Tuesday, June 28, 2016

Wednesday June 29 2016 Housing and Economic stories

Countrywide Mortgage Devastation Lingers as Ex-Chief Moves On - (www.nytimes.com) Angelo Mozilo can finally get on with his life. This month the Justice Department told Mr. Mozilo, the former chief executive of Countrywide Financial, once the nation’s largest subprime mortgage lender, that he was no longer under investigation in connection with civil mortgage fraud. The government’s criminal inquiry into Mr. Mozilo’s role in the financial crisis was dropped previously, so he is now in the clear. At least that’s the view from Washington. On Main Street, where the pain of Countrywide’s reckless lending and abusive foreclosure practices still throbs, it’s safe to say that Mr. Mozilo is still identified as a major figure in the mortgage crisis.

Chinese insurers run "Titanic" risks for titanic returns - (www.reuters.com) Years of breakneck growth for China's top insurers has been partly fueled by a splurge on risky investment products that could punch multi-billion-dollar holes in their balance sheets if the slowing economy triggers heavy debt defaults. Industry premiums have increased by an average 13.4 percent a year since 2010, according to the China Insurance Regulatory Commission (CIRC), but in an environment of low interest rates and unreliable stock markets, insurers have increasingly looked to alternative investments to make the returns they need to service their growing business. A Reuters survey of the accounts of the top five listed insurers including Ping An Insurance Group Co and New China Life Insurance showed their holding of assets other than shares, bonds and cash had more than quadrupled in five years to 984 billion yuan ($150 billion).

“I Think this Willful Ignorance Will Bring on a Banking Crisis” – (www.wolfstreet.comCentral Bankers are willfully ignoring signs that negative interest rates are not working, explains Christine Hughes in the video. As yields fall to the floor, people have to save more to make up for the lack of interest income they’d been counting on. Bank stocks loathe negative rates, and banks are actively looking for other options. In the end, she says, negative rates will bring on a banking crisis. Excellent brief video on the NIRP absurdity: Friday was also the Worst Day for Italian and Spanish stocks, which plunged over 12%. And banks were massacred. Read…  Brexit Blowback Hits Italian and Spanish Banks

Bank-Sovereign Doom Loop Requires Fiscal Response, BIS Says - (www.bloomberg.com) Policy makers have to take tougher action to sever the link between banks and sovereigns that wreaked so much havoc during the last financial crisis, according to theBank for International Settlements. The current regulatory treatment of government debt on banks’ balance sheets is “no longer tenable,” the Basel, Switzerland-based lender said in its annual report released on Sunday. Assigning a capital charge to sovereign bonds is being studied by the Basel Committee on Banking Supervision. Stefan Ingves, chairman of the Basel Committee, has said policy makers will examine options to tighten capital rules around banks’ holdings of sovereign debt in a “careful” and “gradual manner.”

Brexit Adds $380 Billion to Global Negative-Yielding Bond Pile - (www.bloomberg.com)  flight to safer assets by global investors after Britain’s decision to the quit the European Union has added $380 billion to the pile of negative-yielding government bonds. There are now $8.73 trillion of securities with yields below zero globally, according to the Bloomberg World Sovereign Bond Indexes, up from $8.35 trillion before the vote. In the euro-area, German benchmark bonds with maturities out to 10 years are negative, while Japanese 10-year yields reached a record-low of minus 0.215 percent on Friday. As a victory for Brexit campaigners became clear, it triggered market chaos with the pound suffering its worst decline on record, U.K. bank stocks plummeting and gold prices rallying. Already signs of economic and political turmoil have emerged as U.K. Prime Minister David Cameron plans to step down in October, delaying exit negotiations, while European leaders are calling for talks to begin immediately.

