Month: June 2016

Submitted by Chris Hamilton via Hambone's Stuff blog,

As simply put as possible… over the next 2 decades, there will be an average of 7.5 million fewer 0-55yr/old Chinese every year vs. an average annual increase of 9.5 million 55+yr/olds. And the wealthy minority of the elderly have stashed their reserves in a whole lot of expensive, vacant real estate that they intend to pass along (rent or sell) to the declining young population.  What could go wrong since housing prices only go up…right!?!

China, a story of a massive population and population growth.  As the adult population growth began to wane, debt was substituted for the waning growth.  Population growth turned to massive outright depopulation among the young while all remaining population growth was among the "pig through the python" elderly.  But as the Chinese gained wealth, (particularly among the wealthy of the tier 1 & tier 2 cities) the wealthy, soon to be elderly didn't trust banks or the stock market…instead they piled their savings primarily into real estate.  The top quintile of Chinese purchased the bulk of the new, speculative inventory of high end housing typically buying multiple apartments and condos.  The vacancy rate among the housing segment in these cities is supposedly in excess of 20% (compared to a peak of 3% during the US subprime crisis).  There are roughly 500 million households in China and best guestimates suggest that there are 50 million or so vacant housing units…or 10% of the national housing stock.

To put this in perspective, I'll compare it to the US subprime crisis…a crisis that was likewise triggered by the demographic deceleration of population growth.  But still, despite decelerating in the US, there was (and still is some growth…see below).  The Fed was determined to use (ok, abuse) interest rate cuts as a substitute for decelerating population growth among adults.  The chart below outlines the decelerating 20-64yr/old annual population growth through 2025 (this includes all permanent residents…legal or otherwise).

And on a percentage basis (below), the declining growth among the adult population correlated to the Federal Funds rate and federal debt.  The introduction of nothing down, NINJA and liar loans was simply because there was a collapsing number of potential buyers to support a speculative bubble, particularly in the "tier 1" US cities and locations.

And the changing nature of US net new job creation vs. US new home creation (below).  A 2.5 to 1 ratio has inverted since '00 with more houses being created than full time jobs to support them.  Further evidence that US subprime crisis was triggered by a demographic collapse…HERE.

So, back to the biggest bubble leading to the biggest short (ever?).  The chart below highlights China's annual adult population change, the Bank of China discount lending rate, and China's moonshot of total debt.  The decelerating population growth offset by declining lending rates leading to excessive debt and asset bubbles.  Pretty standard central bank stuff.

And just in case you didn't quite catch why China is the biggest bubble and China's housing market is the biggest excessive, vacant inventory the earth has ever seen…a population boom followed by bust…and the bust concurrent with interest rate cuts to substitute debt for decelerating organic growth.

Below, China population and debt change from '80–>'08.  And $5 trillion of the $7 trillion increase in debt has been incurred since '00…just as the population deceleration became very noticeable.

And below, the substitution of debt for the absence of any population growth among the 0-55yr/old Chinese population since '08.

Below, over the next 20 years, China's 0-55yr/old population is set to collapse.  A 20%+ fall over the next two decades.  And the 55+yr/old population is set to more than double this same time with the vast majority among the 65+yr/old population.  Again, there will be an average of 7.5 million fewer 0-55yr/old Chinese every year vs. an average annual increase of 9.5 million 55+yr/olds.  This in a nation with net emigration.

So, to summarize, China's retirement age is 60 (50 to 55 for women)…and the wealthy 55+yr/olds (especially the 65+yr/olds) hold huge numbers of speculative, vacant apartments across China's cities.  These apartments / condos are intended to supply the wealthy elderly Chinese with rental income and/or be sold to fund their later years.  But the fly in the ointment is the whole collapsing population of buyers vs. a swelling quantity of elderly sellers.  And funny thing, according to the World Bank, the declining Chinese employment ratio divided by the 15+yr/old Chinese population yields the below annual job growth in China.  A 70% deceleration in annual job creation since 1990.  This probably matters.

