Pending Home Sales Disappoint, “Sizable Stock Market Losses” Blamed

Following the post-regulatory-change spike in existing and new home sales, pending home sales disappointed with a mere 0.1% rise MoM (missing expectations of a 0.9% rise). The weakness of the forward-looking indicator of home closings was blamed – as usual – on low inventories but also on “sizable losses in the stock market.” The 3.1% YoY sales increase is close to the weakest since November 2014.

Not what New and existing home sales suggest (but more like homebuilder sentiment)

 

Lawrence Yun, NAR chief economist, says contract activity closed out the year on stable footing but lost some momentum, except for in the Northeast.

“Warmer than average weather and more favorable inventory conditions compared to other parts of the country encouraged more households in the Northeast to make the decision to buy last month,” he said. “Overall, while sustained job creation is spurring more activity compared to a year ago, the ability to find available homes in affordable price ranges is difficult for buyers in many job creating areas. With homebuilding still grossly inadequate, steady price appreciation and tight supply conditions aren’t going away any time soon.”

 

According to Yun, although healthy labor market conditions will persuade more households to buy, it’s possible overall demand could be somewhat curtailed in coming months. The stock market’s sizeable losses since the start of the year and the effect slowing manufacturing activity is having in some areas — especially in the energy sector — could cause some to hold off on buying.

 

“The silver lining from the market turmoil in recent weeks is the fact that mortgage rates have slightly declined,” says Yun. “Buyers looking to close on a home before the spring buying season begins may be rewarded with a mortgage rate at or below 4 percent.”

The regional breakdown was as follows:

  • The PHSI in the Northeast increased 6.1 percent to 97.8 in December, and is now 15.3 percent above a year ago.
  • In the Midwest the index decreased 1.1 percent to 103.6 in December, but is still 3.6 percent above December 2014.
  • Pending home sales in the South declined 0.5 percent to an index of 119.3 in December but are 1.0 percent higher than last December.
  • The index in the West decreased 2.1 percent in December to 97.5, but remains 3.4 percent above a year ago.

So much for the balmy December weather serving as a boost to new housing, and construction jobs.


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Democrat Confidence Relative To Republicans Soars Most Since Obama Was Elected

The consumer comfort of Democrats soared this week relative to Republicans – pushing their relative confidence to 4-month highs. However the last week saw an almost unprecented surge in Democrat confidence. This is the biggest surge in Democrat confidence since President Obama was elected in November 2008 – in a week when it looks like Hillary will be indicted and Bernie takes the lead in New Hampshire and Iowa…

 


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Donald Trump Is the Harbinger of the Republican Party Apocalypse

We may be witnessing the collapse of the Republican party, or at least the Republican party as we know it. And if so, then Donald Trump is the harbinger of its apocalypse.

The signs of the party’s weakness and disarray are everywhere. Trump is the GOP’s presidential front-runner by most any measure: FiveThirtyEight, which recently published a long essay looking at the GOP’s breakdown as a party, gives him a 55 percent of winning the nomination, based strictly on the polls. Yet the candidate is now in open warfare with two of the right’s most influential media platforms: National Review and Fox News.

Last week, National Review published a special issue devoted to denouncing the candidate, with an unsigned editorial labeling him a “a philosophically unmoored political opportunist who would trash the broad conservative ideological consensus within the GOP in favor of a free-floating populism with strong-man overtones.”

Then on Tuesday, Trump announced that, because Fox refused to comply with Trump’s demand that moderator Megyn Kelly—who has feuded with Trump for months—be removed, he would not participate in the network’s forthcoming presidential debate.

National Review isn’t the party, of course, and neither is Fox, but they are important player on the right, and they wield considerable influence within the Republican party. 

Some level of friction between candidates and right-leaning media is fairly common, and both Fox and NR have certainly criticized GOP candidates before. Even still, this sort of sustained, all-out conflict between two of the right’s leading media outlets and the GOP’s presidential frontrunner is virtually unprecedented. Among other things, it suggests that the traditional party power structures are breaking down, and are now competing amongst each other to retain their dominance.

