US Homebuilding Stocks Gave Early Signal of Housing Top and Housing Bottom

THIS IS WHY WE FOLLOW CHARTS ... We've been treated to a lot of bullish news on the housing sector over the last month. Builders broke ground on more homes during October. Residential construction rose last month at the highest rate in more than four years. Permits for new construction were 30% higher than a year ago. An index of builder's confidence hit a six-year high earlier this month. It was reported this morning that the Case-Shiller Home Price Index rose 3% for the sixth straight monthly gain in a row. That index is the most widely-followed barometer of the health of the housing industry. It peaked during the middle of 2006 and bottomed during the first quarter of this year. The main reason why we follow price charts is because they are leading indicators of any industry's fundamentals. And, once again, the charts spotted the housing recovery a lot sooner. Chart 1 plots the Dow Jones US Home Construction Index since 2000. The homebuilding index peaked during 2005 (nearly a year before the Case-Shiller index) and broke its multi-year up trendline during 2006 (red circle). That was a clear signal at the time that the housing boom was over. It took the investment community until late 2007 to acknowledge that.

HOUSING INDEX GAVE MAJOR BUY SIGNAL LAST JUNE... Chart 1 shows the home construction index hitting bottom in late 2008/ early 2009. It achieved a successful retest of that low during the second half of 2011 before breaking its major down trendline during that fourth quarter (green circle). More importantly, the housing index cleared its 2010 high during June which completed a major basing pattern and signalled a major new uptrend (solid circle). I've been writing bullish comments on the housing industry since the fourth quarter of last year based on that bullish chart pattern. It took the economic community nearly a year to acknowledge the improvement. Homebuilders have, in fact, been the strongest sector of the market during 2012, and correctly signaled that the housing industry was in recovery. Once again, the charts were early and the economic community late. I can't wait to see all of the buy recommendations being issued by Wall Street in the coming weeks. Meantime, the construction index has more than doubled in price since the fourth quarter of last year. That's why we follow charts. And why we prefer the market messages being given by charts rather than economic messages which are usually way behind the market.

Source: John Murphy's commentary on StockCharts

Markets Price to Moving Average Snapshot

Most global stock market indices enter medium term green setting up an intermediate term rebound in a still bearish long term trend.

Markets Price to Moving Average Snapshot

Generalized short term rebounds with most indexes below medium and long term moving averages.

US Philly FED Survey in Recession Area

..two months after the US Philly FED Survey Slowdown Warning.

30-year Low in US University of Michigan Consumer Confidence

..a reaction to the last two weeks markets volatility that may send US GDP growth in recession area.

US Macro Downturn Charts

Markets Price to Moving Average Snapshot

The summer rally ended in a red sea.

US Monthly Change in Nonfarm Payrolls Approaches Zero

US Consumer Confidence Lower

German ZEW Survey Lowest since January 2009

The ZEW Indicator of Economic Sentiment is ascertained monthly. Up to 350 financial experts take part in the survey. The indicator reflects the difference between the share of analysts that are optimistic and the share of analysts that are pessimistic for the expected economic development in Germany in six months.

US Philly FED Survey Slowdown Warning

US Macro Trends - Turning point?

Key Global Events - The Week Behind and Ahead On May 15th

Big Picture succinct summation of week’s events (ending on May 13th):

Positives:

1) UoM confidence jumps back to average level of the year as one year inflation expectations dip to 4.4% from 4.6%

2) 5 month low in mortgage rates leads to 9% jump in refi’s and 6.7% rise in purchase application

3) Germany and France lead solid Q1 GDP growth for Euro zone but sustainability in question

4) Hong Kong economy grew 11.2% annualized in Q1

5) China again raises reserve requirements after 5.3% CPI print and greater than expected loan growth.

Negatives:

1) CPI, PPI continue to rise with CPI now back above 3% y/o/y

2) Inflation takes bite out of April retail sales as sales ex gasoline rise just .2%

3) Initial Jobless Claims above 400k for a 5th straight week and 4 week average now at the highest since Nov

4) Weak US$, energy prices and higher Chinese labor costs lead to 11.1% y/o/y gain in Import Prices

5) NFIB small business optimism index falls to lowest since Sept with most growth categories lower and price index higher

6) BoE’s King says UK in stagflationary environment, is it headed here?

