Equity Jitters - Dave's Breakfast
A: Again, lets make sure we separate the concerns over macro fundamentals and future stimulus withdrawal with what is going on out there in Manhattan real estate. Its not a 1:1 relationship and often the two don't correlate. If things out in the field change, I'll report on it. Today equities are jittery over a poor jobless claims report suggesting a continued weak labor market, euro-zone worries resulting in widening CDS spreads and rising gov't bond yields, and as Dave says, talk that the 'era of the great policy reflation is over'. The era of great policy reflation which allowed the system to carry trade their way to where we are today, will certainly see some bumps as stimulus withdrawal results in consequences that were never intended.
TODAY'S MARKET MUSINGS - BREAKFAST WITH DAVE (you can subscribe here):
Says a lot. In regards to capital preservation, after a year long search for yield via a massive dollar carry trade built on short term fed/government policies and guarantees, the end just can't be smooth and orderly. It works until it doesn't anymore. Soon it may become more of a 'Return OF Capital' instead of 'Return ON Capital' story.risk appetite appears to be fading; credit default swaps are widening and government bond yields are soaring in Europe; the era of the great policy reflation is over
No oomph in the service sector ISM report — it came in below expected and the majority of the industries reported contraction
Sticking with the capital preservation/income orientation theme for 2010
No bubble, eh? Toronto’s housing market started the year with a bang with existing home sales jumping 87% YoY in January
A carry trade unwind, sovereign defaults, failed bond auctions, and the unintended consequences from the end of all the fed/gov't guarantees and policies and stimulus withdrawal were all part of my biggest fears outlined in my 2010 Predictions late December:
"I refuse to deny the possibility of unintended consequences of all the fed/treasury guarantees, zirp, liquidity facilities, and the massive debt monetization experiment.This site always had two clear missions:My three biggest fears for 2010 may be: surprising sovereign defaults + failed bond auctions somewhere + the unintended consequence of a massive dollar carry trade unwind that comes with withdrawal of stimulus."
MISSION 1 - Report on the real time, in the field, happenings of the Manhattan real estate marketplace as they change - always trying to keep reports unbiased with bigger picture macro concerns. If there is a reason to be bearish, be bearish, if there is a reason to get less bearish, get less bearish, and if there is a reason to get bullish, then get bullish. 'Perma' should not come before either
MISSION 2 - Discuss bigger picture macro thoughts and concerns that may lie ahead, not behind, us. How do these macro fundamentals potentially impact and ripple down to the Manhattan residential sales market
Both are constant challenges and both may behave counter to each other for a while. After all, if you recall late 2007 and early 2008, it did in a big time way as the secondary mortgage market froze up, credit blew out, and leveraged financial firms started to implode. It took the failure of Lehman in Sept 2008 for Manhattan real estate to really freeze up and fall off a cliff. Up until then, this market held on in the face of adversity leading many bulls to think this market would never get affected and already survived the so called credit crisis. That is proof enough that the two may act very differently at the same time in the face of the same pressures.
Comments (2)
http://www.urbandigs.com/2010/01/vix_flies_as_obamachina_weigh.html
keep an eye on that DOLLAR, as I stated some 10 days ago:
"For now, expect continued volatility especially if the dollar does something nobody expects it to do: continue rising! Quietly, the greenback is at a 5-month high against the Euro and I wonder if this is the beginning of the carry trade unwind, as traders close out short term debt positions funded with cheap dollars? When a positive carry turns to a negative carry, crazy things can happen!"
Posted by Noah | February 4, 2010 12:11 PM
I'll report on it. Today equities are jittery over a poor jobless claims report suggesting a continued weak labor market, euro-zone worries resulting in widening CDS spreads and rising gov't bond yields, and as Dave says, talk that the 'era of the great policy reflation is over'. The era of great policy reflation which allowed the system to carry trade their way to where we are today, will certainly see some bumps as stimulus withdrawal results in consequences that were never intended.
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