Macro Afternoon

by Chris Becker

A mixed end to the week for Asian shares with the Yen falling on the BOJ continued stimulus position, while Aussie and other markets sold off going into the close to end a lacklustre trading session.

In mainland China the Shanghai Composite is down going into the close, off approx. 0.2% to 3126 points, still clinging above key support at the 3100 point level. The Hong Kong based Hang Seng Index however is doing better, currently up 0.3% 25648 points, bouncing off ATR support just above 25000 points which needs to hold before a retracement goes further:

Japanese stocks were the highlight as the Yen fell against the USD overnight as domestic traders caught up and the BOJ continued the stimulus water taps. The Nikkei 225 gained over half a percent to close a smidge below 20,000 points erasing the earlier losses in the week. The USDJPY pair is hovering above the 111 handle, lifting slightly in the Asian session after the big overnight moves. The next target here is the former high at 111.70 or so:

S&P futures are up slightly as traders maintain the cautious mood:

The ASX200 put in a light session to finish the week, up 0.2% to 5774 points. Financials saw modest gains as did the energy stocks but iron ore extractors fell slightly.

The Aussie dollar is very steady here and looking bullish going into the end of the week trading. The break below the lower side of the pennant/symmetrical triangle as not translated into further falls with ATR support fully respected so I’m watching for another break above the 76 handle soon:

The data calendar closes out the week with a few notable US releases, namely housing starts and another oil rig count, with the big one to watch the University of Michigan consumer confidence survey.

Until next week, havagoodweekend!


  1. TailorTrashMEMBER

    Onya Straya ….grow your own avos ………..of course with our rampant immigration this will one day be a great investment ………the Bangaladeshi lifestyle will be good too……….( and I’m sure Dodgy Brothers Used Car and Real Estate Company have done the short to medium term “share farming ( creaming ) numbers “on this …..looks good yeh!! ) ………………..

    • TailorTrashMEMBER

      Jesus …has that guy swallowed the buzzword bullshit dictionary or what ? ………..houses are fucking homes !! ……..
      ….is there any trace of Menzies((homes material (modest in his vision ) homes human, and homes spiritual))left in the Australian psychie…..or have we really totally surrendered to Dicks like this and his “market updates ” ?…….FFS !

  2. Higher prices squeezing both renters and would-be homeowners – The Washington Post

    …extract …


    One striking finding in the Harvard report is the gap in home values that’s widened since 2000, well before the market hit its boom-era highs. When adjusted for inflation, prices in markets along the East and West coasts have vaulted more than 40 percent since 2000. By contrast, values in the Midwest and South have declined.

    Among the markets where prices remain well below their housing-boom peaks: Las Vegas, Chicago, Detroit and Tampa, Florida. By contrast, home values have risen far above their previous highs in Denver, San Francisco and Austin, among other markets.

    “If you go back to, say, 1970 and you look at the differences in house prices across market areas, they were not nearly as extreme as they are now,” Herbert said. “It’s a function of income inequality and how much the differences in income have grown.”

    In addition, regulatory constraints and a shortage of available land limit construction in many areas. … read more via hyperlink above …

    2017 13th Annual Demographia International Housing Affordability Survey

    If housing exceeds 3.0 times annual household income (median multiple) it means that there are impediments to land supply and inappropriate infrastructure financing that need to be dealt with.

    A simple structural definition of an affordable housing market from …

    Performance Urban


    For metropolitan areas to rate as ‘affordable’ and ensure that housing bubbles are not triggered, housing prices should not exceed three times gross annual household earnings. To allow this to occur, new starter housing of an acceptable quality to the purchasers, with associated commercial and industrial development, must be allowed to be provided on the urban fringes at 2.5 times the gross annual median household income of that urban market (refer Demographia Survey Schedules for guidance).

    The critically important Development Ratios for this new fringe starter housing, should be 17 – 23% serviced lot / section cost – the balance the actual housing construction.

    Ideally through a normal building cycle, the Median Multiple should move from a Floor Multiple of 2.3, through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7 – to ensure maximum stability and optimal medium and long term performance of the residential construction sector.

    • WHY ? …

      Housing Starts Suffer Worst Streak Since Jan 2009, Permits Plunge … Zerohedge

      For the first time since Jan 09, Housing Starts dropped for the 3rd month in a row in May, drastically missing expectations (-5.5% vs +4.1% exp.) with both March and April revised notably lower. Building Permits also tumbled in May and massively missed expectations (-4.9% vs +1.7% exp.).

