The Housing Bubble

The 30-yr T-bond yield has increased from 2.83% on May 1 up to 3.331% as of May 28 — a 50+ bps increase over one month. Translated into bond prices, an investor who bought a 30-year Treasury bond on May 1 is was underwater on the purchase price by 9.5% as of this past Tuesday. It seems surprising the MSM misses this story entirely.

May 28, 2013, 4:38 p.m. EDT · CORRECTED
Treasurys hit highest yield in 13 months
By Ben Eisen, MarketWatch

A previous version of this story gave an incorrect auction size for the sale of 2-year Treasury notes. The story has been corrected.

NEW YORK (MarketWatch) — Treasurys fell decisively Tuesday as bond investors priced in the possibility that an improving economy, bolstered by strong housing and consumer-confidence data, could push the Federal Reserve to begin winding down its bond purchases.

The 10-year note 10_YEAR -1.51% yield closed 16 basis points higher at 2.170%, continuing to sell off through the end of the day as it hit its highest level since April 5, 2012, according to FactSet.

Yields move in the opposite direction to prices.

Yields on the 10-year Treasury note have risen more than 50 basis points since the beginning of the month in the largest climb during the same time period since October 2011, according to FactSet.

“There is a very common level of 2.07% watched on the 10-year note. That number we took out fairly easily [due to positive data] and it had a snowball effect,” said Michael Cullinane, head of Treasury trading at D.A. Davidson & Co. “There was some forced selling once you take out that key support level.”

The 5-year note yield 5_YEAR -2.18% traded 12 basis points higher at 1.015% while the 30-year bond yield 30_YEAR -0.61% was 16 basis points higher at 3.331%.
…

More (smallish) volatility on the way today (yawn…).

May 31, 2013, 7:40 a.m. EDT
Stock futures drop ahead of sentiment, spending
Stories You Might Like
Market calm may be false sign: Treasury’s Berner
By William L. Watts and Barbara Kollmeyer, MarketWatch

NEW YORK (MarketWatch) — U.S. stock index futures pointed to a lower start for Wall Street on Friday, as traders braced for month-end volatility and awaited data on consumer spending data and manufacturing gauge for more clues to the Federal Reserve’s stance on tapering bond buys.

Futures for the Dow Jones Industrial Average (DJM3 -0.50%) fell 76 points, or 0.5%, to 15,243, while those for the Standard & Poor’s 500 index (SPM3 -0.39%) fell 8.2 points, or 0.5%, to 1,645.40. Futures for the Nasdaq 100 index (NDM3 -0.50%) fell 15.25 points, or 0.5%, to 2,994.75.
…

Is it safe to say that when the QE3 punch bowl is withdrawn, gold will turn to brass?

Stocks up / gold down … lather, rinse, repeat.

Gold - Electronic (COMEX) Aug 2013
$1,395.60
Change -$16.40 -1.16%
Volume 106,618
May 31, 2013 10:30 a.m.
Previous close $ 1,412.00
Day low $1,392
Day high $1,422
52 week low $1,323
52 week high $1,804

May 31, 2013, 10:14 a.m. EDT
Gold set to end lower for 7th month in 8
By Saumya Vaishampayan and Michael Kitchen, MarketWatch

NEW YORK (MarketWatch) — Gold futures fell below $1,400 Friday as economic data beat expectations and the dollar rose.

Gold for August delivery (GCQ3 -1.40%) fell $17, or 1.2%, to $1,394.90 an ounce on the New York Mercantile Exchange’s Comex division. Gold futures settled at $1,412 an ounce on Thursday.
…

Don’t fight the Fed!

What an interesting day it turned out to be for financial markets!

Just sayin’…

Bulletin S&P gains for 7th month, longest monthly win streak since September 2009

Dow sinks in final minutes, cutting into gains for May
• Treasurys’ worst month since 2010 | Gold’s 7th monthly decline in 8

Tentative answer to my question from earlier today: HELL NO!!!

Apparently everything summarily recoupled starting at 2pm. Was there some kind of financial earthquake at that point?

