Sunday, July 24, 2016

Monday July 25 2016 Housing and Economic stories

HSBC Global Head Of FX Cash Trading Arrested At JFK Airport – ( A historic event took place moments ago when Mark Johnson, the global head of cash FX at HSBC was arrested at JFK airport for his role in a "conspiracy to rig currency benchmarks", and specifically for frontrunning customer orders. He is the first person charged by the US in the ongoing FX rigging probe. As Bloomberg reports, a "senior manager at HSBC Holdings Plc was arrested in New York for his role in a conspiracy to rig currency benchmarks, according to two people familiar with the matter, becoming the first person to be charged in the Justice Department’s three-year investigation into foreign-exchange rigging at global banks." The DOJ adds that Mark Johnson, 50, a U.K. citizen and U.K. and U.S. resident, and Stuart Scott, 43, a U.K. citizen and resident, were charged by complaint with conspiracy to commit wire fraud.  Johnson was arrested last night at JFK International Airport in Queens, New York, and will be arraigned later today before U.S. Magistrate Judge Lois Bloom of the Eastern District of New York.

More and More Investors Think Central Banks and Governments Will Bring Out the Chopper - ( Investors are awaiting unprecedented coordination from monetary and fiscal policymakers to kick-start their economies, with Japan seen as the most likely first actor. Nearly one-third of clients and colleagues surveyed by Citigroup Inc. think that so-called helicopter money could be on its way within a fortnight, as the Bank of Japan meets at the end of July. "Among respondents, only 31 percent personally thought helicopter money was coming, while 43 percent thought the market expected some form of helicopter money," wrote strategists led by Global Head of G10 FX Strategy Steven Englander.

Turkey Cuts Overnight Lending Rate Following Failed Coup - ( Turkey’s central bank cut its overnight lending rate by a quarter point, slowing the pace of borrowing cost reductions after the weekend’s failed coup attempt that roiled markets. The bank lowered the rate to 8.75 percent -- the fifth reduction to one of its three key rates in as many months -- matching the median estimate in a Bloomberg survey. The one-week repurchase and overnight borrowing rates were kept at 7.5 percent and 7.25 percent, the bank said in a statement. Start your day with what’s moving markets. Several economists in the Bloomberg survey revised their predictions after a failed coup attempt last week triggered a sell-off in the currency and sovereign debt, taking the median forecast to a quarter-point cut in the overnight rate instead of 50 basis points previously. In an attempt to calm investors, the central bank has promised unlimited liquidity to lenders to mitigate the potential impact on financial markets.

Inside the High-Profile Downfall of a $8 Billion Hedge Fund - ( Long before Jacob Gottlieb was forced to unwind his Visium Asset Management last month amid insider trading allegations, red flags were emerging at the once $8 billion hedge fund. In its early days, Visium employed Gottlieb’s younger brother as compliance chief, a potential conflict of interest. The founder at one point owned shares in a company that his hedge fund invested in. And in early 2013, Visium funneled money from its main healthcare fund to its struggling credit team just before their bond fund shut down. Interviews with a dozen investors and former employees portray a company that was built on the cheap, with tight limits on compensation, and compliance that was at times lacking. Gottlieb, who had ambitions to build a firm rivaling the biggest hedge funds, all but shuttered Visium last month when the federal government accused three traders of securities fraud. While neither the company nor its founder were accused of wrongdoing, the allegations raise questions about oversight, said Tamar Frankel, a professor at Boston University School of Law.

Companies could be sitting on a $75 trillion time bomb - ( Corporate debt is projected to swell over the next several years, thanks to cheap money from global central banks, according to a report Wednesday that warns of a potential crisis from all that new, borrowed cash floating around. By 2020, business debt likely will climb to $75 trillion from its current $51 trillion level, according to S&P Global Ratings. Under normal conditions, that wouldn't be a major problem so long as credit quality stays high, interest rates and inflation remain low, and there are economic growth persists. However, the alternative is less pleasant should those conditions not persist. Should interest rates rise and economic conditions worsen, corporate America could be facing a major problem as it seeks to manage that debt. Rolling over bonds would become more difficult should inflation gain and rates raise, while a slowing economy would worsen business conditions and make paying off the debt more difficult.