7) Political infighting amongst the EU, IMF, ECB and individual country members continue to drag out the fate of the Greek’s.

Goldman lists the key economic events in the upcoming week, which will likely be dominated by news of the surreal IMF scandal that has taken the financial world by storm.

Last week’s flow of cyclical data was broadly encouraging. However, cyclical currencies traded weak against the USD. In addition, the Greece situation stood at the forefront of market attention. This week will offer us more on that front with the Ecofin/Eurogroup meetings on Monday. Other than that, we have important cyclical data this week with the Philly Fed on Thursday standing out as the key forward-looking indicator. It will also be interesting to watch trends in initial claims, which has been volatile recently. Finally, Fed Chairman Dudley’s speech will be interesting to follow, together with FOMC minutes.

Monday May 16th:

Ecofin/Eurogroup meeting will be key to watch in terms of ongoing developments in the management of the Greek crisis.

US May Empire Manufacturing Survey. The week starts with one of the interesting regional manufacturing surveys in the US. Consensus expects a moderate decline to 20 from 21.7.

Hungary Monetary Policy Meeting. We do not expect rate hikes from the NBH, in line with consensus.

Also interesting: US May Home Builders Survey May, TIC DATA, Poland March Current Account.

Tuesday May 17th:

UK April CPI. We will watch UK inflation data closely in order to assess the likelihood of tighter financial conditions in the UK going forward. For the next CPI release, GS expects a print of about 0.7%, slightly below consensus of 0.8%.

US Housing Starts. We expect housing starts in April to have increased by 5% mom vs consensus expectations of 3.8%.

US IP: We expect IP to have increased by 0.5%mom in April, close to consensus expectations of 0.4% mom.

Also interesting: Australia RBA minutes, South Africa April CPI, Apr & March Retail Sales.

Wednesday May 18th:

UK MPC Minutes: Watching the ongoing developments in the balance of opinions within the MPC and the assessments on growth and inflation dynamics will be key in order to assess the balance of risks to rates, which will also be significant for price action in the GBP as well.

US FOMC Minutes will likely provide more insight into the balance of opinions within the FOMC.

Fed Speakers: St Louis Fed Pres Bullard

Also interesting: Japan Tankan, Malaysia CPI Apr, GDP Q1

Thursday May 19th:

US Philadelphia Fed. Philly Fed is among the key leading indicators ahead of the ISM and a significant input to our own Global Leading Indicators. We expect a rebound from last month’s low print of 18.5. This month will likely come in at 22, mildly above consensus of 20.

US Jobless claims

Fed Speakers: NY Fed Pres Dudley

Also interesting: US April Existing Home Sales


Sources:

Succinct Summation of Week’s Events (5.13.11)
A Look At Key Global Events In The Upcoming Week

Key Global Events - The Week Behind and Ahead On May 8th

Ritholtz's succinct summation of week's events (ending on May 6th):

Positives:

1) US April payrolls rock as private sector leads way, Canadian jobs report rock even more

2) Both retail comps and vehicle sales in March exceed expectations in the face of continued cost of living pressure

3) ISM mfr'g falls a touch but is better than estimated

4) For most companies and consumers, commodity prices break lower, $ bounces after Trichet comments and another week closer to the end of QE2

5) Bin Laden dead

Negatives:

1) Household survey says jobs fell for 1st time since Nov '10, unemployment rate rises to 9% as a result. I know adds confusion to payroll report

2) Slowing global growth as another key reason for commodity break as India, Malaysia, Philippines and Vietnam all raise interest rates, copper breaks slightly below 200 day moving average, Sensex index down 3.2% on the week, Shanghai index down 1.6%

3) China state sector weighted mfr'g PMI 1 pt below expectations

4) ISM services index falls sharply to the weakest since Aug '10 at 52.8

5) Initial Jobless Claims above 400k for a 4th straight week

Key events in the upcoming week, from Goldman Sachs

The week begins with the China – US Strategic and Economic Dialogue (Monday and Tuesday), which will be held in Washington, DC, and will no doubt once again include discussion of the pace of appreciation of CNY against US$. The week also brings a slew of China data, including the trade balance, where consensus expects a small surplus (far below the historical average surplus), and CPI inflation for April, which we see at 5.1% yoy, slightly below consensus. The week ends with the US CPI, where we expect another unfriendly CPI report, with headline CPI rising by 0.39% mom in April, essentially in line with consensus.

