Beware the Marginal Buyer, Borrower and Renter

Bubbles always look unstoppable, yet they always burst.

When times are good, the impact of the marginal buyer, borrower and renter on the market is often overlooked. By “marginal” I mean buyers, borrowers and renters who have to stretch their finances to the maximum to afford the purchase, loan or rent.
In bubble manias, buyers of real estate reckon the potential appreciation gains are worth the risk of buying a house they really can’t afford with the intention of flipping the home for a profit. Workers moving to high-rent cities reckon they’ll either make more money going forward or find a cheaper flat later, so they pony up the high rent. When there’s steady overtime or generous tips adding to the household income, buying a new car or getting a new auto lease looks do-able.

This post was published at Charles Hugh Smith on TUESDAY, NOVEMBER 21, 2017.

Are Markets Really as Calm as they Seem?

Indicators for financial market “stress” have reached their lowest levels in decades. For instance, stock market volatility has never been this low since the early 1990s. Credit spreads have been shrinking, and prices for credit default swaps have fallen to pre-crisis levels. In fact, investors are no longer haunted by concerns about the stability of the financial system, potential credit defaults, and unfavourable surprises in the economy or financial assets markets. How come?
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Monetary policy plays the significant role. By slashing interest rates and ramping up the quantity of money in the banking system, central banks around the world have kick-started the economies following the 2008/2009 crash. But this is not the full story. The fact that investors expect central banks to stand at the ready to fend off a slowdown of the economy and price declines in stock and housing markets is by no means less important.
The truth is that investors expect central banks to provide a “safety net.” This expectation encourages them to make risky investments again (which they would otherwise have declined). That said, central banks have caused a colossal ‘moral hazard’: Investors feel pretty much assured that the risk-reward profile of their investments has become more favorable – that they can enjoy a considerable upside, while the downside is limited.

This post was published at Ludwig von Mises Institute on November 21, 2017.

“Granite Islands And Backsplashes”: Even Doublewide Trailers Are No Longer “Affordable”

Since the early 1900s, millions of Americans have relied on trailers as a source of no-frills, affordable housing. In fact, roughly 22 million Americans live in trailer parks today, but the industry is hardly the stable source of affordable housing that it used to be…a lesson that 73-year-old Judy Goff of Naples, Florida recently discovered the hard way after Hurricane Irma ripped through her park and destroyed her home, along with roughly 1.8 million others.
As Bloomberg points out, when Goff went to a local LeeCorp dealer lot to replace her $46,000, 1,200 square foot trailer with something of similar size and value, what she found instead was “manufactured homes” stuffed with high-end upgrades like granite counter-tops and vaulted ceilings that rendered them too expensive for her $23,000 per year of income.
Last month, Judy Goff, a 73-year-old hardware store clerk whose double-wide in Naples, Fla., was blown to bits, pulled into a LeeCorp Homes Inc. sales lot and wandered through models with kitchen islands and vaulted ceilings. In the salesman’s office, she got the total price, including a carport, taxes, and removal of her destroyed trailer: $140,000. ‘I don’t have that kind of money,’ said Goff as she stood amid the wreckage of her old home, whose walls and ceiling were stripped away, leaving her leather furniture and a lifetime of possessions to bake in the sun. ‘That was all I had.’

This post was published at Zero Hedge on Nov 21, 2017.

Dear Android Users: Google Is Tracking You Even If You Disable Location Services

Slowly but surely, Americans have been conditioned to give up any expectations of privacy in the name of public safety and/or for simple technological conveniences. However, there remains, even today, a tiny sliver of the population that would prefer to not have their every movement tracked no matter how antiquated that makes them look. Be that as it may, per a recent discovery from Quartz, those old-school folks better hope they haven’t been using an Android device for the past 11 months.
Many people realize that smartphones track their locations. But what if you actively turn off location services, haven’t used any apps, and haven’t even inserted a carrier SIM card?
Even if you take all of those precautions, phones running Android software gather data about your location and send it back to Google when they’re connected to the internet, a Quartz investigation has revealed.
Since the beginning of 2017, Android phones have been collecting the addresses of nearby cellular towers – even when location services are disabled – and sending that data back to Google. The result is that Google, the unit of Alphabet behind Android, has access to data about individuals’ locations and their movements that go far beyond a reasonable consumer expectation of privacy.
Quartz observed the data collection occur and contacted Google, which confirmed the practice.

