Thursday, April 20, 2017

Friday April 21 2017 Housing and Economic stories

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What the Heck’s Going On with Classic Cars? - (www.wolfstreet.com) Prices of collector cars fell again, according to the April report by Hagerty, which specializes in insuring vintage automobiles. After a tremendous price surge that peaked in 2015, they’ve been ratcheting their way down ever so slowly. But it adds up after a while. The “Hagerty Market Rating Index” – which tracks the “heat” of the market – fell 0.33 points to 66.65 in April. The index, which is adjusted for inflation, is now down 7.4% from its all-time high of 71.99 in May 2015. Here are more clues from Hagerty’s report: The number of owners expressing the belief that the values of their vehicles are rising continues to fall. The number is at its lowest since November 2013 for owners of mainstream vehicles and at its lowest since May 2012 for owners of high-end vehicles.

Warren Buffett Now Selling US Houses To Chinese Oligarchs - (www.zerohedge.com) While extolling the virtues of American consumers and praising the US economy, Warren Buffett has started seeking the help - and funds - of Chinese oligarchs to sell houses from his real estate brokerage HomeServices. According to Bloomberg's Berkshire's real estate brokerage, HomeServices - currently the second-largest U.S. residential real estate brokerage - acquired as part of Buffett acquisition of an energy business, "is expanding its global reach with a push to attract wealthy Chinese citizens to purchase homes in the U.S", in the process diverting "hot" Chinese money to the US (see Vancouver and Toronto for the outcome). As Bloomberg reports, HomeServices has been expanding under Buffett by opening new locations, forming a 2012 venture to expand licensing operations and then working to capitalize on demand from non-U.S. buyers. The unit hired Realogy’s Peter Turtzo in 2015 to push into international markets and recruited Mitchell Lewis from Christie’s International Real Estate in September to build operations in Europe, the Middle East and Africa. brokerage, "is expanding its global reach with a push to attract wealthy Chinese citizens to purchase homes in the U.S", in the process diverting "hot" Chinese money to the US.

Why Canada’s Housing Bubble Could Soon Become Your Problem - (www.caseyresearch.com) What kind of house would you buy with $1 million? A beachfront property…a mansion on a large estate…maybe a luxury condo? Any of these would be possible in most cities. But you might want to temper your expectations if you live in Toronto. That’s because $1 million won’t buy you much there. Just look at this house. It recently sold for C$1,050,000. That’s 63% more than the property was appraised for in January 2016. As if that weren’t crazy enough, this property sold for C$370,000 above list price after only being on the market for ten days.

Iron Ore Ignores China Data, Index as Decline Accelerates: Chart - (www.bloomberg.com) Iron ore futures have fallen more than seven percent in the past two days despite encouraging data showing the economy in China, a major consumer of the steel-making material, grew more than expected in the first quarter. The 14-day relative strength index is also at its lowest since December 2015, when it hit a record bottom on data going back to 2008. It is now at a level that suggests the commodity has been oversold.

A seismic shift is happening, and billions are pouring into these index funds and ETFs - (www.cnbc.com) In the past decade, there's been a seismic shift from active to passive management, i.e., from mutual funds run by ersatz Peter Lynches to index funds and ETFs that track the market. The fiduciary rule, which President Obama first advocated for in February of 2015 and the DOL formally proposed on April 14, 2016, accelerated that trend. If implemented, it would impose "impartial conduct" standards on financial advisors requiring they always act in their clients' best interests. That means finding the best investment fund possible, while the older, "suitability standard" required only finding an acceptable option for an investor's given risk tolerance. The best option, reams of academic studies have confirmed, is generally the low-cost one. And the lowest-cost funds are index ones.



Wednesday, April 19, 2017

Thursday April 20 2017 Housing and Economic stories

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So Who Are the Debt Slaves in this Rich Nation? - (www.wolfstreet.com) We constantly hear the factoids about “American households” that paint a picture of immense wealth – and therefore a lack of risk for consumer lenders during the next downturn. We hear: “This – the thing that happened in 2008 and 2009 – won’t happen again.” For example, total net worth (assets minus debt) of US households and non-profit organization (they’re lumped together) rose to an astronomical $92.8 trillion at the end of 2016, according to the Federal Reserve. This is up by nearly 70% in early 2009 when the Fed started its QE and zero-interest-rate programs. Inflating household wealth was one of the big priorities of the Fed during the Financial Crisis. It would crank up the economy. In an editorial in 2010, Fed Chair Ben Bernanke himself called this the “wealth effect.” So with this colossal wealth of US households, what could go wrong during the next downturn?

