I picked up some more information on China’s housing market yesterday.

  • Property sales volume fell 6.7% YOY in December. Sale value fell 1.3%.
  • Property investment growth fell to 12.3% YOY vs. 20% YOY in November.
  • New residential starts fell 24.8% YOY.
  • Unsold units rose 26.1% in 2011.

These numbers look bad. Property sales volume has had a significant drop, and housing starts are way down.

Bloomberg has an article today on the Danish mortgage market. Apparently this market has been quite stable through the financial crisis and aftermath because of its unusual structure. When a house-buyer takes out a mortgage, a bond is immediately created; mortgagees can pay off the mortgage either buy repaying the borrowed money, or by buying back mortgage bonds to the face value of their mortgage in the market. Credit risk is borne by originators, and interest-rate risk is borne by the market. I wonder, however, whether the market ever sold off sharply during the crisis. It may have done during the dislocation of 2008, and that would have presented a buying opportunity — so I will add this to the mental toolkit of things to look at in dislocations. But recently the bonds have performed well, in spite of the euro crisis. This highlights an awkward feature of obscure markets: the players in them are usually aware of their quirks. Perhaps one is more likely to find opportunities in markets in which relatively uninformed big players are involved.

Barack Obama has rejected the Keystone pipeline and immediately said that Transcanada, which wants to build it, should reapply. If this doesn’t make much sense, it helps to know the background. The imposition of a deadline for a decision on Keystone was part of the agreement with Republicans in the House to extend the payroll tax cut for two months of this year. Obama has sat on Keystone for years (presumably because he fears angering his environmentalist supporters by agreeing it), and while he may take some short-term political flak for rejecting it now, the deadline has allowed him to say that there was not time to make a proper decision, and to delay a final decision until after the next presidential election. I wondered whether Transcanada might be a buy, but its drop on the news was not precipitous.

Why are US equities rising? I think that equities are driven by earnings and credit spreads. As neither trailing earnings nor credit spreads currently implies that equities should be rising, it seems reasonable to think that it is expectations for future earnings that are driving the index (this is usually a short-term phenomenon — actual earnings are what usually drive the index). Why should this be? I think the most likely reason is that the ECB has taken some of the downside potential out of the European situation. I was slow to understand the import of its actions (as you will see in my posts at the time — it was early January before I had come to the view that the euro crisis was over for the time being) and therefore did not go long equities, although in any case it is debatable whether there was ever an entry point that would have satisfied me.


US PPI -0.1% d.e. Dec. Core 0.3%.
US capacity utilisation 78.1%, a.e., rose, Dec.
US industrial production 0.4% d.e. Dec.
UK Nationwide consumer confidence 38, d.e. and fell. Remains very low and comparable to financial-crisis lows.
Australian unemployment fell to 5.2%, b.e., Dec. But employment had a second monthly fall, and this one was quite large.
Eurozone current account remained in deficit, contrary to expectations, Nov. The deficit is narrow compared to recent history.

Next 24 Hours:

Building permits
Housing starts
Initial claims
Philly Fed