Tag: finance

It’s been a while since we checked in on the state of Manhattan’s ultra high end real estate market, and judging by what was said in the latest Starwood Property Trust earnings call, where CEO Barry Sternlicht warned of a doomsday waiting at the end of New York’s “Billionaire’s Row”, what’s coming is nothing short of a disaster.

During the Starwood Q2 earnings call, Sternlicht said the development of ultra high-end residential building on West 57th Street – where two years ago Bill Ackman among others parked $91.5 million  – an imminent “debacle.” He pointed out the out-of-balance mezzanine loan at JDS Development and Property Markets Group’s 111 West 57th Street project and predicted more distress in the luxury residential market, including at 53 W 53, a supertall condo being developed next to the Museum of Modern Art by Hines, Pontiac Land Group and Goldman Sachs, as the Real Deal reported.

“We are beginning to see the cracks of the high-end residential market in Manhattan,” Sternlich warned, putting in jeopardy future seasons of Million Dollar Listing. “The building on 57th Street just went through it’s B-lender. Those deals, and the building going up next to MoMA, those deals are going to be a disaster. So high-end resi in New York really is in trouble.”

Sternlicht also noted that just like during the last bubble peak, most exposed to loans backing luxury condos are not the banks but rather hedge funds, private equity firms and alternative lenders chasing high returns who have backed projects with asking prices of $7,000 to $10,000 a foot.

Sternlich went on to note that “there’s a hedge fund that made $1 billion mortgages against some of these properties out of Europe and we will see how that fares,” which according to RealDeal referred to the Children’s Investment Fund, which has backed the likes of 432 Park Avenue and 76 Eleventh Avenue. “Maybe they like the return, but they will lose capital. They can’t get paid off and they find out their basis is accreting because they are not getting paid currently, obviously….That is not going to end well.”

Meanwhile, Starwood can’t wait for the crash to come fast enough: “I think we kind of want a train wreck,” Sternlicht said. “We like those markets. We like capital getting scarce.” Starwood has been an aggressive – but not too aggressive – lender in New York’s commercial real estate market, backing the likes of 10 Hudson Yards and the Public hotel at 215 Chrystie Street. Sternlicht is not alone in expecting a funding crash: Vornado Realty Trust’s Steve Roth recently said he also saw an opportunity “to feed on the carnage” in the struggling retail sector.

And while the hedge funds are still “in it to win it”, Sternlicht pointed out that commercial real estate investors are getting worried about foreign investors leaving the market amid the recent Washington turbulence, noting that property sales have declined and the gulf between asking and selling prices has widened. Those foreign investors, particularly those from Asia, bid up the price of assets dramatically and affected underwriting. He referenced Anbang Insurance Group’s purchase of the Waldorf Astoria Hotel and its purchase of Strategic Hotels & Resorts. As we discussed recently, Anbang was recently instructed by Beijing to sell its offshore assets as China cracks down on offshore capital flight, demanding that foreign funds be repatriated. A firesale by recent Chinese buyers could be the spark the send the Manhattan market crashing.

“All the markets price off the top bid and the top bid has been an Asian bid, whether it was the sale of the Waldorf or the bailouts of a Strategic Hotel deal. Everybody thinks they are rich when the guy pays the 2 percent cap for an asset, or a 1 percent cap. If there are six bids at $1 billion and one guy is at $1.5 billion, I would ask you to tell me where the loan-to-value is of the loan, right?”

Sovereign wealth funds may also leave the market depending on how the Trump administration handles certain issues, including its position on the Gulf countries’ dispute with Qatar, which has been accused of funding terrorism, he said according to TRD. “If you are having a fight with our administration, you are just not going to invest here,” he said. “They are very quick to shut down the capital flows… It has to do with politics.”

Of course, it would delightfully ironic if Trump ends up being the catalyst for the next crash in Manhattan luxury real estate – the result of nearly a decade of easy money policies under the previous administration – wiping out a substantial chunk of his own net worth in the process.

