North Carolina, Virginia, Maryland, New Jersey, Pennsylvania, New York and Connecticut
There is an interesting dynamic unfolding in the housing market. Real estate agents in places like California are arguing that there is a lack of inventory and are also generally against the government unloading blocks of properties to big investors. Why? There has been bulk selling and buying to the investor class and a large amount of crowding out has occurred. This brings about an interesting set of problems for your average buyer in the current market. They are competing with swaths of big investors but also local flippers trying to make a quick buck once again courtesy of low interest rates and another mania in some markets. SoCal is now in a mania again as you will see with some of the patterns occurring. This is also happening in many other states as well. A new feudal system has emerged. The banks were bailed out by the Fed, were allowed to circumvent accounting standards, and now deep pocket investors in the financial class are buying up these places either to increase prices on flips or to hike up rents. In the end, if you want to compete in today’s market you need to bow down to the Fed, put on a football helmet and go head-to-head with big investors, flippers, suckers, and take on a massive mortgage.
There is a possibility that the realm of monetary policy could increasingly merge with that of fiscal policy and national debt management policy. Globally, UBS believes, central banks are edging down monetary policy paths that can be viewed as increasingly backstopping budget deficits as lawmakers of respective governments continue to fail to make progress toward fiscal consolidation. As we have vociferously stated, a progression down this road could lead to many unsavoury outcomes, as fiscal and monetary policies entwine themselves in an increasingly negative dynamic - coining the term “Fonetary-policy” – fiscal policy plus monetary policy.
Gold climbed $11.80 or 0.69% in New York yesterday and closed at $1,712.70. Silver surged to a high of $32.232 and finished with a gain of 1.36%.
- Greece Faces Need for Additional Assistance: €30 billion (WSJ)
- Greeks fail to agree on bailout terms (FT)
- The report that got the NYT banned on the Chinese interweb: Billions in Hidden Riches for Family of Chinese Leader (NYT)
- Bo Xilai: China parliament expels disgraced politician (BBC)
- Japan Adds Stimulus Amid Threat of Bond-Sale Disruption... $9.4 billion (Bloomberg)
- Hubbard Said to Prefer Treasury Chief to Fed If Romney Wins (Bloomberg)
- 9 More Banks Subpoenaed Over Libor (WSJ)
- Romney raises $112m in 17 days (FT)
- Amid Cutbacks, Greek Doctors Offer Message to Poor: You Are Not Alone (NYT)... no, we are all broke
- Muni Downgrades Top 2011 Total on Weak Economy: Moody’s (Bloomberg)
- Ireland urges ECB to commit to bond-buying (FT)
- Cameron and Clegg unite in EU demands (FT)
There have been no major overnight events or surprises, with Europe continuing a war of semantics whether the Spanish bailout is a bailout, and attempting to avoid it as long as possible while reaping the benefits of Spanish bonds which are trading at post-bailout levels for a 3rd months now, as well as whether Greece will receive more Troika money (the WSJ reported that Greece requires €30 billion through 2016 to close its funding gap: a number which will eventually double, then triple), and yet as of moments ago the EURUSD slipped under the psychological 1.2900 support, which also means that 1400 on the SPX cash is in play. Italy did not help after business confidence declined from 88.3 to 87.6 on expectations of a rise to 88.7 What news there has been is largely the realization that reality is here to stay, following misses and guides lower from Amazon and Apple, and no matter what some low-volume algo tries to represent by buying the stock in the after hours session, profitability and cash flow creation for both companies will be lower going forward. In terms of newsflow, the NYT released a report last night that China's Premier may have been hiding billions in "related-party" transactions - imagine that, and one which promptly got the NYT blocked from China's internet. Obviously this is a touchy topic for China days ahead of its internal party vote, and one which will hardly score the US brownie points with the domestic administration. Concurrently, Japan announced a new fiscal "stimulus" for a whopping ... $9.4 billion. That is roughly the amount of money needed to evade deflation for 2-3 hours. More apropos, Bild reports what Bloomberg noted earlier, namely that Merkel has no majority for reported Greek aid, further blowing up the hole that Greek finmin Stournaras dug himself in with his lies earlier this week. So while everyone is once again on edge, with the Shanghai composite sliding 1.7%, and key technical levels either breached or in play, today's session promises to be quite interesting.
The 2012-2013 election season is exceptional, with more than 100 elections in economies accounting for approximately 60% of global GDP. So far, Goldman notes that markets have navigated through elections in Russia, Egypt, Greece, France, Mexico and Venezuela, among others. The closely watched Presidential election in the US will take place shortly, followed by the culmination of the political transition in China. Later on, markets will see countries like Italy, Iran, and Japan go to the ballots too. This extraordinary election season brings several questions to the forefront: Why are elections important market events? What are the main factors affecting that market-driving impact and its seasonality? And which states are key? Critically, Goldman finds that a divided government has on average produced considerably tighter fiscal policy - not a good sign for the Keynesians.
