Tag: finance

Following continued weakness in July, analysts once again hope for a rebound in home sales in August but once again they were disappointed. August existing home sales were unchanged from July’s -0.7% drop, hovering at 5.34mm SAAR – the lowest since Feb 2016.

Expectations were for a 0.5% jump in August, but printed unchanged (home sales haven’t seen a monthly increase since March)

Both single-family and multi-family units were unchanged in August as median prices dipped for the second month in a row (up 4.6% YoY still).

The West saw a 5.9% slump MoM in existing home sales as Northeast sales rose 7.6% MoM.

Inventory of available properties rose 2.7% y/y to 1.92m, which was the first increase in more than three years. At the current pace, it would take 4.3 months to sell the homes on the market, compared with 4.1 months a year earlier; Realtors group considers less than five months’ supply consistent with a tight market.

“While inventory continues to show modest year over year gains, it is still far from a healthy level and new home construction is not keeping up to satisfy demand,” said Yun.

“Homes continue to fly off the shelves with a majority of properties selling within a month, indicating that more inventory – especially moderately priced, entry-level homes – would propel sales.”

Hope is high for NAR however…

“There are buyers on the sidelines” ready to re-enter the market, Lawrence Yun, NAR’s chief economist, said at a press briefing accompanying the report.

“The housing market can turn for the better” as long as inventory continues to rise, he said.

And despite NAHB sentiment near cycle highs, homebuilder stocks and housing data continues to tumble…

Time for some rate-hikes, right?

“Rising interests rates along with high home prices and lack of inventory continues to push entry-level and first time home buyers out of the market,” said Yun.

“Realtors continue to report that the demand is there – that current renters want to become homeowners – but there simply are not enough properties available in their price range.”

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Multiple people have been injured in a shooting in a business district in Aberdeen, Maryland. The attack occurred near the intersection of Spesutia Road and Perryman Road, according to the Harford County Sheriff’s Office.

A church and a business park are near the area where the shooting was reported. It’s not clear where the shooting took place.

HCSO is investigating the report of shots fired in the area of Spesutia Road and Perryman Road. Please avoid the area. PIO is responding.

— Harford Sheriff (@Harford_Sheriff) September 20, 2018

Please follow HCSO here on Twitter or on Facebook for official and confirmed information regarding the shooting in the area of Spesutia and Perryman.

— Harford Sheriff (@Harford_Sheriff) September 20, 2018

We can confirm there was a shooting in the area of Spesutia Road and Perryman Road. Multiple victims. The situation is still fluid. Please avoid the area. Media staging area still TBD.

— Harford Sheriff (@Harford_Sheriff) September 20, 2018

Police are asking people to avoid the area.

This is a developing story. Check back for updates…

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Authored by Ruchir Sharma, op-ed via The New York Times,

After the fall of Lehman Brothers 10 years ago, there was a public debate about how the leading American banks had grown “too big to fail.” But that debate overlooked the larger story, about how the global markets where stocks, bonds and other financial assets are traded had grown worrisomely large.

By the eve of the 2008 crisis, global financial markets dwarfed the global economy. Those markets had tripled over the previous three decades to 347 percent of the world’s gross economic output, driven up by easy money pouring out of central banks. That is one major reason that the ripple effects of Lehman’s fall were large enough to cause the worst downturn since the Great Depression.

Today the markets are even larger, having grown to 360 percent of global G.D.P., a record high. And financial authorities — trained to focus more on how markets respond to economic risk than on the risks that markets pose to the economy — have been inadvertently fueling this new threat.

Over the past decade, the world’s largest central banks — in the United States, Europe, China and Japan — have expanded their balance sheets from less than $5 trillion to more than $17 trillion in an effort to promote the recovery. Much of that newly printed money has found its way into the financial markets, where it often follows the path of least regulation.

Central bankers and other regulators have largely succeeded in containing the practice that caused disaster in 2008: risky mortgage lending by big banks. But with so much easy money sloshing around in global markets, new threats were bound to emerge — in places the regulators aren’t watching as closely.

Within the $290 trillion global financial markets, there are hundreds of new risks, pools of potentially troubled debt. Among the most troubling: corporate borrowers and so-called non-bank lenders all over the world.

As bank lending dried up, more and more companies began raising money by selling bonds, and many of those bonds are now held by these non-bank lenders — mainly money managers such as bond funds, pension funds or insurance companies.

Among corporations listed on the S.&P. 500 index, debt has tripled since 2010 to one and a half times annual earnings — near the historic peaks reached during the recessions of the early 1990s and 2000s. And in some parts of the bond markets, debt loads are much higher.

