The Housing Bubble

Sept. 20, 2013, 8:02 a.m. EDT
Bullard: Taper possible in October
By Saumya Vaishampayan

NEW YORK (MarketWatch) — The Federal Reserve could begin to slow asset purchases at its October meeting depending on economic data, said St. Louis Fed President James Bullard Friday on Bloomberg Television. “October is a live meeting,” he said. “This was a close decision here in September, so it’s possible you get some data that change the complexion of outlook and make the committee be comfortable with a small taper in October.”

Like Jamie Diamond’s London Whale trader, the Fed can run but it can’t hide. Try not to get burned on the next taper announcement.

The Fed’s Tapering Catch-22
Sep 19 2013, 15:37

So much for tapering talk. The Fed surprised the markets by continuing its program of $85 billion per month of purchases of US Treasuries and mortgage-backed securities (and clarified in the Q&A it didn’t mind doing so). But the lack of tapering represents a missed opportunity to begin what will eventually be required. Tightening financial market conditions - the rise in interest rates following the Fed’s May-June comments on tapering - appear to be the reason for today’s surprising decision to defer the moderation of purchases.

Clearly the Fed signaled the concerns it has with higher mortgage and interest rates - parts of the tightening in financial market conditions. The Fed understands that the economic recovery is relying on interest rate-sensitive segments of the economy and is being held back by the narrowness of job and income growth. Financial market conditions - rising housing and stock markets - provide the main source of support for the recovery in the form of supporting a wealth-induced incentive for spending. That spending comes about as consumers are saving less - not through rising incomes. And that leaves the economy too vulnerable to financial market conditions, a point central to our year end rate expectations (updated here) and underscored by the Fed’s actions.

The problem now is how does the Fed communicate its intent to taper the next time without causing rates to rise once again? It’s a Catch-22. Creating tighter financial market conditions - higher mortgage and interest rates and lower stock markets - are the very things that the Fed cited for the decision to not taper. And the Fed may have backed itself into a corner.
…

PM bulls to Fed: “It hurts so good!”

Gold, silver getting pounded
Sept. 20, 2013, 4:46 a.m. EDT
Gold, silver drop as big, post-Fed rally backs up
By Shawn Langlois, MarketWatch

MADRID (MarketWatch) — Gold’s ferocious no-taper rally reversed direction on Friday, with the precious metal tumbling, along with silver and the broader metals group ahead of the weekend.

More than tripling losses from Asia, December gold (GCZ3 -1.34%) fell $13.50, or 1%, to $1,355.80 an ounce in electronic trade, but it was still poised to put an end to three weeks of losses. Futures prices were on track to rise more 3.5% this week.

Silver (SIZ3 -3.01%) more than doubled its Asia losses to 62 cents, or 2.7%, to $22.68 an ounce.

On Thursday, gold surged $61.70, or 4.7%, to settle at $1,369.30 an ounce on the New York Mercantile Exchange, marking its highest close since Sept. 9. The gains were the largest for a single session since early 2009, according to FactSet, based on the most-active contracts.

Silver on Thursday also posted its biggest rally in almost five years with its climb of 8%.

While gold’s big push was short-lived, analysts are the most bullish they’ve been in three weeks, according to Bloomberg, which reported only five out of 26 analysts are bearish on gold prices for next week.
…

Is it possible the Fed adopted a precautionary crash landing crouch position in anticipation of another government budget showdown?

Sept. 20, 2013, 11:26 a.m. EDT
House passes budget bill defunding Obamacare
Shutdown looming, bill sets up collision course in Congress
By Robert Schroeder, MarketWatch

WASHINGTON (MarketWatch) — Defying a White House veto threat, the Republican-led House of Representatives on Friday passed a bill that would keep the government open through mid-December and also eliminate funding for President Barack Obama’s health-care law.

With 10 more days remaining in the fiscal year and the prospect of a government shutdown looming without new funding, the bill sets the House on a collision course with the Democrat-led Senate and the White House.

The bill is part of a two-pronged strategy to attack Obama’s health law. Republicans are also aiming to cripple the law in return for agreeing to raise the U.S. debt ceiling, which Treasury Secretary Jack Lew says will be hit in mid-October.

House lawmakers approved the budget bill 230 to 189, mostly on a party-line vote. Two Democrats joined Republicans to approve it, while one Republican voted against it.

House Speaker John Boehner and other Republicans insist their party has no interest in a government shutdown or defaulting on the U.S. debt.

“A government shutdown is a political game in which everyone loses,” said Rep. Harold Rogers of Kentucky, who chairs the House Appropriations Committee.
…

Check out this chart. The “maybe no taper this year” announcement knocked almost 20 bps off the 10-year T-bond yield in a heart beat.

September 20, 2013
See the Fed move the market and other key charts
Week in Charts: From pirate to poverty, the week’s most important data

The Federal Reserve’s announcement on Wednesday that it is not tapering its large asset-buying program — yet — sent the 10-year-Treasury yield down. A few seconds before the Fed’s announcement at 2 p.m., the yield was at 2.869%, according to data provider FactSet. About a minute later, the yield fell to 2.771%. By 3:30, the yield fell to 2.681%.

Because mortgage rates tend to track trends in the 10-year-Treasury yield (10_YEAR -0.98%), the housing market saw Wednesday’s drop as great news, and shares of builders jumped up. There could be a rush of buyers in coming days looking to lock in rates before they rebound.

But some say the Fed is just delaying the inevitable and injecting rates with a fresh dose of volatility.

— Charts and text by Ruth Mantell

Sept. 20, 2013, 1:05 p.m. EDT
Fed’s George: Delaying raises credibility issues
By Greg Robb

WASHINGTON (MarketWatch) - The decision by the Federal Reserve to stand pat on the pace of the bond purchase program has raised concerns about the central bank’s credibility, said Kansas City Fed President Esther George on Friday, according to a report on Dow Jones Newswires. George was the lone dissenter on the Fed’s policy committee vote earlier this week to delay a tapering of the $85 billion-a-month program. In a speech in New York, George said there was no need for the central bank to wait for more evidence that the economy was strong enough for a reduction in stimulus. By delaying, the market might misconstrue the Fed’s outlook as weak, George said.

“Has the Fed just signaled that tapering is off the table?”

Moreover…could the U.S. handle a 5, 6, or 7 percent yield on the 10 year treasury?

If only Uncle Fed Love Me hadn’t unwound her short position, this stock market carnage would never have happened.

Sept. 20, 2013, 4:35 p.m. EDT
U.S. stocks end Fed-driven week with a thud
After the close, Dow components to change
By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) — U.S. stocks fell hard on Friday, but benchmark indexes still managed to post a third week of gains, as investors reacted to the uncertain science of reading verbal signals from U.S. central bankers.

The selloff intensified in the last few minutes of trading. Volatility was expected to be high Friday due to an options expiration known as quadruple witching taking place.

The Dow Jones Industrial Average and the S&P 500 both fell for a second session, retreating from the record heights that came Wednesday after the Federal Reserve unexpectedly said it would refrain from curbing stimulus for now. On Monday, stocks rallied in the wake of former Treasury Secretary Larry Summers pulling his name out of contention to replace Ben Bernanke as chairman of the Federal Reserve.

Dow’s round-trip on Fed
DJIA 15,451.09, -185.46, -1.19%
…

Buffett is also backing a Bernanke reappointment. Has there ever been another Fed chair who handed over more money to the 1%?

whenever I think of Berkshire Hathaway, all I can think of is the guy wearing an eye patch in a crisp new shirt.
And he’s saying, “Arrr! Increase shareholder value!”

Now it’s the price structures turn to adjust.