David Rosenberg Explains the Housing “Recovery”

Thursday, July 5th, 2012

Confused by all the amusing arguments of a housing “recovery” (because if you believe in it, it just may come true…. maybe) in the sad context of a reality in which the economy is once again turning from bad to worse missing expectations left and right (for every report surprising to the upside, two do the opposite), corporate earnings and margins have rolled over, US states and cities and European countries are filing for default or demanding bailouts at an ever faster pace, and only headlines such as “stocks rise on hopes of more central bank easing” appear in the good news columns of mainstream media? Don’t be: David Rosenberg explains it all.

From Gluskin-Sheff

HOUSING DATA SKEWED BY “UPSIDE-DOWNERS”

What is really driving whatever recovery we are seeing in terms of home sales and prices are the units that are so ridiculously priced — like at less than $125,000. These are where the multiple offers are coming into the fore — and then to be rented out. The reason is that this is the only part of the market that is truly “tight” because almost 30% of American homeowners either have no equity in their homes or less than 5% skin in the proverbial game (according to CoreLogic). These folks have to write their lenders a cheque to make a sale, so many are holding out until they can get a better price and the all-cash deals being placed by investors are allowing for this (note too that 45% of the nation’s homeowners have less than 20% of equity in their homes).

According to data cited by the USA Today, the supply backlog where over half of homeowners are “upside down” on their mortgage is at 4.7 months’; in areas where “upside down” borrowers make up less than 10% of the market, the listed inventory is closer to 8.3 months’ supply — it is in this mid-to-high end where prices are still vulnerable to downside potential — this is not the sliver of the market where vulture funds are looking to pick up a cheap unit to then rent out to the “boomerang” crowd.

As the charts below visibly illustrate, it is probably a little early to be celebrating the recovery in the U.S. housing market, despite the exuberance in the homebuilding stocks which only capture a small share of the overall industry. The market is healing to be sure, but is far from healed. Look at these graphs and draw your own conclusions.

Tags: 7 Months, American Homeowners, Backlog, Boomerang, Borrowers, Cheque, Corporate Earnings, Crowd, David Rosenberg, Downside, Economy, European Countries, Lenders, Mainstream Media, Margins, Months Supply, Mortgage, Pace, Sliver, Stocks, Usa Today, Vulture Funds
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The Economy and Bond Market Radar (July 2, 2012)

Monday, July 2nd, 2012

The Economy and Bond Market Radar (July 2, 2012)

Treasury yields were little changed for the week but show a downward bias. The week was volatile as the market braced for two events, the Supreme Court ruling on healthcare legislation and the EU Summit. While the healthcare ruling will likely affect us more directly the bigger news of the week for the markets was the proposals put forward at the EU Summit. Southern European countries rallied the most on the positive news with Spanish bond yields hitting the lowest level in three weeks, while German yields moved higher on the news.

Strengths

• Durable goods orders rose a better than expected 1.4 percent in May, breaking a string of declines.
• New home sales rose 7.6 percent in May, which is the largest increase since April 2010. The supply of new homes also fell to 4.7 months, which is the lowest level in nearly seven years.
• In another confirmation of strength in housing, the S&P/Case-Shiller 20-city home price index rose 1.3 percent in April.

Weaknesses

• Consumer confidence fell short of expectations and has now declined for four months in a row.
• Weekly initial jobless claims remain stuck in neutral and are indicating softness for the economy and the employment picture.
• The Brazilian central bank lowered its growth forecast for 2012 to 2.5 percent from 3.5 percent.

Opportunity

• The Fed reaffirmed its commitment to an ultra low interest rate policy through 2014 and additional monetary easing is possible in the near future.

Threat

• Europe remains a wildcard with the markets shifting focus on a weekly basis.

