2017: A Review Of The Fed, Treasuries, Mortgages and Housing (Volatility and Velocity)

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
2017 has been an interesting year. Donald Trump was elected President and seated in January 2017. The Federal Reserve kept rates near zero with a massive balance sheet for almost all of Obama’s 8 years as President, then started to raise rates and unwind their massive balance sheet AFTER Trump was elected. Note the decline in M2 Money growth after Trump’s election.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ December 23, 2017.

Doug Noland: Epic Stimulus Overload

This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
Ten-year Treasury yields jumped 13 bps this week to 2.48%, the high going back to March. German bund yields rose 12 bps to 0.42%. U. S. equities have been reveling in tax reform exuberance. Bonds not so much. With unemployment at an almost 17-year low 4.1%, bond investors have so far retained incredible faith in global central bankers and the disinflation thesis.
Between tax legislation and cryptocurrencies, there’s been little interest in much else. As for tax cuts, it’s an inopportune juncture in the cycle for aggressive fiscal stimulus. And for major corporate tax reduction more specifically, with boom-time earnings and the loosest Credit conditions imaginable, it’s Epic Stimulus Overload. History will look back at this week – ebullient Republicans sharing the podium and cryptocurrency/blockchain trading madness – and ponder how things got so crazy.
From my analytical vantage point, the nation’s housing markets have been about the only thing holding the U. S. economy back from full-fledged overheated status. Sales have been solid and price inflation steady. While construction has recovered significantly from the 2009/2010 trough, housing starts remain at about 60% of 2004-2005 period peak levels. It takes some time for residential construction to attain take-off momentum. Well, liftoff may have finally arrived. As long as mortgage rates remain so low, we should expect ongoing housing upside surprises. An already strong inflationary bias is starting to Bubble. Is the Fed paying attention?

This post was published at Wall Street Examiner on December 23, 2017.

Canadian Housing Affordability Hits 27 Year Low

Nothing says Merry Christmas like a 27 year low for Canadian housing affordability. That’s right, real estate across Canada has not been this un affordable since the year 1990 per RBC. Spoiler alert house prices tumbled shortly thereafter.
RBC Bank released their updated Q3 numbers for housing affordability. To no surprise, Vancouver leads the nation in the most unaffordable market to buy a home. Followed by Toronto and then Victoria.

This post was published at Zero Hedge on Dec 22, 2017.

Kushner’s Records At Deutsche Bank Subpoenaed As Mueller Avoids Trump

As it turns out, President Trump’s legal team was telling the truth when it said that Special Counsel Robert Mueller hadn’t subpoenaed financial records related to the president’s business activities from German lender Deutsche Bank, contrary to Bloomberg reporting.
On Friday, the New York Times reported that Deutsche Bank had received a subpoena for records on accounts linked to the Kushner Companies, the family real-estate empire of Trump son-in-law and senior adviser Jared Kushner. This contradicts reports by both German and US media organizations dating back to July which insinuated that Mueller had been digging into Trump’s multi-decade career in real estate. Even after his infamous bankruptcies in the 1990s, Trump managed to maintain a functioning lending relationship with Deutsche, which has lent him and his businesses hundreds of millions of dollars over the years.

This post was published at Zero Hedge on Dec 22, 2017.

New Home Sales Explode Higher: Biggest Monthly Jump In 25 Years

Earlier we discussed that US personal savings tumbled to the lowest since 2007, and now we can also conclude that one of the things Americans splurged on last month was New Homes, because according to the Census on Friday morning, new home sales in November soared by a near record 109K to 733,000 from a downward revised 624,000 in October (from 685,000 previously).

This post was published at Zero Hedge on Dec 22, 2017.

Americans have no savings and with very good reason: housing, education, and health care have seen extraordinary inflation while wages are stagnant.