Is The Deep State Creating Another "Crash Of 1929"? - (www.zerohedge.com) In his speech above, future Federal Reserve Chairman Ben Bernanke acknowledged that, by raising interest rates, the Fed triggered the stock market crash of 1929, which heralded in the Great Depression. Yet, in her speech above, Fed Chair Janet Yellen announced that “it makes sense” for the Fed to raise interest rates “a few times a year.” This is a concern, as economic conditions are similar to those in 1929, and a rise in interest rates may have the same effect as it did then. So let’s back up a bit and have a look at what happened in 1929. In the run-up to the 1929 crash, the Federal Reserve raised rates to 6%, ostensibly to “limit speculation in securities markets.” As history shows, this sent economic activity south rather quickly. Countless investors, large and small, who had bought stocks on margin, would be unable to pay increased interest rates and would be forced to default. (It’s important to understand that the actual default was not necessary to crash markets. The knowledge that investors would be in trouble was sufficient to send the markets into a tailspin.)

Undaunted by oil bust, financiers pour billions into U.S. shale - (www.reuters.com) Investors who took a hit last year when dozens of U.S. shale producers filed for bankruptcy are already making big new bets on the industry's resurgence. In the first quarter, private equity funds raised $19.8 billion for energy ventures - nearly three times the total in the same period last year, according to financial data provider Preqin. The quickening pace of investments from private equity, along with hedge funds and investment banks, comes even as the recovery in oil prices CLc1 from an 8-year low has stalled at just over $50 per barrel amid a stubborn global supply glut.

Is American Retail at a Historic Tipping Point? - (www.nytimes.com) Along the cobblestone streets of SoHo, Chanel handbags and Arc’teryx jackets are displayed in shops like museum pieces, harking back to the height of the neighborhood’s trendiness. But rents there are softening, and the number of vacant storefronts is rising. Today, some of the most sought-after real estate by retailers is not in SoHo, but five miles away in Red Hook, a gritty Brooklyn enclave with a shipbuilding past. E-commerce merchants are vying to lease part of a huge warehouse space, spanning 11 acres, that would allow them to deliver goods the same day they’re ordered online. The profound reordering of New York’s shopping scene reflects a broad restructuring in the American retail industry.

Boeing To Lay Off "Hundreds" Of Engineers - (www.zerohedge.comIn a letter to employees, Boeing VP John Hamilton announces that the company will lay off "hundreds" of engineers as soon as this week, affecting Washington and "other enterprise locations." The timing is interesting as the Ex-Im Bank discussions hot up and comes just 2 months after Trump visited Boeing's South Carolina plant. Standing in front of a new Boeing 787-10 Dreamliner passenger aircraft made at in North Charleston, Trump repeated his campaign promises to promote American production that partly fueled his dizzying path to the White House. He warned of a "substantial penalty" for companies that move jobs out of the United States. "We want products made by our workers in our factories stamped with those four magnificent words — made in the USA," Trump said.




Tuesday, April 18, 2017

Wednesday April 19 2017 Housing and Economic stories

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Restaurants in Worst Tailspin since 2009/2010 - (www.wolfstreet.com) This thermometer for discretionary spending is the first to react when consumers hit their limits. Foot traffic at chain restaurants in March dropped 3.4% from a year ago. Menu prices couldn’t be increased enough to make up for it, and same-store sales fell 1.1%. The least bad region was the Western US, where sales inched up 1.2% year-over-year and traffic fell only 1.7%, according to TDn2K’s Restaurant Industry Snapshot. The worst was the NY-NJ Region, where sales plunged 4.6% and foot traffic 6.3%. This comes after a dismal February, when foot traffic had dropped 5% year-over-year, and same-store sales 3.7%. 

Rise of private debt creates fears of a bubble - (www.ft.com) Nature is said to abhor a vacuum, but finance loves them. After all, they tend to be very profitable — at least for savvy early movers. Banks have in recent years been forced to retrench their operations, tamed by financial crisis losses, bridled by shareholders and tethered by more onerous regulation. Lending to smaller and mid-sized companies has been one of the biggest victims, as banks have focused on servicing their blue-chip clients. But a swelling array of investors have stepped into the resulting breach. So-called private debt funds act much like a bank, making loans to businesses too small to go to the bond market, but too big to simply rely on a loan facility from their neighbourhood credit union. It is an eminently sensible and useful business model, marrying the corporate need for funding with institutional investors’ desperation for higher returns at a time interest rates have plumbed historic lows.