And finally below, the mismatch of 0-55yr/olds vs. 55+yr/olds from 1990 through 2050 and for jiggles, I include the Chinese M2 monetary supply.  From '99 through '15, the Chinese M2 has increased 1400% compared with a 260% increase for the dollar…and that was while the 0-55yr/old Chinese population was only decelerating.  Now that the 0-55yr/old population begins its rapid decline, my estimates for China's M2 and China's debt are likely to be hit decades early.

So, ok, where's the short?  Well, it probably isn't housing or construction or even commodity suppliers.  If China follows the same path as every other quasi-capitalist (er-communist?) state, we can expect a flood of money like the world has never seen.  Bailouts across industry and state buyouts of investors.  And the Yuan, swallowing all this debt and spewing all this bailout cash, is probably the short of a lifetime.  And how does this fit into the global macro picture?  HERE.  And there may be a few implications for the US since the Chinese have been net Treasury sellers since July of '11…HERE.

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Leading up to Memorial Day weekend, Chicago police superintendent Eddie Johnson proclaimed that violence wouldn't be tolerated as the city approached the summer months. Then, just two days into the Memorial Day weekend we reported that 40 people had been shot, which meant that if the pace kept up, the number of people shot in Chicago over Memorial Day weekend would easily surpass 2015 totals.

Sadly, the pace of the shootings did hold, and Memorial Day weekend saw 6 people killed and another 63 wounded in a weekend that topped off the deadliest May in Chicago in 21 years according to the Chicago Tribune. Tragically, the month's 66th and final homicide victim was just a 15 year old boy named Fabien Lavinder. The 66 homicides represented the worst May since 1995 when 75 people were killed.

Even more stunning is that for the first five months of the year, 243 people have been killed, which is the most fatalities since 248 were killed in 1999. Overall, year to date shootings have increased more than 50 percent from the same period in 2015.

A seemingly delusional Eddie Johnson told reporters after a speech on Tuesday that "we've seen a steady downtrend in violence since the beginning of the year. It's not success, but it is some progress, and it does give us room for encouragement."

Johnson skirted the fact that Chicago ranks as one of the strictest gun control cities in the nation, and instead directed blame to weak gun laws in neighboring states, an endemic gang culture that ensnares children at younger ages, and a "broken and overwhelmed" judicial system that releases violent offenders too soon. Anything other than the dismal economy of course.

*May results were bad enough, however June is already off to a horrific start, with 3 dead and 9 wounded just on Wednesday alone.

Here is where the shootings occurred over Memorial Day weekend in Chicago

Here are some interesting statistics courtesy of HeyJackass

Shooting details by day

2016 Homicide trend (cc: Eddie Johnson)

2016 Race of Victim/Assailant

In 2016, at the time of this writing, a person is shot in Chicago every 2 hours 23 minutes, and murdered every 14 hours 7 minutes

It's a serious topic, but we couldn't resist…

* * *

Imagine if gun control weren't a focus in Chicago!

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No, this is not from The Onion.

In an apparent attempt to make math more relevant to the young people of Alabama, a teacher at Burns Middle School in Mobile, required eighth-graders to take a math quiz that drew complaints from parents about inappropriate themes and racist overtones.

As The Washington Post reports, nearly 900 students are enrolled at Burns Middle School, about 50 percent of them black and 40 percent white, according to state data. Forty-three percent qualify for free or reduced-price lunch.

“Dwayne pimps 3 ho’s,” reads one question on the quiz given to students at Burns Middle School in Mobile, Ala. “If the price is $85 per trick, how many tricks per day must each ho turn to support Dwayne’s $800 per day crack habit?”

 

Other questions refer to stolen cars, murder-for-hire, cocaine deals and drive-by shootings.

 

“Tyrone knocked up four girls in the gang,” the quiz says. “There are 20 girls in the gang. What is the exact percentage of girls that Tyrone knocked up?”

 

Rena Philips, a spokeswoman for Mobile County Public School System, said a parent raised concerns about the assignment  Tuesday and the school immediately launched an investigation and placed the teacher on administrative leave. Philips declined to identify the teacher or offer more details, citing privacy concerns related to personnel matters.

