Thursday June 23 2016 Housing and Economic stories

TOP STORIES:

US Freight Drops to Worst May since 2010 - (www.wolfstreet.com) “May is usually a relatively strong month for freight shipments, but given the high inventories with ever slower turnover rates and the decline in new production orders, May could be another soft month,” predicted Rosalyn Wilson at Cass Transportation a month ago. It has now come to pass – only worse. Freight shipments by truck and rail in the US, excluding commodities, fell 5.8% in May 2016 from the already anemic levels in May 2015, and 7.0% from May 2014, according to the Cass Freight Index, released today. It was the worst May since 2010. “This year we have failed to see the robust growth in shipments that we expect to see this time of year,” Wilson lamented. In fact, aggregate shipment volume over the first five months, according to the index, was the worst since 2010. And freight is one of the most reliable gauges of the goods-producing economy.

Chinese Cash Disappearing Down Credit Black Hole - (www.wsj.com) For all the cash in China’s financial system, Beijing is having a hard time putting it to work. In recent months, a measure of China’s monetary-policy effectiveness shows that gobs of new credit, which in the past would have boosted the real economy, is instead being lost in the proverbial wash. China’s M1 money supply, a measure of the most liquid assets in the banking system such as cash and certain types of demand deposits, is growing at its fastest pace in six years. Meanwhile, M2 money supply, a broader gauge of liquidity including longer-term deposits, expanded at the slowest rate in a year. The ratio of these two rose to its highest since the data has been tracked. Money is being created, but it isn’t being used to consume or invest. One explanation is that new money is going to pay down old debts. Also, companies could be cash-hoarding, taking out loans but not deploying the money because either there isn’t anywhere to put it or other restrictions stop them from doing so.

Pimco Says ‘Storm Is Brewing’ in U.S. Commercial Real Estate - (www.bloomberg.com) U.S. commercial real estate prices may fall as much as 5 percent in the next 12 months amid tightened regulations, a wall of debt maturities and property sales by publicly traded landlords, Pacific Investment Management Co. said in a report Monday. A global surge in demand for U.S. property investments that pushed real estate values to records may wane as slowing growth in China, lower oil prices and dislocated debt markets threaten to halt six years of price growth, Pimco portfolio managers John Murray and Anthony Clarke said in their report, titled “U.S. Real Estate: A Storm Is Brewing.” “Storms form when moisture, unstable air and updrafts interact,” they said. A similar confluence of factors “is creating a blast of volatility for U.S. commercial real estate.”

NY Fed Warns about Booming Subprime Mortgages, now Insured by the Government – (www.wolfstreet.com) The New York Fed just warned about the ticking mortgage subprime time bombs once again being amassed, and what happens to them when home prices decline. But unlike during the last housing bust, a large portion of these time bombs are now guaranteed by the government. Subprime mortgages are what everyone still remembers about the Financial Crisis. They blew up has home prices fell. Folks who thought they were “owners with equity” found out that they were just “renters with debt.” And they dealt with it the best they could: forget the debt and the rent and stay until kicked out. Cumulative default rates on subprime mortgages spiked to 25% in 2007, according to the report. Banks ended up with the properties and collapsed. Mortgage backed securities based on these subprime mortgages imploded. Bond funds that held them imploded. All kinds of fireworks began. While subprime mortgages didn’t cause the Financial Crisis by themselves, they were an essential cog in a crazy machinery.

Telecom Oi Files Largest Bankruptcy Request in Brazil's History - (www.bloomberg.com) Oi SA filed for bankruptcy protection on 65 billion reais ($19 billion) in debt -- a Brazilian record -- after failing to reach an agreement with creditors, the last straw following a long saga of mergers and leadership changes. Brazil’s fourth-biggest wireless company sought protection from creditors so it could keep serving customers, the company said in a filing Monday. Talks with creditors stalled last week after some board members disagreed with a plan by bondholders to swap debt for equity, giving them 95 percent of the company. The filing is likely to have major repercussions in Brazil, since state-owned banks Banco Nacional de Desenvolvimento Economico e Social, Caixa Economica Federal and Banco do Brasil SA are among Oi’s top creditors, along with private banks such as Itau Unibanco Holding SA. Oi’s move is also set to trigger payments on a total of $14 billion in derivatives contracts designed to protect debt investors against a default, according to data compiled by Bloomberg.

OTHER STORIES:

Yen Shakes Off Brexit in Longest Rally for 5 Years; Pound Wavers - (www.bloomberg.com)
Asian Stocks Retreat After Brexit Bounce as Yen Weighs on Japan - (www.bloomberg.com)
Brexit Vote in the Balance as Polls Differ Over Which Side Leads - (www.bloomberg.com)
Soros says pound fall after Brexit would be bigger, more disruptive than 'Black Wednesday'

Oi Seeks Bankruptcy Protection as Talks With Creditors Stall - (www.bloomberg.com)
In rare move, the Navy sends two aircraft carriers near the Philippines - (www.washingtonpost.com)

Whether Britain Stays or Goes, Discontent Will Remain - (www.nytimes.com)