“Secular Low in Bond Yields Remains in the Future” says Hoisington’s Lacy Hunt - (www.mishtalk.com) With the Fed having hiked thrice and calling for three more hikes still, the 2017 Hoisington First Quarter Review contains a call that will have many if not most analysts shaking their heads: “The secular low in bond yields remains in the future, not the past,” says Lacy Hunt. That’s a pretty bold call, but betting against Hunt or on alleged bond bubbles has been extremely unrewarding, to say the least. The Fed thinks three more rate hikes are baked in the cake over the rest of the year. I highly doubt the Fed gets in even one more hike. You can take this dot plot of expected rate hikes and throw it out the window.

Puerto Rico seen sliding toward bankruptcy as deadline nears - (www.reuters.com) Bankruptcy for Puerto Rico is looking ever more likely as the clock ticks down toward a May 1 deadline to restructure $70 billion in debt, ramping up uncertainty for anyone betting on returns from the island's widely held U.S. municipal bonds. When U.S. Congress last year passed the Puerto Rico rescue law dubbed PROMESA, it froze creditor lawsuits against the island so its federally appointed oversight board and creditors could negotiate out of court on the biggest debt restructuring in U.S. municipal history. The freeze expires on May 1, however, and an extension by Congress is "not going to happen," said a Republican aide to the House Committee on Natural Resources, which is in charge of territory matters.

13 Years Of No Profit Leads Tesla To Become Most Valuable Automaker - (www.dailycaller.com) Tesla became the most valuable car marker in the country Monday, even though the electric car company has yet to turn a profit in its 13 years of existence. The California-based automaker raised its market capitalization to $51 billion, a number that is valued at about $1.7 billion more than GM. The two companies wrestled for supremacy during early trading Monday. There is significant debate over whether Tesla’s recent surge is sustainable, given the company’s chronic inability to deliver products on deadline. Some analysts say the old metrics of valuation do not apply to Tesla, because investors and the public believe the company is upending the auto market.


Monday, April 17, 2017

Tuesday April 18 2017 Housing and Economic stories

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Appeals Court Rules Against San Diego Unions: First of Many Taxpayer Victories To Come - (www.zerohedge.com) In 2012, San Diego voters gave Landslide Approval to Proposition B, which eliminated defined-benefit pensions for newly hired city workers except for police. In December of 2015, the state Public Employment Relations Board, a bastion of Union sympathizers, ordered the city to make millions of dollars of retroactive payments to workers hired since the law took effect. The city appealed. Today we have a very welcome ruling for taxpayers: An Appeals Court overturned the PERB Ruling.
“This is a victory for the citizens of San Diego and the state of California,” said taxpayer advocate April Boling, one of three who filed court appeals. “The court agreed citizens can take matters into their own hands through the initiative process and support of elected officials does not somehow trigger the requirement for union negotiations.” Since the provisions of the ballot measure were implemented, most new employees have been offered 401k-style plans. The proposition was opposed by organized labor groups, which took their case to the PERB.

Banks Gear up for “Hacienda Hedge,” World’s Biggest Oil Deal - (www.wolfstreet.com) International banks are preparing for the Hacienda Hedge – the secretive oil deal that has seen Mexico earn billions from successful bets on future oil prices. Detailed in an analysis by Javier Blas for Bloomberg, the history of the Hacienda Hedge is certainly impressive and might incite other countries to try their hand at betting on future oil prices. Or then again, it might not, as Mexico’s success story seems to be kind of unique. Blas interviewed Mexican government officials, traders, brokers, and bankers, and reviewed thousands of documents to compile the history of the bet that bankers await every year and that, contrary to what the Mexican authorities say, could swing the oil market. The story began in 1990, when Iraq’s invasion of Kuwait took one-tenth of the global oil supply off the market, raising prices. The government then accurately predicted that the high prices wouldn’t last, betting on a decline. This accuracy has been remarkably consistent through the years, with Mexico making money most of the time when it has placed the bet. And it hasn’t been alone.

Huishan Says HSBC Claims Loan Default as Court Freezes Assets - (www.bloomberg.com) HSBC Holdings Plc said no “enforcement actions” have been taken against China Huishan Dairy Holdings Co., responding to an earlier statement from the embattled dairy producer that suggested it was in default on a $200 million loan agreement. HSBC, acting on behalf of a group of banks, sent Huishan Dairy a letter to call “events of default,” alleging that the company had failed to comply with covenants on the dual-tranche loan, the Chinese firm said in a statement late Monday, without being more specific. Huishan Dairy shares in Hong Kong have been suspended from trading since March 24, when a record stock plunge wiped $4.1 billion off the firm’s market value. The company said four days later it has been late on some payments to banks. “It is standard practice in such circumstances to remind borrowers of their obligations under the terms of the loan agreement,” a HSBC spokesman said in a statement to Bloomberg. “The letter does not indicate the commencement of enforcement actions against the company at this point in time.”

