New Home Sales Bounce; Remain Well Below Weather-Impacted Highs

Last month’s dramatic miss of expectations for a modest post-weather pop in new home sales (having dropped 14.5% month-over-month) so it was inevitable that there would be a bounce. Modestly beating expectations, 433k annualized new home sales in April was only a 6.4% gain MoM thanks to the upward revision of the big miss in March. This ‘recovery’ remains well below the peak see in January – right in the middle of the worst weather impacted time in US history if one is to believe what the media is spewing. Before the ‘housing recovery is back on track’ meme gets going though, there is the fact that homes sold in the Northeast fell to the lowest since June 2012… as the average home price fell to $320,100 – the lowest since August 2013.

 

 

A scratch below the surface shows:

  • New Homes sold in Midwest up 47.4% (35.5% Y/Y) in April to 84K, in Northeast down -26.7% (-31.3% Y/Y) to 22K 

Charts: Bloomberg




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The Great Unrotation: Biggest Inflow Into Treasury Funds Since 2010; $7 Billion Outflow From Stocks

Remember the legend of the great rotation? Neither do we. But we do know that a Treasury fund inflow of $3.06 billion, the largest since at least 2010 according to Bank of America, coupled with an equity fund outflow of $7.1 billion, means just one thing: the great unrotation is raging. It does beg one question, however, with equity funds dumping in the past week, just who is actually left BTFATH? (Don’t worry, that’s rhetorical – we all have Kevin Henry and the HFT crew to thank for the ongoing endless manipulation of the rigged market).

From Bank of America:

Reverse rotation into Treasuries

Following the recent market volatility mutual fund and ETF investors sold stocks, reduced purchases of high grade and instead bought Treasury bonds last week (ending on May 21st). Long-term Treasury funds reported an inflow of $3.06bn, the highest since at least 2010. As flows tend to follow returns, the buying is consistent with the sharp decrease in interest rates last week. Some of this large buying of Treasuries appears to have come at the expense of  longer-dated high grade funds: inflows to high grade outside of short-term funds dropped by about $1bn relative to the prior week to a $0.85bn inflow. Inflows to short-term high grade funds also fell to $0.42bn last week from $0.82bn inflow in the prior week.

 

Still, the net effect was more flows into bonds, as inflows to all fixed income funds rose to $6.61bn last week from a $3.54bn inflow in the prior week. Equity  funds, on the other hand, reported a $7.10bn outflow last week, down from a $9.02bn inflow in the prior week. At the same time inflows to high yield funds rose to $0.73bn last week, driven by ETFs. Loan funds, on the other hand, continued to report outflows, totaling $0.36bn last week, while inflows to EM (+$0.51bn)  and munis (+$0.54bn) remained steady. Finally, flows for money market funds remained close to flat, with a $0.57bn outflow.

In tables:

And charts:




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Will Neff on Why League of Legends Rules

“It’s a legitimate
sport, and there are millions of fans around the world who pay good
money to watch you play,” says professional League of
Legends player Yiliang “Peter” Peng. “There are a bunch of
sponsors around the world who pay thousands and thousands of
dollars every month just to put their name on your jersey.” With
nearly a billion hours of logged game play and over 70 million
unique accounts, League of Legends has become the
fastest-growing game in the world. A lot of games earn cult-like
followings, but Will Neff explains why League of Legends stands out
from the rest.

View this article.

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Friday A/V Club: Our Friendly Government Explains Why These Concentration Camps Are in Everyone’s Best Interests

Pioneers wanted!During World War II, the U.S. government interned
tens of thousands of Japanese Americans who had been convicted of
no crime. To put a happy face on the proceedings, the Office of War
Information made a film about it. “Neither the Army nor the War
Relocation Authority relished the idea of taking men, women, and
children from their homes, their shops, and their farms,” narrator
Milton Eisenhower claims. “So the military and civilian agencies
alike determined to do the job as a democracy should: with real
consideration for the people involved.”

