Tuesday May 2 2017 Housing and Economic stories

TOP STORIES:            

Canada's Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History - (www.zerohedge.com) Call it Canada's "New Century" moment. We first introduced readers to the company we said was the "tip of the iceberg in Canada's magnificent housing bubble" nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada's largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices - most prominently noted short-seller Marc Cohodes - would constantly remind traders and investors about the threat posed by HCG. Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.

Can US-style Housing Crisis, “Jingle Mail” Hit Canada’s Banks? - (www.wolfstreet.com) This comes up constantly in discussions on the current house price bubbles in some cities in the US and Canada, and whether a US-style crisis could happen in Canada: The housing bust in the US during the Financial Crisis was marked by banks receiving “jingle mail” from homeowners who saw the value of their homes plunge and their equity turn negative. These folks didn’t feel like paying the mortgage anymore and just turned in the keys to the bank though they had jobs and could have made their mortgage payments. These “strategic defaults,” it is said, won’t happen in Canada. Therefore, there will not be a US-style housing crisis and financial crisis in Canada. In won’t happen in Canada, they say, because mortgages are “recourse,” and in the US they’re “non-recourse.” We hear this constantly. But it’s wrong.

Social Unrest Is France's Biggest Risk - (www.bloomberg.com) With such high turnout in Sunday's first-round presidential vote, one thing that would seem to be working in France is democracy. But a recent survey revealed that 70 percent of French voters believe that democracy does not work well in France. Only 11 percent trust political parties and 24 percent trust the media (the army and police are the exception, with close to 80 percent support). In this context, the big question facing the next French president is whether he -- as it almost certainly will be Emmanuel Macron -- can keep the social peace in a country that is seething with divisions and has a long history of airing them on the streets.

America’s Rich Get Richer and the Poor Get Replaced by Robots - (www.bloomberg.com) America’s working class is falling further behind. The rich-poor gap -- the difference in annual income between households in the top 20 percent and those in the bottom 20 percent -- ballooned by $29,200 to $189,600 between 2010 and 2015, based on Bloomberg calculations using U.S. Census Bureau data. Computers and robots are taking over many types of tasks, shoving aside some workers while boosting the productivity of specialized employees, contributing to the gap. “Technological developments have increasingly replaced low- and mid-skilled jobs while complementing higher-skilled jobs,” said Chad Sparber, an associate professor and chair of the economic department at Colgate University. This shift is predicted to continue. About 38 percent of U.S. jobs could be at high risk of automation by the early 2030s, according to a study by PricewaterhouseCoopers LLP. The “most-exposed” industries include retail and wholesale trade, transportation and storage, and manufacturing, with less-educated workers facing the biggest challenges.

There's a Huge Disagreement Between Bonds and Stocks - (www.bloomberg.com) Markets are taking sides when it comes to the direction of the U.S. economy. In the green corner are stocks. The Standard & Poor’s 500 index is just 0.2 percent away from a record high reached in March on bets that Donald Trump’s administration will push through tax-code changes to spark growth. In the red corner sit U.S. government bonds, where benchmark 10-year Treasury yields have unwound almost half of their post-election increase, suggesting a far more pessimistic view the economy. “The increasing divergence between global equity market performance and bond markets has raised questions as to whom is right,” Jefferies Group LLC analysts led by Sean Darby wrote in a note.

OTHER STORIES:

U.S. military begins moving THAAD missile defense to South Korea site: media - (www.reuters.com)
Wall Street’s ‘fear gauge’ headed for lowest close in three years - (www.ft.com)
China Markets Stress Reaches Bonds - (www.wsj.com)
 

Yahoo’s Marissa Mayer to Make $186 Million From Verizon Deal - (www.wsj.com)
Trump’s tax cut plan ruffles feathers of US deficit hawks - (www.ft.com)
Debt Crisis Shakes Chinese Town, Pointing to Wider Problems - (www.nytimes.com)