Markets »
Dow 15,116 -209 1.36%
Nasdaq 3,456 -35 1.01%
S&P 500 1,631 -23 1.42%
GlobalDow 2,185 -27 1.22%
Gold 1,388 -24 1.70%
Oil 91.61 -2.00 2.14%

Investing
5/31/2013 @ 10:09AM
Bonds Look Like Sure Losers With Rates This Low
Marty Leclerc, Contributor

The biggest factor affecting future rates-of-return on any investment is the price you pay for it. Buy good assets at a reasonable price or cheaper and you’re bound to do well if you hold it long enough, so long as a paradigm-shift, a change in the way the world works doesn’t destroy the asset’s value. This can include expropriation of private property by a previously business-friendly government, or the failure to adapt to change by individual companies or industries.

In each case, the ability of the asset to generate cash for the owner is forever impaired and losses become permanent. In the US stock market, think buggy whip manufacturers in the 1890s, newspaper publishers a century later or more recently, highly levered investment banks.

So long as you avoid getting killed by a paradigm-shift, and don’t grossly overpay, you’ll be all right as an investor if you’re patient. Overpaying for an asset, even a quality one, is an entirely different situation and can result in a very long wait indeed before you’re OK.
…

Counterparties: Bruised bonds
By Shane Ferro
May 31, 2013

With Federal Reserve chairman Ben Bernanke hinting that the US central bank may be getting ready to cut back on its bond-buying program, the bond market has been beaten up. The yield on the benchmark 10-year Treasury note rose dramatically this month, from 1.63% at the beginning of May to today’s closing rate of 2.2%. As David Wessel notes, that’s the biggest monthly move in three years. Optimists see this as a sign of economic growth, while bond investors are worried about their books, warning of an impending crash.
…

CREDIT MARKETS
Updated May 31, 2013, 6:34 p.m. ET
Bond Investors Break Pattern, Dump ‘Junk’
By KATY BURNE

A selloff in junk bonds is fueling fears among some investors that the best days of the bond boom may be in the past.

The spread between the yields on low-rated corporate debt and comparable U.S. Treasurys jumped 0.18 percentage point Wednesday to 4.39 points, its highest level since April.

The action is unusual because junk bonds tend to outperform higher-rated debt such as Treasurys and high-rated corporate bonds when interest rates rise. The yield on the benchmark 10-year Treasury note has risen 0.5 percentage point over the past month.

The selloff of junk bonds this week indicates that many investors who have been pouring money into riskier debt were caught off guard by the pace of the past month’s rise in Treasury yields. Investors who moved into riskier asset classes such as junk bonds because of a lack of high-yielding alternatives may be pulling away from the assets as they position themselves for an eventual return to higher interest rates, which have been held near record lows by robust central-bank support programs, observers said.

“The salad days for risk assets might be drawing to a close,” said Thomas Byrne, director of fixed income at Wealth Strategies & Management LLC. He said the selloff has been driven by investors fleeing from bonds amid chatter that the Federal Reserve might soon begin reducing the scale of its $85 billion monthly bond-purchase program known as quantitative easing.

Typically, the spread between Treasurys and junk bonds narrows as Treasury yields rise, as investors bet that an improving economy will mean fewer defaults on bonds issued by low-rated companies.

But in the past four weeks, not only did premiums on junk bonds not improve much, they recently worsened. Some see that break in the pattern as a potential inflection point in the debt markets.

“When rates have risen, high yield spreads have compressed and that is the thing that didn’t happen this time,” said Michael Kessler, a credit strategist at Barclays.

He said the reason for the shift could be that spreads already have narrowed extensively so there is less room to improve than in previous periods—a function of the red-hot demand for junk bonds. About $187 billion of junk bonds have been issued in the U.S. so far this year, a year-to-date record in data going back to 1995 from Dealogic.
…
Related Video
The revival of the housing market has been all over the news in the past weeks but as MarketWatch’s Jim Jelter explains, there are three other areas of the economy that are doing better than you think. (Photo: Getty Images)

Stocks Retreat With Treasuries, Gold While Dollar Climbs
By Inyoung Hwang & Susanne Walker - May 31, 2013 1:42 PM PT

Stocks slid with Treasuries and gold while the dollar rallied as better-than-forecast data on business activity and consumer confidence fueled speculation the Federal Reserve will scale back its bond purchases. The Standard & Poor’s 500 Index trimmed a seventh straight monthly gain.

