Monday May 1 2017 Housing and Economic stories

TOP STORIES:            

Nearly $1 billion in side deals for California gas tax approved - (www.mercurynews.com) Nearly $1 billion in controversial side deals that may have persuaded key California lawmakers to get behind a controversial gas tax this month cleared the Legislature Monday. In the lead-up to the April 6 gas-tax vote, funding for a handful of transportation projects surfaced in a separate bill, Senate Bill 132. The projects will benefit the districts represented by Assemblyman Adam Gray, D-Merced; Sen. Anthony Cannella, R-Ceres; Assemblywoman Sabrina Cervantes, D-Corona, and Sen. Richard Roth, D-Riverside. All four lawmakers voted in favor of the gas tax — which passed narrowly, without a vote to spare. Also part of the deal — and passed Monday — was Senate Bill 496, by Cannella, that would protect architects, engineers and other “design professionals” against legal claims made by public agencies. Cannella is an engineer. The gas tax will generate more than $5 billion per year for road repairs and local transit projects by indefinitely increasing gas and diesel taxes and hiking vehicle registration fees. The increases will cost the average driver roughly $10 per month or less, the state estimates.

China Markets Reel as $1.7 Trillion in Shadow Funds Unwinds  - (www.bloomberg.com) The turbulence has centered on so-called entrusted investments -- funds that Chinese banks farm out to external asset managers. After years of funneling money into such investments, banks are now pulling back in response to a series of regulatory guidelines over the past three weeks that put a spotlight on the risks. Critics have blamed entrusted managers for adding leverage to China's financial system and reducing transparency.

The banks' withdrawals helped erase $315 billion of stock market value over the past six days and sent bond yields to the highest level in nearly two years, highlighting the challenge for Chinese authorities as they try to rein in shadow banking activity without destabilizing financial markets. While the government has plenty of firepower to prop up asset prices if it wants to, forecasters at Australia & New Zealand Banking Group Ltd. predict the selloff will deepen this year.

4 Short Sellers Explain Why They Target Tesla – But Don’t Try to Do this at Home - (www.wolfstreet.com) The bloodletting among Tesla shorts has become legendary. Tesla has been shorted for years by some very smart money betting the overvalued shares will tank any moment. At the end of March, short interest was 31.4 million shares. This short interest amounts to 26% of the “float,” which is the number of shares available to trade (shares outstanding minus restricted stock). This is huge! Yet, at $308 a share, the stock brushes up against its all-time high, giving Tesla a market capitalization of $50 billion, just shy of GM’s $51 billion. But they don’t even compare. In March, GM sold 63 times as many cars in the US as Tesla. Over the past eight years, GM earned $47.1 billion; Tesla lost $2.7 billion. With this valuation, Tesla has been a logical short. But the bloodletting among Tesla shorts has become legendary. So the Los Angeles Times asked these four short sellers why they’d venture into this trade:

Parent Plus Student Loans: How to Screw Parents and Kids in a Single Shot - (www.mishtalk.com) It’s easy to get student loans thanks to the aptly named “Parent Plus” program, a subprime loan trap that ensnares parents plus their college-age children. The program was enacted by Congress in the 1980s, but president Obama promoted it heavily. The results speak for themselves: Nearly 40% of the loans are subprime. The default rate exceeds the rate for U.S. mortgages at the peak of the housing crisis. Kids graduate from college with useless degrees, plus parents and kids are stuck with massive bills that cannot be paid back.  “Student loans made through parents come from an Education Department program called Parent Plus, which has loans outstanding to more than three million Americans. The problem is the government asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay. Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.

Could Lack Of Transparency Hurt Aramco's Trillion Dollar Valuation? – (www.zerohedge.com) With officials calling Saudi deputy crown prince bin Salman's $2 trillion estimate of Saudi Aramco valuation as "unrealistic and mind blowing," OilPrice.com's Cyril Widdershoven notes the primary discussion taking place is the overall level of transparency offered by Aramco’s leadership, which is supported by the Saudi government. Saudi Aramco’s IPO, slated to raise between $100 billion and $400 billion from a 5 percent stake in the company, will continue to make headlines until its launch. Lately, discussions on the valuation of Aramco have been intense, and the jury is still out regarding an exact price. Aramco’s IPO will be a game-changer, propelling the world’s largest National Oil Company (NOC) into a league of its own on the financial markets. The current market capitalization estimates of $1-2 trillion are based on valuations of Aramco’s hydrocarbon reserves carried out by independent consultants. These estimates put the giant oil company far ahead of any other publicly owned company. Two major questions remain to be answered however, one of which has been largely ignored by the mainstream media. The primary discussion taking place is the overall level of transparency offered by Aramco’s leadership, which is supported by the Saudi government. 

OTHER STORIES:

Asia Stocks Set to Extend Global Rally; Yen Steady: Markets Wrap - (www.bloomberg.com)
Equity markets, euro rally in wake of French election - (www.reuters.com)
Trump Wants Tax Plan to Cut Corporate Rate to 15% - (www.wsj.com)

How Marine Le Pen can steer a narrow path to victory in France - (www.ft.com)
U.S. submarine makes South Korea port call, North remains defiant - (www.reuters.com)
U.S., North Korea Flex Military Muscles as Tensions Simmer - (www.bloomberg.com)