We then see footage of the prisoners (sorry: “evacuees”) being
delivered to their internment camps (sorry: “pioneer communities”).
These new pioneers, we’re told, settled “on land that was raw,
untamed, but full of opportunity.” The inmates were eager to work,
and they “cooperated wholeheartedly. The many loyal among them felt
that this was a sacrifice they could make in behalf of America’s
war effort.” (And just look at those
happy smiles
!)

It gets even worse, but I can’t quote the whole thing; you’ll
have to watch it. Here’s the full film:

For past editions of the Friday A/V Club, go here.

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“I Am Hoping For A Mini Puke”: Details Of Barclays’ Gold Manipulation

Curious how and why commercial bank traders manipulate the price of gold? The following detailed narrative from the FCA should answer most lingering questions.

From the FCA Final Notice charging one Daniel James Plunkett

The Digital

On 28 June 2011, Barclays entered into an exotic options contract (the Digital) with Customer A. The Digital was a ‘digital’ option, meaning it had only two potential values: (i) a fixed pay-out to Customer A if the option finished ‘in the money’; or (ii) no pay-out if the option finished ‘out of the money’. In order to determine whether a digital option finishes in or out of the money, reference is usually given to the price or level of an agreed investment or benchmark on a specified date, known as the observation date.

The Digital had a notional amount of approximately USD43m and upon the signing of the contract, Customer A paid a premium of 8.18% of the notional value, USD4.4m, to Barclays, of which a proportion was attributed as a profit to Mr Plunkett’s book. The Digital had two observation dates, 28 June 2012 and 20 June 2013, and referenced the price fixed during the 3:00 p.m. Gold Fixing on each of these dates.

Under the terms of the Digital, if the price fixed in the 28 June 2012 Gold Fixing exceeded USD1,558.96, the Barrier, a payment of 9% of the notional amount, or approximately USD3.9m, would accrue to Customer A. If the price fixed during the 20 June 2013 Gold Fixing exceeded USD1,633.91, a payment of 18% of the notional amount would accrue to Customer A, less any accrued percentage payment related to the 28 June 2012 Gold Fixing.

The Digital was sold to Customer A by Barclays’ Sales Desk. Mr Plunkett was responsible for pricing and managing Barclays’ risk on the Digital. He was therefore aware of the terms of the Digital. The Digital referenced the price of gold fixed in the 3:00 p.m. Gold Fixing on 28 June 2012. As described […] above, the terms provided that if the price fixed above USD1,558.96 (the Barrier) then Barclays would be required to make a USD3.9m payment to Customer A. Part of this payment would be attributed to Mr Plunkett’s book. If, however, the price of gold fixed below the Barrier, then Barclays would not have to make the USD3.9m payment to Customer A and a percentage of this additional profit would be attributed to Mr Plunkett’s book.

Mr Plunkett’s trading during the 28 June 2012 Gold Fixing

Mr Plunkett was aware that the Digital was the main risk exposure he had to manage on 28 June 2012. On the evening of 27 June 2012, Mr Plunkett sent an email summarising his risk exposures to other members of the Commodities business area, including members of the Precious Metals Desk, stating that the Digital was his “main event” for 28 June 2012 and that he was hoping for “a mini puke to 1558 for fixing”. The Authority understands the phrase “mini-puke” used by Mr Plunkett to have meant a drop in the price of gold ahead of the 28 June 2012 Gold Fixing – the price in the 3:00 p.m. 27 June 2012 Gold Fixing had fixed at USD1,573.50 and COMEX Gold futures were trading at approximately USD1,577.50 at the time of his email. Mr Plunkett repeated this sentiment on the morning of 28 June 2012, stating to a colleague “hopefully we fix 1558, or 1558.75 ideal”.

