Subprime Squeezed as Auto-Lender Costs Increase - (www.bloomberg.com) Borrowing
costs are rising for subprime auto lenders in the asset-backed bond market,
squeezing profit margins and pressuring firms to make even riskier loans. A General Motors Co. (GM) unit that makes car loans to people with
blemished or limited credit sold top-rated securities backed by the debt to
yield 45 basis points more than the benchmark swap rate on Aug. 7, almost
double the spread it paid on similar notes in April, according to a person with
knowledge of the transactions. American Credit Acceptance Corp., the
Spartanburg, South Carolina-based buyer of “deep subprime” loans, paid 225
basis points over benchmarks to sell A rated debt on July 31, up from 165 in
March. Subprime lenders lured into the market by low financing costs during the
past three years now face being pushed out as rates reverse, according to
Moody’s Investors Service. Funding costs are climbing as
the Federal Reserve considers
reducing $85 billion of monthly bond purchases that have steered investors to
riskier, higher-yielding debt.
Dishwashers Beat Clothes as U.S. Moms Use
Hand-Me-Downs - (www.bloomberg.com) Shannon
Burke is typical of many American shoppers these days. She’s pouring money into
her home and cutting back on everything else. “If we don’t need it, we don’t
buy it,” said Burke, a 33-year-old mother from Abington, Massachusetts, whose two kids are mostly making do with
hand-me-downs. “The money can be spent on our home. The more valuable our home
is, the better it is for us in the long run.” That’s great news for companies
such as Lowe’s Cos. and Home Depot Inc.
Both reported blowout second quarters as millions of Americans, drawing
confidence from a recovering housing market, loaded up on dishwashers, bathtubs
and wall tile. It’s not so good for retailers selling clothes and other general
merchandise. In recent weeks, chains from Wal-Mart Stores Inc. to Nordstrom Inc. to Macy’s Inc. missed
sales estimates and cut forecasts.
Emerging
markets central banks’ emergency reserves drop by $81bn - (www.ft.com) Central banks in the developing world have lost $81bn
of emergency reserves through capital outflows and currency market
interventions since early May, even before renewed turmoil in emerging markets. The figure, which excludes China, is equal to
roughly 2 per cent of all developing country central bank reserves, according
to Morgan Stanley analysts, who compiled the data from central bank filings for
May, June and July. However, some countries have suffered more precipitous
drops. Indonesia has lost 13.6 per cent of its central bank reserves from the
end of April until the end of July, Turkey spent 12.7 per cent and Ukraine
burnt through almost 10 per cent. India, another country that has seen its
currency pummelled in recent months, has shed almost 5.5 per cent of its
reserves. Central bank reserves are held to act as a safety buffer against
turmoil, and are on average still far larger than during past emerging market
crises. But the pace of the drops have spooked some investors and analysts.
Mortgage rates hit two-year high - (money.cnn.com) The
average weekly rate for a 30-year fixed-rate mortgage jumped to a two-year
high, Freddie Mac said on Thursday. The rate is now 4.58%, up from 4.4% the
prior week. That is the highest level for the 30-year in more thantwo years,
since it hit 4.6% on July 7, 2011, according to Freddie Mac spokesman Chad
Wandler. Wandler attributed the increase to an improving housing market. He also cited investor concerns about when
the Federal Reserve will taper its government bond-buying program, which could affect interest rates. Rising
rates could also affect the housing market going forward. A recent survey by
real estate company Trulia found that an increase in mortgage rates was the
prime concerns among 41% consumers, who worried about that more than price
increases.
The Financial Crisis That Refuses to Go Away - (www.telegraph.co.uk) Emerging
markets such as Brazil, India and Turkey have an outbreak of the jitters, and
it’s hard to see a happy outcome. Oh what a tangled web central bankers weave,
when first they practice to deceive. As was always predictable, exiting the
“quantitative easing” the US Federal Reserve, the Bank of England and others
launched in the wake of the credit crunch to support failing banking systems
and collapsing demand is proving an exceptionally tricky business. It threatens
almost as many problems for the world economy as the original money-printing
was trying to solve. There is no mess quite so bad, it might be said, that
central bank intervention doesn’t make worse. The latest example of this old
truism is the renewed turmoil in emerging economy currency, debt and equity
markets. This has become so intense over the past week that it invites
parallels with the emerging markets crisis of the late Nineties, an event that
arguably lit the fuse on the all-encompassing Western banking crisis that
occurred a decade later. Thus does the policy response to one bubble-induced
crisis merely re-infect and lead inexorably to the next one.
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