Wednesday, November 27, 2013

Today's Links

1---Deportation surges under Obama, RT

The Obama administration is on track to deport 2 million people by 2014. About 97 percent of people being deported are Latino and Caribbean, according to Tanya Golash-Boza, a sociologist at the University of California, Merced.

Human Right Watch researcher Grace Meng says since deportees have no legal way to return, many folks - often parents of US citizen children - try repeatedly to reenter the US illegally. Some US districts, she says, saw an estimated 80 to 90 percent of reentry defendants that had US citizen relatives.

“One US district judge, Robert Brack in New Mexico, who has sentenced over 11,000 people for illegal reentry, told me, ‘For 10 years now, I’ve been presiding over a process that destroys families every day and several times each day,’” Meng writes

2---NSA uses blackmail against Muslim leaders, RT

another top-secret NSA document - one of many whisked out of the United States by whistleblower Edward Snowden - revealed that the agency sought to discredit the “credibility, reputation and authority” of six Muslim ‘radicalizers’ through their online sexual activity and visits to pornographic websites, according to Huffington Post.
The targeted “exemplars,” whose identities are not revealed, are purportedly attempting to recruit and radicalize followers through “incendiary speeches.”
The NSA document, dated Oct. 3, 2012, aims to exploit the “personal vulnerabilities” of its targets through their online tendencies, including “viewing sexually explicit material online” and “using sexually explicit persuasive language when communicating with inexperienced young girls

3---Majority in US support Iran deal, RT

By a margin of 2-to-1, Americans support the nuclear deal struck with Iran over the weekend. In addition, Americans are strongly against using military force should Tehran renege on the agreed terms, a Reuters/Ipsos poll revealed Tuesday

4--Higher  rates dampen housing market, WA Post

5---Shiller: No excitement in housing, recourse loan

6---Volatile Loan Securities Are Luring Fund Managers Again, WSJ
Collateralized Loan Obligations Offer High Returns—And Risk
(Did someone say "Bubble"?)

Investment funds aimed at individual investors are barreling into collateralized loan obligations, a complex and volatile type of security that was shaken by the financial crisis.
Lured by annual returns of as high as 20%, some mutual-fund managers are buying CLOs through investment funds that purchase stakes in loans to companies with low credit ratings. Another type of loan investment fund, business-development companies, also have begun buying CLOs, according to securities filings. ...
 
The biggest buyers of these securities usually are hedge funds, insurers and banks. But mutual funds and business-development companies, which pitch themselves to individual, or retail, investors, have collected more than $60 billion in money from clients this year, according to Keefe, Bruyette & Woods, Inc. and fund-data provider Lipper.
CLO returns are higher than on corporate bonds and other loans, but CLO prices could plunge if the risk rises that companies will run into trouble repaying their loans.
That happened in 2011, and some fund managers say retail investors are mostly unaware that the firms they invest in are buying CLOs...
 
Loan mutual funds had $138 billion in assets as of Nov. 22, almost twice the amount they had at the start of the year. So far this year, the average return by such funds is 5%, and the typical loan mutual fund has less than 1% of its total assets in CLOs and similar securities, according to Morningstar
 
 
 
Tiffany & Co jumped 7 percent to $88.02 and was the S&P 500's top performer after the luxury retailer's third-quarter sales topped expectations. The S&P retail index <.SPXRT> advanced 0.9 percent.
"The wealth effect because the stock market has gone up has definitely helped the upper-end folks," said Gary Bradshaw at Hodges Capital Management in Dallas, Texas.

9---The Rush for Rentals by Investors Turns Into a Run for the Exit, mandelman implode
(Today's "must read")

What I do think happened last year is that with 60 percent of home sales coming from investors, instead of the historical 10 percent, they managed to bid up the bottom of the market, causing everyone to pay more than they should for the properties… creating a mini-bubble, if you will.
And now that investor demand has chilled appreciably, they’re realizing that their capital… or someone else’s, if they can unload what they’ve bought on even dumber money… is about to be destroyed.  It won’t be easy for many to dump their inventory, however, because they can’t sell the homes to people who will live in them… the demand just isn’t there and never was… so they’ll have to find another fund who hasn’t yet realized the flaws in the group-think that’s been going on.

