Monday, May 30, 2016

Tuesday May 31 2016 Housing and Economic stories


Lending in China Is So Risky That Cows Are Now Collateralized - (www.bloomberg.com) In the creative world of Chinese lending, there’s a new trade in town: the cow leaseback. China Huishan Dairy Holdings Co., which operates the largest number of dairy farms in the country, is selling about a quarter of its herd -– some 50,000 animals -- to Guangdong Yuexin Finance Lease Co. for 1 billion yuan ($152 million) and then renting them back. With an estimated $1.3 trillion of risky loans in the country, Chinese banks are becoming more cautious about lending, forcing some companies to look for new ways to borrow. Finance leasing has been growing in popularity, especially for purchases of equipment. But cows? "It’s not very common to use cows as collateral," said Robin Yuen, an analyst at RHB OSK Securities Hong Kong Ltd. "The value of a cow would fluctuate depending on milk prices and other factors, so it’s a risky asset for lenders. It would be hard to do forced selling -- there’s no liquid market for a large number of cows."

Global conditions echo post-Lehman crisis, Abe warns G7 – (www.ft.com)  The global economic outlook is as grim as it was after the Lehman Brothers crisis in 2008, Shinzo Abe claimed on Thursday, as the Group of 7 revealed its stark divisions on economic policy. Seeking to rally support for a global fiscal stimulus at the G7 summit, the Japanese prime minister showed his fellow world leaders a series of alarming graphs comparing today’s economic conditions with those of 2008. But, according to people close to the discussions, Mr Abe struggled to win over opponents such as Germany’s chancellor Angela Merkel or UK Prime Minister David Cameron. Given the implausibility of his comparison with 2008 — the world economy is growing steadily, rather than falling apart — the fact that he used it suggests Mr Abe plans to delay a scheduled rise in Japan’s consumption tax from 8 to 10 per cent.

Euro zone hails 'breakthrough' with Greece, IMF debt deal - (www.reuters.com) SOUND FAMILIAR?? We have heard this 4-5 times since 2011. Euro zone governments on Wednesday offered Greece debt relief in 2018, but left key details for later in a bid to bridge Germany's view that no immediate action was needed and the International Monetary Fund's call for decisions now. The late-night compromise spared the battered European Union the risk of another Greek crisis this year, less than 12 months after Athens was on the brink of ejection from the currency area by rejecting austerity measures and defaulting on an IMF loan. After talks that lasted into early Wednesday, Eurogroup ministers agreed to release 10.3 billion euros (7.8 billion pounds) in new funds for Greece in recognition of painful fiscal reforms pushed through by Prime Minister Alexis Tsipras's leftist-led coalition, subject to some final technical tweaks.

Wells Fargo launches 3% down payment mortgage - (www.cnbc.com) First-time buyers and low- to moderate-income buyers have largely been sidelined by today's housing recovery. The common cry is too-tight credit. Lenders have kept the credit box restrictive because they are gun-shy from the billions of dollars in buy backs and judicial settlements stemming from the mortgage crisis that they still face today. Now, the nation's largest lender, Wells Fargo, says it is opening that box with a new low down payment loan — a loan it claims is low-risk to the bank. "We are fully underwriting the borrowers, we are partnering with Fannie Mae to originate and sell these loans, we are ensuring the borrowers have an ability to repay and that they're qualified for home ownership, but we're simplifying things for the homebuyer," said Brad Blackwell, executive vice president and portfolio business manager at Wells Fargo.

Saudi Arabia Probes Bank Currency Trades as Peg to Dollar Strains  - (www.bloomberg.com) Banks in Saudi Arabia are coming under fresh pressure over products that allow speculators to bet against the kingdom’s currency peg, according to people with knowledge of the matter. The Saudi Arabia Monetary Agency has asked lenders to explain why they are offering dollar-riyal forward structured products to customers less than four months after the regulator banned options contracts that let speculators place wagers on a currency devaluation, the people said. The authority, known as SAMA, didn’t reply to requests for comment. Hedge funds such as PointState Capital and Pershing Square Capital Management have made bets that the country’s peg to the dollar will be broken as oil revenue plunges, even as the country maintains it has no plans to devalue and analysts including Capital Economics say such a move would be a last resort. Riyal forwards surged to 660 points, the highest since Feb. 15.





