Turkey’s Collapse Sinks Emerging Markets on`Manic Monday’ (Crude Oil Futures Drop Over 2%, Gold Falls Below $1,200, 2Y Sov Yields Climb 200 BPS)

It has been a proverbial Turkey shoot over the past month for the Turkish Lira against the US Dollar, but the last several days have sent shock waves through the emerging markets.


Indeed, gold started falling on August 10th followed by a plunge of over 2% today in crude oil futures prices.


(Bloomberg) — Turkey’s market carnage rippled across emerging markets, sending both stocks and currencies toward their lowest levels in a year.

The lira led losses among global peers after the nation’s first steps to bolster the financial system were seen by some analysts as insufficient to protect markets in times of distress. As President Recep Tayyip Erdogan lashed out at the U.S., took higher rates off the table and said he wouldn’t accept an international bailout, traders pushed down Turkish assets in a selloff that spilled over to other developing economies. The rand’s one-month implied volatility soared by the most since December 2015, while the yield on Argentine’s century bonds rose to 10 percent as the peso sank to 30 per dollar.

“It’s another Manic Monday,” said Jordan Rochester, a currency strategist at Nomura International in London. “We go through the list of options they have to stop this: it involves rate hikes, getting the IMF involved and restoring market confidence in the lira. Unfortunately, all the components are going the other way.”


Fear that the Turkish meltdown will keep punishing emerging markets resurfaced Monday as traders also grappled with tensions between the U.S. and major economies such as Russia and China. Still, many analysts say there are few fundamental reasons to add the whole space to the same basket as several countries have done their homework. That means: while the stress in Turkey may continue, its correlation to the rest of the asset class may decline soon.

“EM has already seen a large selloff between April to July and negative developments in Turkey will eventually be seen (along with Argentina) as isolated given their exceptional external imbalances compared to most EM countries,” JPMorgan analysts including Luis Oganes and Jonny Goulden wrote in note to clients.

Turkey’s market turmoil didn’t just erase a July rebound in emerging-market stocks — it also made them the cheapest since early 2016, before a two-year, 60 percent rally. At 10.8, the MSCI Emerging Markets Index’s 12-month blended forward price-to-estimated earnings ratio is now also below where it was after a sell-off in the second quarter. The gauge itself fell 2 percent this month, extending its yearly decline to about 10 percent.


Turkey already has the highest sovereign yields in Europe, saw their 2-year yield jump almost 200 basis points (Lira denominated) and 170 basis points on US Dollar denominated debt.


Meanwhile, Turkey’s Credit Default Swap (CDS) 1Y SR shot up.


Yes, it has been a Turkey Shoot.


The Goldilocks Housing Market: Too Expensive, Too Cheap, And Just Right (US Is Relatively Less Expensive For Housing Than Many Countries)

The US housing market is like the tale of “Goldilocks and the Three Bears.” According to a study by The Brookings Institute, there are three zone of average home price to income ratio: too expensive (orange and yellow dots), too cheap (blue dots) and normal or just right (grey dots). The too expensive markets (particularly the orange dots) represent heavily controlled (zoning, construction limits) coastal areas like San Francisco, San Jose Los Angeles and San Diego on the west coast and New York City on the east coast. The too cheap markets (blue) are typically non-coastal rust belt cities like Detroit, Toledo and Rochester NY and rural communities.


And there are the three bears of households, the Papa Bear, Mama Bear and Baby Bear. The number of Papa and Mama Bears in 2013 (denoted by Federal tax returns in 2013) is 5,532,526 as the top 5% of adjusted gross income. These are mostly the coastal dwellers. The Baby Bears live in the blue dot and grey dot cities and towns.


Although there are million dollar homes in some non-coastal cities like Chicago, Nashville, Phoenix and Denver.


On the international front, Canada leads the world in rooms per person at 2.5 with the US in second at 2.4. New Zealand and Australia at in third an fourth place. The top four are all former British colonies.


But in terms of housing expenditures as a percentage of household gross adjusted disposable income, the US is one of the lowest (only Norway and Korea are lower). New Zealand takes the cake (or Marmite) as having the highest expenditures on housing.


So, there you have it. If you want “affordable” housing, don’t live anywhere near Facebook’s Mark Zuckerberg and his tech billionaires friends on the west coast or the area surrounding New York city.  Try the mid-section of the country like Toledo Ohio where you can purchase “cheap” housing and dine at healthy cuisine alternatives like Tony Packo’s Cafe where you can get a Hungarian hot dog with chili!


Goodnight Venezuela! Venezuelan Inflation Rate Hits 45,668%!

Venezuelans are suffering horribly from government induced inflation. President Maduro’s central “planning” model has been a disaster of epic proportions.  According to Steve Hanke at Johns Hopkins University, Venezuelan annual inflation has hit a staggering 45,668%.


Both the Venezuela sovereign yield curve and Petroleos de Venezuela 5Y CDS curves are saying the same thing:  “Goodnight Irene.”  Or Goodnight Venezuela.



Deader Than Dead: Mortgage Refinancing Applications Lowest Since December 2000 (Where The Action ISN’T)

Rising interest rates have led to the lowest level of mortgage refinancing applications since December 2000.


And compared to the “Go Go” days of the housing bubble, mortgage purchase applications are back to 1997 levels and growing at a tepid rate (by comparison).


Even rising home prices aren’t thwarting mortgage purchase lending.


But at least mortgage purchase applications are down only 2.44% over the previous week.


To paraphrase Freddie “Boom Boom” Cannon, mortgage refinancings are NOT where the action is.