! Mortgage giants Fannie Mae and Freddie Mac have now officially approved 3% down payment mortgages. Having government entities provide low down payment mortgages to people who can’t afford to buy a house is always a good move. Keynesians like Krugman approve wholeheartedly. The housing market will get a nice boost and the working taxpayers will fund the bad debt through Fannie and Freddie. You own Fannie and Freddie. Everyone wins. In case you forgot, the closing costs to sell a house are usually 8% of the home price. So these home buyers are immediately 5% underwater when they move in... "Sometimes I can’t believe I live in a world this f##ked up. And no one notices and no one cares."

For an estimated 1 million Beijing residents, dubbed the "rat tribe", living above ground (or in ghost cities) is a luxury they simply cannot afford. As NPR reports, with even the tiniest apartment costing a fortune (and 21 million people fighting for space), there has emerged a new 'affordable' housing option... below the city's bustling streets. Thanks to building codes that force the creation of basements and bomb shelters under new residences, there's a lot of underground space (1 - 3 floors down) that is illegally - but affordably - used for habitation. With the Shanghai Composite stock index up over 40% year-to-date, creating wealth and trickling down, how can this be possible?

Blackstone's well-timed IPO in 2007 was almost the perfect top-tick indicator as 'the smart money' private-equity guys cashed out into the public markets at peak euphoria. Earlier this year we noted that, among others, Blackstone was drastically ratcheting down purchases (and in fact selling what it could) US residential real estate - and with it withdrew the only pillar holding up the housing market. And now, in the biggest deal in 7 years, Blackstone is dumping a $3.5 billion commercial real estate portfolio. Given the recent declines in CMBX pricing, perhaps, once again, Blackstone is calling the top in another bubble...

"Almost 40% of appraisers surveyed from Sept. 15 through Nov. 7 reported experiencing pressure to inflate values,...If you thought what was happening before was an embarrassment, wait until the second time around." Is there any price in this economy that isn’t completely rigged?