 

“We regret that this happened, especially so close to the end of the school year,” Philips said. “We have 7,500 employees in Mobile County public schools, and the vast majority of them are doing phenomenal work in our classrooms.”

The teacher has been suspended.

One of the students photgraphed the quiz, which is reportedly an internet meme dating back to the 1990s…

 

It’s not clear why the Mobile teacher decided to hand it out Friday, just a few days before school let out.

“I couldn’t believe it,” one student’s mother exclaimed, “she told them that it wasn’t a joke, and they had to complete it, and turn it in.”

Of course, we assume the teacher that has been put on administrative leave will still receive full pay and pension…

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By EconMatters

 

Gasoline demand is good, but Distillate demand not so much on a year over year basis, and per-well costs are down 25% to 30% from 2012 high levels for upstream costs for onshore plays. The Real Question is when do the Sharks start front running the end of the Summer Driving Season?

 

 

 

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President Obama had a close encounter today.

Shortly after the president delivered his commencement address at the Air Force Academy’s graduation ceremony in Colorado, a Thunderbirds fighter jet crashed south of Colorado Springs just after the team had performed at the Air Force Academy’s graduation. The pilot safely ejected. According to the Denver Post, the crash happened minutes after the Thunderbirds’ F-16 jets flew over President Obama and others at the ceremony. Photos from the scene showed the white jet upright and seemingly intact in a field.

The Thunderbirds had just finished their traditional performance at the Air Force Academy graduation, screaming overhead just as the graduating officers tossed their white hats into the sky. The jets then did multiple fly-bys over the academy’s football stadium, where the ceremony took place, blasting by in tight formations or looping high overhead. There was no obvious sign of trouble with any of the jets during the performance.

Obama was still at the stadium taking photographs and greeting attendees in a private area during the air show that lasted about half an hour south of Colorado Springs. News of the crash broke while Obama’s motorcade was returning to Peterson Air Force Base for his flight back to Washington. The crash occurred about 15 miles south of Peterson Air Force Base, where Air Force One was waiting to take off.

Obama briefly met with the pilot who crashed, shaking hands with him before he departed on Air Force One. Press Secretary Josh Earnest said the president “thanked the pilot for his service,” according to a pool report.

Benjamin Newell, spokesman for the Air Force’s Air Combat Command in Langley, Va., said the crash happened as the pilot was returning to Peterson Air Force Base. He said the crash resulted from a “mishap.” Newell said it’s extremely rare for a Thunderbirds pilot to crash, saying they are among the best pilots in the Air Force and chosen specifically, because of their ability, to be a part of the program.

“We are unable to release the specifics at this time,” Newell said, citing an ongoing investigation. The pilot was able to walk away from the crash unhurt, Air Force officials said, but was being evaluated. “It’s a very traumatic event,” Newell said of an ejection.

“This is a very rare thing for them and in the Air Force overall,” Newell said.

The Thunderbirds said no one was hurt on the ground in the crash and that there is no hazard to the public. The cause of the crash was not immediately known, the Thunderbirds said in a statement.

The AP video below shows the Thunderbirds in action moments before the crash

In a separate incident, just hours later, a U.S. Navy Blue Angels F-18 crashed, the Navy public affairs office at the Pentagon said. The Blue Angels had been in the Smyrna, Tennessee, area for practice, according to the flight demonstration squadron’s Twitter account. According to CNN, one person died in that crash.

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Submitted by Marcus Williamson via Medium.com,

 

You may have seen the adverts, like the one above, or the headlines:

‘A quarter of a million’ UK students now using sugar daddies?—?BBC

Meet the sugar baby who’s had 10 sugar daddies – and has found love with one?—?Mirror

Things Are Thriving In The “Modern Hooker Economy”?—?Zerohedge

For those of you who aren't aware of what is going on here exactly, well let me cease your virginity on the matter.

This will be a non technical, yet comically financial style review of the rapidly growing industry, the areas which will be covered are the following:

1. The market securities (Students)

 

2. The market participants (Old men)

 

3. The market exchange (SeekingArrangements)

 

4. The market regulations (SeekingArrangements Blog Tips)

 

5. The effects of the marketplace on society (Why this is bad…)

*  *  *

1. The Market Securities

The marketplace has several asset classes ranging from single mothers to males, but more recently a new asset has been added.

