Around the Globe 10.15.2013

Fewer US homes entered foreclosure track in third quarter.

Foreclosure starts vs sales

 

The mainstream media loves its housing recovery narrative and fervently guards it against the data.  This is the lede from the article above:

The number of U.S. homes set on the path to foreclosure slid to a seven-year low in the third quarter, reflecting a gradually improving housing market and fewer homeowners falling behind on mortgage payments.

That statement is false.  Foreclosures are sliding because banks are keeping delinquent properties out of the foreclosure, whether by design to maintain higher prices or because they simply cannot work their way through the backlog.  I believe the latter explanation is more likely as incompetence trumps malevolence.  If the housing market were really on its way back to health, the number of delinquencies would have plummeted in lockstep with the foreclosures.  It hasn’t:

Mortgage Delinquency Rate

This second chart shows that defaulted mortgages have remained near recession peaks and historic highs. What is really happening here is that the zombie inventory of homes continues to grow keeping supply out of the hands of the 99% who pay inflated prices for homes and rents for apartments.

Citigroup results hit by bond trading slowdown.

Citigroup Results Hit by Weak Fixed Income Trading – WSJ.com.

Citigroup results hit by bond trading slowdown | Reuters.

Citigroup 10.15.2013

 

All of the TBTF banks are enduring lower profits due to smaller bond volumes and a decrease in mortgage applications.  This news has not mattered one iota to share prices as our chart of C shows.  A mild 50¢ sell-off at the open followed by a rally back to just about the pre-earnings level.  Corporate profits have ceased improving, so the current rally is exclusively beholden to additional multiple expansion.  The financial commentariat generally believes that this expansion is unlikely, but in light of the new Printmaster General’s dovish bonafides, I am not so sure.  The market is still far below record P/E levels, and the magic money machine isn’t finished yet:

S&P500 PE Ratio

Fed’s Dudley: Large Balance Sheet Increases Inflation-Fighting Discipline – Real Time Economics – WSJ.

Exclusive: Fed’s Fisher, outspoken hawk, sees no QE reduction this month | Reuters.

Fed Balance Sheet vs. SP500 10.2013

The printfest will continue because it cannot stop.  Once the Fed stops creating dollars by monetizing federal and mortgage debt, the market will cease its rise shortly thereafter.  Eventually, the policy of printing money to increase asset prices will lose its efficacy.  First, additional QE will stop inflating market prices, but it will still be able to maintain some sort of stability.  Next, well, no one knows what happens next.

Germany digs in heels as Europe moves towards banking union | Reuters.

Total Banking Sector Balance Sheet to GDP

 

The Eurozone has created a faux banking union, which should be sufficient to keep the bond vigilantes at bay for the moment.  There are several requirements for a real banking union as currently exists in the U.S. under the auspices of the FDIC, which you can read about in more detail here:

Cosmetic, Can-Kicking Banking Union Agreement in Play | DARECONOMICS

The sticking point is the money.  The rich countries refuse to become joint and severally liable for depository insurance and resolution costs with their poorer brethren.  What this means is that a euro in Germany is much safer than a euro in Spain, because the Germans have more money to bailout its banking sector.  Hence, the current agreement does not break the pernicious bank and sovereign link.  German banks will have money to lend to businesses, and the periphery won’t, so it will remain mired in stagnation.  This Nash equilibrium will remain until one of these countries decides to gamble on a euro exit.

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