One of the big corporate risks is developing largely beyond regulatory oversight. Some United States companies that were publicly traded in 2008 have since gone private, often precisely in order to avoid intensified scrutiny from regulators. Many of those companies were purchased by private equity firms, in deals that leave the companies saddled with huge debts. Right now the typical American company owned by a private equity firm has debt six times higher than its annual earnings — or twice the level that a public ratings agency would consider high-risk or “junk.”

At a time when central banks are holding interest rates at record lows, the return from holding plain vanilla corporate bonds is negligible, so investors are more willing to buy junk, for the higher yields. And this hunt for higher returns has been playing out worldwide as asset managers chase higher returns anywhere they can be found, whether in United States private equity or in the bond markets of Europe and emerging economies like Argentina and Turkey.

The biggest risks outside the United States are in China, which has printed by far the most money and issued by far the most debt of any country since 2008, and where regulators have had less success reining in borrowers and lenders. Easy money has fueled bubbles in everything from stocks and bonds to property in China, and it’s hard to see how or when these bubbles might set off a major crisis in an opaque market where most of the borrowers and lenders are backed by the state. But if and when Beijing reaches the point where it can’t print any more money, the bottom could fall out of the economy.

More broadly, the trigger to watch is the United States Federal Reserve, since many other central banks in the world tend to follow the Fed’s lead in setting interest rates. Over the last 50 years, every time the Fed has reined in easy money by raising interest rates, a downturn in the markets or the economy has followed eventually. It may take a while, but trouble almost inevitably does come.

Many doomsayers worried that the Fed tightening that began in 2004 would help prompt a recession — and it eventually did, in 2008. Though rates are still historically low in the United States, the Federal Reserve began to raise them more than two years ago and is expected to continue tightening them into next year.

The Fed’s tightening is already rattling emerging markets. When the American markets start feeling it, the results are likely be very different from 2008 — corporate meltdowns rather than mortgage defaults, and bond and pension funds affected before big investment banks.

If a downturn follows, it is more likely to be a normal recession than another 100-year storm, like 2008. Most economists put the probability of such a recession hitting before the end of 2020 at less than 20 percent.

But economists are more often wrong than right. Professional forecasters have missed every recession since such records were first kept in 1968, and one of the many reasons for this is “recency bias”: using economic forecasting models that tend to give too much weight to recent events. They see, for example, that big banks are in much better shape than in 2008, and households are less encumbered by mortgage debt, and so play down the likelihood of another recession. But they are, in effect, preparing to fight the last war.

To have any chance of anticipating and preventing the next downturn, regulators must look for the threats that have emerged since 2008. They need to recognize that the markets now play an outsized role in the economy, and their attempts to micromanage this vast sea of money have only pushed the risks away from big American banks and toward new lenders outside the banking system, particularly in the United States and China.

Markets have grown so large in part because every time they stumbled, central bankers rescued them with easy money. When markets rose sharply — as they have in recent years — the authorities stood by, saying they are not in the business of popping bubbles. Now, the markets are so large it is hard to see how policymakers can lower the risks they pose without precipitating a sharp decline that is bound to damage the economy.

It’s a familiar problem: Like the big banks in 2008, the global markets have grown “too big to fail.”

* * *

Ruchir Sharma, the author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World,”  is chief global strategist at Morgan Stanley Investment Management.

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Thanks to investors buying the f**king trade tariff dip, The Dow Jones Industrial Average has finally taken out the January record highs…

Mission Accomplished…

The S&P 500 also pushed to new record highs…

And the president is paying attention…

S&P 500 HITS ALL-TIME HIGH Congratulations USA!

— Donald J. Trump (@realDonaldTrump) September 20, 2018

Just one thing…

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Some have called it the “pot.com” mania and it was on full display yesterday with momentum frenzy stock du jour, Tilray, went absolutely berserk.

Bloomberg’s Arie Shapira perhaps summarized the pot stock mania best, “with everyone and their mother either watching the madness unfold on their trading screens, trying to get a borrow to short the stock followed by relief that they never were able to short followed by wishing they were short all along, feeling major FOMO, or contemplating whether what they were witnessing was more like the crypto craze of last year, the freakouts from the rare earths (remember Molycorp?) to alternative energy and 3D printers at various points over the past 15 years, the dot com bubble, the tulip bulb crash of the 17th century, and so forth.”

Stated less poetically, on Wednesday Tilray soared 94%, then wiped out the entire gain in under an hour, only to finish 40% higher than where it started, all in the span of 5 trading halts.

The fluctuations drew comparisons to the Bitcoin craze and the peak of the dot-com bubble. It also prompted many to ask the Fed if this was indicative of behavior of a market “without” asset bubbles.

