Implode Explode

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Tracking the many faces of the global credit implosion.
Updated: 22 min 4 sec ago

Interest-only loans could be 'Australia's sub-prime'

7 hours 58 min ago
High-risk mortgage loans to young families, professionals and other over-extended borrowers amounting to more than six times household incomes could wipe out 20 per cent of the major banks' equity base, institutional investment fund JCP Investment Partners has warned.

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In a proprietary study of the nation's record high-and-growing household debt mountain, the Melbourne-based fund said Irish-style housing losses for the bigger-than-recognised pool of riskier borrowers could wipe out half of the banks' equity capital.

Interest-only loans, said JCP -- which is one of three Australian equities managers appointed by the Future Fund -- could be "Australia's sub-prime".

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Among the biggest concerns is what may happen when households feel they can no longer service their loans, for instance, as borrowing costs are reset higher or those with interest only mortgages are forced to repay the principal as well.

That creates a negative feedback loop -- experienced by Ireland after the financial crisis -- in which stressed borrowers slash their spending, in turn crunching the economy, driving up unemployment and adding to downward pressure on house prices.

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The fund's senior researchers Matthew Wilson and Craig Shephard found that about half of all the nation's mortgage debt was in the hands of borrowers whose debt was more than four times larger than their gross income.

The same borrowers had paid off less than half of their loans, the team found, based on data from several official and private sector sources that adjusted for changes in incomes and the collateral values of their homes.

The average loan-to-income ratio of these heavily indebted households was 6.4, or more than double the old banking "rule of thumb" that mortgage managers didn't lend more than three times a household's income "unless they were doctors".

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JCP calculated how the banks' balance sheets would handle an 2008 Irish-style loss on the high risk loans. It estimated that 50 per cent of the equity of Australian banks would be destroyed by soured loans to these high-risk borrowers.

Car loans, low rates, second mortgages: all the ingredients for a new credit crunch (UK)

8 hours 16 min ago
A credit crunch is brewing and when it happens, the UK is going to get hurt. That is the message emerging from senior executives in the financial services industry, who do not think Britain has changed that much since the 2008 credit disaster and the devastating crash that followed. Three developments lie at the heart of this disturbing analysis: spectacular growth in the sale of second mortgages, car loans and credit cards.

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Officials at the Bank have a growing list of concerns. Not only is there the second mortgage problem and the number of car loans: figures show consumer spending on unsecured credit has also rocketed in the last year. In March alone, the amount UK consumers owed on loans and cards grew by £1.9bn, the highest figure in 11 years.

Households are known to have increased their reliance on short-term unsecured loans to buy cars and furniture, and to kit out new kitchens. Some use them to maintain their lifestyle in the face of a decade of flat wages. Unfortunately, another group use credit to pay the monthly rent.

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Try as they might, the UK's two big high street lenders cannot put the financial crisis behind them. Last week, when Lloyds Banking Group was congratulating itself over its return to the private sector, it was still being haunted by the fraud perpetrated at the Reading branch of HBOS, the hotshot lender it rescued in 2008. To add to the pressure, Noel Edmonds, the TV celebrity, is leading the campaign for compensation for the victims of the fraud which took place in the run-up to the financial crisis.

This week, Royal Bank of Scotland will be transported back to those calamitous days of 2008. A high court judge will begin hearing a claim for compensation from investors who backed a £12bn cash call by RBS in April 2008 -- only for the Edinburgh-based institution to be bailed out by taxpayers six months later.

Home ownership among young families halves in 20 years (UK)

Sat, 05/20/2017 - 13:30
``Research by The Resolution Foundation found that 31 per cent of 25 to 34-year-olds surveyed were home owners in 2016, compared to 58 per cent in 1994. Regionally, 30 per cent of those surveyed in West Yorkshire owned homes last year, compared to 61 per cent in 1994.''

The Housing Moment Investors Dread Is Here

Sat, 05/20/2017 - 08:35
The May University of Michigan Consumer Sentiment survey showed a six-year low among those who think it's a good time to buy a house and a 12-year high among those who say it's a good time to sell. Disparities of this breadth tend to coincide with break points and that's just where we've landed in the cycle.