      No one saw it coming… read more via hyperlink above …

      • Hugh you are aware of the huge oversupply nationally wrt RE, see Blackrock holdings post GFC, then there is always the wages dramas. Lots of people are getting jack of driving on increasingly congested roads to go back and forth to work, hence the gentrification of once poor areas around L.A. and at what point do people fall out of love with RE due the effects post GFC. Job and wage crapification highlighted by the risk of owning a depreciating consumable which notional value can go poof like the ideology that underpins it, not to mention all the leverage attached to it.

        disheveled…. the idea that the son of a slum lord is now president of the U.S. is so apropos….

      • lol @ numbers….

        I’m originally from Scottsdale Hugh, not to mention some of my ancestors were cattle barons in their day, old feed lot and cotton farm is now a golf course. So you’ll have to excuse me when you link to PulteGroup and I snicker…

        This article is part of BCG’s 2015 Value Creators Report: Value Creation for the Rest of Us.

        During the five-year period from 2010 through 2014 covered by this year’s Value Creators report, PulteGroup delivered an annual average TSR of 16.9 percent.
        In 2012, Pulte’s stock was the second-highest performer in the S&P 500.
        The company had the highest TSR in its peer group in the four-year period from 2011 through 2014.

        With a market capitalization of $7 billion, PulteGroup is one of the largest builders of new homes in the U.S.—the company sold more than 17,000 homes in 2014. During the five-year period from 2010 through 2014 covered by this year’s Value Creator’s Report, the company delivered an average annual TSR of 16.9 percent—above the median for the companies in this year’s Value Creation database.

        At first glance, it’s tempting to interpret Pulte’s above-average performance as a consequence of the recovery of the U.S. new-home market after the recent global recession. But the foundation for Pulte’s success really derives from changes that the company made at the nadir of the housing downturn—in particular, how the organization used a focus on value creation to fundamentally change its business model. The story also illustrates how emphasizing absolute, as opposed to relative, value creation can obscure what is really going on at a particular company or in a specific industry or sector.
        Exposing Hidden Issues

        Throughout the 1990s and into the early years of the subsequent decade, housing starts were growing rapidly, and U.S. home-builder stocks were routinely among Wall Street’s top performers: the home-building sector consistently outperformed the S&P 500. Pulte, along with other companies in the industry, delivered TSR that, in an absolute sense, made the company look like a strong value creator.

        It was during this period of unprecedented industry growth that Richard J. Dugas, Jr., became CEO of Pulte, in 2003, making him the youngest CEO of a Fortune 500 company at the time. Dugas had risen rapidly through the organization since joining the company in 1994. More than a decade’s worth of experience, however, was not enough to prepare him—or anyone else in the industry—for the one-two punch that hit U.S. housing. In 2006, housing starts began to decline rapidly; then, in 2008, the financial crisis hit, causing mortgages to dry up and the U.S. housing market to collapse.

        Although the entire industry was hit hard, Pulte’s aggressive growth strategy leading into the downturn made the impact on the company especially dramatic and damaging. “Our stock price went into free fall, losing 95 percent of its value from its peak in 2005 to its bottom in 2011,” says Dugas. “We had to let go of 80 percent of our employees. And the need to significantly write down our land assets put our balance sheet in a highly levered position, severely limiting our options during very challenging market conditions.”

        It was around this time, in 2010, that Pulte called on BCG to help the company understand why it had underperformed its peers during the housing collapse. A detailed analysis of the company’s value-creation performance over the 20-year period from 1990 to 2010 concluded that Pulte’s problem wasn’t that it had underperformed during the downturn. Rather, the company had consistently underperformed its peers—in both good times and bad. Throughout the entire 20-year period, the company was in the second quartile of its peer group in revenue growth, but it was in the third quartile for asset turns and the bottom quartile for gross margin, returns on capital employed, and revenue per employee. And the majority of its divisions were delivering returns below Pulte’s cost of capital. Little wonder, then, that the company was in the bottom third of its peer group when it came to TSR.

        “BCG’s findings were eye opening and difficult to accept at first,” remembers Dugas. “But the underlying data and related analysis made it impossible for us to ignore. Our success in driving strong topline and EPS growth disguised weaknesses and risks in our underlying business model. We needed to change fundamentally how we ran the business.”
        A New Business Model

        Perhaps paradoxically for a company in the home-building business, PulteGroup had not focused on making money by building homes. Rather, the company had relied on capturing value through intelligently acquiring land assets, preferably at the bottom of the cycle, and then selling them at retail by dividing the land into home lots and monetizing it through the sale of individual houses. The implied assumption was that building the houses was necessary to realize value on the land but was not a meaningful source of profitability.