Monday, June 27, 2016

Tuesday June 28 2016 Housing and Economic stories

ECB Blows €400bn on “Brexit Black Friday” for Bank Bailouts - (www.wolfstreet.com) Dealing with a Financial Crisis under cover of Brexit Chaos. Remember TARP, the Troubled Asset Relief Program that the US Congress approved to bail out banks and other companies during the Financial Crisis? $700 billion were authorized, later reduced to $475 billion. The Treasury eventually dispersed $432 billion. I bring this up because the ECB bailed out the European banks with more than TARP, in just one day: on Brexit Black Friday. The ECB saw what was happening to the shares of the largest banks on that propitious day. It saw a blooming financial crisis: The fiasco that happened to the Spanish and Italian banks was so enormous that it sent stock markets into their largest one-day plunges on record, of over 12% [ Brexit Blowback Hits Italian and Spanish Banks]. The Stoxx 600 banking index, which covers the largest European banks, plunged 14.5% on Friday. It’s down 29.3% year-to-date, 42% from its 52-week high, and 76% from its all-time high in May 2007 before the Financial Crisis and the euro debt crisis knocked the hot air out of the banks.

Global markets take $2tn Brexit hit - (www.ft.com) Global stock markets lost more than $2tn of value on Friday in the largest single day drop since at least 2007, as investors dumped risky assets and rushed into havens after the UK voted to leave the EU. The fall precedes what is expected to be a volatile week of trading when global markets reopen on Monday. Investors and strategists say that much of Friday’s decline was a “knee-jerk” move, unravelling last-minute confidence that drove up stock prices ahead of the referendum results. The slide included a $830bn loss on the valuation of US stocks, with $657bn struck from the benchmark S&P 500. The overall $2.1tn decline was the worst performance since S&P Dow Jones Indices started tracking data in 2007. “I don’t think the news came out with enough lead time to have institutional investment committees sit down and decide what to do,” said Thierry Albert Wizman, a strategist with Macquarie. “This is an automated response to what has happened. Human decision making will intervene.”

Brexit Blowback Hits Italian and Spanish Banks - (www.wolfstreet.com) The prophets of Project Fear reaped what they’d sown, as financial carnage spread across global markets on news that a slim majority of British voters had done the unthinkable by drowning out the relentless doomsaying and voting to leave the European Union. The pound sterling plunged 8% against the dollar, to $1.37, its lowest level in three decades. The euro fell 1.93%, in itself a huge one-day move for a major currency. UK stocks surrendered over 3% of their value. But that was nothing compared to the havoc unleashed in other European stock markets. Germany’s DAX plummeted 7%; France’s CAC 40 over 8%. But even that pales compared to what happened in Spain and Italy: the IBEX 35 plummeted 12.3% and the FTSE MIB 12.5%. It was their worst day on record.


Civil Uprising Escalates As 8th EU Nation Threatens Referendum – (www.zerohedge.com) It appears, just as we warned, that Brexit was indeed the first of many dominoes. Even before the Brexit result, a poll by Ipsos Mori showed that the majority of people in France and Italy want to at least have a referendum on leaving: Meanwhile, over 40% of Swedes, Poles, and Belgians are in the same boat. But now, as Martin Armstrong notes, Brussels simply went too far. They cross the line moving from an economic union to a political subordination of Europe. Now eight more countries want to hold referendums to exit the EU – France, Holland, Italy, Austria, Finland, Hungary, Portugal, and Slovakia all could leave.

Brexit baffled punters, pundits and fund managers to the very end - (www.reuters.com) Nearly everyone, from London gamblers to U.S. money managers got it wrong. Britain's vote to leave the European Union shocked pundits, investors and politicians alike, underscoring the inherent difficulty of forecasting such rare events.  On PredictIt, an online political events betting site operated by Victoria University in Wellington, New Zealand and U.S.-based partners, bettors had the probability of a “leave” camp win at just 16 percent on Thursday as British polls closed. Within four hours of the vote count, that had shot to 90 percent. The dramatic reversal caught many investors flat footed and showed how they have trouble hedging against such shocks even with the help of such tools as exchange-traded funds or computer algorithms designed to capture an electorate's social media vibe, economists, pollsters and fund managers said on Friday.

