New Homes and Jobs Surge, Trade Deficit Narrows
The Commerce Department is reporting that new home sales surged in October to their highest level since 1980. “Sales jumped 25.4 percent [in October] to a 444,000 annualized pace, following a 354,000 rate in the prior month that was the weakest since April 2012…The median forecast of 62 economists surveyed by Bloomberg called for 429,000.” Also, the Midwest region is leading the rebound with a 34% increase in sales. Supply of households dropped to 4.9 months from 6.4 months in September (a record high). In addition, building permit application requests increased 6.2% to the highest annualized rate since June 2008. Strangely enough, the Mortgage Bankers Association is reporting mortgage activity including refinancing and home purchase demand fell 12.8% in the last week of November (including an adjustment for Thanksgiving). This is the fifth straight weekly decline for mortgage activity; 30-year mortgage rates rose 3bps to 4.51%. While these numbers don’t seem to jive too well with the Commerce Department figures for new home sales, it may be that a serious drop in refinancing activity is causing the disparity. Meanwhile, the private sector added 215,000 jobs in November, beating economists’ estimates by nearly 25%. October’s new jobs number was also revised up to 184,000 from 130,000. Also, the trade deficit narrowed as exports hit a record high: the trade gap fell 5.4% in October to a $40.6bn deficit. September’s trade deficit was revised slightly wider to $43bn from $41.8bn. October exports increased 1.8% to $192.7bn, halting three months of exports decline. Trade with China, Canada and Mexico and petroleum exports are all at record highs.
Eurozone Squeezed Inside and Out; EU Fines Big Banks Over Libor
Falling credit and a rising currency are squeezing the Eurozone internally and externally. In October, private sector lending fell 2.1% on diminished business lending activity. Also, the money supply grew 1.4% on the year, falling short of the ECB’s 4.5% target. Meanwhile, the euro has been appreciating in value this year, up 5.4% so far and up 13% since summer 2012. The combined effect of the external pressure (currency appreciation) and internal pressure (lack of credit) may be at the root of the Eurozone’s lack of inflation. Meanwhile, the EU Commission issued a record fine of $2.3 billion to six big banks over the manipulation of London interbank offered rate, or Libor, and the euro equivalent Euribor. Deutsche Bank received the highest chunk of the fine, reflecting the “high market share held by Deutsche Bank in the markets investigated.” Libor “is calculated by a poll carried out daily on behalf of the British Banker’s Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies.” For more on Libor, check out Financial Times’ interactive explanation. (Alt)
Super Senior Collateralised Loan Tranche…Wait, Didn’t This Totally Screw Us Up Like, 5 Years Ago?
Once regarded as “toxic, complicated and for the recklessly brave only,” collateralised loan obligations are the only securities yielding above 10% in the securitized products market according to recent Morgan Stanley research. And to make the deal even sweeter, banks are offering these synthetic CDO/CMO/CLO securities with leverage baked in. (Alt) “Finding investors to buy the most senior pieces of such deals has tended to be difficult because the top slices generate the lowest yields. So banks invented a so called ‘leveraged super senior’ tranche, which allows investors to pay only a fraction of the senior tranche’s total value and, by doing so, juice their returns.” Ironically enough, the former chief of Credit Suisse’s CDO business was sentenced to prison last week because apparently he was manipulating the market value of his collateralized debt obligations on their balance sheets “to meet targets and boost year-end bonuses.” For more on the super-senior-tranche-high-quality-no-risk-of-default-lets-just-forget-about-2008 market, Matt Levine captures the tragic comedy of such recklessness.
According to Bankrate.com, 18-29 year olds are “most likely to say that their health insurance situation is improving as well as their ability to pay for medical expenses.” Also, 42% of this age group say that “finding better insurance, possibly with cheaper rates or more options, would be a minor or major reason to move,” so in that case, expect major relocation from the East Coast to the Southwest? Thankfully, CNN released an interactive map to help millennials find their new home! Seriously though, the cost difference between States for different Obamacare plans is pretty wide: $413 in Vermont, $201 in Oregon and $154 in Minnesota.