Thursday, November 26, 2015

Friday November 27 Housing and Economic stories

Why Fannie Mae and Freddie Mac survived - ( One of the most interesting and uncovered stories these days is the survival of Fannie Mae and Freddie Mac — the giant housing entities created by the government and known collectively as the GSEs (government-sponsored enterprises). On Sept. 6, 2008, nine days before the Lehman Brothers bankruptcy, Treasury Secretary Henry Paulson put the GSEs into “conservatorship.” This meant that the government would cover their costs because they were bankrupt. The government’s aid ultimately totaled$187 billion. Even in Washington, that’s serious money, and it fostered an informal consensus: Fannie and Freddie had to go; taxpayers’ exposure was too great. “This is an opportunity to get rid of institutions that shouldn’t exist,” former Federal Reserve chairman Paul Volcker said. The GSEs had been — it was widely assumed — “consigned to the dustbin of history,” as financial writer Bethany McLean says in her new book, “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants.” Well, not yet — and possibly never. Remarkably, their importance today is unparalleled. In 2013, President Obama said that “our housing system should operate where there’s a limited government role and private lending should be the backbone.” Just the opposite applies now: Government dominates housing finance.

Black Market For Black Gold Ignites As Jobless Roughnecks Resort To Oil Theft – ( The allure of ill-gotten oil money remains strong. The lull in drilling has given oil companies more time to scrutinize their operations -- and their losses. As Bloomberg reports, during booms "they are moving at such a rapid pace there’s not a lot of auditing and inventorying going on," said Gary Painter, sheriff in Midland County, Texas, in the oil-rich Permian Basin; but "whenever it slows down, they start looking for stuff and find out it never got delivered or it got delivered and it’s gone." From raw crude sucked from wells to expensive machinery that disappears out the back door, drillers from Texas to Colorado are struggling to stop theft that has only worsened amid tens of thousands of lost roughneck jobs.

Debt Market Distortions Go Global as Nothing Makes Sense Anymore - ( Something very strange is happening in the world of fixed income. Across developed markets, the conventional relationship between government debt -- long considered the risk-free benchmark -- and other assets has been turned upside-down. Nowhere is that more evident than in the U.S., where lending to the government should be far safer than speculating on the direction of interest rates with Wall Street banks. But these days, it’s just the opposite as a growing number of Treasuries yield more than interest-rate swaps. The same phenomenon has emerged in the U.K., while the “swap spread” as it’s known among bond-market types, has shrunk to the smallest on record in Australia.

The 5,000-year history of interest rates shows just how historically low US rates are right now - (  The Federal Reserve continues to keep its benchmark interest rate target pegged to a range of 0% to 0.25%, which is where it has been since December 2008. That's low. Interestingly, rates aren't just low within the context of American history. They also happen to be at the lowest levels in the 5,000 years of civilization. Citing a speech by Bank of England chief economist Andy Haldane, Bank of America Merrill Lynch's Michael Hartnett and his team in a recent note to clients shared the following chart, which shows just how low today's rates are relative to other times in history:

The Next Chicago? Houston Faces Pension Crisis In Latest Example Of Local Government Fiscal Folly - ( When it comes to state and local government crises, Illinois and Chicago, respectively, have become the poster children for what not to do if you want to be considered fiscally responsible. Illinois’ budget crisis was thrust into the national spotlight earlier this year when a State Supreme Court struck down a pension reform bid, setting off a series of events which culminated in Moody’s downgrading the city of Chicago to junk.  From there, the nation media picked up on the story, leading to all sorts of amusing coverage including several pieces documenting the plight of Illinois lottery “winners” who the state began paying in IOUs thanks to the fact that Springfield couldn’t pass a budget even with the help of  $30,000/month “guru” and Laffer disciple Donna Arduin. The fiasco culminated in the October announcement by Comptroller Leslie Geissler Munger that the state would miss a $560 million pension payment in November. As a reminder, here’s a look at Illinois pension problem: 

Wednesday, November 25, 2015

Thursday November 26 Housing and Economic stories

The FDA asked this company for some data and now its stock is down 72% - ( Shares of biotech company Clovis Oncology got decimated on Monday. Its stock fell by as much as 72% after it said the Food and Drug Administration (FDA) asked for more clinical data on its lung cancer treatment rociletinib. Tests showed that a lower number of patients were responsive to the drug than previously submitted to the FDA for approval. In a statement, the company said it would provide the requested information by the close of business on Monday. The plunge in shares to as low as $26.05 from around $99 on Friday erased nearly $3 billion of the company's value. Earlier this month, Stifel analysts raised their target price to $140 from around $99.22, writing in a note that everything was moving in a positive direction for Clovis.