The first sign that the gig was up came when Blackstone announced its first-ever home rental bond, a securitization structured by Deutsche Bank (who also provided $3.6 billion in loans, by the way) and known as the “Invitation Homes 2013-SFR1” offering, which was pitched by JPMorgan and Credit Suisse as co-leads.  (Securitizing these homes-to-be-rented is a way out for Blackstone, although they’d never admit it.)

When I first heard about it all I could think to say was: “Lord, if I could only figure out how to short this thing…”

Ratings agency, Fitch declined to rate this newfangled monstrosity triple A, and surprise, surprise, wasn’t chosen to rate the offering, but not to worry, those practicing the oldest profession in the world over at Moody’s showed their true colors by giving the deal at least one triple A.  The consensus had been that under no circumstances would such a deal deserve anything higher than a single ‘A’ rating, but how soon we forget on Wall Street, don’t you know...

Exit… Stage Left.

Last April, Leon Black, CEO of Apollo Global Management, another private equity mega-firm, said his firm was selling “everything that wasn’t nailed down,” and you would think that sort of statement would send more of a message, but as I’ve said before… optimism is a hard thing of which to let go.  Dumb money is always the last to know that the party has ended.
But, it’s late enough in the game that the word is now out.
At the end of September, Reuters reported that Oaktree Capital Group is looking to dump its accumulated portfolio consisting of 500 single-family homes bought out of foreclosure.  They tried to convert their portfolio into a rental-REIT, so as to unload it on the public, but they just didn’t screw us in time… this time… and they were forced to pull the plug on the perverse plan.
Gosh, I wonder why that would be, I mean, with prices going up and all, I can’t imagine why Oaktree would want to bail out on all those “low priced” bargains.  It would seem that they want out of what was only recently considered the red-hot buy-to-rent bonanza.

Oh, and by the way… Reuters was unable to find out the price Oaktree’s asking for the 500 home portfolio, which is another way of saying… “It’s been reduced.”  Unfortunately, American Homes-4-Rent and Silver Bay Realty Trust, have managed to convert their portfolios into publicly traded REITs, which are being shoveled into mutual funds that will find their way into unsuspecting retirement accounts
They are unlikely to be alone as far as looking for an exit goes.   In total, private equity firms, REITs, and hedge funds raised in excess of $17 billion since 2011, in order to buy over 100,000 vacant, foreclosed single-family homes… you can guess where.

In addition, spurned on by the Fed’s QE and zero-interest-rate policy, Lord knows how many smaller companies and individual investors also jumped on the bandwagon, and as it has the tendency to do, the insanity drove up home prices at double-digit rates thus “fixing” the problems we’ve had with the housing market for the last 6-7 years.  Anyone care to take a guess at what happens next?  Anyone?  Anyone?
American Homes-4-Rent picked up 19,000 single-family homes, Colony American Homes nearly 18,000, Silver Bay Realty Trust threw down for 5,370, Waypoint Homes gobbled up 4,620, and American Residential Properties brought up the rear with 2,530 homes bought....

These homes, that last year were found on the for sale sheets that investors have been reading with the focused attention of an 11 year-old boy reading Playboy, now appear on the lists of homes, “FOR RENT.”  The problem is… they’re not renting.
It’s the strangest thing, but even though vacancy rates for apartments have fallen to 8.2 percent, which is their lowest level since 2001, single –family homes bought after foreclosure have VACANCY RATES OF 50 PERCENT and higher… according to Bloomberg this past July.
And can you guess what the 50 percent vacancy rates are doing to rents?  Here’s a clue… it’s not increasing them.

It’s finally become clear, at least to some, that the business model of buy-to-rent isn’t workable and that the dumb money that dove into the shallow end of the pool thinking it was an ocean, is about to get its head smashed when it hits bottom.

Yes, my friends… the homeowners and other professionals who read Mandelman Matters… I wrote this as a gift to you.  Wall Street and Father Fed have managed to transform single-family homes into something akin to a commodities futures market, where prices jump without demand, and crash at any moment without warning… they’ve done it this time… not homeowners, but those darn irresponsible investors.
The only question now is whether what used to be the smart money, but now realizes it’s the dumb money, will be able to find even dumber money… it’s called the Wall Street shuffle… or at least it should be.