Monday May 9th

China – U.S. Strategic and Economic Dialogue (Monday and Tuesday) These meetings will be held in Washington, DC, and will no doubt include discussion of the pace of CNY appreciation against US$.

Taiwan Trade Balance (Apr) According to the latest trends from export orders, we have seen some front-loading of export demand, likely due to the uncertainties over supply chain disruptions in March. April data will allow us to better gauge the extent of this front-loading.

Mexico INPC Inflation (Apr) We expect headline to come in at 3.33% yoy in April, up from 3.04% yoy in March. This is essentially in line with consensus, which is looking for a rise to 3.32% yoy.

Tuesday May 10th

China Trade Balance (Apr) We expect April export growth to moderate to 30.0% yoy, down from 35.8% yoy in March. This is a touch above consensus (29.5% yoy). We expect import growth to rise to 28.0% yoy, up from 27.3% yoy previously. Consensus here expects growth of 28.9% yoy. Consensus expects a trade surplus of $3.2 bn in April, up from $0.1 bn in March. This is still far below the historical average of around $20-25 bn.

Wednesday May 11th

China CPI, IP & FAI (Apr) We expect CPI inflation to fall to 5.1% yoy, down from 5.4% yoy in March. This is below consensus, which is looking for a reading of 5.2% yoy. Our forecast for IP is 15.0% yoy, up from 14.8% yoy in March and above consensus of 14.6% yoy. We are in line with consensus on fixed asset growth, expecting FAI to grow 24.9% yoy, down from 25.0% yoy in March.

Bank of England Inflation Report reflecting the weakness of Q1 GDP data and a 20% rise in Sterling oil prices since the February meeting, projected growth in 2011 is likely to be revised lower and inflation is likely to be revised higher. In the past two years, Governor King has often struck a more dovish tone at the press conference than is reflected in the subsequent MPC Minutes (released one week later).

Poland Central Bank Meeting We are looking for a hike of 25 bps to 4.25%. Consensus expects the base rate to remain unchanged at 4.00%.

United States Trade Balance (Mar) Consensus is looking for a trade deficit of -$47.0 bn, slightly wider than the -$45.8 bn in March. We look for a wider trade deficit of -$48.0 bn, due to higher nominal imports of petroleum products. The trade report could result in revisions to Q1 GDP.

Mexico Q1 Inflation Report

Thursday May 12th

Indonesia Central Bank Meeting Given softer-than-expected inflation in recent months, we expect Bank Indonesia to pause again in May, following pauses in March and April. This is in line with consensus. We expect the central bank to hike the policy rate by another 50 bps for the remainder of this year, taking the policy rate to 7.25% by end-2011 (from the current level of 6.75%).

South Africa Central Bank Meeting We are in line with consensus and expect the policy rate to remain unchanged at 5.50%.

Norway Central Bank Meeting In line with consensus, we expect a 25 bps hike to 2.25%.

United States Initial Claims (May 7) Consensus expects initial claims to come in at 428k, down from the elevated 474k reading the previous week.

United States Retail Sales (Apr) We forecast that retail sales increased by 1.0% mom in April, or 0.7% excluding motor vehicles. Both figures should benefit from the increase in gasoline prices during the month, which raises the nominal value of sales at filing stations. April chain-store sales results were encouraging, but need to be treated with caution due to shifts in the timing of Easter. Consensus sees growth of 0.6% mom for headline retail sales, following growth of 0.4% mom in March. Retail sales excluding autos are expected to grow 0.6% mom, following growth of 0.8% mom in March.

Friday May 13th

Korea Central Bank Meeting We expect the Monetary Policy Committee to raise the policy rate by 25 bps, with a continued hawkish bias. Consensus also expects a 25 bps hike.