Tags: 7 Months, Bond Market, Bond Yields, Brazilian Central Bank, Consumer Confidence, Declines, Durable Goods Orders, Healthcare Legislation, Home Price Index, Initial Jobless Claims, Interest Rate Policy, Market Radar, News Of The Week, Positive News, Shifting Focus, Softness, Southern European Countries, Supreme Court Ruling, Treasury Yields, Wildcard
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Flight From Risk: Treasury Plummets To Record Low Yield As Gold Surges

Thursday, May 17th, 2012

Now its getting interesting. 30Y yields fell the most in 5 months today back to 5 month lows, 10Y yields crashed to all-time closing lows, and Gold surged by its most in 4 months (and 2nd most in 7 months) as stocks started to accelerate lower. Gold is unch on the week now as 30Y is -21bps and 10Y -14bps – incredible. Between the Philly Fed’s confirmation of deceleration in US macro data and Europe’s increasingly crescendo-like implosion, is it any wonder that the decoupling thesis has given way to reality. S&P 500 e-mini futures repeated the early rally late fade pattern of the last 8 days but this time it was more aggressive as ES pushed towards 1300. CAT was a dog today accounting for 25% of the Dow’s losses and AAPL tumbled further – heading towards a 20% retracement off its highs. Financials tumbled further with Citi inching very close to red YTD (and JPM falling rapidly). Credit markets, which led the selloff, continue to slide but this time with equities in sync. Equities went out at their very lows of the day – at 3.5 month lows as VIX soared over 24% to close at its highest in 5 months.

Is BTFD DOA?

30Y Treasuries plunged but 10Y fell to record closing low yields!!!

and Gold is back near unch of ther week as the PMs soared today…

Financials are rapidly losing ground with Citi and JPM about to go red YTD…

Tags: 4 Months, 5 Months, 7 Months, Aapl, Confirmation, Credit Markets, Crescendo, Deceleration, Dow, Futures, Jpm, Losing Ground, Lows, Macro Data, Pms, Retracement, Selloff, Treasuries, Unch, Ytd
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The Collapse of Finance

Thursday, December 3rd, 2009

This post is a guest contribution by Bill Bonner, author of two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Bill is also the driving force behind The Daily Reckoning.

“Dubai sends markets into turmoil,” begins The Financial Times. Dubai is a financial center, built on sand.

Probably a good thing US markets were closed for Thanksgiving when this news came out. In Europe, the Dubai affair caused the biggest drop in 7 months. European banks have lent $40 billion to Dubai.

Jim Chanos, a famous short seller, thinks Dubai is merely the camel’s nose in the tent, so to speak. “China is Dubai times 1,000…if not a million.”

“People are panicking: this whole process counters everything that the rulers have been saying and the way it has been communicated before the holidays is confusing,” said one hedge fund manager.

The ‘rulers’ are the fellows who run “Dubai World,” and incidentally Dubai itself. Whether they are fools, knaves or sly geniuses was what everyone wanted to know. Dubai officials announced that they had raised $5 billion on Tuesday. Two hours later they said they weren’t paying interest on it or on any of the rest of the $80 billion in borrowings. What’s going on? Are they really broke? Or are they playing for some kind of advantage?

“Dubai gambles with its financial reputation,” says one headline at the FT.

Then, on the facing page, the editors think they know how the gamble will turn out:

“A breath-taking blunder in Dubai…Dubai is looking more like Argentina than Singapore – but a lot less predictable,” says the FT editorial.

No on is sure what is going on. Most people take from this story what we knew all along: lending to shady characters in sunny places is not an easy way to make money. Especially when the shady characters own the country.

Trouble is, shady characters run near all the world’s countries. If an investor cannot trust the ruling family of Dubai, how can he trust the commies who run China? Or the hacks who run the United States of America?

To err is human. For a central banker, it is practically a professional requirement. Count on a major ‘error’ to trigger a sell-off in the world’s bond market.

But Dubai’s mistake did not infect all other sovereign debt. German bond yields went down, not up. Investors sought safety from Dubai debt in Deutschland debt.

