Posts Tagged ‘housing starts’

Investors Chase Risk in Junk Bonds at Fastest Pace Ever

Investors Chase Risk in Junk Bonds at Fastest Pace Ever

Courtesy of Mish

Thrilling jumps

Inquiring minds are reading Junk Bonds Selling at Briskest Pace Since 2007.

Companies are selling high-yield, high-risk bonds at the fastest pace since credit markets seized up in 2007 amid signs the economic recovery is gaining momentum.

Renault SA, the second-largest French automaker, Pittsburgh-based U.S. Steel Corp. and other speculative-grade borrowers issued $24.2 billion of high-yield notes in March through last week, putting this month on course to be the busiest since June 2007, according to data compiled by Bloomberg. Sales are up from $16.2 billion in all of February.

“Investors are much more sanguine about risk than they were just a few months ago and are taking on more to get a higher yield,” said Paul Owens, a credit analyst at Liontrust Investment Services Ltd. in London, which had the equivalent of $1.8 billion under management as of Dec. 30. “Companies have reported decent results,” bolstering bond sales, he said.

Issuance of non-investment grade bonds is running at the highest since companies sold $34 billion of the debt in June 2007, after slowing last month amid concern that sovereign budget deficits would stifle growth. The securities are rated lower than BBB- by Standard & Poor’s and Baa3 by Moody’s Investors Service.

Investors are pouring cash into junk-bond funds at the fastest pace on record as corporate defaults decline, according to EPFR Global.

A Return To Normal?

The Bloomberg article said this is a sign markets are returning to normal.

Really?

Was chasing risk in summer of 2007 normal?
How well did it work out?

Let’s not confuse the willingness of the greater fool to finance global junk at the highest rate ever with "normal". Instead I would advise focusing on corporate real estate, credit card defaults, and especially housing starts. The latter typically leads normal recoveries.

Music Still Playing

Trident Unwraps Hundreds of Musical Chairs

But hey, everyone likes a party. Let’s party like it was summer of 2007 again.

I have the perfect quote to match. It’s from July 2007 - Quotes of the Day / Top Call

Chuck Prince: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".

The Music Stopped for Chuck Prince On November 2, 2007 when…
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THOUGHTS ON THIS MORNING’S DATA

THOUGHTS ON THIS MORNING’S DATA

Courtesy of The Pragmatic Capitalist

This morning’s shot across the bow came to us courtesy of China on reports that several Chinese banks have been told to curb their lending for the remainder of the month.  There is a growing sense of concern about the Chinese markets.  With property prices surging and a stimulus package that is still running hot, the Chinese might have added too much gas to their own fire.  Market participants are very aware of the importance of the Chinese markets to the global recovery.  Losing Chinese growth would certainly cause a massive relapse in the global economy.  If China sneezes the world will catch a cold….

Low angle view of the Acropolis and Parthenon, Athens, Greece

Making matters worse is the growing concerns in Greece.  As we mentioned earlier today the term structure in Greek sovereigns inverted – something we saw in Merrill and Lehman CDS just months before they went bust. This puts global leaders in quite a quandary.   I view last nights vote in Massachusetts as a sign that bailout nation is over with.  Any politician that votes for a bailout going forward will be tarred and feathered.  While Greece is likely to receive some form of aid this growing negative mentality could create future problems should another U.S. corporation (or state) require assistance from the Federal government. We tried to kick the debt can down the road and it’s looking like we’re going to need to kick it again (or heaven forbid – deal with it!).

Earnings were a bit mixed this morning, but generally better than expected. Aside from misses at Coach and Bank of America, the numbers were fairly strong.  The banks continue to report better credit trends, but a cautious tone has many analysts scratching their heads over the true strength of the bank balance sheets.  I agree with Felix Zulauf who thinks the banks are dead money from here.

The Redbook and ICSC data were both robust again and showing signs that the consumer is willing to spend despite continued de-leveraging.  ICSC reported a 2.6% climb in year over year sales while Redbook reported a 0.9% climb.

In other news, PPI came in fairly benign at 0.2% and housing starts disappointed to the downside.  Neither were major market moving news as the headlines have been dominated by the Republican victory and the concerns in China.

 


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Housing Data Split

Housing Data Split

Courtesy of Jake at Econompic Data

Bloomberg details:

Housing starts in the U.S. fell more than anticipated in December, while building permits unexpectedly jumped, signaling inclement weather may have kept builders away from worksites.