Trump’s candidacy exists almost entirely outside the traditional support structure for successful Republican candidates. His campaign, for example, is run by a small staff of loyalists with little traditional national campaign experience and funded without the backing of the GOP donor class. He appears to have only one issue adviser, a former trade and immigration staffer for Alabama Sen. Jeff Sessions, who only came on board last week. As Dan Drezner notes, despite months of promises to bring foreign policy advisers on board, Trump has yet to do so; instead, he has suggested that he is receiving counsel from people who, when asked, say they’ve never spoken to the candidate.

Trump is essentially running his own party now, housed within a hollowed-out GOP brand. In less than a year, he has all but taken over.

And even as media and intellectual wings resist Trump’s takeover, official party organs are allowing—arguably even encouraging—him to proceed. Shortly after National Review published its anti-Trump package last week, the Republican National Committee (RNC) informed the magazine that it had been booted from a spot co-hosting a GOP debate next month. This week, the RNC, which sponsors and helps organize the debates, said it would not get involved in the matter. Fair enough, in some ways: Candidates can choose for themselves whether to participate. Yet it is an admission that it will allow Trump’s no-show tantrum without complaint. And, of course, the RNC will support Trump if he becomes the nominee.

Other parts of the party apparatus appear willing to go along with this as well. Trump is far from an establishment figure, and yet figures from the party’s establishment—an overused and under-defined word that mostly just means the leaders and actors who help guide the party’s course—seem increasingly willing to follow Trump. Prominent GOP Sen. Orrin Hatch recently said he’s “come around a little bit on Trump,” and mused that Trump might actually expand the GOP’s appeal. Former presidential nominee Bob Dole recently argued that Trump could “probably work with Congress, because he’s, you know, he’s got the right personality and he’s kind of a deal-maker.” Multiple reports, based on interviews across the country, suggest that GOP donors and other influencers have begun to warm to Trump, and are in some cases have begun to reach out in hopes of contributing to his campaign.

This is what a failing institution looks like: leaderless, directionless, torn by infighting between its power centers, and willing to sign on to anything or anyone that will provide some semblance of purpose or momentum.

True, Trump may not succeed in capturing the nomination, and the party may well hold together in some form or fashion. But if that is the case, then we have learned something anyway.

Mainly, the ease with which Trump has made his moves suggests the poor state the party was in to begin with. Part of what Trump has accomplished, appropriately enough, is to expose the depths of the party’s weakness, both in terms of organization and ideology. The GOP can rally no one to its cause because it does not really have one—or, at minimum, does not have one that motivates a sufficient number of people.

For many prominent Republicans the party’s purpose is mostly transactional, hence Dole’s argument that Trump might be an effective dealmaker, and the pursuit of Trump by previously put-off party donors, who seek to buy a stake in his campaign, and establish influence accordingly. Perhaps inadvertently, then, the GOP establishment is proving Trump right that the party exists largely for self-perpetuation and self-protection.

At the same time, the success of Trump’s particular campaign has revealed the deep strains of nativism—shading into outright racism—that runs through segments of the American right, and its friendliness toward authoritarian politics.

To the extent that Trump’s campaign is about any one thing, it is about fear of foreigners and immigration, and he has stoked fear and anger toward immigrants more overtly than any other popular candidate in recent memory, often through off-handed proposals that stretch the bounds of both the constitution and decency. And Trump’s fans love it: His biggest applause line is his promise to build a wall, and at a recent rally the crowd cheered when Trump promised to kill the wives and children of terrorists.

What’s more, his supporters frequently go even further than Trump in stating their disdain for immigrants and outsiders. CNN interviewed more than 100 Trump backers recently, and here are some of the things they said (via The Washington Post’s Greg Sargent):

 “It seems like we really go overboard to make sure all these other nationalities nowadays and colors have their fair shake of it, but no one’s looking out for the white guy anymore.”

“White Americans founded this country. We are being pushed aside because of the President’s administration and the media.”

“Hey, hey. Ho, ho. All the Muslims have to go!”

“I don’t want them here. Who knows what they’re going to bring into this country?”

“We can’t look at a Muslim and tell if they’re a terrorist or friendly.”

Trump’s campaign has attracted racists and white nationalists. At a rally in Alabama last year, one attendee told The New York Times, “Hopefully, [Trump is] going to sit there and say, ‘When I become elected president, what we’re going to do is we’re going to make the border a vacation spot, it’s going to cost you $25 for a permit, and then you get $50 for every confirmed kill.’”

