Monday, July 29, 2013

June New Home Sales Report Further Confirms My Bearish View On Housing

Bullishness often demands ignorance of the fundamentals -  Bill King, The King Report
Last week I published Part 3 of my series on why I think the housing market is about to head back to new bear market lows.  The day after it was published on Seeking Alpha (and posted on this blog), the Census Bureau released its new home sales report for June.  Although it beat the consensus estimate for June, the May report was revised lower by quite a bit.  In fact, it's safe to say that because of the way the Census Bureau counts a new home "sale," that the initial number published is often quite unreliable and substantially over-estimated.

The Census Bureau records a "new home sale" when an escrow deposit is taken in or a sales agreement is signed.  Keep in mind that escrow deposits are typically 1-2% of the cost of the home - i.e. a fraction of the equity required for mortgage financing.  Right now the cancellation rate in general for new homes is running in the mid-20% area.

I wrote another article explaining why, despite beating the Wall Street estimate, the new home sales report triggered a big sell-off last Thursday in the housing stocks.  You can access that article here:  The June New Home Sales Report.

June and August are typically the peak months for home sales on a seasonal basis.  I fully anticipate that the next couple of new home sale reports will have large downward revisions for the June number, as the June report only partially reflects the jump in cancelled contracts that will occur from the May spike in mortgage rates.  Existing home sales for July will also be highly affected.  Sorry, but it's all downhill from here for housing.  Watch for negative GDP reports as well.


  1. Dave, which do you think has more potential at the moment? Gold or silver? I'm considering buying some PMs now but I don't know which one should I choose.

    1. I hope so. I bought some so I would hopefully have some hedge against all currencies devaluation to zero (eventally) and my last tax return was invested in some. Since I'm poor, I went with poor man's gold.

  2. "Do whatever it takes"

    During the three quarters Q3 2012 to Q1 2013, outstanding corporate debt increased a notably large $645 billion. Who purchased this mis-priced debt? During this period, rest of world (ROW) holdings rose $137 billion. US life insurers boosted holdings $61 billion, and broker/dealers increased corporate debt holdings $10 billion. Meanwhile, household sector holdings surged $229 billion, mutual fund holdings $269 billion and ETF holdings $27 billion. As a proxy of total US household exposure to corporate debt, combined household, mutual fund and ETF holdings jumped $524 billion in nine months, accounting for 81% of the net issuance over that period. An indicator of an important market top?

  3. Pennsylvania judges stashed profits from Cash for Kids scandal in Jupiter

    Pennsylvania Judges Mark Ciavarella Jr., 63, and Michael T. Conahan, 61, are both serving hard time.

    The two men sent children and teenagers to privately run jails in exchange for a steady stream of cash from the jails’ builder and co-owner.

    More than $1 million was funneled to a Florida company controlled by the judges’ wives, according to a 48-count federal indictment.

  4. Inflation is rotten to the core
    Commentary: Regardless of what Fed says, prices are rising

    Among the more visible items riding the up-elevator are prices of food, energy and health care. However, there are many others for which the price increases are less visible but are pinching your pocketbook just the same.

    Stealthy, but painful nonetheless, are price hikes posted for insurance, magazines, newspapers, phone and cable service, and those from the airlines, utilities and local governments.

    The methods that are used vary widely. They range from slipping in or raising fees and surcharges on the one hand, to reducing services or package sizes on the other.

    Even that venerable publication, the Economist magazine, is getting into the act. This week’s issue tells business it has to get better at charging more, all the while planning to raise its own prices.

    This plethora of price hikes began a few months ago. It does not yet show up in year-to-year comparisons, especially those that exclude food and energy.

  5. American Dream Erased as Homeownership at 18-Year Low

    With ownership at 65 percent and home values rising, housing industry and consumer groups are pressing lawmakers to make the American Dream more inclusive by ensuring new mortgage standards designed to prevent another crash are flexible enough that more families can benefit from the recovery. Regulators are close to proposing a softened version of a rule requiring banks to keep a stake in risky mortgages they securitize, according to five people familiar with the discussions.

