Monday, July 1, 2013

Today's links

1---Home Builder Sales at Risk Due to Rising Mortgage Rates, CNBC

Bottom line, 70 percent of all May 'sales' are suspect with respect to locked mortgage financing, which is a key metric to how much the buyer can pay for the house," says Hanson.
"Not all of these will fall out. Some will move to a higher-risk adjustable rate mortgages in order to save the deal. However, builder sales fall-out will spike and the May new home "sales" number will be revised sharply lower unless rates comply or builders help to soften the blow of the house being 20 percent more expensive to own than originally thought."

Stephen Paul, of Mid-Atlantic Homes, a small private builder based in Maryland, says he is now getting calls from concerned customers asking about rate locks.
"The challenge of course for a loan lock for a home that's under construction is that they never know when they are going to actually have their closing dates," says Paul. "The cost of doing a loan lock up to nine months runs 2 1/2 points and a lock for three months is 1/2 point, so people are trying to judge on whether they want to invest in that loan lock."

2---Homebuilders Hurt by Housing Hangover, Big Picture

Mark Hanson wanted to flash some color on that — here is his 3 part explanation as to why the Builders are having such a difficult time:
1) No Flippers: The reason that New Home Sales is still down 60% from the peak while existing is only down 25% is due to the new-era private and institutional “buy to flip/rent” investor. They don’t call Hovnanian for buy to flip or rent opps.
This shows how powerful a force new-era investors — driven by the QE inspired quest for yield — really ‘were’. ... 
3) Overcounting Distressed Market Values: Lastly, counter intuitively the distressed market — now at 6 YEAR LOWS in terms of volume (due to OVER 6 MILLION “new-vintage, higher-leverage, worse-than-Subprime loans AKA: loan mods) — was responsible for an outside percentage of the Existing house price “appreciation” we are seeing. That’s because when I buy a dump for $150k, put $50k into it (cost basis $200k) and resell for $230k, the popular price indices — included Case-Shiller if owned over 6 months by the investor — pick it up as $80k “appreciation” when in fact it’s only $30k…and a suspect $30k at that. 
Bottom line, the distressed market was “the” housing market for years. It’s what everybody wanted. It has been absolutely responsible for the short squeeze in housing over the past 18 months and a large percent of house price gains (of course, the 30-year fixed mortgage rate being forced down in QE3 from 5% to 3.5% was worth 15% to house prices as well). And the artificial lack of distressed due to loan mods, new anti-foreclosure laws, and perma foreclosure timeline extending — coupled with rates back to pre-QE3 levels — will be responsible for “Hangover 2″ that follows.

3---Housing Recovery Elusive for U.S. Homebuilders, Big Picture

Source: Bloomberg

Interesting chart form Dave Wilson showing how elusive the U.S. housing market’s rebound  has been for the Homebuilders.

Existing single-family homes sold at about the same pace in May as they did in January 2000, according to data compiled by the National Association of Realtors. New home sales are running a full 45% lower. One new home was sold last month for every 9.7 resales.

4--Krugman enthusiastic about Abenomics, NYT

I’ve made it clear that I very much approve of Japan’s new monetary aggressiveness......

...while investors shouldn’t care about what the central bank does now, they should care about what it will do in the future. If investors believe that the central bank will keep the pedal to the metal even as the economy begins to recover, this will imply higher inflation than if it hikes rates at the first hint of good news – and higher expected inflation means a lower real interest rate, and therefore a stronger economy.

So the central bank can still get traction if it can change expectations about future policy.
The trouble is that central bankers have a credibility problem – one that’s the opposite of the traditional concern that they might print too much money. Instead, the concern is that at the first sign of good news they’ll revert to type, snatching away the punch bowl. You can see in the figure above that the Bank of Japan did just that in the 2000s.

The hope now is that things have changed enough at the Bank of Japan that this time it can, as I put it all those years ago, “credibly promise to be irresponsible”.

5----81.5% of QE Money Is Not Helping the Economy, Big Picture

6---Treasuries Lose Most in First Half Since 2009 on Outlook for Fed, Bloomberg

Treasuries lost the most this year since 2009 as investors fled U.S. debt after the Federal Reserve signaled the world’s biggest economy may be strong enough to allow the central bank to reduce its bond buying this year. ...

7---Global Bonds Dive for Second Month as Stocks Lose $2.7 Trillion, Bloomberg

8---The "D" word; "The world has been in disinflation since 2011: deflation is next., macronomics

Consumer prices climbed 1.1 percent in the 12 months through April, according to a measure watched by the Fed that excludes food and fuel -- matching the smallest increase since records began in 1960. The speed at which money changes hands, measured by the U.S. economy’s supply of cash and equivalents known as M2, is the least in records going back to 1959, according to data compiled by Bloomberg." - source Bloomberg....

In the previously mentioned conversation from April this year we added the following comment:
"We think there is currently an accumulation of worrying signs that the global economy is decelerating and that old left hand deflation has indeed a solid grip when one looks at China's shrinking electricity use, a bearish sign for a price index of industrial metals that, according to Bloomberg, has posted a first-quarter decline for the first time in 12 years"

...To summarize the deflationary forces at play in the current environment, we have read with interest Russell Napier's CLSA note from the 7th of June entitled "Great reset revisited":
"The world has been in disinflation since 2011: deflation is next. Japan has won the currency war and its cheaper exports are forcing others to cut prices. Meanwhile, slowing growth and weakening currencies in emerging markets augur a debt crisis; and commodity prices continue to fall amid a global slowdown and rising supply. Most worryingly, both real interest rates and the US dollar are rising. The great reset’s deflationary shock is at hand and investors should hold as much cash as they can....Cash is the place to be
- Cash does well as inflation turns to deflation and real interest rates rise.
- Cash can finally be utilised profitably as central bankers fail to sustain asset prices.
One week ago I left Hong Kong after it became clear that my freedom and safety were under threat for revealing the truth. My continued liberty has been owed to the efforts of friends new and old, family, and others who I have never met and probably never will. I trusted them with my life and they returned that trust with a faith in me for which I will always be thankful.

On Thursday, President Obama declared before the world that he would not permit any diplomatic "wheeling and dealing" over my case. Yet now it is being reported that after promising not to do so, the President ordered his Vice President to pressure the leaders of nations from which I have requested protection to deny my asylum petitions.

This kind of deception from a world leader is not justice, and neither is the extralegal penalty of exile. These are the old, bad tools of political aggression. Their purpose is to frighten, not me, but those who would come after me.

For decades the United States of America have been one of the strongest defenders of the human right to seek asylum. Sadly, this right, laid out and voted for by the U.S. in Article 14 of the Universal Declaration of Human Rights, is now being rejected by the current government of my country. The Obama administration has now adopted the strategy of using citizenship as a weapon. Although I am convicted of nothing, it has unilaterally revoked my passport, leaving me a stateless person. Without any judicial order, the administration now seeks to stop me exercising a basic right. A right that belongs to everybody. The right to seek asylum.

In the end the Obama administration is not afraid of whistleblowers like me, Bradley Manning or Thomas Drake. We are stateless, imprisoned, or powerless. No, the Obama administration is afraid of you. It is afraid of an informed, angry public demanding the constitutional government it was promised — and it should be.
I am unbowed in my convictions and impressed at the efforts taken by so many

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