Work began on 557,000 houses at an annual rate, down 4 percent from November, figures from the Commerce Department showed today in Washington. Permits, a sign of future construction, climbed to the highest level in a year.

The government’s extension and expansion of a tax credit for first-time buyers may help underpin demand in the first half of 2010, giving builders reason to ramp up new projects. The gain in permits, which are less influenced by weather, indicates an unseasonably cold and wet December probably prevented some work from getting started last month, according to economists like Maury Harris.

housing
 
Source: Census

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Weaker Data and the “Nascent Recovery”

A "mirage" of recovery, dependent on government stimulus programs, is not exactly a recovery in the normal sense of the word.  And publicizing incorrect numbers, only to revise them down later, appears to be good for public mood and the stock market. - Ilene  

Weaker Data and the "Nascent Recovery"

recoveryCourtesy of Mish

After spending $trillions one would have hoped to see something more than an expected GDP revision of 2.8%. Looking ahead MarketWatch is asking Do weaker data show recovery is stalling?

Last week, a "reality check" rippled through the markets following weak data on housing starts and industrial production, said Nigel Gault and Brian Bethune, U.S. economists for IHS Global Insight. They expect further "mixed and somewhat ambiguous" reports in the coming week, but, on whole, they say "the evidence is still positive and continues to point to a nascent recovery" that will need "strong policy support" for some time.

Housing

Even four years after the peak, the state of the housing market remains central to the medium-term outlook.

Construction, sales and prices picked up over recent months after hitting generational lows, boosted in part by federal policies and in part by improvement in some of the fundamentals. But the weakening in the October data ahead of the anticipated expiration of the federal home-buying subsidy has put the strength of those fundamentals to the test.

The home-buyer tax credit, of course, has now been extended and even expanded. But buyers and builders didn’t know that in October.

Last week, we found out that builders cut back on permits and starts on single-family homes in October, in anticipation that the tax credit would expire on Nov. 30.

GDP revisions

The other big story for the week could be the revision to third-quarter growth figures. Last month, the Commerce Department said real gross domestic product grew at a 3.5% annualized rate, the first gain in a year. On Tuesday, that figure is likely to be revised to about 2.8%.

The largest source of revisions will come from nonresidential construction spending and net exports. Spending on nonresidential structures was weaker than first thought, while imports were stronger than believed, suggesting that more of the gains from increased sales in the third quarter accrued to foreign producers, rather than domestic companies. Inventories will be revised lower.

"Despite the likely downward revision, we still believe that the third


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Housing’s Still In The Woods

Housing’s Still In The Woods

Courtesy of Tom Lindmark at But Then What

home prices

Anyway you slice it or try and put a happy face on it, the news on housing over the past few days has been pretty sobering. I don’t take the decline in housing starts as all that bad a development, the last thing the markets need is more supply, but the decline in mortgage applications is significant.

The industry flacks tried to tie it to the uncertainty over the renewal of the tax credit. If that’s the case then we got a glimpse of where housing is going to be when we take the training wheels away. Maybe more to the point, a survey by the National Association of Realtors no less indicates that only 6% of the buyers cited the tax credit as the primary reason for buying a home.

In my opinion, the recent spurt in buying has been driven by low rates and cheap prices. Two pretty good reasons for people to buy. But here’s the kicker. Most of the activity has been at the low end fueled by investors and first time buyers. Two thin markets and nothing upon which a boom is going to be built.

I’ll throw in one more thing that’s driving this market. Irresponsible lending. Yup, the same thing that fueled the last spurt. At least this time it appears as if some of the buyers might recognize that this road leads to lots of grief. Don’t buy the argument. Check out this and this. At least FHA appears to be running out of wiggle room fast so the bailout shouldn’t be too drastic.

Put that together with the employment figures and it’s really hard to see how this little spurt is anything more than a blip. My guess is that aside from the investors it’s comprised of a group of people that were shut out by higher prices and jumped into the market at an opportune time but their numbers are limited.

I wouldn’t be at all surprised to see a lot of the recent investors throwing their purchases back on the market as rental rates have plummeted and the cash flow assumptions they used to justify their investments probably aren’t panning out. Prices for the low end have come back


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Housing Starts Green Shoots Wither On Vine

Housing Starts Green Shoots Wither On Vine

Courtesy of Mish

Plant shoots

After optimists talked up rising housing starts for several months as green shoots, improving conditions, etc., reality came knocking in full force with the New Residential Construction Report For October 2009.