Well, get ready for round two.

One day after Tilray took investors on “perhaps the wildest day yet for the nascent industry”, the stock is set for another day of unprecedented volatility and mayhem, with huge swings in premarket trading falling as much as 7% before trading higher by 13% as more than 300,000 shares have already traded hands in the low-float stock, whose top shareholder owns ~70% of the shares outstanding.

Once again the pot euphoria is contagious, as Canopy Growth’s ADRs rose 3.1% while the ETFMG Alternative Harvest exchange-traded fund added 4.1% according to Bloomberg.

“When you get big moves like this, you suddenly have a lot of people paying attention,” said Matt Maley, an equity strategist at Miller Tabak & Co. “People are going to be watching a little closer and there probably will be more human involvement today than yesterday.”

Which means that the violent moves could be even more volatile.

“It’s almost like everyone wanted to express their fear and greed through one entity,” Robert W. Baird’s Michael Antonelli told Bloomberg. “It’s fun to watch. It’s the wild west right now for cannabis. It isn’t the kind of thing that institutions would touch.”

Whether it is indeed “everyone” or just a handful of algos trading the low-float stock back and forth remains to be seen but on Wednesday, almost $6.5 billion worth of Tilray shares traded hands, second only to Amazon.com’s $7.6 billion, whose stock is 47 times greater than Tilray’s $20 billion market valuation.

Another sign of the insanity: the company with 500x forward P/E finished the day bigger than 40% of the companies in the S&P 500.

“The behavior is very reminiscent of the internet bubble,” said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services. “A nascent industry, a company with what is viewed as first mover advantage, a small float and some media hype is a dangerous recipe for investors.”

But what is perhaps most interesting, is the inverse correlation between Tilray and the old momentum favorite, cryptos, which sold off as Tilray surged and then spiked as TLRY tumbled.

Commenting on the last hour trading frenzy in TLRY, Don Selkin, chief market strategist at Newbridge Securities said that “we saw Tesla making some crazy moves a little over a month ago. That was peanuts compared with Tilray. It has nothing to do with the long-term outlook on the industry. It’s a purely technical move.”

The closing flourish that added $63 to the share price took just six minutes.

“It left a sea of bodies, both longs and shorts, behind in its wake,” said Dave Lutz, Managing Director at JonesTrading.

And now comes round two.

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The last time initial jobless claims were this low (1969), Abbey Road was #1 on the charts, and a recession broke out…

At 201k, initial claims are the lowest since 1969, and continuing claims are also plunging, to the lowest since 1973…

As good as it gets?

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The dollar index is collapsing this morning (helped by strength in cable and the loonie) as the global bond rout continues to spread…

The Bloomber Dollar Index has tumbled to its lowest since July 9th

Helped by a surge in Cable back at its highest since July 9th..

As UST bond yields resurge to new cycle highs…

And this time it’s spreading to China, where yields no longer offer any kind of decoupling from US..

As Bloomberg’s Christopher Anstey notes, even though the Chinese economy is slowing, hurt by the weakest investment growth since at least 1999, it’s clear from bond price action that policy makers aren’t prepared to endorse broad monetary stimulus.

Premier Li Keqiang said in a keynote speech Wednesday that while ample liquidity will be maintained and help extended to smaller companies to access financing, China will keep focused on stabilizing leverage.

Li also ruled out yuan devaluation as a strategy in China’s trade war with the U.S., which suggests the need for restraint when thinking about interest-rate cuts or broad liquidity injections.

The trade tensions pose another problem. With prospects for tit-for-tat tariffs stretching into 2019, inflation pressures are likely to mount. Take soybean prices, a key ingredient for meat production: more than one-third of China’s soy imports come from American farmers, with few alternatives in the short term.

That adds to structural catalysts for inflation, such as soaring rents across major cities. A clampdown on the collection of social-security premiums could see firms attempting to raise prices to compensate. While China recently moved to ease the initiative, Morgan Stanley estimated it could cost Chinese companies as much as $350 billion a year.

This all makes for a downright unfriendly environment for rates investors. China’s bond market seemed like a great diversification play earlier this year as yields climbed elsewhere, but that chapter may be over.

In fact some serious volumes are flying through the Treasury futures markets…

Which is sending signals to the algos to panic buy stocks…

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Even though North Korea has reneged on similar promises in the past, Kim Jong Un’s promise to allow international observers into the isolated country to monitor the dismantling of the North’s Yongbyon nuclear reactor and several missile-launching sites has apparently persuaded the US to restart negotiations to drop sanctions against the regime after they stalled out over the summer.