Sunday, May 29, 2016

Monday May 30 2016 Housing and Economic stories


Auto, Mortgage Delinquencies Climb in Energy Regions - (www.wsj.com) The year-and-a-half-long spell of low oil prices is making it hard for households to pay the bills in energy-producing regions, an ominous localized trend that comes as the rest of the country returns to pre-recession levels of health. Delinquencies on auto loans have spiked in the U.S. counties that had the highest employment in the oil-and-gas industry, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit. Mortgage delinquencies have also climbed, though not as dramatically. Tuesday’s report underscores that although the decline in oil prices has saved many Americans money at the pump, it has caused significant economic fallout for those who were working in the energy industry during the boom.

Illinois’s Lost Year About to Become Two as Budget Cliff Nears - (www.bloomberg.com) Illinois lawmakers have been busy in the last week of the regular legislative session. They moved to establish a youth-only turkey hunting season, set standards on where podiatrists can perform amputations and allowed for the adoption of retired police dogs. Yet, the Land of Lincoln remains the only state in the nation without a budget, mired in the longest such standoff in its history. After leaving the government since June without a plan for what to spend and how, the Democrat-led legislature and Republican Governor Bruce Rauner have until May 31 to approve one by a majority vote. If not, for the rest of the year it will take three-fifths of the General Assembly to do so, making a compromise considerably harder to reach.

“NIRP is Killing Us,” Wheezes Spain’s Second Biggest Bank -(www.wolfstreet.com) In Europe, banks are beginning to feel the side effects from the ECB’s negative interest rate policy (NIRP), which (among other things) is meant to weaken the euro, fuel inflation, force banks into riskier lending, and prevent Eurozone economies from buckling under the sheer weight of their sovereign debt. But it doesn’t work. Inflation remains much lower than the ECB’s target headline rate of 2%, European sovereign debt continues to grow at an alarming rate, and bank lending remains anemic in most countries. And it could actually end up killing the patient, Europe’s biggest banks. That’s what Francisco González, Executive Chairman of Spain’s number-two financial institution, BBVA, just warned in a speech at the Spring Membership Meeting of the world’s most powerful financial lobby organization, the Institute of International Finance (IIF).

Big Banks Ladle On the Risk - (www.wsj.com) Hungry for revenue, Wall Street banks are taking on more risk to help companies sell large chunks of stock. In block-trade deals, a bank typically buys stock from a company or its private-equity backers at a discount, and then aims to flip the stock to money managers after the market closes that same day. If they can fetch a premium, it is a win for them. But if they can’t unload the shares and prices fall, they bear the loss, minus fees. About half of all share sales by already-public companies listed in the U.S. have been block trades this year, according to data provider Dealogic. In the past five years, these deals typically accounted for about a third of all share sales, and in the past decade that figure averages about a fifth, according to Dealogic. Energy companies, in particular, have sought block trades this year to quickly raise funds and pay down debt.

Former Patriot Coal CEO Murdered  - (www.zerohedge.com) While the US coal industry has had its share of bad news in the past year, following extensive plant shutdowns and numerous bankruptcies including that of the largest US coal producer Peabody Energy, there was some even more tragic news last night when as AP reported, West Virginia State Police say longtime coal company executive and recent Patriot Coal CEO Bennett K. Hatfield has been murdered. Last night, the local press reported that Hatfield, 59, was shot to death Monday at Mountain View Memory Gardens, a cemetery in southern West Virginia's Mingo County. Hatfield resigned in 2015 as president and CEO of Patriot Coal, a month before the company, headquartered in Creve Coeur until early 2015,  filed for Chapter 11 bankruptcy protection for the second time. He was International Coal Group's CEO when a 2006 explosion at the Sago Mine in northern West Virginia killed 12 miners.






