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Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – February 16, 2017

The major averages slipped in late trade on mixed data and enter the final hour with small losses. Housing starts fell less than expected in January down 2.6% to 1.246 million units annualized. Permits advanced 4.6% to 1.285 million units annualized. This data set has become particularly volatile of late a trend that continues into 2017. By region and the West saw starts fall 41.3%, the Midwest fell 17.9% but the South and North East both gained nicely. Aside from the volatility nothing particularly remarkable as the report was decent overall.

The Treasury International Capital Flows or TIC report came out late yesterday. Net flows in December were -12.9 billion as selling of Treasuries resumed, Equites sold off again in December. Agency and to a lesser extent Corporate bonds remained popular. For the year foreign investors sold a net 342.7 billion Treasury Notes and Bond compared to just 20.3 billion in 2015 much of that China as official investors sold all but 4.7 billion of the total. This data speaks volumes about the true condition of the global economy as foreign governments are clearly desperate for cash to defend their currencies and prop up their economies at home. Another interesting item to note the Dollar despite all the selling remained very strong hitting new record highs last year.

There’s an old saying “once bitten, twice shy” and it would seem that homeowners having been burned badly in the 2007-2009 financial crisis through home equity withdrawal aka my house is an ATM are now very reluctant to do the borrow and spend thing. Data from the Federal Reserve Flow of Funds report shows that while homeowners equity in 2016 has very nearly recovered its 2005 high, mortgage equity withdrawal or MEW remains below that seen at the beginning of the new millennium. A process that rapidly changed as by 2001 MEW was accelerating rapidly and by 2002 it exceeded the rate of increase in homeowners equity. Meaning that wholesale cannibalization of real estate equity was occurring, a process that peaked in 2003 and then fell precipitously beginning in 2006 as the financial and real estate crisis got underway. Just like the Dot-Com bust, the survivors found religion and began worshiping at the altar of commonsense and fundamentals once again.

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