Britain, EU at Odds Over Timing of Divorce Talks - (www.ap.com)
Brexit’s Article 50: How 250 words could chart Britain’s future
- (www.marketwatch.com)
Brexit in Berlin: Merkel Sizes Up the Next EU Crisis
- (www.spiegel.de

Sunday, June 26, 2016

Monday June 27 2016 Housing and Economic stories

Performance Is Trumping Safety in the Low-Volatility ETF Craze - (www.bloomberg.com) The low volatility exchange-traded fund (ETF) craze has little to do with investors seeking less volatility. Instead, the billions of dollars flowing into ETFs that track stocks exhibiting the least amount of volatility is a classic case of performance-chasing. Like little kids playing soccer, many investors follow the outperformance ball, so to speak, wherever it goes. It happens with stocks, bonds, active mutual funds, hedge funds, and increasingly with ETFs. Right now, the soccer ball is in the low-volatility part of the field, where nearly all low-vol ETFs are outperforming their respective markets—be they large-caps, small-caps, or international equities.

Worst “Zombie States” in America “Deteriorate Faster, Further” - (www.wolfstreet.com) During the Financial Crisis, it was California that made the headlines with “out-of-money dates” and fancy-looking IOUs with which it paid its suppliers. The booms in the stock market and the startup scene – the state is desperately hooked on capital-gains tax revenues – but also housing, construction, etc. sent a flood of moolah into the state coffers. Now legislators are working overtime to spend this taxpayer money. Gov. Jerry Brown is brandishing recession talk to keep them in check. Everyone knows: the next recession and stock-market swoon will send California back to square one. Now Puerto Rico is in the headlines. It’s not even a state. And it’s relatively small. But look at wild gyrations by the federal government and Congress to deal with it, to let the island and its bondholders somehow off the hook.

Home ownership rates drop to 63.4%, lowest since 1967 - (www.cnbc.com) This is what happens when government tries to increase home ownership ;-) 
The U.S. homeownership rate fell to 63.4 percent in the second quarter of 2015, according to the U.S. Census. That is down from 63.7 percent in the first quarter and from 64.7 percent in the same quarter of 2014. It marks the lowest homeownership rate since 1967. Homeownership peaked at 69.2 percent at the end of 2004, when the housing market was in the midst of an epic boom. The 50-year average is 65.3 percent. "It is now just five-tenths from the record low seen in 1965 in data going back also to 1965," noted Peter Boockvar, an analyst with The Lindsey Group. "All the governmental attempts (certainly aided and abetted by many players in the private sector) at boosting homeownership has gotten us to this point in time with all the havoc it wreaked over the past 10 years. It's just another governmental lesson never learned, of don't mess with the free market and human nature."

Heroin Use In The United States Reaches A 20 Year High - (www.zerohedge.com) Whatever the war on drugs is accomplishing, it certainly was not keeping one million people in 2014 from using heroin in the United States, which according to the UN report is almost three times as many users as in 2003. Additionally, heroin related deaths have increased five-fold since 2000. Angela Me, the chief researcher for the report said "There is really a huge epidemic (of) heroin in the US. It is the highest definitely in the last 20 years." According to Reuters, Me named two potential reasons for the uptick in usage. One being that the US legislation introduced in recent years has made it harder to abuse prescription opioids such as oxicodone, a powerful painkiller that can have similar effects to heroin. A second reason is that the supply in the US from Mexico and Colombia is greater, and prices have been depressed in recent years. In 2014, at least 207,000 deaths globally were drug related, with heroin use and overdose-related deaths increasing sharply also over the last two years according to the UN Office on Drugs and Crime (UNODC)