BUILDING PERMITS

Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 552,000. This is 4.0 percent below the revised September rate of 575,000 and is 24.3 percent below the October 2008 estimate of 729,000.

Single-family authorizations in October were at a rate of 451,000; this is 0.2 percent below the revised September figure of 452,000. Authorizations of units in buildings with five units or more were at a rate of 85,000 in October.

HOUSING STARTS

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 529,000. This is 10.6 percent below the revised September estimate of 592,000 and is 30.7 percent below the October 2008 rate of 763,000.

Single-family housing starts in October were at a rate of 476,000; this is 6.8 percent below the revised September figure of 511,000. The October rate for units in buildings with five units or more was 48,000.

HOUSING COMPLETIONS

Privately-owned housing completions in October were at a seasonally adjusted annual rate of 740,000. This is 1.9 percent above the revised September estimate of 726,000, but is 29.9 percent below the October 2008 rate of 1,055,000.

Single-family housing completions in October were at a rate of 528,000; this is 10.7 percent above the revised September figure of 477,000. The October rate for units in buildings with five units or more was 200,000.

Total Privately Owned Housing Starts

[click on chart to enlarge]

Looking at the chart it is hard to make a case for optimism in the first place.

Before the housing numbers release this was the Bloomberg headline

Builders Probably Broke Ground on Most U.S. Houses in 11 Months

Builders in October probably broke ground on U.S. houses at the fastest pace in 11 months, and consumer prices held below the Federal Reserve’s long-range goal, economists said reports today may show.

Housing starts rose 1.7 percent to an annual rate of 600,000, the most since November 2008, according to the median forecast of 77 economists in a Bloomberg News survey.

Government tax credits and lower prices and


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A Little Ray Of Sunshine In Housing Starts

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A Little Ray Of Sunshine In Housing Starts

Courtesy of Tom Lindmark at But Then What

housing starts

There were some reasonably positive numbers on housing this morning.

Overall, housing starts were up 3.6% to a SAAR of 582,000. Within that number single family starts were up 14.4% to a SAAR of 470,000, Starts for two to four unit properties were down 25.8% to 112,000 and starts on properties with five or more units were down 29.4%. Permits were up 8.7% for a SAAR of 563,000.

Regionally, starts were up 28.6% in the Northeast, up 33.3% in the Midwest, down 1.4% in the South and down 14.8% in the West.

Here is a sampling of economists’ take on the numbers from the WSJ Real Time Economics blog:

  • This report could be interpreted in two ways. On the optimistic side, it appears that residential construction activity may have stabilized, following three consecutive years of deep correction, and that housing activity could perhaps contribute favorably to U.S. economic activity in the second quarter. On the other hand, with sales continuing to lag behind the level of building activity by a factor of 200,000, this uptick in construction will likely mean that the inventory of unsold homes (which remains at historically high level) could continue to rise. As such, one could interpret this report as somewhat bitter-sweet. –Millan L. B. Mulraine, TD Securities

    housing starts

  • While starts have moved off of their cyclical bottom, we see limited upside potential over the months ahead. In the single family segment, continued weakness in the labor market and what will remain a steady stream of foreclosures will keep downward pressure on house prices and ensure that builders – in an increasingly broad geographic range of markets – see steady competition from low-priced foreclosures. –Richard F. Moody, Forward Capital
  • With the number of unsold homes for sales already extraordinarily high and set to ramp up further in coming months as foreclosures accelerate and the recent backup in mortgage rates potentially puts some pressure on sales, this recent spike in single-family housing starts certainly seems ill-advised and likely to worsen still massive imbalances in the housing market. Meanwhile, rising apartment vacancy rates, an even worse inventory situation in the condo market than for single-family homes, and the collapse of the commercial real


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Phil's Favorites

Scarcity Cred

 

Scarcity Cred

Courtesy of Scott Galloway, No Mercy/No Malice@profgalloway

Any firm that approaches $1T in value has tapped into a basic human instinct. Consuming, signalling, loving, and praying have been the fuel of Amazon, Apple, Facebook, and Google’s ascents, respectively. That the crypto asset class universe has reached $2T reveals, I believe, that it taps into two attributes we instinctively pursue: trust and scarcity.

