U.S. Home Prices Tumble Again

The Standard & Poor's Case-Shiller index was revealed today showing that U.S. home prices fell once again in November. In fact, most metropolitan markets posted declines.
In spite of lower prices and record low interest rates there is still an overwhelming number of foreclosures,

David M. Blitzer, chairman of the index committee at S&P Indices, noted that for November, the Case-Shiller index of 10 major metropolitan areas and the 20-city index both fell 1.3% from the previous month. that 19 of the 20 major U.S. metropolitan markets covered by the indices in November saw prices decline from October.

"The only positive for the month was Phoenix, one of the hardest hit in recent years," "Annual rates were little better as 18 cities and both composites were negative."

The 10-city and 20-city composites recorded negative annual returns of  3.6% and 3.7%, respectively, versus November 2010.

European Banks to Borrow a Trillion in February

Last time the ECB offeed generous loans to European banks they borrowed a record 489B Euros. The Financial Times says next time they will take a trillion in long-term refinance operations (LTRO).

"European banks are preparing to tap the European Central Bank’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, providing further evidence of the sector’s liquidity squeeze.


Several of the eurozone’s biggest banks have told the Financial Times that they could well double or triple their request for funds in the ECB’s three-year money auction on February 29.

“Banks are not going to be as shy second time round,” said the head of one eurozone bank at last week’s World Economic Forum in Davos. “We should have done more first time.”

Three bank chief executives, all of whom asked to remain anonymous, said they were planning to increase their participation twofold or threefold".

Italy, Spain, and Belgium Downgraded Two Notches

The Euro mess continues. Today, Fitch Ratings cut the credit ratings of Italy, Spain, belgium and two others, stating that "they lack financing flexibility in the face of the regional debt crisis".


Italy was cut two levels to A- from A+. Spain was cut to A from AA-. Belgium’s was cut to AA from AA+, Cyprus to BBB- from BBB, and Slovenia was downgraded to A from AA-.

Fitch said that the countries downgraded today still lack financial flexibility.

“The divergence in monetary and credit conditions across the euro zone and near-term economic outlook highlight the greater vulnerability” “These sovereigns do not, in Fitch’s view, accrue the full benefits of the euro’s reserve- currency status.”

Housing: The Tale of Two Countries: U.S. Worst on Record; Canada Soars

While the median value of a U.S. house sale dropped to $210,300 (figures announced today), in Canada the situation is quite different, with an average of over $340,000.

In te U.S. 2011 was the worst sales year on record (over 50 years)

A total of 456,749 homes traded hands via Canadian MLS® Systems in 2011. This stands broadly in line with the average over the past ten years, and represents an increase of 2.2 per cent from annual levels reported in 2010.

Says the Canadian Real Estate Association:


“The momentum in sales activity provides clear evidence that low interest rates continue to draw homebuyers to the housing market,” said Gary Morse, CREA President. “While buyers have become increasingly cautious, the hand off for sales activity going into the New Year suggests that Canada’s housing market will continue to benefit from low interest rates in 2012, and continue making a significant contribution to Canadian economic activity. Even so, prospects among housing markets and neighbourhoods differ, so buyers and sellers should talk to a local REALTOR® to understand how trends are shaping up where they live.”

The number of newly listed homes rose three per cent on a month-over-month basis, reversing an equivalent monthly decline in November. New listings rose in almost 70 per cent of local markets, including some of Canada’s most active.

With sales and new listings having climbed in tandem, the national housing market remained in balanced territory in December. The national sales-to-new listings ratio, a measure of market balance, stood at 54.8 per cent in December, down slightly from 55.5 per cent in November.

Based on a sales-to-new listings ratio of between 40 to 60 percent, just over half of local markets in Canada were balanced in December. This result is little changed from November.

The number of months of inventory represents the number of months it would take to sell current inventories at the current rate of sales activity, and is a further measure of the balance between housing supply and demand. Nationally, it stood at 5.8 months at the end of December, down from 5.9 months at the end of November. While it has held fairly steady near six months since April 2011 onward, it peaked in August, with December marking the fourth monthly decline and a return to where it stood at the end of the first quarter".

Sign of the New Troubled Times: Japan Posts a Very Rare Trade Deficit; First in 32 Years

This might as well go in the "shocking" category, as it is a very rare event. Japan has registered its first annual trade deficit since 1980.

