Thursday, August 25, 2016

Friday August 26 2016 Housing and Economic stories

Yield Hunt Emboldens Companies to Whittle Away Loan Safeguards - ( Riskier companies are increasingly getting credit agreements that allow them to raise the amount of future cost savings to appear more creditworthy, boosting potential losses for investors. The tweaks make it easier for borrowers to stay in compliance with their loan terms and add more debt, according to Charles Tricomi, a senior analyst at covenant research firm Xtract Research. “There is too much money chasing too few loans,” Tricomi said. “Lenders are really at a disadvantage and have to agree to these terms significantly against their own interest, terms that they should be fighting off.” Whittling away standards that keep a lid on leverage levels may leave investors with soured assets, according to Tricomi. This is happening just as the credit cycle is peaking, prompting warnings from S&P Global Ratings that companies in the U.S. have taken on so much debt that they’re at least as vulnerable to defaults and downgrades as they were leading up to the 2008 financial crisis.

Former China boom town learns hard lessons about service economy - ( At the section of the Great Wall of China that runs through Yulin, tour guide Gao Jing says she tried to learn English in expectation of the increased number of overseas visitors the city planned to attract as part of its economic transformation. But the international tourists haven't come to Yulin, once a coal, oil and natural gas boom town in the northwestern province of Shaanxi, and in their absence she has forgotten her English. "Sure, there's lots of talk about developing our tourism industry but walking the talk is a different matter," said Gao, who's been a tour guide there for 10 years. "There's an immediate return on investment if you invest in energy. But you may need to wait 10, or even 100 years, if you want to see a return on investment in tourism." The experience of Yulin carries a lesson for other Chinese cities trying to re-tool their economies – establishing a vibrant services sector takes time, and in the meantime you cannot afford to abandon your industrial strengths.

It’s Getting Scarily Quiet in the Stock Market - ( It’s quiet. Too quiet. Even by the standards of August, the S&P 500 has been remarkably tranquil, moving by less than in any other 30-day period in more than two decades. Multiple measures show the calm. Realized volatility has collapsed to levels last seen in September 1995, when a painful series of rate increases had been replaced by a pause between Federal Reserve cuts. With the S&P 500 down slightly on Monday, the index has had only five daily moves of more than 0.5% in either direction in the past 30 trading sessions, equaling the lowest since October 1995. And trading volumes have dropped far more than is usual for the summer break. This lull in activity looks to many like yet another symptom of central banks pouring money on troubled markets. Why worry when you can sit back, collect the dividend and be sure the policy makers have your back? Yet a lack of worry itself is often a reason for concern.

Revealed: ECB Secretly Hands Cash to Select Corporations - ( In June, the ECB began buying the bonds of some of the most powerful companies in Europe as well as the European subsidiaries of foreign multinationals. This pushed the average yield on euro investment-grade corporate debt to 0.65%. Large quantities of highly rated corporate debt with shorter maturities are trading at negative yields, where brainwashed investors engage in the absurdity of paying for the privilege of lending money to corporations. By August 12, the ECB had handed out over €16 billion in freshly printed money in exchange for corporate bonds. Throughout, the public was given to understand that the ECB was buying already-issued bonds trading in secondary markets. But the public has been fooled. Now it has been revealed by The Wall Street Journal that the ECB has also secretly been buying bonds directly from companies, thus handing them directly its freshly printed money.

Why No One Trusts China's Markets - ( When China's top securities regulator said recently that it plans to delist Dandong Xintai Electric Co. for falsifying initial public offering documents, it didn't grab many headlines. But it suggested some far-reaching changes may be afoot. Xintai is the first company to be expelled from Shenzhen's ChiNext board for such an offense, and one of only a handful that have ever been delisted in China. Its expulsion suggests that regulators are facing up to some unfortunate truths about China's capital markets. Those markets are, in important ways, only superficially market-like. In the stock market, the government has intervened on a huge scale to prop up prices. Investment in the bond market is overwhelmingly directed to state-owned enterprises. There's no derivatives market to speak of. Financial disclosures are often implausible, suspicions of insider trading are rife and doubts about corporate governance are widespread.

