Friday July 1 2016 Housing and Economic stories

TOP STORIES:

Europe-Heavy Hedge Funds Brace for Pain - (www.wsj.com) While some hedge funds have profited from the pain crippling global markets since Britons voted to exit the European Union, more funds may be facing potentially heavy losses. The reason: Many hedge funds were buying European shares in the days ahead of the vote, according to a client update from Goldman Sachs. The note from the firm’s prime brokerage division, shared with investors on Friday, said Goldman saw “notable net buying” ahead of the referendum. “Europe has been the most net bought region…for six straight weeks,” Goldman said, referring to hedge-fund clients who both bought shares and ended bearish trades. The note is based on activity of Goldman’s clients.

Mexican peso: eye of the EM Brexit storm? - (www.ft.com) For a sense of where emerging markets could be heading in the wake of the financial shockwaves set off last week by the UK’s vote to leave the EU, one might do well to keep an eye on the Mexican peso. As the world’s eighth most-traded currency, the Mexican peso is often used by investors as a proxy for less liquid EM currencies. This makes it vulnerable to large sell-offs during times of stress as a hedge against long positions in EM. It’s easy “tradeability” – some $135bn worth are traded around the clock each day – made the currency one of the main whipping boys in Friday’s global sell-off. The peso briefly sank to a new record low of 19.5187 against the dollar on Friday on the back of a 7.1 per cent decline. While the currency ultimately cut its losses to end the session 3.8 per cent lower at 18.9278, that still marked its biggest one day drop in nearly five years.

US junk spreads rise most since 2011 - (www.ft.com) The risk premium investors demand to hold the debt of the lowliest-rated US companies jumped on Friday by the most since Standard & Poor’s cut America’s credit rating in 2011 as investors sold junk bonds and piled into Treasuries in a hectic day of trading. The spread on high-yield US bonds jumped by 47 basis points to 6.39 per cent, according to the BofA Merrill Lynch US high-yield index. The climb was the biggest since August 8, 2011, when the S&P 500 index plummeted by 6.7 per cent as investors reacted to ratings company S&P stripping the US of its top-notch “AAA” rating. Prior to that, the spread, or the difference in yield between corporate bonds and US Treasury bonds of the same duration, had not risen by such a wide margin since the financial crisis in 2008, BofA data show.

Brexit vote sends new shocks through financial markets, political chaos deepens - (www.reuters.com) Britain's vote to leave the European Union continued to reverberate through financial markets, with the pound falling to its lowest level in 31 years, despite government attempts to relieve some of the confusion about the political and economic outlook. UK finance minister George Osborne said early Monday that the British economy was strong enough to cope with the market volatility caused by last week's "Brexit" referendum which has resulted in the biggest blow since World War Two to the European goal of forging greater unity. "Our economy is about as strong as it could be to confront the challenge our country now faces," Osborne told reporters.

European Dead-Cat-Bounce Dies - Big Banks End Lower - (www.zerohedge.com) Well that didn't last long. With hopes of a face-ripping ride higher this morning as Draghi jawboning lifted bank stocks and Cable, the bounce was nothing but an opportunity for sellers to escape at better prices. While Deutsche eked out a tiny gain, RBS, Unicredit, Credit Suisse, and UBS all tumbled to end the day red... And Cable has rolled over notably... back below 1.33!

OTHER STORIES:

U.S. Stocks Fall With Global Shares, Pound on Brexit; Gold Gains - (www.bloomberg.com)
S&P cuts UK's credit rating by two notches after Brexit - (www.reuters.com)
Bank Shares Drop as Analysts Weigh ‘Brexit’ Impact - (www.wsj.com)

Government Bond Yields Sink as Investors Flock to Safety - (www.wsj.com)
Bearish Bets on Mexico Peso Surge as Brexit Concern Spurs Hedges - (www.bloomberg.com)
Despite Leaders’ Assurances, ‘Brexit’ Leaves Markets Nervous - (www.nytimes.com)

Thursday June 30 2016 Housing and Economic stories

TOP STORIES:

How Housing’s New Players Spiraled Into Banks’ Old Mistakes - (www.nytimes.com) When the housing crisis sent the American economy to the brink of disaster in 2008, millions of people lost their homes. The banking system had failed homeowners and their families. New investors soon swept in — mainly private equity firms — promising to do better. But some of these new investors are repeating the mistakes that banks committed throughout the housing crisis, an investigation by The New York Times has found. They are quickly foreclosing on homeowners. They are losing families’ mortgage paperwork, much as the banks did. And many of these practices were enabled by the federal government, which sold tens of thousands of discounted mortgages to private equity investors, while making few demands on how they treated struggling homeowners. The rising importance of private equity in the housing market is one of the most consequential transformations of the post-crisis American financial landscape. A home, after all, is the single largest investment most families will ever make.

