There was a bumper crop of positive economic news today led by the rise in durable goods orders. Is this good news or bad? While rising factory activity shows a strengthening economy, this dynamic could portend the Fed reducing its bond purchases despite all the protestations to the contrary in the media yesterday.
The consumer confidence numbers are even trickier to analyze. Today’s rise in the Conference Board suggests improving sentiment, but the University of Michigan numbers released last week show the opposite. Let’s call this data “mixed” for now and move on.
After the panic subsided, Cypriots realized that the country will suffocate underneath a crushing burden of debt. Now, they do not wish to rework the bailout but merely tweak it. What is the difference between reworking and tweaking? It’s a matter of semantics. Presumably, German voters will not be as angry at donating more money towards tweaks. No matter, after German elections, the Cyprus bailout will be reworked, as the chart above leaves no other choices.
The inflection point in Spain’s population growth is 2008, the start of the country’s economic woes. Robust economic growth led to more immigration and less emigration, but this trend is over. Population growth is one factor that fuels GDP, so this is one more reason while Spain will find itself mired in depression for the foreseeable future.
The PBOC has abandoned its laissez-faire posturing from the last few weeks and now pledges to support stability in the money markets. The bank has ceased withdrawing cash from the system via bill sales, and this action combined with a little, good old-fashioned jawboning has succeeded in bringing rates down since last week. Stability has been achieved in the short-term, but a creaking shadow banking system ensures that the long-term will be a wild ride in the Middle Kingdom.
When digesting the housing reports issued by the mainstream media, it is best to heed the advice of Chuck and Flav: Don’t believe the hype. The recent rise in housing price brings them to 2004 levels. When you remember that there has been inflation since then, you realize that prices still have not recovered. Of course, they are better than they were, and this is good news if you own a home but bad news if you wish to buy. While the recent rise in mortgage rates spells the end to the housing recovery meme, remember that the mainstream media’s narratives die hard.
Municipal bonds are down over 10% from their November peaks. This is a story which started months ago, but the decline became steeper in once the taper tantrum set in. Prices have stabilized today, but this is probably the start of a dead duck bounce. Rates will bounce up and down, but they will generally trend down over the next few months. One exception is the U.S. treasury market, which may benefit from haven flows if it gets serious.
By the way, one of the first markets to blow up in the beginning of the GFC was the muni market, particularly ARS. Is history repeating itself?