Derivatives Users Hit as Negative Rates Raise
Collateral Costs - (www.bloomberg.com) Derivatives
users are the latest group to be hurt by negative interest rates as they
get penalized for the cash they park at Europe’s biggest clearinghouses.
Traders can thank European Central Bank President Mario Draghi. Futures and
swaps are used to hedge or speculate on everything from German interest rates
to oil prices. To avoid taking a loss if a counterparty to a trade defaults,
they post collateral, such as government bonds or cash, at a clearinghouse. In
Europe, the biggest ones are in Frankfurt and London. But with German and U.K.
debt yields so low, or even negative, clearinghouse customers are sometimes
losing money on those assets.
McMansions Define Ugly in a New Way: They’re a
Bad Investment - (www.bloomberg.com) In
the late 1990s, Americans started referring to tract-built luxury homes popping
up in the suburbs as McMansions, a biting portmanteau implying that the
structures were mass-produced and ugly. There was also the implied snark
that their denizens, however wealthy, lacked the sophistication to tell
filet mignon from a Big Mac. Lately, these homes have been the subject
of fresh scorn, thanks to an anonymously authored blog that breaks down the genre’s design flaws
in excruciating detail. Posts lambasted builders for erecting garages bigger
than the homes they’re attached to, dropping giant houses on tiny lots,
plus shoddy construction and a mishmash of contrasting styles. (Gothic Tudor, anyone?) It’s fun reading that nevertheless
raised the question: How well have these homes kept their value? Not
well, compared with the rest of the U.S. housing market.
Debt to reach highest level since 1950 this
year - (www.washingtonexaminer.com) The
national debt this year will jump to the highest level since 1950 relative to
the size of the economy, the Congressional Budget Office reported Tuesday. The
agency projected that the debt held by the public will rise 3 percentage points
to 77 percent of U.S. gross domestic product by the end of fiscal year 2016 in
September. Debt has not hit that ratio since 1950, when the government was
still in the middle of paying down the debt it incurred paying for World War
II. Over the next 10 years, the office sees the debt rising from 77 percent of
GDP to 86 percent. Beyond that, it's supposed to keep rising as interest costs
on the debt mount, along with payments for Social Security, Medicare, and other
mandatory programs.
ECB faces bulked-up govt bond buying if QE
extended beyond March - (www.cnbc.com) The European Central Bank will have to bump
up its monthly purchases of government bonds if it decides to continue buying
beyond March 2017, just to ensure maturing paper does not reduce the pace of
its money printing. J.P. Morgan estimates 320 billion euros ($363 billion)
worth of bonds will mature between 2017 and 2019, and will need to be invested
again to honour an ECB pledge to redeploy the money it receives when bonds are
repaid. This additional buying could compound liquidity problems that have
created unpredictable price swings in the bond market, and the ECB might find
it hard to source enough paper and keep within its purchase criteria in some
countries - notably Ireland and Portugal where it has already scaled back
transactions.
Suddenly
Scared of Vancouver’s Commercial Property Bubble? - (www.wolfstreet.com) For
investors, Vancouver real estate has been a heavenly gift. But now, suddenly,
some of the biggest institutional investors, including Canada’s third largest
pension fund, are getting cold feet and want out. Just over the past 12 months,
the “benchmark price” soared 27% for apartments and 38% for detached houses!
The term “housing bubble” doesn’t even do it justice. But in July, British
Columbia implemented a 15% transfer tax on home purchases involving foreign
investors, an effort to put a lid on the price spiral that’s threatening to
price an entire generation out of the housing market. By the end of July, the
first squiggles appeared, as prices still soared but year over year sales
volume plunged nearly 20% [read…Vancouver Housing Bubble, Meet
Pin].
Eight Fed banks urge discount rate increase: minutes - (www.reuters.com)
U.S. CBO says budget deficit to reach $590 billion for fiscal 2016 - (www.reuters.com)
Mexico Risks Credit-Rating Cut as S&P Cites Sluggish Growth - (www.bloomberg.com)
U.S. CBO says budget deficit to reach $590 billion for fiscal 2016 - (www.reuters.com)
Mexico Risks Credit-Rating Cut as S&P Cites Sluggish Growth - (www.bloomberg.com)
Africa’s Next Big Currency Devaluation Seen Unfolding in Egypt - (www.bloomberg.com)
Largest Oil Companies’ Debts Hit Record High - (www.wsj.com)
Political tensions hit South Africa’s rand and Turkey’s lira - (www.ft.com)
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