Dubai Stocks Slump Most Since August as Mideast Markets Recoil - ( Disappointing company earnings, falling oil prices and a wave of terrorism culminating in Friday’s attacks in Paris unsettled investors, leading to losses in almost every Middle Eastern market. Dubai’s DFM General Index dropped 3.7 percent, the most in almost three months, after Drake & Scull International PJSC became the latest United Arab Emirates construction company to report losses. Egypt’s EGX30 Index tumbled 4.2 percent to the lowest since December 2013 and Saudi Arabia’s Tadawul All Share Index sank the most in almost three weeks. The Bloomberg GCC 200 Index, which tracks the top 200 companies in the six-nation Gulf Cooperation Council, closed at the lowest since May 2013.

Angela Merkel’s cabinet revolt - ( Some of the strongest opposition to Angela Merkel’s refugee policy has started to emerge from an unexpected quarter: her own cabinet. In recent days, two longtime Merkel allies — Finance Minister Wolfgang Schäuble and Interior Minister Thomas de Maizière — publicly questioned the government’s strategy and called for tougher policies to slow the refugee influx. Schäuble, speaking in Berlin late Wednesday, warned that Germany faced a potentially destructive “avalanche” of refugees. “Avalanches can be triggered when a somewhat careless skier heads down the hill, shifting just a little bit of snow,” Schäuble said, drawing what many viewed as a not-so-subtle analogy to Merkel’s September decision to welcome thousands of refugees stranded in Hungary.

College accused of being a 'high-pressure recruitment mill' agrees to a record $95.5 million settlement - ( Education Management Corporation (EDMC) is paying $95.5 million to settle a case alleging it falsely obtained federal and state education funds. The nearly $100 million settlement is the largest false claims settlement with a for-profit educational institute in history, US Attorney General Loretta E. Lynch said during a press conference Monday announcing the resolution. The college operated as a "high-pressure recruitment mill" and illegally paid recruiters based on how many students they enrolled, according to Lynch. EDMC is the nation's second-largest for-profit college system and the parent company of four higher education systems: Argosy University, The Art Institutes, Brown Mackie College, and South University. It was acquired by Goldman Sachs in 2006, which retains 40% ownership in the company today. 

China's Copper Imports Face Unprecedented Drop on Slowdown - ( China is facing an unprecedented decline in refined copper imports as a slowing economy erodes demand in the world’s biggest consumer, according to the chief executive of one of the country’s largest buyers. Shipments will shrink 10 percent in 2016 as consumption weakens, domestic supplies increase and less metal is used for collateral in financing, Stephen Huang, chief executive officer of trading house Arc Resources Co., said in an interview in Shanghai. Purchases have already dropped almost 4 percent to 2.55 million metric tons in the first nine months of 2015 from a year earlier, customs data show. “We’ll see a substantial change in sourcing structure next year as users buy more from domestic producers and less from foreign suppliers,” said Huang from his office in Lujiazui, the city’s financial hub, on Nov. 11. The company handles about one tenth of the country’s copper imports, he said.

Tuesday, November 24, 2015

Wednesday November 25 Housing and Economic stories


Bye Bye Merkel Doctrine: German Foreign Policy Shifts Focus to Refugees - (  With the refugee crisis showing no signs of abating, Germany is rapidly changing its foreign and security policy focus. Gone are the days of democracy promotion. Now the primary goal is that of preventing people from migrating to Europe. On the last Friday in October, German Defense Minister Ursula von der Leyen found herself in a government jet flying just outside of Syrian airspace. She was on the way to an international security conference in Bahrain for several meetings. Her mission: crisis diplomacy. Meanwhile, diplomats from around the world were gathered in Vienna to discuss possible ways in which the Syrian civil war could be brought to an end -- a conflict that is the primary cause for the enormous wave of refugees currently crashing over Germany and the rest of Europe. While still in the air, Von der Leyen was receiving hourly updates from the Vienna gathering. She was hopeful that a breakthrough could be reached so that she could continue the search for a solution in Bahrain.

Emerging-Market Rout Worsens as China Lending Signals Slowdown - ( Emerging-market stocks posted the biggest weekly drop since September and currencies slid as the worsening commodities rout and slowing credit growth in China undermined the outlook for global economic expansion and trade. The Colombian peso slumped to a six-week low, leading currencies lower. Equity gauges in Taiwan, South Africa and Colombia led losses this week as the MSCI Emerging Markets Index pierced through the 50-day moving average for the first time since May. Energy companies paced weekly declines among 10 industry groups as Brent crude traded below $45 a barrel amid a bigger-than-expected U.S. glut. Russia’s ruble had its worst weekly drop in more than two months, while the currency of net-oil-importer Turkey advanced the most among peers. China stock-index futures slid after the country doubled margin requirements for stocks trading.

