ON WATCH

Home Sales Hit 18-Month Low Home sales fell in January to their lowest level in 18 months as higher prices and mortgage rates squeezed buyers who continue to face shortages of properties for sale.

Sales of previously owned homes fell by 5.1% to a seasonally adjusted annual rate of 4.62 million, the National Association of Realtors said Friday. The median sales price in January stood at $188,900, up 10.7% from a year earlier.

Sales volumes are being challenged by reduced affordability of homes and severe winter weather in many parts of the country—two factors putting a damper on demand. But real-estate agents say the market also is being constrained by a lack of supply. There were only 1.9 million homes on the market in January, according to the Realtors’ group. While that was a 2.2% increase from December, only three months during the past 12 years have seen inventories at even lower levels. (…)

Construction of new homes also remains near its lowest level in 50 years. Builders completed fewer than 570,000 new single-family homes last year, down from an average of 1.1 million from 1990 through 2003. (…)

Mortgage Troubles Near Prerecession Levels The number of Americans who are behind on their mortgages and the backlog of homes in the foreclosure process are approaching prerecession levels.

The U.S. mortgage delinquency rate—loans that are a payment or more behind but not yet in foreclosure—fell to 6.39% of loans in the fourth quarter of 2013, down from 7.09% a year ago and the lowest rate since the early months of recession in the first quarter of 2008, according to a report Thursday by the Mortgage Bankers Association.

The backlog of foreclosure inventory also fell to its lowest level since 2008, while the number of loans on which lenders initiated foreclosure was the lowest since 2006, which was when the housing bubble was starting to burst. (…)

Another encouraging sign: Three-quarters of the nation’s troubled loans were made in 2007 or earlier, and delinquency rates for loans made after that point are around historical norms, according to the Mortgage Bankers Association. “The legacy of very high foreclosure rates is a problem of older loans,” said Michael Fratantoni, the MBA’s chief economist.

(…) In October, 11.4% of loans were “underwater,” according to Black Knight, down from about 19% at the start of last year.(…)

Western markets like California and Arizona were among the hardest hit by the real-estate bust, but now have foreclosure inventories that rank among the bottom handful of states. (…) Some 1.25% of California mortgages were in foreclosure at the end of 2013, well below the national average, according to the MBA.

Some states are further along than others in reducing the backlog of foreclosures. Most of the nation’s highest foreclosure inventory rates are in the “judicial states,” where banks must get court approval to foreclose.

Florida, a judicial state, had the nation’s highest share of loans in foreclosure, 8.56%. Still, that was down to a bit more than half of its peak rate. New Jersey and New York—also judicial states—were next on the list and were the only other states with foreclosure inventory rates above 6%. The MBA said that 15 of the 17 states where the foreclosure inventory was higher than the national average were judicial states.

Judicial review has stretched out the foreclosure process, in part because banks have struggled to provide the proper paperwork to demonstrate ownership of mortgages. That has given homeowners more time to work out their debts. But some economists say it has hindered housing markets by slowing the repossession of abandoned or blighted properties.

Real Retail Sales

Doug Short does the math on real retail sales:

With yesterday’s release of the January Consumer Price Index [+0.1% MoM], we can now calculate Real Retail Sales for the underlying sales data released on February 13th. Nominal Retail Sales had fallen 0.4% month-over-month, the second month of contraction, and are up only 0.3% year-over-year (see my detailed overview here). When we adjust for inflation, January sales were down 0.6% MoM. The YoY change was a fractional 0.1% growth. Real sales are down 0.9% from their all-time high in November.

Doug’s numbers reveal that real retail sales have lost in the last 2 months all the gains recorded since June.

Drilling down, from HARD PATCH COMING?:

“Non-Auto Discretionary Sales” (core less food and gasoline) declined 0.3% in each of January and December and are down 0.4% over the last 3 months. During the 3 most important months of the year,nominal non-auto discretionary sales declined at a 1.1% annualized rate. We will get the January CPI later this week but we already know that Core CPI rose 0.3% during November and December. If January comes in at +0.1%, we could infer that real non-auto discretionary sales have dropped at a 2.3% annualized rate between November 2013 and January 2014.

Feds Withhold Water To California Farmers For First Time In 54 Years

The US Bureau of Reclamation released its first outlook of the year and finds insufficient stock is available in California to release irrigation water for farmers. This is the first time in the 54 year history of the State Water Project. “If it’s not there, it’s just not there,” notes a Water Authority director adding that it’s going to be tough to find enough water, but farmers are hit hardest as “they’re all on pins and needles trying to figure out how they’re going to get through this.” Fields will go unplanted (supply lower mean food prices higher), or farmers will pay top dollar for water that’s on the market (and those costs can only be passed on via higher food prices).