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Cryptocurrencies are crashing this morning…

After a 70% surge following the fork to a new record high at $4400, Bitcoin is getting battered this morning…

 

Dow $500 from overnight highs…

 

As a reminder, Goldman Sachs' chief technician Sheba Jafari increased her forecast for Bitcoin to over $4800… but warned that the virtual currency could then drop to $2221…

Now that the market is getting closer to reaching this level, it’s going to be important to take note of any/all signs of trend exhaustion.

 

There is of note a 2.618 extension which runs as far as $4,827.

 

 

Once a full 5-wave sequence is in place, the market should in theory enter a corrective phase.

 

This can last at least one third of the time it took to complete the preceding advance and retrace at least 38.2% of the entire move.

 

From current levels, that would measure out to ~2,221.

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Content originally published at iBankCoin.com

 

Serious question for you good folks out there: are these people retarded?

These people gathered together to rip down a confederate monument, which I suppose to great if you’re into that sort of thing. But then after they tore it down, they started to scream at it, spit on it, and then kick it.

Do these people think their tiny feet can hurt an inanimate object made from metal? I sat here, gazed at this video for a good 2 minutes, and came away utterly baffled by the actions of these psychopaths. This is a pool of genetically inferior gathering together for the explicit purposes of demonstrating their ineptitude as civilians in this country — an utter embarrassment of extreme proportions.

On the issue of confederate statues being torn down: I’ve never been a big fan of the confederates, but this has a feeling of malice, northern people instigating trouble with southerners, poking them in their chests, making them relive their loss over and over again. Nothing good will come from this antagonistic behavior.

As for me, I’m still on vacation and depart from Main today, en route to Rhode Island. I’ll be back at the turret on Thursday.

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Once again motor vehicles dominated the rise in inventories in June (up 0.7% MoM) as retail inventories rose 0.6% MoM but sales lagged at just 0.3%. This mismatch pushed the aggregate inventory-to-sales ratio back to its highest since Nov 2016 at 1.38 months.

 

But it’s autos that remain near ex-crisis highs in inventories…

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Treasury yields have erased the knee-jerk losses from retail sales, Nasdaq is now tumbling, and gold is bouncing…

This is not the market we saw yesterday that was relieved that the world had not ended and Bloomberg's macro strategist Mark Cudmore is worried that it's not over, warning that "exuberant markets can't escape the shadow of negatives"

Via Bloomberg,

Risk assets have rallied sharply so far this week but there are sufficient flaws in the positive narrative to argue that the bears will likely inflict further pain on impatient bulls. On Monday, the S&P 500 Index had its best day in more than three months. With U.S. stocks the flagship risk asset, that good mood has spread across markets. I argued a week ago that the global market outlook had turned much more negative, so the strength of the (expected) bounce has taken me by surprise.

To my mind, the facts still lean significantly bearish and suggest the phase of broad risk aversion isn’t yet done:

Leverage amid low volatility is one of the primary risks. A sustained pick-up in volatility will force risk reduction. While the VIX Index has dropped from Friday’s nine-month high, its 10-day moving average is now at the highest level in more than three months and is virtually assured of continuing to climb the rest of this week — that will matter.

 

 

Credit markets are at the core of this pain, not equities. And the bounce in debt on Monday was barely perceptible relative to the selloff of the previous week. Option-adjusted high-yield U.S. credit spreads remain near the widest in almost four months.

 

 

The dollar and nominal yields are now bouncing, even in the wake of the inflation miss. This amounts to a global tightening of liquidity at the margin and is the worst kind of real yield advance.

 

 

With leveraged dollar shorts at the most extreme in more than four years, this also causes direct losses for investors, further compelling risk reduction.

 

 

 

U.S.-China trade tensions continue to simmer.

 

Major bellwether stocks of 2017 — Alphabet, Amazon and Netflix — are not fully validating the latest bounce.

Amid summer liquidity, Cudmore warns, these factors all add up to a material negative argument.

Never mind any escalation in the North Korea situation — that was always just the catalyst and not the reason — Turnaround Tuesday is likely to see us much lower soon

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Last week, Volkswagen, the German car brand, announced it would be paying up to 10,000 EUR per (old) car (of any brand) owners would trade in for a brand-new Volkswagen in Germany. Just a few days later, Opel (previously owned by General Motors but currently owned by PSA, the French brand which also produces the Peugeot and Citroën cars) followed suit, promising car owners a premium of up to 7,000 EUR if they trade in their old car for a new Opel whilst Renault didn’t want to be left behind and announced its own ‘subsidy scheme’ to attract new customers.