IEA Says Record 3 Billion-Barrel Oil Stocks May Deepen Rout  - ( Oil stockpiles have swollen to a record of almost 3 billion barrels because of strong production in OPEC and elsewhere, potentially deepening the rout in prices, according to the International Energy Agency. This “massive cushion has inflated” on record supplies from Iraq, Russia and Saudi Arabia, even as world fuel demand grows at the fastest pace in five years, the agency said. Still, the IEA predicts that supplies outside the Organization of Petroleum Exporting Countries will decline next year by the most since 1992 as low crude prices take their toll on the U.S. shale oil industry. “Brimming crude oil stocks” offer “an unprecedented buffer against geopolitical shocks or unexpected supply disruptions,” the Paris-based agency said in its monthly market report. With supplies of winter fuels also plentiful, “oil-market bears may choose not to hibernate.”

Money Managers Are Stuffed With Corporate Bonds - ( Money managers' allocation to corporate bonds is close to reaching a record, according to fresh survey data. The latest Stone McCarthy survey of senior money managers showed allocations to corporate debt rose to 35.3 percent this week. That's not far from a record 35.4 percent level reached in early March, 2014. Higher allocations of bonds in buy-side portfolios could be a byproduct of the corporate push to sell new debt before the Federal Reserve is expected to raise interest rates next month, according to Bloomberg strategist Robert Elson. Some $33 billion worth of new investment-grade bonds were sold into the market just last week by companies seeking to lock-in lower interest rates or finance a bevy of big M&A deals. Another $24 billion worth of the debt has been sold in the past couple of days. 

Young women are now living at home more than they were in the 1940s – (www.businessinsider.comSo much for an empty nest. According to a new analysis by the Pew Research Center, a larger share of young women are now living at home with their parents or relatives than at any time in the past 70 years. Looking at new data from the US Census Bureau, Pew researcher Richard Fry found a sharp rise in the percentage of young adults aged 18-34 moving back in with their parents in 2000, after decades of a slow rise.  But it was highest among one group in particular: Women. The rate of men moving back in with parents and other relatives is also on an upward trend, with about 42.8% of men ages 18-34 moving home as of 2014 (compared with 47.5% in 1940), but only the rate for women (36.4% in 2014) has eclipsed its 1940s figure of 36.2%. 

Monday, November 23, 2015

Tuesday November 24 Housing and Economic stories

Borrowers Face Crunch as Fed Supercharges Dollar Funding Costs - ( A crunch is developing in international funding markets. The cost to convert local currency payments in the euro area, U.K. and Japan into dollars has jumped amid speculation the Federal Reserve will raise interest rates in December. With other major central banks set to hold, or even loosen, monetary policy, the projected policy divergence is supercharging the usual year-end uptick in demand for dollar funding. “Now that for once this year the Fed is all on the same page, it is giving investors confidence that the Fed really is going to be moving rates,” said Paresh Upadhyaya, director of currency strategy in Boston at Pioneer Investments, which oversaw about $250 billion as of June 30. “This theme -- that everyone latched on to at the start of the year, monetary policy divergence, is giving people greater confidence that this time we are actually seeing it. Therefore it’s not surprising to see the demand for dollar funding is increasing.”

Negative Interest Rates the New Normal Next Time Economies Slump - ( The report from once-uncharted monetary territory: there’s little to be scared of. Now that Sweden and Switzerland have shown that negative benchmark interest rates don’t necessarily result in flights to cash, asset bubbles or banking strains, the global giants of central banking may be more willing to embrace sub-zero borrowing costs the next time their economies slide. “There’s a very real chance unorthodoxy becomes the new orthodoxy,” said Alan Ruskin, global head of Group-of-10 currency strategy at Deutsche Bank AG in New York. While financial markets are focused on the Federal Reserve’s looming rate increase, policy makers and economists are already changing their attitude toward negative rates.

Puerto Rico Likely to Default on Some GDB Debt, Moody's Says   Puerto Rico is likely to default on at least a portion of Government Development Bank bond payments due Dec. 1 with the commonwealth’s cash crunch worsening, according to Moody’s Investors Service. The GDB, which lends to the island and its localities, faces a $354 million principal and interest payment at the start of the month, just as the bank projects it may run out of available cash, according to Puerto Rico’s Nov. 6 financial report. The commonwealth expects to post a negative cash balance this month and next. A default “would be consistent with our expectation that the commonwealth will be forced to miss debt service payments in favor of providing essential government services because of its increasingly weak liquidity position,” Genevieve Nolan, a Moody’s analyst, wrote in a Nov. 11 report.

Greece Comes to a Standstill as Unions Turn Against Tsipras- ( As Greek workers took to the streets in protest on Thursday, Alexis Tsipras was for the first time on the other side of the divide. Unions -- a key support base for the prime minister’s Syriza party -- chanted in rallies held in Athens the same slogans Tsipras once used against opponents. Doctors and pharmacists joined port workers, civil servants and Athens metro staff in Greece’s first general strike since he took office in January, bringing the country to a standstill for 24 hours.  As many as 20,000 protesters gathered in central Athens while a small group of anarchists at the tail of the demonstration threw petrol bombs at police officers at around 1:30 pm local time, a police spokesman said, requesting anonymity in line with policy. The police responded with tear gas and stun grenades.

