Around the Globe 09.19.2013

Bernanke Resets Policy by Doing Nothing as Markets Soar – Bloomberg.

Taperless Fed sets off share and bond market surge | Reuters.

Fed Balance Sheet vs. SP500 07.2013

Arguably, a $15bn taper was already priced into the stock market.  Had the Fed stuck to its guns, it is likely that the market would have yawned with the S&P remaining stuck between 1600-1700.  It seems that the Fed will maintain current policy until the new chairman assumes the role early next year, and it will be up to the new regime to figure out a way out of the money printing trap.  Yellen is a notorious dove, and her Fed will probably continue and perhaps even augment present efforts, which probably accounts for at least a part of the post-announcement rally.

Home Sales Hit Highest Level Since 2007 –

Sales of U.S. Existing Homes Rise in August to Six-Year High – Bloomberg.

U.S. existing home sales rise to 6-1/2 year high | Reuters.

Existing home sales jump 1.7 percent in August, better than expected.

NAR House Affordability Index

Today’s housing hype disseminated by the mainstream media is based on existing home sales rising to the highest pace since 2007.  NAR economist Lawrence Yun rightly points out that the robust increase can be attributed to buyers rushing through purchases before rates climb any higher and concedes that the sales picture will be volatile going forward:

Rising mortgage interest rates pushed more buyers to close deals, but monthly sales are likely to be uneven in the months ahead from several market frictions.

One of the market frictions is higher mortgage rates.  Another is the low inventory of houses for sales.  Yun mischaracterizes the inventory problem as a housing shortage.  There is no housing shortage in the United States, but not enough houses are coming to market due to underwater homeowners being unable to sell and the clogged foreclosure pipeline.

The difference is important. If there were a genuine housing shortage, we could expect building to increase alleviating the supply problem while spurring economic growth.  Since the inventory problem is the cause of a broken market, expect building and sales to stagnate.

Fear of missing out fuels China property market.

China Housing Index 09.2013

China’s property market has become quite bubblicious in the last year. In this article alone, there are at least three factors signalling a bubble:

  1. The belief that prices can only go up has taken hold.
  2. People are regretting missing out on the price rises.
  3. The Real Estate market is accounting for an ever-increasing portion of economic growth prompting the government to continue policies that are inflating the bubble.
  4. Speculators comprise the majority of buyers.

BTW, each of the four points existed right before the U.S real estate market began its descent.  This bubble will pop, too, but no one knows when.

Iceland euro zone.

Unemployment Sampler

All is not perfect in Iceland, but the country is outperforming the two Eurozone countries who have experienced recent banking crises.  Iceland decided to allow the banks to fail, while Spain and Ireland are in the midst of propping their financial systems up with taxpayer money.  Unfortunately, bailing out the banks has destroyed many jobs so there are less taxpayers to foot the bill.

The chart above shows the different recoveries in Iceland, Ireland and Spain with the  latter two countries enduring unemployment rates at or near crisis peaks while Iceland has achieved a 4.5% rate.  What might have been had Ireland and Spain acted in the interests of their citizens rather than those of the banksters and the cult of the euro?

EU, IMF Warn Cypriot Banks to Prepare for More Upheaval –

Cyprus Unemployed People

Apparently, the EU and IMF underestimated the true extent of the Cypriot economic depression in the wake of its banking crisis and are revising their figures.  This should come as no surprise to anyone who has been paying attention for the last four years.  The troika has been bungling economic forecasts ever since the beginning of the eurocrisis.  Rosy forecasts are issued at the onset of the bailout to obfuscate its true cost from taxpayers.  Then, the forecasts are lowered and the bailout costs raised every few months when no one is looking.  Just for fun, the result of prior Greek forecasts:Troika Greek GDP Forecasts

the chart is old, so you can add two more “oopses” for 2012 and 2013.

One thought on “Around the Globe 09.19.2013

  1. My take on housing. Again, lowering standards.

    In my area, through the boom of 1990 – 2007 all the ‘easy’
    land was subdivided and built on. Now only the difficult remain, the wetlands
    the steep slopes. It takes much longer to get approval if you can
    and if you do costs much more to build the home.

    So what do you do. You lower your standards.

    In Louisiana you build in a flood zone and then when the house floods
    you blame FEMA and FEMA must build a wall to keep the water out.

    In Boulder Colorado, you build in a 100 year flood zone and get flooded or you
    build in the fire zone and your house burns down.

    In Monroe Oklahoma you build in Tornado alley. I researched Monroe
    Oklahoma after the tornado. They have 8 municipal parks with golf course
    but did not build the tornado emergency shelter in the local school. They could
    afford the parks, but not the tornado shelter. What is the answer, ask FEMA to
    come build a tornado shelter.

    The wealthy convert old fishing shacks in Montauk LI or old summer cottages
    in Breezy Point LI into million dollar homes, and then if a Hurricane get FEMA
    insurance at low subsidized cost and rebuild it for free. In the old days the fisherman
    were too smart to build a year round home there, they could not take the loss
    from a storm, but if FEMA will insure it, why not ?

    . Anyway, when your economy is tremendously reliant on how many houses
    you build, I guess you wonder, how long can it last ?

    And how low will you go to let them keep building.


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