OECD warns of new era of slower growth Report pinpoints failure of emerging economies to launch reforms

The world risks slipping into an era of slower growth and high unemployment unless governments push ahead with sweeping structural reforms, the Organisation for Economic Co-operation and Development warned ahead of this weekend’s talks between G20 finance ministers and central bankers in Sydney. (…)

The OECD’s “Going for Growth” report found that the intensity of structural reform measures remained highest in Greece, Italy, Portugal and Spain, where action was being taken to reform the labour market.

But it pinpointed the failure of many emerging economies to launch comprehensive structural reform agenda. (…)

SENTIMENT WATCH

Small Investors Back in the Trading Game Individuals are ramping up trading at discount brokerages, and they are borrowing more against their portfolios to increase bets.

(…) Average daily client trades at E*Trade Financial totaled about 160,000 in the fourth quarter of 2013, up 25% from a year earlier. At TD Ameritrade, clients made 414,000 trades a day on average in the quarter ended Dec. 31, up 24% from a year earlier. Charles Schwab Corp. SCHW +0.50% customers made 488,000 trades a day on average, up 8%.

The trend continued in January, even as stocks fell. At E*Trade, daily trades were up 27% from a year earlier. At TD Ameritrade and Schwab, the increases were 28% and 17%, respectively. TD notched a record number of monthly trades in January, Charles Schwab hit a five-year high and E*Trade reached a level unseen since the “flash crash” of May 2010.

Not only are investors trading more, but they also are borrowing more against their portfolios to increase their bets. In December, margin debt hit an all-time high of $444.93 billion, not adjusted for inflation, up 35% from a year earlier, according to the New York Stock Exchange. (…)

At E*Trade, client trades from mobile accounted for 8.4% of total trades in 2013, up from 4.3% in 2011.

“Mobile remains a major focus for us,” said John Matos, a senior vice president at E*Trade who oversees the brokerage’s digital channels. “Our customers are increasingly engaging with their finances on tablets and smartphones, as evidenced by a record portion of trades being placed” through mobile technologies. (…)

“You see somebody make a lot of money in a day,” he said, “and that shows you it’s possible.”

Jesus said, “Father, forgive them, for they do not know what they are doing.” Luke 23:34

Investors Like the View in Europe Investors have been buying European stock funds, focusing on a brightening economic outlook and low interest rates.

Investors have sent $24.3 billion into European equity funds this year through Feb. 19, according to fund tracker EPFR Global. U.S. stock funds have seen $5 billion in outflows.

In the exchange-traded-fund world, three of the top four stock-based funds in terms of investor inflows in 2014 are the Vanguard FTSE Europe, the iShares MSCI EMU and the Vanguard FTSE Developed Markets ETFs—all of which have heavy exposure to Europe. The three have seen a combined $4.23 billion in new money this year, while $19.1 billion has flowed out of the largest U.S. stock ETF, the SPDR S&P 500 fund.

The Stoxx Europe 600 index is up 2.4% this year, compared with a 0.7% decline in the S&P 500 index of U.S. companies and a 2.9% drop in the 30-stock Dow Jones Industrial Average.

Just in case you missed what most people seem to have missed:

Total retail volume dropped 1.6% MoM in December in the EA17. Over the last 4 months, retail volume is down 1.8%, that is a 5.4% annualized rate! Core sales volume dropped 1.8% in December and is down 1.5% since September (-4.6% annualized). Real sales dropped 2.5% in Germany (-2.4% in last 4 months), 3.6% in Spain (-6.0%), 1.0% in France (-1.2%).

And this from Markit on January sales:

January eurozone retail PMI® data from Markit showed the first rise in sales for five months. And although only slight, the increase was the fastest since April 2011. Germany was the driver of growth, posting its most marked improvement in trade since August. France’s drag on the currency union’s overall performance meanwhile diminished as sales there fell at a much slower pace than in December, whereas Italy saw another solid decrease.

Don’t believe this is unrelated:

Euro-Zone Consumer Prices Fall at Steepest Rate on Record  Sharp Drop in Prices Is Sign of Weak Domestic Demand

Eurostat, the European Union’s official statistics agency, said Monday that consumer prices in the 18 nations that use the euro fell 1.1% in January from December, a record fall driven by sharpest decline in underlying inflation in a year. That “core” gauge of prices, which excludes the relatively volatile prices of energy, food, alcohol and tobacco, dropped 1.7% on the month.