Thursday, May 26, 2016

Friday May 27 2016 Housing and Economic stories


Bernie Sanders Slams the US Bailout of Puerto Rico - (www.fortune.com) Ryan, R-Wis., has said the bill would avoid an eventual taxpayer bailout and Treasury Secretary Jack Lew has called it a “tough bipartisan compromise.” House Democratic leader Nancy Pelosi also supports the agreement. Puerto Rico, which has struggled to overcome a lengthy recession, has missed several payments to creditors and faces a $2 billion installment, the largest yet, on July 1. The island has been under a state of emergency and many businesses have closed, schools have lacked sufficient resources like electricity and some hospitals are limiting treatment.

‘Massive Bailout’ Needed in Debt-Saddled China, Analyst Chu Says - (www.bloomberg.com)  Charlene Chu, a banking analyst who made her name warning of the risks from China’s credit binge, said a bailout in the trillions of dollars is needed to tackle the bad-debt burden dragging down the nation’s economy. Speaking eight days after a Communist Party newspaper highlighted dangers from the build-up of debt, Chu, a partner at Autonomous Research, said she was yet to be convinced the government is serious about deleveraging and eliminating industry overcapacity. She also argued that lenders’ off-balance-sheet portfolios of wealth-management products are the biggest immediate threat to the nation’s financial system, with similarities to Western bank exposures in 2008 that helped to trigger a global meltdown.

Brazil’s Budget Minister Takes Leave of Absence During Probe - (www.bloomberg.com) Brazil’s newly-appointed Budget Minister Romero Juca said he will take a leave of absence after allegations surfaced that he wanted to obstruct the sweeping corruption probe known as Carwash. Juca, the leader of Acting President Michel Temer’s political party, will return to his former job as senator and make room for Dyogo Oliveira to take the helm of the Budget Ministry on Tuesday. The surprise announcement on Monday afternoon capped a day of speculation about Juca’s future in the cabinet after he initially refused to step down. The dramatic departure highlights the challenges facing Temer, who with less than two weeks on the job was forced into damage-control mode as the corruption scandal encroached on his government. The allegations emboldened Temer’s critics, who heckled the acting president and allies when they visited Congress, accusing them of orchestrating a coup against Dilma Rousseff.

Iron Ore’s Pivot From Boom to Gloom Puts $50 Level Back in View - (www.bloomberg.com) Iron ore has pivoted from boom to gloom in a few short weeks. Benchmark prices are near $50 a metric ton as spectacular losses this month driven by rising supplies and a more cautious approach from mills in China have eviscerated April’s speculation-driven rally. “Seaborne supply is rising while the Chinese steel mills will reduce purchases,” Ren Jiaojiao, an analyst at Maike Futures Co., said by phone from Xi’an on Tuesday before the price data. Inventories at China’s ports -- which topped 100 million tons last week -- may increase further, according to Ren. The raw material has been on a tumultuous ride this year after tentative signs of a demand revival in China, including widening profit margins for steelmakers in the top producer, ignited a firestorm of speculation. The frenzy led to a clampdown from regulators and exchanges, weakening prices once more, including iron ore and steel. Brazil’s Vale SA, the largest iron ore producer, warned last week there was a need to prepare for tougher times.

ECB Warns Against Rise of Populism – (online.wsj.com) The European Central Bank warned Tuesday that the rise of populist political forces in Europe could slow the implementation of needed economic reforms, leading to market pressure on vulnerable countries. The comments in the ECB’s Financial Stability Review, which it issues twice a year, come as Europe faces a wave of populist revolts that threaten to undermine much of the political order established on the continent since the end of the World War II. In the report, the ECB said that rising political risks “as well as the increasing support for populist political parties which are seen to be less reform-oriented, may potentially lead to the delay of much needed fiscal and structural reforms and cause renewed pressures on more vulnerable sovereigns.”


