Taper begins the countdown to crisis

US data didn’t celebrate the taper like markets did. Overnight it was mediocre at best.

US jobless claims have suddenly jumped to the highest since March:

In the week ending December 14, the advance figure for seasonally adjusted initial claims was 379,000, an increase of 10,000 from the previous week’s figure of 369,000. The 4-week moving average was 343,500, an increase of 13,250 from the previous week’s revised average of 330,250.

The four week moving average from Calculated Risk shows a distinct leveling off in improvement:


The Philly Fed missed expectations as well at 7 versus 10 but remains at modest recovery levels:


Manufacturing growth in the regioncontinued in December at a pace similar to thatof November, according to firms respondingto this month’s Business Outlook Survey. Thesurvey’s broadest indicators for general activity, new orders, shipments, and employment were positive, signifying growth, andreadings improved slightly in each categoryfrom November. The survey’s indicators offuture activity moderated slightly but continue to suggest general optimism aboutgrowth over the next six months.

But the talking point has to be housing. Earlier this week we saw a breakout number for housing starts which dramatically snapped a recent losing streak. Also from Calculated Risk:


That is a very big one month jump and I expect it will be revised down somewhat. Still, this is the good news story for the US as building will support growth.

But yesterday we had more evidence that rates are killing mortgage demand from the Mortgage Bankers Association:

Mortgage applications decreased 5.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 13, 2013.

The Market Composite Index, a measure of mortgage loan application volume, decreased 5.5 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 6 percent compared with the previous week.  The Refinance Index decreased 4 percent from the previous week.  The seasonally adjusted Purchase Index decreased 6 percent from one week earlier to the lowest level since December 2012.  The unadjusted Purchase Index decreased 9 percent compared with the previous week and was 12 percent lower than the same week one year ago.

“Mortgage applications fell further last week, with the market index falling to its lowest level in more than a dozen years,” said Mike Fratantoni, MBA’s Vice President of Research and Economics.  “Both purchase and refinance applications fell as interest rates increased going into today’s Federal Open Market Committee meeting.”

That’s worth repeating, “lowest level in more than a dozen years”. Even accounting for some swing away from the major lenders that is not encouraging.

Overnight it showed up in NAR existing home sales:


WASHINGTON (December 19, 2013) – Existing-home sales fell in November, although median prices continue to show strong year-over-year growth, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 4.3 percent to a seasonally adjusted annual rate of 4.90 million in November from 5.12 million in October, and are 1.2 percent below the 4.96 million-unit pace in November 2012.  This is the first time in 29 months that sales were below year-ago levels.

Lawrence Yun, NAR chief economist, said the market is being squeezed. “Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit,” he said. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction. As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.”

The national median existing-home price for all housing types was $196,300 in November, up 9.4 percent from November 2012. Distressed homes – foreclosures and short sales – accounted for 14 percent of November sales, unchanged from October; they were 22 percent in November 2012. A smaller share of distressed sales is contributing to price growth.

Nine percent of November sales were foreclosures, and 5 percent were short sales. Foreclosures sold for an average discount of 17 percent below market value in November, while short sales were discounted 13 percent.

Total housing inventory at the end of November declined 0.9 percent to 2.09 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace, compared with 4.9 months in October. Unsold inventory is 5.0 percent above a year ago, when there was a 4.8-month supply.

The median time on market for all homes was 56 days in November, up from 54 days in October, but well below the 70 days on market in November 2012. Short sales were on the market for a median of 120 days, while foreclosures typically sold in 59 days, and non-distressed homes took 55 days. Thirty-five percent of homes sold in November were on the market for less than a month.

US housing is slowing. I expect that by mid year we’ll be seeing virtually no price growth.

If this data had been out Wednesday, markets would have positioned for no taper. But now they are only focused on the Fed. The US dollar rallied modestly, the long bond remained weak but couldn’t break the 3.91% ceiling, the Aussie held its ground but gold was pounded 3% and looks like it’s going to test and probably break its 2013 low:


Never has following the Fed been so rampant. The beginning of tapering is the first move towards our next crisis. All crises of the past thirty years in this finely tuned global capital markets machine that we live by have begun with monetary tightening. We’ll no doubt march higher of for one or two years but it will come, like clockwork. If gold capitulates, it’ll be very attractive for the next round of trouble.