As a result, the Yen dropped to one-month low against the dollar and the euro. Currency traders and speculators may unwind bullish bets on the currency.

Reuters: "Traders cited robust offers from Japanese exporters from 78 yen up to 79 yen although many expect selling in the currency to gather pace on steady unwinding of yen long positions placed by speculators, with model and macro funds also keen to sell.


In the options market, dollar/yen one-month risk reversals moved to 0.8 in favour of dollar calls, around the strongest dollar bias since 2003 and indicating some more gains for the greenback. Implied vols ticked higher but remained subdued at around 8 percent for the one-month."

Carney: U.S. May Never Fully Recover

Mark Carney, the illustrious and well-respected Bank of Canada governor said in in interview that the U.S. economy may never return to its glory days, and could take years to recover from its current state.

"The nature of the U.S. recovery, it's going to take a number of years before they get back to the U.S. that we used to know,"
"In fact, they are not in our opinion ultimately going to get back fully to the U.S. we used to know."

According to Carney, the weakness south of the border is costing the Canadian economy $30B annually in lost exports,

The Bank of Canada is also predicting a 0.6% drop in the Canadian economy, about $10B from the European economic crisis. However, Mr. Carney says consumer spending and business investment will prevent Canada from sliding backwards. These two sectors "will be key" in countering the slowdown outside Canada and government austerity measures at home.

"We see (growth) coming from the household sector, consumption continuing to grow around two per cent, more activity in housing than we previously had thought,"

"And then, importantly … is business investment still growing at a solid pace."

Success Reported in Converting Seaweed Into Oil, With No Loss of Arable Land

Scientists say they have unlocked the secret of turning its seeaweed sugar into energy.
The Science journal reports that the breakthrough was made possible by a newly engineered microbe which metabolizes all of the major sugars in brown seaweed, potentially making it a cost-competitive alternative to petroleum fuel. The technology could be developed to lead to commercialisation within the next three years.

The team is at the Berkeley, California-based Bio Architecture Lab. They engineered a form of E. coli bacteria that can digest the seaweed's sugars into ethanol.

Daniel Trunfio, chief executive officer at Bio Architecture Lab: "Our scientists have engineered an enzyme to degrade and a pathway to metabolise the alginate, allowing us to utilise all the major sugars in seaweed" [...] "makes the biomass an economical feedstock for the production of renewable fuels and chemicals,"

Says the Ottawa Citizen: The lab currently has four aquafarming sites in Chile where it hopes to scale up its microbe technology as the next step on the path to commercialisation in the next three years.

Seaweed is seen as an appealing option for biofuel because, unlike corn and sugar cane, it does not use arable land and so does not compete with crops grown for food.

Less than three percent of the world's coastal waters can produce enough seaweed to replace some 60 billion gallons of fossil fuel, according to background information in the article.

At peak production, seaweed could produce 19,000 litres per hectare annually, about twice the level of ethanol productivity from sugarcane and five times higher than the ethanol productivity from corn.

Fitsh Ratings Agency Says Greece Is Insolvent Now: Default On March 20 Payment

Fitch Ratings Managing Director Edward Parker said today that Greece is insolvent and probably won’t make a bond payment in March.


"The euro area’s most indebted country is unlikely to be able to honor a March 20 bond payment of 14.5 billion euros ($18 billion)" "Efforts to arrange a private sector deal on how to handle Greece’s obligations would constitute a default".

“The so-called private sector involvement, for us, would count as a default, it clearly is a default in our book,” “So it won’t be a surprise when the Greek default actually happens and we expect it one way or the other to be relatively soon.”

Chinese Data Comes In Weak, So That's Good For The Markets?

The headlines on some media entities today: "Stock index futures rose on Tuesday as investors looked to corporate profits as earnings season picks up and Chinese data fueled the belief the government may move to stimulate growth".


"China's economy grew slightly more than expected but at the weakest pace in 2-1/2 years, suggesting the government may act to increase growth in the near future."

You can't make this stuff up. Weak data, therefore, it's good (!?).

New UNG Low: Nobody Wants Natural Gas

Wow, for whoever shorted UNG:

"Gas Bears Boost Bets on ‘Catastrophic’" Bloomberg
According to Bloomie, hedge funds turned bearish on U.S. natural gas for the first time in eight weeks, blaming a big surplus and warmer-than-normal weather, which pushed the price to the lowest level in more than two years. Not to mention a new all-time low in the infamous UNG.