China bankruptcies surge as government targets zombie enterprises - (www.ft.com) Chinese bankruptcies have surged this year as the government uses the legal system to deal with “zombie” companies and reduce industrial overcapacity as part of a broader effort to restructure the economy. Courts in China accepted 1,028 bankruptcy cases in the first quarter of 2016, up 52.5 per cent from a year earlier, according to the Supreme People’s Court. Just under 20,000 cases were accepted in total between 2008 and 2015. China’s legislature approved a modern bankruptcy law in 2007 but for years it was little used, with debt disputes often handled through backroom negotiations involving local governments.“Bankruptcy isn’t just about creditor-borrower relations. It also touches on social issues like unemployment,” said Wang Xinxin, director of the bankruptcy research centre at Renmin University law school in Beijing. “For a long time many local courts weren’t willing to accept them, or local governments didn’t let them accept.” 

Thursday, June 23, 2016

Friday June 24 2016 Housing and Economic stories

Record buybacks fail to lift S&P 500 - (www.cnbc.com) U.S. companies in the S&P 500 bought their own stock at a record pace the 12 months ending in March, new data show, but the buyback tidal wave did little to lift the stock market as the benchmark was actually down about 1 percent during the period. During the March 2015 to March 2016 period, U.S. companies spent a record $589.4 billion in share repurchases, according to figures released Wednesday by S&P Dow Jones Indices. That eclipsed the previous record of $589.1 billion set during the market peak in 2007. In the first quarter, share repurchases totaled $161.4 billion, up 12 percent from the fourth quarter of 2015 and the second highest quarterly buyback total ever.

The European Union: Government By Deception - (www.zerohedge.com) The benefits of the union flow to a select few countries, and to a select few within those countries. And ever fewer are selected as economic policies continue to fail. It is frankly beyond me to see why anyone would want to be part of that. It’s not about Boris Johnson or Nigel Farage or George Osborne, that is just more deception. It’s about being ruled by midgets, as Forsyth puts it...the very structure of the EU self-selects for sociopaths and/or worse.

Ex-Deutsche Bank Trader Admits to Rigging Libor in U.S. - (www.bloomberg.com) A former Deutsche Bank AG trader secretly pleaded guilty in New York to conspiring to manipulate a benchmark interest rate tied to trillions of dollars in securities and loans and prosecutors said he agreed to help U.S. investigators in their probe. Timothy Parietti, who served as a managing director of the bank’s money markets derivatives trading desk in Manhattan from January 2005 to December 2012, admitted on May 26 that he conspired to rig the London interbank offered rate for two years, according to a transcript unsealed Wednesday. The plea was reported earlier by Reuters.

Even if Brexit Vote Wins, there may be No Brexit: Daiwa - (www.wolfstreet.com) Daiwa Capital Markets, the investment banking arm of Daiwa Securities Group in Japan, issued a laundry list today of the biblical catastrophes that a Brexit will cause to the pound sterling, global equity markets, global futures markets, credit spreads…. It would “cause serious economic/market damage,” and “hardest hit, of course, would be UK financial assets.” And it would trigger a recession. So the Leave vote would cause a lot of bloodletting among Daiwa’s constituents and globally. The Leave vote would be to blame. We get that. But it gets more complicated: And while it may be expected that, after the initial knee-jerk response, some of the risk-off sentiment would quickly dissipate in most other markets, the likely economic and political fallout in the UK would affect asset prices there for a considerable period.

Fed Up With The Corruption: Mexico On Brink Of Revolution - (www.zerohedge.com) The Mexican government’s deadly crackdown on a teacher’s union protest has rattled the nation in recent days, as 200,000 doctors on Wednesday joined the ongoing national strike against President Enrique Peña Nieto’s neoliberal reforms. Anti-government sentiment is mounting after police forces opened fire on a teacher protest in Oaxaca on Sunday, killing at least eight.