It has now become a daily ritual in which story after story of broke Americans plaster the web. Yet somehow on the mainstream press, very little is discussed about this topic. Americans are largely broke because inflation is vey real. Housing, education, and health care costs have soared out of control while wages have remained stagnant. The way Americans continue to pay for these items is by going into loan shark levels of debt. There used to be a pretense that ‘we’ actually cared about having a middle class but that is now thrown out the window. At this point, we are in a full on sprint towards low wage capitalism. Many people live on a paycheck to paycheck diet and are berated about saving more for retirement. The reality is, the new retirement model is working until you die.
In the land of no savings
Sunday morning, I wake up and take a stroll through the neighborhood. ‘Did you hear about Bitcoin? Wild right?’ I’m asked by a stranger at the park. ‘Sure seems wild. You own any?’ To which I get the following response, ‘I wish I had some money to even invest!’ I think we live in a world where most Americans are merely spectators to the wild gyrations of the market. They hear about investments too late or mistake speculation with actual investing.

This post was published at MyBudget360 on December 21, 2017.

Canadian Homeowners Take Out HELOCs To Fund Subprime Purchases

The HELOC (Home Equity Line of Credit) has been a blessing and a curse for Canadian households. While it has helped spur house prices and simultaneously provided consumers the ability to tap into their new found equity, it has also crippled many Canadian households into a debt trap that seems insurmountable.
Between 2000 and 2010, HELOC balances soared from $35 billion to $186 billion, according to the Financial Consumer Agency of Canada, an average annual growth rate of 20%.
As of 2016, HELOC balances sit at $211 billion, a 500% increase since the year 2000. While also pushing Canadian household debt to incomes to record highs of 168%.
Scott Terrio, a debt consultant, says the situation is a full blown ‘extend and pretend’ meaning borrowers are just continuously refinancing or taking on more and more debt in order to sustain their lifestyle. Canadians can extend their debt repayment terms and pretend to live a lifestyle they can’t otherwise obtain.

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

These PE Firms Are About To Get Crushed By Their Subprime Auto Bets

In the aftermath of the ‘great recession,’ private equity firms placed massive bets on subprime auto finance companies with the typical “thesis” going something like this: “well, people have to get to work don’t they?”…genius, if we understand it correctly.
Of course, the “thesis” seemed to be confirmed when auto securitizations performed relatively well throughout the financial crisis, amid a sea of mortgage bonds getting wiped out, and private equity titans were off to the races with wall street titans from Perella Weinberg to Blackstone and KKR scooping stakes in small niche lenders.
Unfortunately, as Bloomberg points out today, the $3 billion bet on subprime auto lenders hasn’t played out precisely to plan as the “well, people have to get to work” thesis has proved to be somewhat less than full proof.
A Perella Weinberg Partners fund has been sitting on an IPO of Flagship Credit Acceptance for two years as bad loan write-offs push it into the red. Blackstone Group LP has struggled to make Exeter Finance profitable, despite sinking almost a half-billion dollars into the lender since 2011 and shaking up the C-suite multiple times. And Wall Street bankers in private say others would love to cash out too, but there’s currently no market for such exits.
Since the turn of the decade, buyout firms, hedge funds and other private investors have staked at least $3 billion on non-bank auto lenders, according to Colonnade. Among PE firms, everyone from Blackstone and KKR & Co. to Lee Equity Partners, Altamont Capital and CIVC Partners waded in.

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

Holiday Spending Set To Hit 12-Year High Thanks To…Debt

Even though consumer confidence cooled for a second straight month in November, CNBC is reporting that holiday spending for the average American household is on track to be the highest in 12 years.
Amazingly, the CNBC All-America Survey found that the average family will spend $900 for the first time in the 12-year history of the poll, eclipsing last year’s estimate of $702 by a wide margin.
Furthermore, the survey of 800 American households – which has a margin of error of plus or minus 3.5 percentage points – found a surge in the percentage of Americans planning to spend more than $1,000. The number climbed to 29%, up from24% last year.
But before economists and retail analysts begin recalibrating their expectations, it’s worth noting that much of this spending will be funded by debt. Another study by RentCafe which examined spending habits of American renters discovered that, in the 50 largest US metropolitan areas, the average renting family will go into debt due to holiday-related expenses, debt that must be paid off in the opening months of the following year.