Wednesday, August 24, 2016

Thursday August 25 2016 Housing and Economic stories

New SEC Money-Market Fund Rules Forcing a Liquidity Squeeze? - ( On Oct. 17th new SEC rules will come into play that’ll affect money market funds and liquidity across the financial sphere. These rules are an attempt to prevent an 08’ style crisis by controlling money market liquidity, but in reality, they may actually cause another financial crisis. The regulations say that prime and municipal money market funds (the funds invested in riskier assets than T-bills) will have to float their net asset values (NAV). They’ll also be required to impose liquidity fees and redemption gates. The problem with these new rules is the massive shift they’re causing in the money markets. Investors are moving en masse from riskier prime funds that will be forced to abide by these new rules, to safer government funds which are exempt. So far $500 billion has already moved from prime to government funds, and it’s expected another $500 billion will follow suite in the next few months.


In Scramble for Yield, Pension Funds Will Try Almost Anything - ( Some pension funds are seeking to profit from others’ fear. Pension funds in Hawaii and South Carolina are plying an arcane options strategy called cash-secured put writing. In a typical trade, the investor sells a contract, known as a put, to someone who owns stocks and is willing to pay up for protection in case they decline. If, within a certain time, the shares fall below a given price, the investor buys the stocks at that price, or covers their lost value. The upside for the pension funds, which are writing options on the S&P 500 index, is that they earn regular income. The strategy aims to work like a volatility dampener. If stocks fall, the income the funds have collected on the options contracts should help cushion any hit they take on the puts and their own separate stockholdings. The pension funds set aside some cash-like instruments such as Treasurys for the payouts, so they aren’t caught without money if the market goes against them.

Seller’s Paradise: Companies Build Bonds for European Central Bank to Buy - ( The European Central Bank’s corporate-bond-buying program has stirred so much action in credit markets that some investment banks and companies are creating new debt especially for the central bank to buy. In two instances, the ECB has bought bonds directly from European companies through so-called private placements, in which debt is sold to a tight circle of buyers without the formality of a wider auction. It is a startling example of how banks and companies are quickly adapting to the extremes of monetary policy in what is an already unconventional age. In the past decade, wide-scale purchases of government bonds—a bid to lower the cost of borrowing in the economy and persuade investors to take more risk—have become commonplace. Central banks more recently have moved to negative interest rates, flipping on their head the ancient customs of money lending. Now, they are all but inviting private actors to concoct specific things for them to buy so they can continue pumping money into the financial system.

From Soccer Stars To Bahrain Princes: New Emails Reveal Hillary Clinton Gave Special Access To Foundation Donors - ( The farce continues as a detailed reckoning of Hillary Clinton's State Department emails reveals former top aide Huma Abedin provided influential Clinton Foundation donors special, expedited access to the secretary of state. In many instances, as Judicial Watch exposes, the preferential treatment provided to donors (from a British soccer player to the crown prince of Bahrain) was at the specific request of Clinton Foundation executive Douglas Band. As details, the new documents included 20 Hillary Clinton email exchanges not previously turned over to the State Department, bringing the known total to date to 191 of new Clinton emails (not part of the 55,000 pages of emails that Clinton turned over to the State Department).  These records further appear to contradict statements by Clinton that, “as far as she knew,” all of her government emails were turned over to the State Department.

Business Loan Delinquencies Rock Past Lehman Moment Level - ( This afternoon, somewhat obscured by the Fed’s media-savvy and endless flip-flopping about rate hikes, the Board of Governors of the Federal Reserve released its second quarter delinquencies and charge-off data for all commercial banks. It shows that if the Fed wanted to raise rates before serious signs of trouble emerged, it might have missed the train. Consumer loans are still doing well, though delinquencies have ticked up 10% from a year ago to $26.8 billion. Loans are considered “delinquent” when they’re 30 days or more past due. Credit card loans are also still doing well, though delinquencies have jumped 11% from a year ago to $13.8 billion.