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The silver lining in the dynamic that's just beginning to play out is what pricing pressures on the home front imply for the future of household finances -- that is after the recession comes and goes. The cost to rent and buy has never been as high as it is today for the average working young American. The preponderance of apartments constructed in the current cycle has been luxury units. At the same time, private equity investors with deep pockets swooped in and bid up the price of rental homes, leaving many would-be first-time homebuyers and renters alike with no choice but to remain at home with their parents after graduating from college.

Manafort's Real-Estate Deals Said to Be Probed by N.Y.'s Top Cop, Manhattan DA

Fri, 05/19/2017 - 16:54
The probe by New York Attorney General Eric Schneiderman, one of the most outspoken critics of the president, is in a preliminary stage, according to a person familiar with the matter who asked not to be named because the investigation isn't public. Manafort, who ran Trump's campaign from April to August last year, has owned property in the Hamptons and Trump Tower in Manhattan.

Manhattan District Attorney Cyrus Vance Jr. is also in the early stages of an investigation into Manafort's transactions, a person familiar with that probe said. Representatives for Schneiderman and Vance declined to comment.

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The inquiries by the two Democrats could pose added legal peril for Manafort if investigators find evidence of a crime. Unlike a probe by the U.S. Justice Department and FBI, the president and Attorney General Jeff Sessions have no authority over New York state investigators scrutinizing whether Manafort broke state laws. Schneiderman is responsible for enforcing New York's securities laws under the Martin Act, which gives him broad powers to pursue white-collar crime.

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Manafort's business dealings have featured prominently in discussions of links between the Trump campaign and Russia. He used Cypriot bank accounts to receive money from Russian tycoon Oleg Deripaska and Ukrainian clients, according to court records and former executives at the bank where the accounts were kept. Manafort and Deripaska have said the accounts were opened for legitimate business transactions.

Get Ready for "Quantitative Tightening"

Fri, 05/19/2017 - 16:47
``The Fed's decision not to buy new bonds will be just as much a form of tightening as raising interest rates. How come it's stimulative when they print money, but it's not contractionary when they make money disappear? The argument contains a basic contradiction. The contradiction leads to two results. One is that the Fed is engaged in happy talk and wants us to believe QT is not contractionary when it is. The other is that QT actually is contractionary, and we'll be in a recession sooner than later. Unfortunately, both things are true.''

Households owe record amount, topping pre-recession peak

Thu, 05/18/2017 - 08:41
The Federal Reserve Bank of New York said Wednesday that household debt, which also includes home equity lines of credit, stood at $12.73 trillion in the first quarter. That's above the $12.68 trillion outstanding in the fall of 2008, the previous record. The figure isn't adjusted for inflation or population size.

Even with debt levels back to record heights, analysts note that household borrowing appears more sustainable now than it did nearly a decade ago. Interest rates are lower, and lenders are much more focused on credit-worthy borrowers.

AP reports Trump's tax returns show no Russian money ... except none of that is true

Tue, 05/16/2017 - 16:55
`` So, only over a hundred million in Russian income. Oh, and other things that were "not identified as `Russian' in [Trump's] books and records and therefore not separately reflected on [Trump's] tax returns." So, somewhere between the hundred million everyone already knows about and infinity.''

'Pay Trump bribes here' sign projected onto Trump's DC hotel

Tue, 05/16/2017 - 10:54
Visitors to the Trump International Hotel in Washington were greeted with a provocative message Monday night: "Pay Trump bribes here."

Artist and filmmaker Robin Bell said he projected those words onto the hotel's facade from a van across the street, hoping to call attention to accusations that President Donald Trump is allowing foreign leaders to pay for access by staying at a Trump property just a few blocks from the White House.

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The Trump Organization rents the space for the Trump International Hotel from the General Services Administration. Because the President oversees the GSA, Trump effectively became both landlord and tenant when he was sworn in.

But the federal government ruled in March that the hotel is not violating its lease, despite a clause that says no government official can be a party to it. The GSA determined that the financial trusts and legal arrangements that Trump set up to manage his businesses have ensured that he will not get any money from the hotel while he is in office.

