TOP STORIES:
Ghost of 1929 crash reappears - (www.marketwatch.com) In fact, the stock market is right now tracing
out a pattern eerily similar to the lead up to the infamous 1929 market crash.
The pattern, illustrated by Tom McClellan of the McClellan Market Report, and
brought to his attention by well-known chart diviner Tom Demark, is shown
below. Excuse me for throwing some cold water on the fever dream Wall Street
has descended into over the last few months, an apparent climax that has
bullish sentiment at record highs, margin debt at record highs, bears
capitulating left and right, and a market that is increasingly dependent on
brokerage credit, Federal Reserve stimulus, and a fantasy that corporate
profitability will never again come under pressure. On a pure price-analogue basis,
it’s time to start worrying. Fundamentally, it’s time to start worrying too.
With GDP growth petering out (Macroeconomic Advisors is projecting
fourth-quarter growth of just 1.2%), Americans abandoning the labor force at a
frightening pace, businesses still withholding capital spending, and
personal-consumption expenditures growing at levels associated with recent
recessions, we’ve past the point of diminishing marginal returns to the Fed’s
cheap-money morphine. All we’re doing now is pushing on the proverbial string.
Trillions in unused bank reserves are piling up. The housing market has stalled
after the “taper tantrum” earlier this year caused mortgage rates to shoot from
3.4% to 4.6% between May and August. The Treasury market is getting distorted as
the Fed effectively monetizes a growing share of the national debt.
Emerging-market economies are increasingly vulnerable to a currency crisis once
the taper finally starts.
First
China Default Seen as Record $427 Billion Debt Due - (www.bloomberg.com) Chinese company debt twice the size of
Ireland’s economy will come due in 2014, spurring concern the nation is on the
cusp of its first corporate bond default. A record 2.6 trillion yuan ($427
billion) of interest and principal on securities issued by non-financial
companies must be repaid next year, 19 percent more than this year and the most
since ChinaInternational Capital Corp. began compiling the
data in 2008. Ten-year AAA corporate bond yields surged 89 basis points since
Dec. 31 to 6.18 percent, touching a record 6.23 percent on Nov. 27. That
compares with a 70 basis-point rise to 2.68 percent for similar-rated notes
globally. People’s Bank of China Governor Zhou
Xiaochuan’s signal the central bank will act to prevent excessive
leverage has contributed to the surge in borrowing costs and forced many firms
to delay financing plans. Rising interest rates may cause a “partial debt
crisis to explode,” the official China Securities Journal said in a Nov. 26
editorial.
J.P. Morgan Is in Talks With U.S. Over Madoff Warnings - (online.wsj.com) The U.S. Attorney's Office in Manhattan is looking into why JPMorgan Chase & Co did not file a suspicious activity report about Bernard Madoff before he was arrested for running a multibillion-dollar Ponzi scheme, the Wall Street Journal reported on Friday, citing people close to the probe. The bank is negotiating a settlement with U.S. Attorney Preet Bharara's office over the matter that will likely include a fine and a deferred prosecution agreement, the Journal reported. A spokesman for the bank could not immediately be reached for comment on the Journal story. JPMorgan had raised concerns with UK regulators about Madoff more than a month before his arrest in December 2008, the Journal reported. In a document filed with Britain' Serious Organized Crime Agency, the bank raised several concerns about Bernard L Madoff Investment Securities, such as returns that appeared "too good to be true," the Journal said. Madoff had a banking relationship with JPMorgan for two decades, the Journal said. In addition to the Madoff case, prosecutors and the Federal Bureau of Investigation are examining whether there was a larger pattern of failed controls at the bank, the paper said, citing people close to the probe.
Auto
Lending Standards Plunge: New Car Loans Average 110% LTV; Used Car Loans 133%
LTV with 55% Subprime! – (www.safehaven.com)
The average loan on a new car
climbed to $26,719 in the third quarter, up by $756 from a year earlier, and
the most in at least five years, according to data collected by Experian Plc. Despite
borrowing so much more, average monthly payments on new car loans rose only $6
to $458. That is because banks and finance companies were willing to lend at
lower rates and grant borrowers more time to repay.
Lenders made 26.04 percent of
their loans on new cars to buyers with subprime credit scores, up from 24.84
percent a year earlier, said Experian, which collects car title and financing
information to compile its reports. For loans on used cars, the portion to
subprime borrowers rose to 54.95 percent from 54.43 percent. As the lenders
made bigger loans, they also extended credit further beyond the value of the
vehicles. The average loan-to-value on new cars rose to 110.6 percent, up by
1.17 percentage points. On used cars it rose to 133.2 percent, up by 2.18
percentage points.
Risk Of A Major Stock Market Decline Outweighs - (www.businessinsider.com) The
following comment brings together in one article the various themes we have
been writing about weekly, and emphasizes why we are maintaining our bearish
position at a time when so many bears have thrown in the towel. The market
continues to rise solely on the perception that the Fed’s easy money policy can
hold stock prices up indefinitely. We think that this line of thinking
will prove to be no more durable than the dot-com bubble that peaked in early
2000 or the housing bubble that topped out in late 2007. In both cases
the market gave back a large proportion of the gains made during the bull
market, and we believe that will prove to be the case this time as well.
When the vast majority of investors faithfully believe in a concept, no matter
how faulty it may be, momentum takes over and the market goes up because it’s
going up, ignoring all of the obvious warnings such as high valuations, over
bullishness, decreasing earnings momentum and an underperforming economy.
When reality suddenly sets in, as it inevitably does, most investors are left
holding the bag, hoping that the market doesn’t go any lower.
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