Tuesday, August 23, 2016

Wednesday August 24 2016 Housing and Economic stories

Withdrawals Plague Once-Mighty Hedge-Fund Firms Brevan Howard and Tudor - ( Brevan Howard fund suffers first-half outflow of more than $3 billion; Tudor’s head count falls by 15%.A growing exodus from hedge funds extended to two of the biggest names in the industry Tuesday, Tudor Investment Corp. and Brevan Howard, as disenchanted investors increasingly shun what was once the hottest place to put money. The funds’ problem is clear: They just aren’t performing. Hedge funds and actively managed mutual funds have been underperforming since financial markets began their rebound in early 2009. The average hedge fund is up 3% this year through the end of July, according to researcher HFR Inc., less than half the S&P 500’s rise, including dividends. Funds in the $2.9 trillion hedge-fund sector have now experienced three consecutive quarters of withdrawals for the first time since 2009, according to HFR. Brevan Howard’s master fund was one of the star performers during the credit crisis, but is now on pace for its third straight calendar year of losses. Investors withdrew more than $3 billion from its flagship fund in the first half of this year, according to letters sent to investors and calculations by The Wall Street Journal based on the fund’s asset levels and performance.

Macy’s Pullback Imperils $30 Billion of Debt, Morningstar Says - ( Store closures by Macy’s Inc. could hurt more than the mall rats, according to Morningstar Credit Ratings. Almost $30 billion of bonds backed by commercial mortgages are exposed to the retailer, which last week announced plans to shutter 100 outlets, the rating company wrote in a note on Wednesday. More than $3.6 billion in loans would be affected by the closing of 28 stores that Morningstar identifies as most at risk, several of which support multiple asset-backed securities, the company said. Start your day with what’s moving markets. Get our markets daily newsletter. Macy’s is struggling to reinvent itself for the 21st century as an increasing number of consumers opt to shop online, rather than in physical stores. To this end, the U.S.’s largest department-store company announced plans on Aug. 11 to close some of its less-profitable stores. But for bondholders, Macy’s problems signal further defaults could be ahead for notes backed by malls around the country.

Easy money is a dangerous cure for a debt hangover - ( Sweden’s Handelsbanken is an exemplar of prudence, barely touched by the 2008 financial crisis. It operates globally like a small community bank, to the point that it has just fired the chief executive, reportedly for attempting to centralise power. Branches lend as they see fit but are required to scrutinise creditworthiness and shun dodgy borrowers. The target loan loss ratio is zero; low loan losses, in turn, allow the bank to offer competitively priced loans and personalised service to creditworthy customers. Since it is better placed than lenders that rely on rule books or statistical models to assess the creditworthiness of entrepreneurs, Handelsbanken is also well positioned to satisfy the credit needs of small businesses. What is good for Handelsbanken is therefore good for long-term economic growth as well as for financial stability.

Irrational exuberance begins to surface in US stock market - ( Markets are extravagantly confident that brokers are too bearish, and that their profit forecasts for US companies are too low. The multiple of 18 times next year’s projected earnings at which the S&P 500 currently trades, according to Bloomberg data, allows little other interpretation. It is at its highest since 2002, outstripping any level it reached during the credit bubble, or when the Federal Reserve was pumping up asset prices with QE bond purchases. There are other signs that optimism on earnings is taking hold. For a while, the S&P has been dominated by high dividend-yielding stocks. This is a sensible strategy when you do not have faith in corporate profitability or growth. In the past few weeks, however, the S&P 500 Dividend Aristocrats index has started to lag behind the market. Classic income-producing sectors, such as utilities and real estate investment trusts, have also ceded leadership.

Carl Icahn Turns Apocalyptic: "I Am More Hedged Than Ever, A Day Of Reckoning Is Coming" - ( We profiled Carl Icahn's notorious bearishness most recently two weeks ago when we showed that for the second quarter in a row, the billionaire's hedge fund, Icahn Enterprises had kept on its record short bias, manifesting in a net -149% market exposure. "I have hedges on, I'm more hedged than I ever was. [The market] is way overvalued at 20 times the S&P and I'll tell you why: a lot of it is a result of zero interest rates. That's going to be hurt.  There's going to be a day of reckoning here.  I've seen it many times in my life.  When things look good, they look great.  You go into the sky.  But that's when you have to really pull down and really stop buying."