Banks prepare for another day of currency mayhem - (www.ft.com)  Banks have called in extra staff in case more currency market violence ensues when trading begins in Asia on Monday. Shockwaves propagated through markets for sterling, yen, euros and dollars on Friday after Britons voted to leave the EU, and investors spent the weekend simply coming to terms with the questions they face amid growing political instability in the UK.  “This is not something that markets can price in one day,” said Paul Lambert, head of currency at Insight Investment in London. The pound fell by an unprecedented 12 per cent after the referendum result became clear, hitting its lowest point in three decades before ending the day down 7 per cent at $1.37. Mr Lambert sees $1.20 in prospect, a scenario echoed by Matt Cobon, head of interest rates and currency at Columbia Threadneedle. “Friday was about the fact that people did not think this would happen. Now they are thinking about what it means for the medium to long term,” he said.

Rajoy Wins as Spain Cleaves to Establishment Amid Brexit Mayhem - (www.bloomberg.com) Caretaker Prime Minister Mariano Rajoy consolidated his position in Spain’s general election as voters backed away from insurgent political forces in favor of the relative security of the People’s Party. The outcome of Sunday’s voting confounded exit polls and suggested the electorate had shied away from the anti-establishment party Podemos at the last minute. With the U.K. engulfed by political and economic uncertainty following Thursday’s unprecedented vote to quit the European Union, Spaniards bought into Rajoy’s call not to jeopardize the country’s economic recovery. Spanish bonds surged on Monday. “Without doubt, Brexit has been the black swan in these elections,” Ivan Redondo, a political consultant who advised Rajoy on his 2008 campaign, said by e-mail. “Since Thursday, we’ve seen pro-establishment voters mobilized.”

The $100 Trillion Bond Market’s Got Bigger Concerns Than Brexit – (www.bloomberg.com) In some ways, it really didn’t matter to Steven Major whether the U.K. voted to stay or to leave. Sure, as a Brit, Major followed the U.K.’s surprising decision to break with the European Union. And, of course, the 51-year-old Londoner voted (though he politely declined to say whether he was in the “Remain” or “Leave” camp). But when it comes to his long view on interest rates, bond yields and the economy, Major, who’s proven to be something of a savant as HSBC Holdings Plc’s head of fixed-income research, says Brexit is ultimately little more than a sideshow. Long after the din from the U.K. vote subsides and regardless of what happens in the U.S. presidential election, Major says issues that, at times, have been decades in the making will conspire to depress global growth and keep rates at rock-bottom levels for years to come.

European Banks Crash To Worst 2-Day Loss Ever As Default Risk Soars - (www.zerohedge.com) So much for George "Panic-Monger" Osborne's calming statement this morning, European banks have collapsed this morning to close down between 20% and 30% since the Brexity vote. The last 2 days plunge in EU banks (down 23%) is the largest in history (double the size of Lehman) and pushesEuropean bank equity market cap to its lowest (in USD terms) ever. Worst.Drop.Ever... UK and European banks have collapsed...  And bank risk is soaring...

OTHER STORIES:

Risk Rout Deepens as Pound Slides Further on Post-Brexit Turmoil - (www.bloomberg.com)
Emerging Assets Extend Slide on Brexit Concern as Oil Declines - (www.bloomberg.com)
U.S. Stock Futures Retreat After S&P 500 Erased 2016 Gain Friday - (www.bloomberg.com)
Pound, Krone Lead European Currencies Lower as Yen Pares Climb - (www.bloomberg.com)

Dollar Funding Demand Widens Basis Swap Spreads Versus Yen, Euro - (www.bloomberg.com)
China Weakens Yuan Fixing by Most Since August as Dollar Surges - (www.bloomberg.com)
Oil Extends Losses to Near $47 After Tumbling on Brexit Vote - (www.bloomberg.com)
Central Banks Worry About Engaging World Markets After ‘Brexit’ - (www.nytimes.com)

Wednesday June 29 2016 Housing and Economic stories

TOP STORIES:

Countrywide Mortgage Devastation Lingers as Ex-Chief Moves On - (www.nytimes.com) Angelo Mozilo can finally get on with his life. This month the Justice Department told Mr. Mozilo, the former chief executive of Countrywide Financial, once the nation’s largest subprime mortgage lender, that he was no longer under investigation in connection with civil mortgage fraud. The government’s criminal inquiry into Mr. Mozilo’s role in the financial crisis was dropped previously, so he is now in the clear. At least that’s the view from Washington. On Main Street, where the pain of Countrywide’s reckless lending and abusive foreclosure practices still throbs, it’s safe to say that Mr. Mozilo is still identified as a major figure in the mortgage crisis.