At the start of the 28 June 2012 Gold Fixing at 3:00 p.m., the Chairman proposed an opening price of USD1,562.00. However, the proposed price quickly dropped to USD1,556.00, following a drop in the price of August COMEX Gold Futures (which was caused by significant selling in the August COMEX Gold Futures market, independent of Barclays and Mr Plunkett). The proposed price in the 28 June 2012 Gold Fixing then rose, eventually fixing at USD1,558.50 at 3:10 p.m.

At 3:06 p.m., shortly after the Chairman had increased the proposed price to USD1,558.50, Mr Plunkett, who had not placed any previous orders during the Gold Fixing, placed a large sell order of between 40,000 oz. (100 bars) and 60,000 oz. (150 bars), with Barclays’ representative on the Gold Fixing. This order was incorporated by Barclays’ representative into Barclays’ net position, which led to Barclays declaring itself to be a seller of 52,000 oz. (130 bars).

The purpose of Mr Plunkett’s order was to decrease the likelihood of the proposed price rising further (above the Barrier) and to increase the likelihood that the price would fix at USD1,558.50 (below the Barrier).

Once all the Gold Fixing Members had declared their respective positions at USD1,558.50, the level of selling in the 28 June 2012 Gold Fixing exceeded the level of buying by 190 bars (155 bars buying/345 bars selling). This suggested that the proposed price in the 28 June 2012 Gold Fixing was likely to move lower.

At 3:07 p.m. Mr Plunkett withdrew his entire sell order, which resulted in Barclays’ representative withdrawing Barclays’ position (selling 130 bars). This reduced the imbalance in the 28 June 2012 Gold Fixing from 190 bars to 60 bars (155 bars buying/215 bars selling).

By withdrawing his entire sell order, Mr Plunkett intended to bring the difference between buying and selling interests within the 50 bar margin required for the price to fix. This would also increase the likelihood of the price fixing at USD1,558.50 (below the Barrier).

Following Mr Plunkett’s withdrawal of his order, one of the Gold Fixing Members reduced its selling position by 10 bars, bringing the imbalance in the 28 June 2012 Gold Fixing to 50 bars. However, before the price was fixed, there were a number of further changes in the levels of buying and selling in the 28 June 2012 Gold Fixing, which coincided with an increase in the price of August COMEX Gold Futures.

As a result of these changes, the level of buying at USD1,558.50 exceeded the level of selling (155 buying/45 selling), and the proposed price was likely to move higher. Given that the price of August COMEX Gold Futures was trading around USD1,560.00 at this time, if the Chairman did move the proposed price in the 28 June 2012 Gold Fixing higher, it was likely to be to a similar price level (which was higher than the Barrier).

At 3:09 p.m., Mr Plunkett again placed a large sell order, 60,000 oz. (150 bars), with Barclays’ representative, who, also taking into account changes in customers’ orders, declared Barclays’ net position in the 28 June 2012 Gold Fixing to be selling 40,000 oz. (100 bars).

By placing his sell order, Mr Plunkett intended to increase the likelihood of the price fixing at USD1,558.50 (below the Barrier).

Barclays’ sell order, of which Mr Plunkett’s order was a significant component, had the effect of bringing the level of buying and selling in the 28 June 2012 Gold Fixing to a point where the imbalance was 10 bars (155 buying/145 selling) and the price could be fixed. Indeed, shortly after Mr Plunkett placed this order, two of the Gold Fixing members adjusted their orders and at 3:10 p.m. the Chairman declared the price to be fixed at USD1,558.50 (below the Barrier). As a result, Barclays was not obligated to make the USD3.9m payment to Customer A and Mr Plunkett’s book thereby profited by USD1.75m (excluding hedging), which was in addition to the initial profit that his book had received upon the sale of the Digital.

Events after the 28 June 2012 Gold Fixing

Shortly after the conclusion of the 28 June 2012 Gold Fixing, Mr Plunkett repurchased 60,000 oz. (150 bars) of gold by executing an internal trade with Barclays’ Gold Spot Book. The purpose of executing this order was to unwind the 60,000 oz. (150 bars) position he had taken during the 28 June 2012 Gold Fixing.