"The funds and other large speculators switched from bets that futures will rise to a bearish, or “short,” position of a net 10,344 futures equivalents in the week ended Jan. 10, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Jan. 13".
“The funds that got short are feeling good right now,” Kyle Cooper, director of research for IAF Advisors in Houston, “As long as it stays this warm, prices have to go lower. With this type of weather, the storage surplus becomes catastrophic.”

"Seasonal Record Storage slipped 95 billion cubic feet in the week ended Jan. 6, compared with a five-year average decline of 128 billion, the Energy Department reported. Inventories rose to an all-time high of 3.852 trillion cubic feet on Nov. 18".

"Supplies may reach a seasonal record of 2.4 trillion cubic feet in March, which is when heating demand usually ends and producers begin piping more gas into storage, Cooper said. Unless production falls or cold weather bolsters demand, prices will drop to $2.40 per million Btu, and perhaps below $2, as gas overflows storage caverns and clogs pipelines, he said".

“This is a situation that has never been seen before,” “If we hit 2.4 trillion, you’re looking at storage capacity constraints by July or August where you literally have system problems because the system is so full.”

Same Ol' Europe: France Loses AAA Rating, Debt Talks in Greece Stopped (Still Debt Talks!?)

Apparently, some big hedge funds wanted out of the deal with Greece because they now do not wnat to lose any money at all, i.e, no voluntary 40% cut. I guess they'd expect that now that European banks have nearly free money. They expect who to pay exactly? Mind-boggling.

Shocking!  (Yet not surprising lately).

Bloomberg reports that France was downgraded  by Standard & Poor’s and lost is AAA rating.
"France’s AAA rating will fall by one level at S&P, Finance Minister Francois Baroin told France 2 television today. Slovakia, Italy and Austria are among other countries to be downgraded, European officials said. Germany will keep its top rating, a person familiar with the matter said. S&P may release its report at about 9 p.m. Brussels time.

The decisions came at the end of a week in which signs grew that Europe’s woes may be cresting as borrowing costs fell, evidence of economic resilience emerged and the European Central Bank said it had quelled a credit crunch at banks. The immediate impact on French and Italian borrowing costs was limited, with the yield on 10-year government bonds rising 3 basis points and 1 basis point, respectively".

The Real Retail Sales Growth in The U.S.

When economic figures are made publics and discussed, people often frget that there is inflation and population growth. I order to stay constant, certain values must rise at the combined of those rates or both, for example, GDP.

Another case is reail sales. Are retails sales in the U.S. really going up? Douglas Short has a very interesting chart showing retail sales adjusted for inflation and population growth.

He says: "The Retail Sales Report released this morning shows that retail sales in December were up 0.1% month-over-month (but the Census Bureau notes that the statistical confidence range is ±0.5%). That was well below the Briefing.com consensus forecast of 0.4% and Briefing.com's own expectation of 0.5%.


The charts below give us a rather different view of the U.S. retail economy and the long-term behavior of the consumer. The sales numbers are adjusted for population growth and inflation. For the population data I've used the Bureau of Economic Analysis mid-month series available from the St. Louis FRED with a linear extrapolation for the latest month. Inflation is based on the latest Consumer Price Index. December retail sales adjusted accordingly rose 0.1% month-over-month but only 2.4% year-over-year, far less than the 6.5% nominal YoY increase".
 
(click to enlarge)
 

Europe's Pension Bomb: $39 Trillions

The European Central Bank Even says that State-funded pension obligations in 19 of the European Union nations were about 5X higher than their gross debt combined. The countries had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations, this in 2009!

The top two (or worse two):

• Germany: 7.6 trillion euros
• France: 6.7 trillion euros

Similar to Japan, stable or falling birthrates, and people living longer (older), are adding to pressures, with the proportion of economic output devoted to spending on retirement benefits projected to rise by a quarter to 14 percent by 2060.

  

"Europe has the highest proportion of people aged over 60 of any region in the world, and that is forecast to rise to almost 35 percent by 2050 from 22 percent in 2009, according to a report from the United Nations. That compares with a global estimate of 22 percent by 2050, up from 11 percent in 2009". (Bloomberg)

Oil And The Straight of Hormuz

Ever wondered where exactly it is?