Thursday, July 21, 2016

Friday July 22 2016 Housing and Economic stories

Luxury home sales plunge in Long Island's tony Hamptons - ( Overall sales plunged by about half and home prices fell sharply in the second quarter in the toniest enclaves of the Hamptons, New York's weekend haunt for the wealthy, as stock market jitters earlier in the year damped the appetite to buy. Total sales volume in East Hampton fell 53 percent from a year ago to $44.7 million as the median sale price fell 54 percent to $2.38 million, according to realtor Town & Country Real Estate. In Southampton, total sales fell 48 percent from the second quarter of 2015 to $45.3 million, with the median sale price falling 21 percent to $1.65 million, data showed. Only 12 homes were sold in East Hampton and 17 in larger Southampton, due to a lack of inventory and because sales typically lag when the stock market underperforms, said Judi Desiderio, chief executive at Town & Country.

These Sicilian Mortgages Show How Difficult It Is to Rescue Italian Banks - ( Down the cobbled streets of Palermo, past baroque churches and gothic palaces, a lesson is lurking for Italy's government as it hatches a plan to save the country's banks. Sicily’s biggest city is the focal point of a 2007 securitization of non-performing loans, or NPLs, that shows just how long it can take to resolve soured loans in the country. The deal, known as Island Refinancing, should also act as a warning for investors of the dangers of buying similar securities as Italian banks gear up to sell more of them. The Island bonds are backed by two portfolios of NPLs originated by a Sicilian bank that's now a subsidiary of UniCredit SpA. Just under half of the loans originated in the 1990s and they include residential mortgages as well as loans financing hotels and industrial buildings. Unlike other asset-backed securities where interest and principal are paid through cash flows from mortgage or auto credit borrowers, investors in NPL securitizations depend on getting money back from soured loans — typically through the courts.

Soaring Temperatures Will Make It Too Hot to Work, UN Warns - ( Searing temperatures caused by climate change may cost global economies more than $2 trillion by 2030, restricting working hours in some of the poorest parts of the world, according to United Nations research. As many as 43 countries, especially those in Asia, including China, Indonesia, and Malaysia, will experience declines in their economies because of heat stress, says Tord Kjellstrom, a director at the Health and Environment International Trust, based in Nelson, New Zealand. As a result, China’s gross domestic product would be reduced 1 percent and Indonesia’s by 6 percent by 2030. Extreme heat in Southeast Asia already curbs annual working hours by 15 to 20 percent, and that figure could double by 2050 as climate change progresses, according to the paper published in Asia-Pacific Journal of Public Health on Tuesday.

EU Stance in Italian Bank Bail-In Talks Boosted by Top Court - ( The European Union’s top court backed EU guidelines designed to prevent taxpayers from footing the bill for bailing out stricken lenders, strengthening the hand of Brussels regulators as Italy fights to shield some bondholders caught up in the nation’s banking crisis. Tuesday’s decision is a show of support for the European Commission, which updated its crisis rules for banks in 2013 as part of a shift from taxpayer-funded bailouts to bail-in, the practice of imposing possible losses on investors before public money can flow. “Burden-sharing by shareholders and subordinated creditors as a prerequisite for the authorization, by the commission, of state aid to a bank with a shortfall is not contrary to EU law,” according to the EU Court of Justice. The Luxembourg-based court’s decision is binding and can’t be appealed. The “banking communication” sets out rules for when burden-sharing should be applied to shareholders and subordinated creditors, and when it can be avoided. The court said that “burden-sharing measures can be understood as being designed to prevent recourse to state aid merely as a tool to overcome the financial difficulties of the banks concerned.”

London Housing Bubble Melts Down - (  London Housing Bubble Melts Down. But don’t just blame Brexit. In Central London – the 30 most central postal codes and one of the most ludicrously expensive housing markets in the world – eager home sellers are slashing their asking prices to unload their properties. But even that isn’t working. In the 12 days after the Brexit vote, cuts to asking prices have soared by 163% compared to the 12 days before the vote, according to the Financial Times. Yet sales have plunged 18% from before the Brexit vote. Sales had already taken a big beating before then and are now down a mind-boggling 43% from where they’d been a year ago! So Brexit did it? Um, well, sort of. But it’s more than Brexit. Home prices on a £-per-square-foot basis had peaked in Q2 2014, according to real-estate data provider LonRes. Since then, the market in Central London has been hissing hot air. By Q1 2016, prices for homes above £5 million had dropped 8% from their 2014 peak, and prices for homes from £2 million to £5 million had plunged 10%.