In the immortal words of Bruce-the-shark from Finding Nemo: "Fish are friends, not food"; but in Fukushima, they are neither! As Bloomberg reports, radiation levels of fish caught off the coast of Northern Japan are as high as they were a year ago with contamination levels particularly high among bottom-dwellers. There remains a fishing ban on these bottom-dwelling fish as 40% are still above the limit for human consumption. As one scientist noted, "This means that even if these sources were to be shut off completely, the sediments would remain contaminated for decades to come." So, today's lesson is, Fukushima fish are neither friends nor food, but more like lava lamps we suspect.
"We have just spent 15 years learning that a policy of creating asset bubbles is a bad idea, so it is hard to imagine why the Fed wants to create another one. But perhaps the more basic question is: How fruitful is the wealth effect? Is the additional spending that these volatile paper profits are intended to induce overwhelmed by the lost consumption of the many savers who are deprived of steady, recurring interest income? We have asked several well-known economists who publicly support the Fed’s policy and found that they don’t have good answers. If Chairman Bernanke is setting distant and hard-to-achieve benchmarks for when he would reverse course, it is possibly because he understands that it may never come to that. Sooner or later, we will enter another recession. It could come from normal cyclicality, or it could come from an exogenous shock. Either way, when it comes, it is very likely we will enter it prior to the Fed having ‘normalized’ monetary policy, and we’ll have a large fiscal deficit to boot. What tools will the Fed and the Congress have at that point? If the Fed is willing to deploy this new set of desperate measures in these frustrating, but non-desperate times, what will it do then? We don’t know, but a large allocation to gold still seems like a very good idea."
Tensions between Japan and China over the Senkaku (Diaoyu) islands are continuing, as indicated by continued obstacles to Japanese businesses in China, a drastic decline in tourism, and Chinese patrols near the islands. This is both a Sino-Japanese issue and a part of a broader confrontation between China on one side and the United States and its allies on the other. Given Japan’s reliance on the U.S. security umbrella, Tokyo’s moves are to some extent constrained by American actions. Nevertheless, Japan’s size and resources mean Tokyo retains considerable autonomy in handling its relationship with Beijing. At this point, Tokyo has three options... Taking a proactive course on China policy requires stable and high-quality leadership, something which is lacking in Tokyo.
The increasingly short-termist attitudes of both policy-makers, analysts, and investors leaves market and economic indicators in the US and Europe all anticipating some magic in 2013. If only we can get through the elections, the fiscal cliff, a banking union, a Spanish bailout request, Greek extensions; not to mention another round of weak earnings and a sliding Chinese demand backdrop. As SocGen's FX and Rates desk notes, the battle against disinflation in Europe is not over and nominal GDP outlooks remain far too optimistic - only highlighted by the morning's weak lending data. The moribund growth backdrop also begs the question what palpable difference any relief over Spain or Greece (if it comes) will do to the long end. The answer is probably not a whole lot.
The deleveraging has a long-way to go!
Puh… Why don’t we just wait for Apple? They might pitch a maxi iPhone 6? Or so…
Otherwise, rather Bad Karma day.
Flat start, bullish morning, refreshing afternoon. Nothing concrete or fundamental, so it’s a spiritual thing.
Go to any university, any center of equities trade, any meeting place for financial academia, any fiscal think tank, and they will tell you without the slightest hint of doubt in their eyes that the U.S. economy is essential to the survival of the world. To even broach the possibility that the U.S. could be dropped or replaced as the central pillar of trade on the planet is greeted with sneers and even anger. But let’s set aside what we think (or what we assume) we know about the American financial juggernaut and consider the sordid history of the money powerhouse myth. China’s incredible gold buying extravaganzas over the past few years indicate that they are indeed hedging against what they obviously expect will be devaluation in the dollar or multiple currencies around the world including the dollar.
- Japan grapples with own fiscal cliff (Bloomberg)
- Japan Protests After Four Chinese Vessels Enter Disputed Waters (Bloomberg)
- Asian Stocks Rise as Exporters Gain on China, U.S. Data (Bloomberg)
- An obsolete Hilsenrath speaks: Fed Keeps Rates Low, Says Growth Is Moderate (WSJ)
- ECB Said to Push Spain’s Bankia to Swap Junior Debt for Shares (Bloomberg)
- Spain’s Bad Bank Seen as Too Big to Work (Bloomberg)
- China postpones Japan anniversary events (China Daily)
- Carney Says Rate Increase ‘Less Imminent’ on Economy Risk (Bloomberg)
- Credit Suisse to Cut More Costs as Quarterly Profit Falls (Bloomberg)
- Obama offers a glimpse of his second-term priorities (Reuters)
- Draghi defends bond-buying programme (FT)
Don't Read This ... It's Totally Irrelevant, Old News, Who Cares, Americans Are Above the Law, We're Exceptional (and Anyone Who Criticizes anything our Government Does is a Commie Fascist Turruristicalist Moooooslim)