Friday, August 1, 2014

Today's links

1--Suddenly, Wall Street Is Bailing On Housing, zero hedge


Among this week's most notable moves was the decompression of high-yield credit spreads to near 9 month wides (and continued outflows). What went notably-under-reported by the mainstream media, however, was an even bigger selloff in US mortgage bonds. While JPMorgan is unable to see "any fundamental reason" for the plunge in prices, the worrying indication from the magnitude of the drop relative to volumes is that liquidity has evaporated. As Bloomberg notes, with dealer inventories sold down (due to new regulations that make repo and agency securities unpalatable), they have no way to 'smooth' the selling when investors want to exit positions. Weakness of this magnitude when the 10Y gained only 2bps on the week is a big wake-up call that traders are looking for the exits from housing debt and the door is very narrow.


Bloomberg warns, prices of a new type of U.S. mortgage bonds are plunging this month, teaching investors a lesson on the risks to markets wrought by the growing constraints on Wall Street banks.


2---"Genocide Is Permissible" Muses Times Of Israel, Promptly Retracts, zero hedge


From the comments:
Whether the Israeli government is a terror organization is not up for debate, as they openly admit it. Their flavor of terrorism is called the Dahiya doctrine:


The Dahiya doctrine is a military strategy put forth by the Israeli general Gadi Eizenkot that pertains to asymmetric warfare in an urban setting, in which the army deliberately targets civilian infrastructure, as a means of inducing suffering for the civilian population, thereby establishing deterrence. [...] Richard Falk wrote that under the doctrine, "the civilian infrastructure of adversaries such as Hamas or Hezbollah are treated as permissible military targets, which is not only an overt violation of the most elementary norms of the law of war and of universal morality, but an avowal of a doctrine of violence that needs to be called by its proper name: state terrorism." 


3---Stocks Suffer Worst Losing Streak Since 2011, zero hedge


4---August 1914: When Global Stock Markets Closed, zero hedge




5---Ilargi: Say Bye to the Bubble, naked capitalism


6--This Market Is a Titanic in Search of an Iceberg, Bill Bonner


Perhaps they fear that the outlook for the economy is not as bright as they had believed. Maybe they ask themselves why they pay so much money for companies whose profits must already be peaking and whose growth is in doubt.


After all, even with the TARP, TALF, ZIRP, QE, “Operation Twist” – and every other stimulus measure the feds could think of – the real growth of the US economy has been only 0.9% per year for the last seven years.


What will happen when US credit conditions “normalize”? And isn’t normalization on the way?
“If the labor market continues to improve more quickly than anticipated,” says Janet Yellen, “then increases in the federal funds rate likely would occur sooner and be more rapid than currently envisioned.”


7---Shiller: housing faces “turning point” as seasonally adjusted prices fall in May, OC Housing


8---Home ownership rate hits new lows, oc housing




9---Existing Home Sales, ATC


Existing home sales continued to rebound in June, rising 2.6% to 5.04M – the strongest pace of sales in 9 months. Gains in the existing home sales data came in both the single family and more volatile multi-family sectors, rising 2.5% and 3.4%, respectively. Stronger sales helped keep months’ supply unchanged at 5.5 months, suggesting that improving sales continue to counteract any notable increase in inventory. The measure of the number of days homes spend on the market also decreased to 44 from 47 in the prior month, consistent with an ongoing pickup in housing sector activity. While the gradual improvement in existing home sales remains quite encouraging, we find it worth noting that sales remain 6.3% below their July 2013 peak, suggesting that the housing market still has some ways to go in order to retrace recent weakness.


The details of the report nevertheless continue to show strengthening fundamentals, with first time buyers representing 28% of purchases – an improvement from 27% last month. Investor and all-cash interest also remained quite strong, unchanged at 16% and 32%, respectively. The number of homes sold through distressed sales also remained flat at 11%, with 8% of homes sold through foreclosure sales and 3% sold as short sales. The lower number of distressed sales in recent months continued to place upward pressure on median prices, with June median home prices rising sharply to $223K from $212K in the prior month. This is the highest median home price reading since 2007, with home prices currently just $7K below their all-time high in 2006



Foreign buying of notes and bonds has declined and is not expected to replace the Fed's taper. It will be primarily driven by China's rising foreign reserves. But given declining support from the Fed, China is likely to make bills (vs. notes and bonds) a larger portion of its purchases. And bill purchases will have a limited impact on longer dated treasury yields.

To be sure, we are going to have plenty of demand for treasuries going forward. But given such a spike in supply and improved growth expectations, something on the order of 50-75 basis points increase in the 10-year yield in the near-term is not unreasonable.




11--"The weakest recovery by far": GDP Update

A strong 2014Q2 GDP report came out today, registering in at 4% annualized real GDP growth. This is good news, but it is worth looking at it in the context of the full recovery. Much of the recovery data was also revised, so we are updating our chart showing recoveries after every post WWII recession in the United States.
Here it is, including 2014q2:
houseofdebt_20140730_1
The uptick at the end of the red line is today’s strong GDP report. But it is useful to put it into the context of the longer recovery, which has been the weakest in history (by far).


12---     Divide and ruin’: How NATO’s policy is destroying Libya, RT


13---Charges of anti-Semitism used to intimidate and criminalise opponents of war in Germany, wsws


14---Ukrainian parliament approves deployment of foreign armed forces to crash site, wsws


15---A law unto themselves: the CIA and the torture cover-up, wsws
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