The S&P 500 retreated 1.4 percent to 1,630.74, its worst drop in six weeks, and capped its first back-to-back weekly declines of the year. Ten-year Treasury yields increased two basis points to 2.13 percent after surging as much as 10 basis points. The Dollar Index, a gauge of the currency against six major peers, jumped 0.3 percent to 83.27 and surged 1.9 percent in May. The Stoxx Europe 600 Index dropped 0.9 percent. The S&P GSCI gauge of 24 commodities slid for a third day, decreasing 1.1 percent as gold and oil paced losses.

Global government bonds were poised for the worst month since 2004 as investors weighed whether the Fed will taper asset purchases as the economy improves. Business activity in the U.S. rebounded in May, with the MNI Chicago Report’s barometer rising to 58.7 to exceed all forecasts in a Bloomberg survey and reach the highest since March 2012. The Thomson Reuters/University of Michigan final index of sentiment increased to 84.5 in May, the strongest since July 2007.

“This is actually saying the economy is expanding,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “It puts the Fed in check. They are not sure what to do. Views are all over the place, legitimately.”
…

May 31, 2013, 4:29 p.m. ET
Treasurys Fall, Capping Biggest Monthly Rout in 29 Months

–Benchmark 10-year yield up nearly 50 basis points in May

–Higher yields send ripples through broader markets

–Next Friday’s U.S. jobs report key driver for direction of yields

–Bond bulls skeptical yields will continue to rise

By Min Zeng

Treasury bonds fell on the last trading session in May, wrapping up the biggest monthly selloff in 29 months.

At the end of Friday’s trading, the benchmark 10-year note fell 3/32 in price, yielding 2.135%, according to Tradeweb. Bond prices move inversely to their yields.

The 10-year yield surged nearly 0.5 percentage point this month, the biggest increase on a monthly basis since December 2010. Treasury bonds handed investors a loss of 1.58% in May through Thursday, according to data from Barclays.

The bloodbath underscores growing fears that the $11.4 trillion market may soon lose support from the Federal Reserve, which has been a main buyer since the 2008 financial crisis to support the economy.

Demand for safe assets also diminished as upbeat U.S. data led by housing and consumer sentiment eased worries that the pace of growth would be derailed by fiscal austerity. Many investors plowed cash into U.S. stocks, which hit record highs in May.

Friday, a gauge of consumer sentiment hit the highest level since 2007, while a measure of business activity in the Chicago region rose to the highest level in 14 months, sending bond yields higher.

“The deck seems to be stacked against Treasurys right now,” said Jeff Tjornehoj, head of Americas research at Lipper.

The benchmark 10-year Treasury note’s yield soared from this year’s low of 1.61% on May 1, rising to a 14-month peak of 2.235% on Wednesday.

The sharp rise in Treasury yields sent ripples through many corners of the financial markets. The benchmark 10-year yield is widely used to set long-term interest rates, from home loans to corporate financing as well as emerging-market countries raising debt in the U.S. markets.

The average 30-year fixed-rate mortgage rate hit 3.81% this week, up sharply from 3.59% a week ago. U.S. fixed-income assets from corporate bonds, municipal debt to mortgage-backed securities all suffered losses in May as yields climbed broadly.

“The rise in bond yields this month is disturbing and unhinged,” said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union.
…

Many apologies for the many posts today on this subject.

But it seems like May 2013 has represented a serious paradigm shift in the Fed’s conviction that quantitative easing is the best way to heal the economy from the Fall 2008 financial collapse. Sorry that my fascination with this policy failure runneth over.

One thing I have learned from the recent economic experience is that unbiased commentary on economic reality during a time of crisis is taboo. The high priests of lies and deceptions don’t much care to be called out on their games of charades.

The problem is that honesty was deeply ingrained in my persona from an early age. I cannot tell a lie, and the honest-to-goodness truth is that the economy is toast, psychobabble economic engineering notwithstanding to the contrary. Given my First Amendment rights to free speech, the economic fluffers are simply going to have to deal with my unbiased commentary on their failed attempts to paint lipstick on a pig.