Eurostat said the annual rate of inflation was unchanged in January at 0.8%, close to a four-year low and less than half the ECB’s target of a little under 2%.

BTW: Italy, the euro zone’s third largest economy, showed a 2.1% MoM decline, the biggest drop from among all euro zone members.

Daimler Truck Sales Rose in January The rise was boosted by demand in the U.S., Asia and Western Europe.

(…) While European demand was healthy in January, orders in Europe were more muted in February, Mr. Bernhard said.

Draghi Highlights Importance of March ECB Meeting

European Central Bank President Mario Draghi Sunday signaled the central bank’s March policy meeting could be critical in determining whether the ECB will provide additional stimulus to shore up the nascent euro-zone economic recovery.

“By then we’ll have the full set of information needed for us to decide whether to act or not,” the central bank chief said here at a meeting of global financial leaders. (…)

Both Mr. Praet and Mr. Draghi dismissed fears of deflation. Inflation expectations in the euro zone are well anchored, Mr. Draghi said.

“We still see progress, but we still see downside risks to recovery,” Mr. Draghi said, noting the recovery in Europe is “modest, fragile, with uneven levels of activity.”

China property prices continue to rise Speed of growth cools but prices still up 9.6% year-on-year

New housing prices in China’s 70 biggest cities rose 9.6 per cent year on year in January, down from 9.9 per cent in December, according to a population-weighted average. Of the 70 cities monitored by the national bureau of statistics, six posted price declines from the previous month, up from just two in December.

New home prices in Shanghai and Beijing rose 20.9 and 18.8 per cent in January from a year earlier, respectively, slowing a touch from their 21.9 and 20.6 per cent increases in December.

Global Economy Collapses Despite 4th “Warmest” January On Record

The last 3 weeks have seen the macro fundamentals of the G-10 major economies collapse at the fastest pace in almost 4 years and almost the biggest slump since Lehman. Despite a plethora of data showing that ‘weather’ is not to blame, US strategists, ‘economists’, and asset-gatherers are sticking to the meme that this is all because of the cold on the east coast of the US (and that means wondrous pent-up demand to come). However, as the New York Times reports, for the earth, it was the 4th warmest January on record.

G-10 macro data is collapsing…

Venezuela Youth Drive Protests Against ‘Chavismo’ Students and recent graduates form the backbone of an increasingly raucous movement that has become the most formidable challenge President Nicolás Maduro has faced since taking office last April.

Oil at the heart of Venezuela’s turmoil Scrimping on PDVSA raises likelihood of more unrest

(…) While Venezuela boasts the world’s largest energy reserves, “chávismo” has spectacularly mismanaged the oil wealth, creating the country’s current problems.

“The main problem for PDVSA [the state-owned oil company] is the government’s fiscal voracity,” says David Voght, managing director of IPD Latin America, a consultancy. “Venezuela has focused more on politics than efficiency in its oil sector.”

Siphoning off PDVSA’S investment funds to pay for social programmes has so far helped maintain government support. Most protests have been in better-off neighbourhoods around the country.

“For the protests to be effective, they must include the poor,” says former presidential candidate Henrique Capriles, a member of the opposition’s more moderate wing who cautions it is wrong to create expectations that the government is about to fall.

But scrimping on investment throttles Venezuela’s golden goose, increasing the likelihood of unrest. Less oil production means less money to spend on imports and thus greater shortages, while money-printing to fund a gaping fiscal deficit has fuelled inflation of more than 56 per cent.

Furthermore, much of Venezuela’s output is mortgaged. Production has fallen to some 3m barrels a day, from 3.1m a decade ago, according to official figures, of which 310,000 bpd pays off loans to China, about 400,000 bpd is sold to allies, such as Cuba, for sub-market prices or in barter deals, and about 600,000 bpd is used to meet heavily subsidised domestic consumption.

As a result, there is even less money to spend on imports. By way of illustration, Venezuela’s remaining 1.7m bpd generates about $58bn of revenues a year. In contrast, imports totalled $77bn in 2012, according to UN statistics.(…)

But, in the past, Venezuela solved similar cash crunches by issuing international bonds. That trick is harder to repeat now, given that Venezuelan bonds have posted the biggest losses in emerging debt this year. The country’s benchmark bond due in 2022 yields 18 per cent, almost twice the rate of equivalent Ukrainian bonds.

With foreign reserves of only $20bn, versus principal payments of $4.5bn due this year plus another $13bn of interest, bondholders increasingly wonder where they lie in the pecking order should the government re-prioritise imports over debt. (…)