On That 'China Is At 52-Week Highs' Meme

It appears once again that the behavior of a liquidity-constrained high-beta market-price is encouraging excitement among some of the world’s ‘smartest’ media mavens. “But, but, but, ‘China’ at 52-week highs must mean something?” we hear. Well three things on that meme: 1) the 52-week high Hang-Seng is not reflective of ‘China’ fundamentals per se – instead a far faster-money inflow/outflow liquidity indicator; 2) China’s Shanghai Composite remains extremely weak; and 3) the Hang-Seng has had three false (and dramatic) swings in the last three years which have all reverted painfully fast (1 bearish and 2 bullish) – do you believe this time is different? Fall 2010 and Spring 2012 both looked great – until they crashed and burned…



Chart: Bloomberg

Chart Of The Day: 55 And Under? No Job For You

Nearly two years ago, and progressing to this day, we first observed (and subsequently even the mainstream media caught on) that America’s labor force is slowly but surely converting itself from a full-time to part-time worker society. The reasons for this are obvious: to corporations, the benefits associated with employing part-time workers are countless: avoiding substantial benefits-related costs, evading long-term job contracts, hourly basis wages, and many others. In fact, as long as there is slack in the economy, and there will be for a long, long time as the shift in labor demand is now secular, regardless of what the Fed wants to admit, employers will have ever more leverage, while workers have less and less (and are forced to agree to any employment terms, as long as they get some paycheck at all). This much has been known. What has gotten far less prominence is that of the much trumpeted 4+ million jobs added since the trough in late 2009, virtually all the job additions have gone to (part-time) workers 55 years and over. Indeed, as the chart below shows, starting since the official NBER end of the recession in June 2009, the US has cumulatively added 2.9 million jobs. However, when broken down by age cohort, 3.5 million of these jobs have gone to US workers aged between 55 and 69. Another 729K have gone to recent college grads aged 20-24. What about those workers in their prime years: between 25 and 54 years of age? They have lost a total of 729,000 jobs since June 30, 2009!

In other words, the US jobs “recovery” has been one that while “benefiting” part-time workers, and those who ordinarily would be exiting the labor force to focus on retirement (and can’t as they suddenly realize their savings under ZIRP are worthless while their fixed income portfolios return virtually nothing), has crushed American workers in their key work years, whose jobs instead have been taken by “veteran” workers who increasingly refuse to leave the workforce.

The chart below shows the cumulative jobs gains for those aged 20-24 (red) and 55-69 (gray). The ones below the X-axis, the cumulative job losses, are for those aged 16-19 (green) and 25-54 (blue).

The same chart but going back three years since September 2009, or right around the time the job loss process troughed and since which point the BLS has reported a continuous monthly addition of jobs. Of the 4.2 million jobs added since September 2009, 3.5 million have gone to “experienced” workers aged 55 and over!


So the next time a potential employer denies your job application because the job was just taken, speak to mom and dad: more than likely they applied for the same job, and got it.

Guest Post: New Home Sales – Not As Strong As Headlines Suggest

Submitted by Lance Roberts of StreetTalk Live,

“New U.S. single-family home sales surged in September to their highest level in nearly 2-1/2 years, further evidence the housing market recovery is gaining steam.  The Commerce Department said on Wednesday sales increased 5.7 percent to a seasonally adjusted 389,000-unit annual rate — the highest level since April 2010, when sales were boosted by a tax credit for first-time homebuyers.”

That was the headline paragraph from CNBC following the release of the New Home Sales report from the Commerce Department this morning.  As we discussed recently in our post on Housing Starts and Permits  the euphoria around the entire real sector is still very premature.

The headline number that is released is a seasonally adjusted and annualized number based on the actual month to month data.  The Commerce Department reported that sales of new homes increased 5.7% to 389,000 in September.  This increase against August’s downwardly revised pace of 368,000-units.  However, in reality there were only 31,000 ACTUAL new homes sold across the entire United States in September.  This is the same number that was sold in August and down from the 35,000 units sold in May.  In other words, the entire 5.7% increase in new home sales in September was strictly seasonal adjustments.  

The chart below shows the “housing market recovery” in perspective to historical levels on both a seasonal and non-seasonally adjusted basis.



While the media trumpets that the sales increase adds to signs of a broadening housing market recovery, as we pointed out previously, it is not translating through to the economy.   More importantly, the current levels of sales, while up from the lows, can hardly be called a recovery relative to previous normal activity levels.  However, I digress; let’s get back to the data.

