Monday July 18 2016 Housing and Economic stories

TOP STORIES:

Stocks Will Crash – and Crush (California’s) Pension Funds & Taxpayers: Report – (www.wolfstreet.com) The California Policy Center published an interesting study – “interesting” in all kinds of ways, including its outline of the doom-and-gloom future of California’s state and local pension plans if stocks turn down sharply, preceded by its prediction that stocks will turn down sharply because valuations are totally unsustainable. The huge, simultaneous, Fed-engineered rallies in stocks, bonds, and real estate – typically the three biggest holdings of state and local pension funds in the US – have inflated the balance sheets of these funds, thus elegantly, if only partially, papering over their fundamental problems. Most of these funds have a similar doom-and-gloom future when the asset bubbles get pulled out from under them. Plenty of pension funds don’t even need a market correction: they’re already in serious trouble despite the asset bubbles.

Spain’s Banks are Suddenly “Too Broke To Fine” - (www.wolfstreet.com) But now there’s “Too Broke to Fine.” Today over a dozen Spanish banks were given a life-line by the EU’s advocate general, Paolo Mengozzi, that could be worth billions of euros in savings for the banks. For millions of Spanish mortgage holders, it could mean billions of euros in lost compensation. A Legal, Abusive Practice: Just over seven years ago, when conditions were beginning to sour for Spain’s banking system, 40 out of 42 Spanish banks decided to insert “floor clauses” in their mortgage contracts. These effectively set a minimum interest rate — typically between 3% and 4.5% — for all their variable-rate mortgages (which are very common in Spain), even if the Euribor dropped far below that figure. This, in and of itself, was not illegal. The problem is that most banks failed to properly inform their customers that the mortgage contract included such a clause. Those that did, often told their customers that the clause was an extreme precautionary measure and would almost cerainly never be activated. After all, they argued, what are the chances of the euribor ever dropping below 3.5% for any length of time?

Carney Opens Lehman Playbook at Bank of England- (www.bloomberg.com) Mark Carney looks poised to repeat a strategy that served him well during the global financial crisis. As the Bank of England governor seeks to stave off any turmoil after Britain’s decision to quit the European Union, he has cited his experience at Canada’s central bank in 2008 as a guide. Acting early to prevent a deeper downturn became the hallmark of his approach in the prelude to the international slump, a perspective he can bring to the Monetary Policy Committee’s debate this week on whether to cut interest rates. “One thing Carney is very good at doing is jumping ahead of the curve,” said James Rossiter, an economist at TD Securities in London and a former official at the both the British and Canadian central banks. 

Crisis-hit euro governments swayed banks to buy their debt: ECB paper - (www.reuters.com) Stressed euro zone governments swayed domestic banks to buy their bonds when the debt crisis was at its height, using "moral suasion" to counter surging borrowing costs, a research paper published by the ECB showed on Wednesday. Regulators and supervisors including the European Central Bank are trying to break a 'doom loop' of debt interdependence between lenders and their governments, in part by making it less attractive for banks to hold sovereign bonds. Domestic banks have traditionally been buyers of a significant proportion of the debt issued by governments in the currency bloc. But the study of the purchasing patterns of 60 banks in Greece, Ireland, Italy, Portugal and Spain between 2010-12 showed that, in months when their governments needed to issue or roll over a large amount of paper, they were even more likely than usual to buy than their foreign peers.

How America Could Go Dark - (www.wsj.com)  An early morning passerby phoned in a report of two people with flashlights prowling inside the fence of an electrical substation in Bakersfield, Calif. Utility workers from Pacific Gas & Electric Co. later found cut transformer wires. The following night, someone slashed wires to alarms and critical equipment at the substation, which serves 16,700 customers. A guard surprised one intruder, who fled. Police never learned the identities or motive of the burglars. The Bakersfield attacks last year were among dozens of break-ins examined by The Wall Street Journal that show how, despite federal orders to secure the power grid, tens of thousands of substations are still vulnerable to saboteurs.

OTHER STORIES:

Gundlach Says Starvation for Yield Creating ‘Mass Psychosis’ - (www.bloomberg.com)
Hedge-Fund Investors Dump Laggards, 84% Redeem in First Half - (www.bloomberg.com)
Oil down 3 percent after smaller-than-expected U.S. drawdown - (www.reuters.com)
Offshore Yuan Interbank Rates Jump on Reserves, Intervention Bet - (www.bloomberg.com)

'All the stages of grief': private equity ponders dismal Brexit outlook - (www.reuters.com)
Monte Paschi Bail-In Concerns Stoke Purchases of Credit Swaps - (www.bloomberg.com)
Amid Talk of Money Helicopters, Abe Eyes Reboot of Economic Plan - (www.bloomberg.com)
The World’s Most Powerful Stock Pickers Don’t Manage a Penny - (www.bloomberg.com)