Of course, these type of transactions  aren’t new at all and getting a decent price for an old car has been pretty common in most European countries as the value for the old car offered by the large brands is usually a bit higher than the market value.

Whilst some people interpreted the Volkswagen-Opel-Renault deal as some sort of ‘marketing strategy’ to pretend they are ‘going green’ (the highest premium was awarded to customers buying low emission vehicles) after ‘Dieselgate’, we feel something else might be going on behind the scenes and the brands aren’t just trying to be nice to the average German car owner.

Source: courtesychev.com

Not only does this ‘incentive program’ remind us of the US government’s ‘cash for clunkers’ program which was aimed at boosting the car sales to save the failing car industry.

Whilst the total amount of vehicle registrations in Germany seems to relatively steady (and even showing some positive momentum), it’s also not inconceivable the demand for new cars will fall off a cliff. Last year, the total amount of vehicle registrations was approximately 45.5 cars per 1,000 residents. Assuming a household consists of 4 people (on average), and 1 in 2 households owns 2 cars, approximately 1 in 5 households purchased a new car either as a ‘first’ car or second car.

Source: countryeconomy.com

This means that the replacement rate is approximately 1 in 7 (1 new car every 8 years). And guess what? 2017 is exactly the 8^th year after the Global Financial Crisis, when the car sales picked up again. Whilst an 8 year old car is still in a great shape to drive around (for the average user), large car manufacturers have now reached the point where the replacement ratio might cause headaches. After all, why would you sell a car after 8 years if there’s no objective reason why it wouldn’t be able to run for a few more years.

Of course, not all cars produced in Germany are meant for the German market, but let’s have a look at the half-year results of Volkswagen. Whereas the company sold 5.2M cars in H1 last year versus a production rate of 5.27 million cars (for a surplus of 70,000 cars), the surplus result actually accelerated in H1 2017. Yes, the total amount of cars sold increased by 1.4%, but as the total amount of cars produced increased by 3.1% to 5.43 million, the surplus actually increased to 163,000 produced but unsold cars, an increase of 136%.

Source: Volkswagen half-year report

And Volkswagen isn’t alone. A quick glance at the half-year results of Renault shows us the total amount of cars sold increased by approximately 10%, but the production rate increased by a stunning 18%, resulting in an ‘overproduction’ as well.

It’s starting to look the demand for new cars simply isn’t there in Europe, despite the lower-than-ever interest rates making car financings almost free. And this could be a very first indication of an additional economic hurdle which will have to be taken, as an oversupply of goods rarely bodes well for an economy.

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Another month, another paradox emerges in the latest Bank of America Fund Managers Survey, which on one hand reveals that a record number, or 46%, of Wall Street respondents say stocks are “overvalued”…

… even as the number of investors expecting a “Goldilocks” economic scenario of above-trend growth and below-trend inflation, hit a record high 42%…

… and are positioning “pro-risk, with cash allocation unchanged at 4.9%.

Adding to the paradox, while investors are largely confident that stocks are the most overvalued on record, few expect a crash, and  36% responded that they have not bought equity hedges in August, up 1% from July.

Elswhere, for the 4th straight month, most fund managers responded that “Long Nasdaq” is the most crowded trade, followed ironically by “Short Dollar”, a dramatic inversion from just a few months ago when long USD was considered one of the most crowded trades.

Asked what they see as the top “tail risk”, most investors, or 22% of total, responded a Fed/ECB policy mistake.

This was followed by 19% who said a crash in bond markets and a new entry in the third spot, with 19% responding North Korea. Curiously, following the Howard Marks memo, fears about an ETF/quant driven liquidity flash crash have doubled to over 10%.

In a new question, 43% of respondents said that low inflation is structural, while 35% said cyclical and 21% said temporary.