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

Coming Housing Boom Could Mean It’s Time to Add Raw Materials

In its November report, mortgage security firm Freddie Mac called 2017 the ‘best year in a decade’ for the housing market by a variety of measures. These include low inflation, strong job growth and historically-low mortgage rates. This assessment is very encouraging, not just for homebuyers and builders and the U. S. economy in general, but also for commodities, resources and raw materials as we head into 2018.
Although past performance is no guarantee of future results, it’s still instructive to look back at how materials performed the last time the U. S. was ramping up housing starts and mortgages. The last housing boom, which peaked in 2006, was accompanied by elevated commodity prices. We could see a return to these valuations over the next couple of years on higher demand, a stronger macroeconomic backdrop and cyclical fundamentals, as shown in the following chart courtesy of DoubleLine Capital:
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Speaking on CNBC’s ‘Halftime Report’ last week, DoubleLine founder Jeffrey Gundlach said he thought “investors should add commodities to their portfolios’ for 2018, pointing out that they are just as cheap relative to stocks as they were at historical turning points.
‘We’re at that level where in the past you would have wanted commodities’ in your portfolio, Gundlach said. ‘The repetition of this is almost eerie. And so if you look at that chart, the value in commodities is, historically, exactly where you want it to be a buy.’

This post was published at GoldSeek on Thursday, 21 December 2017.

UK’s Toxic Housing Mix

Asking prices for houses in the UK are starting to fall at a time when first time buyers in the UK continue to struggle to get on the ladder.
The average house price in the UK has now moved lower by around 25k according to property website Zoopla, but are still nearly 8 times the average wage, which is around 30K per year.
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Schemes like help-to-buy require a 5% deposit which would equate to around 11k for a house at the national average of 223,807 and in London it would mean close to double that at 22k minus any fees as the average asking price is 481k here.

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

Free Parking Isn’t Free

How much off-street parking should a restaurant have?
This of course, is a pretty important question for the owner of the restaurant, since he or she will need to make sure that people can easily access the building in order to eat there.
Any entrepreneur who wants to run a profitable restaurant will need to guess how many parking spots are needed, based on a variety of factors – such as proximity of housing, public transportation, and the personal preferences and demographics of the clientele.
If the owner supplies too little parking, then motorists will simply drive on by, opting to dine somewhere that offers an easily-accessible parking space.
On the other hand, the owner doesn’t want to provide too much parking because parking spaces use up square footage that could be used for other purposes such as a larger outdoor patio on a restaurant.
Thus, in economic terms, parking spaces are no different than any other amenity that might be offered by a business, such as tables, bathroom stalls, air conditioning, and windows.

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

2018’s Number One Risk

To find the market’s biggest weakness, a good place to look is at the most crowded movie theater with the smallest exit.
European bonds.
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You’ve probably seen the charts of European high yield floating around, so I won’t reproduce it here. Yields in the low 2s for BB credits. There was also a European corporate issuer that managed to issue BBB bonds at negative yields a few weeks ago. I think that might have been the top.
No shortage of stupid things these days:
Bitcoin Litecoin Pizzacoin Canadian real estate Swedish real estate Australian real estate FANG Venture capital But European bonds are potentially the stupidest. Maybe even stupider than bitcoin!
Although there is nothing stupid about it – the ECB has been buying every bond in sight, and there’s lots of money to be made frontrunning central banks.

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

What Bubble? Silicon Valley Homes Going For Nearly $2 Million Over Asking Price

If you’re still holding out hope that the following chart is anything but another massive housing bubble in the making then you should probably ignore the disturbing evidence to the contrary that we’re about to present below…
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Back in 2005/2006, one of the key signs that housing markets across the country were overheating was the number of houses that, thanks to soaring demand from speculators, were suddenly selling at prices well in excess of their asking price. That said, as a local CBS affiliate in San Francisco points out, the premiums of 2005/2006 pale in comparison to homes in Silicon Valley today that are selling for as much as $1-$2 million over their original asking prices.
But if you thought they area housing market couldn’t get any more outrageous, consider a home on Colorado Avenue in Palo Alto.
It listed for $2.9 million, but sold for $3.9 million, $1 million over asking price.

