The Fed has raised rates, officially making real what was mere signaling of the end of its expansionary era... Or is it? You see, from a practical perspective, QE is still in full effect. The US housing market, particularly in large coastal cities is on fire. Commercial and residential rents are rising considerably faster than earnings and incomes. Why is that? Wel...

fredgraph 3 

Published in BoomBustBlog

The Canadian condo market is running into a precarious over-supply situation with large inventories slated to be entering the market in 2014 and 2015. Major centers such as Vancouver, Montreal and Toronto are witnessing a rapid pace of condo construction, despite falling sales. The demand for housing overall is slowing down, with sales in the last few months of 2013 falling on y-on-y basis. In most major Canadian markets there is an increase in listings and decrease in sales (even though prices are still somehow rising, which should in and of itself be indicative of a problem).

However, what is holding the housing market from the “steep and prolonged fall” that the American and periphery EU markets experienced is the extremely low interest rate offered by the banks in a bid to maintain their top line and bottom line. (Note: ~>70% of the mortgages in Canada are insured by Canada Mortgage and Housing Corporation.  The banks therefore are more than motivated to lend for home mortgages). This “ZIRP” (Zero Interest Rate Policy) environment portends material volatility when it comes to an end, either voluntarily through the prospect of organic economic growth, or involuntarily through natural market forces coming to bear. The reason is that at no time in the history of the developed world has interest rates been this low for this long.

20130406 FBC371

The caveat is, economic growth, the primary reason for cutting rates this low for this long – has never materialized, dispute the flood of free or even negative interest rate money that's been flooding the markets. 

When (and that's "when", not "if") risky asset prices decide to revert to mean the snapback to bank balance sheets and economic profit has the potential to be devastating. Yes, even to those conservative Canadian banks.

Click to enlarge, and study carefully...

Reggie Middleton Canadian Condo Bubble

... and on the topic of "Bail-ins"

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File Icon Is There A Canadian Condo Bubble? (Residential Real Estate)

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Published in BoomBustBlog

Bloomberg reports: Bernanke Seeks to Divorce QE Tapering From Interest Rates

Federal Reserve Chairman Ben S. Bernanke will have a chance to use testimony to Congress today to drive home his message that winding down asset purchases won’t presage an increase in the Fed’s benchmark interest rate.

Bernanke has said the Fed may start reducing $85 billion in monthly bond purchases later this year, assuming economic growth meets the Fed’s predictions. At the same time, policy makers’ forecasts have indicated the federal funds rate won’t rise until 2015, long after Bernanke’s second term ends Jan. 31.

... Treasury 10-year note yields were little changed at 2.53 percent as of 8:38 a.m. London time. They touched 2.51 percent yesterday, the lowest since July 5, in anticipation of Bernanke’s testimony, even as economic reports showed that U.S. industrial production rose by the most in four months in June and inflation picked up toward the Fed’s goal, supporting the case for a reduction in quantitative easing.

“He’ll say a slowing in the pace of asset purchases isn’t a tightening of policy, and it’s actually still an easing of policy just at a slower pace,” said Josh Feinman, the New York-based global chief economist for Deutsche Asset & Wealth Management, which oversees $400 billion, and a former Fed senior economist. “It doesn’t imply that they’re going to be tightening policy any time soon. They’re not.”

Global stocks and bonds retreated after Bernanke on June 19 outlined the conditions that would prompt the Federal Open Market Committee to reduce and eventually end asset purchases. His remarks pushed the yield on the benchmark 10-year Treasury to a 22-month high and erased $3 trillion in value from global equity market value over five days.

Technically, Bernanke can say that he can taper bond purchases without raising the Fed Benchmark interest rate, for he can. He is in complete control of said rate. Reality dictates something a little different though. The Fed benchmark interest rate doesn't equal market rates. Ask Dr. Greenspan how difficult it is to get mother market rate to bend to your will by simply manipulating the Fed benchmark rate. He lost control (as if he ever had it) of market rates during his term as he tried to play economic god. Expect the same efforts and the same results from Bernanke.

I urge readers to keep in mind what I expoused in Apple Bonds Proven To Have A Nasty Taste wherein Apple bonds lose 9% in six weeks:

We Clearly & Obviously Ending A 3 Decade Bull Market, Likely At The Tail End Of The Largest Global ZIRP Experiment Ever!

And this final aspect is the kicker. We are likely culminating the end of a three decade secular bull market in bonds. Why in the world would anyone want to buy debt now, in a good, bad or mediocore company? Reference a chart of ten year rates over time, and you will see that once you get this close to zero (and the applied end to excessive ZIRP), there's no way to go but up. As excerpted from theMarket Realist site:

 

Published in BoomBustBlog

Just the other day I stated "Why does everyone confuse a bubble with economic progress" in a post about a very probable bubble in China (see "It Doesn't Take a Genius to Figure Out How This Will End" then get your chuckles on with "Goldman Seems to Trust the Chinese Economic Reporting a Tad Bit More Than I Do!"). Well, as if on cue,  Stocks, Metals Decline Around World After China Curbs Lending; Yen Weakens:

Jan. 7 (Bloomberg) -- Stocks fell around the world, driving the MSCI Emerging Markets Index down the most in three weeks, and metals declined after China moved to curb lending. The yen dropped after Japan’s new finance minister said he would welcome a weaker currency.