In the month of September we know that 31,000 homes were sold nationwide.  Terrific.  What is more important to know is what TYPE of homes were sold.  There are two ways to look at this – price and stage of completion.  The first chart below shows the number of new homes sold by price level.  



In the month of September there were:

  • 4,000 sales in the sub-$150k range – up 1,000 from August
  • 6,000 sales between $150k-$199k – up from 5,000 previously.
  • 10,000 sales between $200k-$299k – DOWN from 11,000 in August.
  • 5,000 sales between $300k-399k – up from 4,000 previously.
  • 2,000 sales between $400k-$499k – DOWN from 3,000 in August
  • 2,000 sales between $500k-$749k – DOWN from 3,000 in August.
  • 1,000 sales above $750k – up from ZERO in August.

(Note:  These numbers are rounded which is why there is a 1,000 sales difference between the breakdown and the total new sales of 31,000 in September)

As you will notice 2/3rds of all sales are occurring in the lowest priced homes.  The benefit provided by the Fed’s exceptionally low interest policy is allowing for purchases of more expensive priced properties (the $200k-$299k properties) while wages have remained stagnant in recent years.  This is why any real rise in borrowing costs will quickly suppress purchases at the upper end of lowest 1/3rd of priced homes as home buyers are priced out of more expensive homes.  Remember – individuals buy “house payments” and not “home prices.”

The next chart shows new home purchases by stage of completionNot Started, Under Construction and Completed.  



Out of the 31,000 new homes sold in September:

  • 11,000 of the sales were “Completed” construction which was the same level as August but down from 12,000 in July.
  • 10,000 were categorized as “Not Started” which was up 2,000 from August back to July levels.
  • 10,000 were homes that were “Under Construction” which was down 2,000 from August and down 3,000 from June.

The point here is that real activity in the construction market remains at extremely low levels.  While the media, and real estate industry groups, watch all the various types of housing data closely when it comes to the economy – it is the construction of new homes that have the most economic through put.  However, as showed in our previous article on housing starts, there has been no pickup in residential construction employment as the demand for new construction remains at VERY suppressed levels.  

When it comes to the reality of the housing recovery the following 4-panel chart tells the whole story.  



While the media continues to push the idea that the housing market is on the mend the data really doesn’t yet support such optimism.  The current percentage of the total number of housing units available that are currently occupied remains at very depressed levels.  Furthermore, occupancy has only risen slightly from its recessionary lows.  However, the increases in the occupancy rate have primarily been filled by renters which has surged to nearly 30% of all housing units.  Owner occupied housing remains just a smidge above its lows while vacant housing units remains near its peak.  With home ownership today at its lowest levels since 1980 – this can hardly be called a housing market in recovery.

There is another problem with the housing recovery story.  It isn’t real.  

The nascent recovery in the housing market, such as it has been, has been driven by the largest amount of fiscal subsidy in the history of world.  From bond buying programs to suppress real interest rates, modification programs and tax credits to artificially boost demand, and the Central Banks ultra-accommodative monetary policy stance it is not surprising that housing has ticked up.  The problem, however, is that for all of the financial support and programs that have been thrown at the housing market – only a very minor recovery could be mustered.  What happens when those supports are removed?  Or maybe the real question is whether these supports CAN be removed?

Regardless, without full-time employment growth at a rate greater than population growth, real wage recovery, and a deleveraging of the household balance sheet, there cannot be a lasting recovery in housing.  With household formation at very low levels and the 25-35 cohort facing the highest levels of unemployment since the “Great Depression” it is no wonder that being a “renter” is no longer a derogatory label.

FLASH: German gold report reveals secret sales that likely were part of swaps

Dear Friend of GATA and Gold:

With the Associated Press report appended here, the German gold audit story has just exploded into the English-language press with some important revelations:

— The gold vaulted by the German central bank, the Bundesbank, with the Bank of England “has fallen ‘below 500 tons’ due to recent sales and repatriations. …” So despite the lack of official announcement, Germany lately has been selling gold from London — perhaps as part of the secret “strategic activities” grudgingly acknowledged two years ago by the Bundesbank to GATA’s friend, the German financial journalist Lars Schall:


The lack of announcement of the sale of the German gold in London suggests that the sale was actually part of a gold swap with another central bank — like the New York Fed. That is, the powerful implication here is that German gold in London was sold at the behest of the United States and in exchange Germany took title to United States gold vaulted in the United States — or title to gold supposedly vaulted in the United States. This way the Bundesbank could continue to claim ownership of the same amount of gold without lying, at least not technically.

As for the Federal Reserve and the U.S. Treasury Department, when you rig every market you can’t worry so much about lying.