Wednesday, July 20, 2016

Thursday July 21 2016 Housing and Economic stories

Largest US Pension Fund Suffers Worst Annual Return Since Financial Crisis Due To Heavy Stock Losses - ( While we have often documented the dramatic underperformance by the hedge fund industry over the past decade courtesy of a centrally-planned market in which it no longer pays to "hedge", culminating with countless hedge fund closures and substantial redemptions (mostly by now redundant Fund of Funds managers), today we learn that "vanilla" asset managers were also hurt over the past year in which the S&P went nowhere, and not just in Japan where the gargantuan, $1.4 trillion GPIF recently suffered major losses, but in the US as well. Case in point: Calpers, the largest U.S. public pension fund which as the WSJ reports posted its lowest annual gain since the last financial crisis due to heavy losses in stocks. The California Public Employees’ Retirement System, or Calpers, said it earned 0.6% on its investments for the fiscal year ended June 30, according to a Monday news release, barely turning a profit for the full year. The last time Calpers lost money was during fiscal 2009 when the fund’s holdings fell 24.8%.

As Rates Sink, Housing Bubbles Rise - ( Canada, Australia and Sweden are among central banks caught between supporting their economies and addressing financial threats. Low interest rates around the world are fueling a familiar threat of housing bubbles, and central bankers in a number of key economies feel powerless to stop them. The problem is being acutely felt in Canada, where home prices are soaring even as the country’s energy- and mining-dependent economy slows. Sweden and Australia are dealing with similar surges in the value of homes, leading officials in all three countries to worry about the risk of a destabilizing bust. In Canada’s hottest market, Vancouver, British Columbia, the benchmark home price rose 32% over the 12 months ended in June, with a typical detached home now costing 1.56 million Canadian dollars (US$1.2 million), according to a Canadian Real Estate Association index. In Toronto, home prices were up 16% during the same period.

Why this Won’t Work out for Spain - ( No matter how fast Spain’s economy grows, its government cannot seem to get a grip on its spending habits. This year is going to be the eighth consecutive year that Spain has overshot its fiscal target. Originally, the Spanish government was supposed to get its deficit back below the EU’s sacred limit of 3% of GDP by 2013, from a staggering 11% in 2011. When it became clear during the darkest days of the crisis that it would be impossible, the deadline was extended by a year. A year later, Madrid had made so little progress that it got a further two-year extension, to 2016. Now, things are so serious that the EU is threatening to sanction Spain, as well as Portugal, up to 0.2% of GDP for failing to bring their deficit under the targets set by the Commission. It will be the first time that the EU has adopted such punitive measures, but for the biggest repeat offender of excess deficits, France, there is no punishment. Quelle surprise!

Bridgewater, World’s Biggest Hedge Fund, Is Said to Be Slowing Hiring - ( After years of rapid internal growth, the world’s biggest hedge fund appears to be slowing down. The $154 billion hedge fund, Bridgewater Associates, run by the billionaire Ray Dalio, is known for hiring hundreds of people every year. Yet it is now telling recruitment firms to cancel interviews with prospective employees, according to three people briefed on the matter. In recent weeks, dozens of interviews were canceled and advanced negotiations with prospective employees were cut short by the firm, those people said. And some of the firm’s external recruiters have been told Bridgewater will not use them for the time being, said the people, who were not authorized to discuss the matter publicly. Bridgewater emphasizes secrecy in its communication with investors and the external recruiting firms, and the people requested anonymity because they did not want their relationship with the firm to be affected.

Turkey Set for Market Turmoil as Coup Turns Investors ‘Ice-Cold’ - ( Things were looking up for Turkey when investors went home on Friday afternoon. Markets were rallying around the world on speculation global monetary policy was going to remain loose, there was a lull in the country’s fractious politics and President Recep Tayyip Erdogan’s government was moving to normalize relations with Russia and Israel. Turkey's Continental Divide: Now, after an attempted military coup that erupted at about 10 p.m. that evening in Ankara and Istanbul, sending the lira into its sharpest nosedive in about eight years, those investors are waking to a very different world, steeling themselves for tumultuous trading as local markets open on Monday. The currency rebounded 2.2 percent to 2.9510 per dollar at 8:47 a.m. in Istanbul Monday, after closing last week at 3.0157 per dollar, about 2 percent away from a record low in September.