Monday, August 22, 2016

Tuesday August 23 2016 Housing and Economic stories

Blue Shield Of California: Furlough over Obamacare Losses – (  Blue Shield of California (BSC) will be shutting down for four days following Labor Day weekend as a way to stop the financial bleeding resulting from losses in “Covered California,” the state’s Obamacare exchange program. The change will “affect most of [BSC’s] 6,000 employees in California,” the San Francisco Business Times reports, although the “exact number of workers involved hasn’t yet been tabulated.” But BSC hopes that the move could save “an estimated $4 million.” According to the Times, BSC spokesman Steve Shivinsky said, “This is certainly not normal for us. We’re definitely seeing some income challenges as of mid-year.” And BSC is not alone. Shivinsky indicated that “health plans nationally are facing challenges in the individual market and on the Obamacare exchanges, and some have said they plan to … cut back their participation” or exit altogether. “UnitedHealth Group said last month it planned to exit most Obamacare markets. Aetna said it’s reconsidering its presence in individual Affordable Care Act markets in 15 states, and Humana is pulling back as well.”

SUPERINTENDENT: WATER AT 7 BPS SCHOOLS TEST POSITIVE FOR UNSAFE LEAD LEVELS - ( Drinking fountains at seven Boston public schools have been turned off after they tested positive for unsafe lead levels, school officials announced today. In a letter sent to the school community today, Superintendent Tommy Chang announced that as part of the school committee's recently enacted Water Policy, Boston public schools hired an engineering consulting firm to retest the drinking water in the 30 school buildings that have active water fountains. Although 24 school buildings were cleared, Chang said the testers found that seven schools in six school buildings had at least one water fountain with lead concentrations "that exceeded the federal action level of 15 parts​ per billion." Those schools include: the Patrick Lyndon K-8; Lee Academy; Josiah Quincy Elementary; Boston Latin School; F. Lyman Winship Elementary; and Jeremiah E. Burke High/Dearborn STEM Academy, according to the announcement.

Soros Doubles Down on Bet Against the S&P 500 - ( Billionaire investor George Soros, who rose to fame and fortune by betting against the sterling in 1992, on Monday showed his latest hand: nearly doubling down on his bearish bet against the market. The 86-year-old’s fund disclosed in a regulatory filing it had increased its bet against the S&P 500, the main index used to measure big-stock performance in the U.S., reporting “put” options on roughly 4 million shares as of June 30 in an exchange-traded fund that tracks the index. That’s up from “puts” on 2.1 million shares as of March 31. Meanwhile, Mr. Soros’s fund also cut sharply its position in gold, selling off the bulk of the shares it had bought last quarter in Barrick Gold, the world’s largest gold producer, and cutting sharply its position in a gold-backed ETF set up by the World Gold Council. Mr. Soros’s fund had opened the position in the first quarter, disclosing “call” options in about 1 million shares. Mr. Soros also sold off the stake it opened last quarter in miner Silver Wheaton

Hedge Funds Are Losing Endowments After Exodus of Pensions - ( Following the lead of pensions, some U.S. endowments and foundations are souring on hedge funds. Hedge fund fees and lagging performance are cause for concern for nonprofit investors, who are reducing their allocation, according to a survey published Monday by NEPC, a Boston-based consulting firm with 118 endowment and foundation clients with assets of $57 billion. Start your day with what’s moving markets. Get our markets daily newsletter. More than a quarter of 59 respondents said their investment committees reduced or were considering lowering their allocations to hedge funds. Of those that made changes, almost half said they put that money into public equities. NEPC conducted the survey in July, polling business officers of universities, foundations and other nonprofits on their market outlook and asset allocation. About one-third of the respondents were universities.

Gas Glut Upends Global Trade Flows as Buyers Find Leverage - ( The market for liquefied natural gas is about to attract more players and more trading as new supply from the U.S. and Australia strengthens buyers’ bargaining power. Historically, LNG has been sold on long-term contracts that guaranteed buyers supply and helped producers finance liquefaction plants at a time when less of the product was shipped. Now, a gas glut is causing LNG importing countries to support renegotiating existing deals that can run 20 years or more while suppliers offer more flexible terms to lock up customers spoiled for choice. India already is encouraging importers to rework long-term accords to better align costs with spot market prices. Japan, the world’s largest LNG importer, may soon join them. That country’s Fair Trade Commission is in the process of probing resale restrictions in longer deals in an effort that could mean the renegotiation of more than $600 billion in contracts and boost the number of shorter-term agreements.

