• Category Archives Banking
  • This Is Where America’s Most Debt-Burdened People Live

    Americans have racked up almost $13 trillion in personal debt for things like mortgages, car notes and student loans. $13 trillion is such an enormous pile of money, it’s hard to imagine what that looks like across the country. So, HowMuch.net created a new map to figure out exactly what’s going on…

    This post was published at Zero Hedge on Fri, 12/29/2017 –.


  • “Q1 Stock Market Outlook: We’re Gonna Need a Bigger Slide”

    Submitted by FFWiley
    If 2018 rings in a bear market, it could look something like the Kennedy Slide of 1962.
    That was my conclusion in ‘Riding the Slide,’ published in early September, where I showed that the Kennedy Slide was unique among bear markets of the last eighty years. It was the only bear that wasn’t obviously provoked by rising inflation, tightening monetary policy, deteriorating credit markets or, less commonly, world war or depression.
    Moreover, market conditions leading up to the Slide should be familiar – they’re not too far from market conditions since Donald Trump won the 2016 presidential election. In the first year after Kennedy’s election, as in the first year after Trump’s election, inflation seemed under control, interest rates were low, credit spreads were tight, and the economy was growing. And, in both cases, the stock market was booming.

    This post was published at Zero Hedge on Sat, 12/30/2017 –.


  • Did The “Big Short” Retail CMBX Trade Pay Off In 2017?

    Since the start of 2017, a number of opportunistic investors sought to profit from the expected demise of the physical retail sector, a trade which we and others dubbed the next ‘Big Short” – also known as the “Amazon crushes everyone” trade – and in which investors bought credit-default swaps against subordinate bonds in certain CMBX derivative indices that are tied to CMBS deals with healthy concentrations of loans against shopping malls and retail centers.
    As CMBS advisory Trepp notes, the trade gained notoriety last February, when spreads for the BBB- and BB rated components of the indices went through a massive widening. They continued to widen at a somewhat steady clip until only recently. That alone indicates the trade, particularly if executed early, has paid off nicely.
    CMBX consists of a group of indices that are each linked to a group of 25 CMBS conduit deals issued during a particular year. The indices are used as an indicator of the overall performance of the CRE market and enables investors to make bets on corresponding long and short positions.
    Investors who expect deals in a specific index to incur losses can buy protection: they would pay a fixed-rate premium to a seller of protection who would bet against losses. If losses occur, the seller of protection would cover them. So, a short trade becomes most profitable when deals in an index suffer actual losses. It also becomes profitable in the event spreads widen, as they have.
    Spreads Move Wider and Wider

    This post was published at Zero Hedge on Fri, 12/29/2017 –.


  • The EU Bad Loan Crisis to Get Much Worse – The Solution = Financial Pandemic

    The bad loan (‘non-performing loan’ (NPL)) crisis in Europe is well known and many have been calling for this issue to be addressed. In Italy, the bad loan crisis has reached 21% of GDP. While NPLs dropped to 4.8% of all loans in the EU as a whole during the first quarter of 2017, they remained well above 40% in Greece and Cyprus, at 18.5% in Portugal, and 14.8% in Italy according to the European Banking Authority.
    Now comes the bureaucrats with zero experience to save the day – or is that to create a financial pandemic in the EU? The EU Commission (EUC) along with the European Central Bank (ECB), want to ensure that banks promptly sell real estate, stocks, bonds and other assets that serve to collateralize loans according to their Mid-term Review of the Capital Markets Union Action Plan. Member States are required to adopt laws that facilitate the central directive. At this time, any bank cannot just sell a property that secures a loan. The problem is, all loans, whether secured or not, are valued the same.

    This post was published at Armstrong Economics on Dec 29, 2017.