Mr Plunkett’s trade was executed at a higher price than that at which he had sold during the 28 June 2012 Gold Fixing, and his trading book suffered an immediate loss of approximately USD114,000.

Customer A’s enquiry and Barclays’ and the Authority’s investigations

Very shortly after the conclusion of the 28 June 2012 Gold Fixing, Customer A became aware that the price had fixed just below the Barrier and sought an explanation from Barclays as to what happened in the Gold Fixing. Customer A’s enquiry was relayed to Mr Plunkett. Mr Plunkett provided an explanation that referred only to the significant selling in August COMEX Gold Futures. Mr Plunkett did not disclose his trading activity during the 28 June 2012 Gold Fixing, which was a material fact that ought to have been disclosed.

Later on 28 June 2012, and again on 29 June 2012, Mr Plunkett had further communications within Barclays regarding Customer A’s concerns. Again, Mr Plunkett did not disclose his trading activities during the 28 June 2012 Gold Fixing.

After the weekend, on the morning of Monday 2 July 2012, Mr Plunkett sought out his line manager and informed him that he had traded during the 28 June 2012 Gold Fixing. He also subsequently reported his trading to Barclays’ Compliance.

During Barclays’ internal investigation, Mr Plunkett provided an account of his trading during the Gold Fixing that was untruthful, in that he did not disclose the true rationale for his trading, or the reasons why he failed to disclose his trading to the Sales Desk on 28 June 2012. In giving this account, Mr Plunkett intended to give the impression that he placed orders in the 28 June 2012 Gold Fixing for reasons other than to increase the likelihood that the price of gold would fix below the Barrier.

Mr Plunkett continued to provide this untruthful account of events when he was interviewed by the Authority.

The circumstances of Mr Plunkett’s trading in the 28 June 2012 Gold Fixing were formally investigated by Barclays. Barclays subsequently repaid Customer A the full amount that Customer A would have been due had the price of gold in the 28 June 2012 Gold Fixing fixed above the Barrier.

* * *

And now we know how it is done, and also know that a single trader can move and reprice the entire gold market courtesy of massive paper gold slams at critical points without regard for price discovery, when self-serving interests are all that matter: just as we have alleged since 2009.

Which leaves two open questions:

  1. How many other people in addition to Customer A were impacted by Daniel Plunkett’s gold manipulation, because while one person had a lot to lose on an artificial gold repricing, it is just as true that many more people positioned alongside Customer A also lost, if perhaps smaller amounts (but nobody knows). The fact that they lost, however, due to a criminal, self-serving intervention by one person, does not mean that they too aren’t entitled to monetary compensation. Or perhaps the FCA will pull out the HFT excuse which is that if millions lose minuscule amounts of money due to market rigging, it isn’t really market rigging?
  2. How many other traders at other commercial banks, other central banks and the BIS itself, do this on a daily basis, and what would the price of gold be if one would eliminate the compounded impact of all comparable gold manipulation events (whether at the fixing or at any other time) over the past decade or, if one goes back to the very beginning of the London gold fix, the past 117 years?

We aren’t holding our breath to find out.




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A.M. Links: Federal Workers Owe $3.3 Billion in Back Taxes, Senate Dems Block V.A. Reform Bill, Tennessee Brings Back Electric Chair

  • According to the Internal Revenue Service, over
    318,000 active and retired federal workers
    owe back taxes
    to the tune of $3.3 billion.
  • The V.A. scandal
    keeps growing
    . Meanwhile, Senate Democrats moved yesterday

    to block
    the VA Management Accountability Act, which had passed
    the House with broad bipartisan support.
  • Dallas Mavericks owner Mark Cuban is
    facing criticism
    for his statements on race and the Donald
    Sterling controversy.
  • Tennessee Gov. Bill Haslam (R) has signed a bill bringing back
    the
    electric chair
    .
  • Israelis and Palestinians
    are preparing
    for a visit this weekend from Pope Francis.
  • Hedge fund billionaire Tom Steyer will fund a multi-state, $100
    million campaign against
    “science deniers”
    this year.