At the same event, another told The Washington Post, “You probably think we’re prejudiced, but my whole life we had niggers work for us in the field. And they were niggers. My daddy called them niggers. I’m not ignorant. That’s just the way I was raised. There’s black people and there’s niggers. You live around here, you know the difference.” At a Trump rally in Las Vegas recently, a black activist was beaten while onlookers yelled things like “light the motherfucker on fire,” and “Sieg heil!” 

Not all Trump supporters buy into these sentiments, of course, but the consistency with they pop up amongst his supporters at campaign events, in addition to their prevalence on social media, is telling enough about both Trump and the party he’s taken hold of.

The fact the GOP has made such an effective vehicle for Trump’s angry, ugly, authoritarian, nativist campaign is both revealing and damning. Trump is using the party as a host body for his antics and ambitions, but he is only able to do so because it was already prepared and ready for someone like him to come along—or perhaps because it had been neglected for so long by self-interested party elites.

The point is that the party was weak before Trump arrived. And in retrospect it’s clear that there were signs of its weakness high and low: the emergence of the Tea Party, the constant fighting between party factions, the disinterested and directionless leadership, the perpetually frustrated party intellectuals, the repeated interest in and acceptance of joke candidates, the general disinterest in governance or policy, the cozying up to folks like, well, Donald Trump. All of which suggests that the GOP, if not actively working towards its own doom, was setting the stage for the breakdown we’re seeing now.

Trump, then, may be the catalyst for the party’s demise, but the Republican party apocalypse was in the works long before he arrived.

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Saudi Production Cut Story Rejected: OPEC Delegates Say “No Plan For Meeting With Russia”

Headlines about “oil production cuts” are the new “Greece is saved” trial balloon.

Following today’s dizzying surge in crude oil on speculation by the Russian energy minister that the Saudis have proposed a 5% supply cut, which was subsequently trimmed to merely a statement that a “meeting may be called where a production cut could be discussed” we asked how long until the denial:

The answer: 15 minutes when the following rejection hit:

  • OPEC DELEGATES SAY NO PLAN YET FOR MEETING WITH RUSSIA

And now that the squeeze is over, oil can resume tumbling.


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Monetary Metals Brief 2016

We have consistently been making the contrarian call for a falling silver price and a rising gold to silver ratio for years. This ratio has risen a lot during this time. So are we ready to change our call yet?

Review of Our Call in 2015

Let’s hold ourselves accountable for what we said last year in our Outlook 2015: “There is currently no evidence that scarcity is rising, and thus gold should shoot da moon.” Our bottom line recommendation was, “To those looking to trade, at the moment this report is published you might buy gold for a quick trade. There is no case to buy silver.” We added, “We see no rush to load up the truck just yet.” We said the likely driver for a higher price would be deteriorating credit conditions.

How did we do with these calls?

The gold price has not yet risen to meet our fundamental price. The price was basically down all year after a blip in January. Our silver call turned out to be conservative. Silver closed the year at $13.84, which was below even our number.

Our call on the gold-silver ratio was in the right direction, though the market did not move a lot. It went up about 1.6%.

How Not to Think about Gold

There are several popular approaches to analyzing gold but the most popular is the conventional commodity analysis of annual supply and demand figures. However, gold cannot be understood by looking at small changes in production or consumption.

This is because virtually all of the gold ever mined in human history is still in human hands (to a somewhat lesser extent for silver). No other commodity comes even remotely close. The US Geological Survey estimated the total gold stocks at 171,300 metric tons at the end of 2011. Annual production is just 1.6% of these stocks. In other words, it would take 61 years at current production levels just to produce the same amount of gold as is now stockpiled. In regular commodities, this same ratio—stocks to flows—is measured in months. We just don’t hoard wheat and oil for the long term, for obvious reasons. Nor even iron or lumber or other durable materials.

If total gold mining is 1.6% of gold inventories, then small changes to that 1.6% are not likely to have much impact on the gold price.

How We Think About Gold

The implications of this are extraordinary.

All of that stockpiled gold represents potential supply, under the right market conditions and at the right price. Yet there is never a glut in gold. Through thick and thin,
through rising and falling prices, for thousands of years, the market goes on hoarding and absorbing whatever the miners put out.