Of course such gold swaps were the target of GATA’s federal freedom-of-information lawsuit against the Federal Reserve in U.S. District Court for the District of Columbia, a lawsuit concluded somewhat successfully last year, having pried from the Fed an admission that it has secret gold swap arrangements with foreign banks:


— The Bundesbank is resisting accountability and has censored part of the auditors’ report in the name of protecting secrets of the central banks storing the German gold. But why should there be any secrets about it? Nobody’s asking for the combination numbers to the vaults, and the combination wouldn’t do anyone any good anyway, as the vaults are guarded. Do these secrets involve gold loans and leases and other legerdemain? That seems to be the case.

— The campaign to repatriate the German gold has gotten noticed in a big way.

— The Bundesbank has been officially reprimanded by another German government agency for negligence in its custodianship of the national gold.

— The Bundesbank won’t let German parliament members inspect the German gold vaulted abroad because the central bank vaulting facilities supposedly lack “visiting rooms.” And yet one of those vaults, the Federal Reserve Bank of New York, offers the public tours that include “an exclusive visit to the gold vault” — provided, apparently, that you’re not an elected representative of the German people:


GATA has made further informational requests of the Federal Reserve, Treasury Department, and State Department involving their gold records:


Since those agencies have failed to respond, GATA now is entitled to bring more freedom-of-information lawsuits against them. But we can’t do that without sufficient financing.

The auditors’ report about the German gold demonstrates that the Western central bank gold price suppression scheme — part of a vast scheme of rigging all major markets — can be exposed and defeated by persistent clamor and demands for information. If you haven’t already considered helping us financially, please do so now:


CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Unease about Germany’s unchecked gold reserves

By The Associated Press
via Boston Globe
Monday, October 22, 2012


BERLIN — Germany’s central bank has failed to properly oversee the country’s massive gold reserves, which have been stored abroad since the Cold War in case of a Soviet invasion, independent auditors say.

The central bank must renegotiate its contracts to gain the right to inspect its gold bars, which are worth tens of billions of dollars and are stored in the United States, Britain, and France, the Federal Auditors Office said in a report to lawmakers obtained by The Associated Press on Monday.

The report says the gold bars “have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight.” Instead, the Bundesbank relies on a “written confirmations by the storage sites.”

Most of Germany’s gold reserves — some 3,400 tons worth an estimated $190 billion at current rates — have been kept in the vaults of the U.S. Federal Reserve, the Bank of France, and the Bank of England since the postwar days, when Berlin worried about a possible land war with the Soviet bloc.

The auditors maintain that the central bank must be able to at least inspect samples of its gold bars at regular intervals to verify their book value.

The report acknowledges that such inspections might be logistically complicated, but it stresses that “this cannot discharge [the bank] from the necessity to carry out an inventory.”

The central bank said in a reaction to the report that was also sent to lawmakers Monday that it sees no reason for a physical inspection of the bars. “There is no doubt about the integrity of the foreign storage sites in this regard,” it stated.

The debate on most of the gold reserves being held by foreign authorities has caused some inevitable conspiracy theories questioning their very existence, but several German politicians have also voiced unease.

Philipp Missfelder, a leading lawmaker from Chancellor Angela Merkel’s center-right party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German daily Bild reported.

Given the growing political unease about the issue and the pressure from auditors, the central bank decided last month to repatriate some 50 tons of gold in each of the three coming years from New York to its headquarters in Frankfurt for “thorough examinations” regarding weight and quality, the report revealed.

An initiative backed by some German economists, industry leaders, and a few lawmakers dubbed “bring home our gold” launched in May has attracted some 10,000 supporters online so far.

But Finance Minister Wolfgang Schaeuble and others maintain that there is no reason to worry.

“I currently have no doubt about the stock and the storage of the gold reserves,” said Priska Hinz, the opposition Greens top lawmaker on the budget committee. “I do not doubt the reliability of the foreign central banks,” she told the AP.

Several passages of the auditors’ report were blacked out in the copy shared with lawmakers, citing the Bundesbank’s concerns that they could compromise secrets involving the central banks storing the gold.

The report said that the gold pile in London has fallen “below 500 tons” due to recent sales and repatriations, but it did not specify how much gold was held in the U.S. and in France. German media have widely reported that some 1,500 tons — almost half of the total reserves — are stored in New York.

David Rosenberg: "What Is Wrong With This Market?