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and Twitter,
and don’t forget to
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up
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content.

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Kurt Loder Reviews X-Men: Days of Future Past and Cold in July

It
wouldn’t hurt to have a Marvel Comics scholar gobbling popcorn by
your side as the plot of X-Men: Days of Future
Past
 goes flying over your head. The story is madly
convoluted, darting back and forth between past and future and
hopping all around the globe as killer robots descend from the sky
and everybody’s favorite mutants—old vets mingled with their
younger selves—kick butt and levitate real estate down below. Much
of this may be baffling to non-scholars, but it doesn’t really
matter, writes Kurt Loder because director Bryan Singer, whose
first two X-Men movies launched this 14-year-old
franchise, is so attentive to his characters’ feelings—to their
by-now-familiar resentments and sorrows—and so inventive in staging
action scenes amid the acres of digital effects on display that
it’s hard not to get swept along.

View this article.

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“Political Earthquake” – Nigel Farage “Big Winner” In Local Elections

Yesterday we highlighted the European people’s growing ‘revulsion’ against Europe and overnight we got yet another confirmation that the status quo – despite record low bond yields and record high stock and real estate prices – are losing their grip on control. Having taken the lead in the polls last week, UKIP’s Nigel Farage has scored a major victory in local elections in England with early results pointing to considerable gains for the euro-skeptic party:

  • UKIP GAINS 20 SEATS IN EARLY ENGLISH LOCAL-ELECTION RESULTS
  • U.K. TORIES LOSE 20 SEATS IN EARLY LOCAL-ELECTION RESULTS

As Reuters reports, one MP noted “I think Nigel Farage for quite a lot of those people is just a big sort of two fingers stuck up at what they feel is a sort of hectoring, out-of-touch elite.”

As Reuters reports,

Britain’s anti-EU party UKIP made strong gains in local elections in England, siphoning support from Prime Minister David Cameron’s Conservatives as it capitalised on discontent about immigration and mainstream politics.

 

The gains by the UK Independence Party, which wants Britain to leave the EU, will pile pressure on Cameron to toughen his approach to Europe and alarm some in his party who worry UKIP could scupper the Conservatives hopes of winning next year’s national election.

 

The strong support for UKIP indicated by early local council results suggests the party could also do well in elections to the European Parliament, also held on Thursday.

 

 

Farage told reporters he was cheered by the early results and thought they were a good platform to challenge for seats in the 2015 national election.

 

“Looking at the average vote shares across the country, and without wishing to count any chickens before they’re hatched, it looks pretty good,” he told reporters.

 

 

I think Nigel Farage for quite a lot of those people is just a big sort of two fingers stuck up at what they feel is a sort of hectoring, out-of-touch elite,” Jeremy Browne, a Liberal Democrat lawmaker

 

 

The European elections were held on the same day, but the results will not be announced until Sunday evening, in line with the rest of the EU. They will determine the political persuasion of Britain’s 73 lawmakers in the 751-seat European Parliament.

 

 

There’s been a vote for UKIP and that sends us a very clear message that people have concerns about immigration, about welfare, about schools and skills of course,” said Michael Gove, the Conservative education minister.

 

“We will pay attention to those concerns.”

Change – it appears – is coming.




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It’s 8:00 AM: Do You Know Where Your ‘Un-Rigged’ Non-Barclays Gold Slam Is?

Just like stocks go up on Tuesdays in the US (and Wednesdays in Japan).. and volatility always falls… so shortly after 8am ET this morning ‘someone’ decided it was the optimal time to unleash $450 million notional of gold futures. Just as we saw earlier in the week, this sizable dump only achieved a $5 depreciation in price as it seems the inexorable efforts of status quo stabilizers to ensure the only real indicator of empire collapse is not flashing red remain in full effect. Given that Barclays is now out ofthe business of rigging gold prices, the question remains: who is?

 




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