Thursday, June 6, 2013

Today's links

1---Global Stocks Tumble as Treasuries Rally, Yen Strengthens, Bloomberg

2---Mortgage Rate Increases Starting to Bite, naked capitalism

Bloomberg reports that that staple of mortgage funding, the 30 year fixed rate mortgage, has seen its interest rate increase from 3.48% a month ago to 4.16% as of yesterday. By contrast, the highest rate the 30 year mortgage reached in the previous year as of mid-March had been 3.85%.
One analyst, Mark Hanson, sees evidence that the dropoff in refinancings has been impressive:
After 5 years of interest rates being forced incrementally lower each year — and everybody that qualifies refinancing over and over again allowing the banks to originate and earn several points off of each gov’t loan churn — the jig is up for a while at least…..three large private mortgage bankers I follow closely for trends in mortgage finance ALL had mass layoffs last Friday and yesterday to the tune of 25% to 50% of their operations staff (intake, processing, underwriting, document drawing, funding, post-closing). This obviously means that my reports of refi apps being down 65% to 90% in the past 3 weeks are far more accurate than the lagging MBA index, which is likely on its way to print multi-year lows in the next month...

The bigger fish in the rental business are trying to get out via IPOs of operating businesses. Reuters flagged Colony Capital’s IPO of a portfolio of nearly 10,000 homes, expected to fetch $260 million, and a new filing by American Homes 4 Rent looking to raise $1.25 billion (hat tip Scott). But these plans are already hitting roadblocks with the Fed’s talk of tapering spooking both the mortgage and the stock markets, a double whammy to private equity exit plans. Per the Financial Times:
Colony American Homes has postponed a US float as the sudden jump in market interest rates has damped investor appetite for newly issued shares in real estate investment trusts…
3---Asia housing bubble burst, triple crisis

4---Emerging markets displace Europe as fulcrum of world risk, Telegraph

China’s PMI index turned negative in May, despite 20pc credit growth in the first quarter. The extra GDP generated by each yuan of credit has dropped to a ratio of 0.17 from 0.85 four years ago. The debt cycle is exhausted.

Societe Generale’s Beijing analyst Wei Yao warns that China may be on the verge of a “Minsky Moment”, the tipping point when the debt pyramid collapses under its own weight. “The debt snowball is getting bigger and bigger, without contributing to real activity,” she said.

She claimed the debt service ratio of companies has reached a “shockingly high” 30pc of GDP – the typical threshold for financial crises. “The logical conclusion has to be that a non-negligible share of the corporate sector is not able to repay either principal or interest, which qualifies as Ponzi financing," she said.

The scale is huge. Fitch Ratings says total credit has grown from $9 trillion to $23 trillion in four years. The increase alone is equal to the US banking system.

The EM bulls retort that China and the rising powers are protected this time by $10 trillion of foreign reserves, 80pc of all sovereign gold and currency holdings. This will indeed shield them against a currency attack. There will be no exact replay of 1998, when debts were in dollars and fixed exchange pegs blew up.

5---The Big Picture
SEC Ready to Curb Money FundsChart
Source: WSJ

6---Abe's comments trigger selloff, Big Picture

Japanese PM, Mr Abe’s speech on the country’s growth strategy disappointed investors. He did not refer to restarting the country’s nuclear programme, something a number of analysts had expected. He stated that he would promote private sector investment through the removal of bureaucratic barriers. He also promised to open up the infrastructure, health and energy sectors and promoting FDI into Japan, together with improving career opportunities for women. Certain cities would be allowed to introduce lower taxes and deregulate further creating, in effect special economic zones. Mr Abe also set a goal to increase earnings by 3.0%. All laudable sentiments, but there were few specifics or any meaningful measures and his statement will not make a difference in the short and medium term. The Nikkei reacted negatively with the market -3.8% lower and the Yen strengthening.

7---We Just Had the Lowest Core Inflation in 50 Years. What Does This Mean for "Expectations" and Monetary Policy, next new deal

8--U.S. hourly wages post record fall, BNN

9---U.S. Suffers Biggest Pay Drop On Record, As Workers Squeezed Tighter, Huff Post

The economic "recovery" just keeps getting worse for the average worker: U.S. employers squeezed their employees even harder than usual in the first quarter, leading to the biggest drop in hourly pay on record.

