Around the Globe 09.18.2013

Home-Loan Drop Pushes Fed Away From Mortgage Bond Taper – Bloomberg.

Mortgage apps retreat from 5-year low as buyers creep back.

Home Sales vs. Fed Mortgage Holdings

CNBC can’t help itself.  A one-week blip upwards in mortgage applications is spun to the claim that “buyers creep back in.” The truth is that the rise in rates has squelched the increase in housing prices, new construction and refinancing, and all of these factors will act as headwinds to GDP growth in the second half.

The growth in the housing market is unsustainable as illustrated in the chart above.  From 2007 until today, the Fed has printed money to purchase close to $1.4tr in mortgage bonds which has simultaneously caused bubble while only bringing sales to levels from 2008 and well below healthy levels from the early aughts:

New Home Sales 2000 to Date 07.2013


Work Began on Fewer U.S. Homes Than Projected in August – Bloomberg.

Housing starts rose to 891,000 vs. 915,000 estimate; building permits down to 918,000.

Multifamily homes restrain U.S. housing starts, permits in August | Reuters.

Housing Starts 08.2013

Housing starts seemed to have halted their rise.  Each piece of data confirms that Housing Bubble 2.0 is expanding at a slower pace due to the rise in interest rates, but builders and economists believe that prices and sales will continue to rise throughout the year.  The market is still at historically unhealthy levels as illustrated by the red line and has growth has turned over as per the green arrow:

Housing Starts Through August 2013

Further housing gains require strong income growth from U.S. consumers, but with 11 million Americans seeking work, this growth is unlikely to materialize.

ECB advisers call for more long-term loans | Reuters.

Eurozone Loans to the Private Sector Through 08.2013

There is a loose money faction within the ECB that wishes to reopen LTRO in order to boost private lending for business expansion.  That’s the reason we are being told anyway.  In reality, two rounds of LTRO commencing at the time indicated by the green arrow failed to slow the decrease in private lending.  The red arrow highlights the inflection point where private loans began contracting at a faster rate at about the same time as the Draghi pledge.  Since Eurozone banks are not deleveraging, where could all the cash from LTROs and reduced lending have gone? Isn’t it obvious:

Eurozone Debt to GDP Ratio

Creaky Eurozone governments led by Italy, Spain and France have added over  €400bn to the debt stock and someone needs to purchase this debt so that these countries can continue financing themselves.  Banks rather loan to governments a higher yield with cheaper money borrowed from the ECB, which is also functioning as a buyer of last resort, than loan money to the private sector.  Loans to businesses are neither guaranteed nor eligible for the same collateral treatment by the ECB; hence government borrowing is crowding out the private.

China home prices rise for 8th straight month.

Chinese Home-Price Increases Pick Up Steam –

China home prices rise further in August, testing government | Reuters.

China Overnight and Seven Day Repurchase Rate 09.18.2013

The PBOC has a choice: It can either tighten money to squelch the burgeoning property bubble and economic growth, or it can loosen money therefore allowing the bubble to proceed to its inevitable conclusion while preserving economic growth until it does.  As you can see from the chart of Chinese repo rates, the can has been kicked.


3 thoughts on “Around the Globe 09.18.2013

  1. you hit the nail on the head CNBC is funny, and not alone

    Bloomberg calls it a ” surge in mortgage rates to two-year highs”
    sounds horrible, frightening, scary, and look at the horrible results

    ” A surge in mortgage rates to two-year highs has undercut borrowing, pushing down refinancing by more than 70 percent since last September. ”

    Then you look at the rate and see the only time they have EVER been lower
    was 2012 and 2011

    and if you look back you see they are actually 1/2 what they were from 1974 to 1990.

    No one seems to think, there are only so many people that will refi so often
    I did it once, some of my friends twice, my rate is low and there is really
    no incentive for me to refi again.

    Cheap money tricks only work a few times.

    Right now we have an economy based in large part on lies, false promises and
    fake projections.

    People are going to lose a lot, it is only a matter of when.

    Chicago taxpayers face $86.9 billion in debt and unfunded
    liabilities under new Moody’s methodology. That’s $32,000 per
    Chicago resident and more than $84,000 for every Chicago

    Chicago debt and liabilities have grown rapidly in recent years.
    The city’s total official debt jumped to $32.3 billion in 2012
    from $19.7 billion in 2007.

    Across Chicago’s four pension funds, there are about 51,000
    active employees. With $36 billion in unfunded liabilities,
    this means that there is approximately $700,000 in unfunded
    pension liabilities for every active employee in the system.

    A healthy pension fund should be 100 percent funded, to
    ensure it will meet its future obligations. Chicago’s 2012
    adjusted funding level was 23 percent.

    The Chicago Public School system, or CPS, is responsible
    for 23,000 teachers and the education of more than 400,000
    students. CPS has an operating budget of more than $5
    billion and expects to face deficits in the range of $1 billion.
    Including long-term debt and unfunded pension and health
    insurance liabilities, CPS’s debt burden totals nearly $20

  2. “Right now we have an economy based in large part on lies, false promises and
    fake projections.” Thank you Sir for a reasonable conclusion.
    Maybe we are facing changes of ppl perception and today economy is not able to cope with that change,it is possible to observe progressive schizophrenic pattern of running same economic tricks over and over again,of course everything under goodwill and desire to improve and help.

  3. The Fed continues to play the game of musical chairs.
    The chair is gone, but the music continues.

    While the music plays, the price of stock goes up for the wealthy
    the price of food, gasoline and heating oil goes up for the not wealthy,
    and Cities and States line up for bankruptcy.

    1. Ask who benefits ?

    2. Why ?

    My guess:

    A. The wealthy keep politicians in power.
    They also control the media. Mr. Bloomberg may be mightily happy
    to keep writing nice stories so long as he keeps making money.

    B. Obama wants to preserve his “reputation” and exit before a crash.

    I. he does not want Obamacare to fail

    ii. he does not want a market crash, postpone it as long as possible
    (Janet Yellen will keep printing) and exit and leave it for the next person.

    iii. he knows despite all the of terrible and immoral acts of Clinton
    Clinton is well regarded in memory because the “economy” was good
    at least in the minds of the people, when he left office. And Bush is hated because
    at least in the minds of the people the “economy” was bad when he left office.

    I opined the taper would not happen, and it did not.
    I am not surprised.

    The question is, can Obama keep that up until his exit from office.

    Voting in Yellen was his sole hope, my bet, she promised to keep printing.


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