        BCG’s analysis, however, showed that there were opportunities to generate significantly greater profitability and returns by optimizing the home-building process. By developing more of a “manufacturing mind-set” toward its construction operations, Pulte could develop capabilities in value engineering (such as economizing on the inputs) and manufacturing efficiency that would allow the company to make money not only on land but also on houses. The BCG team defined a three-part strategy that would allow Pulte to derive greater efficiencies, profits, and returns from both its land and its construction operations.

        disheveled….…. its just so ridiculous…

      • Skippy … Thank you for your perspectives.

        What we are main;y interested in however is the broad market pricing of new housing in North America.

        Generally (other than basket cases such as California) … the Americans ‘problems’ with housing are minor compared with what we have to deal with in Australia and New Zealand.

        The Annual Demographia International Housing Affordability Surveys … … make that crystal clear of course.

      • Hugh.

        NZ RE dramas started with the first gulf war and funded with proceeds largely derived from the financialization some around here detest. All abated by loose capital controls and a maze of tax haven structures [btw I’ve noticed NZ has made some efforts to stop the trust and business registry corruption, kudos]. This was what primed the pump for the yield seeking herd, people looking for a safe haven far away from all the ruckus in the ME and its spill over effects in the EU et al. This was originally hailed as a triumph for your camps views, until the GFC necessitated a snipe hunt for scapegoats and the cries of heretics for those like Key.

        This is the same issue with OZ, its getting harder to find clean safe places anymore, its a premium, people will pay that price and once it gets rolling it can generate its own momentum trade.

        That said I live 10 min from the CBD in a fairly conservative suburb which is desirable tho prices range from 400ish to 2M-ish, yet 15 min further out one can find new housing and land at 250K levels. Its is pretty much the same for Arizona and north America at the moment. Funny thing my mother sold her 500K house [across the road it was a Million starting – chortle] near the foothills of the Superstition mountains east of Phoenix, pre GFC. So after more than 5 years the house had not appreciated at all, why, because, why would someone buy a five year old house when you could get a brand – new – one for the same price. This is even after replacing all the plumbing fixtures [shiny but crap] and the outside paint [no primer before thinned out top coats] failed in less than two years.

        disheveled…. I could go on and on Hugh, but, the point is numbers don’t tell the real story. Hell I’m currently working on two executive houses in an exclusive suburb, 1.7M each. The basic building materials and fitout is so low level its absurd, yet gangs of poorly trained tradesmen come in to bust it out and then its left to us that have the skills and attempt to polish the proverbial turd. Its just so Devo

  3. DingwallMEMBER

    Innovation – This is the sort of thing I love to read about. He mentions one challenge is normal paper is so cheap but it still uses/requires lots of water and trees (how many of those still come from virgin forest??) Sigh …. watching us plunder natural resources without ploughing some of the profits back into innovation and therefore future Australian industry has been painfully wasteful.


    What home life looks like in a city with the world’s least affordable housing (Hong Kong) – National |

    While it remains tougher in Vancouver to service a mortgage than anywhere else in Canada, it isn’t quite the world’s most difficult city in which to pay for shelter.

    That’s Hong Kong, according to a Demographia survey released earlier this year.

    And last year, Canadian-educated photographer Benny Lam brought the lives of low-income people in that city to life in a series of stunning images that show just what home can look like in the world’s least affordable city. … read and view more via hyperlink above …

    2017 13th Annual Demographia International Housing Affordability Survey

    Battery farms in the sky: Starting in the Fifties, the people who thought they knew best built multi-storey monstrosities. With the same disdain they forced others to live in them, writes RICHARD PENDLEBURY … UK Daily Mail


      Levittown history in photos | Newsday

      In 1947, William Levitt of Levitt & Sons began building mass-produced, affordable housing for veterans returning from WWII. Island Trees, or Levittown as it later became known, is widely recognized as the first modern American suburb. Families started moving into the new homes on Oct. 1, 1947.

      The area that would become Levittown was formerly a series of potato fields on the Hempstead Plains that were affected by the Golden Nematode, an insect from Europe that destroyed much of the crops at the time. Levitt bought the land for a reduced price and eventually built more than 17,700 homes on the land by utilizing elements borrowed from Henry Ford’s assembly line process. The homes, which sold for just $7,990, included appliances and an expandable attic.

      • The new wave of Pacific migration: Thousands leave Auckland housing crisis behind for life in the provinces |

        Ta’ufo’ou Mataka hasn’t looked back since leaving her Auckland home four years ago for a new life in Timaru.

        The mother of four moved to the South Island when her husband, Misimana Mataka, accepted a job as a fishing ship engineer, and is one of thousands of Pacific Islanders leaving Auckland for a fresh start in the South Island.

        According to Statistics New Zealand, several thousand Pacific Islanders have left Auckland for greener pastures in towns like Oamaru and Ashburton, the exodus being fuelled by increased employment opportunities and more affordable housing. … read more via hyperlink above …