In what may be another example of the North telling the US what it wants to hear, Kim has reportedly requested another meeting with Trump while promising to quickly surrender all of his country’s nukes, according to South Korean leader Moon Jae-in, who shared the news at a press conference Thursday. Kim also wants Secretary of State Mike Pompeo to return to North Korea for another meeting (a visit that had been planned for last month was canceled by Trump as talks stalled). 

In a sign that negotiations are set to begin again in earnest, Pompeo has invited Ri Yong-hu, North Korea’s foreign minister, to a meeting in New York next week after the secretary of state set a goal to complete the North’s denuclearization process by the time President Trump’s term ends in January 2021, Reuters reports,

Despite the renewed enthusiasm surrounding the talks, several anonymous US officials said they remain skeptical of the North’s intentions. Specifically, they’re worried the North could be deliberately attempting to drive a wedge between Washington and Seoul.

While North Korea has pledged to “work toward” denuclearization”, these commitments have been vague. Yet the US insists that the North must commitment to removing its arsenal if it wants easing of international sanctions and an end to the Korean war.

Some U.S. officials were deeply skeptical. Speaking before Pompeo’s announcement, two senior U.S. officials involved in U.S.-North Korea policy voiced fears Kim was trying to drive a wedge between Washington and Seoul.

At the summit, the two Koreas agreed on plans to resume economic cooperation, including working to reconnect rail and road links. They agreed as well to restart a joint factory park in a border city of Kaesong and tours to the North’s Mount Kumgang resort, when conditions are met.

[…]

“There is nothing the North has offered so far that would constitute irreversible movement toward denuclearization, however you define that, by January 2021 or any other time, or even a reduction of the military threat it poses to the South and the region,” said a U.S. intelligence official.

“Everything that’s out there now is conditional on U.S. actions that would reduce the pressure on the North to cooperate or (is) filled with loopholes and exit ramps,” added the official, who spoke on condition of anonymity.

And even if North Korea shuts down Yongbyon, many in the US intelligence community suspect the country has other hidden nuclear facilities. It’s also notable that this week’s meeting between Kim and Moon failed to yield a commitment from the North to surrender its entire nuclear arsenal. This could become a serious problem as the ambiguity about Washington’s and North Korea’s respective commitments could give Kim room to argue that the US hasn’t fulfilled its pledges.

“What North Korea really wants and their priorities may be different from ours,” the official told reporters on Thursday on condition of anonymity.

“We’re talking about a package that would carry many elements, including the declaration of the facilities, Yongbyon and Tongchang-ri, which are of U.S. interest, and from the North side, the issues of normalizing relations, ending the war and easing sanctions.”

[…]

“What North Korea really wants and their priorities may be different from ours,” the official told reporters on Thursday on condition of anonymity.

“We’re talking about a package that would carry many elements, including the declaration of the facilities, Yongbyon and Tongchang-ri, which are of U.S. interest, and from the North side, the issues of normalizing relations, ending the war and easing sanctions.”

Despite these concerns, President Trump responded enthusiastically to the latest agreement. “I’m calm, I’m calm – so we’ll see what happens,” Trump told reporters. One thing is clear: While Trump can credibly claim the detente as a major foreign policy victory – Pompeo’s ambitious agenda could influence the US to make unreasonable concessions to clinch a political win before the 2020 vote. Kim likely knows this, and will try to wring every ounce of leverage out of it that he can.

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Less than three months after Trump’s latest tweet slamming OPEC, in which he warned the petroleum cartel that “the United States defends many of their members for very little $’s. This must be a two way street. REDUCE PRICING NOW!”…

… Trump was at it again and on Thursday morning, the president lashed out at OPEC, saying that the US protects the countries of the Middle East, and warning these nations that “they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember.“

His message: “The OPEC monopoly must get prices down now!”

We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!

— Donald J. Trump (@realDonaldTrump) September 20, 2018

“With oil prices close to the highs of the year, the Trump tweet doesn’t come as a surprise,” said UBS’ Giovanni Staunovo. “Considering the upcoming OPEC meeting in Algiers, he wants to keep pressure on the group ahead of the mid-term elections.”

In response, Brent crude, which had traded as high as 0.5% earlier, erased session gains and slumped 0.1% in the red.

And while OPEC and allies are scheduled to meet in Algiers this weekend to discuss the oil market and their production levels, Reuters reported that OPEC is unlikely to agree to further official increases in oil output, which means more angry tweets from Trump will be forthcoming.

Meanwhile, as some have pointed out, with OPEC’s market share below 40%, perhaps Trump should target other oil market members.

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