Chinese insurers run "Titanic" risks for titanic returns - (www.reuters.com) Years of breakneck growth for China's top insurers has been partly fueled by a splurge on risky investment products that could punch multi-billion-dollar holes in their balance sheets if the slowing economy triggers heavy debt defaults. Industry premiums have increased by an average 13.4 percent a year since 2010, according to the China Insurance Regulatory Commission (CIRC), but in an environment of low interest rates and unreliable stock markets, insurers have increasingly looked to alternative investments to make the returns they need to service their growing business. A Reuters survey of the accounts of the top five listed insurers including Ping An Insurance Group Co and New China Life Insurance showed their holding of assets other than shares, bonds and cash had more than quadrupled in five years to 984 billion yuan ($150 billion).

“I Think this Willful Ignorance Will Bring on a Banking Crisis” – (www.wolfstreet.com)  Central Bankers are willfully ignoring signs that negative interest rates are not working, explains Christine Hughes in the video. As yields fall to the floor, people have to save more to make up for the lack of interest income they’d been counting on. Bank stocks loathe negative rates, and banks are actively looking for other options. In the end, she says, negative rates will bring on a banking crisis. Excellent brief video on the NIRP absurdity: Friday was also the Worst Day for Italian and Spanish stocks, which plunged over 12%. And banks were massacred. Read…  Brexit Blowback Hits Italian and Spanish Banks

Bank-Sovereign Doom Loop Requires Fiscal Response, BIS Says - (www.bloomberg.com) Policy makers have to take tougher action to sever the link between banks and sovereigns that wreaked so much havoc during the last financial crisis, according to theBank for International Settlements. The current regulatory treatment of government debt on banks’ balance sheets is “no longer tenable,” the Basel, Switzerland-based lender said in its annual report released on Sunday. Assigning a capital charge to sovereign bonds is being studied by the Basel Committee on Banking Supervision. Stefan Ingves, chairman of the Basel Committee, has said policy makers will examine options to tighten capital rules around banks’ holdings of sovereign debt in a “careful” and “gradual manner.”

Brexit Adds $380 Billion to Global Negative-Yielding Bond Pile - (www.bloomberg.com)  A flight to safer assets by global investors after Britain’s decision to the quit the European Union has added $380 billion to the pile of negative-yielding government bonds. There are now $8.73 trillion of securities with yields below zero globally, according to the Bloomberg World Sovereign Bond Indexes, up from $8.35 trillion before the vote. In the euro-area, German benchmark bonds with maturities out to 10 years are negative, while Japanese 10-year yields reached a record-low of minus 0.215 percent on Friday. As a victory for Brexit campaigners became clear, it triggered market chaos with the pound suffering its worst decline on record, U.K. bank stocks plummeting and gold prices rallying. Already signs of economic and political turmoil have emerged as U.K. Prime Minister David Cameron plans to step down in October, delaying exit negotiations, while European leaders are calling for talks to begin immediately.

OTHER STORIES:

Rajoy Tackles Podemos in Spanish Vote as Brexit Roils Europe - (www.bloomberg.com)
Angela Merkel urges calm over calls for immediate Brexit - (www.ft.com)
U.K. Faces Long Tussle Over Departure From European Union - (www.wsj.com)

Investor George Soros calls for reconstruction of EU after 'Brexit' vote - (www.reuters.com)

Central banks ready to cooperate after Brexit result - (www.reuters.com)
Spanish voters head back to polls in bid to break deadlock - (www.bbc.com)
Ecuador says Brexit 'spoils' scheduled bond issue - (www.reuters.com)
Russia secures energy deals, talks security with China as Putin visits - (www.reuters.com)

Tuesday June 28 2016 Housing and Economic stories

TOP STORIES:

ECB Blows €400bn on “Brexit Black Friday” for Bank Bailouts - (www.wolfstreet.com) Dealing with a Financial Crisis under cover of Brexit Chaos. Remember TARP, the Troubled Asset Relief Program that the US Congress approved to bail out banks and other companies during the Financial Crisis? $700 billion were authorized, later reduced to $475 billion. The Treasury eventually dispersed $432 billion. I bring this up because the ECB bailed out the European banks with more than TARP, in just one day: on Brexit Black Friday. The ECB saw what was happening to the shares of the largest banks on that propitious day. It saw a blooming financial crisis: The fiasco that happened to the Spanish and Italian banks was so enormous that it sent stock markets into their largest one-day plunges on record, of over 12% [ Brexit Blowback Hits Italian and Spanish Banks]. The Stoxx 600 banking index, which covers the largest European banks, plunged 14.5% on Friday. It’s down 29.3% year-to-date, 42% from its 52-week high, and 76% from its all-time high in May 2007 before the Financial Crisis and the euro debt crisis knocked the hot air out of the banks.