I should have said “developed country governments’,” as quantitative easing is not solely a U.S. initiative.

Millionaires ride stock market to more wealth: studies
An electronic screen showing the Korea Composite Stock Price Index (KOSPI) is seen through the viewfinder of a TV camera at a dealing room of a bank in Seoul December 12, 2012. REUTERS/Kim Hong-Ji
By Beth Pinsker
NEW YORK | Thu May 30, 2013 12:13pm EDT

(Reuters) - Global wealth grew faster in 2012 than in the previous two years, boosting the number of millionaires and improving the outlook of the wealthy, according to new studies.

Private investable assets increased 7.8 percent last year, compared with being up 3.6 percent in 2011 and 7.3 percent in 2010, according to the “Global Wealth 2013″ report released Thursday by the Boston Consulting Group. The study calculated the global number of millionaires at 13.8 million, which accounts for 0.9 percent of all households. BCG calculates millionaires by their investable assets excluding a primary residence or business.

One major driving force of the uptick, the rising stock market, has also buoyed the Spectrem Millionaire Investor Confidence Index which measures the outlook of wealthy investors. The latest reading Wednesday was at a 2-1/2 year high. Spectrem measures millionaires differently than BCG, assessing total net worth minus a primary residence.

Still, this brings the numbers almost back to where they were in 2007, before the financial crisis, said George Walper, president of the Spectrem Group, a consulting firm based in Chicago.

“Markets being up has been a great boost moralewise,” he says. “That being said, this population is still really concerned about the recovery being long-term, and about unemployment rates. They know that a great deal of the recovery has been supported by the government.”
…

May 31, 2013, 7:01 a.m. EDT
London parties like it’s 2007
Commentary: Do soaring real estate prices point to recovery or bubble?
By Brett Arends

LONDON — I walked into a lunchtime restaurant in this town for a couple of hot dogs and some soda.

How much do you think that set me back? Ten bucks? Twenty?

Instead two “gourmet” dogs, some sodas and coleslaw in hippest London cost about $45. Yes, really. The name of the restaurant — no joke — is Bubbledogs. The bubbles in the name refer to the champagne which many people — I am not making this up — now order with their gourmet dogs.

Mmmmm. Mwa! Mwa! Daahling! What a maavelous Vintage Krug! You want mustard with that?

Welcome to Bubbletown.
…

to enrich the 0.1 percent?

http://www.washingtonpost.com/blogs/post-partisan/wp/2013/05/09/the-insiders-the-obama-economy-has-delivered-for-the-1-percent/

Japan’s equity and bond markets
Shocking
Volatile bond yields may spell trouble for Abenomics
Jun 1st 2013 | TOKYO |From the print edition

IT IS the one thing that was not supposed to happen. On April 4th the Bank of Japan (BoJ) announced its shock-and-awe plan to hoover up ¥7 trillion ($68 billion) of government bonds a month and double the monetary base. But instead of producing rising bond prices and falling yields, the central bank’s actions have so far led to the opposite. On May 23rd the yield on ten-year Japanese government bonds touched 1%, three times higher than before the BoJ’s April announcement. And on the same day Japanese stocks plunged, with the Nikkei 225 index dropping by 7% (see chart). Could “Abenomics”, the economic-revival plan of Shinzo Abe, Japan’s prime minister, already be coming unstuck?

The most tangible success for Abenomics had been a soaring stockmarket: the Nikkei share index rose by 79% in the year to May 22nd. Although its fall since its peak reached 13% on May 30th, this partly reflects profit-taking. But the spike in bond yields is continuing to unnerve investors. In April Haruhiko Kuroda, the governor of the BoJ, had said the bank would encourage further falls in nominal interest rates. Given the rise in bond yields since, says Naka Matsuzawa, chief strategist at Nomura Securities, an investment bank, “you can say that the easing by the Bank of Japan has in one sense already failed.”
…

May 31, 2013, 3:19 p.m. EDT
Banks complain about QE3 to Fed
Minutes of Federal Advisory Council meeting release for first time
By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — A group of banks that advise the Federal Reserve has complained about the central bank’s asset purchase program, saying it has “created systemic financial risks and potential structural problems” for financial institutions.

