Stock Market Nosebleed Rally

I just wanted to comment on the extremes to which this market has gone. The normal standard deviation used to mark the top of a cycle is 2.0 above the six-month moving average price. Normal market tops will either touch the upper Cycle Top line and almost immediately will be repelled. Thus, I call it Cycle Top resistance. In a very few rare instances the price of the SPX will briefly move above it, but drop back beneath the resistance area quickly.
The Market Oracle

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Existing Home Sales: A few comments

The most important number in the existing home sales report was inventory, and the NAR reported that inventory increased 11.9% in April from March, and is only down 13.6% from April 2012.  This fits with the weekly data I’ve been posting.

This is the lowest level of inventory for the month of April since 2001, but this is also the smallest year-over-year decline since July 2011. The key points are: 1) inventory is very low, but 2) the inventory decline will probably end soon. With the low level of inventory, there is still upward pressure on prices – but as inventory starts to increase, buyer urgency will wane, and price increases will slow.
005, we need to remember there were no “short sale contingent” listings in 2005. In the areas I track, the number of “short sale contingent” listings is also down sharply year-over-year.

Another key point: The NAR reported total sales were up 9.7% from April 2012, but conventional sales are probably up close to 25% from April 2012, and distressed sales down.  The NAR reported (from a survey):

Distressed homes – foreclosures and short sales – accounted for 18 percent of April sales, down from 21 percent in March and 28 percent in April 2012.

Although this survey isn’t perfect, if total sales were up 9.7% from April 2012, and distressed sales declined from 28% of total sales to 18%, this suggests conventional sales were up sharply year-over-year – a good sign. However some of this increase is investor buying; the NAR is reporting:

All-cash sales were at 32 percent of transactions in April, up from 30 percent in March; they were 29 percent in April 2012. Individual investors, who account for most cash sales, purchased 19 percent of homes in April, unchanged from March; they were 20 percent in April 2012.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in April (red column) are  above the sales for for 2008 through 2012, and close to the level in 2007.  Sales are well below the bubble years of 2005 and 2006. 

The bottom line is this was a solid report. Conventional sales have increased sharply, although some of this is investor buying. And inventory is low, but the year-over-year decline in inventory is decreasing.

Earlier:
• Existing Home Sales in April: 4.97 million SAAR, 5.2 months of supply
Calculated Risk

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The Macro Economic Story as Told by Gold, Copper and Oil

Gold’s been on a wild ride. After reaching a peak of $ 1,920 an ounce in September 2011, gold has tumbled 28% to the current ~$ 1,380 level forcing John Paulson to take a 47% loss in his gold fund during the first four months of this year, according to Bloomberg. Unlike Paulson who maintained his positions in gold, other big players like George Soros and BlackRock cut their gold ETF holdings, while Goldman Sachs issued a sell recommendation on gold right before the yellow metal plunged 13% through April 15, the biggest drop in three decades. And by looking at the futures curve (chart below), market does not seem to expect gold to come back roaring any time soon.
The Market Oracle

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Asian Gold Premiums Hit New Highs as Europe Urged to Start “Agressive QE”

BULLION prices rose throughout Asian and early London trade on Wednesday morning, touching $ 1398 per ounce for the third time this week and recovering 4.4% from Monday‘s one-month low. Silver rose more steadily, and was capped below $ 22.80 as energy prices slipped and agricultural commodities held flat.
The Market Oracle

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Why Bernanke and His Pals Are Terrified

Two big events have occurred/ are occurring. 1)   Chicago Fed President, Charles Evans who is one of the biggest pushers for QE, stated that the Fed has “the appropriate monetary policy in place” and that the economy is “improving quite a lot.” 2)    The Bank of Japan is beginning a two-day policy meeting today. Regarding #1, Evans has been one of the biggest pushers for more QE. Throughout 2011 and 2012, every time he appeared on TV he stated that the Fed should do more.
The Market Oracle

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FOMC Minutes: Exit Strategy Discussion

Note: I’ll have more on existing home sales and Bernanke’s testimony later today.

From the Fed: Minutes of the Federal Open Market Committee, April 30-May 1, 2013. A few excerpts on the exit strategy:

After the policy vote, participants began a review of the exit strategy principles that were published in the minutes of the Committee’s June 2011 meeting. Those principles, which the Committee issued to clarify how it intended to normalize the stance and conduct of monetary policy when doing so eventually became appropriate, included broad principles along with some details about the timing and sequence of specific steps the Committee expected to take. The participants’ discussion touched on various aspects of the exit strategy principles and policy normalization more generally, including the size and composition of the SOMA portfolio in the longer run, the use of a range of reserve-draining tools, the approach to sales of securities, the eventual framework for policy implementation, and the relationship between the principles and the economic thresholds in the Committee‘s forward guidance on the federal funds rate. The broad principles adopted almost two years ago appeared generally still valid, but developments since then–including the change in the size and composition of SOMA asset holdings–suggested a need for greater flexibility regarding the details of implementing policy normalization, particularly because those details would appropriately depend at least in part upon future economic and financial developments. Also, because normalization still appeared to be well in the future, the Committee might wish to wait and acquire additional experience to inform its plans. In particular, the process of normalizing policy could yield information about the most effective framework for implementing monetary policy in the longer run, and thus about the appropriate size of the SOMA portfolio and level of reserve balances. In addition, several participants raised the possibility that the federal funds rate might not, in the future, be the best indicator of the general level of short-term interest rates, and supported further staff study of potential alternative approaches to implementing monetary policy in the longer term and of possible new tools to improve control over short-term interest rates.