    Lawmakers currently shaping housing finance are seeking to reduce the government’s role in keeping rates affordable for riskier borrowers while ensuring homeownership is within reach of minorities and first-time buyers who could be needed to sustain the housing recovery as borrowing costs rise from record lows. Who will be able to buy property depends on the balance they reach, according to Anthony Sanders, a professor of real estate finance at George Mason University in Fairfax Virginia.

    “Low down-payment loans coupled with exotic adjustable rate mortgages helped fuel a massive housing bubble, which ultimately burst and took down the financial sector,” said Sanders, who was the former head of mortgage-bond research at Deutsche Bank AG. “So the question now is do we want to do this again?”
    Hitting Bottom

  6. Freddie Mac Risk-Sharing Notes Can Use Repo Leverage (As MBS Returns Slide and Duration Increases)

    NOTE: Repo unusual for unrated debt

    July 29 (Bloomberg) — By Jody Shenn
    Investors can amplify returns with dealers offering repo leverage on new Freddie Mac risk-sharing notes, according to JPMorgan, Barclays.

    NOTE: Repo unusual for unrated debt

    • JPMorgan analysts led by John Sim said in July 26 report “anecdotally, we hear that these bonds can be funded at around LIBOR+120 with a 25% haircut,” referring to M1 tranche

    • With leverage, “these bonds can easily reach mid-teen returns, which can be a real challenge to achieve in this environment”

    • Barclays analysts incl Sandeep Bordia, Jasraj Vaidya in report today assume 20% haircuts on M1s, 40% on M2s, at Libor+150bps

    • Leverage possible unlike potential competing investments such as CMBS new-issue BBBs, legacy AMs/AJs; leverage entails additional risk amid MTM volatility

    • Leveraged yields in base, stress case on M1s “extremely attractive,” adequate compensation against worst scenarios

    • M1s looks especially attractive with double-digit yields, losses “very unlikely” except with extreme MTM volatility

    • M2s inherently more structurally leveraged, using repo amplifies that further. However, with such thin tranche, downside not amplified as much relative to the upside

    Falling agency MBS returns, increasing duration (risk) and repo leverage.

    “Stay alert, my friends.”

  7. Andrew Maguire: Unstoppable Force Meets Undeliverable Object - A Run on the Bullion Banks

    If this is accurate, if this is really happening, I think that the effects of this are going to hit quite a few people dead cold, like a smack in the face.

    That is because there is so little coverage of what is going on in the media, even the internet media.

    The gambit of smacking down price to dampen the desire for gold appears to have backfired in a big way by sparking an insatiable demand for the physical metal and a remarkable decline in available inventories. That certainly wasn't what had been expected I would imagine when the process of a more energetic price manipulation in response to Germany's request for the return of its gold began.

    A seemingly unstoppable force, the flow of gold from west to east, is going to meet the undeliverable object, the nominal inventory of unencumbered gold in the bullion banks and exchanges, sometime in the next twelve months.

  8. Bank of England refuses comment on huge discrepancy in custodial gold reports

    The Bank of England refuses to explain what appears to be a huge discrepancy in its accounting of the gold it holds in custody, a difference of as much as 1,200 tonnes between the total reported in the bank’s annual report in February and the total reported in a “virtual tour” of the bank posted this month at the bank’s Internet site.

  9. Serco: the company that is running Britain

    From prisons to rail franchises and even London's Boris bikes, Serco is a giant global corporation that has hoovered up outsourced government contracts. Now the NHS is firmly in its sights. But it stands accused of mismanagement, lying and even charging for non-existent work

    As evidenced by the story of how it handled out-of-hours care in Cornwall, it is also an increasingly big player in a health service that is being privatised at speed, in the face of surprisingly little public opposition: among its array of NHS contracts is a new role seeing to "community health services" in Suffolk, which involves 1,030 employees. The company is also set to bid for an even bigger healthcare contract in Cambridgeshire and Peterborough: the NHS's single-biggest privatisation – or, if you prefer, "outsourcing" – to date, which could be worth over £1bn.