Trust

Our superpower as a species is cooperation, which requires trust. It’s the reason banks, tr...



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Zero Hedge

Canada's Green Shift Could Displace Three-Quarters Of Oil Workers

Courtesy of Charles Kennedy, OilPrice.com

Canada’s climate strategy to significantly cut emissions and become a net-zero emissions economy by 2050 will create a seismic shift in the large oil and gas sector, where up to three-quarters of the workers, or up to 450,000 people, are at risk of displacement, TD Bank said in a new report on Tuesday.

Canada aims to become a net-zero emissions economy within three decades, and to cut emissions by between 32 percent and 40 percent by 2030.

While those commitments could be critical to staving off the worst effects of gl...



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Gold Gann Angle Update

Courtesy of Read the Ticker

The Biden Yellen team have made their play, and it is not US dollar friendly.

Janet Yellen speech named "International Priorities — Remarks to The Chicago Council on Global Affairs" (here) can be summed to (via Luke Gromen) :


The US is accelerating a move away from "subjugating the US middle and working class to support the USD", to "subjugating the USD to support the US middle and working classes".



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2021 Sohn Investment Conference Featuring Einhorn, O'Shaughnessy And More

By Jacob Wolinsky. Originally published at ValueWalk.

The 2021 Sohn Investment Conference will be held virtually on May 12, 2021 and Valuewalk will be covering the event. Stay tuned for our in-depth coverage!

Q4 2020 hedge fund letters, conferences and more

Check out our coverage of the 2020 Sohn Hong Kong Conferences here.

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How worried should you be about coronavirus variants? A virologist explains his concerns

 

How worried should you be about coronavirus variants? A virologist explains his concerns

A COVID-19 patient in an ICU unit in a hospital in Capetown, South Africa, in December 2020. A variant emerged in South Africa that has since spread to other parts of the world. Other new variants could emerge elsewhere. Rodger Bosch/AFP via Getty Images

Courtesy of Paulo Verardi, University of Connecticut

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Politics

For autocrats like Vladimir Putin, ruthless repression is often a winning way to stay in power

 

For autocrats like Vladimir Putin, ruthless repression is often a winning way to stay in power

Russian police officers beat people protesting the jailing of opposition leader Alexei Navalny, Jan. 23, 2021 in Moscow. Mikhail Svetlov/Getty Images)

Courtesy of Shelley Inglis, University of Dayton

Russian dissident Alexei Navalny, sick with a cough and ...



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Kimble Charting Solutions

Gold; Load Up The Truck Upon Hitting This Level

Courtesy of Chris Kimble

Gold has created lower highs since peaking last summer. Is Gold near a low? Where would a nice entry point come into play?

This chart looks at Gold ETF (GLD) on a weekly basis over the past few years. GLD hit the top of this rising channel at (1) last summer, as it was above moving averages and relative strength was hitting lofty levels.

The decline over the past 7-months has GLD creating a death cross. Warren Buffett sold his Gold holding before this death cross took place!

Where would one want to pick up some GLD at a nice risk/reward price point?

If GLD reaches rising channel support at (2), w...



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Digital Currencies

How nonfungible tokens work and where they get their value - a cryptocurrency expert explains NFTs

 

How nonfungible tokens work and where they get their value – a cryptocurrency expert explains NFTs

NFTs can be used to prove who created and who owns digital items like these images by the artist Beeple shown at an exhibition in Beijing. Nicolas Asfouri/AFP via Getty Images

Courtesy of Dragan Boscovic, Arizona State University

Takeaways

· Nonfungible tokens prove ownership of a digital item – image, sound file or text – in the same way that people ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

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Promotions

Phil's Stock World's Weekly Webinar - March 10, 2021

Don't miss our latest weekly webinar! 

Join us at PSW for LIVE Webinars every Wednesday afternoon at 1:00 PM EST.

Phil's Stock World's Weekly Webinar – March 10, 2021

 

Major Topics:

00:00:01 - EIA Petroleum Status Report
00:04:42 - Crude Oil WTI
00:12:52 - COVID-19 Update
00:22:08 - Bonds and Borrowed Funds | S&P 500
00:45:28 - COVID-19 Vaccination
00:48:32 - Trading Techniques
00:50:34 - PBR
00:50:43 - LYG
00:50:48 - More Trading Techniques
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The Technical Traders

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Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

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Economic Data Scheduled For Friday

Courtesy of Benzinga

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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