Chinese State Fund Taps WMPs in Financing Shift, Merchants Says - (www.bloomberg.com)
Investment banks suffer worst first quarter since financial crisis: survey
- (www.reuters.com)
Emerging Markets-Brazil currency drops on local political woes
- (www.reuters.com)

Wednesday, May 25, 2016

Thursday May 26 2016 Housing and Economic stories


Lost Seals And Other Excuses Used By Defaulting Chinese Firms - (www.bloomberg.com) Missing corporate stamps, shuffled assets and disappearing executives have become the hallmarks of debt distress in China. Investors are starting to lose patience. China Shanshui Cement Group Ltd. said this month it couldn’t distribute interest without its company seal, only for the underwriter to report payment later saying the stamp isn’t needed. Shenyang City Utility Group Co. said it couldn’t publish a repayment statement as the holder of its chop was traveling. China City Construction Holding Group Co.’s bonds slumped to 79 yuan out of 100 yuan face value on May 6 after its controlling shareholder changed. Fosun International Ltd. was among issuers to report lost contact with executives. A lack of transparency and protections in bond documentation are adding to the angst among investors in China, where a record 10 companies have failed to make payments this year amid the weakest economic growth in a quarter century. This has prompted authorities to tighten regulation and scrutinize underwriters’ due diligence work.  

Liquid alternative mutual funds leave investors disappointed - (www.ft.com) The asset management industry’s hopes of bringing hedge fund strategies to the American mass market have stalled in the face of miserable returns and scepticism from investors. Assets in so-called liquid alternative mutual funds in the US, which doubled between 2011 and 2014, have stagnated for two years, and new data show that the average fund lost money, regardless of whether the sector is measured over one, three, five or 10 years. The scale of the disappointment has become apparent because Morningstar, the research group tracking mutual funds, began categorising liquid alts funds separately from some bond funds this month.

The High Cost of Ultralow Interest Rates - (online.wsj.com) These policies are toxic for financial stability. They force retired people to curtail spending and discourage the young from saving for retirement. They force people into making risky investments and don’t stimulate economic growth. Worse, they gradually undermine personal responsibility and ensure that future generations are more dependent on government programs. The Fed has kept interest rates near zero for more than seven years. Experts generally recommend that U.S. households accumulate savings sufficient for 25 years of spending at 80% of earnings the year before retirement. Some savings will be in the form of Social Security benefits. But unconventional monetary policies are making it nearly impossible for most households to achieve the rest.

Abu Dhabi Stocks in Worst Run Since October as Gulf Markets Drop - (www.bloomberg.com) Abu Dhabi stocks posted their longest losing streak since October amid a slump in trading across Gulf Arab equity markets as investors held out for more than a $1 billion worth of rights issues. The ADX General Index fell 1.1 percent, declining for the sixth straight day. Emirates Telecommunications Group Co., or Etisalat, the largest phone company in the Middle East, led the retreat with a 2.6 percent drop. Traders exchanged shares in about a third of companies on the gauge. The Bloomberg GCC 200 Index slipped for a third day, with volumes on the main gauges in the six-nation Gulf Cooperation Council languishing at less than half the 20-day average.

Hedge Funds Are Betting Record Amounts on Meltdown of Australian Banks and Housing Bubble - (www.wolfstreet.com)  It has been called the “widow maker trade,” based on how short sellers have been dealt with over the past few years. The fundamentals have been inviting: Australia has been in a fully blooming housing bubble. Households are the most indebted in the world, based on debt to disposable income. To maintain the housing bubble, the central bank slashed interest rates to record lows (1.75%). The government wants to keep the bubble going for as long as possible. So regulators close their eyes, according to media reports, to questionable or even illegal lending practices. Home prices, after soaring for years, are clearly unsustainable. But just because it’s a bubble doesn’t mean it has to implode on schedule. It will implode, as all bubbles do, but on its own time. If short sellers get the timing wrong, they’ll get run over by market euphoria. Hence, “widow maker trade” for betting against the housing bubble by shorting the banks.