Euro Zone GDP (Q1) We forecast growth of 0.7% qoq, above consensus, which is looking for a reading of 0.6% yoy. Growth in Q4 was 0.3% qoq.

Poland CPI (Apr) We expect inflation to come in at 4.4% yoy in April, below consensus of 4.5% yoy, following a reading of 4.3% yoy in March.

United States CPI (Apr) We expect another unfriendly CPI report this month. Specifically, we forecast that the all-items CPI rose by 0.39% mom in April, essentially in line with consensus (0.4% mom), and that core increased by 0.19% mom, also in line with consensus. Our forecast for a rise in the core (from a gain of 0.14% in March) primarily reflects higher apparel and medical care inflation.

Sources:

Succinct Summation of Week’s Events (5/6/11)

Key Events In The Upcoming Week: US And China Trade Balance And Inflation Data

Key Global Events - The Week Behind and Ahead On May 1st

Ritholtz’s succinct summation of short week’s events:

Positives:

1) Great tech earnings buoy stocks
2) Existing home sales 100k annualized above est
3) Housing starts and permits bounce, good for construction
4) Purchase component in MBA data rises 10% to 19 week high
5) Euro zone mfr’g and services index remain solid
6) Sweden, Thailand and Brazil raise rates and China raises reserve requirements again
7) German PPI rises a robust 6.2% y/o/y but below estimates

Negatives:

1) The balance sheet of the United States of America gets a pop across the head
2) US$ value continues to erode, gold and silver roar higher
3) Philly Fed mfr’g moderates as rising prices create pressure
4) Initial Jobless Claims above 400k for a 2nd straight week
5) NAHB home builder sentiment fall 1 pt to still pathetic 16
6) Housing starts and permits bounce, we don’t need so many new homes
7) Canada CPI up 3.3% y/o/y, well above estimates of 2.8% and compares with a 1% benchmark rate
8) Yields in Greece, Portugal and Ireland go parabolic

Source: Succinct Summation of Week's Events

Inflation Explained

Key Global Events - The Week Behind and Ahead On April 17th

Ritholtz's succinct summation of week's events (04-15-2011)

Positives:

1) Retail Sales in March were good, notwithstanding rising gasoline and food prices
2) NY mfr'g survey in April rises to 1 yr high but with rising prices paid and received
3) Apr UoM confidence bounces 2 pts from lowest level since Nov '09 with still elevated 1 yr inflation expectations
4) China reports stronger than expected Q1 GDP, retail sales and IP but also higher than forecasted CPI and PPI
5) Singapore tightens policy to fend off higher import prices

Negatives:

1) US CPI rises 2.7% y/o/y, most since Dec '09 and Import Prices rise 9.7% y/o/y
2) Initial Jobless Claims rise back above 400k for the 1st time since early March
3) Higher than expected trade deficit and lower than expected rise in business inventories send Q1 GDP forecasts down to around 2%
4) NFIB small business optimism index falls to 5 month low as price pressures rise, and plans to hire, expectations of better economy and better sales fall. Cap ex component did rise
5) Soft start to Q1 earnings season as seen with AA, JPM, GOOG and BAC
6) Yields in Greece, Portugal, Ireland and Spain all rise as clock ticks on inevitable timing of Greek debt restructuring. Greek 2 yr yield up 225 bps on the week and CDS goes to record high
7) Gold at record high, direct indictment of Fed policy

Goldman summarizes the past week, and forecast the next 4 business days (Friday is a holiday)

What Matters in FX This Week : Business Surveys in Europe and Turkish Central Bank Meeting

From a macro perspective, last week's data offered a slightly more positive mix of growth vs. inflation. CPI data in the US showed a more moderate increase in core inflation, while consumer confidence in the US came in slightly better than expected and long-term inflation expectations eased.

In terms of our own market views, we re-emphasized our Dollar bearish bias in the FX Monthly but also highlighted that limited further upside in European rates together with slightly more volatile risk sentiment could temporarily hurt our long EUR/US $ exposure. Our commodities strategy team turned more neutral in the near term for oil, and as a result, we closed our long recommendation in Canadian equities.