Sunday, August 21, 2016

Monday August 22 2016 Housing and Economic stories

With $128 Billion In Equity Outflows, Barclays Asks "Who's Buying Stocks" And Gives An Answer - ( It has been one of the greater paradoxes of the record S&P rally from the February lows: how has the market continued to rise even with unprecedented outflows? In other words, "Who's buying equities?" Overnight, Barclay's chief equity strategist Keith Parker asks that very question, pointing out that global equities have continued to rally despite $128bn of outflows from equity funds since mid-March. His answer: futures buying (which has traditionally been associated with central bank intervention), whiuh since March ($60bn notional) has surpassed the amount of buying between October 2011 and May 2013,and which together with short-covering has more than offset the outflows.

Will Ireland Be First Country In World To See Bail-in Regime? – ( Deposit bail-in risks are slowly being realised in Ireland, after it emerged overnight that FBD, one of Ireland's largest insurance companies, have been moving cash out of Irish bank deposits and into bonds. Revelations regarding deposit bail-in risks came in the wake of warnings of a new property crash centred on the housing market in Ireland. The former deputy governor of the Central Bank warned in an op-ed in a leading international financial publication, Project Syndicate, that Ireland is at risk of another housing market crash. Insurer FBD has moved over €150 million out of the Irish banking system and into corporate and sovereign bonds over the past year. The move was prompted by low returns offered by bank deposits and the risks that deposit bail-in rules could see deposits confiscated. FBD chief executive Fiona Muldoon told the Irish Independent that the "extremely low returns offered on term deposits by banks, coupled with fears that new bail-in rules introduced this year by the European Union could expose bank bondholders and depositors to bailing out a failed lender, meant it has shifted investments away from banks."

Buyout Firms Cash In on Rally - ( As U.S. stocks rally, private-equity firms are taking the other side of the trade. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite Index all notched record highs Thursday, a triple-threat that hadn’t occurred since the dot-com boom. Meanwhile, 15 block trades, bulk sales of big chunks of stock, raised a total of $5 billion in the biggest week for such deals since March 2015. Private-equity firms, which use block trades to sell out of companies they previously took public, accounted for nine of the 15 deals. Blackstone Group LP, KKR & Co., TPG and others this week unloaded billions of dollars worth of shares in shopping-center owner Brixmor Property Group Inc., medical device maker Zimmer Biomet Holdings Inc. and chicken chain Wingstop Inc.

Prices of UK homes for sale see biggest fall in 9 months in August - Rightmove - ( The price of homes for sale in England and Wales fell in August, posting the biggest drop since November, as the summer lull added to uncertainty surrounding Britain's decision to leave the European Union, property website Rightmove said on Monday. Asking prices fell by a monthly 1.2 percent, according to a survey by Rightmove that covers properties put on sale between July 10 and Aug. 6, after shedding 0.9 percent in July. The biggest drop was in London and the South East, with asking prices falling by 2.6 percent and 2.0 percent respectively. "Many prospective buyers take a summer break from home-hunting, and those who come to market at this quieter time of year tend to price more aggressively," Miles Shipside, Rightmove director and housing market analyst, said.

Odd Lots: How Billionaires Tell the Story of Brazil's Boom and Bust - ( Alex Cuadros is the author of "Brazillionaires: Wealth, Power, Decadence, and Hope in an American Country." He tells how a commodities boom gave rise to larger-than-life Brazilian billionaires including mining mogul Eike Batista, soybean farmer-turned-senator Blairo Maggi, and beer-and-burger-king Jorge Paulo Lemann. He tells us why 'Brazillionaires' sometimes argue over their place on public wealth rankings, what happened when Batiste's Porsche went missing, and how Brazil's billionaires favor dead bugs in their decorating.