Secret Recording Implicates Bank of England in Libor Rigging – (www.mishtalk.com) In the financial crisis, LIBOR rates soared due to payment uncertainty (recall Bear Stearns, Lehman, etc). Banks lowballed their borrowing rates so as to make their financial conditions look better than they were. LIBOR stands for London Interbank Offered Rate, the average of interest rates estimated by each of the leading banks in London that it would be charged were it to borrow overnight from other banks. In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions. The LIBOR rigging admission cost Barclays’ CEO, Bob Diamond, his job. Two traders went to jail.

China's $1.4 Trillion Debt Wall Seen Forcing Issuance Rise - (www.bloomberg.com) China’s bond issuers, faced with 9.7 trillion yuan ($1.4 trillion) of maturing debt this year, are stepping on the gas. Companies and governments sold 1.3 trillion yuan of onshore notes in March, about as much as in the first two months of the year combined, according to data compiled by Bloomberg that excludes certificates of deposit. Fitch Ratings expects refinancing needs to drive issuance in the coming months, with corporate debt sales for the year forecast to match or even exceed last year’s total. Chinese companies issued a record 9.8 trillion yuan of bonds in 2016.



Sunday, April 16, 2017

Monday April 17 2017 Housing and Economic stories

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Americans are taking out the largest mortgages on record - (www.marketwatch.com) The Mortgage Bankers Association's weekly purchase loan data showed that the average size of a home loan was the largest in the history of its survey, which goes back to 1990. .. The 20% down payment is a relic: the median down payment in 2016 was 10%. For first-time buyers, it was 6%. First-timers and other buyers of less-expensive homes are more leveraged now than they were at the height of the housing bubble a decade ago. Home loan sizes aren't the only things that have changed in the years since MBA started its survey. Back at the start of the survey, the median mortgage size was only about 3.3 times the median annual income. It's now over five times as big - though buyers get bigger homes and lower interest rates.

Atlanta Fed GDPNow Forecast Spirals Toward Zero - (www.wolfstreet.com) I hope the model is wrong. The Atlanta Fed’s GDPNow model, which forecasts GDP growth in the US, dropped to 0.6% seasonally adjusted annualized GDP growth for the first quarter. This means, if economic growth at this rate continues for an entire year, the US economy would edge up only 0.6% for the year. As more data for the quarter is released, the model becomes a more accurate predictor of GDP growth, as measured in the first estimate for that quarter by the Bureau of Economic Analysis (BEA). So now the first quarter is over, and more data for the quarter is piling up, and the GDPNow forecast is spiraling down in direction of zero. The forecast dropped by half from April 4, when it was still 1.2%. I added the red arrow to the chart to show just how fast and how far it fell in the past seven weeks, from 2.5% to 0.6%:

US Credit Card Debt Rises Above $1 Trillion For The First Time In A Decade - (www.zerohedge.com) in February, following modest prior revisions, total revolving/credit card debt, has once again risen above the "nice round number" of $1 trillion for the first time since January 2007... Unlike last month's unexpectedly weak consumer credit report, which saw a plunge in revolving, or credit card, debt moments ago the Fed, in its latest G.19 release, announced that there were few surprises in the February report: Total revolving credit rose by $2.9 billion, undoing last month's $2.6 billion drop - the biggest since 2012 - while non-revolving credit increased by $12.3 billion, for a total increase in February consumer credit of $15.2 billion, roughly in line with the $15 billion expected. However, while in general the data was uneventful, there was one notable milestone: in February, following modest prior revisions, total revolving/credit card debt, has once again risen above the "nice round number" of $1 trillion for the first time since January 2007...

Draghi Struggles to Shut Down ECB Debate Weidmann Wants to Have - (www.bloomberg.com) Mario Draghi may have hoped to put an end to the bubbling debate on the European Central Bank’s exit strategy on Thursday. It didn’t take long for a reminder of how complicated this will be. Speaking in Frankfurt, the ECB president sought to quash the idea that policy makers will begin tightening policy sooner than planned and dispel doubts about the planned route to the eventual stimulus exit. Less than three hours later, Bundesbank President Jens Weidmann re-opened the issue, saying that a discussion on forward guidance is “legitimate.” The conflicting signals are exactly what executive board member Benoit Coeure warned about last week when he said public disagreements may hamper the effectiveness of policy. But credibility can be also hurt if the policy steer doesn’t evolve to reflect new economic conditions, he said.

