Still, Credit Suisse is not ready to embrace the steel company revival, at least when it comes to AK Steel (AKS -4.8%), whose self-help story has less scope for upside surprise than US Steel (X +0.2%); one obvious contrast is that X is looking at shutting down blast furnace steelmaking capacity in North America, while AKS is buying more of it.
That's hard to believe given single-family housing starts are on a pace of 622K this year, after 618K a year ago - a far cry from the pre-bubble average of 1.1M in the 1990s. Trouble is, says Kelko, the historical norm doesn't say what the level of construction should be now. Instead, look at the rate of household formation.
If housing starts run ahead of the rate of household formation, homes sit empty and vacancies rise, and that's just what the latest data from the Census Bureau shows. As opposed to multi-unit rental market where vacancies are falling. Even with an increase in single-family rentals, the overall single-family vacancy rate ticked up to 10.7% in 2013 from 10.6% a year earlier, and vs. 7.4% in the pre-bubble days of 2000.
For single-family vacancy rates to get back to normal, even household formation needs to increase or housing starts need to slow. In the meantime, it will be multi-family activity needing to lead the construction recovery.
Separately, the former head of Goldman's housing research team says home prices are 12% overvalued today and have already started to slide. "I am lamentably confident that home prices will fall by 15% within three years."
The entire sector is in the red, but the biggest declines are being seen in the industry giants, about the only spots large investors can move a lot of shares quickly: Annaly Capital (NLY -1.6%), American Capital Agency (AGNC -1.6%).
Yesterday's FOMC statement may have left in the "considerable period" language, but the committee remains on course to begin a rate hike cycle in less than a year.
Further, the selloff on the long end of the curve can has reached the sizable stage - the 10-year yield is up 32 basis points in a month, and has now erased about all of the summer's decline. Book values could take a hit (though hedging is likely to ease the pain).
The C-Tracks Exchange Traded Notes Miller/Howard Strategic Dividend Reinvestor (NYSEARCA:DIVC) will an index of 30 equal weighted domestic stocks, selected for their current dividend yield and the expected growth of that yield, along with other fundamental indicators.
"Whereas traditional market cap-weighted indexes tend to overweight overvalued stocks, we try to improve on the model by equal weighting and limiting selection to companies that share positive factors such as dividend growth, yield, valuation, and profitability—all through a disciplined rules-based process with regular rebalancing" said Lowell G. Miller, founder and CIO of Miller/Howard, in a press release for the new index.
Banks, insurers, brokerages and anything else starved for yield continue to gain following yesterday's FOMC news. Among the gainers are Bank of America (BAC +1.9%) - which breaks above $17 for the first time since April - Citigroup (C +2.7%), Wells Fargo (WFC +1.1%), PNC (PNC +1.1%), Fifth Third (FITB +1.7%), SunTrust (STI +1.2%), Schwab (SCHW +2.3%), Prudential (PRU +2.5%), and Lincoln National (LNC +2.4%).
The Guggenheim BulletShares 2023 Corporate Bond ETF (NYSEARCA:BSCN) and the Guggenheim BulletShares 2024 Corporate Bond ETF (NYSEARCA:BSCO) will track portfolios of investment grade corporate funds.
The Guggenheim BulletShares 2021 High Yield Corporate Bond ETF (NYSEARCA:BSJL) and the Guggenheim BulletShares 2022 High Yield Corporate Bond ETF (NYSEARCA:BSJM) will cover portfolios of high yield corporate bond funds.
"The defined-maturity feature continues to be an effective investment strategy for investors looking to save for life events like retirement and college costs amid a volatile economic environment" said William Belden, Managing Director, Product Development at Guggenheim Investments, in a press release for yesterday's launch.
More on Goldman Sachs' downgrade of Peabody Energy (BTU -5.3%): The firm thinks coal prices are not yet close to the bottom, and it sees metallurgical coal falling as low as $120/metric ton during Q4 - bad news for all coal miners, but especially so for BTU and Alpha Natural Resources (ANR -4.1%).
