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Tracking the many faces of the global credit implosion. You can pull sub-categories from this feed by adding a ?tags=a,b,c,... style parameter. The category tags (which can be given as numbers or handles) are : id handle category description 1 housing_finance "Housing Finance News/ML-Implode Main" 2 hedge_funds "Hedge Funds News" 3 fed "The Fed, Central Banking and fin. reg." 4 foreclosures "Foreclosures (News)" 5 chavez "Hugo Chavez Watch (News)" 6 builders "Home Builders News" 7 banks "Banks News" 8 credit_bubble "Credit Bubble and Crash (News)" 9 peak_oil "Peak Oil and Energy Security (News)" 10 BRIC_v_us "BRIC countries vs. U.S. (News)" 11 gov_bk "Government Bankruptcy (News)" 12 mediawatch "Mainstream Media Watch" 13 Our commentary "IEHI Original Commentary" 14 rebalancing "Economic Rebalancing (News)" 15 pm "Precious Metals News" 16 inflation "Inflation and Deflation News" 17 nr "Natural Resources News" 18 consumer "Consumer Capitulation/Issues and Populism" 20 pe "Private Equity Implosion (News)" 21 recession "Recession/depression News" 22 ML_implosion "Mortgage Lender IMPLOSIONS" 23 HF_implosion "Hedge Fund IMPLOSIONS" 24 HB_implosion "Home Builder IMPLOSIONS" 25 Bank_implosion "Bank IMPLOSIONS" 26 ML_update "Mortgage Lender UPDATES" 27 HF_update "Hedge Fund UPDATES" 28 HB_update "Home Builder UPDATES" 29 Bank_update "Bank UPDATES" 30 RFWS "Radio Free Wall Street" 31 FHA "FHA and Mtg Regulation (News)" 32 martial_law "Martial Law/Big Brother/NWO Watch" 33 pension "Retirement Implosion (News)" 34 mtgindustry "Mortgage Industry (News)" 35 econlists "Econ insider lists" 36 iehi_fb "IEHI facebook feed" 37 robin_fb "robin facebook" 38 IEHItwitter "IEHI Twitter Feed" 39 ak_linkedin "akrowne LinkedIn (mtg industry)"
Updated: 22 min 48 sec ago

Varoufakis: Capitalism is ending because it has made itself obsolete

Thu, 10/19/2017 - 18:30
``Capitalism is going to undermine capitalism, because they are producing all these technologies that will make corporations and the private means of production obsolete. And then what happens? I have no idea."

Describing the present economic situation as "unsustainable" and fearing the rise of "toxic nationalism", Mr Varoufakis said governments needed to prepare for post-capitalism by introducing redistributive wealth policies. 

He suggested one effective policy would be for 10 per cent of all future issue of shares to be put into a "common welfare fund" owned by the people. Out of this a "universal basic dividend" could be paid to every citizen. ''

Or perhaps technology is making "capitalism" obsolete (it's not even clear, however, that "capitalism" is what's being displaced, so much as an ad hoc set of public-private power relations mixed in with semi-free flowing capital and quasi-free markets...)

$1 Trillion In Liquidity Is Leaving: "This Will Be The Market's First Crash-Test In 10 Years"

Thu, 10/19/2017 - 17:18
``... echoing what Deutsche Bank said last week, when it warned that central bank liquidity injections will collapse from $2 trillion now to 0 in 12 months, a "most worrying" turn of events, Fasanara doubles down that "such liquidity withdrawal will represent the first real crash-test for markets in 10 years." ''

McDonald's Has Morphed Into a Buyback-Powered Fraud

Thu, 10/19/2017 - 17:12
Having gained over 65% in the last two years, the stock of McDonald's Corporation (MCD) recently caught our attention. Given the sharp price increase for what is thought of as a low growth company, we assumed their new line of healthier menu items, mobile app ordering, and restaurant modernization must be having a positive effect on sales. Upon a deeper analysis of MCD's financial data, we were quite stunned to learn that has not been the case. Utility-like in its economic growth, MCD is relying on stock buybacks and the popularity of passive investment styles to provide temporary costume as a high-flying growth company.

...

Since 2012, MCD's revenue has declined by nearly 12% while its earnings per share (EPS) rose 17%. This discrepancy might lead one to conclude that MCD's management has greatly improved operating efficiency and introduced massive cost-cutting measures. Not so. Similar to revenue, GAAP net income has declined almost 8% over the same period, which rules out the possibilities mentioned above... If we use the adjusted EPS figure instead of the stated EPS, the P/E rises to 30, which is simply breathtaking for a company that is shrinking...