Thursday, August 18, 2016

Friday August 19 2016 Housing and Economic stories

Government Loaned Billions To Start Failing Obamacare Co-ops With No Plan To Repay – ( Affordable Care Act (ACA) — “Obamacare” — Co-Ops will likely never repay taxpayer money lent to them, according to an audit from the Inspector General’s office at the Department for Health and Human Services (HHS). The investigators found that the Center for Medicare and Medicaid Services (CMS) did not account for how the federal government would recover the loans if the Co-Ops failed. Obamacare authorized the CMS to loan money to support Consumer Operated and Oriented Plans, or Co-Ops. The Co-Ops were to be treated like startups, and repay the loans once they received business through Obamacare’s glitchy online marketplaces.

High-Risk ‘Shadow’ Credit in China Put at $2.9 Trillion by IMF - ( International Monetary Fund staff said that 19 trillion yuan ($2.9 trillion) of Chinese “shadow” credit products are high-risk compared with corporate loans and highlighted the danger that defaults could lead to liquidity shocks. The investment products are structured by the likes of trust and securities companies and based on equities or on debt -- typically loans -- that isn’t traded, staff members John Caparusso and Kai Yan said in a report released Friday. The commentary highlighted the potential for risks bigger to the nation’s financial stability than from companies’ loan defaults. While loan losses can be realized gradually, defaults on the shadow products could trigger risk aversion that’s harder to manage, the report said. The “high-risk” products offer yields of 11 percent to 14 percent, compared with 6 percent on loans and 3 percent to 4 percent on bonds, the commentary said. The lowest-quality of these products are based on “nonstandard credit assets,” typically loans, it said.

Value of negative-yielding bonds hits $13.4tn - ( The value of negative-yielding bonds swelled to $13.4tn this week, as negative interest rates and central bank bond buying ripple through the debt market. The universe of sub-zero yielding debt — primarily government bonds in Europe and Japan but also a mounting number of highly-rated corporate bonds — has grown from $13.1tn last week, according to figures compiled by Tradeweb for the Financial Times. “It’s surreal,” said Gregory Peters, senior investment officer at Prudential Fixed Income. “It’s clear that central banks are dominating markets. There’s a race to the bottom. Central banks are the main drivers of this, it’s not fundamental.” The New Zealand central bank became the latest to cut interest rates again, while the Bank of England recently restarted its quantitative easing programme to combat the economic slowdown that is expected to follow the UK’s vote to leave the EU. About a quarter of the global economy now has negative interest rates.
Nightmare at the Mall: Brick-and-Mortar Retail Totally Loses it - ( On the surface, it was the same lackadaisical data we’ve become inured to in this wondrous economy. But beneath the surface, there lurked a nightmare for the already struggling brick-and-mortar retailers. Total retail sales in July, at $457.7 billion, remained stubbornly flat from June, and ticked up a measly 2.3% from a year ago, adjusted for seasonal variation and holiday and trading day differences, but not inflation, according to the Commerce Department. As crummy as it was, it was propped up by sales of motor vehicles and parts, the largest category at 21% of total retail sales. They rose 1.1% for the month and 2.4% year-over-year to $93.2 billion. Auto sales have been booming. In terms of unit sales, they set an all-time record last year, funded by cheap debt and loosy-goosy underwriting standards; so comparisons this year are on top of a year that may be hard or impossible to beat for a while, with the industry already talking about a “car recession.”

Chicago Records Deadliest Day In 13 Years As City Spirals Out Of Control - ( Last week the Chicago Tribune pointed out that nearly 100 people had been shot in Chicago in less than a week.  9 people were killed on Monday alone marking the deadliest day for the city in 13 years.  Now, with weekend data out, turns out the story is even worse.  For the week ended 8/13, a total of 110 people were shot in Chicago with 24 of them killed.  YTD statistics indicate the city is spiraling out of control with total shootings up to 2,621, a mere ~50% YoY increase, with 445 total homicides. The current homicide rate through August indicates the city is on pace for over 700 homicides in 2016, a 63% increase from 2015 (see chart below). A stunning map reveals Chicago's deadliest neighborhoods.  Chicago's Austin neighborhood has recorded the most shootings in 2016 at 313 but Englewood wins the prize for most homicides at 54.