Help to Buy, the new housing benefit?

Bovis Homes reported today, following on from a number of trading statements towards the end of last week from other house builders and as expected the news was good.

David Ritchie, the Chief Executive of Bovis Homes Group PLC said:

"The Group has performed well in the first half of 2013 with a significant further improvement in housing profit, delivered from the ongoing successful execution of the Group's growth strategy. Trading in the first half of 2013 has been strong and the Group has achieved a 40% increase in private reservations compared to the same period in 2012. Continuing its success in the land market, the Group has added 2,767 new consented plots to the land bank. With the positive progress in executing its growth strategy, the Group is well positioned to deliver higher shareholder returns."

It goes on.

Market conditions

Even though the general economic background remains challenging, the housing market has shown signs of strong improvement. Consumers are increasingly able to access mortgage finance and the launch of the Help to Buy shared equity scheme, replacing FirstBuy, has had a positive effect on customers' confidence to buy a home and their ability to transact. These positive effects are expected to support greater activity in the new homes market, which in turn will provide an impetus to the number of new homes built. The Group continues to view positively the Government's initiatives to support the housebuilding sector.

http://www.digitallook.com/news/rns/21012367-11178/BVS-Trading_update_html

Of course it does.  How can any company not be thankful that the Government is potentially poring billions of pounds in taxpayer money its way? Supposedly this is to kick start a market that hadn't really seen a big fall after the financial crisis set in, but in reality was effectively dying a death from inactivity because of what happened before the financial crash.

When bad news is good, at least for the market

Markets often work in strange ways and a lot of the time it is pointless trying to be rational or apply logic to their behaviour, because they turn the news to suit their sentiment and hopes. Yesterday was a good example of this.  After a month or so of fears that QE tapering by the Fed and possibly other Central Banks was on the agenda, markets had been falling, yet there was clearly something wrong here.  After all, tapering, which would be data dependent, was only likely to happen if the economy was in recovery mode. In other words, isn't a recovering economy supposed to be good for stock market quoted companies, surely that's what they want? A recovery?

Yesterday however, was another example of this strange market sentiment. The US GDP numbers came in lower than expected and markets went up. Sure, a bounce was due, but they went up because this "bad news" is actually good for what the markets seem to want - more QE.

The advances followed an upbeat finish on Wall Street overnight after U.S. first-quarter GDP growth was revised down to 1.8%, from an earlier estimate of 2.4%.

“The concerns of the market that prompted a selloff in recent weeks appear to have subsided,” said CMC Markets sales trader Miguel Audencial.

“The first-quarter U.S. gross domestic product figures increased [by less] than forecast, which the market read as a signal that the U.S. Fed is likely to step on the brakes at a later date than previously feared,” Audencial said.

http://www.marketwatch.com/story/korean-stocks-lead-asia-gains-amid-fed-hopes-2013-06-26

Sooner or later QE of this magnitude has to come to an end and perhaps we will see for possibly the first time in history economies recovering and bullish and stock markets crashing all over the world because the free money game of QE is coming to an end. Who knows, but don't try to apply logic to it.

Bernanke speaks, market overreacts, what's new?

Fed Chairman Ben Bernanke just about said everything that he could say to sooth market fears yesterday, but as usual the market reacted in its knee-jerk way with a little sell off, the excuse being that he probably wasn't as certain with his response as they would like him to be and there is still this remarkable fear that tapering will come sooner than the market wants.

However, given the great unknown experiment that is going on with QE and the monthly bond buying, how could he be certain than to say that it is data dependent?

The Fed has said it would keep rates close to zero so long as the jobless rate, now at 7.6%, was above its 6.5% threshold.

And the Fed chairman stressed the bank won't start to hike rates even once its economic targets are met. He said the bank has to be convinced the economic recovery is on a solid upward path before it starts to pull back.

“Our policy is in no way predetermined,” Bernanke said. “Our policies are tied to what’s going on in the economy.”

Indeed, 14 of the 15 Fed members don’t expect the first rate hike until 2015, according to the bank statement.

“The Fed is in no hurry to remove monetary accommodation, but as the downside risk to the U.S. economy and labor market diminish, the rationale for maintaining emergency quantitative-easing measures becomes harder to justify,” said Scott Anderson, chief economist of Bank of the West.

http://www.marketwatch.com/story/fed-much-more-upbeat-about-outlook-2013-06-19

So, basically this gives the market what they wanted. If the economy does improve then QE cannot go on as the risks for real inflation become deeper. Surely the market wants an improved economy? Or does it just want an endless supply of newly printed money every month because that is easier? Fair enough the market had gone up in the 2 previous sessions, so the sell off was probably an excuse for quick profit taking. Sometimes any excuse will do, but sooner or later the market will have to learn to live without the Central Banks intervening in this way and if the economy is supposedly improving then what is the problem for the market?