Tuesday, July 19, 2016

Wednesday July 20 2016 Housing and Economic stories

Half Of Municipal Employees In Small Italy Town Arrested For Fraud ... - ( Roughly half the municipal employees in Boscotrecase, Italy (population 11,000) have been arrested for fraud. The employees clock in, sometimes for each other (with boxes over their heads), but don’t show up for work. The arrested are accused of fraud against the state. As a result, there are not enough people to run the town. Services are shut down. Please consider Not Enough Staff to Run Italian Town after Arrests for Bunking Off Work. The mayor of a small town outside Naples had to shut down most municipal offices after police arrested 23 of his staff in the latest revelations of absenteeism in Italy’s public sector. Staff were filmed clocking in and then leaving to go about their personal business or using multiple swipe cards to register absent colleagues, police said, in scenes that have become familiar after numerous similar scandals.

China Urges Banks to Step Up Risk Controls as Bad Loans Increase - ( China’s banking regulator required banks to step up risk controls and safeguard financial stability as the nation’s soured debt rose. Banks’ nonperforming loans climbed to 1.81 percent of outstanding credit as of June 30 from 1.75 percent three months earlier, the China Banking Regulatory Commission said in a statement on Friday. While the CBRC said the banking industry’s capital adequacy and provision levels are still “relatively sufficient," it urged the lenders to raise capital to enhance their loss-absorbing and risk-management ability. Chinese lenders are grappling with a growing mountain of bad debt after flooding the financial system with cheap credit for years to prop up economic growth. The official figures of 1.39 trillion yuan ($208 billion) as of March are widely believed to understate the true scale of the problem, with CLSA Ltd. estimating nonperforming loans were probably closer to 11.4 trillion yuan at the end of last year.

Wall Street is cranking out auto loans, and the dollar total is huge - ( The auto lending business is all revved up, thanks to Wall Street. More auto loans and leases are being cranked out at banks likeJPMorgan Chase and Wells Fargo at a time when consumers are piling on more debt — and lengthier loans — to cover new and used car purchases.  JPMorgan saw auto loan and lease origination volume jump by 9 percent year over year, to $8.5 billion, the bank reported in its second-quarter earnings. Overall, the bank said its auto loans and leases rose 17 percent year over year. Wells Fargo also showed an increase in auto originations, with a 2 percent rise year over year and an 8 percent increase from the first quarter of $8.3 billion, it announced in its earnings Friday.  The total dollar amount lent to car buyers eclipsed the $1 trillion mark earlier this year, and it remains to be seen whether anything can stall growth in auto loans at a time when borrowing costs consumers so little.

Deutsche Bank: A floundering titan - ( THERE are banks that are smaller than Deutsche Bank, and there are larger ones. There are riskier ones, and safer ones. But it is hard to think of any other big financial institution so bereft of a purpose. Since its acquisition of Bankers Trust in 1999, Deutsche has sold itself as a global investment bank. Yet American rivals leave it trailing, even in its own backyard: the Goldman Sachs of Europe, it turns out, is Goldman Sachs. Deutsche’s revenues have dived since the crisis; last year it reported its first annual loss since 2008. Its shares are worth barely an eighth of what they were in 2007. Employees are demoralised: less than half are proud to work there.

Welcome to Illinois (Where Every 5 Minutes Someone Moves Out) - (  Illinois has the worst migration statistics in the nation. Every 5 minutes, someone decides to leave. Out-migration is a serious problem for Illinois, and policymakers should focus on curtailing it by fostering a better climate for job creation and economic growth. The more Illinoisans leave, the fewer there are left to shoulder the burden of Illinois’ tremendous debts. The sheer number of residents leaving Illinois matters – but it’s also critical to understand the demographic breakdown of those out-migrating Illinoisans. When it comes to who’s heading out of Illinois, the largest group of out-migrants is people who are in their prime working years, ages 25 to 54. This is a troubling trend, which points to a weak state economy and the loss of adult taxpayers along with their children. According to data from the Bureau of Labor Statistics, or BLS, Illinois’ out-migration appears in large part to be composed of prime working-age adults.