In addition to adjusting MCD's earnings for buybacks, investors should also consider that to accomplish this financial wizardry, MCD relied on a 112% increase in their debt. Since 2012, MCD spent an estimated $23 billion on share buybacks. During the same period, debt increased by approximately $16 billion. Instead of repurchasing shares, MCD could have used debt and cash flow to expand into new markets, increase productivity and efficiency of its restaurants or purchase higher growth competitors. MCD executives instead manipulated EPS and ultimately the stock price. To their good fortune (quite literally), the Board of Directors and shareholders appear well-deceived by the costume of a healthy and profitable company. Over the last three years, as shown below, compensation for the top three executives has soared.

Don't Rely on U.S. Consumers to Power Global Growth (THEY'RE FALTERING UNDER DEBT BURDEN)

Thu, 10/19/2017 - 16:59
U.S. consumers account for 18 percent of global gross domestic product, and it's tempting to rely on them to continue carrying the aging recovery to support world growth. The data and growing lender anxiety, though, suggest investors should prepare for what is increasingly looking like an inevitable slowdown in economic growth next year.

Although American households managed to maintain their spending levels in the face of dwindling prospects for future economic expansion, they have done so by taking on incremental debts, which could soon prove unsustainable.

...

"Through the use of credit, personal and government, U.S. households have pulled forward future consumption," said Michael Liebowitz, a principal at 720 Global/Real Investment Advice, an economic and investment consulting firm. "The weight of those outstanding obligations serves as a wet blanket on current and future economic growth."

... It was telling that fresh data revealed Americans ploughed more of their income to paying debts last year, the first increase in seven years. Moody's Investors Service warned the troubling finding would lead to further increases in default rates... stresses have been growing for almost two years when increases in credit card borrowing began to outpace that of incomes. The "something-had-to-give" moment appears to be arriving.

Trump's FTC pick, Joseph Simons, is not an antitrust hipster

Thu, 10/19/2017 - 16:43
Trump has landed on his pick to lead the Federal Trade Commission: Joe Simons, an antitrust lawyer who formerly represented Microsoft, as the White House announced Thursday. The FTC is the independent government agency tasked with reviewing mergers, scoping out anti-competitive behavior, and protecting consumer privacy and security. If Simons gets congressional approval, that means the agency that's supposed to keep watch on big companies will be led by a former corporate lawyer.

It's also another sign that Trump's occasional vows to crack down on particular tech companies like Amazon and NBC (which is owned by Comcast)--generally following coverage he didn't like--are not likely pan out. Remember, in May of last year when Trump chastised Amazon's CEO Jeff Bezos, who also owns the Washington Post: "He thinks I'll go after him for antitrust. Because he's got a huge antitrust problem because he's controlling so much, Amazon is controlling so much of what they are doing." But even from a president whose chief policy motivation seems to be spite, trustbusting by a Republican administration--actually, from just about any modern administration--was probably never likely.

Trump leaning toward Powell for Fed chair, officials say

Thu, 10/19/2017 - 16:41
Federal Reserve Governor Jerome Powell is the leading candidate to become the chair of the U.S. central bank after President Donald Trump concluded a series of meetings with five finalists Thursday, three administration officials said.

The officials cautioned that Trump, who met with current Chair Janet Yellen for about half an hour on Thursday, has not made a final decision.

Powell, known as Jay, has been heavily favored by Treasury Secretary Steven Mnuchin, who is leading the Fed chair search for Trump.

Other finalists include former Fed Governor Kevin Warsh, Stanford economist John Taylor and National Economic Council Director Gary Cohn.

"They're all at the same level of consideration at this time. The president said himself on Tuesday, he likes all of the candidates and has great respect for them all," White House spokeswoman Natalie Strom said.

Of the five finalists, Powell would likely face the least opposition to confirmation in the Senate, according to interviews with nearly a dozen members of the Banking Committee.

Spain Sets Stage to Take Control of Catalonia in Independence Fight

Thu, 10/19/2017 - 16:23
The government in Madrid ... announced that it would convene an emergency cabinet meeting on Saturday "to defend the general interest of Spaniards, among them the citizens of Catalonia."

The rapid succession of events moved what was already one of the gravest crises in Spain's relatively young democracy to a far more serious and unpredictable stage, with the prospect that Madrid could take over the running of Catalonia. At the most extreme, the Spanish government could arrest Mr. Puigdemont and charge him with sedition, as it has done with two other separatist leaders.

