Tuesday 29 June 2010

The mirage of the recovery is fading

Greece CDS 5 year CDS is now trading at 1000 bps, still trailing Venezuela at 1302 bps, but finally trading above Argentina 5 year CDS, currently at 956 bps.

Greece Cumulated probability of Default on the 5 year point is now at 55%.

At the same time, stocks are getting crushed, particularly on the financial sector, given weaknesses in consumer confidence and an increasingly worrying rising stock of REOs (Real Estate Owned) on banks balance sheets and Euribor tensions are still mounting. This coming thursday, ECB's loan to 1000 banks is expiring. They had borrowed 442 Billions Euros at 1% from the ECB a year ago. Liquidity is therefore a concern which explains the violent sell-off in Financial stocks in the Eurozone.

Bund 10 year Government bond is trading at a yield of 2.552% versus a tight of 2.50% on the 8th of June.

As highlighted in this post's title, the mirage of recovery is fading: also in pending sales of Existing US Homes, a leading indicator. It decreased by 30% in May. Biggest drop in records dating to 2001...

Compared with May 2009, nationwide pending sales were down 16 percent.

"The tax credit, worth as much as $8,000, helped fuel a rebound in demand last year and was extended and expanded in November. The credit required buyers to sign contracts by the end of April and close by June 30. The House of Representatives voted this week to push back the deadline for closing to Sept. 30."

Politicians are trying their best to slow down the other leg down in housing prices. It will not work.

The US labor market is still very weak as highlighted in the recent posts in the excellent blog Calculated Risk.

House prices in the US are still above the historical average and would have dropped down if the tax credits had not been extended by politicians:

New Homes sales is a leading indicator as per this graph, also from the Calculated Risk Blog:

The 300 thousand annual sales rate is a new all time record low. The previous record low annual sales rate was 338 thousand in September 1981. So much for a "V" recovery.

85 banks have already failed this year, already above trend from 2009.

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