Saturday, April 26, 2014

Today's Links

1---Momentum may be changing in the housing market: Robert Shiller, Yahoo


2---Jeremy Stein sees bond bubble, fivethirtyeight


In his short tenure at the Fed, Stein argued that the central bank should respond to financial bubbles with monetary policy. In particular, two of his widely reported speeches stand out, one in February 2013 and the other last month.3 The more recent speech, with the wonky title “Incorporating Financial Stability Considerations into a Monetary Policy Framework,” garnered attention for its bold argument that the Fed should withdraw stimulus or raise interest rates, and thus tolerate a higher-than-normal unemployment rate, all to prevent the growth of a bubble — this time in the bond market, rather than in real estate or stocks.4...


What are the signs of a bubble in the bond market? Stein points to three things: first, the rising level of private-sector debt as a percentage of the U.S. economy; second, narrowing spreads between risk-free Treasuries and corporate bonds; and third, the growing proportion of corporate debt going to riskier companies, i.e. companies that have a greater likelihood of defaulting on their loans....


The U.S. has reached a new record when it comes to its private-sector debt. Nonfinancial companies have borrowed so much money that their debt level is now more than 55 percent of the country’s gross domestic product.
flowers-bubbles-2
Let’s turn to the second sign. The fact that companies are able to borrow money at extremely low rates — just above the rate that the U.S. government can borrow at — suggests there are lots of banks, mutual funds and large institutional investors willing to lend money to these companies. Normally, this is a good thing. But over time, it encourages companies to take on a lot of debt. Lenders’ willingness to loan out money to companies at extremely low interest rates suggests they’re not accurately pricing the growing risk of default from these increasingly indebted companies.
...


In this environment of low interest rates and narrow credit spreads, total corporate bond issuance has recovered and surpassed its pre-crisis levels. According to SIFMA, total issuance in 2013 was $1.3 trillion.


3---Housing Won’t Save the U.S. Economy, house of debt


4---Mortgage Companies Face "Tremendously Difficult" Year As Housing Recovery Crumbles, zero hedge
As The Wall Street Journal reports, lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance.


The decline shows how the mortgage market is experiencing its largest shift in more than a decade as an era of generally falling interest rates that began in 2000 appears to have run its course. The average 30-year fixed-rate mortgage stood at 4.5% last week, up from 3.6% last May, when interest rates shot up in reaction to the Federal Reserve's initial indication that it might reduce a bond-buying campaign that was, in part, designed to keep a lid on long-term rates like mortgages.
The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing.











The hope is fading fast...


The lending news could disappoint economists looking for a pickup in housing construction and new-home sales this year that could drive growth as other segments of the economy are showing signs of rebounding after a winter lull.

...

Softness in the housing market, if it deepens and undermines the broader economic outlook, could complicate the Fed's efforts to dial back easy-money policies designed to support the recovery
5---100% Reserve Banking — The History, house of debt


6---Demand for Home Loans Plunges, WSJ


7---Japanese Doomsday Machine Socks It To The Middle Class (But Shorting JGBs Remains A Terrible Idea) , Testosterone Pit


If wages rise with inflation, OK. But total earnings by all employees and contract workers are still down 0.1% year over year, according to the most recent labor survey. Soaring prices and declining wages – the scourge of inflation without compensation, as I’ve come to call it, is a favorite way of hollowing out the middle class (a method employed with great success in the US since the real-wage peak of 2000).


So consumer confidence in March – before the tax increase actually hit their wallets though they’d been doing the math for months – dropped to the lowest level since August 2011, a time of tragedy. It was when people were struggling with the images and real-life impact of the Great East Japan Earthquake and tsunami that had brought businesses and consumers to a near standstill. It was when people were sweltering in offices and at home without air conditioning in an effort to save electricity, and when fears of radioactive contamination were spreading, and when people were holding Geiger counters on fish before buying it. That’s how far consumer confidence has sunk these days.


All subcategories were down: overall livelihood, income growth, employment, and willingness to buy durable goods, which took the biggest hit, not exactly an endorsement of future economic growth. And 89.7% expected prices to continue to go up over the next 12 months, a record in the data series going back to 2004.


The consumer confidence level of 37.5 is the worst in Abe’s reign. It’s down over 2.4 points from when he took over in December 2012. It’s down 8.2 points from its peak under his rule, achieved last May when his honeymoon began to erode.


8---Is the economy suffering from "secular stagnation"?, mark Thoma


9---Housing risk rising as more loans don't meet QM on DTI, HW

An early look at report shows loan climate getting riskier

This month’s NMRI ( National Mortgage Risk ) update shows about 24% of all purchase loans have a debt-to-income ratio greater than the QM limit of 43%.
The Federal Housing Administration leads with 45% of purchase loans exceeding the 43% DTI limit.
Indices for Fannie/Freddie and FHA/RHS both hit new highs in March. Roughly 117,000 loans were added in March, bringing total in NMRI to 2.57 million.
Risk levels remain higher than is conducive to long-run market stability, their report says, with no discernible impact from QM regulation.
What are their reasons for caution?


“In a boom, mortgage lending moves out the credit curve; political pressures are again growing for degraded lending practices,” the report states.
Further, they say, the QM credit box is broad and deep. All the home purchase loans covered by the NMRI today are qualified mortgages, but half have a down payment ≤ 5%, with an average NMRI of 19%.
Also, nearly one-quarter have a total debt-to-income ratio > 43%, also with an average NMRI of 19%.
One-third of FHA’s home purchase loans have a FICO score below 660 (the demarcation line for subprime credit); these have an average NMRI of 35%.


