Tuesday, December 17, 2013

Today's links

1---11 Spectacular Cliff Paths (very cool) world geography

2--2014: Here Comes the Dumb Money!, investing caffeine

Here come Mom and Pop right on cue

3---Workplace Loans Gain in Popularity, WSJ

The fees, ranging from $8 to $25 plus interest, don't go to the restaurant franchisee, but to a lender called Think Finance Inc., which makes the loans. Based on the fees, the loans carry an effective annual percentage rate of 100% to 165%.
"Our employees are typically living paycheck to paycheck," said Spencer Manke, chief financial officer of Arizona Restaurant Systems. He said employees typically repay the loans directly from their paychecks.
Mr. Manke's company is one of a growing number of employers and payroll firms helping lenders pitch loans to their employees. Since 2010, at least half a dozen nonbank lenders have started marketing loans to companies and payroll vendors. Employer-based loan programs are now available to more than 100,000 workers, according to estimates drawn from several lenders. That number could expand to more than 10 million workers in the next few years based on projections provided by company executives.
The firms are part of a broader push by so-called shadow lenders to take a growing share of the traditional banking business. Banks have toughened their lending standards since the financial crisis, leaving small companies and individual borrowers with battered or insufficient credit histories to search elsewhere for loans.
4---Bank credit shrinking, sober look
The chart below shows growth in non-cash assets of all banks operating in the US - an unsettling trend for many economists.

By making it less profitable to hold on to cash, some argue that lowering the rate on reserves should "dislodge" the barrier to a more vibrant credit expansion.
A paediatrician by training, Ms Bachelet won 47% of the vote in the first round on 17 November. Ms Matthei secured 25%.

Ms Bachelet leads an alliance of her Socialist Party, Christian Democrats and Communists and has campaigned on policies designed to reduce the gap between rich and poor.

Chile is one of the richest countries in Latin America, but millions have staged protests over the past few years to push for a wider distribution of wealth and better education.

Ms Bachelet wants to increase taxes to offer free university education and reform political and economic structures dating from the dictatorship of Gen Pinochet.

Her manifesto this time is much more radical than before, the BBC's Gideon Long in Santiago reports
7--The California housing market is showing signs of slowing down.  , Dr Housing Bubble
This environment has created a situation where investors have dominated home purchases and the overall home ownership rate has continued to decline for households:
california homeownership rate

8---Budget deal intensifies attack on US workers, wsws

The bipartisan budget deal passed by the US House of Representatives Thursday, and expected to be passed by the Senate next week, constitutes a pact between the Obama administration and Congress to attack the American working class.

The keystone of the agreement was the decision by the Obama administration and congressional Democrats to drop a proposed renewal of extended unemployment benefits for the long-term unemployed. As a direct consequence, 1.3 million workers will receive their last unemployment compensation check the week of December 28.

In the course of 2014, another 3.6 million workers will exhaust their state unemployment benefits. In the absence of the federal extended benefits program, they will have nothing to fall back on. They and their families—nearly 5 million workers and a total of 15 million people, some five percent of the US population—will be plunged into poverty, with the threat of bankruptcy and homelessness.
The total cost of extended unemployment benefits would be $25 billion in 2014, just over two percent of the discretionary spending authorized in the budget deal and less than one percent of overall federal spending. It is less money than the Pentagon spends in two weeks.

An analysis by the Center on Budget and Policy Priorities (CBPP) notes that federal emergency unemployment benefits have never been cut off in any previous recession since the end of World War II when the long-term unemployment rate was more than 1.3 percent. The official long-term unemployment rate today is 2.6 percent, double that level.
 9----Productivity growth rises to four-year high. Wages don't, daily Kos
productivity vs. wages chart
attribution: EPI

10---OC house sales plunge; prices level at affordability limit, oc housing

Any dreams of escape velocity are fading fast.

11---Zero Down Loans Twice as Likely to Default as 20% Down Loans, DS News

Amid new regulations and increased focus on underwriting standards, the Federal Housing Finance Agency recently released a working paper on the impact of down payment amounts on loan performance at the GSEs and Federal Housing Administration (FHA).