But such a step would risk provoking a popular backlash and new street demonstrations in a region where many are already bridling at what they see as a heavy hand by the government of Prime Minister Mariano Rajoy.

"A bad situation has become even worse today," said Argelia Queralt, a professor of constitutional law at the University of Barcelona. "Neither side seems really willing to yield an inch, which means there is only a very limited chance of any positive outcome to this conflict."

...

Last week, Mr. Rajoy initiated a request to invoke a broad and forceful tool that has never before been used -- Article 155 of the Spanish Constitution -- which would allow him to take direct control of Catalonia.

He said he could resort to such a step if Mr. Puigdemont did not clearly back down from a threat to declare independence.

But on Thursday, Mr. Puigdemont sent a defiant letter to Mr. Rajoy, blaming him for escalating the conflict by refusing to meet and negotiate.

...

It is unclear what Mr. Rajoy will propose to his cabinet on Saturday, but he may try to gradually raise pressure on the fragile coalition of Catalan separatists rather than risk a forceful intervention that could further galvanize the independence movement.

Who Has the World's No. 1 Economy? Not the U.S.

Thu, 10/19/2017 - 09:07
Economists try to correct for [flawed GDP measurement] with an adjustment called purchasing power parity (PPP), which controls for relative prices. It's not perfect, since it has to account for things like product quality, which can be hard to measure. But it probably gives a more accurate picture of how much a country really produces. And here, China has already surpassed the U.S....

In some dimensions, China's lead is even larger. The country's manufacturing output overtook that of the U.S. almost a decade ago. Its exports are more than a third larger as well. American commentators may be slow to recognize China's economic supremacy, but the rest of the world is starting to wake up to the fact...

This doesn't mean China's population is the world's richest -- far from it. The countries with the highest income per person, in order, are Qatar, Luxembourg, Singapore, Brunei and the United Arab Emirates. But few would argue that Qatar or Luxembourg is the world's leading economy...

But there's good reason to think that China will overcome at least some of these obstacles. Economists Randall Morck and Bernard Yeung have a new paper comparing the histories of Japan and South Korea -- both of which climbed out of poverty to achieve rich-country status -- with the recent rise of China. They find that China's institutions are, broadly speaking, developing along the same path followed by its successful neighbors...

Cohn: Overseas Cash Could Be Used For Stock Buybacks (I.E. CONTINUED PROPPING)

Wed, 10/18/2017 - 11:24
``"We're not going to put conditions on it," Cohn told Yahoo Finance. "We need to get the money back into the United States. There's trillions of dollars offshore." Cohn said he's okay with companies using the money as they wish. "If they buy back stock, okay so they buy back stock," he said. "That means the government collects a tax on the capital gains or the ordinary income from whoever they buyback stock from. Let's call it 23.6%. The government gets 23.6%."''

Ray Dalio's Shorting The Entire EU; Derivs-Clearing Could Be EU's Brexit Achilles Heel

Wed, 10/18/2017 - 10:43

Great compilation today by Raul Illargi. On the derivatives-clearing issue:

Calling into question the continuity of tens of thousands of derivative contracts , [Carney] stated that it was "pretty clear they will no longer be valid", that this "could only be solved by both sides" and has been "underappreciated" by Europe . Carney had a snipe at Europe for its lack of preparation "We are prepared as we should be for the possibility of a hard exit without any transition...there has been much less of that done in the European Union."

...

Shifting clearing of euro-denominated derivatives from London to the European continent would require banks to set aside far more cash to insure trades against defaults, a cost that would be passed on to companies, a global derivatives industry body says. [..]The London Stock Exchange's subsidiary LCH currently clears the bulk of euro-denominated swaps, a derivative contract that helps companies guard against unexpected moves in interest rates or currencies.

And on Dalio's bets against the Eurozone:

Dalio doesn't call the bluff of Italy, and this is not just like George Soros' shorting the British pound in 1992, he's calling out the entire EU and its financial system. He's saying I don't believe you can keep up the charade. He's making a mockery of Mario Draghi's "whatever it takes".

So what are Rome, Brussels and Frankfurt going to do? They can't ignore the no. 1 hedge fund forever. They will have to pump money into Italy, in large amounts. Merkel won't like that, neither will her new coalition partner FDP, and the Bundesbank may start legal action.

...

Bridgewater didn't enter that theater for nothing. $1.85 billion is not chump change for them. Intesa Sanpaolo CEO Carlo Messina may have said that Dalio will lose his bets, but according to the IMF Italy's non-performing loans levels were €356 billion at the end of June 2016, which is 18% of total loans for Italian banks, 20% of Italy's GDP and one-third of total Eurozone NPLs. Intesa Sanpaolo holds a nice chunk of that.