Seems fair to us; keep the hotel, be subject to messages projected on your buildings making in plain text the bribery that surely cannot help but from occur...

Goldman Says Swedish, Kiwi Housing Markets Most at Risk of Bust

Tue, 05/16/2017 - 07:52
``In a report on house prices in G-10 nations -- those with the 10 most-traded currencies in the world -- Goldman finds they are most elevated in small, open economies such as Sweden and New Zealand. The investment bank said there is a 35-40 percent chance of a housing "bust" in each country over the next two years, which it defines as house prices falling five percent or more after adjustment for inflation.''

"Peak China": Chinese Data Misses Across The Board As Housing Bubble Returns

Mon, 05/15/2017 - 21:29
``The Markit PMI is starting to turn over; China's Inflation Surprise Index - a leading indicator to global inflation metric - has posted a recent sharp drop; China's import trade has likewise tumbled after surging recently; [and] Chinese Iron Ore imports into Qingado port have plunge....''

Global property bubble is ready to pop

Mon, 05/15/2017 - 16:55
``In most ... global cities, property is finally starting to slow. Hong Kong rose a relatively modest 5.3% while Singapore grew 4%, and thereafter price hikes trail away. Half of the 41 countries in the report grew by less than 2%, while nearly one in three saw prices fall, by up to 8.3%. Cheap money has driven prices ever higher for eight years but is finally losing traction, as affordability is stretched again.''

Trump's Denial of Ties to Russian Investments Opens Next Leg of Scandal

Sat, 05/13/2017 - 16:54
Trump not owning property in Russia is beside the point if the Russian oligarchs are stashing their cash in Trump properties in Dubai and Manhattan.

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Ken McCallion, a former prosecutor in the U.S. Attorney's office in New York, states that Trump's SoHo project "was largely financed by illegally obtained cash from Russia and Eastern European sources, including money provided by known international financial criminals and organized crime racketeers."

McCallion goes on to tell the newspaper that he has "spent years looking into the Trump Organization and has arrived at the following conclusion: "The FBI is always concerned if public officials can be blackmailed," McCallion said. "It's Russian-laundered money from people who operate under the good graces of President Putin. If these people pull the plug on the Trump Organization, it would go down pretty quickly."

I Spent Two Years On China's Belt And Road, And This Is What I Found

Sat, 05/13/2017 - 13:52
If you extract the efforts of what other countries are doing along the New Silk Road and just look at China's contributions during the Xi Jinping, BRI era, you're going to be left with neither a belt nor a road -- you don't have much of anything, really.

This isn't meant to detract from China's current and future Silk Road efforts, but to make the point that this is a fully multinational endeavor with a much longer history than is often credited to it. When we talk about the New Silk Road we are talking about an array of interconnected and interdependent trade routes and infrastructure and economic development projects, not a singular initiative cooked up in some back room on Tiananmen Square. Ultimately, this is what gives this project its versatility and power to shape the future.

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When the AIIB was first announced, it was commonly feared that it would become China's way of countering the big development banks of the west and Japan -- the World Bank, ERDB, and the ADB -- and would ultimately undercut their humanitarian and ecological principles in the unchecked pursuit of progress. But what actually transpired was the exact opposite: the AIIB became a powerful compliment to the old guard of development banks, providing a much-needed source of additional funding to help set essential infrastructure projects into motion while maintaining and promoting their established ethical standards.

Tesla's Solar Roof Pricing Is Cheap Enough to Catch Fire

Fri, 05/12/2017 - 11:45
Tesla Inc. has begun taking $1,000 deposits for its remarkable solar roof tiles--to be delivered this summer at a price point that could expand the U.S. solar market.

Tesla will begin with production of two of the four styles it unveiled in October: a smooth glass and a textured glass tile. 1 Roofing a 2,000 square-foot home in New York state--with 40 percent coverage of active solar tiles and battery backup for night-time use--would cost about $50,000 after federal tax credits and generate $64,000 in energy over 30 years, according to Tesla's website calculator.

That's more expensive upfront than a typical roof, but less expensive than a typical roof with traditional solar and back-up batteries. The warranty is for the lifetime of your home... Tesla's cost for active solar tiles is about $42 per square foot, "significantly below" BNEF's prior estimate of $68 per square foot, Bromley said. Inactive tiles will cost $11 per square foot.