In the meantime, with the markets going down it doesn't alter the fact that many companies are still producing good results.

FTSE100, oversold bounce due?

The big news this week will probably come when the Fed meets and concludes on Wednesday. Much of the current uncertainty came about when Ben Bernanke talked about the tapering of QE and that it could possibly end sooner as against later. The market seemed to take this as a signal that it would end quickly, all in one go and that it was as good an excuse as any to sell off. If anything the sell off in equities has been stronger outside the US, the UK getting to around 6900 before the latest fall to 6300. It's believed that Bernanke will basically say the same as before, but for the benefit of the trader panic types, it will be made a little clearer on what is likely to happen.

“We suspect that this week Bernanke will continue to say tapering will happen at some point, could happen this year but will be data-dependent, and that we are still a long way off from removing the very easy policy stance the Fed has in place,” said Jim Reid, strategist at Deutsche Bank.

“We still think that the Fed will struggle to taper very much and very early, but the debate is now going to be around for a while,” said Reid.

http://www.marketwatch.com/story/stock-futures-up-sharply-on-fed-clarity-hopes-2013-06-17?link=MW_popular

In other words, same as before, data dependent and nothing likely to happen until the "recovery" is fully in place. Even then it likely will be a slow winding down, gradual, over time. What they will not do is turn it off totally on a specific date.

Whether this relaxes the markets is anyone's guess, but the FTSE100 is showing that it is ready for a bounce after the recent fall. The Daily chart looks set to retrace some of the lost ground of the last month, but would probably need to go through 6600 and then use that as support if recent highs are to be challenged again. If it fails to get to 6600 and it becomes resistance then we could see a second wave down that confirms a downtrend.  The 20dma is just touching the 50dma to a potential downside crossover on daily chart. Weekly chart is also weaker, but the monthly still gives hope to the bull case.

Charts below;

The QE conundrum, when will it end? Not anytime soon.

Current market sentiment has in part turned negative because of an interpretation of the last US Fed statement that seemed to suggest that QE would be tapered down at some stage in the months to come. Bernanke's statement was actually somewhat vague and didn't really say anything that should come as a surprise to the market.

From May 22;

...markets have focused on one thing he said in the Q&A session where he was asked directly whether the Fed could make a decision to wind down its bond-buying program before Labor Day. Bernanke’s response that the Fed could change course “in the next few [FOMC] meetings” depending on prevailing economic data caught markets a bit off-guard, and seemingly leaves a door open for some Fed tapering sooner than Bernanke’s prepared testimony would have indicated.

http://blogs.barrons.com/incomeinvesting/2013/05/22/bernanke-doesnt-rule-out-fed-taper-in-the-next-few-months/

Since then the markets have been falling fairly steadily, even on a Tuesday where after 20 consecutive up days, yesterday was negative in the US. So far there hasn't been that much damage to US markets by Bernanke's comments and in one sense, why would there be? The key words from the Fed are likely to be "depending on prevailing economic data", which is basically saying the same thing as before.

At some stage markets are going to have to find a way of doing business without QE, but until that happens, sell offs like the one in the last week or so are arguably not happening because of the fear of QE ending, that is merely the excuse. Surely those in the market know better than that?

If and when QE does end the most likely option taken by the Fed and other Central Banks will be a gradual winding down if and when economic recovery is supposedly under way and not until then. It is this balancing act that will probably be difficult to time because who really knows when that will be. Chances are the Central Banks don't know, but having started the game of QE they are the ones that have to live with it.

Interesting that markets are down a little today in part because US job numbers came in lower than expected.

U.S. stocks declined on Wednesday, extending losses into a second day, as data found U.S. private-sector job growth and productivity below expectations. 

“More attention is being brought to the economic data, so everyone can play Nostradamus and guess what the Fed’s next move will be,” Mark Luschini, chief investment strategist at Janney Montgomery Scott, said of ongoing guessing as to when the Federal Reserve would begin tapering its $85 billion in monthly bond purchases.

http://www.marketwatch.com/story/us-stocks-extend-drop-into-second-day-2013-06-05

But hold on, surely the next move by the Fed after relatively weak numbers like this is fairly predictable? Chances are there will be no tapering and no change while the data is as up and down, some good, some bad, as it seems to be and you don't need to be Nostradamus to see that.