  • Mohamed El-Erian: “The World Is Nearing A Tipping Point”

    Mohamed El-Erian, chief economic adviser at Allianz, expects a fundamental shift in the global economy that will either result in a powerful economic boom or in renewed tremors at the financial markets.
    In the world finance, there are few people as highly respected as Mohamed El-Erian. Not only is the chief economic adviser at Allianz well versed when it comes to navigating the global financial markets, he’s also brilliant at explaining complex developments in a comprehensible way. The most prominent example is the concept of the New Normal which he and his colleagues developed in early 2009 when he was at the helm of Pimco together with Bill Gross. Today, this concept of a new economic reality, defined by slow growth and super low interest rates, is widely accepted. However, Mr. El-Erian predicts that the New Normal won’t continue much longer. He sees significant changes ahead that will either lead to a powerful economic boom or to a recession with renewed tremors in the financial markets.

    This post was published at Zero Hedge on Thu, 12/28/2017 –.


  • How To Go Bankrupt: Slowly Then Suddenly

    In Hemingway’s, ‘The Sun Also Rises,’ one of the characters, Bill, asks his friend, ‘Mike,’ how he went bankrupt. Mike replied, ‘I had a lot of friends. False friends. Then I had creditors…’ This passage from the novel comes to mind when I hear ads during the local sports radio programming from mortgage brokers urging listeners to use a cash-out refi or home equity loan to take care of credit card debt that piled up during the holidays. Beneath the surface is the message, ‘c’mon in, the water is fine, go ahead and take on even more debt.’
    If in fact the retail sales turn out to be as strong as projected, it’s because the average household has tapped into its savings and used an unusually large amount of credit card debt to fund holiday spending this year:

    This post was published at Investment Research Dynamics on December 28, 2017.


  • Why Profit Is So Important

    In most cultures, profit is seen as the outcome of exploitation of some individuals by some other individuals.
    Hence, anyone who is seen as striving to make profits is regarded as bad news and the enemy of society and must be stopped in time from inflicting damage.
    Profit however, has nothing to do with exploitation – it is about the most efficient use of real funding or real savings.
    Profit as such should be seen as an indicator as it were, with respect to whether real savings are employed in the best possible way, as far as promoting people’s life and wellbeing is concerned.
    If the employment of real savings results in the expansion of the pool of real savings, this could be seen as indicative that this employment was done in a profitable manner.
    Conversely, if there is a decline in the pool of real savings as a result of the particular actions of individuals then this could be seen as indicative of a loss. These actions caused the squandering of real savings.
    Obviously, an expansion in the pool of real savings, which is the heart of economic growth and is manifested through profits, should be regarded as the key factor for raising individuals’ living standards.
    Rather than being condemned, individuals that are instrumental in the expansion of the pool of real wealth, which is manifested in terms of profits, should be praised.

    This post was published at Ludwig von Mises Institute on Dec 27, 2017.


  • Squeezing The Consumer From Both Sides

    The Federal Reserve raised the Federal Funds rate on December 13, 2017, marking the fifth increase over the last two years. Even with interest rates remaining at historically low levels, the Fed’s actions are resulting in greater interest expense for short-term and floating rate borrowers. The effect of this was evident in last week’s Producer Price Inflation (PPI) report from the Bureau of Labor Statistics (BLS). Within the report was the following commentary:
    ‘About half of the November rise in the index for final demand services can be traced to prices for loan services (partial), which increased 3.1 percent.’
    While there are many ways in which higher interest rates affect economic activity, the focus of this article is the effect on the consumer. With personal consumption representing about 70% of economic activity, higher interest rates can be a cost or a benefit depending on whether you are a borrower or a saver. For borrowers, as the interest expense of new and existing loans rises, some consumption is typically sacrificed as a higher percentage of budgets are allocated to meeting interest expense. On the flip side, for those with savings, higher interest rates generate more wealth and thus provide a marginal boost to consumption as they have more money to spend.

    This post was published at Zero Hedge on Dec 27, 2017.


