Second Quarter Looks Uglier and Uglier, The Fed’s Illusory Policies Are Paving The Way For A Market Collapse Worse Than 2008

Second Quarter Looks Uglier and Uglier

The first look at second-quarter gross domestic product won’t be released until July 31–the second day of the Federal Reserve‘s next Federal Open Market Committee meeting. But monthly data available make it clear the spring slump was, indeed, very very slumpy.

Monday brought disappointing news on retail sales and business inventories. Retail purchases increased just 0.4% in June, not the 0.8% expected, and May’s sales were revised down. The control sales group, which goes into GDP and which excludes vehicles, building materials and gasoline, rose 0.15% in June, half the gain forecasted.

In addition, businesses increased their inventories level by just 0.1% in May, and April’s increase was revised from 0.2% to 0.3%.

The list of economic shops now estimating real GDP grew by less than a 1% annual rate last quarter include Goldman Sachs (0.8% as of Monday), Macroeconomic Advisors (0.6%), Royal Bank of Scotland (0.5%) and Barclays (0.5%). (One caveat to the upcoming GDP data is that the Bureau of Economic Analysis will be releasing benchmark revisions and new methodology at the same time the second quarter GDP data are released.)

Markit Survey – Worldwide Business Confidence Drops to Post-Crisis Low

Thoughts of the Federal Reserves tapering its bond-buying stimulus this year are premature due to that lack of business confidence, says Markit Chief Economist Chris Williamson.

BOOM, BUST: Housing Starts Unexpectedly Fall to Lowest in Year, Permits Have Biggest Miss In History!

Starts (NHSPSTOT) of new U.S. homes unexpectedly fell in June to the lowest level in almost a year, indicating a pause in the industry’s progress.

Work began on 836,000 houses at an annualized rate last month, the least since August 2012 and down 9.9 percent from a revised 928,000 pace in May, figures from the Commerce Department showed today in Washington. The reading was weaker than projected by any economist in a Bloomberg…

Following 45% Collapse, Mortgage Applications Are Back To 2011 Lows

For the 9th week of the last 10 mortgage applications fell (led by refis – down 55% from their peak). Now down an incredible 45% from its May highs – the largest 10-week plunge since December 2010 – overall mortgage activity is languishing around the lowest levels of the post-recession ‘recovery’. Year-over-year, applications have dropped 44% which is close to the worst on record as applications and mortgage rates track one another in their ‘whocouldanode’ perfectly correlated manner. It seems – for all those blinkered pollyannas – given this morning starts and permits disaster, that home sales are the next shoe to drop and judging by the empirical relationship with apps and rates, the ‘surprise’ could be significant for many who remain hopeful.

Not pretty at all…

The Fed’s illusory policies are paving the way for a market collapse worse than 2008

the Fed is between a rock & a hard place. If it does not increase the rates of interest, it will explode leading to high inflation, If it increases interest rates, the activities that are profitable only with very low interest rates will collapse

Thanks to QE, bubble of 2000 looks like ‘day at beach’

“When you think about how much you pay for a dollar’s worth of sovereign debt income in the United States or investment grade debt, if you create a PE multiple out of it, that would make the stock market bubble of 2000 look like a day at the beach. It’s really quite remarkable,” Olsen told CNBC Asia’s “Squawk Box” on Wednesday, referring to the dotcom bubble that burst in 2000.

A Nightmare Scenario

Most people have no idea that the U.S. financial system is on the brink of utter disaster.  If interest rates continue to rise rapidly, the U.S. economy is going to be facing an economic crisis far greater than the one that erupted back in 2008.  At this point, the economic paradigm that the Federal Reserve has constructedonly works if interest rates remain super low.  If they rise, everything falls apart.  Much higher interest rates would mean crippling interest payments on the national debt, much higher borrowing costs for state and local governments, trillions of dollars of losses for bond investors, another devastating real estate crash and the possibility of a multi-trillion dollar derivatives meltdown.  Everything depends on interest rates staying low.  Unfortunately for the Fed, it only has a certain amount of control over long-term interest rates, and that control appears to be slipping.  The yield on 10 year U.S. Treasuries has soared in recent weeks.  So have mortgage rates.  Fortunately, rates have leveled off for the moment, but if they resume their upward march we could be dealing with a nightmare scenario very, very quickly.

Will the Bond beating continue? Upside interest rate target is?


The chart above reflects how a variety of assets performed over a 70- day period of time, ending July 10th. As you can see the top performing asset was the inverse bond ETF TBF, as interest rates rose sharply during this time frame.

During this time window TBF made three times as much as the S&P 500 and made investors as much in two months as the S&P 500 has for the year!

The chart below reflects a pattern that suggested interest rates were about to “Blast Off and Bonds could get hurt”before it happened (see post here)


The above chart reflected a double bottom in yields and a bullish inverse head & shoulders in yields, suggesting a sharp rally in interest rates was about to take place…and it did.

Will the Bond Beating continue?

2013 The Crash of the US Housing Market


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