Students

Students differ somewhat to existing securities due to their inherently different risk profile. Said differently, this is how much they cost compared to what they can in theory ‘deliver’ to the purchaser.

The method on which they have arrived in this marketplace is also different, they have been cornered, and now are being exploited.

Without further ado, let me introduce the asset class formally:

Sugar Babies, Female

A sugar baby

 

These securities are the supply element of the marketplace. There has been a recent spike in supply with over 250,000 UK students recently joining. Currently the most active tranches (Universities) can be seen below:

 

The fresh inflows are quickly assimilated into the marketplace, thanks to near insatiable market depth. The young, high yield securities are then bought, consumed, transferred between their counter-parties, then discarded (usually, but not always).

Sugar Guide for new Babies

 

They will typically set the buyer back £600-£2000 per month. Securities (Students) which have recently had an IPO (they signed up to a sugar daddy platform), can often be purchased for below intrinsic value (they don’t know how much money to ask for). However although an enhanced entry opportunity is present, they carry an unrated risk profile.

 

2. The Market Participants

The solid backbone to the marketplace; providing great market depth and consistent demand. The market participants are typically male, ranging from 30–50 years in age, with a dash of social instability. They are called Sugar Daddies.

Sugar Daddies

A not so gentle Gentleman

 

These form the demand within the marketplace; the counter-parties to Sugar Baby securities. They look to strike an ‘arrangement’ if the securities features fetch the right price.

 

Their investment profiles (desires) are clearly defined, and they look to acquire a portfolio of as many securities as needed to fit their risk / reward ratio.

However, Sugar Daddies have been known to crowd securities, forcing valuations higher. This often leads to a undesired skewing of a risk profile which can end up with undesired consequences, as can be seen here (they fell in love?!).

 

3. The Market Exchange

SeekingArrangements (the market exchange) first launched in 2006 and now boasts over 2.6 million Sugar Babies (male & female) across 139 countries. Of this figure over 1.4 million were students as of 2014 (this figure has since grown considerably).

 

There are incentives for Student securities to list their assets on this exchange, this is clearly given away by their tasteful advertisement.

The benefits for Students:

• Free premium membership to those who signup with their university email address
• Extra support, advice, and ‘tuition’ for students?—?convincing them to join (see video below)

 

No, this is not a joke, this is big business and makes $10 million a year in revenue.

 

The founder of the site, Brandon Wade – a borderline sociopath – has a few quotes & comments which I would like to throw in:

“There direct correlation between ‘Sugar Baby’ sign-ups and increased fees for students”

“When I created Seeking Arrangement it really was for my own benefit.”

“I think all relationships start off in a very superficial manner.”

“It will become more normal to make financial exchanges in relationships more explicit.”

And one more from another of Brandon’s totally-not-like-prostitution platforms Carrot Dating:

“Carrot dating is the first mobile application that combines dating with bribery … on Carrot Dating, if you see someone you like you offer them a bribe. And if they accept the bribe, you’re on your way to a first date.”

I’ll leave you to come to your own conclusion on this… back to the security investment platform.

Sugar Baby selection window

Sugar Baby Securities

 

Its just like online shopping for humans. There are plenty to choose from and each comes with a differing price tag which can be negotiated.

 

Unfortunately some of these Sugar Babies are here because they have been buried alive in student debt.

They are now being actively convinced, enticed and persuaded this is the best way to pay it off.

Don’t “waste your time”. Sell your body instead.

 

4. The Market Regulations

Turning to the regulatory side, we are faced with a very bizarre setup. In the UK we are one of the most PC, red tape laden and moderated countries. With ads being banned for being too sexualised… which was targeted at 18–24 year olds anyway.

However, the SeekingArrangements market exchange is allowed free roam to solicit its services and functionality in a crude manner. Drawing in those barely over the age of 18 to sell their bodies to old men in order to pay off debt. Does that sound okay to you?