The MSCI emerging markets gauge slipped 0.7 percent at 9:45 a.m. in London, led by China as the Shanghai Composite Index plunged 1.9 percent, the biggest decline among benchmark indexes tracked by Bloomberg. Futures on the Standard & Poor’s 500 Index lost 0.3 percent. Copper retreated from a 16-month high and oil snapped an 11-day rally. The yen weakened against all 16 most- traded currencies.

Central bankers in China, the engine of the global economic bubble recovery, sold three-month bills at a higher interest rate for the first time in 19 weeks after saying their 2010 focus is controlling record loan growth. The Federal Reserve said in the minutes of its latest meeting that the U.S. economic recovery might require additional stimulus measures to be sustained.

Bubble Blowing Growth will probably reverse slow this year as tight credit will damp the artificially derived and probably outright lied about demand side,” said Zhang Ling, who helps oversee $7.2 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “That will dash investors’ hope of another year of fast bubble blowing growth.”

Just the other day I stated "Why does everyone confuse a bubble with economic progress" in a post about a very probable bubble in China (see "It Doesn't Take a Genius to Figure Out How This Will End" then get your chuckles on with "Goldman Seems to Trust the Chinese Economic Reporting a Tad Bit More Than I Do!"). Well, as if on cue,  Stocks, Metals Decline Around World After China Curbs Lending; Yen Weakens:

Jan. 7 (Bloomberg) -- Stocks fell around the world, driving the MSCI Emerging Markets Index down the most in three weeks, and metals declined after China moved to curb lending. The yen dropped after Japan’s new finance minister said he would welcome a weaker currency.

The MSCI emerging markets gauge slipped 0.7 percent at 9:45 a.m. in London, led by China as the Shanghai Composite Index plunged 1.9 percent, the biggest decline among benchmark indexes tracked by Bloomberg. Futures on the Standard & Poor’s 500 Index lost 0.3 percent. Copper retreated from a 16-month high and oil snapped an 11-day rally. The yen weakened against all 16 most- traded currencies.

Central bankers in China, the engine of the global economic bubble recovery, sold three-month bills at a higher interest rate for the first time in 19 weeks after saying their 2010 focus is controlling record loan growth. The Federal Reserve said in the minutes of its latest meeting that the U.S. economic recovery might require additional stimulus measures to be sustained.

Bubble Blowing Growth will probably reverse slow this year as tight credit will damp the artificially derived and probably outright lied about demand side,” said Zhang Ling, who helps oversee $7.2 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “That will dash investors’ hope of another year of fast bubble blowing growth.”

First, a quick news scan:

My regular readers should remember my warnings on the currency trade risks (Japan's Hirano can testify), and interest rate derivative concentrations (let's see what happens to the counterparty daisy chain if Dubai defaults): "The Next Step in the Bank Implosion Cycle???". As excerpted:

Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.png

First, a quick news scan:

My regular readers should remember my warnings on the currency trade risks (Japan's Hirano can testify), and interest rate derivative concentrations (let's see what happens to the counterparty daisy chain if Dubai defaults): "The Next Step in the Bank Implosion Cycle???". As excerpted:

Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

bank_ficc_derivative_trading.png

Saturday, 13 June 2009 20:00

Just another Reggie Macro Rant...

I noticed that no one commented on the last set of treasury tables in Part 3 of my take on investing for inflation. I expect a potential crash in Treasuries. For one, they have been doing too well for too long in terms of very low yield; number two: there is the risk, although relatively minimal as compared to factors one and three,that demand will drop precipituosly, and number three: supply is about to shoot through the roof, at the same time that absolute credit quality will probably deteriorate significantly, alhtough on a relative basis I believe we will be one of the strongest credit risks around. That is not saying much since much of the world is currently in or will be in the toilet.

Many have commented on the demand from China. I have a healthy skepticism of China's output numbers. For one, they are a net export nation with their trade partners ALL in recession. Duhh...

Without their consumer consumption jumping much higher, I don't see

Saturday, 13 June 2009 20:00

Just another Reggie Macro Rant...

I noticed that no one commented on the last set of treasury tables in Part 3 of my take on investing for inflation. I expect a potential crash in Treasuries. For one, they have been doing too well for too long in terms of very low yield; number two: there is the risk, although relatively minimal as compared to factors one and three,that demand will drop precipituosly, and number three: supply is about to shoot through the roof, at the same time that absolute credit quality will probably deteriorate significantly, alhtough on a relative basis I believe we will be one of the strongest credit risks around. That is not saying much since much of the world is currently in or will be in the toilet.

Many have commented on the demand from China. I have a healthy skepticism of China's output numbers. For one, they are a net export nation with their trade partners ALL in recession. Duhh...

Without their consumer consumption jumping much higher, I don't see

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