Asked what would surprise them the most, a whopping net 49% said recession, while virtually nobody would be surprised by an equity bear market (-8%), inflation (-8%) and an equity bubble (-28%).

BofA also notes that “Anglo-Saxon political angst” reflected in lowest allocation to US stocks since Jan’08 and to UK stocks since Nov’08; in contrast EM & Eurozone remain consensus longs, while expectations of China 3-year GDP estimates rose up to 5.8%, highest since Apr’16.

Some other observations: the top sector overweight is banks (record high), followed by tech (though contrarians note tech allocation fell to 3-year low); energy allocation drops to 14-month low; allocation to staples/telecom/utilities (“defensives”) still low, but starting to pick up.

Finally, BofA points out an “ominous inflection point” in the profit expectations indicator (58% in Jan, now 33%) – the profit outlook correlates with PMIs, equities vs bonds, HY vs IG bonds, cyclical vs defensive sectors; As Bank of America notes, any “further deterioration likely to cause risk-off trades.”

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Two Guam radio stations terrified locals Monday night after accidentally broadcasting a missile warning klaxon developed by the island’s government – convincing a handful of residents that they were on the cusp of nuclear oblivion.

The message was mistakenly broadcast because of “human error” by both the KTWG and KSTO radio stations, according to the Sun, a UK tabloid. The paper neglected to explain how employees working independently at two different radio stations managed to make the same mistake at almost the exact same time.

“The alarm read: ‘A broadcast station or cable system has issued a civil danger warning for the following countries/areas: Guam; at 12:25 a.m. on Aug. 15, 2017, effective until 12:40 a.m. Message from KTWGKSTO.’”

A handful of “concerned residents” called police after hearing the warning, according to local media reports. However, the messages' lack of information about a specific threat should’ve been a clue to listeners that the broadcast was either an error or a test, according to BNO News.

"The unauthorized test was NOT connected to any emergency, threat or warning," Guam Homeland Security and Civil Defense (GHS/OCD) said in a statement. "GHS/OCD has worked with KSTO to ensure the human error will not occur again."

Guam Homeland Security Adviser George Charfauros reminded residents that they should remain calm even in the event of a credible threat because the US government has the “capabilities in place” to safeguard the island.

"Residents and visitors are reminded to remain calm, even with the continued unconfirmed reports throughout the media," Guam Homeland Security Advisor George Charfauros said in a statement. "Remember there is no change in threat level, we continue business as usual and know there are U.S. Department of Defense capabilities in place.”

Defense Secretary James Mattis said something similar Monday while speaking with a group of reporters. The former general claimed the US has defenses in place that could intercept an ICBM launched by the North, though tests of the US’s ICBM-defense systems have been less than stellar.

As BNO explains, Guam has found its way to the center of the escalating tensions between North Korea and the US after Kim Jong Un threatened to fire four Hwasong ICBMs at the US territory, which is home to 162,000 Americans, if US President Donald Trump continued to escalate his belligerent rhetoric. In a possible sign of détente, North Korean media reported that Kim was backing away from his Guam threats after discussing a plan of attack with military leaders. The island is also home to several military installations.
 

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Authored by Kevin Muir via The Macro Tourist blog,

I don’t regularly watch CNBC, but last week while on vacation, I turned on the Sirius XM radio and was instantly assaulted with Jim Cramer’s shrieking. I was about to turn the channel when he shouted how the “billionaire bears” might finally be catching a break with the stock market downdraft.

I have to give Cramer credit, that’s a good line to describe the growing cohort of negative investment legends. Wondering if Jim came up with it on his own, I googled it.

Aware of the burgeoning $1.99 Kindle romance section where some serious authors have created pseudo names to write under because the money is too good to pass up, I have never actually been exposed to these books. Until now…

Did Cramer come up with his description after reading Ursala Maya’s The Billionaire Bears Club? I had planned to quote the summary in this post, but even the summary’s innuendo might be pushing it.

