Around the Globe 06.17.2013

For China, Too Much Steel Isn’t Enough – Businessweek.

China Steel Inventory and Price 06.17.2013

As the chart illustrates, Chinese steel inventory went parabolic right before the Spring. This is another sign that Chinese GDP growth is rapidly slowing.

Steel was a big deal in all of those former communist countries.  The USSR routinely bragged about its rising steel production as a result of its oft-touted five year plans.  Steel production was one metric where the Soviets could surpass the West.  The steel may have been rusting in piles scattered around the country, but there was great political value in boasting about rising production.  Alas, the political value in Chinese steel production is much greater than its economic value at this juncture because the world is awash in steel.

Hedge Funds Cut Gold Bets as Paulson’s Loss Widens: Commodities – Bloomberg.

GOLD 06.17.2013

If this article came to the conclusion that bearish bets were rising, this trend would support a short-term bullish position in gold.  Since bullish positions are falling with no rise in shorts, I believe that gold will remain trapped in its recent range.  After the crash in April, the price seems to be moving sideways and consolidating around $1350/oz.  If the U.S. economy continues to strengthen, it will be a rough ride for the gold bugs.

Central Banks’ Failure to Communicate Boosts Bond Yields – Bloomberg.

chart3_central_bank_balance_sheets_q3_12_sm

When this article says that the central banks have failed to communicate, it really means that central banks have not made it clear that the magic money machine is still on and will remain so for the immediate future. The chart above illustrates the growth in the world’s major central bank’s balance sheets.  The BoJ, Fed and BoE will continue asset purchases for the immediate future, and the ECB will continue its backdoor financing of the periphery’s banks, so what’s the problem? The market swoon since May has in effect been a taper tantrum.

Homebuilder Confidence in U.S. Rises to a Seven-Year High – Bloomberg.

Homebuilder sentiment rises to highest in seven years in June | Reuters.

Housebuilders Index 06.17.2013

This is optimistic assessment of the housing market typical of the mainstream media:

Low mortgage rates, a strengthening job market and limited inventories are benefiting builders including PulteGroup Inc. and Lennar Corp. (LEN) as the housing market contributes to growth this year after emerging as a bright spot in 2012.

It’s debunking time.  I just need to find my debunker.  Oh, here it is.  Okay, where were we? That’s right.  We’re getting ready to debunk.  First, mortgage rates have begun rising leading to a large drop in new applications.

Mortgage Applications 06.2013

Second, while the job market is “strengthening,” it is not improving enough to drive a recovery in housing.  The country is adding jobs at a rate of less than 200k per month, which is not enough to significantly reduce unemployment.

Third, banks are increasing the pace of foreclosures, so more inventory will be on the way shortly.  Moreover, flippers need to sell those houses to real people to cash out, and this dynamic will add to inventory.

None of this matters.  A few months after the housing market crashes, the mainstream media will figure out that the housing market was never that healthy to begin with.  Until then, expect these hopey articles to arrive monthly at a mainstream media outlet near you.

Big Short on Aussie Tells Loomis Time to Buy: Australia Credit – Bloomberg.

AUDUSD 06.17.2013

The Aussie has already dropped about 10% off its highs from April and has not been below a dollar for over a year.  Lots of dumb money has now rushed in and placed lots of short bets on the Aussie.  This has already helped the currency rally a two cents off its lows.  The Aussie is done with its major moves until adverse news arrives from China (and it will).

Greek PM faces allies, court on state TV closure | Reuters.

Samaras

I should not be surprised by this, but I am.  After all the indignities heaped upon the Greek people, it seems that the proverbial straw that is breaking the camel’s back is the closure of Greece’s public broadcaster.  Interestingly enough, the television station accounts for a mere 3% of total viewership, but the people will not tolerate losing even one channel.  It appears that this is one revolution that will not be televised.

Bid to relaunch synthetic CDO unravels – FT.com.

I am just so happy that someone learned something from the GFC that I will not make any snarky remarks about this article.  Nope, I am just going to bask in the warm glow of knowledge and wisdom.  By the way, CDOs are not the only securities that the TBTF banks use to make money from the stupid and the trusting.  Examine your portfolio, and check for others.  The more complicated the security, the more likely it is that you are getting ripped off.

Cramer: A ‘Nightmare Scenario’ for Both Bulls and Bears.

SPX 06.17.2013

I agree with Mr. Cramer’s assessment.  A sideways market is no fun for anyone.

Hungarian Central Banker Warns on Fed Moves – WSJ.com.

Hungary CPI 2007-2013

Everyone has gotten used to cheap central bank money.  Hungary has been able to keep interest rates low without stoking inflation because the world’s major central banks have been printing plenty of money.  If the central banks tighten, Hungary will be forced to raise its own rates in the midst of a recession or risk reawakening inflationary pressures.

Hungary has an historically high inflation rate, and stories of the hyperinflation following both WWI and WWII make the Bank of Hungary a natural hawk.  Ideally, the country would prefer loose money policies throughout the world so that it may keep its own rates low, but it will not hesitate to raise rates to quell inflation.

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