Global markets take $2tn Brexit hit - (www.ft.com) Global stock markets lost more than $2tn of value on Friday in the largest single day drop since at least 2007, as investors dumped risky assets and rushed into havens after the UK voted to leave the EU. The fall precedes what is expected to be a volatile week of trading when global markets reopen on Monday. Investors and strategists say that much of Friday’s decline was a “knee-jerk” move, unravelling last-minute confidence that drove up stock prices ahead of the referendum results. The slide included a $830bn loss on the valuation of US stocks, with $657bn struck from the benchmark S&P 500. The overall $2.1tn decline was the worst performance since S&P Dow Jones Indices started tracking data in 2007. “I don’t think the news came out with enough lead time to have institutional investment committees sit down and decide what to do,” said Thierry Albert Wizman, a strategist with Macquarie. “This is an automated response to what has happened. Human decision making will intervene.”

Brexit Blowback Hits Italian and Spanish Banks - (www.wolfstreet.com) The prophets of Project Fear reaped what they’d sown, as financial carnage spread across global markets on news that a slim majority of British voters had done the unthinkable by drowning out the relentless doomsaying and voting to leave the European Union. The pound sterling plunged 8% against the dollar, to $1.37, its lowest level in three decades. The euro fell 1.93%, in itself a huge one-day move for a major currency. UK stocks surrendered over 3% of their value. But that was nothing compared to the havoc unleashed in other European stock markets. Germany’s DAX plummeted 7%; France’s CAC 40 over 8%. But even that pales compared to what happened in Spain and Italy: the IBEX 35 plummeted 12.3% and the FTSE MIB 12.5%. It was their worst day on record.

 

Civil Uprising Escalates As 8th EU Nation Threatens Referendum – (www.zerohedge.com) It appears, just as we warned, that Brexit was indeed the first of many dominoes. Even before the Brexit result, a poll by Ipsos Mori showed that the majority of people in France and Italy want to at least have a referendum on leaving: Meanwhile, over 40% of Swedes, Poles, and Belgians are in the same boat. But now, as Martin Armstrong notes, Brussels simply went too far. They cross the line moving from an economic union to a political subordination of Europe. Now eight more countries want to hold referendums to exit the EU – France, Holland, Italy, Austria, Finland, Hungary, Portugal, and Slovakia all could leave.

Brexit baffled punters, pundits and fund managers to the very end - (www.reuters.com) Nearly everyone, from London gamblers to U.S. money managers got it wrong. Britain's vote to leave the European Union shocked pundits, investors and politicians alike, underscoring the inherent difficulty of forecasting such rare events.  On PredictIt, an online political events betting site operated by Victoria University in Wellington, New Zealand and U.S.-based partners, bettors had the probability of a “leave” camp win at just 16 percent on Thursday as British polls closed. Within four hours of the vote count, that had shot to 90 percent. The dramatic reversal caught many investors flat footed and showed how they have trouble hedging against such shocks even with the help of such tools as exchange-traded funds or computer algorithms designed to capture an electorate's social media vibe, economists, pollsters and fund managers said on Friday.

OTHER STORIES:

Founding EU members tell Britain: let's get this divorce done - (www.reuters.com)
U.K. Must Leave EU as Soon as Possible, EU Foreign Ministers Say - (www.bloomberg.com)
Scotland starts drive to stay in EU, independence option open: Sturgeon - (www.reuters.com)
Six founding EU states meet in Berlin to discuss Brexit - (www.cnbc.com)

Britain, EU at Odds Over Timing of Divorce Talks - (www.ap.com)
Brexit’s Article 50: How 250 words could chart Britain’s future - (www.marketwatch.com)
Brexit in Berlin: Merkel Sizes Up the Next EU Crisis - (www.spiegel.de) 

Monday June 27 2016 Housing and Economic stories

TOP STORIES:

Performance Is Trumping Safety in the Low-Volatility ETF Craze - (www.bloomberg.com) The low volatility exchange-traded fund (ETF) craze has little to do with investors seeking less volatility. Instead, the billions of dollars flowing into ETFs that track stocks exhibiting the least amount of volatility is a classic case of performance-chasing. Like little kids playing soccer, many investors follow the outperformance ball, so to speak, wherever it goes. It happens with stocks, bonds, active mutual funds, hedge funds, and increasingly with ETFs. Right now, the soccer ball is in the low-volatility part of the field, where nearly all low-vol ETFs are outperforming their respective markets—be they large-caps, small-caps, or international equities.

