U.S. Home Sales Rise 0.4%, Continuing Growth Path Sales of previously owned homes increased modestly in January to their highest level in six months, a sign of continued solid momentum in the U.S. housing market.
Sales of previously owned homes, which account for the bulk of home-buying activity, rose 0.4% in January from the prior month to a seasonally adjusted annual rate of 5.47 million, the fastest sales pace since July, the National Association of Realtors said Tuesday. Sales were up 11% in January from a year earlier, the largest annual jump since July 2013. (…)
Existing-home sales appear to have stabilized after dropping 8.1% in November then rebounding 12.1% in December, a gyration that the Realtors group blamed on delayed closings after the introduction of new federal mortgage rules.
The National Association of Realtors said there were 1.82 million existing homes available for sale at the end of January, down 2.2% from a year earlier and a 4-month supply at the current sales pace. (…)
The S&P/Case-Shiller Home Price Index, covering the entire nation, rose 5.4% in the 12 months ended in December, greater than its 5.2% increase in November.
Month-over-month price gains were modest, giving some indication that momentum may slow heading into 2016. Seasonally adjusted, Miami had lower prices this month than last and 10 other cities saw smaller increases in December compared with November, according to Case-Shiller.
I am not sure I am seeing the “continued solid momentum” the WSJ headline sees:
CalculatedRisk has this LT chart which suggests that we could be at a cyclical peak if we consider the 2003-05 period as an aberration. This could be the “old normal”.
Much is said about the low inventories but that could also be the “old normal” helping understand why supply is not rising along with prices.
In reality, we need renters to decide that it is best to buy. But these people are pretty rational…
…and those who are not are largely dismissed by lenders…
RICHMOND FED
Fifth District manufacturing activity slowed in February, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders decreased modestly this month. Manufacturing hiring continued to increase at a modest pace, while average wages grew mildly and the average workweek lengthened slightly.
Retail sales increased moderately, as shopper traffic rose sharply. In contrast, revenues decelerated at other services firms. Retail inventories flattened and big-ticket sales softened.
Saudi Oil Minister Says No to Production Cuts
Ali al-Naimi, Saudi Arabia’s powerful petroleum minister, told the elite of the global energy industry here Tuesday that demand for oil remains strong but that for prices to recover, excess supply will still need to be curbed. That rebalancing, he said, will start as low prices squeeze out the production of oil that is the most expensive to extract and sell. (…)
“The producers of these high-cost barrels must find a way to lower their costs, borrow cash or liquidate,” Mr. Naimi told the IHS CERAWeek gathering, which included top executives from many of the world’s biggest oil companies and senior officials from big producing countries. (…)
Saudi Arabia could produce oil profitably at $20 per barrel, Mr. Naimi asserted, a level well below current prices. “We don’t want to, but if we have to, we will,” he said. (…)
“There is no sense in wasting our time seeking production cuts,” he said. A freeze, he said, would slowly allow the ample inventories of crude oil to shrink, but “it’s going to take time.” (…)
Hours before Mr. Naimi’s address, Bijan Zanganeh, Iran’s oil minister, called the Saudi Arabia-Russia pact “ridiculous.” His remarks helped send global prices lower. (…)
Obviously, talks with Iran and Irak got nowhere…
Meanwhile, U.S. gasoline demand was up 2.8% YoY in December.
J.P. Morgan: What’s Even Scarier Than Oil? Superlow interest rates remain the biggest threat to banks
(…) Granted, energy is a worry. J.P. Morgan said in its presentation that it expects to add around $500 million this quarter to reserves against losses on the energy book. And should oil stay around $25 a barrel for 18 months, it could require an additional $1.5 billion of reserves. That spooked investors who drove the shares down sharply. (…)
Assume, for example, that the Federal Reserve sticks to the pace of tightening implied by its latest forecasts for where short-term rates are likely to end up in coming years. As of December, these projected four rate increases in 2016 and more afterward, bringing the federal-funds rate to around 3.25% at the end of 2018 from 0.375% now.
In that blue-sky scenario, J.P. Morgan would earn an additional $10 billion or so of net interest income in 2018.
Unfortunately for banks, the Fed’s projections looks increasingly divorced from reality. The market now expects a much more gradual pace—perhaps no increases this year and just a one quarter-point increase per year in 2017 and 2018. Under this “dovish Fed” scenario, J.P. Morgan estimates that it would reap $6 billion of additional net interest income in 2018. This could help to boost net profit by around almost one-third.
Consider, though, if the Fed stays on hold through 2018, an unlikely, but not outlandish, scenario. J.P. Morgan said it could still increase net-interest income by, for example, adjusting the mix of its assets. But it would only gain about $3.5 billion in additional income.
Granted, that is better than interest income falling. It isn’t enough, though, to get investors excited about bank stocks, and certainly not enough to justify a rerating of its valuation.
So until the prospects for Fed movement brighten, bank stocks will be stuck cowering under the covers.