This post was published at Zero Hedge on Nov 21, 2017.

21/11/17: ECB loads up on pre-Christmas sales of junk

Holger Zschaepitz @Schuldensuehner posted earlier today the latest data on ECB’s balance sheet. Despite focusing its attention on unwinding the QE in the medium term future, Frankfurt continues to ramp up its purchases of euro area debt. Amidst booming euro area economic growth, total assets held by the ECB rose by another 24.1 billion in October, hitting a fresh life-time high of 4.4119 trillion.
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Thus, currently, ECB balance sheet amounts to 40.9% of Eurozone GDP. The ‘market economy’ of neoliberal euro area is now increasingly looking more and more like some sort of a corporatist paradise. On top of ECB holdings, euro area government expenditures this year are running at around 47.47% of GDP, accord to the IMF, while Government debt levels are at 87.37% of GDP. General government net borrowing stands at 1.276% of GDP, while, thanks to the ECB buying up government debt, primary net balance is in surplus of 0.589% of GDP.

This post was published at True Economics on Tuesday, November 21, 2017.

Is This The Real Reason Why The Treasury Curve Has Been Collapsing For A Month?

A ‘funny’ thing happened a month ago. The Treasury yield curve suddenly started to collapse… despite gains in stocks and positive economi data surprises… the question is, why?
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Here’s one possible reason why..
Originally submitted by GovTrader,
TL/DR: Tax reform creates pension fund incentive to buy 30yr bonds NOW.
Currently, the top corp tax rate in the US is 35%. It looks most likely that rate will drop to 20% when tax reform passes. If you are a corp with an underfunded pension fund, you get a tax incentive to fund the pension THIS YEAR vs in the future when the corp tax rate drops to 20%.

This post was published at Zero Hedge on Nov 21, 2017.

Why Are People Buying Bonds with Negative Yields?

Bloomberg reports an astonishing bit of interest rate news from France. Mark Gilbert reports,
French utility Veolia Environnement SA is one of a handful of low-rated borrowers – assessed at BBB or lower by Standard & Poor’s – with fixed-rate debt repayable in three years or longer that trades at yields below zero in euros.
Fleckenstein Capital LLC put it this way,
Sacr BBB-leu!
Yesterday a Parisian BBB-rated company (i.e., quasi junk) issued $500 million in three-year notes yielding -0.026%.
We have been peppered with so many absurdities, nothing seems absurd anymore, although you can be sure when folks look back at this period, they will wonder, “What were they thinking?” and the list of examples will be quite long.
One wonders how this could be. As Guido Hlsmann concluded in his QJAE article ‘The Theory of Interest,’ an acting man earns money interest when his ‘originary interest causes a positive spread between the money proceeds from selling his product and the money expenditure on the related factors of production.’

This post was published at Ludwig von Mises Institute on November 21, 2017.

A Look At Which Students Are Most Likely To Default On Their Student Debt

Since the early 2000’s the amount of student debt outstanding has grown exponentially, along with annual tuitions, and now stands at nearly $1.5 trillion. Moreover, and not terribly surprisingly, defaults on that growing mountain of student debt have also surged as graduating students quickly discover that they just dropped $200,000 on a near-zero ROIC investment.
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But while a lot of attention is given to the growing default rates on this particular future economic disaster in the making, less time is spent trying to understand which students are most susceptible to default. That said, the following series of charts from the Federal Reserve Bank of New York help to shed some light on that particular topic.

This post was published at Zero Hedge on Nov 21, 2017.

Tax Cuts Without the Reform

Last week, the House passed its version of ‘tax reform,’ along party lines. The final vote came in at 227-205, with the entire Democratic caucus opposing the bill. Thirteen Republicans joined the Democrats in voting no.
The debate now shifts to the Senate where things will likely become more contentious. Wisconsin Republican Sen. Ron Johnson has already announced he opposes the current Senate plan. And the Senate bill differs from the House version – significantly putting off corporate tax cuts for a year. If the Senate can get something passed, the two chambers will have to figure out a compromise plan.
Peter Schiff has been saying the Republicans aren’t even really attempting to reform the tax system. He called the GOP plans ‘tax cuts masquerading as reform.’ Peter is not alone in this thinking.
As Peter said, reform means fundamentally changing the tax system. That’s not happening. There may be some good things in the tax plan – but we can’t really call it reform. And without significant reform of the system, it becomes questionable whether or not the plan can actually spark the economic growth being promised.
Dan Kurz of DK Analytics also contends that the Republican plan isn’t true reform.