Russian PM: "US on brink of military clash with Russia" - (www.apa.az) In a statement on Friday morning, Russian Prime Minister Dmitry Medvedev said that the US missile strike violated not only international, and added that the attack “was on the brink of military clashes with Russia”, Zero Hedge reported. “Instead of their much-publicized thesis about a joint fight with a common enemy, Islamic State, the Trump administration has proven that it will fiercely fight against the legal government of Syria,” Medvedev wrote on his Facebook page. Meanwhile, the International Committee of the Red Cross told Reuters that the situation in Syria "amounts to an international armed conflict" following U.S. missile strikes on a Syrian airbase.



Thursday, April 13, 2017

Friday April 14 2017 Housing and Economic stories

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Startup Craziness Deflates, Hits Silicon Valley & San Francisco - (www.wolfstreet.com) Few areas in the US are as dependent economically on the startup ecosystem as Silicon Valley and San Francisco. And the crazy boom that peaked in 2014 and 2015 lifted all boats, but then the tide went out. It’s a larger US phenomenon, but San Francisco and Silicon Valley feel it particularly. Venture capital investments in the US “downshifted again” in the first quarter, according to the current report by the National Venture Capital Association and PitchBook Data. It was the sixth quarter in a row of declines, and the number of deals dropped to the lowest level since Q3 2010, The startup funding industry “is likely reverting to 2012-2013 levels of investment after peaking during the past few years,” the report says. 

These Eight Retailers Will File For Bankruptcy Next, According To Fitch - (www.zerohedge.com)  Sears Holdings Corp (roughly $2.5 billion); 99 Cents Only Stores LLC; Charming Charlie LLC; Gymboree Corp.; Nine West Holdings Inc.; NYDJ Apparel LLC; rue21, Inc.; and True Religion Apparel Inc. The situation is rapidly deteriorating for America's "bricks and mortar" retailers. As discussed earlier this week, some 9 retail outlets have already filed for bankruptcy protection in 1Q 2017 alone according to Alix Partners.  That volume of filings matches the total number of retail bankruptcies for all of 2016 and puts the industry on pace to exceed even the 'great recession' highs.

Federal Reserve wants to start unwinding the $4.5 trillion in bonds on its balance sheet this year - (www.cnbc.com) Federal Reserve officials said the shedding of the $4.5 trillion in bonds the central bank is holding on its balance sheet will begin this year. The revelation came Wednesday from a summary of the Federal Open Market Committee meeting held in March, during which the group approved a quarter-point hike in its benchmark interest rate target. Officials at the meeting noted that the Fed likely is on a faster pace with rate hikes ahead. Unwinding the balance sheet is significant both because of its sheer size and the impact it could have on markets, as Fed members including Chair Janet Yellen have indicated that the move itself would amount to a rate hike.

‘Shadow banks’ step into the spotlight - (www.ft.com) A range of finance institutions are challenging banks’ dominance of the lending market. One of the most enduring consequences of the 2008 financial crisis is its disruption of lending. Nonbank competitors — often referred to as “shadow banks” — have seized on the weaknesses of financial institutions, introducing new ways for businesses and households to borrow. The growing influence of alternative capital is most evident in the US — in April 2015, nonbank lenders accounted for more than half of new government-backed mortgages. Banks are still the biggest lenders in Europe, but rivals are emerging. Many of the new players are linked to the securitisation industry, where loans are packaged up and sold on as bonds to capital markets investors. The proliferation of securitisation — and its unravelling — compounded the financial crisis. Now, many of its proponents are developing initiatives to challenge traditional lenders.

Gary Cohn Backs Reinstating Glass-Steagal, Breaking Up Big Banks - (www.zerohedge.com) In an unexpected statement made by the former COO of Goldman Sachs and current director of Trump's National Economic Council, Gary Cohn told a private meeting with lawmakers on the Senate Banking Committee on Wednesday evening that he could support legislation breaking up the largest U.S. banks - a development that could provide support to congressional efforts to reinstate the Depression-era Glass-Steagall law - and impact if not so much his former employer, Goldman Sachs, whose depository business is relatively modest, then certainly the balance sheets of some of Goldman's biggest competitors including JPM and BofA. According to Bloomberg, Cohn said he generally favors banking going back to how it was "when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans." What Cohn may not have mentioned is that with rates as low as they are, issuing loans - i.e., profiting from the Net Interest Margin spread - remains far less profitable than trading and underwriting securities in a world in which virtually every "developed world" central banker is either directly spawned from Goldman, or is advised by an ex-Goldman employee,