    But even this is only a fraction of the story. Among their scores of roles across the planet, Serco is responsible for air traffic control in the United Arab Emirates, parking-meter services in Chicago, driving tests in Ontario, and an immigration detention centre on Christmas Island, run on behalf of those well-known friends of overseas visitors the Australian government.

    In the US, the company has just been awarded a controversial $1.25bn contract by that country's Department of Health. All told, its operations suggest some real-life version of the fantastical mega-corporations that have long been invented by fiction writers; a more benign version of the Tyrell Corporation from Blade Runner, say, or one of those creations from James Bond movies whose name always seems to end with the word "industries".

  10. Gag Me With Lawrence Summers

    The idea that Barack Obama would still consider appointing Lawrence Summers to head the Federal Reserve rather than order an investigation into this former White House official’s Wall Street payments, reported Friday by The Wall Street Journal, mocks the president’s claimed concern for the disappearing middle class. Summers is in large measure responsible for that dismal outcome, and twice now, after top level economic postings in both the Clinton and Obama administrations, he has returned to gorge himself at the Wall Street trough.

  11. I'm buying gold coins at regular times, I never bought silver. Hope gold wasn't a bad idea. I just want to save some "money" for the future. I saw some graphics that gold would soar to $5000. But that doesn't interest me that much as it is a long time investment. If possible, if times don't become to harsh, I would like to pass it taxfree to my children.
    Dave, would you advise me to buy silver too? I would have to convince my wife again ;) Sounds weird, but she doesn't follow the financial situation of the West. And the first time I wanted to buy gold, I explained what could happen to money. She trusted me, she said "I know that you do it for our good". Once the situation on Cyprus happened, she saw things that I spoke off. But still it is difficult, or I find myself responsable, to convert another bit of money to gold.
    Dave, is it to risky to buy only gold?
    Thanks! And thanks for your effort you put in this blog.

  12. Russian billionaire seeks U.S. government financing for luxury jets

    (Reuters) - Billionaire Russian businessman Gennady Timchenko, a long-time associate of Russian President Vladimir Putin, plans to seek U.S. government-backed funding to buy luxury aircraft, Reuters has learned.

    To smooth the path for financial backing from the U.S. Export-Import Bank and allay possible U.S. government concerns about him, Timchenko hired lobbyists from powerhouse Washington law firm Patton Boggs, according to emails and documents viewed by Reuters.

    Timchenko plans to ask Ex-Im Bank for a loan guarantee to buy as many as 11 aircraft from Gulfstream Aerospace of Savannah, Georgia, according to one U.S. official who spoke to his lobbyists - though the scope of the potential deal remains unclear.

    Timchenko is one of Russia's richest oligarchs, the billionaire business barons who emerged following the fall of the Soviet Union, some of whom enjoy close ties to Putin. The plane order would bolster the fleet of Timchenko's Finland-based luxury jet charterer, Airfix Aviation Oy, whose aircraft have reportedly transported Kremlin-linked businessmen and Russian government officials.

    Patton Boggs acknowledged its work on Timchenko's behalf. It told Reuters it has held preliminary talks with Ex-Im Bank, officials from two Senate offices and a U.S. congressional policy advisor, without naming the officials. The firm said the talks with Ex-Im Bank involved a loan guarantee for a single jet that Airfix has already ordered.

    "These discussions were preliminary," said Patton Boggs partner Joseph Brand in an email.

  13. When Is Your American Express Bill Due?

    Why don’t you guys just put the due date on the damned bill?

    The answer it turns out is simple: FLOAT. American Express hides their due date, puts a Please Pay By on their invoices, and guess what happens? Millions of busy small business owners and harried families pay a few weeks early.

    Thus, for the omission of a simple honest due date, Dow component American Express manages to capture 100s of millions of dollars per year in free money. All they have to do to earn it is engage is one of the most misleading consumer finance practices I have ever come across.

    pass it around............