“Much better”

 

Now looking at the rules within this market exchange, I visit no truer source of information than SeekingArrangement’s blog, see below for some of my highlight quotes & image with their links:

Let the preying begin…

 

Post source, POT is a Sugar Daddy

“Be mindful of your age, some POTs won’t be interested in someone that can’t meet them for a drink at the bar.”

“Be sure to carry pepper spray…”

Ill come back to this…!

Is it a pet or a relationship?

 

Post source.

“Terms of Agreement?—?We recommend some contractual, legal document where the terms of your living arrangement are spelled out”

“Give Her Space?—?She is not a prisoner so be mindful of her accommodations. A live-in Sugar Baby should have her own room”

Sex is a baseline expectation?

 

Post source.

“Let’s be honest, ever since 50 Shades of Grey exposed kink to the mainstream, women are opening up to ideas outside vanilla”

“…light choking, spanking, dirty talk etc can be a great conversation opener and a way to gage her interest”

 

Post source.

“…monogamy isn’t the norm for everyone”

“It’s not cheating if you’re honest, right?”

“…you want her to hate the game, not the player”

At last, but not least, we have the 8 things that every sugar baby should have in their purse, two things stood out for me:

1. TSquare (a portable credit card reader!)?—?When you’re out on the job you need to be able to receive payment from your Sugar Daddy.

TSquare

 

2. Pepper Spray?—?If your transaction ends ugly this is a must have in the purse.

Pepper Spray

 

Please can someone explain to me how this service is anything but self-directed prostitution with a sugar coating? Please?!

 

5. The Effects Of The Marketplace On Society

Really, this is all I am interested in as an individual agent not currently buying or selling on the exchange (SeekingArrangement).

A crude observation of mine:

1. Students are taking on increasing amounts of debt as tuition fees continue to rise
2. It’s becoming more difficult to secure work straight out of University, alot of people end up behind a bar
3. Students are increasingly targeted and taken advantage of with their naivety and unfortunate circumstance, looking to escape somehow
4. Young female students are ushered into physical exchanges intermediated with a monetary bribery / lure, often not on their own terms?—?having originally arrived there out of desperation
5. This leads to bizarrely legal scenario with a base axiom of sex for cash!

I am not the only one who has picked up on this disgusting trend. As Zerohedge succinctly put it; it’s the “modern day hooker economy”.

Don’t be fooled with the soft wording, Sex is an integral part of the transaction. This has been reiterated by multiple active users, with escorting services naturally setting up on the platform before eventually being caught out.

The key issues I see arising from this are:

1. Polarisation towards sexual behaviour. We are covering up mens nipples one minute (!), then encouraging a 18 year old student to sleep her way out of debt next.
2. Unhealthy relationships encouraged. The norm on here is having multiple partners, intermediated with cash, and relationships with socially inept men (old enough to be their parents in some cases). How is this a good foundation for future relationships?
3. Increasing numbers entering sex work. This has undeniably lead to a path for students in to the sex-work industry via selling their bodies. Where is the line between a ‘remote sugar daddy date’ and a private cam show?

To end this article on a formal note; I see the marketplace as highly efficient and lucrative, however it has an unethical slant by targeting Students (Securities).

Whilst the operation is legal for now, if it were to be replicated not via the internet or by a snazzy app it would lead to people being locked up.

The adult entertainment industry is a long running theme with an understandable attraction and harmless backdrop. For me issues arise when those who are most vulnerable are targeted in pursuit of growing company profits.

I feel when a platform advertises a girl under the title of being a student, they are instantly labeled as prey. They need money, they will do most things for it, this is why they are here.

Students (like myself) were ushered off to University to study, only realising later the full extent of the massive financial commitment. This Summer some of my friends graduate with 1:1 (First class) degrees into bar work or effectively unemployment.

I have previously joked with female friends how they could pay their way out of their debt faster by sleeping with someone older than their Dad…

But its not that funny a joke anymore.