“The Fed’s aggressive purchases of 15-year and 30-year MBS have depressed yields for the ‘bread and butter’ investment in most bank portfolios; banks seeking additional yield have had to turn to investment options with longer durations, lower liquidity, and/or higher credit risk,” the bankers told the Fed, according to the minutes of the meeting, released by the Fed on Friday.
…

May 29, 2013, 2:29pm MDT
Mortgage applications fall 9% as interest rates rise
According to a report from the Mortgage Bankers Association on May 29, applications fell 8.8 percent on a seasonally adjusted basis for the week ended May 24 compared to the previous week
Damon Scott
Reporter- Albuquerque Business First

The number of U.S. mortgage applications filed last week decreased 9 percent while refinance applications fell for the third consecutive week and interest rates rose to the highest level in a year.

According to a report from the Mortgage Bankers Association on May 29, applications fell 8.8 percent on a seasonally adjusted basis for the week ended May 24 compared to the previous week. The MBA’s weekly survey covers more than three-quarters of all residential mortgage applications across the nation.

The refinance index dropped 12 percent — the largest single-week drop in refinance applications so far this year — now at its lowest level since December.

Meanwhile, the average rate on a 30-year fixed-rate mortgage increased to 3.9 percent — the highest rate since May 2012 — up from 3.78 percent. A 15-year fixed-rate mortgage rose to 3.1 percent from 2.96 percent and the 5/1 ARM average rate went unchanged, sitting at 2.6 percent.

The average rate on a 30-year fixed-rate mortgage backed by the Federal Housing Administration increased to its highest level since August ­— increasing to 3.62 percent from 3.53 percent.
…

At what point, if ever, will U.S. home sales slow down due to rising mortgage rates?

When the cash runs out and the primary buyers are J6P. Cash doesn’t care about rates, J6P does.

The number of mortgage apps is due more to refinances than to purchases. There’s a huge rush of rfi’s, but at some point won’t we run out of those too?

Jim Rogers: Gold correction ain’t over, and Bernanke needs to quit
May 31, 2013, 4:43 AM

Brace yourself: maverick investor Jim Rogers is taking the Fed, QE and gold by the horns.

In an interview with GoldMoney, Rogers says he is now vindicated on his months-long call that gold GCQ3 -0.13% was going to reverse that 12-year bull run. Unfortunately, he owns gold and hasn’t sold any, but the shiny stuff is definitely in the throes of that, which he says is “much overdue,” after the “abnormal” run, he says. (Gold is down about 4% for the month of May, and 16% year-to-date, on the August contract.)

It has now corrected for some 18-to-20 months now. I find that encouraging … Until it scares a lot of people, the correction is not over. I would certainly like the correction to be over this afternoon and see gold go to $2,000 or to $3,000, but that’s not reality.

He also has plenty to say about Fed Chairman Ben Bernanke and that much-discussed exit plan from QE.

Mr. Bernanke’s exit plan apparently is that he is going to leave his job. He doesn’t want to stick around for the hangover. He doesn’t want to be around for the consequences of what he’s doing.

I don’t know if there’s an exit plan. If and when they stop, it’s going to cause lots of ramifications in the market and lots of — perhaps even chaos, but certainly turmoil and upset. The only exit plan that he’s talked about is to let it all mature. That sounds wonderful, but it’s not very practical.

Rogers says the money-printing by the Fed, Bernanke, the Bank of Japan and the Bank of England will keep going until the bubble pops and deflation lands, though the space between here and then is still pretty wide. He also goes on a tear about the U.S. government, arguing it’ll take something major to solve the U.S. debt issue:

Nobody gets out of this situation until there’s a crisis.

So what to do? Simple, American leaders and politicians need to just resign. As for Bernanke, should he quit too?

No, Bernanke I would tell him to close the Federal Reserve, and then resign.

Critic of big banks wants Fisher to head Fed
May 30, 2013, 3:53 PM

Simon Johnson, an economist who is leading the push for the government to do more to tackle “too big to fail” banks, wants Dallas Fed President Richard Fisher to replace Fed Chief Ben Bernanke when Bernanke’s term expires early next year.

