Housing Starts

While it is two months delayed (and home sales have tumbled since), Case-Shiller reports that home prices rose 0.84% MoM in October, beating expectations and the biggest monthly rise since March. While the YoY gains barely missed expectations at +5.54%, Miami, Tampa, and San Francisco all saw the biggest gains as Chicago, Cleveland, and San Diego saw the biggest drops in home prices.

Three years after 2012, Goldman has finally admitted that all the talk about a major exodus of your Americans from parental houses and into the harsh crony capitalist world, was nothing but hot air. As the chart below shows, the share of 18-34-year-olds living with their parents has never been higher.

In a weekend of very little macro newsflow facilitated by the release of the latest Star Wars sequel, the biggest political and economic event was the Spanish general election which confirmed the end of the PP-PSOE political duopoly at national level.  As a result, there was some early underperformance in SPGBs and initial equity weakness across European stocks, which however was promptly offset and at last check the Stoxx 600 was up 0.4% to 363, with US equity futures up nearly 1% after Friday's oversold drubbing. In other key news, the commodity slide continues with Brent Oil dropping to a fresh 11-year low as futures fell as much as 2.2% in London after a 2.8% drop last week.

Heading into the Fed's first "dovish" rate hike in nearly a decade, the consensus was two-fold: as a result of relentless telegraphing of the Fed's intentions, the hike is priced in, and it will be a "dovish" hike, with the Fed lowering its forecast for the number of hikes over the next year. Consensus was once again wrong on both accounts: first the rate hike was far more hawkish than most had expected (see previous post), and - judging by the surge in Asian, European stocks and US equity futures - the "market" simply is enamored with such hawkish hikes which will soon soak up trillions in liquidity from the financial system.

Housing Starts rose 10.5% in November (after plunging 12% in October) as it appears weather-weakened construction caught back up with single-family starts recovering from the plunge in October. The South saw the biggest spike (up 21%) and Northeast fell 8.5%. Building Permits rose 11% MoM (after a 5.1% last month) as multi-family spiked from 446 to 566 (driven by a 22% spike in The Midwest and The West). This is the biggest MoM gain since Dec 2010.

The day has come when the boxed-in Fed has no choice: with the vast majority of the market expecting a rate hike, Yellen has to deliver or suffer a crushing confidence blow like no other. And deliver she will, with expectations that said hike will be "as dovish as possible." For now however, the market is desperate to convince itself that just as more easing and more QE were bullish for the market, so rate hikes are just as bullish. Recall from late 2013: "tapering is not tightening," then the 2015 version of this refrain is "tightening is not tightening."

While this may well be the most important week for capital markets in the past 9 years, when the Fed is widely expected to hike rates on Wednesday, precisely 7 years to the day since it cut rates to zero, here are the other key events to watch out for.

Here is the biggest difference: back then total debt/GDP was 61%. Now, it is 104%, with the total US debt just now shy of $19 trillion.

With the winter of 2015 so far shaping up to be what some have dubbed "abnormally hot", we thought that at least this year the weatherconomists would keep their mouth shut: after all, if you blame cold weather for an underperforming economy, you better say nothing at all if the weather is warmer than usual as it has been in October and November. Alas, it was not meant to be, and so, without further ado, here are everyone favorite economweathermen from Goldman Sachs, warning everyone that, drumroll, yes, Winter Is Coming.

While it is still unclear just why the FOMC Minutes which are said to have made a December liftoff "more likely" unleashed a dramatic market rally, one which sent both stocks and TSYs higher, the sentiment continued overnight, with both Asian stocks surging on the US momentum, as well as Europe, where the DAX gapped solidly above the 200 DMA as most European shares advanced, led by resources, travel stocks. U.S. futures continue their ramp higher, and at last check were another 8 points, or 0.4%, in the green.  But if the Fed Minutes were enough to unleash the latest leg in this rally, than the ECB's own minutes due also today, should send futures back over 2100 without much difficult, regardless of their actual content.

With new and pending sales tumbling and lumber prices down, yesterday's drop in homebuilders sentiment - from 10 year highs! - appears justified entirely now as Housing Starts collapsed 11% in October to the weakest level since March. This is the biggest miss (and MoM drop) since Feb. Multi-family  unit starts plunged 25.5% MoM as single-family dropped just 2.5%. Starts in The West and South plunged as The Midwest saw a 30.8% collapse in housing completions. Building Permits rose 4.1% after tumbling 4.8% in September but SAAR remains notably below the Q2 cycle peak levels (1.337mm) at around 1.15mm homes (with multi-family permits rising 6.8% MoM).

If this weekend's gruesome terrorist attack on Paris ended up being hugely bullish for stocks, then two subsequent events, a stadium-evacuation scare in Hannover (where Angela Merkel was supposed to be present) and a raid in north Paris which left several dead in the ongoing manhunt against the alleged ISIS mastermind, appear to have but some question into if not stocks then algos whether a rising wave of terrorist hatred across Europe is truly what central bankers need to unleash more QE. That said, we expect the current weakness to last only until the traditional USDJPY carry ramp pushes stocks traditionally higher.

As so often happens in these upside down days, was the best thing that could happen to the market, because another economic slowdown means the BOJ, even without sellers of JGBs, will have no choice but to expand its "stimulus" program (the same one that led Japan to its current predicament of course) and buy up if not government bonds, then corporate bonds, more ETFs (of which it already own 50%) and ultimately stocks. Because there is nothing better for the richest asset owners than total economic collapse.

The world of Bubble Finance economies created by the Fed and other central banks is fundamentally different than that prevailing under the “Lite Touch” monetary policies which preceded the Greenspan era. The problem today is that the PhDs running the Fed have an economic model which is a relic of the Lite Touch era. It is not only utterly irrelevant in today’s casino driven system, but is actually tantamount to a blindfold. It causes them to look at a dashboard full of lagging indicators like jobs and GDP components, while ignoring the explosive leading indicators starring them in the face on CNBC. The clueless inhabitants of the Eccles Building do not recognize that they have created a world in which Wall Street supersedes main street.