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Spike in Defaults Looming: Remaining Interest-Only Alt-A Loans Set to Recast to Full Payment of Principal and Interest

Now, isn’t this interesting…

The looming recast to full payment of principal and interest for the remaining interest-only Alt-A loans in 2006-2007 vintage private-label RMBS is expected to drive default rates up again in 2016-2017. Moody’s suggests that the spike in default rate will be less severe than that seen in 2015, but a larger portion of loans will be subject to recasts.

So the resets are expected to drive defaults up, but less than 2015, even though a larger portion of loans will be subject to recast? How can that be?

“Defaults on Alt-A IO loans with an IO period expiring in 2016-2017 will rise when they recast to full payment of principal and interest, owing to an expected future increase in monthly mortgage payments. However, default rates will likely stay below those of Alt-A IO loans which re-casted to full payment in 2015 because of a slightly smaller expected payment shock and slightly better borrower credit profiles,” the agency observes.

Oh, thank goodness. Slightly smaller payment shock and slightly better borrower credit profiles. Whew, I was really worried there for a second. Good thing these homeowner have a slightly better credit profile than their predecessors.

Payment shock is anticipated to remain most significant for three-year, five-year and seven-year ARMs in 2016-2017, but the three cohorts will also likely register the most substantial declines from 2015 levels. Further, 2006-2007 vintage 10-year Alt-A IO loan borrowers who have remained always-current, on average, have higher original FICO scores (720 and 723) than their 2005 counterparts (700). Consequently, the remaining always-current loans for 2006 and 2007 – being of higher credit quality than those in 2005 and likely to experience lower payment shocks when they recast in 2016-2017 – are expected to default at slightly lower rates.

Wait a minute, 720 and 723 FICO scores vs 700 a FICO score. Whats the difference? They are both highly rated credit risks. According to Credit.com a Good Credit score = 700-749. Well, at least this round of potential “deadbeats” will likely experience a lower payment shock from their 2005 counterparts, right?

Roughly 47% of 2006 vintage Alt-A loans and about 57% of 2007 loans will have 10-year IO periods that expire in 2016-2017, with half of those borrowers subject to monthly payment hikes of 50%-70%. ARMs with 10-year IO periods account for roughly 24% of 2006 Alt-A loans and 26% of 2007 loans, compared with just 16% of 2005 loans.

Whoa! 47% of 2006 loans and 57% of 2007 loans are about to recast with half of them subject to 50%-70% hikes! Holy shit! So, on a typical loan in Florida, for $250,000 with an interest only payment of $1250 at 6% that payment would reset upwards about $750 (60%) to approximately $2000. Add on taxes, about $3,000 a year and home owners insurance, about $2,500 a year, if your lucky, and you would be looking at a $2,500 mortgage payment. Oh, and lets not forget, most communities in FL have HOA dues on average of $350 bringing your total cost of “owning” the home to $2,850 per month. Hope they don’t have a second mortgage as well since they would most likely be recasting at the same time of the first mortgage!

The default rate on 2005 Alt-A 10-year IOs, on average, nearly tripled – rising to 10.1% in March 2016 from 3.4% in March 2015. The monthly principal and interest payment for 10-year Alt-A IOs, on average, increased by US$421 (or 37.2%) to roughly US$1,553 in March 2016 from US$1,132 in March 2015. By comparison, the average non-IO Alt-A loan’s average payment was US$1,237 in March 2016.

Well that makes sense. The reason the default rate went up on the 2005 Alt-A’s from March of 2015 to March of 2016 is because the payment shock had not occurred yet or, if i did, you have to give the “deadbeats” enough time to deplete all of their saving trying to save their home through a “modification” before they default, right?

Moody’s believes that several macroeconomic factors will help temper the potential rise in default rates, including: low unemployment and growing wages; rising home prices; and broader use of loan modifications.

Well, I’m glad Moody’s believes this time the effect of the defaults will be tempered since the country is gainfully employed with wages rising every day! That should cover the looming 50%-70% payment hikes! If that doesn’t work out, the homeowner can always refinance, being that home prices are up, or simply get a loan modification.

Problem solved…

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Subprime Mortgage Crisis by Foreclosure Fraud

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