In a post on The New York Times Economix Blog, Johnson, former chief economist of the IMF and now a professor at MIT, said that none of the leading contenders for the top Fed job — Janet Yellen, Tim Geithner and Larry Summers — “has made or is likely to make a clear statement about the critical issue for the next decade – how the Fed should view the financial sector, particularly the various potential causes of systemic risk.”

Johnson compared the threat of global megabanks to the inflation threat of the 1970s.

He said that Fisher has made it clear that he is skeptical of our current financial system and has a very sensible reform plan.

“Unfortunately, the political power of megabanks means Mr. Fisher is unlikely to be called upon,” Johnson said.
…

What to Do With Fannie and Freddie
By Alex J. Pollock Friday, May 31, 2013
Filed under: Economic Policy, Government & Politics

The biggest question with the $10 trillion U.S. housing finance sector is what to do with the government-sponsored enterprises that have recently attained even greater monopoly power. Here’s a way to move beyond the political stalemate.
…
Fannie and Freddie’s current large profits are completely dependent on and buttressed by:

1. Being guaranteed by the U.S. Treasury, that is, by the ordinary American taxpayer.

2. Being able to run with zero capital and infinite leverage.

3. Being granted generous and indefensible regulatory loopholes by Dodd-Frank’s unfettered bureaucracy, the Consumer Financial Protection Bureau (CFPB). The CFPB is imposing onerous and expensive “ability to pay” regulations on all private housing finance actors, but gives Fannie and Freddie a free pass, thus reinforcing the flow of business into the government.

4. Having the Federal Reserve buy huge amounts — $1 trillion and counting — of Fannie and Freddie’s mortgage-backed securities, but of course no private ones, at yields and spreads only a central bank could love. The Fed’s mortgage-buying campaign subsidizes and promotes the monopoly powers of Fannie and Freddie.

Having arrived where we are now, what should happen next? What should be done with Fannie and Freddie is the biggest question surrounding the $10 trillion, post-crisis American housing finance sector, one of the biggest credit markets in the world.
…

May 30, 2013, 10:15 a.m. EDT
Fannie, Freddie losses extend to second day
By Steve Goldstein

WASHINGTON (MarketWatch) — The over-the-counter common shares of Fannie Mae (FNMA -40.34%) and Freddie Mac (FMCC -38.70%) nursed heavy losses for a second day, with both dropping by a double-digit percentage. Fannie Mae was down 52% from its high reached during Wednesday’s session, and Freddie Mac was down 53% from Wednesday’s peak. Neither set of shares are entitled to any dividend payment, all of which goes to the U.S. government under conservatorship.

non-conformist woolly mammoth

Cloned mammoth burgers — the next big thing at,
“BUBBLEDOGS!”

We’re working resale prices down.

Why overpay by 200% for a run down 30 year old shack when you can buy a brand new one for the same amount or less?

This situation is clearly unsustainable…but probably can at least be sustained until the builders have yet another chance to take the money and run.

BULLETIN Social Security fund still seen exhausted by 2033

In many markets, it’s cheaper to rent than buy — but that’s not stopping home builders
May 30, 2013, 11:01 AM

In many top markets, it’s cheaper to rent than buy.
…
The interesting takeaway is that builders are seeing growing demand anyway.
…

“Is there anything like this on the horizon to stop the flips mania going on now?”

1. Rapidly increasing U.S. mortgage rates.
2. Incipient housing crashes in China and Canada, which are two major sources of the all-cash foreign investors who have recently been a prominent factor in the recent operation of the U.S. residential real estate market.
3. Growing discomfort among FOMC members over the Fed’s recent unprecedented level of intervention in the U.S. housing finance system.

Other than those three, nothing comes readily to mind.

Confiscation of a portion of everyones’ IRAs and 401ks to redistribute to the voters of such confiscation.

That’s why you buy physical precious metals. The electronic accounts are all known by the IRS (by law). Can you say “Cyprus?”

I meant to post the above in the “Bits” section, sorry.

Yes.

http://www.youtube.com/watch?v=j_xjBAd5G84

How much do your Wall Street masters pay you to prostitute your integrity here?

It’s despicable.