From S&P :

““Data through October 2010, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show a deceleration in the annual growth rates in 18 of the 20 MSAs and the 10- and 20-City Composites in October compared to what was reported for September 2010. The 10-City Composite was up only 0.2% and the 20-City Composite fell 0.8% from their levels in October 2009. Home prices decreased in all 20 MSAs and both Composites in October from their September levels. In October, only the 10-City Composite and four MSAs – Los Angeles, San Diego, San Francisco and Washington DC – showed year-over-year gains. While the composite housing prices are still above their spring 2009 lows, six markets – Atlanta, Charlotte, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices started to fall in 2006 and 2007, meaning that average home prices in those markets have fallen beyond the recent lows seen in most other markets in the spring of 2009.”

Let´s see how we manage 2011 if rates keep going North and Housing South…

2011 is arriving and strategists are back with their predictions. The consensus sees a  bullish 2011… As you already probably know, we are more confortable being contrarians.

First a comparison courtesy of CITI from 1906/1910 ; 1937/1940; 1973/1977 and 2007/20111 because Cycles matter !!

Then, we will try to understand the problems that we will be facing in 2011 like :

• Market sentiment is as overly optimistic now as it was pessimistic at the July-August 2010 lows.

• Eurozone fiscal deflationary shock.  Anti-inflation policy restraint in emerging Asia.

• Widespread cutbacks at the state and local government level.
• Debt ceiling issue triggers major rounds of market volatility.

• Tax breaks that are temporary tend to have marginal economic impact with few multiplier impacts,hence GDP revisions will likely be to the downside in 2011

• Another downleg in US home prices undercuts confidence and spending

So as we recommended in 2010 (“Perhaps Inflation is a consensus forecast but Deflation is the present day reality and often lingers for years following an asset and credit bubble and further collapse. We believe that the dominant focus should be on Capital preservation and Income orientation in any form of investment ( bonds, hybrids,Hedges,etc…) and consistent focus on reliable dividend growth and dividend yield.” ), we think that 2011 will bring more of the same…

But do not worry 2012 is getting closer !!!

Sarkozy and Merkel said NO to E-bonds & said NO to increase the EU rescue fund…

Credit Agricole said that it would hold back at next auction of Spanish debt because it is not yet clear whether the ECB will back-stop the country. “The risk is simply too large for our appetite,” it said.

In 2011 Portugal must raise €38bn, Belgium €85bn, Spain €210bn, and Italy €374bn, according to Goldman Sachs.

Europe’s leaders still seem to hope that global recovery and  growth will help them and EU, but we think that  this is “HOPE” and wishful thinking.

Recovery brings its own set of problems, and will make intra-EMU tensions even worse.

Courtesy of Marc Chandler

“Spanish bonds have fallen each day this week. The 13 bp increase today brings the 10-year yield increase to 30 bp this week, easily the worst performing bond market within the euro zone.  Portugal has the dubious honor of being in second place with a 19 bp yield increase.  Pressure is also evident in the short end of the coupon curve.  The 2-year yield is up 19 bp on the day and 32 bp on the week; again easily the word performer over the past five sessions.  Italian bonds 2-year yields are getting hit as well and are up 20 bp.

Spain has more supply to come next week and this coupled with European officials reluctance to take pre-emptive action through increasing the EFSF, or plans to issue common euro bonds, or establishing contingency funds for Spain (and Portugal) undermines sentiment.  On December 14 Spain will sell 12 and 18 month bills and on December 16 Spain will sell 10 and 15 year bonds.

Italy will likely hold a vote of confidence in the government around the same Spanish auctions and the EU Summit.

Although Germany has been blamed for blocking some of the reforms suggested, a closer look reveals that the Netherlands and the Austrians also were opposed to increasing the EFSF and the common bond proposal.  In some ways Eurogroup head Junker and Italian Fin Min Tremonti’s proposal for collective euro bonds in an op-ed piece in the FT earlier this week was poor politics even if one agrees with the economics.   A trial balloon like that without securing one’s flanks, especially in this environment, produces more harm than good as it emphasizes the discord.

France seemed late to join the Germany, Austria and Netherlands.  France might have been sympathetic to the proposal initially, but seeing how Juncker and Tremonti hadn’t lined up support, why should France stick it neck out?

While Germany has taken the lead, it is simply pursing its own national interest and naturally see Europe through that prism.  In some ways, the real surprise is that France is either unable or unwilling to provide a check or offset to Germany.   The press may play up the personal animosity between Merkel and Sarkozy, one aspect of the problem is, to the contrary, France has gone along with nearly every German initiative during.”

New cable releases from Wikileaks say the Chinese essentially fabricate their GDP figures:

“4. (C) GDP figures are “man-made” and therefore unreliable, Li said. When evaluating Liaoning’s economy, he focuses on three figures:
1) electricity consumption, which was up 10 percent in Liaoning last year;
2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and
3) amount of loans disbursed, which also tends to be accurate given the interest fees charged.

By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are “for reference only,” he said smiling.”

IS CHINA THE NEW ENRON  ¿?¿?¿?