Mish's Global Economic Trend Analysis

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Strong Home Sales? Price Mismatch? Posted: 20 Aug 2015 11:56 AM PDT Economists are bubbly over home sales, especially existing home sales that came in at the top end of the Bloomberg Consensus range of 5.3 to 5.6 million homes at a seasonally adjusted annualized rate. There's plenty of life in the housing sector with existing home sales up a stronger-than-expected 2.0 percent in July to a 5.59 million annual rate. And demand is well ahead of supply which is very thin, at 4.8 months at the current sales rate vs 4.9 and 5.1 in the two prior months and 5.6 months in July last year. Sales are up 10.3 percent year-on-year, well ahead of the median price which, at $234,000, is up 5.6 percent. This mismatch, especially with thin supply, hints at pricing power ahead. Single-family homes lead the report, up 2.7 percent in the month at a 4.960 million annual rate. Condos, where demand on the new home side is soaring, actually fell 3.1 percent in the month to a 630,000 rate. Year-on-year, sales of single-family homes are up 11.0 percent with condos at plus 5.0 percent. By region, July's strength is centered in the South with a gain of 4.1 percent. The West follows at plus 3.2 percent with the Midwest unchanged and the Northeast down 2.8 percent. Year-on-year, sales are very evenly balanced with all right at the 10 percent mark. The balance of this report is impressive, pointing to a rising tide of strength across housing which, given spotty performances by the factory and consumer sectors, looks to be the leading driver for the second-half economy. New vs. Existing Home Sales New vs. Existing Home Sales Detail Comparison Existing home sales are now back to a level first seen in 2001. New home sales are below a number reached in 1963. Sales are "strong" only as compared to recent anemic activity. New Home Sales Detail New Home Sales Details New home sales currently sit at 482,000 (seasonally adjusted annualized). Every month between April 1963 to May 1966, inclusive, exceeded the current total. Rising Tide of Strength? New home sales are far more important than existing home sales. People remodel a bit on existing home sales. Typically they paint, perhaps buy a new appliance, or plant a tree. Some even put in new cabinets. Others may have to repair a roof. But some do nothing at all. On a new home, everything is new from appliances to shingles. Landscaping follows. So does furniture. Few new jobs are created on existing home sales. Multiple jobs are involved in new home sales. Finally, existing home sales are recorded at closing. New home sales are recorded at contract time, with jobs activity guaranteed to follow. Price Mismatch? Bloomberg states "Sales are up 10.3 percent year-on-year, well ahead of the median price which, at $234,000, is up 5.6 percent. This mismatch, especially with thin supply, hints at pricing power ahead." Is that what it means, or does it mean buyers cannot afford much because everyone who could afford more already bought? Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Tsipras to Resign, Call Snap Elections; Sweeteners Before the Screws; Campaign Promise You Can Believe In Posted: 20 Aug 2015 09:58 AM PDT In the wake of the world's largest ever renege on campaign promises in the shortest period of time, Greek prime minister Alexis Tsipras' Syriza party splintered. Tsipras lost his ruling coalition and would likely have not survived a vote of confidence. Instead, and as widely expected, Alexis Tsipras to 'Step Down and Call Snap Elections'. The Greek prime minister, Alexis Tsipras, has decided to step down and call snap elections for 20 September, government officials said. Once he submits his resignation the prime minister would be replaced by the president of Greece's supreme court, Vassiliki Thanou-Christophilou – a vocal bailout opponent – who would oversee the elections as the head of a transitional government. Tsipras won parliamentary backing for the tough bailout programme last week by a comfortable margin despite a large-scale rebellion among members of his ruling leftwing Syriza party, nearly one-third of whose 149 MPs either voted against the deal or abstained. Syriza governs in a coalition with the rightwing, anti-austerity party Independent Greeks (Anel). The revolt by hardliners angry at what they view as a betrayal of the party's pledge to fight austerity left Tsipras short of the 120 votes he would need – two-fifths of the 300-seat assembly – to survive a censure motion and he was widely expected to call a confidence vote this week or next. Tsipras appears to have calculated that it was better to call the elections early, before the effects of the new bailout measures – including further pension cuts, VAT increases and a "solidarity" tax on incomes – started to make themselves felt. Under Greece's complex constitutional laws, President Prokopis Pavlopoulos cannot immediately call an election if Tsipras resigns, but must first consult the other major parties to see if they could form a government – a near impossibility given the current parliamentary arithmetic. Recent opinion polls have put support for Syriza at around 33-34%, making it by far the country's most popular party – but not popular enough to govern without a coalition partner. No polls have been published since then, but Syriza insiders remain optimistic. Sweeteners Before the Screws  Support for Syriza is unlikely to be 33-34% because of party splintering.  Thus, one can fully expect sweeteners and outside interference from creditors praising Tsipras in the next month. I suspect the ECB will agree to return profits it made on any Greek bonds and add in a few other meaningless (in the grand scheme of things) promises as well. The goal of the creditors is to provide a few sweeteners (as few as necessary), to increase the odds Tsipras wins the next election and can form a government. Such manipulation needs to be sooner rather than later, before the screws of the latest "bailout" take their toll on voters. Campaign Promise You Can Believe In Here's a lollipop today, for your vote in September. After the election you will feel like we kicked you in the teeth. Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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