Housing Starts

The 0.18% month-over-month decline in Case Shiller home price index is the biggest since July 2014 which confirms the David Blitzer's view that "over the next two years or so, the rate of home price increases is more likely to slow than to accelerate." His biggest fear is that "first time homebuyers are the weak spot in the market," adding that prices are increasing about twice as fast as inflation or wages. Moreover, other housing measures are less robust - housing starts are only at about 1.2 million units annually, and only about half of total starts are single family homes. Sales of new homes are low compared to sales of existing homes.

Last week was a complete dead zone for US macro, however with the peak of Q2 earnings season there was more than enough commotion for everyone. This week US macro starts to pick up again, with Durable Goods on Monday, followed by Case Shiller, Q2 GDP, the Chicago PMI, various consumer confidence indices, and of course, the July FOMC meeting on Wednesday.

It all started in China, where as we noted previously, the Shanghai Composite plunged by 8.5% in closing hour, suffering its biggest one day drop since February 2007 and the second biggest in history. The Hang Seng, while spared the worst of the drubbing, was also down 3.1%. There were numerous theories about the risk off catalyst, including fears the PPT was gradually being withdrawn, a decline in industrial profits, as well as an influx in IPOs which drained liquidity from the market. At the same time, Nikkei 225 (-0.95%) and ASX 200 (-0.16%) traded in negative territory underpinned by softness in commodity prices.

While the rest of the world attempts to convince themselves that a Chinese stock market bubble and bust is at worst irrelevant, CapitalEconomics notes, evidence that the labor market is coming off the boil arguably matters more to China’s economy. Chinese stocks futures are down 2% in today's pre-open after yesterday's whipsaw action as 'exit plans' for the stabilization were discussed (dumping stocks) and then denied (surging stocks) shows just how fragile (and quickly and entirely addicted to China's new 'measures' investors have become); but as BofAML warned earlier, selling pressure will likely remain relentless. Now that the spell is broken, we expect that many holders may want to sell to the forced buyers in the market.

Today's action is so far an exact replica of Friday's zero-volume ES overnight levitation higher (even if Europe's derivatives market, the EUREX exchange, did break at the open for good measure leading to a delayed market open just to make sure nobody sells) with the "catalyst" today being the official Greek repayment to both the ECB and the IMF which will use up €6.8 billion of the €7.2 billion bridge loan the EU just handed over Athens so it can immediately repay its creditors. In other words, Greek creditors including the ECB, just repaid themselves once again. One thing which is not "one-time" or "non-recurring" is the total collapse in commodities, which after last night's precious metals flash crash has sent the Bloomberg commodity complex to a 13 year low.

A conventional housing recovery in the US is now dead: the builders have spoken and what the next generation wants is to rent, not to buiy.

After weeks of overnight turbulence following every twist and turn in the Greek drama, this morning has seen a scarcity of mostly gap up (or NYSE-breakding "down") moves, and S&P500 futures are unchanged as of this moment however the Nasdaq is looking set for another record high at the open after last night's better than expected GOOG results which sent the stop higher by 11% of over $40 billion in market cap. We expect this not to last very long as the traditional no volume, USDJPY-levitation driven buying of ES will surely resume once US algos wake up and launch the self-trading spoof programs. More importantly: a red close on Friday is not exactly permitted by the central planners.

Next week's key events and data, if we can look beyond Greece and China.

At the open, Europe looked in the abyss, and with no help coming from China, it did not like what it saw: And then the answer came from the Swiss National Bank, which stepped in to prevent the collapse just as Europe was opening. Because seemingly out of nowhere, a tremendous bid came in to life the EURCHF, buying Euros (against the CHF and the USD) and selling Europe's last left safety currency. We now know that it was the SNB, the same central bank which is the proud owner of well over $1 billion in Apple stock.

With the Fed's June FOMC statement in just over 7 hours and a Yellen press conference to follow shortly, one in which nobody expects the Fed will announces its first rate-hiking cycle in nine years despite repeated clues by Yellen that not only is there froth in the market but that the Fed has no dry powder to contain the next crisis when it emerges (even though a rate hike will catalyze the next crisis), traders have chosen to ignore the chatter from Greece which is getting worse by the hour, and unlike recent days, have bought risk overnight based on one simple technical: of the five press conferences in ten Fed meetings held by Yellen as Chairman, the S&P finished higher 80% of the time.

Today’s style of heavy-handed monetary central planning destroys capitalist prosperity. Real capitalism cannot thrive unless inventive and enterprenurial genius is rewarded with outsized fortunes. Warren Buffett’s $73 billion net worth, and numerous like and similar financial gambling fortunes that have arisen since 1987, are not due to genius; they are owing to adept surfing on the $50 trillion bubble that has been generated by the central bank Keynesianism of Alan Greenspan and his successors.

Spot the outlier in housing permits among the four US census regions. Hint: at an annual change of 165.8%, it has never been higher.

If it wasn't clear to everyone that the "old normal" American Dream of buying and owning a house is now dead and buried, then today's just announced housing starts and permits data put the last nail in that particular coffin, because as we noted earlier while single-family housing starts dropped once again, this time to a level last seen in October, the real story was in housing permits. But not single-family permits: multi-family ones, aka rental buildings, just had the biggest monthly surge since June 2008, jumping 26% in one month, and a whopping 54% from a year ago!

Following April's hope-filled spike in Housing Starts and Building Permits SAAR (and the exuberant jerk to 10 year highs in NAHB Sentiment), May data is more mixed. Housing Starts plunged 11.1% MoM (against expectations of a 4% drop) missing for the 3rd of last 4 months. Permits, on the other hand, spiked 11.8% (againmst expectations of a 3.5% drop) smashing the hope to its highest since August 2007. So - in summary - hope is soaring, reality is falling and all the hope is based on America as 'rental nation' with a record number of multi-family unit permits.