Views differed regarding whether the best course at this point would be to simply acknowledge that certain components of the June 2011 principles had been overtaken by events or rather to formally revise the principles. Acknowledging that the principles need to be updated would help avoid possible confusion regarding the Committee‘s intentions; waiting to update the principles would allow the Committee to obtain additional information before revising them. It was also mentioned that the public’s understanding of the likely exit process might not be improved if the Committee issued only a set of broad principles without providing detailed information on the steps anticipated for normalization. However, issuing revised principles relatively soon could give the public additional confidence that the Committee had the tools and a plan for eventually normalizing the conduct of policy. Moreover, one participant stressed that the Committee‘s ability to provide forward guidance about the normalization process was a key monetary policy tool, and revised principles would permit use of that tool to help adjust the stance of policy. Participants emphasized that their review of the June 2011 exit strategy principles did not suggest any change in their views about the economic conditions that would eventually warrant beginning the process of normalizing the stance of monetary policy. At the conclusion of the discussion, the Chairman directed the staff to undertake additional preparatory work on this issue for Committee consideration in the future.
emphasis added

Based on comments by Bernanke today, and NY Fed President Dudley yesterday, it sounds likely the Fed will allow the MBS to run off (a change from their previous thinking).
Calculated Risk

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AIA: Architecture Billings Index indicates decreased demand for design services in April

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Architecture Billings Index Reverts into Negative Territory for First Time in Nine Months

After indicating increasing demand for design services for the better part of a year, the Architecture Billings Index has reversed course in April. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the April ABI score was 48.6, down from a mark of 51.9 in March. This score reflects a decrease in demand for design services (any score above 50 indicates an increase in billings) and is the lowest mark since July 2012. The new projects inquiry index was 58.5, down from the reading of 60.1 the previous month.

“Project approval delays are having an adverse effect on the design and construction industry, but again and again we are hearing that it is extremely difficult to obtain financing to move forward on real estate projects,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “There are other challenges that have prevented a broader recovery that we will examine in the coming months if this negative trajectory continues. However, given that inquiries for new projects continue to be strong, we’re hopeful that this is just a short-term dip.”
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.6 in April, down from 51.9 in March. Anything below 50 indicates contraction in demand for architects’ services.  This decline followed eight consecutive months of expansion.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an “approximate nine to twelve month lag time between architecture billings and construction spending” on non-residential construction.  The previous increases in this index suggest some increase in CRE investment in the second half of 2013.
Calculated Risk

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Existing Home Sales in April: 4.97 million SAAR, 5.2 months of supply

NOTE: Federal Reserve Chairman Ben Bernanke testimony Testimony by Chairman Bernanke on the economic outlook

The NAR reports: April Existing-Home Sales Up but Constrained
.97 million in April from an upwardly revised 4.94 million in March. Resale activity is 9.7 percent above the 4.53 million-unit level in April 2012.

Total housing inventory at the end of April rose 11.9 percent, a seasonal increase to 2.16 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, compared with 4.7 months in March. Listed inventory is 13.6 percent below a year ago, when there was a 6.6-month supply, with current availability tighter in the lower price ranges.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in April 2013 (4.97 million SAAR) were 0.6% higher than last month, and were 9.7% above the April 2012 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 2.16 million in April up from 1.93 million in March.   Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer (so some of this increase was seasonal).

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 13.6% year-over-year in April compared to April 2012. This is the 26th consecutive month with a YoY decrease in inventory, but the smallest YoY decrease since 2011 (I expect the YoY decrease to get smaller all year).

Months of supply increased to 5.2 months in April.

This was  just below expectations of sales of 5.0 million.  For existing home sales, the key number is inventory – and inventory is still down sharply year-over-year, although the declines are slowing.   This was a solid report.  I’ll have more later …
Calculated Risk

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Can Two U.S. Senators End Too Big to Fail Banks?

I am often on a panel or at dinner with Barry Ritholtz (The Big Picture), and he will remark, “I am going to have to rethink my position – I agree with John, and that can’t be right.” While I don’t share that bias, I do agree with Barry about his recent take on legislation – which might actually pass – that would deal with too-big-to-fail banks in the US. Barry’s latest take on that issue is this week’s Outside the Box. I have not written all that much on the topic lately, other than to say that Dodd-Frank was designed by big banks for big banks – the best legislation they could buy, I have been very critical of allowing too-big-to-fail banks to put taxpayers at risk, and I don’t think it should ever be allowed to happen again. Dodd-Frank did not deal with that.
The Market Oracle

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LPS: Mortgage Delinquency Rate falls below 6.5% in April, Lowest since July 2008

According to the First Look report for April to be released today by Lender Processing Services (LPS), the percent of loans delinquent decreased in April compared to March, and declined about 10% year-over-year. Also the percent of loans in the foreclosure process declined further in April and were down almost 25% over the last year.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.21% from 6.59% in March. Note: the normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 3.17% in April from 3.37% in March. 

The number of delinquent properties, but not in foreclosure, is down about 11% year-over-year (375,000 fewer properties delinquent), and the number of properties in the foreclosure process is down 25% or 543,000 properties year-over-year.

The percent (and number) of loans 90+ days delinquent and in the foreclosure process is still very high, but declining fairly quickly.

LPS will release the complete mortgage monitor for April in early June.

Calculated Risk

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