From David Rosenberg of Gluskin Sheff

My Evolving Macro And Market Thots

What is wrong with this market? The S&P 500, instead of grinding higher in the aftermath of QE3 actually hit its peak for the year the day after the policy announcement. Go figure. Maybe economic reality finally caught up with Mr. Market (there is a very fine line between “‘resiliency” and “denial” — and keep in mind that the S&P 500 is still up 14% in a year in which profits are now contracting, not just slowing down).

And the cyclicals and Financials have lagged the defensive sectors.

I looked at all the prior major non-conventional easing measures in the past four years: QE1, QE2, Operation Twist, and the ECB-led Long-term Refinancing Operation which a year ago was a really big deal in unleashing a massive global risk-on trade.

On average, six weeks hence, the S&P 500 was up more than 9% after the policy announcement. It was all so novel! Tech on average was up over 11%, industrials were up 12%… ditto for Consumer Discretionary and Materials. The cyclicals flew off the shelves.
But this time around. either Mr. Market is jaded or the laws of diminishing returns are setting in.

Six weeks after the unveiling of QE3, the market is down 2%. This hasn’t happened before. Every economic-sensitive sector is in the red, and even Financials — the one sector that should benefit from all the “sucking at the Fed teat” — have made no money for anybody! Of course, there are the compressed net interest margins to consider.

The bottom line is that since that famous September 13th FOMC meeting that had the bulls going hog wild, the only equity sectors that are in the plus column are …

  • Utilities: +1.5%
  • Health Care: +2.4%
  • And while Consumer Staples are down fractionally, they have outperformed the broad market by 120 basis points

In other words, as aggressive as the Fed has become, maybe, just maybe, Mr Market is starting to focus on the patient rather than the prescription.

The problem is that at the highs, the market had become overbought and right after that September 13th QE3 announcement, the CFTC (Commodity Futures Trading Commission) data showed the hedge funds had already jumped in and the buying power became quickly exhausted. Sentiment surveys and the low levels of the VIX index flashed a certain level of complacency. On each of these post-QE rallies, momentum had become increasingly diminished, and it has been no different this time around. And the bond market has consistently refused to buy into the economic reacceleration viewpoint dominated by the equity bulls. A cursory look at the charts suggests that a near-term top has been turned in and the popular view of a rally into year-end is beginning to look a bit discredited here.

S&P 500 revenues are set to decline on a YoY basis for the first time in over three years. Here we are, one-fifth into earnings season, and less than 40% have managed to beat their sales estimates – we have not seen a number this low since the first quarter of 2009 when U.S. GDP contracted at an epic 5.3% annual rate (and 20 percentage points below the historical average)! I guess this does matter for the stock market, after all, despite all the money printing out of the Fed which merely debases wealth instead of creating it. With margins coming off cycle highs and all the fat already being cut out of the corporate cost structure, faltering sales can be expected to exert an outsized influence over profits in coming quarters. Be prepared for more downward revisions in the EPS outlook, which means be diversified, defensive and dividend-driven.

Of note for pro-cyclical enthusiasts, the Asian stock market, a pro-growth bellwether, has now turned in three losing sessions in a row – a 0.4% drop today with two declines for every advancer. The economic-sensitive Korean Kospi index led the decline with a 0.8% setback and China was down 0.9% in its worst day in four weeks. Equity markets are down through most of the planet today (Japan an exception) with economic and political concerns re-ignited in Europe, a spotty earnings cycle and, of course, what the polls may show with President Obama “winning on points” according to the experts with regards to last nights debate. Though it was interesting to see the incumbent sound more like a challenger… “Attacking me is not an agenda” I thought was one of the better lines of the night; I realize that people need sound-bites and the President, in classic Chicago-style-politics sarcastic for sure delivered some zingers, but Romney was most effective, I thought, and stayed on message, as non-sound-bitey as it may have been, that, sorry, Bin Laden may indeed be dead but Al Qaeda is not and is staging a comeback…  see the op-ed on this file by Jack Keane, former Vice Chief of Staff of the U.S. Army, on page A17 of the WSJ.

To be sure, Obama is a brilliant debater and ostensibly king of the one-liner, but Romney did come off as a credible leader and keep in mind that no matter the “spin”, the president had a 10-point lead in the polls as recently as July and all signs still suggest a neck-and-neck race. As an aside, it’s not just tax policy, energy policy and foreign policy that are at stake in the coming election, but Fed policy will likely be affected as well — for more on this file, see On Fed’s Horizon; Nov. 6 Looks Large on page B1 of the NYT.

The euro is softening now on the news that Moody’s cut the credit ratings of five Spanish regions and French business confidence tumbled to its lowest level in over three years in October (lnsee index down to 85 from 90, the lowest reading since August 2009). As if to add insult to injury, Spanish GDP contracted 0.4% in Q3, matching the Q2 decline (though better than what was generally expected) and the fifth straight shrinkage.