Hourly pay for nonfarm workers fell at a 3.8 percent annualized rate in the first quarter, the Bureau of Labor Statistics reported on Wednesday. This was the biggest quarterly decline since the BLS started keeping track in 1947. Some of the drop was payback for a 9.9 percent surge in hourly pay in the fourth quarter of 2012, as employers shoveled money out the door to avoid tax changes they expected to take place in 2013.

But there have been plenty of such quarterly pay increases in the past. Many were even bigger. Some went on for several quarters at a time. And never has there been such a steep pay drop in response as there was in the first quarter of this year.

Smoothing out the quarterly ups and downs doesn't make the picture look any better. Hourly worker pay rose just 1.9 percent in 2012, a pitiful increase that barely kept up with the 1.8 percent gain in the consumer price index. That was the third-weakest annual increase in hourly pay since 1947, topping only the 1.4 percent gain in 2009 and a 1.8-percent gain in 1994.

Hourly pay has grown by just 2 percent per year, on average, for the past four years, the weakest four-year stretch on record. At the same time, corporate profits are at record highs, and until a recent swoon, the stock market was setting records, too. Workers haven't been reaping the rewards, but their employers have been

10--Foreclosure sales rate in judicial states shoots up 17%, housingwire

11---Unwavering” Housing Bull “Grateful” for Wall Street Buyers, yahoo

12---'Shadow' homes could burden U.S. housing agencies: report, Reuters
(Subtext: Obama keeps underwater borrowers in homes they can't afford to save banks money)

Well over a million U.S. homeowners are months behind on payments on government-backed mortgages, raising the risk federal housing agencies will end up facing the cost of managing a fresh flood of foreclosed homes, two government watchdogs said on Thursday.
Some 1.7 million borrowers have missed several payments on mortgages backed by the U.S. government, the inspectors general of the Federal Housing Finance Agency and Department of Housing and Urban Development said in a joint report.

These loan delinquencies represent a "shadow inventory" of homes that could hit the market if foreclosed on, which would need be managed by government-run Fannie Mae (FNMA.OB) or Freddie Mac (FMCC.OB), or some other federal housing agency.
Once seized, these so-called real estate owned properties, or REOs, present significant financial challenges to these government agencies, the report said.

"Not only are current REO inventory levels elevated ... they may rise over the next several years depending on the number of shadow inventory properties that are ultimately foreclosed on," the report stated.

Since the housing market boom and bust, the government has employed billions of dollars to help borrowers manage high-cost loans and stabilize neighborhoods hit by foreclosures. Fannie Mae, Freddie Mac and HUD, which oversees the nation's mortgage insurer, the Federal Housing Administration, have been burdened with a glut of repossessed properties as a result of the housing market collapse.

Not only does the government need to cover maintenance costs, it also needs to hire real estate agents and contractors to rehabilitate and sell the homes. Finding cost-effective ways to deal with the supply poses a challenge, the report said.
"These networks require significant oversight to ensure that they perform effectively and that they mitigate both REO-related expenses and foreclosure's negative effects," the report stated.

The report said the shadow inventory, which is made up of loans that have been delinquent for at least 90 days, is more than seven times the inventory of REOs that Fannie Mae, Freddie Mac and HUD currently own.
"Even a fraction of the shadow inventory falling into foreclosure could considerably swell ... inventories of REO properties," the report warned.

Fannie Mae, Freddie Mac and the Federal Housing Administration are backing about nine out of every ten new home loans. Fannie Mae and Freddie Mac owned about 158,000 REO properties at the end of September 2012, while HUD had about 37,000.
HUD, Fannie Mae and Freddie Mac have all taken steps to shrink their REO inventories, the report noted. Fannie Mae has already launched a pilot program to mitigate the costs of foreclosures, auctioning off some of its properties in bulk to investors with the intention to convert them into rentals.

13---Rising Prices Encourage Fewer Investor Purchases, Longer Holding Times, DS News

14---Why 3% Mortgage Rates Are a Thing of the Past, CNN

15--Meet the friends of jihad, pepe escobar, asia times

16--Global stock sell-off amidst signs of deepening slump, wsws

17--Mornings with Cockburn, counterpunch

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