Around the Globe 06.27.2013

Home Builder Sales at Risk Due to Rising Mortgage Rates.

Pending-Home Sales Surge to Six-Year High –

Pending Sales of Previously Owned U.S. Homes Jumped 6.7% – Bloomberg.

from Bloomberg

from Bloomberg

The mainstream media loves its narratives, because they make journalism so easy.  All one must do is cherry pick data to fit into the narrative, and, voila, you have yourself a nice, brand new article ready for publication.

Pending home sales spiked in May, but there is a caveat.  Rising rates throughout the last couple of months are forcing people to buy now for fear of being left without an affordable mortgage.  In the coming months, this dynamic will fade, and pending home sales will begin decreasing.  Then, the msm will print the utterances of NAR shills telling us that the decline is nothing to worry about and that these other indicators, which are much more important anyway, point to the market’s strength.

If you do not believe that mortgage rates will not be a drag on the “housing recovery,” then you need to examine this chart:

House Affordability 06.26.2013

Consumers Boost Spending –

Consumer Spending in U.S. Rebounds as Incomes Increase – Bloomberg.

Personal Income Growth

Rising rates may be spurring buyers to bring forward their housing purchases, and they may be having the same effect in other sectors.  The rise in consumer spending in May was driven by durable goods, primarily automobiles.  In the coming months, consumer spending will remain flat as purchases brought forward to take advantage of the cheap financing will subtract from future performance.

Euro zone economic mood rises to 13-month high in June | Reuters.

Eurozone Economic Confidence

While the U.S. may be experiencing a tepid recovery, at least it’s a recovery.  Europe remains in the throes of a recession, which has metastasized to a depression in Greece and Spain.  The mainstream media is certainly happy that Eurozone confidence rose and is taking it as a sign that the recession is ending.  Perhaps, they should glance at the “Chart of Truth” above.  Everything is relative.  While there was a nice rise in business confidence, note that it is still below the figure from two of the last four recessions.  While the euros are more confident than last month, historically speaking they are not really confident at all.

Europe strikes deal to push cost of bank failure on investors | Reuters.

Bank assets to GDP

Europe’s banks are over-leveraged, and everyone knows this.  What is keeping capital from fleeing the system is the set of implicit guarantees that the state would be there to bail everyone out in case of disaster.  In April, the Eurozone decided that to withdraw its implicit guarantee during the Cyprus bailout, and capital has been fleeing the country ever since:

Cyprus Deposits May_0

From ZeroHedge

Note that the steep fall in the chart above occurred with capital controls in place.  Now that the state’s guarantee is gone, investors will reprice the banks’ credit risk accordingly and will demand higher rates of return.  When the banks require extra liquidity, investors will not be there leaving the job to the ECB.  Slowly but surely, the eurozone nurtures the seedlings of its destruction.

China Cash Crunch Spreads –

Here’s the Real Crisis in Australia – Bloomberg.

AUDUSD 06.27.2013

From Yahoo Finance

Despite the PBOC’s assertions to the contrary, the Chinese cash crunch continues.  While various rates have improved, anecdotal evidence reveals a lack of liquidity throughout the Chinese economy.  The biggest loser here is Australia.  The lack of demand for its raw materials is crimping economic growth and driving down the value of the aussie.  The chart above is there to remind you exactly how far the currency has fallen and how much room it has to fall further.


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