S&P sees growing corporate repayment risk Asian companies must repay almost $1tn of debt over next four years
Asia Pacific companies are on the hook to repay almost $1tn of debt over the next four years — more than half of it priced in US dollars, according to a report by Standard & Poor’s that also highlights the rise in repayments due from riskier, junk-rated companies. (…)
The report covers the $961.4bn of debt coming due that is rated by S&P. Of that, more than two-fifths must be repaid in the next two years. (…)
Just over 80 per cent of outstanding bonds from emerging market borrowers are denominated in dollars, while a further 6 per cent is in euros. (…)
By contrast, just 58 per cent of borrowing by developed market groups based in Australia, New Zealand and Japan, is in dollars or euros. (…)
More than 20 per cent of non-financial institution debt is junk-rated, while 4 per cent of financial institution debt is junk-rated. Repayments of $8.6bn fall due in 2016, while repayments almost double next year — then double again to $30.9bn by 2019.
This Is Why Kyle Bass Is Wrong on China Collapse, Says CICC The Chinese investment bank’s economists published an 11-page rebuttal of hedge-fund manager Bass’s assessment earlier this month where he stated that the nation’s banking system may see losses of more than four times those suffered by U.S. lenders during the 2008 credit crisis.
CICC says Bass is getting it wrong in three main areas: by comparing a “vastly different” Chinese economy to that of Japan’s in 1990; by using the ratio between loans and economic output as a complete measure of leverage in China; and by using a measure of foreign-exchange reserves that underestimates the true figure.
There are “several factual errors in Mr. Bass’s research,” Hong Liang, Beijing-based chief economist at CICC, and Eva Yi wrote in a report Tuesday. “Although we do not share Mr. Bass’s assessment of a violent debt-deflation cycle accompanied by severe FX depreciation in China in the near future, we acknowledge that China’s current macro challenges are daunting.”
This critique comes one week after their CICC colleague Mao Junhua wrote his own research taking issue with Bass’s assessment of nonperforming loans. The hedge-fund manager, who successfully bet against mortgages during the subprime collapse, said earlier this month that in the event that the Chinese banking system loses 10 percent of its assets because of bad loans, the nation’s banks will see about $3.5 trillion in their equity vanish, according to a letter to investors obtained by Bloomberg.
“We chose to write the rebuttal simply because it caused quite a bit of stir among our clients,” CICC’s Yi wrote in an e-mailed response to questions. “We take it as our responsibility to decipher through the noise and provide a balanced view on China macro-related issues.”
When asked to respond via e-mail, Bass pointed to a Feb. 17 Goldman Sachs Group Inc. report, in which the firm flagged the potential for a 9 percent bad-loan ratio in China’s banking system, more than the official reported level of 1.7 percent. The ability of industrial companies to cover their interest payments had deteriorated to levels in line with 2003, which is when banks last reported a 9 percent bad-loan ratio, according to the report.
(…) Others have also disagreed with Bass’s views including Larry Hu, an economist at Macquarie Group Ltd. in Hong Kong. He said this month that the hedge-fund manager’s estimate for bank losses could be too large as it implied a true bad-loan ratio for China banks at 28 to 30 percent.
Meanwhile, Eclectica Asset Management’s Hugh Hendry has taken issue with Bass’s forecast for a major devaluation in the yuan against the dollar. Policy makers in China wouldn’t risk such a drop because of the impact on consumption, Hendry said at a conference last week.
Here’s What Buffett Wouldn’t Do, and Maybe You Shouldn’t Either
Investing:
- Don’t be too fixated on daily moves in the stock market
- Don’t get excited about your investment gains when the market is climbing
- Don’t be distracted by macroeconomic forecasts
- Don’t limit yourself to just one industry
- Don’t get taken by formulas
- Don’t be short on cash when you need it most
- Don’t wager against the U.S. and its economic potential
Management:
- Don’t beat yourself up over wrong decisions; take responsibility for them
- Don’t have mandatory retirement ages
- “Don’t ask the barber whether you need a haircut” because the answer will be what’s best for the man with the scissors
- Don’t dawdle
- Don’t interfere with great managers
- Don’t succumb to the attitudes that undermine businesses
Fly, fly again: SpaceX goes back to sea
“Rockets are hard,” says Elon Musk, founder of SpaceX, who speaks from experience. Tonight his firm is due to launch SES-9, a communications satellite, into orbit—and will then make its latest attempt to land the first stage of a Falcon 9 rocket on a drone-ship stationed in the Atlantic. SpaceX achieved a successful touchdown on a terrestrial landing-pad in December, but its sea-landing attempts (which are necessary for some launch trajectories) have all failed. The first stage accounts for around 70% of the $54m cost of a Falcon 9, so recovery and reuse could slash the cost of access to space. Last month Mr Musk told The Economist that he thinks first-stage airframes could be reused 100 times, and engines at least ten times. Reusability is vital if he is to achieve his long-term goal of offering one-way trips to Mars for less than $100,000—something that he terms “very doable”. (The Economist)