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.
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.
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:
- The belief that prices can only go up has taken hold.
- People are regretting missing out on the price rises.
- 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.
- 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.
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?
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:
the chart is old, so you can add two more “oopses” for 2012 and 2013.