On a day when there was little in the way of data-flow, what was key yesterday was what Caterpillar had to say about the global economic outlook and the picture painted was no Picasso — announcing that the global headwinds are even more acute than previously thought, citing that end-user demand “is not growing as fast as we were expecting it would” (full-year sales seen now at $66 billion from $67.64 billion and 2013 revenues now seen -5% instead of +5%). Texas Instruments reported that its quarterly revenue dropped 2.3% as demand for its chips receded and the CFO (Kevin March) stated “across the board, we’re seeing customers being extremely cautious, very careful about the level of inventory that they hold so giving us very low levels of visibility as to what they’ll want to order for the quarter“. Now does that sound like escape-velocity to you? Freeport-McMoRan missed its EPS target for the first time in 17 quarters … an inflection point, perhaps? Dupont missed too this morning (cutting jobs as well) and what was that Philips Electronics said yesterday? That “the economy in the U.S. is at the moment moving a little bit sideways”. Yikes… that means stagnation. No growth. Microsoft doesn’t get the attention it once had with the likes of Apple and Google now the darlings of the tech world, but the bellwether is now down 10% in the past month (stock price, that is) and as such is in official correction terrain. And didn’t we near from Canadian National Railway (CNR) yesterday say that it is expecting a “challenging end to the year‘ even though it delivered a Q3 results that fractionally beat estimates?

But at least Yahoo surprised to the high side — a rarity so far in the fairly bleak earnings reporting season (something like 8% of the S&P 500 companies report today). May as well find those needles in the haystack.

Also have a glimpse at the article on page B1 of today’s NYT titled Dwindling Demand: China’s Slowing Economy Puts Pressure on American Exporters. Fiscal cliff notwithstanding, the really big risk is a negative export shock about to hit the U.S. economy…  did anyone notice that Q3 industrial production actually contracted, albeit fractionally, for the first time since the depths of the Great Recession over three years ago? And if you have become a bull over Europe, notwithstanding all the ECB support in the world, the problem of massive excessive indebtedness has not gone away instead, it has gotten worse. See Despite Push for Austerity, European Debt Has Soared on page 138 of the NYT.

If deflation was not a primary theme, then we likely would not have seen gold break below its 50-day moving average this morning, with the overall commodity complex moving in the same direction (the oil price has declined now for four days running). Copper and gold (the red and yellow metals) have now traded down to six-week lows! Ditto for platinum. Now that is deflationary — and confirmed by the behaviour in the bond market U.S. Treasuries (and German Bunds) are back in rally-mode, even in the face of this week’s $99 billion new- issue calendar in the government bond market and it is nice to see how the 200-day moving average on the 10-year 1-note proved to be solid support for the fifth time this year!

Again, all these market moves are diametrically opposed to what we had experienced after the prior QE moves … call it life at the zero-bound. The only difference is that this time around, the market realizes that the Fed is pushing on a string. Perhaps in a classic sign of “unintended consequences”, the Fed’s actions are now doing more to hurt the Financials than help them — see Low Rates Pummel Banks on the front page of today’s WSJ. Financial industry profit levels are sagging to their lowest level in three years on the back of increasingly squeezed Fed-induced net interest margins. Indeed, margins are down now for five quarters in a row and at 31.2% to their tightest levels since the second quarter of 2009 (when they needed a government bailout).

Yes, yes, housing and autos have both enjoyed good years, but don’t confuse a cyclical upturn with a level shift — and I sense we are in the latter in each sector. Single-family starts now exceed sales by more than 60% and only 30% of the sales are by first-time buyers. That does not tell me housing is in some durable uptrend, and the reality is that after over-cutting, the builders have now caught up with demand. And after two years in which uber frugality took the stock of U.S. motor vehicles down for two years in a row, there was indeed some good pent-up demand (the fact that the median age of the existing stock is over 11 years is immaterial because cars are being built to last longer today) but the buying intentions surveys suggest that the peak has been turned in. The question is that if I am correct in the assertion that the mini housing and auto cycle has run its course, and all this could produce was economic growth of 1.5% for this year, then what picks up the mantle and prompts anything better than that meagre GDP trend (which is one-third what is typical for an economy supposedly heading into year-four of an expansion). Indeed, you know that the housing rebound is on a short leash when people aren’t shopping for furniture or home appliances any longer—just have a look at Appliances Hit Slow Cycle on page 35 of today’s WSJ.

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