This post was published at Schiffgold on NOVEMBER 21, 2017.

What If The “Exuberance” Is “Irrational”? Then Hold On To Your Hats…

As discussed earlier, Goldman’s entire S&P500 price forecast for 2018 and the next three years is based on two things: tax reform passing, but more broadly, something that David Kostin dubbed “Rational Exuberance”, to wit:
‘Rational exuberance’ best describes our forecast for the trajectory of the S&P 500 during the next several years. Earnings drive stocks over time and should support the index rising to 2850 at year-end 2018, 3000 at the end of 2019, and 3100 by the close of 2020, representing a price gain during the next three years of 20%. Our price targets imply a modest expansion in forward P/E multiple to 18.2x at year-end 2018, a flat multiple in 2019, and a contraction to 18.1x in 2020.
As Kostin describes it, “rational exuberance” is defined by “above-trend US and global economic growth, low inflation, low albeit slowly rising interest rates, and underlying corporate profits boosted by pending corporate tax reform likely to be adopted by early next year.”

This post was published at Zero Hedge on Nov 21, 2017.

Russia Confirms Toxic Cloud Of “Extremely High” Radiation; Source Remains A Mystery

This Part of Russia is Literally Exposed to 1000x the Normal Radiation Rate pic.twitter.com/AKbOJqUrhh
— News Cult (@News_Cult) November 21, 2017

One month after a mysterious radiation cloud was observed over Europe, whose source remained unknown last week speculation emerged that it may have been the result of a “nuclear accident” in Russia or Kazakhstan, on Tuesday Russian authorities on Tuesday confirmed the previous reports of a spike in radioactivity in the air over the Ural Mountains. In a statement, the Russian Meteorological Service said that it recorded the release of Ruthenium-106 in the southern Urals in late September and classified it as “extremely high contamination.”
Earlier this month, France’s nuclear safety agency earlier this month said that it recorded a spike in radioactivity, and said that “the most plausible zone of release” of this radioactive material “lies between the Volga and the Urals” from a suspected accident involving nuclear fuel or the production of radioactive material. The agency noted, however, that it is impossible to determine the exact point of release given the available data. Luckily, it said the release of the isotope Ruthenium-106 posed no health or environmental risks to European countries.

This post was published at Zero Hedge on Nov 21, 2017.

Goodbye American Dream: The Average U.S. Household Is $137,063 In Debt, And 38.4% Of Millennials Live With Their Parents

Once upon a time the United States had the largest and most vibrant middle class in the history of the world, but now the middle class is steadily being eroded. The middle class became a minority of the population for the first time ever in 2015, and just recently I wrote about a new survey that showed that 78 percent of all full-time workers in the United States live paycheck to paycheck at least part of the time. But most people still want to live the American Dream, and so they are going into tremendous amounts of debt in a desperate attempt to live that kind of a lifestyle.
According to the Federal Reserve, the average U. S. household is now $137,063 in debt, and that figure is more than double the median household income…
The average American household carries $137,063 in debt, according to the Federal Reserve’s latest numbers.
Yet the U. S. Census Bureau reports that the median household income was just $59,039 last year, suggesting that many Americans are living beyond their means.
As a nation, we are completely and utterly drowning in debt. U. S. consumers are now nearly 13 trillion dollars in debt overall, and many will literally spend the rest of their lives making debt payments.

This post was published at The Economic Collapse Blog on November 21st, 2017.