Tuesday, May 24, 2016

Wednesday May 25 2016 Housing and Economic stories


Valeant Gets Notice of Default From Bondholders on Delayed 10-Q - (www.bloomberg.com) Valeant Pharmaceuticals International Inc. received a notice of default from some of its bondholders because of a delay in filing its first-quarter financial results, the company said Thursday. The notice from holders of the company’s $1 billion of 5.5 percent notes that mature in 2023 started the clock on a 60-day grace period, giving Valeant until July 18 before the bondholders can demand immediate repayment if the company hasn’t filed the statement, according to a regulatory filing Friday. The default notice also triggers a provision in its credit agreement that allows its most senior lenders to demand repayment if the financials aren’t filed by July 3, bringing forward the July 31 extension previously worked out with lenders. There is no grace period under the amended agreement, meaning loan investors will be able to demand accelerated repayment on $12.7 billion of loans if the new deadline isn’t met.

Shipbuilding Industry Collapses, Hits China and South Korea - (www.wolfstreet.com) In the first quarter, South Korean shipbuilders saw their orders collapse by 94.1% to 170,000 compensated gross tons (CGT), compared to the prior year. In terms of dollars, orders collapsed 94% from $6.5 billion in Q1 2015 in to just $390 million. Global orders for new vessels in Q1 have collapsed too, but slightly less, according to the Export-Import Bank of Korea, cited by IHS Fairplay: down 71% year-over-year to 2.32 CGT. “Their business slump may continue throughout this year, and demand for oil tankers may improve slightly during the second half of the year,” Korea Eximbank said in the report. Current order backlog will provide work for about two years. For all of 2016, orders are expected to plunge by 85%, from $23.7 billion in 2015 to just $3.5 billion. Chinese shipyards are in even deeper trouble.

Chicago Pension Liabilities Jump 168%, Understated By $11.5 Billion - (www.zerohedge.com) New accounting rules show Chicago has understated its pension liabilities by $11.5 billion. At the end of 2015 the stated liability was $7.1 billion. Today it’s $18.6 billion. That’s a jump in net liabilities of 168%. Mayor Rahm Emanuel has hopes pinned on union concessions and help from the state legislature. Neither is likely. Let’s stop pretending there is another solution, because there isn’t.

Balance Due: Credit-Card Debt Nears $1 Trillion as Banks Push Plastic - (www.online.wsj.com) U.S. credit-card balances are on track to hit $1 trillion this year, as banks aggressively push their plastic and consumers grow more comfortable carrying debt. That sum would come close to the all-time peak of $1.02 trillion set in July 2008, just before the financial crisis intensified, and could signal an easing of frugal habits ingrained by the recession. The boom has been driven by steady economic conditions and an improving job market that have made creditworthy consumers less reluctant to take on debt. In addition, lenders have signed up millions of subprime consumers who previously weren’t able to get credit. Consumers are taking on other forms of debt, too. Auto-loan balances surpassed $1 trillion in the first quarter, a record for the industry, according to a report Thursday from credit bureau Experian.

The Iron Mountain on China’s Doorstep Tops 100 Million Tons – (www.bloomberg.comThere’s a mountain of iron ore sat right on China’s doorstep. Stockpiles at ports have climbed above 100 million metric tons, offering fresh evidence of increased supplies in the world’s top user that may hurt prices. The inventories swelled 1.6 percent to 100.45 million tons this week, the highest level since March 2015, according to data from Shanghai Steelhome Information Technology Co. The holdings, which feed the world’s largest steel industry, have expanded 7.9 percent this year, and are now large enough to cover more than five weeks’ of imports.