Wednesday, June 22, 2016

Thursday June 23 2016 Housing and Economic stories

US Freight Drops to Worst May since 2010 - (www.wolfstreet.com) “May is usually a relatively strong month for freight shipments, but given the high inventories with ever slower turnover rates and the decline in new production orders, May could be another soft month,” predicted Rosalyn Wilson at Cass Transportation a month ago. It has now come to pass – only worse. Freight shipments by truck and rail in the US, excluding commodities, fell 5.8% in May 2016 from the already anemic levels in May 2015, and 7.0% from May 2014, according to the Cass Freight Index, released today. It was the worst May since 2010. “This year we have failed to see the robust growth in shipments that we expect to see this time of year,” Wilson lamented. In fact, aggregate shipment volume over the first five months, according to the index, was the worst since 2010. And freight is one of the most reliable gauges of the goods-producing economy.

Chinese Cash Disappearing Down Credit Black Hole - (www.wsj.com) For all the cash in China’s financial system, Beijing is having a hard time putting it to work. In recent months, a measure of China’s monetary-policy effectiveness shows that gobs of new credit, which in the past would have boosted the real economy, is instead being lost in the proverbial wash. China’s M1 money supply, a measure of the most liquid assets in the banking system such as cash and certain types of demand deposits, is growing at its fastest pace in six years. Meanwhile, M2 money supply, a broader gauge of liquidity including longer-term deposits, expanded at the slowest rate in a year. The ratio of these two rose to its highest since the data has been tracked. Money is being created, but it isn’t being used to consume or invest. One explanation is that new money is going to pay down old debts. Also, companies could be cash-hoarding, taking out loans but not deploying the money because either there isn’t anywhere to put it or other restrictions stop them from doing so.

Pimco Says ‘Storm Is Brewing’ in U.S. Commercial Real Estate - (www.bloomberg.com) U.S. commercial real estate prices may fall as much as 5 percent in the next 12 months amid tightened regulations, a wall of debt maturities and property sales by publicly traded landlords, Pacific Investment Management Co. said in a report Monday. A global surge in demand for U.S. property investments that pushed real estate values to records may wane as slowing growth in China, lower oil prices and dislocated debt markets threaten to halt six years of price growth, Pimco portfolio managers John Murray and Anthony Clarke said in their report, titled “U.S. Real Estate: A Storm Is Brewing.” “Storms form when moisture, unstable air and updrafts interact,” they said. A similar confluence of factors “is creating a blast of volatility for U.S. commercial real estate.”

NY Fed Warns about Booming Subprime Mortgages, now Insured by the Government – (www.wolfstreet.com) The New York Fed just warned about the ticking mortgage subprime time bombs once again being amassed, and what happens to them when home prices decline. But unlike during the last housing bust, a large portion of these time bombs are now guaranteed by the government. Subprime mortgages are what everyone still remembers about the Financial Crisis. They blew up has home prices fell. Folks who thought they were “owners with equity” found out that they were just “renters with debt.” And they dealt with it the best they could: forget the debt and the rent and stay until kicked out. Cumulative default rates on subprime mortgages spiked to 25% in 2007, according to the report. Banks ended up with the properties and collapsed. Mortgage backed securities based on these subprime mortgages imploded. Bond funds that held them imploded. All kinds of fireworks began. While subprime mortgages didn’t cause the Financial Crisis by themselves, they were an essential cog in a crazy machinery.

Telecom Oi Files Largest Bankruptcy Request in Brazil's History - (www.bloomberg.com) Oi SA filed for bankruptcy protection on 65 billion reais ($19 billion) in debt -- a Brazilian record -- after failing to reach an agreement with creditors, the last straw following a long saga of mergers and leadership changes. Brazil’s fourth-biggest wireless company sought protection from creditors so it could keep serving customers, the company said in a filing Monday. Talks with creditors stalled last week after some board members disagreed with a plan by bondholders to swap debt for equity, giving them 95 percent of the company. The filing is likely to have major repercussions in Brazil, since state-owned banks Banco Nacional de Desenvolvimento Economico e Social, Caixa Economica Federal and Banco do Brasil SA are among Oi’s top creditors, along with private banks such as Itau Unibanco Holding SA. Oi’s move is also set to trigger payments on a total of $14 billion in derivatives contracts designed to protect debt investors against a default, according to data compiled by Bloomberg.