The oil shipping lanes:

Call/Put Ratio Very High; High Volume Provides Reliable Clue That Stock Will Make A Move

I found this great tool by AVAFIN which shows the ratio between calls and outs traded. For example for CIEN, which rose +8.30% yesterday:

"In yesterday's trading session, a new 90-day call record for traded contracts was established. There were 3.3 calls traded for every put contract yielding a 0.30 put/call ratio.

Put/Call ratio can be regarded as a predictor of investment sentiment, indicating what experienced investors are doing in preparation for a move of an underlying equity. A high put/call ratio suggests that the investor sentiment is bearish and that investors are expecting the underlying stock price to decrease. On the other hand, a low put/call ratio implies that the investor sentiment is bullish and that investors are expecting the underlying stock price to increase. Thus, unusual volume provides reliable clues that the stock is expected to make a move".

In general, the calls/puts ratios were pretty high.

Job Estimates: ADP Says 325,000 New Jobs, TrimTabs Says It's Only 38,000

ADP released its December jobs estimate stating a job growth of 325,000 new jobs, that is 8.5 times larger than the one by TrimTabs. In addition, the consensus estimate for the BLS report today is for 150,000 jobs.

Here is a transcript of a video by Madeline Schnapp, Editor of "TrimTabs Weekly Macro Analysis" and "TrimTabs Employment NewsFlash", in which they explain the huge difference and why TrimTabs thinks they are rigt and BLS and ADO are wrong.

The TrimTab videos are a http://trimtabs.com/global/news_video.htm

"Hello from Sausalito California Today is Thursday January 5, 2012. I am Madeline Schnapp with Today’s Macro Musings.

On Tuesday, January 3rd TrimTabs released its December jobs estimate which showed the U.S. economy added only 38,000 new jobs. Today, ADP released its December jobs estimate pointing to job growth of a stunning 325,000 new jobs, almost 10 times TrimTabs estimate. In addition, the consensus estimate for the BLS report this Friday is for 150,000 jobs. Whoa! The differences between the three estimates begs the question of what is going on here?

Before we answer that question, a few observations are in order. First, we challenge the notion that the BLS should be the standard bearer for job growth in the U.S. because its estimates are frequently revised, ranging from a few percent to several hundred percent. For example, in August, the BLS revised its estimate up from 0, a showing an economy on the verge of recession, to 104,000 showing an economy experiencing positive but weak economic growth. Second, the BLS and the ADP estimates are based on surveys that are incomplete when released. The BLS survey is only about 70% to 75% complete when it releases its first estimate. Finally, seasonal adjustments from November through January are enormous and range from a low of 800,000 jobs to a high of 2.1 million jobs to account for the huge number of holiday seasonal jobs that come and go during the holiday season.

TrimTabs jobs estimate, on the other hand, is based on daily income tax withholdings to 130 million wage earners.

Historically, our jobs estimates have been more accurate than the BLS’. BUT and this is the big BUT, like ADP and the BLS, December and January are the most challenging months for the following reasons: First, if there are tax law changes, they typically expire or go into effect in December or January; second, there are two or three holidays in December, Veteran’s Day, the optional Christmas eve holiday, and Christmas day; finally, December kicks off bonus season which adds non job-growth taxable income to payrolls from late December through March. TrimTabs makes adjustments for these one time calendar effects but some years are more difficult than others as this one might be.

Given the trends in tax withholdings the last few months, there is no way that job growth was a whopping 325,000 in December, certainly not permanent job growth. If there was a big jump in permanent job growth in December we would have seen it in our other real-time indicator, TrimTabs Online Jobs Index. That index, however has declined 8.0% since October which means that hiring managers are sitting on the sidelines until more clarity emerges about economic growth this coming year.

The proof, as always, is in the pudding. Soon the BLS will release its benchmarked results for the year ending March 2011 which will allow us to truth our model. Let me tell you, we eagerly await those results".

Stay tuned!

Morgan Stanley: Economy To Slow; Fed Will Do Another QE Between March and June 2012

Morgan Stanley says that the economy is a in a short term pump and the Fed will be forced to do another QE between March and June 2012. (Yahoo news).