Conversely—unlike ordinary commodities—virtually everyone on the planet represents potential demand. Why? Because gold and silver are money. Compare gold to oil. The marginal utility of oil—the value one places on the next barrel compared to the previous—declines rapidly. For oil, it falls rapidly because once your tank is full, you have a storage problem—assuming you even use oil at all.

However, the marginal utility of gold hardly declines at all. People are happy to get the 1,001st ounce, and accept it on the same terms as the 1,000th or the 1st ounce.

We therefore think that changes in the desire to hoard or dishoard gold have a big impact on price and are more important than small changes in annual supply and demand flows.

How We Analyze the Gold Market

As a result, we think of the market as the coming together of 5 different primary groups.

  1. Buyers of metal, typically hoarders. Unlike buyers of other commodities, they don’t have to incorporate it into a product and sell it to make a profit. So there is no particular price that is necessarily too high, other than whatever their notion of a fair price is at any given moment.
  2. Sellers of metal who are dishoarding. They may think the price has hit a high enough level to attract their greed, or a low enough level to activate their fear.
  3. Buyers of paper (e.g. futures). These are speculators, with three key differences from buyers of metal. One, they use leverage. Two (for that reason and others) they have a short time horizon. Three, their exclusive goal is to make a trade for dollar gains.
  4. Short sellers of paper. Not nearly so big a group as popularly imagined, there are people who take the two lopsided risks of (1) shorting something with limited profit and unlimited loss potential and (2) fighting a 100-year trend. These people are nimble and aggressive and certainly play for the short term.
  5. Warehousemen, aka market makers. If few people are willing to bet on a rising dollar (i.e. falling gold price), then who sells gold futures? Enter, the warehouseman, who stands ready to carry gold for anyone who wants future delivery. If you buy a future, you are signaling that you want gold, not to be delivered now, but at some date in the future and this group will sell it to you by buying metal in the spot market and simultaneously selling a contract for future delivery. They don’t care at all about price, as they have no exposure to price. They respond to spread.

While virtually all of the gold ever mined is in someone’s hoard and thus there cannot be such a thing as a glut or shortage, the market can experience relative abundance and scarcity and the spreads of the warehouseman provide a good signal to see it.

If there is a big spread, such as in our example in #5, that means two things. One, speculators are bidding up futures contracts. And two, the marginal use of gold is to go into the warehouse. This is a sign of abundance.

Normally, the price in the futures market is higher than the price in the spot market – called contango. Contango means it is profitable to carry the metal, which is to buy a metal bar and sell a future against it. However, the spread can invert and it has many times since the crisis of 2008. When it is inverted—called backwardation—it is profitable to sell metal and buy a future. Incentives to decarry metal should never happen in gold, as it is a sign of shortage and there is no such thing as a shortage in a metal which has been hoarded since ancient times. In backwardation, the marginal supply of metal is coming from the warehouse (carry trades are unwinding) but there is only a finite supply of gold held in carry.

This is the only way to analyze supply and demand fundamentals for the monetary metals: studying spreads between spot and futures, and changes to these spreads, to understand the constantly changing interaction of these five market participants (see here for more on our approach).

Our Call

For a few years, the market had been in a mode of soft to declining fundamentals for both monetary metals. In 2015, the fundamentals of gold firmed up though silver continued the same trend. There are, of course, price blips. In each blip, we see the same pattern repeated. As price goes up, abundance of the metal rises. Scarcity declines. Then the price subsides and the abundance drops again. It is a pattern of speculators testing the market to see if it has the magic go-juice.

For over three years, we have been calling this publicly. On every silver price blip, a chorus of voices from the precious metals community has cried “break out!” But it has not been so. We have been publishing our data, and our analysis. “This is not the break out you’re looking for,” quoth us (paraphrasing from Obi Wan Kenobe in Star Wars).

Needless to say, this is not the behavior of a silver market price that is shooting, or signaling that it will soon shoot, higher. So what is the outlook for silver, and gold, in 2016?

As of year’s end 2015, the Monetary Metals fundamental price of gold is $1,246. For silver, it is $14.20. That puts the gold-silver ratio at around 88.

There is so much more to say. Read the full Monetary Metals Outlook 2016 (free registration required). We explore in-depth the points made above. We provide a detailed look at the collapse of commodities, threat of deflation, debt crisis, the dollar, interest rates, the quantity of money and what it all means for gold and silver in 2016.