Week Ahead

The week ahead is reasonably light on data. The European PMIs and the German IFO will be the key releases to watch. So far, these forward-looking growth indicators have remained steady at remarkably high levels, and it will be interesting to watch whether it extends for another month.

As a result of our more neutral stance on oil, we are watching our RUB trade closely. If the CBR remains hawkish then there is room for RUB to continue to perform even if oil prices correct lower in the near term. Therefore, watching next week's investment data is key for our view on the economy and the central bank's next move.

Next week's central bank meeting in Turkey is unlikely to provide a negative backdrop for our long EURTRY recommendation as we do not expect CBRT to raise reserve requirements again.

Monday 18 April

RBA Board Meeting Minutes.

Hungary Monetary Policy Meeting: We expect the National Bank of Hungary to keep rates unchanged at 6%.

Also of interest: Poland wages, US homebuilders' survey, Singapore trade balance. Fed speeches by Bullard, Fischer & Lockhart.

Tuesday 19 April

Eurozone Flash PMIs (Apr): We expect the manufacturing PMI to print at 57.2, very close to last month's print (of 57.5). Similarly for the services PMI we expect 57, which would be slightly below last month's 57.2 print.

Russia Investment Statistics (Mar): The strength of the rebound in domestic demand will be important to watch in order to assess the odds for further monetary tightening in the near term in Russia. Our long RUB basket recommendation is predicated on a hawkish CBR stance.

US Housing Starts (Mar): We expect a 5% increase in starts vs consensus forecasts of 9.6%.

Also of interest: Canada CPI (Mar), Japan trade balance (Mar), Hungary Wages (Feb), Poland IP (Mar).

Wednesday 20 April

Thailand Central Bank Meeting: We expect a 25bp hike of the policy rate to 2.75%, on the back of rising inflationary pressures.

Taiwan Export Orders (Mar): The March 11 earthquake in Japan is likely to distort export numbers across the region.

Sweden MPC Meeting: We expect the Riksbank to hike rates by 25bps to 1.75%. This is in line with consensus expectations.

UK MPC Meeting Minutes: It would be a surprise if any committee member had switched votes between March and April.

US Existing Home Sales (Mar): We forecast a decline of 6% mom vs a 2.5%mom increase that consensus expects.

Also of interest: South Africa Retail Sales, Mexico INPC inflation.

Thursday 21 April

Germany IFO (Apr): We will be watching whether the IFO continues to point to substantial strength in the German manufacturing sector. The components will also be of interest in terms of assessing the course for business expectations and current trends in the retail and wholesale sectors.

Turkey Monetary Policy Meeting: We expect the Bank to leave rates unchanged at 6.25%. We do not expect the bank to hike reserve requirements (RRR).

Japanese Portfolio Flow data for the week ending April 15. The last data set showed large Japanese selling of foreign debt. In comparison to previous years, we think it is related to fiscal year end. If the trend continues, it may signal repatriation of foreign assets in response to last month's earthquake.

US Philly Fed (Apr): We expect the Philly Fed indicator to decline to 33 from 43.4, consensus expects a decline to 36 only.

Also of interest: US initial claims, Canada retail sales.

Sources:

Succinct Summation of Week’s Events (4.15.11)

Global Key Economic Event And Bond Issuance Summary For The Upcoming Week

George Soros Bloomberg Interview

On stimulus vs. austerity and whether U.S. debt impacts the world:

"If you have a growing economy, you can tolerate a higher level of debt. And if you have too much debt and you have a recession, you get into what they called debt check. This is the big issue. "

"I am afraid it is overshadowed by political considerations. You have a financial crisis in Europe. There is the pressure of Spain and Portugal and so on. But debt is a different problem. Those countries are part of the European bloc and they are not in a position to issue their own currency. We can issue our own currency. In fact, the dollar is quite strong. It is really a matter of political judgment. That is where you have different opinions."

"There is very a strong push to tighten the budget as a way to reduce government spending. It's a resistance to any kind of tax increase and tightening, particularly the budget of the states. The [U.S.] states cannot issue their own currency. They are in a similar situation to Spain and Portugal. There is a danger that by pushing this too far, you could abort the very fragile economic recovery that you are currently enjoying and push the economy once again into a slowdown or a recession."