Monday, July 18, 2016

Tuesday July 19 2016 Housing and Economic stories

Corporate bond defaults cross 100, highest level since crisis - ( Corporate bond defaults have just crossed an ominous milestone. Fully 100 companies have defaulted on debt, 50 percent more than for the same period in 2015 and the highest level since 2009, according to S&P Global Ratings. Low oil and commodity prices, along with financial market volatility in the United States and abroad, have been the primary problems for thebond market this year. While the actual ratio of distressed issues is on the decline, the level of defaults has climbed. While the defaults have been weighted heavily to the energy sector, analysts at S&P said there's no guarantee things will stay that way.

When Energy Loans Go Bad: Why America's Largest Bank Is Sliding - (  Wells' long overdue admission that it is woefully under-reserved for what may be a deluge of loan defaults should oil fail to rebound strongly... and certainly if oil continues to decline, has finally arrived in the form of this chart showing its LTM loan loss provision expense. It is, in a word, soaring. But the biggest problem facing Wells is a well-known one: its extensive exposure to oil and gas companies, read shale, whose loan quality - as we all know - is deteriorating by the day and will continue to do so as long as oil refuses to rebound strongly to where it is actually profitable for highly levered companies, so somewhere north of $60. Recall what we wrote last quarter, when Wells finally disclosed its "dire" energy portfolio. Finally, we get to the real meat - Wells' Oil and Gas loan portfolio and total exposure. Here are the details: Oil and gas loan portfolio of $17.8 billion, or 1.9% of total loan outstanding.

The Housing Market Is Waving a Red Flag - ( Almost nine years after the housing-market bust helped trigger the most recent recession, RealtyTrac senior vice president Daren Blomquist sees the industry waving a red flag. The same fervent speculation that abetted the housing bubble is showing up in the bloated share of foreclosures snapped up by third-party investors at auction — a record 31 percent in June, according to RealtyTrac data that starts in 2000. Many of those third-party buyers are "mom and pop" investors with less experience, said Blomquist. At the same time, institutional investors, a subset of the third-party investors who purchase at least 10 properties a year, are ducking out of the market. "It's somewhat counterintuitive — as the market gets better and there are fewer foreclosures available, demand for those good deals, those bargains in the market goes up," said Blomquist. "When you see this high percentage of the properties going to third-party investors, that is a sign that these speculators may be over-inflating the market."

Bernanke Floated Japan Perpetual Debt Idea to Abe Aide Honda - ( Ben S. Bernanke, who met Japanese leaders in Tokyo this week, had floated the idea of perpetual bonds during earlier discussions in Washington with one of Prime Minister Shinzo Abe’s key advisers. Etsuro Honda, who has emerged as a matchmaker for Abe in corralling foreign economic experts to offer policy guidance, said that during an hour-long discussion with Bernanke in April the former Federal Reserve chief warned there was a risk Japan at any time could return to deflation. He noted that helicopter money -- in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them -- could work as the strongest tool to overcome deflation, according to Honda. Bernanke noted it was an option, he said. Though Honda said he thought Japan was already engaged in a strategy that involved helicopter money, he wanted to convey the idea to Abe and asked Bernanke to meet with the premier in Japan. While this didn’t happen in the spring, Bernanke joined central bank chief Haruhiko Kuroda over lunch this Monday and on Tuesday he attended a gathering with Abe and key officials, including Koichi Hamada, another influential economic adviser.

Stock-picking active managers having their worst year ... ever - ( So much for 2016 being the year of the stock picker. In fact, this has been the year investors wanted to do anything but try to pick stocks. Active fund managers had their worst first half ever, with fewer than one in five beating a basic market benchmark, according to data from Bank of America Merrill Lynch that go back to 2003. Stock pickers were done in by two major factors: following the crowd and an uneven pattern of correlations among stocks. The 10 most-crowded stocks lagged the 10 least-owned by a whopping 18 percentage points, which BofAML called "an atypically high spread." The opportunities are there for stock picking, but the pros still have faltered. Correlations, or the tendency of stocks to move up and down together, had been falling but rose in June to 35 percent, a number that is still low compared with levels of 90 percent or higher in recent years but high enough to be disruptive.