Housing Starts

Housing starts, PPI, industrial production, and the FOMC minutes….Small 05/15/2021 – 11/15/2027 POMO for $1.5-$2.5 billion.

In the early part of the week (Monday – Tuesday) China will release key lending growth data. Goldman expects the amount of CNY loans made in January to be around Rmb1.1 trillion, up from Rmb480 billion in December. The yoy growth of CNY loans is expected to fall to 18.5% yoy in January from 19.7% yoy in December. Also, January net exports are expected to decline to US$9.8 billion vs.US$13.1 billion in December. Meanwhile China CPI is expected to continue to rise to 5.3% from 4/6% previously.

For anyone following the recent collapse in mortgage applications, the recent "strength" in new and existing home sales is nothing but the latest joke to spin the nth bounce from the bottom as the "this is it" moment which Cramer has been trying to do with disastrous results ever since the summer of 2009. Oddly, reading a recent surprisingly bearish Goldman economic outlook (or not so surprising: it lays out the framework for Goldman to start advocating MBS purchases as part of QE3) piece from Sven Jari Stehn confirms our concerns that any attempt at shining light behind the headlines exposes ever more cockroaches. In "Mortgage Applications Point to Near-Term Home Sales Weakness" Stehn highlights the same issues we have been pounding on the table for months: namely that near contemporaneous plunge in mortgage applications is far more troubling and should be given far more impact than new, pending and existing home sales in any one prior period. Goldman summarizes: "The number of mortgage applications, however, has declined sharply in recent weeks. Specifically, the volume of mortgage applications for purchase—reported in a timely fashion every week by the Mortgage Bankers Association—declined by a cumulative 14% during the last three weeks. Does the decline in mortgage applications suggest that home sales are set to decline again in coming months?" In short the answer is yes, and the full note below explains it. Additionally, we have provided some technical perspectives from Peak Theories which predict a 7% drop based on recent chart patterns. Needless to say, we believe the drop will be far greater when all is said and done, now that the Bernank has given up on attempting to keep mortgage rates low and only cares about boosting stock prices.

The market sold off today as earnings were more mixed than...

The higher the market goes without a correction, the more nervous we get that the correction will come.

More weak economic data today, as Housing starts were reported at 529K on expectations of 550K, another sequential decline from the prior revised 553K. The silver lining was in the housing permit number which was 635K on expectations of 554K (compared to a prior revised 544K). Yet as the note from GS below explains the only reason for the surge in permits is due to a jump in applications ahead of the implementation of new building codes in 2011. As Hatzius notes: "If building code changes are the main explanation for the rise in permits, we should see a substantial drop back in multifamily permits next month."

Just housing starts today, following this morning’s weekly report on mortgage applications, which showed a third consecutive decline in the purchase loan index as nobody even pretends the housing double dip is not here… Daily market ramp closes at 11:00 am when Sack Frost completes purchase of $6-8 billion in 2013-2014 bonds (and Apple stock).

It is only fitting that just minutes after we disclosed our skepticism about those who forecast future events in a centrally planned regime, either directly or rhetorically, we ran into Goldman's 10 questions for 2011: the firm to whom none other than Brian Sack is supposed to report. While everything else is mostly Koolaid, the only important thing according to Jan Hatzius, who minutes ago appeared on Tom Keene, is that he may still advise his underlying at the FRBNY Bill Dudley to press go on QE3. Full list below.

• Beijing city to raise minimum wage 21%; Second move in 6 months amid inflation concerns.
• Brazil raises duties on China-made baby dolls as Real gains hurt toymakers.
• China cuts rare earths export quota for 2011.
• Chinese CEOs reduces support for a stronger yuan as they criticize U.S. monetary easing
• Euro marks higher after disappointing US economic data, buys at $1.3151.
• Housing Starts seen rising to three-year high with belated US jobs boost.
• Oct. Case-Shiller home price down 0.8%; Non-adjusted house prices down 1.3%.
• Oil trades near 26-month high on Retail sales, supply forecast.
• Taiwan may increase interest rate to damp prices after countering inflows.

The quick answer to the headline of this article is yes.

The market was up yesterday as PIMCO is set to get their equity on, Fed Ex plans to deliver a fuckload...

Goldman, very much in sticking with their newly found fame of Wall Street's biggest bullish flipflopper, has decided to pen a lengthy missive, explaining why the recent surge in mortgage rates, contrary to logic, will actually not have much if any impact on housing prices. The kicker: per Goldman, rising equities creates a wealth effect. "Equity prices are moving the other way. One key reason why US consumers retrenched in 2008, besides the unpleasant novelty of widespread, steep home price declines, is that equity prices were also falling sharply. However, equity prices have risen more than 20% since mid-year, and our equity strategists expect significant additional appreciation in 2011. Under these circumstances, the bar for a home-price-induced consumer pullback is fairly high." Presumably the very same middle class which is the backbone of home purchasing will somehow forget that they have taken money out of stocks for 32 weeks, and splurge on a new home with the proceeds. And the funny thing is that even the dumb plebs realize that a 1% rise in rates is the equivalent of a 9-10% drop in purchasing power, as that is money that will go to covering interest payments over the 30 year life of a mortgage. And should rates continue rising without any indication of stoppage, all buyers will have to factor the fact that sellers are increasingly more desperate into their purchasing decisions... Which means another leg down in bids. But that is the logical, and simple, explanation. For a much longer one, which could have come straight from some Federal Reserve research desk, read the profound ruminations by Ed McKelvey below.

A barrage of economic data this morning. Initial jobless claims came at 420K, a slight decline from the prior number of 423K, and as always woefully insufficient to actually start helping the unemployment rate. The prior was naturally revised higher, as we expected last week. On the other hand, continuing claims jumped from 4.086MM to 4.135MM on expectations of 4.115MM. NSA claims continued to be a notably higher than seasonal, and was at 486,284 this week. Most notably, people claiming benefits across all Unemployment Insurance Programs rose by a huge 893,959 in the week ended November 27 (of which 142K was in EUC and 182K was in extended claims) Elsewhere, housing starts came at 555K on expectations of 550K, up slightly from a previous 519K. And while this number was a slight improvement, it was offset by the building permits, which dropped from 552K to 530K, on expectations of 560K. Lastly, the current account deficit came in worse than expected at ($127.2 billion) on expectations of ($126) billion, and down from (123.3) billion previously. All in all another day of if not broad economic weakness, then complete lack of improvement.

• Asian stocks, Copper decline before European debt talks; Treasuries gain.
• EU faces `gridlock' on debt crisis; agrees on a crisis- management mechanism in 2013.
• India’s central bank kept benchmark interest rates unchanged after 6 increases this year.
• Oil falls to near $88 in Asia despite plunge in US crude inventory.
• Qatar makes $65B bet it can remake economy in World Cup preparation.
• US foreclosure filings plunge to two-year low as lenders probe practices.
• AAR Corp beats by $0.07, posts Q2 EPS of $0.42. Revs rose 36.0% to $447M.

Today we have claims, housing starts, current account, Philly Fed index, and the Fed’s balance sheet. There is also a $6-8 billion POMO of 6/30/2013 – 11/30/2014 maturities.