Houses and Holes
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  1. Gold and silver still pricing in deflation so I’m still waiting for liquidity to actually get pulled not talked about…

    Hey TestosteroneTone still shrugging your shoulders about phone tapping and national interest? Keep it up next time a major contract is lost to Australian businesses


    Good luck with that Oh so tough media image
    (this is what I was worried about flawse, he may have been responding as advised but it’s not the kind of advice one aught to follow)

    • ““The ultimate goal of the NSA, along with its junior partner the British agency GCHQ is nothing less than the elimination of individual privacy worldwide,” Glenn Greenwald.

      Precisely, national interest my arse — sorry 3d1k but I think you should reconsider your attitude to this – everyone does, they all know, it wasn’t that bad, hang-waving and hand-ringing… – because sooner or later something will come out re the mining industry and then your wheels will be spinning on soft sand going nowhere!

  2. The average contract rate for 30-year mortgages with conforming loan balances ($417,000 or less) rose to 4.62%, up from 3.59% in early May.

    Hmmm.. Didn’t a local merchant of debt, a self styled MMTish expert and a born again commentator on MB, say that US mortgage rates are likely to remain low for a long long time?

    • Very good question. Here are some candidates:

      – US housing crashes again as Wall St investors run for the exits
      – US stock market bubble pops
      – China and emerging markets face liquidity crunches as carry trades reverse
      – commodities prices collapse on rising US dollar
      – peripheral Europe faces bond yield spikes on same
      – some LTCM-like levered shadow-player makes the wrong bet on any of the above

  3. WTF is longevity risk?

    “Insurance companies can’t absorb all the financial risk that pension funds want to shed. So investment banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Deutsche Bank AG have emerged as another potential channel for mitigating longevity risk.

    “The insurance industry isn’t big enough,” said Blake, who developed with JPMorgan a longevity index called LifeMetrics. “It’s got to go into the capital markets. There’s no other way.”

    The banks act as intermediaries between those that want to sell longevity risk — pension plans or insurance companies — and investors such as hedge funds or sovereign wealth funds that want to buy it as part of a diversified portfolio.

    In February 2012, Deutsche Bank completed the first longevity transaction that relied on third-party investors, a 12 billion euro swap with Aegon NV, a Dutch insurer. Aegon paid Deutsche Bank a fee to assume some of its pension risk. The bank then sold the risk to investors, who receive a floating payment from Deutsche Bank based on how quickly pensioners die relative to an index derived from Dutch population statistics.”


    Just keeps getting better with these Enron-like magicians

    • “Insurance companies can’t absorb all the financial risk that pension funds want to shed. So investment banks including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Deutsche Bank AG have emerged as another potential channel for mitigating longevity risk.”

      Who in turn mitigate the risk to other parties who mitigate their risk to another party who………….

      • ….. Have it all back stopped by the frigging FED! Ugh get me off this not-so-merry-go-round

      • Pretty sure the Volker Rule says that banks must divest themselves of these by 21st July 2015, and they have to be on their books at mark to market by April 2014.

    • rob barrattMEMBER

      And when will you know that it’s all about to detonate?
      When you see JPMorgan & Goldman setting up a joint venture entity who acquires all the risk and is then divested by the dynamic duo, leaving them free to bet against it, buying large numbers of newly created (through the Fed, who of course knew nothing) CDS contracts..
      It’s well worth reading the story of the South Sea Company bubble:

      When you want to remind yourself how these stories end, and how many bankers and politicians went to jail!

  4. “All crises of the past thirty years in this finely tuned global capital markets machine that we live by have begun with monetary tightening.”

    Truer words have never been spoken.

  5. Is there any money tightening? Yes I know, long term interst rates are up 25% say, but only compared to a few months in a 30 year period.

    But re QE, isn’t it just an asset swap of Treasuries for balances owing to banks by the Fed and showing up as excess reserves which earn interst from the Fed? It hasn’t found its way to the real economy because credit growth was negative for years (but now growing slightly again).

    And if, because of the sequester/budget deal and economic growth, the US budget deficit is shrinking, why wouldn’t the Fed not taper the amount of assets it buys?

  6. @ athalone

    Are you sure the Volker Rule brings back mark to market?

    Can you give me a reference?

    Wikipedia says it is about reducing proporietary trading and doesn’t mention mark to market.

  7. Why do we look at the number of jobless claims (now around the same level it was in the 2005/06/07 ‘good times’ BTW) when population has been growing significantly throughout this period?

  8. “US housing is slowing. I expect that by mid year we’ll be seeing virtually no price growth.”

    Maybe we should try a recovery sans blowing a massive property bubble for a novel change.