China's HNA Snaps Up 245 Park Avenue for $2.2 bln

Fri, 05/12/2017 - 08:16
Chinese conglomerate HNA Group closed on its $2.21 billion purchase of 245 Park Avenue, or $1,227 per square foot, records show.

The deal marks one of the biggest prices ever paid for a Manhattan office tower and is an example of how Chinese money continues to play a significant role in the New York market despite increased capital controls at home.

Very few Manhattan properties have ever crossed the $2 billion threshold -- the list includes 11 Madison Avenue, 3 Bryant Park and the GM Building at 767 Fifth Avenue.

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The Chinese company, which owns 25 percent stake in Hilton Worldwide Holdings, has been making a splash in recent months with a series of major cross-sector investments around the world. Among its recent deals, the company, which began as carrier Hainan Airline, recently upped its stake in Deutsche Bank to 9.9 percent.

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Its acquisition spree has led to some speculation that its chairman Chen Feng enjoys a special relationship with the Chinese government, which has enacted strict capital controls on the purchase of foreign assets. China state-backed banks have provided HNA with a $60 billion line of credit, according to public filings obtained by the New York Times.

Six Canadian Banks Cut by Moody's on Consumers' Debt Burden

Thu, 05/11/2017 - 08:51
Canada's dollar and bank bonds declined after Moody's Investors Service downgraded the nation's banks for the first time in more than four years, signalling that soaring household debt combined with runaway housing prices leave the lenders more vulnerable to losses.

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The downgrade of the Canadian banks follows a recent run on deposits at alternative mortgage lender Home Capital Group Inc. that has sparked concern over a broader slowdown in the nation's real estate market as Canadians are taking on higher levels of household debt. The firm's struggles have taken a toll on Canada's biggest financial institutions, which have seen stocks slide on concern about contagion.

'Stagnant' buyer demand puts the brakes on UK housing market | Business | The Guardian

Thu, 05/11/2017 - 08:49
Its report is the latest in a series of recent surveys suggesting that the slowdown is getting worse as household budgets continue to be squeezed and affordability pressures bite. It comes days after the Halifax said house prices fell by 0.1% in April, which meant they were nearly £3,000 below their December 2016 peak. Nationwide reported a bigger decline in April -- it said prices fell by 0.4%, following a 0.3% drop in March. Some parts of London appear to have been hit particularly hard, with estate agents and developers resorting to offering free cars and other incentives to try to tempt buyers. ... a recent claim from a leading property-finding firm [states] that the once super-heated central London market had turned into a "burnt-out core".

New York apartment concessions rise as rents fall

Thu, 05/11/2017 - 08:34
``Concessions like one month of free rent more than doubled from a year ago in April to the second highest on record, to 28.6% of all new leases, a report released Thursday by Douglas Elliman real estate showed. ... "It may be a sign that we're sort of at this point where concessions are working, but they can only do so much," said Jonathan Miller, CEO of the real-estate appraiser Miller Samuel. "The face rents themselves are going to have to actually fall and we're seeing a little bit of that now." ''

2016 $100 million homes sales hit record -- But inventory now piling up

Wed, 05/10/2017 - 13:23
Sales of $100 million homes hit a record last year, although a growing number are piling up unsold in 2017, according to a new report. There were 10 homes sold last year for $100 million or more, according to a report from Christie's International Real Estate.

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Half of the 10 homes that sold last year for nine figures were in Hong Kong, which has become a favorite location for wealthy Chinese. The most expensive was a single-family home on Gough Hill Road on The Peak in Hong Kong that sold for $270 million. A home in Suzhou in China was second, at $150 million, while a home in Hong Kong's Stanley area ranked third at $131 million.

There were three nine-figure properties that sold last year in the U.S. The Lily Pond Estate in East Hampton, New York, sold for $110 million, while two properties in the affluent western Los Angeles neighborhood Holmby Hills hit the nine-figure mark. The first was The Playboy Mansion, which sold for $105 million, and the second was a newly built home, called "Mon Reve," that went for $100 million.