Tuesday, June 21, 2016

Wednesday June 22 2016 Housing and Economic stories

Share-Buyback Announcements Plunge, Stocks Risk Getting Clocked - (www.wolfstreet.com) In 2015, S&P 500 companies bought back $569 billion of their own shares, down just a smidgen from $572 billion in 2014, according to FactSet. That’s a combined $1.14 trillion in stock repurchases. With the S&P 500 market capitalization at $18.8 trillion currently, corporate buybacks over the past two years have mopped up about 6% of the total float in dollar terms. And this has been happening year after year with increasing vehemence since 2010. While some sectors already cut back in 2015, buybacks soared 44% in the Industrial sector and 26% in the Consumer Discretionary sector. Companies buying back their own shares act purposefully as the relentless bid, with the sole goal of driving up share prices. They want to buy high! And it works.

China’s ‘Land Kings’ Return as Housing Prices Rise - (www.wsj.com) The “land kings” are back. That had been a nickname for Chinese developers paying sky-high prices for land parcels during China’s property boom earlier this decade, which left so-called ghost cities of unsold housing across China. Now, with housing prices in China’s larger cities again rising rapidly, frothy bids for land parcels are back. On June 8, Logan Property Holdings Co. agreed to pay 14.1 billion yuan ($2.14 billion) for a piece of land in Shenzhen’s Guangming district, the largest-ever price tag in the southern Chinese city. Logan says it didn’t overpay, calling the price “relatively favorable” in a hot market.

Italy's mayoral elections deal defeat to Renzi; 5-Star breakthrough - (www.reuters.com) The anti-establishment 5-Star Movement trounced Italian Prime Minister Matteo Renzi in local elections this weekend, clouding his chances of completing his term of office and winning a referendum he has called on constitutional reform. Five-Star, which feeds off popular anger over widespread graft, won in 19 of the 20 towns or cities where it had advanced to the run-offs, including Turin and Rome, where Virginia Raggi, a 37-year-old lawyer, became the first woman mayor. The party has so far controlled just a handful of medium-sized towns. Success in Rome and Turin could prove a springboard to victory in national elections due in 2018.

Caterpillar Retail Sales Decline For Unprecedented 42nd Consecutive Month – (www.zerohedge.com) There was some glimmers of hope that after a modest rebound in North American and Chinese retail sales of industrial bellwether Caterpillar in the early part of the year, that the manufacturing landscape may be finally changing as demand for CAT heavy manufacturing and construction equipment re-emerges. Alas, those hopes were doused following the latest, May, retail sales reported by Caterpillar earlier today. These showed that after sliding "only" 8% in March, US retail sales have once again started to deteriorate, sliding -11% in April and -12% in May. Perhaps more notably, after declining just 10% in April, retail sales in the Asia/Pacific region - read China - are once again accelerating their drop, and were down 13% in May.

Southern California May See Summer Blackouts as Gas Leak's Effects Linger - (www.nasdaq.com) California regulators and utility executives are staring down a natural-gas shortage in the Los Angeles area that could trigger up to two weeks of electrical blackouts this summer. The state's electric grid operator warned Friday that it may call for emergency reductions in electricity use on Monday and Tuesday, when a heat wave in Southern California is expected to push up demand for air conditioning. Without conservation, officials fear power plants could run out of fuel and trigger rolling blackouts. Southern California is vulnerable to energy disruptions because it relies on a complex web of electric transmission lines, gas pipelines and gas storage facilities -- all running like clockwork -- to get enough electricity. If any piece is disabled, it can mean electricity shortages. Gas is the state's chief fuel for power generation, not coal.