How money will divide Europe after Brexit

Wed, 10/18/2017 - 08:41
``Those hoping for greater generosity on the part of the remaining rich countries are likely to be disappointed. With German Chancellor Angela Merkel weakened following her poor performance in the federal election, Germany will be even more tight-fisted than before in its efforts to avoid anything that smacks even faintly of a "transfer union." Yet if the poorer countries receive less, that will sharpen the north-south divide that emerged so starkly during the euro crisis when countries such as Finland resented having to contribute to bailouts -- especially to Greece -- while southern states smarted at the imposition of austerity. And it will exacerbate tensions with eastern countries such as Poland that are big beneficiaries from the EU budget... once Britain leaves, the bickering over money will begin -- and the push toward a stronger union could be tougher than ever to achieve.''

‘Sometimes you don't feel human' -- how the gig economy chews up and spits out millennials

Wed, 10/18/2017 - 08:31
The upsides of this sort of work have diminished over time. Huws says the golden age for the gig economy was some time around 2013, when companies took a smaller cut and there were fewer drivers/riders/factotums to compete with. "As Deliveroo pass on all risk to the rider, there's nothing to stop them over-recruiting in an area and flooding the city with riders, which is exactly what we saw last winter," says Guy McClenahan, another Brighton rider (Deliveroo maintain that the hundreds of riders in the area earn on average well above the national living wage). Over time, Uber has increased the commission it takes from drivers while reducing fares. Drivers are finding themselves working much longer hours in order to make the same pay -- or far less...

It is true that the unemployment rate among 16- to 24-year-olds in the UK is 12%, while in parts of Europe it is 40%. But that doesn't mean much if many of those people are in precarious "self-employment" -- the McKinsey Global Institute estimates this may be up to 30% of working-age adults across Europe. Huws says the notion of a career is being eroded, with young people often working a patchwork of different occupations. We laugh about George Osborne having six jobs; if he was a millennial, this would be par for the course.

... Dewhurst points out that the wider casualisation of work is a problem. She reckons about 50% of the union's members are millennials, although she stresses that the increase in political engagement among the young hasn't automatically resulted in mass union membership. She says millennials are used to outsourced work, and are adaptable and resilient. More than that, argues Huws, they have grown up in a climate of unpaid internships and terrifying probation periods, the first generation "expected to work for free". For many, all they know is being part of the precariat. Or, as Huws puts it in no uncertain terms, "today's model of the working poor".

Gloom Boom & Doom Editor Faber Goes "Boom" With Racist Outburst

Wed, 10/18/2017 - 08:20
``Veteran investor Marc Faber left the boards of money manager Sprott Inc. and mining companies Novagold Resources Inc. and Ivanhoe Mines Ltd. after he claimed in his newsletter this month that "the U.S. would look like Zimbabwe" if it had been settled by black people instead of whites... In a 15-page edition of his investor letter, "The Gloom, Boom & Doom Report," Faber argued against the removal of confederate statues, saying the "only crime" of the men those monuments honored was to defend slavery and that the controversy distracts from more important debates. '' -- Perhaps defending those who defended slavery is the "distraction"... too bad, Marc. We liked occasionally running your MARKET COMMENTARY... too bad you strayed from your zone of expertise...

Asset Prices & Monetary Policy in an Irrational World - Whalen

Tue, 10/17/2017 - 13:26
As with many other sectors, in large-cap financials there was little excitement, no alpha -- just slightly higher loss rates on loan portfolios that are growing high single-digits YOY.  Yet equity valuations are up mid-double digits over the same period. 

The explanation for this remarkable divergence between stock prices and the underlying performance of public companies lies with the Federal Open Market Committee.  Low interest rates and the extraordinary expansion of the Fed's balance sheet have driven asset prices up by several orders of magnitude above the level of economic growth...

Stocks, commercial real estate and many other asset classes have been vastly inflated by the actions of global central banks. Assuming that these central bankers actually understand the implications of their actions, which are nicely summarized by Greenspan's remarks some 20 years ago, then the obvious conclusion is that there is no way to "normalize" monetary policy without seeing a significant, secular decline in asset prices.

Why Have Investigations of Wall Street Disappeared from Corporate Media?

