Morning stuff

The Greek drama may be coming to a head this week as an ECB member revealed a crack in their resistance to any sort of Greek default. ECB member Nowotny implied that a ‘selective default’ may be acceptable to the ECB and how the rating agencies want to classify it may not be that important to them. A ‘selective default’ will likely take the form of a debt extension where short term paper is swapped for longer term debt. Combined with this may be a Greek debt buyback financed by the EFSF. The debt swap possibility has the Greek 2 yr, the security that will bear the brunt of this, getting slammed again with the yield spiking 250 bps to 38.5%. The debt of Italy, Spain, Ireland and Portugal however are bouncing as maybe the Greek fire can again be put out on Thursday when EU officials meet formally again. For months, it was the ECB’s polluted balance sheet that was standing in the way of a Greek restructuring, whichever form it would end up taking. German ZEW 6 month economic confidence figure fell to the lowest since Jan ’09 but interestingly the current condition component rose to just shy of the highest on record dating back to ’91.

June Housing Starts totaled 629k annualized, 54k higher than expected and is up from 549k in May (revised down by 11k). Both single and multi family categories contributed to the rise. Single family starts were up by 39k to 453k, the most since Nov. While good for the construction component of GDP, we don’t need new single family homes with all the existing homes still on the market but single family Permits, the precursor to starts, were up just 1k. The area where we can use new inventory is in multi family as vacancies are dropping and the US experiences a secular decline in the homeownership rate. Multi family starts rose by 41k to the most since Jan at 176k and permits were up by 14k to 217k, the most since Oct ’08. In terms of construction jobs in this hard hit sector, permits exceeded housing completions, thus providing enough jobs for new projects for those finishing old ones. Bottom line, I repeat again that we don’t need an increase in single family housing starts with a 9.3 month inventory to sales ratio of existing homes but hopefully the pace of permits will prove the June jump as being an outlier (admittingly, the pace is still extremely depressed). Multi family is where the housing construction benefits are being seen and that will be the case for years to come.

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