 

© 2016 Monetary Metals LLC. All Rights Reserved.


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Precious Metals Pummeled (After Silver’s Overnight Flash-Crash)

It seems the crude short squeeze is tearing a big hole in some traders’ balance sheets (record shorts will do that) and so  precious metals are being sold hard. After Silver’s overnight flash crash, both gold and silver have been slammed as crude surges…

 


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Oil Spikes On Confusion Whether Saudis Propose 5% Production Cut

Headline hockey continues in the energy complex as earlier confirmation of a pending OPEC meeting possible in February has seen more color added, via Reuters, that Saudi Arabia made a proposal that OPEC members cut production by a maximum of 5%. There remains confusion however as Bloomberg reports simply that Russian energy minister has said they “may discuss it,” as opposed to being a specific proposal.

Reuters seems confident that The House of Saud has backed down and prosposed the cut…

  • RUSSIAN ENERGY MINISTER STATES THAT SAUDI ARABIA MADE A PROPOSAL TO REDUCE OIL OUTPUT BY EACH COUNTRY BY A MAXIMUM OF 5%

But Bloomberg is less confident that this is an actual proposal…

  • RUSSIA’S NOVAK SAYS OPEC MEETING MAY DISCUSS 5% OUTPUT CUT: RIA
  • NOVAK: 5% CUT TALKS MAY INVOLVE ALL OIL PRODUCING NATIONS: RIA
  • NOVAK: OPEC, PRODUCER MEETING WOULD BE MINISTER LEVEL: RIA

And further, Interfax reports that this is nothing new…

  • NOVAK: SAUDI ARABIA 5% OIL CUT PROPOSAL WAS MADE EARLIER: IFX
Crude is surging on the confusion…


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The Market Breaks – Stocks Soar As NYSE Admits “Issues” With AAPL Data

This is just getting farcical…

  • 0843ET – NYSE AMEX OPTIONS PROBING ISSUE ON MKT DATA UNDERLYING AAPL

And the market roars…

 

And fixed:

  • 0900ET – NYSE AMEX OPTIONS: ALL SYSTEMS ARE FUNCTIONING NORMALLY

And stocks drop…


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Obama Warns of Growing Anti-Semitism Around the World, Last Pre-Iowa Caucus GOP Debate Tonight, Ammon Bundy Tells Refuge Occupiers to Go Home: A.M. Links

  • President Obama warned of rising anti-Semitism in the United States and around the world in remarks he made yesterday at the Israeli Embassy on the occassion of Holocaust Remembrance Day.
  • The last Republican presidential primary debate before the Iowa caucus will be held on Fox News tonight. Something something Donald Trump, something something Ted Cruz.
  • The Pentagon is considering “military options” to deal with the rise of the Islamic State in Libya.
  • Militia leader Ammon Bundy has asked protesters who were still occupying a wildlife refuge center in Oregon to go home, as the FBI made at least three more arrests.
  • Police in Chicago deliberately sabotage their recording devices.
  • The widow of an Illinois police officer who commited suicide in a way that made it look like a homicide after he defrauded charities has been charged.
  • The president of a marketing and communications agency is upset her 30 mile UberSUV ride from Virginia to the Reagan National Airport cost her a lot more than what her neighbors told her an UberX ride would’ve cost.

New at Reason.com:

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Durable Goods Devastation: New Orders Crash To Crisis Lows

Durable Goods Orders crashed 5.1% MoM and turned back negative YoY and ex-transports continues to deteriorate YoY flashing if nothing else a recessionary environment is upon us (if not an actual recession). However, it is in the core – non-defense ex-aircraaft – segemnt that we see the real bloodbath as shipments plunged and new orders collapsed 7.5% YoY – the "worst since Lehman." Of course we still have bartenders and waitresses to maintain the US economy so this is just transitory weakness in the stock market's most-dependent segment of the economy.

 

Headline data turned back red YoY…

 

Ex-Transports remains in recessionary negative territory…

 

 

 

And finallyu the real carnage – outside of warmongery – capital goods orders are collapsing…at the fastest rate since Lehman

 

Of course – this is all nothing that a good rate hike won't fix, with all its confidence-inspiring sentiment.


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