Worst “Zombie States” in America “Deteriorate Faster, Further” - (www.wolfstreet.com) During the Financial Crisis, it was California that made the headlines with “out-of-money dates” and fancy-looking IOUs with which it paid its suppliers. The booms in the stock market and the startup scene – the state is desperately hooked on capital-gains tax revenues – but also housing, construction, etc. sent a flood of moolah into the state coffers. Now legislators are working overtime to spend this taxpayer money. Gov. Jerry Brown is brandishing recession talk to keep them in check. Everyone knows: the next recession and stock-market swoon will send California back to square one. Now Puerto Rico is in the headlines. It’s not even a state. And it’s relatively small. But look at wild gyrations by the federal government and Congress to deal with it, to let the island and its bondholders somehow off the hook.

Home ownership rates drop to 63.4%, lowest since 1967 - (www.cnbc.com) This is what happens when government tries to increase home ownership ;-) 

The U.S. homeownership rate fell to 63.4 percent in the second quarter of 2015, according to the U.S. Census. That is down from 63.7 percent in the first quarter and from 64.7 percent in the same quarter of 2014. It marks the lowest homeownership rate since 1967. Homeownership peaked at 69.2 percent at the end of 2004, when the housing market was in the midst of an epic boom. The 50-year average is 65.3 percent. "It is now just five-tenths from the record low seen in 1965 in data going back also to 1965," noted Peter Boockvar, an analyst with The Lindsey Group. "All the governmental attempts (certainly aided and abetted by many players in the private sector) at boosting homeownership has gotten us to this point in time with all the havoc it wreaked over the past 10 years. It's just another governmental lesson never learned, of don't mess with the free market and human nature."

Heroin Use In The United States Reaches A 20 Year High - (www.zerohedge.com) Whatever the war on drugs is accomplishing, it certainly was not keeping one million people in 2014 from using heroin in the United States, which according to the UN report is almost three times as many users as in 2003. Additionally, heroin related deaths have increased five-fold since 2000. Angela Me, the chief researcher for the report said "There is really a huge epidemic (of) heroin in the US. It is the highest definitely in the last 20 years." According to Reuters, Me named two potential reasons for the uptick in usage. One being that the US legislation introduced in recent years has made it harder to abuse prescription opioids such as oxicodone, a powerful painkiller that can have similar effects to heroin. A second reason is that the supply in the US from Mexico and Colombia is greater, and prices have been depressed in recent years. In 2014, at least 207,000 deaths globally were drug related, with heroin use and overdose-related deaths increasing sharply also over the last two years according to the UN Office on Drugs and Crime (UNODC)

China bankruptcies surge as government targets zombie enterprises - (www.ft.com) Chinese bankruptcies have surged this year as the government uses the legal system to deal with “zombie” companies and reduce industrial overcapacity as part of a broader effort to restructure the economy. Courts in China accepted 1,028 bankruptcy cases in the first quarter of 2016, up 52.5 per cent from a year earlier, according to the Supreme People’s Court. Just under 20,000 cases were accepted in total between 2008 and 2015. China’s legislature approved a modern bankruptcy law in 2007 but for years it was little used, with debt disputes often handled through backroom negotiations involving local governments.“Bankruptcy isn’t just about creditor-borrower relations. It also touches on social issues like unemployment,” said Wang Xinxin, director of the bankruptcy research centre at Renmin University law school in Beijing. “For a long time many local courts weren’t willing to accept them, or local governments didn’t let them accept.” 

OTHER STORIES:

Brexit or not, EU questions will linger after vote, strategist says - (www.cnbc.com)
Citi says close 'In' vote could still undermine EU and UK stability - (www.reuters.com)
U.S. Home Prices Increased 5.9% in April From Year Earlier - (www.bloomberg.com)
Renters Are Making More, And Landlords Get It All - (www.bloomberg.com)

U.S. regulators keep eye out for risks from marketplace lending - (www.reuters.com)
Default Swaps Broken for U.K. Bank Bonds as Brexit Vote Nears - (www.bloomberg.com)
Le Pen seeks mileage from Brexit debate - (www.ft.com)
Italy’s 5 Star Movement Calls for Euro Referendum - (www.wsj.com)