Goldman says it is focusing on three themes into year-end 2014: Avoid met coal stocks including BTU and ANR, given their high leverage and low-to-negative free cash flow; own sum-of-the-parts winners, reiterating its Buy ratings on SunCoke (SXC +1.9%) and Consol Energy (CNX -2%); prefer stronger balance sheets including SXC and CNX over weaker ones such as BTU and ANR.
India's largest trade deficit with any single country is with China, and Chinese President Xi Jinping - visiting PM Modi in New Delhi - pledged to invest $20B over five years to help narrow the difference.
China is India's largest trade partner, with the two doing $68.5B of business last year, and India posting a trade shortfall of $34.4B. Xi's visit follows one from Japanese PM Shinzo Abe at which he pledged more than $30B in Indian infrastructure investments.
The Sensex gained 1.8% overnight. EPI +3.1%, PIN +2.5%.
ICICI Bank (IBN +3.1%), HDFC Bank (HDB +1.3%), Tata Motors (TTM +1.6%)
Signaling growing concern over the slowing economy, the PBOC overnight cut the 14-day repurchase rate by 20 basis points to 3.5%. This follows the previous day's $81B cash injection into the nation's 5-largest banks.
"This is a significant policy signal," says Liu Dongliang from China Merchants Bank. "The chances of a benchmark interest rate cut are rising because the central bank is clearly guiding interbank rates lower now."
The latest sign of the economic slowdown was a report last night showing property prices sliding for a fourth straight month.
Shanghai was higher by 0.35% overnight, while the Hang Seng fell 0.85%.
What if you held at TLTRO and nobody came? The pressure rises on Mario Draghi to move forward with full-blown QE after European banks step up to borrow just €82.6B from the ECB at a fixed rate of 0.15% in the targeted longer-term refinancing operation. A Bloomberg survey had expected a €100B-€300B range of borrowing.
“This low figure is making the probability of fully-blown QE much higher,” says a fixed-income fund manager. “The target to raise the ECB balance-sheet size to roughly €3T will be attained, either through lending to banks or through direct investment into the markets.”
“This was clearly a failed operation,” says an analyst at Nordea Markets. “It puts pressure on them to also succeed with their covered-bond and ABS programs. Ultimately, even if you include those, it will be difficult for them to reach the balance-sheet target they have.”
The euro (NYSEARCA:FXE) is higher by 0.25% to $1.2890.
August housing starts of 956K fell 14.4% from July's 1.1M, and were 8% higher than a year ago. Single-family starts of 643K fell 2.4% from July, making volatile multi-family starts the key to August's drop.
Building permits of 998K declined 5.6% from July and were up 5.3% from a year ago.
Blackstone's (NYSE:BX) Vivint Solar will sell 20.6M shares at an expected price of $16-$18 each, raising $371M at the top end of the range (and with a valuation of $1.9B). It will trade under the ticker symbol VSLR.
Vivint was purchased by Blackstone is 2012 for $2B.
Markets make opinions and gains in stock index futures along with most global markets has the financial press saying the key takeaway from yesterday's FOMC was a pledge to continue on with ZIRP. All the major index futures are up by 0.4%.
Moody's this morning informed France it will downgrade its government rating to AA2 from AA1. (L'Opinion)
Citigroup analyst Peter Goves said earlier this week he expected the ratings agency to put France on review for a possible downgrade tomorrow. Still, the move was not unanticipated, and there is no immediate reaction apparent in French or EU securities.
Though most of the polls give the "No" (to breaking away from the U.K.) camp the lead, the pound (NYSEARCA:FXB) is behaving a bit nervously. It's now slightly lower on the session after being up nicely this morning following a larger-than-expected decline in unemployment.
Independence would be "an economic trapdoor down which we go, from which me might never escape," says former U.K. PM Gordon Brown in the sort of fear-mongering comment becoming fairly typical from politicians who support the status quo.
“Secession would be a catastrophe for Scotland,” says Spanish foreign minister Garcia-Margallo. “It would start a process of Balkanization that nobody in Europe wants.” Spain, of course, has its own secession issues in Catalonia.
The U.K. banks are showing little nervousness, with Barclays (BCS +0.8%), RBS (RBS +0.8%), and Lloyds (LYG +1.5%) all in the green, and HSBC (HSBC) just marginally lower.