Commodities Rout Resumes as Dollar Gains; U.S. Stocks Retreat - ( The stronger dollar and a persistent slump in demand from China rekindled a selloff in commodities, while Mario Draghi’s signal that he’s concerned about global growth weighed on equities from Europe to America. Copper fell to the lowest level since 2009 and oil slid through $42 a barrel as the Bloomberg Commodity Index sank to the lowest since 1999. The dollar approached a six-month high versus the euro, while the Standard & Poor’s 500 Index headed for its sixth loss in seven days as resource producers tumbled. European equities slid as the outlook for earnings worsened. Divergent signals on monetary policy continued to dominate financial markets, as the European Central Bank president’s comments that he may step up stimulus measures boosted bonds and weakened the euro. Federal Reserve Bank of St. Louis President James Bullard said near-zero rates are no longer needed. A mixed picture on China’seconomy did little to alleviate concern that demand for resources would continue to wane.

Sunday, November 22, 2015

Monday November 23 Housing and Economic stories

Hedge Fund Hotel SunEdison Is Crashing Again - Now Down 86% In Three Months - ( How the mighty have fallen. Once (and still) "no brainer" hedge fund hotel, sponsored by any and all talking head; now sub-$5 share price 'languisher in the basement' of the last few years. SunEdison (down 14% today) is now down 86% from its July 20th highs as an armada of leveraged speculators flood through the straits of first-mover advantage...  How the mighty have fallen. Once (and still) "no brainer" hedge fund hotel, sponsored by any and all talking head; now sub-$5 share price 'languisher in the basement' of the last few years. SunEdison (down 14% today) is now down 86% from its July 20th highs as an armada of leveraged speculators flood through the straits of first-mover advantage... Down 14% today (after yesterday's 22% drop)...

We’re in the Early Stages of Largest Debt Default in US History - (  We are in the early stages of a great debt default – the largest in U.S. history. We know roughly the size and scope of the coming default wave because we know the history of the U.S. corporate debt market. As the sizes of corporate bond deals have grown over time, each wave of defaults has led to bigger and bigger defaults. Here’s the pattern. Default rates on “speculative” bonds are normally less than 5%. That means less than 5% of noninvestment-grade, U.S. corporate debt defaults in a year. But when the rate breaks above that threshold, it goes through a three- to four-year period of rising, peaking, and then normalizing defaults. This is the normal credit cycle. It’s part of a healthy capitalistic economy, where entrepreneurs have access to capital and frequently go bankrupt. If you’ll look back through recent years, you can see this cycle clearly…

A divorce and an accident left her with nothing - ( But too many Americans act like trapeze artists without nets when it comes to saving. Some 60 percent of American workers said they and/or their spouse have less than $25,000 in total savings and investments, and just 3 percent reported having $75,000 or more, according to research by the Employee Benefit Research Institute and Greenwald & Associates. Barbara Tantillo, 49, a registered nurse who worked for years for pharmaceutical companies, was decidedly not in that 3 percent. She married young, and the couple soon had three sons. But after 18 years she and her husband divorced. Tantillo was focused on retaining custody of her boys, so she allowed her husband to dictate key terms of the divorce settlement. As a result, while she got the house and the car, she said she also got the bills — and her husband got to keep his pension and savings from the Air Force Reserves.

Ex-taxi driver buys $170M artwork with credit card NYT  - ( Liu Yiqian, a former taxi driver turned billionaire art collector, confirmed on Tuesday that he was the buyer of the painting of a nude woman by Amedeo Modigliani that sold for $170.4 million at Christie's New York on Monday night. Speaking by telephone from Shanghai, the Chinese collector said he planned to bring the work back to the city, where he and his wife have two private museums. "We are planning to exhibit it for the museum's fifth anniversary," he said. "It will be an opportunity for Chinese art lovers to see good artworks without having to leave the country, which is one of the main reasons why we founded the museums."

What Copper Just Said about China - (  China accounts for about 40% of global copper demand. Copper goes into nearly everything built or manufactured that uses electricity: office complexes, apartments, homes, cars, electronics, machinery, infrastructure projects, airports, high-speed rail, kitchen appliances, wires of all kinds, even water pipes. Copper has been a strategic metal in China. It has been stockpiled. Without access to copper, China’s economy would grind to a halt. China’s economy grew officially at a phenomenal 6.9% rate in the third quarter, and you’d think with this kind white-hot growth, China would heat up demand for copper and push up its price. But no. Something is mucking up the equation, and the price of copper plunged to a new six-year low.