Sunday, December 2, 2012

Today's links

1--Goldman Pushes Subprime ABX Index as Housing Rebounds: Mortgages, Bloomberg
Goldman Sachs (GS) Group Inc., which survived the U.S. real estate collapse five years ago with the help of derivative bets against subprime mortgages, is promoting the opposite trade to clients as housing recovers.
The firm, which teamed with four other dealers to create the ABX indexes, benchmark contracts that offered investors a way to protect against the risks of a crash, said in a Nov. 28 report on its top 10 market themes for 2013 that clients should buy some of the derivatives....

Goldman Sachs has taken a more bullish view on housing since at least March, when it was raising money for a new fund to buy home-loan bonds to benefit from an improving real-estate market.

“It’s hard to see where the sustained demand for residential real estate lending is going to occur absent a sustained tick up in the employment situation in this country,”Bonnie Baha, head of global developed credit at Los Angelesbased DoubleLine Capital LP, which oversees more than $50 billion, said in a telephone interview. “There’s still a lot of inventory and while the headline unemployment number has declined,” a broader labor market metric, the U-6 jobless rateis still elevated, she said....

 “ABX contracts are probably a good viable way of expressing a view on home prices,” said Dolan, who traded mortgage bonds as chief investment officer at Hyperion Brookfield Asset Management and Bankers Trust. “Not the purest theoretical way, but a good pragmatic way.”

Canadian home prices mirrored those in the U.S. as they surged from 2001 to 2008, then plunged during the global financial crisis. Since 2009, however, they have once again been on a tear as U.S. home price have remained subdued.

The person most responsible for the movement in Canadian home prices is probably Mark Carney, the now former head of the Bank Of Canada who was recently poached by the Bank of England....
However, some are now concerned that his policies are reinflating a massive housing bubble. Capital Economics warned that Canadian home prices will fall 25 percent from here, and Robert Shiller warned that Canada looked like the slow-motion version of the U.S.housing bust.
When You’re Trying to Decide if We Need to Renew the Payroll Tax Break, Picture This. by Jared Bernstein: It’s just a slide…in both senses of the word…of the real earnings—pretax, which is important—of middle-wage workers: blue collar workers in manufacturing and non-managers in services, adjusted for inflation. And it’s not inflation holding back these wage rates—it’s the weak economy. This series starts in 1964, and in nominal terms, it’s never grown more slowly than it has this year.

Source: BLS
Washington, DC, November 20, 2012 – U.S. mutual fund–owning households headed by younger investors have returned to a level of financial risk tolerance comparable to the level seen before the financial crisis of 2008, according to a newly updated Investment Company Institute annual survey of households. In May 2012, the fraction of mutual fund–owning households younger than 35 willing to take above-average or substantial financial risk to get higher investment returns was 39 percent—up from a low of 31 percent in May 2010 and May 2011 and slightly higher than its 37 percent level in May 2008. At the same time, risk tolerance among households in the oldest age group—aged 65 or older—stood at 13 percent in May 2012, compared with 14 percent in May 2008.
“Willingness to take financial risk is strongly affected by age, but has also varied over time within age groups,” said Sarah Holden, ICI Senior Director of Retirement and Investor Research. “Between 2011 and 2012, the willingness to take investment risk among all but the youngest shareholder group fell or remained about the same, while the youngest age group’s risk tolerance increased.” 
8---What Confidence? Retail Investors Are Still Not in Equities, zero hedge
As we hear more and more pundits talk about the soaring consumer confidence, the "recovery", and how the fundamentals are improving, keep in mind that retail investors are still not in equities. As of November 14th, equities continued their streak of consecutive mutual fund outflows that dates back to February of this year.
During that time, more than $115 billion dollars has left the equities market. Where's it going? Well, in spite of the Fed's best attempts at pushing the "dumb money"

Oddly enough, the S&P seems to be continuing its climb toward the heavens, even with this outflow

Has the subprime auto-loan boom run its course?

As the amount of financing extended to buyers with spotty credit histories has exploded in recent years, lenders in the sector have sought to sustain that growth by relaxing the minimum credit-quality standards for borrowers. The result has been a gradual weakening of loan performance that some now view as evidence of a coming down cycle.

They envision a scenario in which losses among certain originators’ asset pools would exceed limits set by warehouse lenders, causing them to lose access to some or all of that financing. Without the ability to accumulate loans, those shops also would find themselves locked out of the asset-backed bond market — putting them at risk of failure. “I can’t dispute the fact there will be a casualty or two,” one issuer said. “There are a lot of lenders, even big ones, that are growing like crazy putting a ot of garbage on the books.”

Few dispute the idea that losses will continue to rise. The question is when, or if, loan performance will weaken to a point that warehouse lenders find intolerable.


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