10--“Risk Aversion, Global Asset Prices, and Fed Tightening Signals”, econbrowser


11---This Chart Is A True Picture of The Bank Credit Bubble In America, Now Bigger Than The Last One (Which Blew Up), Testosterone Pit


Turns out, banks have been lending. Not only that. They’ve been lending more than ever before. They have been lending even more than during the last credit bubble, when too many easy loans were made helter-skelter by loosey-goosey loan officers while the Fed’s spigot was wide open, which helped blow up the financial system.

Note the beautiful big-fat bank credit bubble that emerged in 2002, picked up speed as it went, and took off in earnest in 2007, when the chart begins. And note how it soared exponentially in 2008. At the time, the banking system was coming apart at the seams, the housing market was tanking, Bear Stearns got cooked, and stocks were skidding. Nothing stopped the bank credit bubble. Nothing until Lehman Brothers went belly-up in September. Bank CEOs worried about being next. And that finally punctured it.
So the peak was reported in October 2008. Loans and leases outstanding at all commercial banks in the US (black line, left scale) hit $7.28 trillion and all bank credit (red line, right scale) maxed out at $9.56 trillion. Then the great cliff dive began, hitting bottom in February 2010 – outstanding loans and leases at $6.5 trillion, all bank credit at $8.9 trillion.
Now we’re back! Only this time, the bank credit bubble is even bigger. Last month, outstanding loans and leases reached $7.52 trillion and bank credit $10.3 trillion. Halleluiah


12---Risky Lending Becoming More Common, MReport


According to a report released this week by LendingTree, down payment percentages for 30-year fixed-rate purchase loans fell in the first quarter to an average of 15.78 percent, down from just higher than 16 percent in the last quarter of 2013.
At the same time, the company found average credit scores for borrowers matched with lenders on its own network have dropped 6 percent year-over-year, opening up the credit pool a little more.
“As the housing market improves and refinance activity declines, lenders are adapting their guidelines to improve credit accessibility for borrowers,” said LendingTree founder and CEO Doug Lebda. “Relaxed lending guidelines translates to a larger pool of qualified homebuyers that could boost the housing recovery.”


13---Whalen: Nonbanks are taking over mortgage originations, HW


Investment banker and outspoken housing analyst Christopher Whalen, predicts that by this time next year, 40% of mortgage originations will be done by nonbanks.
“When you hear Ginnie Mae CEO Ted Tozer speaking at public events, he says more and more he’s seeing nonbank counterparties for FHA,” Whalen said, speaking at the SourceMedia Mortgage Servicing conference in Dallas. “I hope that nonbanks will step up to the plate and take over originations. Commercial banks no longer want anything to do with closing that note.”


14---US and Europe push confrontation with Russia toward war, wsws


The Spiegel article also refers to a survey by the International Republican Institute from the second half of March, which reports that 48 percent of the population in eastern Ukraine “strongly oppose” the head of state Alexander Turchinov, with just three percent expressing “strong support.” A total of 59 percent of eastern Ukrainians in the survey expressed positive feelings for Russia, with 45 percent of respondents rejecting the parliament in Kiev.....


there is no indication from the American side of a desire to deescalate the crisis. Comments made by Ukrainian Prime Minister Arseniy Yatsenyuk confirmed that the US, the EU and the International Monetary Fund are providing funds to build up Ukrainian security forces.
In an interview with the Washington Post published Friday, Yatsenyuk was asked: “Is the US giving you enough military aid to build up the army?” Yatsenyuk replied: "The US supplies us with non-lethal support.” When asked where his government will find the money to buy military equipment, the Ukrainian premier answered: “The US issued $1 billion in loan guarantees. The IMF supports us. We are getting support from the EU.”
....




British Prime Minister David Cameron’s office said: “The five leaders agreed that in the light of Russia’s refusal to support the process, an extension of the current targeted sanctions would need to be implemented, in conjunction with other G-7 leaders and with European partners.”
At a press conference following discussions with Polish President Donald Tusk, German Chancellor Merkel said she told Russian President Vladimir Putin in a phone call that Germany was ready to impose further sanctions should tensions increase. Merkel’s press spokesman declared, “Nobody should be deceived. We are willing to act.”...


The Geneva agreement calls for all illegal paramilitary groups to be disarmed and disbanded, but Kiev, with the full support of the US and the European Union, has mobilized fascist thugs of the Right Sector against anti-government protesters in the east. On Thursday, thirty Right Sector operatives armed with baseball bats stormed buildings held by protesters in the city of Mariupol.


Right Sector leader Dmytro Yarosh has announced he is moving to the eastern Ukrainian industrial city of Dnepropetrovsk to direct attacks against anti-regime protesters. He boasts of state support for his forces, telling the German publication Spiegel Online, “Our battalions are part of the new territorial defense. We have close contact with the intelligence services and the general staff.”...


US Treasury Secretary Jack Lew said Friday that the next round of sanctions against Moscow would go well beyond the penalties targeting individuals thus far imposed. “We are working with our international partners to make sure that when we do it, we do it in an effective way,” he said in a radio interview....


15--Kerry’s statement on Ukraine: A lying brief for war, wsws


16---The danger of war in Asia, wsws


17---‘Tanks, APCs, 15,000 troops’: Satellite images show Kiev forces build-up near Slavyansk, RT



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