Instead I will share with you the first review:

I am never one to be disparaging, but I was left with no other choice here. I have to say that this was one of the worst books I’ve ever read. It went beyond gratuitous to a level that I didn’t think possible. The writing itself was deplorable alone, but the plot, or lack thereof, was far worse. Ugh, it was just bad bad bad! This is so far from erotic romance. Hell, it had none at all. It also had nothing to do with shifters, and more about an intern being #$%@’d to advance her supposed career. Nothing is sexy about this book, so please do not waste your time on trash like this.

Unfortunately, lately, it’s more than terribly written Billionaire Bears Club books that are disappointing.

Whether it is Gross, Icahn, Gundlach, Jones or Marks, there is no shortage of billionaires warning about the impending stock market crash.

Heck, one particularly articulate and well liked hedge fund guru has taken to labeling all his recent tweets with #RISKHAPPENSFAST, and my personal favourite, #DARKNESSFALLS.

Darkness falls? Seriously? When he started tweeting his dire omen last week, the S&P 500 was down 65 handles from an all time high. That decline represented a little more than 2.5%.

I hate to point out the obvious, but a 2.5% dip over the course of a week is nothing more than noise. In fact, we could decline 10% and the bull market would be still very much intact.

Now I can hear the howls of protest already. Only fools buy stocks up here without thinking about the risks. These gurus are doing everyone a favour by highlighting the danger.

As Howard Marks says, “no investment is good enough that you can’t screw it up by paying too much.”

Yeah, I hear you Howard. The trouble is that stocks have been expensive for quite some time. This Billionaire Bears Club cadre has been issuing these warnings for the past couple of years.

Although I have to give Gundlach credit for the superb timing on his recent S&P 500 put purchase, I worry when I hear traders tempt the Market Gods with tauntings such as Gundlach’s recent comment that he will be disappointed if he doesn’t make 400% on his position. Or how about Dennis Gartman’s “staking his reputation that the highs for the stock market are in.” Why he would say such a thing is beyond me. Especially right into the hole.

I am much too scared about the financial environment to ever make any prediction with this sort of certainty.

Now, don’t mistake my view. I am not defending the bull position. I understand the potential holes in their argument (mainly valuation). But I do want to take a moment to point out that all these bears are using an outdated playbook for their forecasts of threatening doom.

For example, they see the economy slowing down, and they immediately conclude that it is finally time to short stocks.

Yet what will be the outcome of a slowing economy? Why, more Central Banking easing of course!

So ironically, as the economy rolls over (however slight), Central Banks quickly take their foot off the brake, and financial assets magically levitate.

I am still getting caught up from my vacation, so this post will be brief. But I wanted to take a moment to remind everyone that before the Great Financial Crisis, the collective balance sheet for the big 3 Central Banks (Fed, ECB & BoJ) was approximately $4 trillion. Today it is $14 trillion.

And I haven’t even included the BoE, SNB and PBoC’s of this world.

There has been an absurd amount of monetary stimulus over the past decade. Central Bankers have broken taboos (like negative interest rates) that previously seemed sacrosanct.

No one, and I repeat, no one understands how all of this printing will eventually affect the economy and markets.

I have made a fool of myself being negative on bitcoin, but really given the stupidity of what bitcoin is being priced against (other fiat currencies), I probably should have been way more respectful of the possibility of a speculative fervour in an alternative store of value.

I have done an abysmal job identifying what will explode higher in price, but my message has been consistent – Central Bank balance sheet expansion has the potential to create some unprecedented asset price moves.

The Billionaire Bears Club might be a terrible book, but the real BB’s have also led you astray with their investment advice. Too many of them believe that the next crisis will look exactly like the last.

I will leave you with my prediction. The next crisis won’t start in the equity market, or even the high yield bond market. The next crisis will occur when Central Banks lose control of sovereign bond markets. I know that is exactly the opposite advice that the BBC boys are giving you, but I don’t mind being on the other side of their trade.

Economic weakness will just mean more printing, it is economic strength that should worry the equity bulls.

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The market’s reaction to this morning’s retail sales beat is mixed. The Dollar is surging, gold is tanking, and while The Dow is unch, Nasdaq is sliding…

Gold, Bonds, and Tech stocks are sinking post-data…

 

But the dollar is surging…

 

We wonder if this is the start of 2016 deja vu all over again…

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