But what is the real meaning of what is going on in Dubai? It’s the story of the collapse of the financial industry. Dubai has no oil…no natural resources…and no real industry. The rulers tried to turn it into a financial center. Entirely financed by debt. And now finance itself is falling apart.

“The camel put his nose in the tent,” says colleague Simone Wapler. “He saw that there was nothing there.”

What will he think when he gets a closer look at Britain’s finances? Britain, too, relies heavily on the financial industry. And Britain, too, is heavily dependent on debt. Its public finances are among the worst in the world. Japan’s public debt, to add another example, is already 200% of GDP. It’s expected to reach 300% in a few years. And yet, Japan – like the US and Britain – just keeps borrowing. How long can this go on? When will Britain, the US, and Japan announce their own moratoria on debt service payments?

This bubbly bounce must not have much time left. And it is surrounded by 10,000 pins.

On Friday, US markets reacted to the Dubai news. The Dow lost 154 points. Gold lost $14. Oil slipped to $76.

Our crash flag is still flying. But that was not a crash. Just a bad day. And today’s news tells us that other Gulf States are rallying around Dubai, ready to extend a helping hand and lend a buck or two. Oil is rallying on the news.

Does that mean this bubbly trend is stronger than we thought? Is this a bubble made of Kevlar? Will it resist other pins?

We wouldn’t count on it. When China pops, we’ll see US stocks down a lot more than 154 points. In fact, we expect to see the Dow in 5,000-ish territory when this bounce is over. And when that happens, emerging markets will probably be hit even harder.

Dubai was a “wake up call,” for investors in emerging markets, says The New York Times today.

But the pin that pricks recovery hopes won’t necessarily be imported. There are plenty of sharp objects in the homeland too. There is, for example, the growing realization that the recovery is a fraud.

“Half a recovery,” says a New York Times columnist, may be all we get.

Today, the press will concentrate on analyzing Black Friday sales results. Already, The Wall Street Journal has rendered its verdict: more shoppers; fewer sales.

If the initial reports are correct, the traffic wasn’t bad on Friday. But retail outlets were only able to snag sales by offering discounts. It’s a deflationary world, after all. Shoppers want lower prices to make up for the fact that they have less money to spend. And they’ll get lower prices too. Because this is a de-leveraging cycle. The world has too much debt, too many factories and too many workers…at least for the real, available purchasing power. Prices will go down naturally until excesses are absorbed…dismantled…or converted to other uses.

But wait…there are also unnatural forces at work. Governments are bailing out bungled companies. They’re supplying zombie industries with fresh blood from the taxpayers. They’re standing in the way of the de-leveraging progress. They’re creating “money” out of thin air.

It’s this last point that is most explosive. As long as government is just stalling the correction, it doesn’t cause too much distortion or volatility. But when it fiddles with the money…oh la la; that’s where it gets interesting.

Traditionally, people buy gold when they think the monetary authorities are up to something. Throughout the world, investors are getting edgy…they’re wondering how it is possible to add so much cash and credit to the economy without sending prices to the moon.

We’ll tell you how it’s possible: there’s a depression. In a depression, the flow of cash and credit coagulates. Even if you increase the cash in bank vaults, it doesn’t circulate into the real economy. Banks don’t lend. People don’t borrow. Consumers don’t consume.

It just sits there…waiting for the end of the depression…like a teenager waiting for Friday…

Source: Bill Bonner, Daily Reckoning, November 30, 2009.

Tags: 7 Months, Best Selling Books, Bill Bonner, Blunder, Borrowings, China, Commodities, Daily Reckoning, Driving Force, Easy Way To Make Money, Emerging Markets, Empire Of Debt, energy, European Banks, Financial Reckoning Day, Financial Times, Gambles, Geniuses, Gold, Hedge Fund Manager, Knaves, Natural Resources, New York Times, New York Times Best Selling Books, oil, Shady Characters, Sunny Places
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