Tue, 10/17/2017 - 13:19
As recently as two months ago, the Wall Street Journal's editorial board was again attempting to write a revisionist history of the criminal conduct on Wall Street that led to the 2008 financial crisis -- the greatest economic bust in America since the Great Depression. Under the subhead "Bankers haven't gone to jail because they haven't committed crimes," the editorial board wrote....

Again, the Wall Street Journal is seriously out-of-touch with its beat. In order "to prove a crime," the U.S. Justice Department has to actually use one of the many weapons in its arsenal -- like subpoenas and wiretaps. That didn't happen because President Barack Obama put the wrong men in charge at the Justice Department. Again, that intrepid reporting didn't make its way into the public domain via the Wall Street Journal but via the PBS program, Frontline, and producer Martin Smith. The 2013 program indicated that there wasn't even a pretense of a real investigation by the Justice Department against the biggest Wall Street banks.

...

The lurking danger for shareholders and investors and U.S. taxpayers is that systemic contagion is once again building up among the handful of mega banks on Wall Street that control an obscene share of the nation's deposits and assets. Ferreting out that information and bringing it to the front page may not be popular with Wall Street advertisers or their legions of lawyers. But it's essential to maintaining an engaged, free press.

Varoufakis tells Macron to adopt the ‘empty-chair' tactic

Tue, 10/17/2017 - 13:06
``More than fifty years ago, in 1965, French President Charles de Gaulle withdrew his ministers from the Council of the EU, de facto vetoing all decisions. According to Yanis Varoufakis, former finance minister for Greece, Macron should consider refreshing this tactic -- but for the opposite reason. De Gaulle was defending nation states, while Macron wants to push federalism forward.''

Senators Reach Deal to Fund Subsidies to Health Insurers

Tue, 10/17/2017 - 13:00
Two leading senators have reached a bipartisan deal to provide funding for critical subsidies to health insurers that President Trump said last week that he would cut off, Senator Lamar Alexander, Republican of Tennessee, said Tuesday.

The plan agreed to by Mr. Alexander and Senator Patty Murray of Washington, a Democrat, is intended to stabilize health insurance markets under the Affordable Care Act.

As one part of the deal, the subsidies would be funded for two years, a step that would provide at least short-term certainty to insurers. The subsidies, known as cost-sharing reductions, lower out-of-pocket costs for low-income consumers.

... it it remains to be seen whether conservative-leaning Republicans will get on board with the agreement, and whether the House will entertain it. Some Republicans have said they do not wish to provide what they describe as a bailout to insurers.

What Debt Crackdown? China's Banks Are Binging on Bonds

Tue, 10/17/2017 - 10:45
China's banks are still bingeing on short-term financing, defying analyst predictions that they would wean themselves off such debt as regulators intensify a crackdown on leverage.

Sales of negotiable certificates of deposit -- a key funding source for medium and smaller banks -- surged 49 percent from a year ago in the third quarter to a record 5.4 trillion yuan ($819 billion), according to data compiled by Bloomberg... China's deleveraging looms large in debt-market dynamics these days, with government bond yields at two-year highs and the one-week Shanghai Interbank Offered Rate not far from the most expensive since 2015. Still, officials are also trying to keep the economy humming: they've tweaked the rules governing NCD issuance, but haven't shut off the taps as credit growth accelerates.

...

The certificates -- which have been used by lenders to finance purchases of each other's wealth-management products -- came under regulatory scrutiny last year, when they started to serve as a source of leveraged bond investments for some institutions. In August, the People's Bank of China asked lenders with more than 500 billion yuan of assets to classify the debt as interbank liabilities from next year. This is seen effectively capping sales.

New Jersey offers $7 billion in incentives in attempt to lure Amazon to Newark

Tue, 10/17/2017 - 10:30
``New Jersey is offering Amazon $5 billion in tax incentives over the next 10 years and upon the creation of 50,000 jobs, Mr. Christie said. In addition, Newark is offering a property-tax abatement potentially worth $1 billion and another $1 billion that Amazon's new Newark workers would gain over 20 years from the city waiving its local wage tax, the governor said.''

Goldman Sachs thinks we're heading into a bear market

Mon, 10/16/2017 - 15:10
``The trio calculated a risk index based on the Shiller price-earnings ratio (the price of S&P 500 stocks divided by the average of 10 years of earnings, adjusted for inflation), the US ISM manufacturing index, unemployment (very low), the bond yield curve, and core inflation. The resultant "GS Bear Market Indicator" is currently flashing at 67%. The indicator typically hits highs right before a bear market in US stocks appears... Historically, when the indicator is at 67%, there is an 88% chance of stocks falling into a bear market in two years' time, the Goldman analysts say.''