Overall, the federal agency found a nonlinear relationship between loan-to-value (LTV) ratio and foreclosure rates. FHFA also determined that credit score plays an important role alongside LTV ratios in determining the likelihood of foreclosure.

LTV ratios hold a stronger relationship with foreclosure rates among FHA loans than GSE loans, according to FHFA. “The implication is that the same level of change in original LTV requirement would have a larger impact for FHA borrowers than for GSE borrowers,” the FHFA stated in its working paper.

Among loans with FICO scores of 620 and debt-to-income (DTI) ratios of 31 percent, the foreclosure rate for GSE
loans with 100 percent LTV is a little more than twice that of loans with 80 percent LTV.

12---Looking to play the rental market? Blackstone wants you, realty check

It is yet another step in the evolution of the single-family rental market: a new lending platform by one of the biggest names in the trade, Blackstone Group. After investing close to $7 billion in rental properties through its Invitation Homes unit, Blackstone is offering cash to smaller investors wanting to get into the game. The firm is in the closing process on the first deals.
"The market for financing for small and medium-sized borrowers in the single-family rental space is underserved—they don't have access to good capital now," said John Beacham, president of Blackstone's B2R, a buy-to-rent lending platform.
Blackstone is originating loans of $500,000 to $50 million to small and midsize investors buying a minimum of five single-family rental properties. Each home must be worth at least $50,000, and Blackstone will do a lot of homework, using local appraisers to determine if the property's cash flow covers the debt service.
"We underwrite our loans on a very conservative basis ... like a commercial real estate loan," Beacham said, adding that borrowers should have 25 percent to 30 percent skin in the game on each house. "We confirm the lease and the rent on the lease. We think that by underwriting this like a multifamily building, on pools of houses with more sophisticated borrowers, we have a pretty conservative loan product."

13--Their goose is cooked! ---The Public Is Back in the Stock Market, Testosterone Pit

While there is little evidence that the much ballyhooed "great rotation" (out of bonds and into stocks) has occurred, it is quite clear that the public is indeed returning to the stock market.

After having their heads handed to them via losses of more than 50 percent during both the tech bubble and the credit crisis bear markets, it is little wonder that the public pulled money out of the stock market continuously from 2009 through 2012. However, in 2013 that trend changed.
According to fund flow data, the public has been investing in stock funds at a pace not seen since early 2000. Apparently all the talk about new all-time highs in the stock market indices, an improving economy, and the lack of a new crisis has convinced John and Jane Q. Public to get back into the game. Well, that and a four and one-half year-old bull market that has produced gains of 170 percent, that is.

If the Public Is Buying...
Many market analysts view the fact that the public is buying stocks again as a clear negative. The thinking is that the public tends to jump on the bull train late in the game, only to bail out whenever things get ugly. From a strategy standpoint, this would appear to be a case of buying high and selling low. Not good.
However, it is important to recognize that bull markets tend to last longer and move farther than most investors can imagine. Hence the phrase, "Markets can remain irrational longer than you can stay solvent."

Remember, a great many bull markets experience what is called a "blow off" top. This is a time when the stock market is great fun and where making money in the stock market is viewed as a no-brainer by the public. For the record, this is also the time when a great many bears give in and capitulate to the pain of missing out. In short, the public's mood becomes celebratory in nature.

The Public Is Right During the Middle, But...
It is this tendency for things in the stock market to get ridiculous on the upside BEFORE the market ultimately reverses that gives the public a bad rap. But, if one studies the flow of money into/out of mutual funds, it becomes clear that the public is actually right during the middle of bull markets. It's just that they also tend to wrong at both ends of the big moves

14---Obama's Bullshit  health care profit-delivery system shifts higher costs onto workers, wsws

Among those surveyed by the AP/GfK poll who had insurance, 60 percent were insured through an employer-sponsored plan, 28 percent were insured through Medicare or Medicaid and 6 percent bought insurance on the private market. Among all these categories, 46 percent said they had been informed that changes would be made to their policies in 2014.