10---Shiller on Housing: "No momentum", cnbc (video)

A striking surge in home prices this fall was not enough to convince one of the nation's top housing economists that the recovery is on solid ground.
"We can't trust momentum in the housing market anymore," Nobel Prize-winning economist Robert Shiller said on CNBC's "Squawk Box."
Why not? Investors, specifically institutional investors, have vast sums of cash. They have bought about 100,000 homes, most of them previously foreclosed properties. They bought the homes in a limited number of markets, mostly in the West, pushing prices dramatically higher as competition for the properties increased. They are now renting them, and even selling bonds backed by the rental streams.
(Read more: Chinese buying up California housing)
The trouble, according to Shiller, is that investors are a fickle bunch, and if they see lower-than-expected returns they won't hesitate to dump the properties and move on to another trade.
"They've learned that there is short-run momentum in housing," said Shiller...

In fact, they may already be moving on. Institutional investor purchases represented just 6.8 percent of all sales in October, according to a new report from RealtyTrac. That is a dramatic drop from 12.1 percent in September and down from 9.7 percent a year ago. While one could point to the housing recovery and the related drop in the number of distressed properties, sales of bank-owned homes actually rose in October, both month over month and year over year, the firm said.
"There is notable weakness in the new-era, Fed-inspired investor, flipper/renter regions—that is, California, Arizona, Nevada—with a surge in supply," said housing analyst Mark Hanson.

11---Obama's Triumph: Breadlines Return, NYT

12---Japan to spend about 1 trillion yen on public works for stimulus: sources, Reuters

Japan will spend around 1 trillion yen ($9.86 billion) on public works in a stimulus package to be finalized next month, sources said, to help offset the impact of an increase in the sales tax.
Prime Minister Shinzo Abe's cabinet is expected to approve the stimulus package, which will total around 5 trillion yen, on December 5.
The government plans to raise the sales tax in April to 8 percent from 5 percent currently to pay for growing healthcare spending.
Abe wants to use short-term stimulus spending to counter the blow to consumer spending from the tax hike.

The package is likely to contain around 200 billion yen for a temporary expansion of payments to families with children, sources with direct knowledge of the matter said.
The package will also spend about 300 billion yen on payouts to low-income earners and around 150 billion yen on subsidies for new home purchases, sources said.
Japan's government has previously said that it will fund the stimulus package with budget reserves and higher-than-expected tax revenue so it does not have to issue new bonds.

13---Housing prices already above long-term trend, Dean Baker

It would have been useful to point out to readers that house prices are already well above their long-term trend, suggesting that the market is at risk of being inflated by another bubble. This would mean that many new home buyers will pay bubble-inflated prices for their homes and face large losses in equity when prices return to trend levels.The return of a housing bubble can hardly be seen as a positive development

14--Housing Bubble? Maybe, Dean Baker

Further price rises would push the housing market into a new bubble.
The Case-Shiller 20-City Index rose by 1.0 percent in September, bringing its increase over the last year to 13.3 percent. Since bottoming out in January of 2012 the index has increased by 18.5 percent.
All 20 of the cities in the index showed price increases in September...
 
While the September Case-Shiller data suggest a very strong housing market with rapidly rising prices, other data point in the opposite direction. Seasonally adjusted existing home sales in October were down 3.2 percent from their September level and 5.0 percent from the peaks hit in the summer. Median and average prices were also sharply lower than in prior months, although these data do not control for the mix of homes and therefore are highly erratic.
 
Pending homes sales were down 1.2 percent in October and were down 8.3 percent from the peak reached in May. Similarly, the index for purchase mortgage applications has been trailing downward since June and has been running below its year-ago levels in recent weeks. This indicates a falloff in purchases by owner-occupants. The new home sales data, which is based on contracts signed, showed a sharp drop in July, but some bounce back in August. The September release was cancelled due to the shutdown and the October data will not be available until next month. The July and August data also showed sharply lower prices compared with spring peaks, but this series also does not adjust for the mix of homes.
The seeming contradiction between the strong price data in Case-Shiller index and the weaker data shown in the other series may be explained by the long lag in the data in the Case-Shiller series....
 
Inflation-adjusted prices are approaching the level where analysts first began warning of the last bubble and many markets are likely already in bubble territory.
 

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