This post was published at Zero Hedge on Dec 20, 2017.

Existing Home Sales Jump Right In The Middle (of what?)

Sales of existing homes soared in November 2017, according to the National Association of Realtors (NAR). Up 5.6% in just the one month, at 5.81mm (SAAR) homes sold that’s the highest pace for resales since December 2006. After several months of glaring weakness, either a delayed rebound from hurricane disrupted activity or a burst of renewed optimism has gripped the real estate market (I’d bet the former given the timing).
The breakdown of home sales by price last month shows a dramatic reversal from 2017’s persistent skew toward activity only at the upper ends. The NAR reports that sales in the all-important mid-range absolutely spiked. In the $100k to $250k tier, activity was up 42% year-over-year; in the next higher stage, houses priced $250k to $500k, there were 34% more completed transactions this November than last.
These results actually raise more questions than provide answers. They’re the kind of distortions typically reserved for anomalous conditions, or statistical problems in the data series. For almost all November’s big jump to be channeled only into the middle leaves too much to suspicion, particularly given how the upper ends of the housing market have been where the vast majority of growth has been derived for several years running.

This post was published at Wall Street Examiner on December 20, 2017.

Why A Scathing Wall Street Is Furious At The Trump Tax Plan

Back in October 2016, the “millionaire, billionaire, private jet owners” of America’s elitist, liberal mega-cities (A. K. A. New York and San Francisco) celebrated the tax hikes that a Hillary Clinton presidency would have undoubtedly jammed down their throats proclaiming them to be a ‘patriotic duty’. Unfortunately, now that Trump has given them exactly what they apparently wanted…an amazing opportunity to ‘spread their wealth around”…they’re suddenly feeling a lot less patriotic.
Of course, as we’ve noted numerous times, while most people across the country and across the income spectrum will benefit from the Republican tax reform package, the folks who stand to lose are those living in high-tax states with expensive real estate as their SALT, mortgage interest and property tax deductions will suddenly be capped. And, as Bloomberg points out today, that has a lot of Wall Street Traders in New York drowning their sorrows in expensive vodka and considering a move to Florida.

This post was published at Zero Hedge on Dec 20, 2017.

What Will the Tax Bill Do to the Housing Market?

The enormity of this change has not been fully appreciated just yet.
The tax bill now becoming law will impact the housing market in a big way via four mechanisms that gut the government’s subsidies of homeownership:
Nearly doubling the standard deduction (but wait…) Lowering the cap on the mortgage interest deduction for new purchase mortgages Capping the deduction for state and local taxes at $10,000 Eliminating the deduction for interest on home-equity debt, such as HELOCs. The Big Equalizer: The New Standard Deduction
Nearly doubling the standard deduction – from $6,350 for individuals and $12,700 for married couples filing jointly in 2017 to $12,000 and $24,000 respectively in 2018 – would be a simple way of giving many Americans an instant, massive, no-hassles tax cut.
But wait: The law also eliminates the personal exemption of $4,050 allowed for each family member. A married couple will see an increase in the standard deduction of $11,300 (compared to 2017). But it will lose $8,100 in personal exemptions. This whittles down the net increase in deductions to $3,200. For couples with kids, it gets more complicated.

This post was published at Wolf Street on Dec 20, 2017.

In Dramatic Reversal, China Gives Up On Deleveraging Pledge

Last week, when looking at the latest Chinese credit data, we made two troubling observations: first, China’s economic growth was slowing across a number of key data points despite massive new credit injected into the economy over the past year. Second, that the formerly massive credit impulse – which was responsible for pushing the global economy and markets out of the early 2016 rut – was no more, and that overall system credit growth slowed to 14.4% yoy from 14.9% the prior month, which was the slowest total credit growth in the past 27 months.
While there were some nuances, such as where in China’s economy was credit being overstimulated (household) and where it was stifled (shadow banking), the bottom line as we showed in one chart is that absent a significant burst in credit creation, or credit impulse, China’s real estate prices – the backbone of the entire economy and its “wealth effect” – was lookingat a hard landing.

This post was published at Zero Hedge on Dec 19, 2017.