Sixty-nine percent of respondents had been notified that their insurance premiums would be increasing, while 59 percent said that annual deductibles and co-payments for services would be increasing. Eleven percent said that their plans were being discontinued outright, and 14 percent said coverage for their spouses was being restricted or eliminated.

These figures make clear that a huge change is being effected in the employer-sponsored health care system, the means by which the majority of the US population receives their health insurance. At the same time as they are raising premiums, more and more businesses are switching to high-deductible plans that shift more costs onto workers. Plans with large out-of-pocket costs are the centerpiece of the insurance exchanges set up under Obamacare.

15---Global markets shudder at prospect of Fed pullback on dollar handouts to banks, wsws

Deutsche Bank acknowledged in a recent note: “It is fair to say that the Fed has created a marvellous environment for virtually all assets, even if this is one of the weakest economic recoveries on record in the US and throughout virtually all the developed markets.”

The parasitism at the centre of the QE process is especially marked in Europe, where the gross domestic product of every country, except Germany, is below the levels reached in 2007. European high-yield, or “junk,” bonds have produced total returns of 150 percent. The real returns to individual speculators are even higher than these figures would indicate, because they are able to “leverage” their asset purchases—that is, use ultra-cheap borrowed money to finance their operations.

In the United States, where economic growth remains significantly below the pre-2007 trend and millions of workers are experiencing long-term unemployment, notwithstanding the claims of “recovery,” the Standard & Poor’s 500 stock index has almost tripled in value since reaching a low of 666 in the spring of 2009.
This inflation of the value of financial assets as a result of QE has enabled the world’s billionaires to double their wealth over the past four years....

Writing in the Financial Times of November 25, Stephen King, the chief global economist at HSBC Bank, commented that “the volume of economic activity across the developed world remains remarkably depressed.” He continued: “The language of recession and recovery no longer seems relevant. Instead, we are faced with persistent economic stagnation. Those who wonder whether the West risks entering a Japanese-style ‘lost decade’ have missed the point. The question is whether we can escape from the lost decade that is already suffocating our economies.”

Wages, he noted, remain depressed, interest rates are at rock bottom, government debt is “incredibly high” and rising, while companies prefer to hoard cash rather than invest. Policy makers may have avoided a Great Depression in the wake of the 2008 collapse, but they have not prevented “the Great Stagnation.”
The breakdown of what was once considered the “normal” functioning of the capitalist economy can be seen in investment figures. In the past, profits and investment rates broadly tracked each other, running at about 9 percent of US gross domestic product (GDP) in the late 1980s. From that time onwards, there has been an increasing divergence, with the relationship going “haywire” after 2009, according to an analysis by the asset manager GMO. Pre-tax corporate profits in the US are now running at about 12 percent of GDP, but net investment is only 4 percent

16---The Government Spending to GDP Ratio: Down, Down, Down, econombrowser

Assessing the importance of direct government expenditures.
One way to approach this issue is to examine the ratio of government spending on goods and services to GDP in nominal terms.
Oh, yeah!
“The bottom line is that diminishing returns will eventually affect any bond purchase strategy, whatever its design and initial effects,” the International Monetary Fund concluded in an analysis published in April. “Policy makers most likely need to either accept this diminishing impact or adopt new and more radical policy frameworks over time.” ...
“The best argument for tapering sooner rather than later?” Peter R. Fisher, senior director at the BlackRock Investment Institute, wrote in a recent analysis. “The Fed is running out of stuff to buy.” He estimated that if it maintained the current level of asset purchases, the Fed could soon be consuming all the new issuance of Treasuries and mortgage bonds.
But the most important risk associated with bond buying is also the most fundamental. The point of the program is to encourage risk-taking by business executives and investors, but one of the Fed’s main concerns is to avoid encouraging too much risk-taking. For now, there is a greater risk to worry about: that the economy could slip back toward recession if the Fed fails to do enough to encourage growth.
As the economy shows signs of improving health, however, the Fed is reverting to its most basic fear: that it will do too much.
economy stuck in low inflation, low growth environment

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