New Home Sales
A dispassionate and analytic of the macro developments for the week ahead.
While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2014, the data suggests otherwise. The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief is that the current push in housing is a side-effect of a recovering economy, the reality may be a function of the speculative rush into buying rental properties for cash which created a temporary, and artificial, inventory suppression. The real driver of an economic recovery is full time employment that leads to rising wages and savings. Unfortunately, this is something that eludes the current Administration that is focused on creating new regulations on the average of every 8 minutes, raising the cost of healthcare and increasing taxes. Call us crazy, but maybe its time to try something different.
When you have one after another "polar vortex" out there, and feet of snow covering the country and supposedly crushing economic activity, what do you do? Why you hire construction workers of course. As the following breakdown of the best and worst jobs of December shows, the one job category to benefit the most from January's horrifying weather which was the reason for all those weak January numbers (if one listens to the propaganda pundits and other TV anchors) was construction workers, which saw 48K jobs created. Which in some parallel universe surely makes sense. Just not this one.
This morning's utter collapse in pending home sales - a 6-sigma miss by 'economists' unaware that it was cold in December - has been ushered away on the back of "weather" reasoning. However, a glance at the chart below confirms this is total bullshit. As Goldman Sachs admits "broad-based declines by region suggest that colder-than-average weather was likely not the primary driver."
The Fed tightens by a little (sorry, tapering - flow - is and always will be tightening): markets soar; Turkey tightens by a lot: markets soar. If only it was that easy everyone would tighten. Only it never is. Which is why as we just reported, the initial euphoria in Turkey is long gone and the Turkish Lira is basically at pre-announcement levels, only now the government has a furious, and loan-challenged population to deal with, not to mention an economy which has just ground to a halt. Anyway, good luck - other EMs already faded, including the ZAR which many are speculating could be the next Turkey, and certainly the USDJPY which sent futures soaring last night, only to fade all gains as well and bring equities down with it.
The taper-driven rate-rise scare mid-summer that stalled home-buyer (speculator) confidence has been matched by the Decmeber 2013 numbers. New Home sales plunged 7.0% against expectations of only a 1.9% drop as total sales (seasonally adjusted and annualized) dropped to 414k - the biggest miss (against 455k exp.) since July 2013. Of course the data is dreadfully sparse and noisy, as we note a mere 1,000 (non-seasonally-adjusted) homes were sold in the Northeast. Notably, the exuberant levels of the last few months have also been revised markedly lower.
- Emerging sell-off hits European shares, lifts yen (Reuters) - but not really if you hit refresh since the latest central bank bailout announcement
- Apple’s Holiday Results to Show Whether Growth Is Back (BBG)
- Israel attacked Syrian base in Latakia, Lebanese media reports (Haaretz)
- Abenomics FTW: Japan Posts Record Annual Trade Deficit as Import Bill Soars (BBG)
- When all else fails, Spain's hope lie in a 16th century saint: Saint “might help Spain out of crisis,” says interior minister (El Pais)
- Global Woes Fail to Send Cash Into U.S. Stocks (WSJ)
- IMF's Lagarde sees eurozone inflation "way below target" (Reuters)
- Minimum wage bills pushed in at least 30 states (AP)
- AT&T Gives Up Right to Offer to Buy Vodafone Within 6 Months (BBG)
A slew of favorable overnight news, including a stronger than expected German IFO business climate print, reports that Draghi has signalled he would be prepared for the ECB to buy packages of bank loans to households and companies, when he said "the ECB might be able to buy securitised bank loans if they could be packaged as asset-backed securities in a transparent manner" (a QE-lite will hardly make the market happy), a largely expected bail out of the Chinese Trust Equals Gold imminent default (more in a subsequent post), as well as the announcement of Argentina's new liberalized dollar purchase capital controls (which have a monthly purchase limit as well as a minimum income threshold), not to mention the traditional USDJPY levitation which drags all risk along with it, were unable to put an end to the ongoing rout in emerging markets, which saw the Turkish Lira collapse to fresh record lows before it jumped on news the Turkish Central Bank would hold an extraordinary meeting tomorrow (if the recent intervention by the CB is any indication, watch out), not to mention the Ruble, Zloty and even the Ukraine Hryvna dump as the outflows from EMs continued over a mixture of tapering fears as well as concern that the one way fund flow would accelerate creating its own positive feedback loop. Is today the day the fund flow exodus will finally be halted? Stay tuned to find out and keep a close eye on the USDJPY - the most manipulated, confiduing-boosting "asset" in the world right now, more so than gold even.