"The unwind of the negative shocks from Japan's earthquake and the run-up in energy prices earlier in the year are responsible for the recent run of strong data in the US economy, argues our Chief US Economist Vincent Reinhart in today's lead piece. Once these tailwinds have played out and a shallow fiscal pothole emerges, growth should slow to around 2% in early 2012. As a result, the Fed will probably mark down its growth and inflation forecasts. The deceleration will likely be enough to convince the FOMC that the downside risks to its dual objectives of maximum employment and stable prices need to be addressed. However, given the ambiguity in the Federal Reserve Act about how to weigh these objectives against each other, disagreement within the FOMC itself about the relative weights and Bernanke's efforts to create a more democratic process for decision-making, progress on another QE package is likely to be slow and full of compromise. Eventually though, we believe that a package of Treasury and MBS purchases of US$500-750 billion will arrive some time between March and June. "

Gartman: Gold Now Is In Bull Phase: What Are Investment Advisers or Gurus Good For?

What are investment advisers/gurus good for?

Dennis Gartman has now declared that he was wrong about gold.


The Financial Post reports that in his daily investment letter today, Mr. Gartman officially reversed his outlook for gold, saying he now thinks gold is in a bull market!

"The new position follows a month where Mr. Gartman was the subject of some high-profile name calling from fellow investment letter writer, Peter Grandich. Mr. Grandich called Mr. Gartman “one of the Three Stooges” of gold forecasting after the latter declared that gold was officially in a bear market (if you’re wondering, the other two accused of being in that trio are Jeff Christian of CPM Group and Jon Nadler of Kitco)".

Gartman said he has failed to buy back gold below the price he sold it at a few weeks ago. He said that now that gold priced in euros has taken out its previous interim high, he sees the metal returning to a bull market.

“The bear run that began in August has now officially ended, for the string of lower lows and lower highs is over,” “This does not help us in hoping for/expecting/indeed demanding some weakness into which to buy, but it does give us “permission” to become officially bullish once again.”

"When Mr. Gartman made the bear call last month, Mr. Grandich said he was willing to wager Mr. Gartman US$1-million that gold will hit US$2,000 an ounce before it hits US$1,000 on the COMEX".

"For what it’s worth, Mr. Gartman admitted his call on gold was a bad one".

“We sold gold rather properly several weeks ago; we failed miserably, however, to buy it back for although our intent was clear late last week as we said it was our intention soon to re-buy that which we had sold, we’ve failed to do so,”

Food Prices Again: To Stay High and Volatile

This blog also looks at food prices and related investments. For example, we have looked at stocks such as Cresud, farmland as farmland is a good place to be in times of very high uncertainty as we are now. Besides all the turmoil in Europe and the U.S., the United Nation's body Food and Agriculture Organisation (FAO) has said that global food prices are expected to remain high and volatile in the next 12 months.

All the money printing in the world makes currencies drop in value. They can't all drop at te same time, unless perhaps you look at a references such as gold, but gold is highly manipulated and a relatively small market (for example when compared with exchange markets, or the global derivatives business, markets which run in the hundreds of trillions of dollars, while gold is in the single or low digit trillions.


FAO's Director, the Brazilian Jose Graziano da Silva said in a statement: "The prices will remain high compared with the other years, previous years, and the volatility will also be very high,", adding that the food crisis in some parts of the world is one of his biggest challenges.

World food prices had hit a record all-time high in February 2011. The FAO's Food Price Index (FPI) was just 10% below its peak in February 2011. FPI is a measure of the monthly change in international prices of cereals, oilseeds, dairy products, meat and sugar.

"The ongoing food crisis will be among the biggest challenges we will face during the next 12 months and the food crisis in regions of West Africa would be a key target of FAO's programmes,"
According to FAO's latest estimates, 33 countries around the world are in need of external assistance as a result of crop failures, conflict or insecurity, natural disasters and high domestic food prices.

Ending Hunger

"Ending hunger requires the commitment of everyone, neither FAO nor any other agency or government will win this war alone.", adding that equal efforts are required from member countries, United Nations agencies, the private sector, civil society and other stakeholders.

Good News From Europe: Germany's Unemployment Drops to 6.8%

We start the year with some good news: Germany's unemployment dropped to 6.8% in December, an amazing figure given all the turmoil in Europe. In November, the figure had been 6.9%, as were the estimates for December.

The drop is unemployment was mainly caused by a drop in the number of people seeking jobs, dropping to 22K from the previous drop of 23K, beating estimates of 10K. The number of unemployed in Germany is now 2.976M, the lowest since 1991.

In the rest of Europe the news is not so good however. Car sales plunged 60% in December in Portugal, and almost 18% in Spain, to 1993 levels. The Spaniards will also be paying higher taxes. However, these bad news were all more or less expected.