"I rather fear these political forces will push it into a recession. In my opinion, the country could actually absorb some more debt in order to get the economy going."

On the ECB vs. the Fed – who is doing it right?:

"Two different directives govern the European Central bank and the U.S. Federal Reserve. In the case of Europe, it's a one-sided directive. Their only job is to prevent inflation, and in the case of the U.S., it is more balanced, to maintain employment and financial stability."

On whether the U.S. dollar is still a safe asset:

"There's a big question is whether the U.S. dollar should be the main reserve currency and in fact it no longer is because it maybe accounts for two-thirds of the monetary reserves. The euro is an alternative and there's a lot of diversification into other currencies and even more into commodities. Not only gold, but actually oil is now an asset class for investors. That has put some upward pressure on the commodities."

On whether the sovereign debt crisis has diminished euro's chances of becoming a reserve currency:

"The euro is under a cloud, but that is exactly because there are some inflationary pressures from the price of commodities, particularly now oil and also food prices have risen. That is what has induced the European Central Bank to raise interest rates at a time which is, in my opinion, quite inappropriate…It is not appropriate in current circumstances when you have a number of countries that are suffering from too much debt and high interest rates that they have to pay."

On China's economy:

"China has really stimulated its economy full force very successfully and now it is trying to rein in the rate of growth, and is exercising very strong constraints on the banking system. But because of that constraint, and because of the big demand for money, a shadow banking system has arisen and is growing very rapidly. So while the big banks under direct central control are in fact refusing to lend, there is a shadow banking system that is growing out of control. There is a real danger there of wage price inflation because prices have gone up, particularly real estate prices have gone up because there was a real estate boom."

"Therefore, wage demands have risen, and we now have 20%, 30% wage increases. The Chinese government has made a mistake not allowing its currency to appreciate, which would have controlled the price of inflation. Instead of that, we now have this wage pressure, which is a little bit out of their control."

On the Chinese economic approach and whether they did something right:

"[The Chinese] were the major beneficiaries of globalization. They were the big winners in the financial crash because their economy was largely isolated because they have capital controls on their currency. They have a two-tiered currency system, whereas the rest of the world allows free movement for capital, and you had a runaway expansion of credit and leverage which then resulted in the financial crash, and China was largely immune. So, they benefited tremendously."

"Their system, which really stands in contrast to the international system, international capitalism with free movement of capital, and then there is a system where the state controls the economy. That system actually has performed significantly better than the international system. So now it is beginning to be imitated by others, but I think it is a tremendous mistake, because that was just one particular set of circumstances when it worked better. They had an advantage because they were the only ones that were controlling capital flows. So as a result, they not only control their own currency, they effectively controlled the world currency system. Now other countries, defensively, are beginning to follow them. For instance, Brazil just doubled the surcharge on capital inflows. That is not good for Brazil, and it is not good for the global economy."

Source: Soros - ECB Rate Hike “Inappropriate” in Debt Crisis

US Housing Market Prices Blow Off Chart

Typical market climax happening across decades..

Source: Case Shiller 100 Year Chart (2011 Update)

Why You Should be Freaked Out About the Stock Market..in US

"This is a chart of the US monetary base. In simple terms, it charts how much money the Fed has pumped into the system (at least that it admits). So it's a kind of visual of the Fed hitting the PANIC button: when the monetary base explodes higher, the Fed is FREAKING out.

You'll note that during the Financial Crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system. Think about that, the Fed didn't go nuts pumping money until the stuff REALLY hit the fan.

You'll also note that there's only one other time when the monetary base went absolutely vertical: TODAY.

Indeed, the Fed has pumped nearly $500 billion into the system since the start of 2011. Don't even try to tell me this is QE 2. If it was then the monetary base should have spiked in late 2010, NOT in 2011.

No, this is the Fed FREAKING OUT about the financial system again. And it's a freak out on par with 2008.

So if you think that all is well "behind the scenes" you're in for a rude surprise. Something BIG is going down and it's NOT good.

And rest assured, by the time the mainstream media announces what it is, it will already be in full swing."

Source: Graham Summers via Zero Hedge