  • The Great Recession 10 Years Later: Lessons We Still Have To Learn

    Ten years ago this month, a recession began in the U. S. that would metastasize into a full-fledged financial crisis. A decade is plenty of time to reflect on what we have learned, what we have fixed, and what remains to be done. High on the agenda should be the utter unpreparedness for what came along.
    The memoirs of key decision-makers convey sincere intentions and in some cases, very adroit maneuvering. But common to them all are apologies that today strike one as rather lame.
    ‘I was surprised by the sudden crisis,’ wrote George W. Bush, ‘My focus had been kitchen-table economic issues like jobs and inflation. I assumed any major credit troubles would have been flagged by the regulators or rating agencies. … We were blindsided by a financial crisis that had been more than a decade in the making.’
    Ben Bernanke, chairman of the Fed wrote, ‘Clearly, many of us at the Fed, including me, underestimated the extent of the housing bubble and the risks it posed.’ He cited psychological factors rather than low interest rates, a ‘tidal wave of foreign money,’ and complacency among decision-makers.

    This post was published at Zero Hedge on Dec 27, 2017.


  • The Fed Plays the Economy Like an Accordion

    We talk a lot about how central banks serve as the primary force driving the business cycle. When a recession hits, central banks like the Federal Reserve drive interest rates down and launch quantitative easing to stimulate the economy. Once the recovery takes hold, the Fed tightens its monetary policy, raising interest rates and ending QE. When the recovery appears to be in full swing, the central bank shrinks its balance sheet. This sparks the next recession and the cycle repeats itself.
    This is a layman’s explanation of the business cycle. But how do the maneuverings of central banks actually impact the economy? How does this work?
    The Yield Curve Accordion Theory is one way to visually grasp exactly what the Fed and other central banks are doing. Westminster College assistant professor of economics Hal W. Snarr explained this theory in a recent Mises Wire article.
    The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.

    This post was published at Schiffgold on DECEMBER 27, 2017.


  • 2007 All Over Again, Part 7: Borrowers Start Scamming Desperate Lenders

    One of the hallmarks of late-stage bubbles is a shift of power from lenders to borrowers. As asset prices soar and interest rates plunge it becomes harder to generate a decent yield on bonds and other fixed income securities, so people with money to lend (like pension funds and bond mutual funds) are forced to accept ever-less-favorable and therefore far-more-risky terms.
    Recall the liar loans that were popular towards the end of the 2000s housing bubble and you get the idea. Lenders were so desperate for paper to feed the securitization machine that they literally stopped asking mortgage borrowers to prove that they could cover the interest.
    Here we go again, but this time in the market for leveraged buyout loans:
    Yield-Starved Investors Giving In to the Demands of Bond Sellers
    (Wall Street Journal) – Demand for leveraged loans is allowing private-equity firms to water down legal safeguards for investors Hellman & Friedman LLC and other investors sought last month to borrow money in the bond market to finance a takeover.
    The U. S. private-equity firm offered a yield of about 3%, but few of the protections once considered routine.
    Still, the investors bought.

    This post was published at DollarCollapse on DECEMBER 27, 2017.


  • It’s Official: Government Report Says Market Risks are ‘High and Rising’

    During Fed Chair Janet Yellen’s press conference on December 13, she had this to say about financial stability on Wall Street: ‘And I think when we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange. We have a much more resilient, stronger banking system, and we’re not seeing some worrisome buildup in leverage or credit growth at excessive levels.’
    Where does Fed Chair Janet Yellen get her information on financial stability risks to the U. S. financial system? A key source for that information is the Office of Financial Research (OFR), a Federal agency created under the Dodd-Frank financial reform legislation of 2010 to keep key government regulators like the Federal Reserve informed on mounting risks.
    On December 5, the OFR released its Annual Report for 2017. It was not nearly as sanguine as Yellen. In fact, it flatly contradicted some of her assertions. The report noted that numerous areas were, literally, flashing red and orange (OFR uses a color-coded warning system) – raising the question as to why Yellen would attempt to downplay those risks to the American people.

    This post was published at Wall Street On Parade on December 27, 2017.