Sweet and Sour Pork? Chinese Banks Sour As Home Prices Nosedive (Non-performing Loan Share > 100% Of Total Assets)

China has experienced a tremendous increase in GDP as well as house prices. Some of the exceptional growth is due to Central Government mandated construction goals to achieve GDP goals. The construction binge includes the numerous Chinese ghost cities like Ordos (which looks like a scene from the horror film “28 Days Later.”


The massive, constructed construction bubble has a downside. Chinese banks are reporting that non-performing asset share has risen above 100% of total assets.

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And Chinese home prices are a tumbling down.

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Here is a replica of London’s Tower Bridge. I hope if doesn’t fall down like London Bridge in the nursery rhyme.


Maybe a new nursery rhyme could be written! “Shanghai Houses Are Falling Down.”


Fed Halts QE3, Gold Tumbles (Is Peter Schiff Wrong?)

Peter Schiff of Euro-Pacific Capital was on CNBC (many times) saying that gold prices will shoot through the roof once The Fed announces that QE3 has ended.

On the other hand, suppose that gold has been inflated by The Fed’s QE. That would lead to gold prices FALLING at the end of QE3.

Well, yesterday The Federal Reserve announced an end to QE3. The reaction?


This does not seem to support Peter Schiff’s pro-gold argument. But then again, it is probably too early to tell.

Here is what technical analysis is telling us.



Fibonacci Retracement:


Elliott Wave:


Bollinger Bands:


Take your pick. Maybe Peter Schiff is correct, but the data so far does not bear his predictions out.

Perfect Timing! GDP Rises 3.5% Just Prior To Midterm Elections (Personal Consumption Declined, Government Spending Grows)

With the US midterm elections rapidly approaching, the Bureau of Economic Analysis provided a treat for Democrats: an increase in real GDP in Q3 of 3.5%! Is this the October Surprise Democrat Strategist Bob Beckel was talking about?


While 3.5% sounds like a sold number, it has the distinct whiff of … China.

You see kids (as Clark Griswold used to say), the usual primary driver of GDP growth is personal consumption expenditures. Unfortunately, PCE fell to 1.8% after rising 2.5% in Q2.

Since PCE is usually about 70% of GDP, what drove up GDP growth to 3.5%?

It was PCE which only contributed 1.22% to GDP in Q3, nor was it Services which contributed only 0.52% to GDP. Nor was it Gross Private Domestic Investment which slumped to 0.17% in Q3.


Nor was it Residential Investment which slumped to almost zero contribution. Nor anything else.


So what grew? Federal spending which rose 0.67% in Q3, THE HIGHEST CONTRIBUTION SINCE 2011! National defense had the largest contribution since 2011 as well.

So, it was defense spending, not personal consumption expenditures, that grew the economy in Q3.


Mortgage Conundrum: 3/1 ARM Rates Dip Below 30Y Fixed, Jumbo 30Y Fixed At 29 BPS Above 30Y Fixed

One of the problem facing lenders and mortgage insurers as well as The Federal Reserve is lack of mortgage purchase applications despite declining mortgage rates.


With the increased interest rate volatility in recent weeks, we saw 3/1 adjustable-rate mortgage (ARM) rates rising above the 30 year fixed-rate. However, the 3/1 ARM rate is now slightly below the 30 year fixed-rate.


Since March 2014, jumbo 30 year mortgage rates rose relative to the 30 year fixed-rate and the spread is now 29 basis points


These rates are quite low by historic standards, yet are not sufficient to jumpstart mortgage purchase applications.

Fed Ends QE While Keeping ‘Considerable Time’ Low-Rate Pledge (Even Greenspan Criticizes QE)

Even former Federal Reserve Chairman Alan Greenspan is saying that QE did no good for the economy, but helped assets prices soar (which I have been saying for years).

Oct. 29 (Bloomberg) — The Federal Reserve confirmed it will end an asset-purchase program that has added $1.66 trillion to its balance sheet and maintained a pledge to keep interest rates low for a “considerable time.”

“Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate,” the Federal Open Market Committee said today in a statement in Washington.

“A range of labor market indicators suggests that underutilization of labor resources is gradually diminishing,” the panel said, modifying earlier language that “there remains significant underutilization of labor resources.”

Policy makers said that while inflation in the near term will probably be held down by lower energy prices, it repeated language from its September statement that “the likelihood of inflation running persistently below 2 percent has diminished somewhat.”

So, despite the lack of success in improving the underlying economy (like stagnant wages),


asset bubbles abound.


Mortgage purchase applications keep FALLING with declining rates.


QE doesn’t help the economy, but makes housing even MORE unaffordable.

Gold dropped on the announcement of QE3 withdrawal.


From Russia With Love: Russian Ruble Falls To New Record Lows (Foreign Exchange and Gold Reserves In Free Fall)

While the world financial markets await the news from The Federal Yellen at 2pm EST in Washington DC, Russia is making waves in the financial news.

The Russian Ruble fell To new record lows.


Russia’s international reserve stockpile has fallen dramatically since January 2013.


How big a problem is the ruble’s collapse for policymakers? The Russian entral bank announced plans to pump an additional $50 billion into the country’s banking system through currency repo auctions (whereby the central bank exchanges rubles for dollars at a fixed rate). The first auction is scheduled to be held Wednesday.

It looks like Putin’s policies have knocked out the Russian Ruble.


The Big Sleep: Mortgage Purchase Applications Decline 5.4% WoW And 15.5% YoY DESPITE Declining Interest Rates (Refi App Surge Abates)

Last week’s exuberance over an increase in mortgage refinancing applications is over with the slight uptick in mortgage rates. “The Big Sleep” in mortgage applications continues.

Mortgage applications decreased 6.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 24, 2014.


The non seasonally adjusted purchases index fell 5.41 percent from the previous week and is down 15.5% since the same week last year.


The seasonally adjusted purchase index and conventional purchase index were the lowest since February 2014, while the government purchase index was the lowest since August 2007. AND are at 19 year lows!!!


And here is a chart illustrating The Federal Reserve’s vaunted quantitative easing and its effect on mortgage purchase applications. The Fed seems to have failed to increase the demand for housing from borrowers. Yes, the residential mortgage market is indeed in “The Big Sleep.”


The Refinance Index decreased 7 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. And “The Big Sleep” in mortgage refinancing applications has returned with the slight upturn in the 30 year mortgage rate.


The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.13 percent from 4.10 percent, with points remaining unchanged at 0.21 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The residential mortgage market remains in “The Big Sleep” … at least until 2015.