Learning From the 1980s: The Power and Irony of ‘MDuh’

Forget about big hair, Ray-Bans, and Donkey Kong. Don’t even think about Live-Aid, Thriller, and E. T. Above all else, the 1980s were the gravy days of the money supply aggregates.
Beginning in late 1979, the Fed built its policy approach around the aggregates – primarily M1 but occasionally M2, and policymakers also monitored M3 while experimenting with M1B and, later, MZM. But those were just the ‘official’ figures. Economists and pundits debated the Fed’s preferred measures while concocting their own home-brewed variations.
Notably, the Fed allowed interest rates to fluctuate as much as necessary to achieve its money growth targets. Fluctuate they did – rates soared and dipped wildly as a direct result of the Fed’s policy. The world, meanwhile, watched the action as attentively as a Yorkie watches breakfast, studying every wiggle in every M. Missing one wiggle could have meant the difference between exploiting the volatility that the Fed unleashed or being sunk by that same volatility.

This post was published at FinancialSense on 11/21/2017.

Existing Home Sales Drop Year-Over-Year For 2nd Straight Month – First Time Since 2014

Following September’s positive housing data rebound, October data is starting well with existing home sales surging 2.0% MoM (better than expected 0.2%) to 5.48mm SAAR, as US existing home sales inventory tumbled 10.4% YoY, to 1.8 months, the lowest since 1999.
Sales of previously owned U. S. homes rose to a four-month high, indicating demand was firming at the start of the quarter as the impact from hurricanes faded, according to a National Association of Realtors report released Tuesday.
However, this is the second straight YoY sales decline, first back-to-back months since 2014…

This post was published at Zero Hedge on Nov 21, 2017.

Tencent Overtakes Facebook As Hong Kong Stocks Flash-Smash Overnight

Hang Seng futures exploded over 5% higher as after hours trading began last night, then crashed back to unchanged as the underlying cash index hit its highest since Nov 2007 on the heels of a surge to new record highs for Chinese tech giant Tencent – which is now larger than Facebook by market cap.
Contracts for November delivery rose to 31,341 at 5:15pm for a 5.1% premium over the underlying gauge…
Hong Kong’s benchmark equity measure advanced 1.9% on Tuesday to its highest close since November 2007, as WSJ reports, one day after its market capitalization surpassed $500 billion, the company behind messaging app WeChat rallied by another 2.4% on Tuesday, lifting its market value to $523 billion.

This post was published at Zero Hedge on Nov 21, 2017.

Goldman Bets On “Rational Exuberance”: Unveils Its S&P Price Targets, Sees Bull Market Lasting Until 2020

Just days after Barclays released its 2018 equity outlook with the title “Rational Exuberance”…

… Goldman’s David Kostin decided that imitation is the sincerest form of flattery and in presenting his S&P price target* for 2018 (and 2019 and 2020), and has named his preview report the same:

This post was published at Zero Hedge on Nov 21, 2017.

Two Bad Choices in Tax Debate

Remember when everyone wanted to cut the federal deficit? Fiscal policy was much simpler back then: balanced budget good, deficits bad.
Times change. Now the House and Senate are considering tax legislation that, according to their own numbers, will add $1.5 trillion to annual deficits over the next 10 years.
This is okay, we’re told, because the tax cuts will stoke economic growth, thereby delivering added tax revenue that offsets the rate reductions.
Note the bigger point here. Republicans still say they don’t like deficits – but apparently, this particular plan lets them cut taxes without adding more debt. It’s a miracle.
Is their claim really true? Will the GOP tax plans boost economic growth?
That’s the 1.5-trillion-dollar question.

This post was published at Mauldin Economics on NOVEMBER 21, 2017.

Taxes: here’s what’s going to stay the SAME

On October 3, 1913, US President Woodrow Wilson signed the Underwood-Simmons Act into law, creating what would become the first modern US income tax.
The legislation (at least, the income tax portion) was only 16 pages and imposed a base tax rate of just 1%.
The highest tax rate was set at 7% – and it only applied to individuals earning more than $500,000 per year, which is about $12.6 million today according to the Bureau of Labor Statistics.
And individuals earning less than $3,000 (about $75,000 today) were exempt from paying tax.
Tax rates moved up and down over the years – the government raised rates to fund World War I, then lowered them in peacetime.

This post was published at Sovereign Man on November 21, 2017.

The Approaching Famine

The most serious forecast that we see from our computer models has been a rise in agricultural prices caused by Global Cooling – not Global Warming. Crops cannot grow without the sun and water. Historically, when the weather turns cold, the crops fail.
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There is no question that food prices will rise during periods of war when crops cannot be planted and armies require food on a priority allotment.

This post was published at Armstrong Economics on Nov 21, 2017.