The housing recovery is ultimately a story of the "real" employment situation. With roughly a quarter of the home buying cohort unemployed and living at home with their parents the option to buy simply is not available. The rest of that group are employed but at the lower end of the pay scale which pushes them to rent due to budgetary considerations and an inability to qualify for a mortgage. The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief was that the Government, and Fed's, interventions would ignite the housing market creating a self-perpetuating recovery in the economy - it did not turn out that way. Instead, it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression. While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2014 - the lack of recovery in the home ownership data suggests otherwise.
After Seven Lean Years, Part 1: US Residential Real Estate: The Present Position And Future ProspectsSubmitted by Tyler Durden on 01/13/2014 09:24 -0500
In the last 8+ years, housing has proceeded through a cycle of bubble-bust-echo-bubble: now the echo bubble is crumbling, for all the same reasons the 2006-7 bubble burst: a prosperity based on asset bubbles and low interest rates is a phantom prosperity that cannot last.
As one might have expected the tension during the most recent FOMC meeting was palpable in the minutes as opposing dovish and hawkish less dovish views on the costs and benefits (and non-comprehension of the machinations) of QE were evident.
- *FED OFFICIALS SAW WANING BENEFITS FROM MONTHLY BOND PURCHASES
- *MANY FOMC MEMBERS FAVORED QE TAPERING IN `MEASURED STEPS'
- *MOST FOMC PARTICIPANTS WERE MORE CONFIDENT IN JOB MARKET GAINS
- *FOMC PARTICIPANTS `MOST CONCERNED' ABOUT QE RISKS TO STABILITY
The likely path of tapering seems clear (and mention of extending the reverse repo facility is notable) but how forward guidance will be implemented remains the hottest topics and Eurodollar prices suggest the latter even more so than the former.
Pre-FOMC Minutes: S&P Futs 1832.0, Gold $1225.5, 10Y 2.995%, EURUSD 1.3570, USDJPY 104.95
As usual, in 2013, sticking to facts was a mistake in a world fueled by misinformation, propaganda, delusion and wishful thinking. Those in power have successfully held off the unavoidable collapse which will be brought about by their ravenous unbridled greed, and blatant disregard for the rule of law, the U.S. Constitution and rights and liberties of the American people.
"There is no disputing the facts. The economic situation is deteriorating for the average American, the mood of the country is darkening, and the world is awash in debt and turmoil. Every country is attempting to print their way to renewed prosperity. No one wins a race to the bottom. The oligarchs have chosen a path of currency debasement, propping up insolvent banks, propaganda and impoverishing the masses as their preferred course. They attempt to keep the masses distracted with political theater, gun control vitriol, reality TV and iGadgets. What can be said about a society where 10% of the population follows Justin Bieber and Lady Gaga on Twitter and where 50% think the National Debt is a monument in Washington D.C. The country is controlled by evil sycophants, intellectually dishonest toadies and blood sucking leeches. Their lies and deception have held sway for the last four years, but they have only delayed the final collapse of a boom brought about by credit expansion. They will not reverse course and believe their intellectual superiority will allow them to retain their control after the collapse.”
Where things get outright bizarre, is when one looks at the series showing the average sales price for New Homes. Keep in mind that an hour ago we showed that mortgage applications have tumbled to a fresh 13 year low, while refi apps slid to the lowest in 5 years. So what happened to the average new home sales price in the month of November? Well, it just hit a new all time high! Why, because why it can.
While shortened Christmas Eve trading is traditionally the lowest volume day of the year, based on recent trends it may be difficult for today's action to stand out from the landscape thanks to an ongoing volume collapse, which however should make the even more traditional low-volume melt up that much easier. Sure enough, futures are modestly higher driven by their favorite signal, the EURJPY. Not surprisingly there has been particularly light newsflow with market closures in Germany, Italy and Switzerland in addition to early market closures for UK, France, Netherlands and Spain. Those markets that are open are trading in positive territory with the FTSE 100 being supported by BSkyB following an upbeat pre-market report for the company and their customer base, whilst the IBEX 35 is being supported by the financial sector. Overnight in China there was news of an injection of CNY 29bln via a 7-day reverse repo, although market commentators have said that this is more of a gesture than any meaningful intervention given the size of the country's banking market. Fixed income markets are particularly light with there being no trade in the bund future given the Eurex closure, with other trading products relatively flat given the lack of newsflow. However, the short-sterling curve has bear-steepened and thus continuing the trend seen since the end of last week as a result of both UK unemployment and UK GDP coming in better than expected.
Thinking like the Fed
To know your enemy, you must become your enemy -Sun Tzu
In war, poker, chess and many other endeavors, wise old hands will advise you to think like your opponent. We’ll try a related idea here by seeing if we can think like the members of the Federal Open Market Committee (FOMC). Specifically, we’ll pretend to write part of the statement for the FOMC’s December 17/18 meeting.