Monday, May 23, 2016

Tuesday May 24 2016 Housing and Economic stories


Republicans, Democrats Agree On A Bill To Bailout Puerto Rico - (www.zerohedge.com) It turns out that Puerto Rico's plan to default on its debt and beg congress for help is working out as planned. After a slight delay, House Republicans have reached an agreement with the Obama administration to provide a path to restructure Puerto Rico's $70 billion debt load. The bill would offer the island a legal out similar to bankruptcy and wouldn't commit any federal money according to the WSJ. All of the political talking heads are supportive of the bill, with House Speaker Paul Ryan saying that "the stability of the territory is in danger. Today, Republicans and Democrats came together to fulfill Congress's constitutional and fiscal responsibility to address the crisis", and Treasury Secretary Jacob Lew called the proposal "a fair, but tough bipartisan compromise."

Silicon Valley Housing Market Hit as Chinese Money “Dried up” - (www.wolfstreet.com) Money from Chinese investors “has dried up,” a residential real-estate broker in San Francisco told me a few days ago, as he was fretting about the local housing market. It’s a result of the crackdown by the Chinese government on capital flight, he said. Chinese investors have been buying about 5% to 7% of residential properties in San Francisco, possibly more in parts of Silicon Valley. And other brokers are now publicly chiming in about money from China drying up. “We’ve recently noticed a slowdown,” Jack Woodson at Alain Pinel Realtors in Menlo Park in Silicon Valley, told Bloomberg. “Buyers are taking more time to decide about making offers.” He fingered Chinese investors who’ve suddenly curtailed their purchases after they had “really been driving the market.” Data coming out of China appear to support the thesis of a sudden money vacuum in some of the toniest West Cost Housing markets.

Petrobras Pays Record Yield in $6.75 Billion Bond Sale - (www.bloomberg.com) The company’s stocks and bonds have rallied this year on speculation that a new government in Brazil will be better able to restore growth in Latin America’s largest economy. They had tumbled since 2014 as an investigation began into kickback schemes in which Petrobras executives demanded bribes for handing out billions of dollars of work contracts. The probe has led to more than 150 arrests in Brazil and thrown the country’s politics into disarray, fueling efforts to impeach President Dilma Rousseff, who was Petrobras’s chairman when the alleged graft took place…. Petrobras has $126 billion of debt outstanding, making it the most heavily indebted company in emerging markets. Yields on its $5.25 billion of existing notes due in 2021 fell 0.4 percentage point to 8.3 percent Tuesday as of 12:41 p.m. in New York. Bonds due in 2025 from Argentina’s state oil company YPF SA yield 8.12 percent.

Lauded Wunderkind Medical Testing Startup Theranos Turns Out To Be One Big Fraud  - (www.zerohedge.com)  Just when you thought that the biggest ever "multi-billion" private company that also happens to be an utter fraud, would quietly disappear before it risked attracting even more unwarranted attention from regulators, enforcers, and criminal investigators which could potentially lead to prison time for "billionaire" Elizabeth Holmes, here she comes again reminding everyone of her fallen from grace presence, in this case with what should be the terminal news for this company, namely that as the WSJ reports (and as the company confirms) Theranos has told federal health regulators that the company voided and revised two years of results from its Edison blood-testing devices and has issued tens of thousands of corrected reports to doctors and patients.

US heavy equipment maker faces 'steeply depressed' demand - (www.cnbc.com) Even with crop prices trending higher, the worst of the agricultural downturn may be far from over for Deere. Continued weakness in the domestic market along with softness inSouth America are affecting the company's farm machinery business. The slump is being felt hard, particularly on high-horsepower tractors and combines. "Global demand for farm equipment remains steeply depressed," Longbow Research analyst Eli Lustgarten said in a note Friday. "Our 34 contacts across four different countries reported sequentially lower demand and steep year-over-year double-digit declines across all markets. North American and international markets seem to be worsening as crop prices stay low and farmers struggle to break even."