Tag: finance

… this one is the last one, we promise…

h/t @katz

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Over the past year we have been closely following the slow motion bursting of the latest hot money, spec capital, and foreclosure subsidy-driven housing bubble, which has for now mostly impacted the peripheral areas like Las Vegas, where we reported housing demand has plunged by 20% while supply has exploded as everyone scrambles to cash out. The fact that the foreclosure wave has just turned and the number of California foreclosures recently exploded by 57% in one month merely is further confirmation of just how weak organic support for home prices truly was. And as the Emerging Market hot money wave turns (thank you taper) and as recyclable capital suddenly becomes scarce, look for this trend to hit the major metropolitan centers next, as even the wealthy investors finally pull back from the luxury US housing market.

However, even as the primary housing market was slowly circling the drain, the one silver lining was that the US rental market, largely dominated by several Wall Street investment firms, most notably Blackstone, was doing relatively well. It was doing so well that equity sponsors such as Blue Mountain couldn’t wait to offload their prized REIT property to the public, culminating with last August’s IPO of American Homes 4 Rent, the second-largest US homes-for-rent operator after Blackstone. And since the stock price of all these corporations was performing admirably or at all time highs, supported by the record fungible liquidity sloshing among the world’s interconnected markets, nobody was very concerned.

It is time to get concerned.

Last night, American Homes 4 Rent (AMH) announced that Peter J. Nelson, its Chief Financial Officer, will resign his position, following a transition period, to “pursue other career interests. The company has begun the process of identifying Mr. Nelson’s successor. Mr. Nelson is expected to remain with the company into the second quarter to complete the company’s year-end financial reporting and to provide for an orderly transition for his replacement.” That he made this announcement in such a hurry, without even having found a successor, speaks volumes about what is coming over the horizon.

For those who are confused about the significance of this departure, which may have marked the peak of the rental property bubble, here is a Bloomberg report that was released concurrently with the AMH announcement, and which confirms that the rental bubble has indeed popped.

Rents collected on the collateral for the first U.S. rental-home securities declined by 7.6 percent from October to January, according to Morningstar Inc.

 

Payments declined as expiring leases and early tenant departures left residences backing the bonds of Blackstone (BX) Group LP’s Invitation Homes vacant, Becky Cao and Brian Alan, analysts at Morningstar’s credit-ratings unit, said in a report. While 8.3 percent of the properties were vacant or occupied by delinquent renters in January, renewals on 78.5 percent of leases that expired the prior month exceeded the analysts’ expected rate of 66.7 percent.

 

The deal’s performance is being watched as Wall Street bankers and institutional property investors seek to follow Blackstone’s $479.1 million transaction in November with additional offerings. Initial lease expirations for the 3,207 homes are scheduled to peak from January through March, Morningstar said. To woo investors and rating firms in the new market, the transaction started with all of the units leased, unlike bonds backed by apartment-building loans.

 

One dealer was offering to sell top-rated notes from the Blackstone transaction for about face value today, according to Empirasign Strategies LLC, which tracks securitization-market trading. Some riskier slices were being offered by JPMorgan Chase & Co. for less than par last month, people with knowledge of trading said then.

And following today’s Walmart news of yet another ugly quarter (with guidance for more to come), not to mention recent retail sales and general abysmal economic reports, we can only conclude that what was once America’s middle class will soon be homeless, and using an EBT card for all their dining needs… but at least it will have unlimited and free global texting opportunities courtesy of Whatsapp, not to mention constant blasts by NSA, pardon, Facebook-hosted IP-tracking cookie enabled ads. The good news: since the polar vortex is largely over, at least sub-bridge living will be in largely balmy conditions if only for another 6-9 months.

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Submitted by Lance Roberts of STA Wealth Management,

Just recently the Federal Reserve Bank of New York released its quarterly survey of household debt which showed an increase of $24.1 billion in the fourth quarter of 2013.  My friend Cullen Roche commented on this increase stating:

"This was the first year over year increase in debt since 2008.  It’s a pretty momentous occasion in my view as it changes the dynamics of the economy from one in which we were de-leveraging to one which is now officially re-leveraging without government aid."

The importance of this comment is that it was the "leveraging" up of the household balance sheet that supported economic growth, beginning in the 1980's, as shown in the chart below.

As the deregulation of the banking industry occurred, it led to a consumer credit driven society.  The age of "easy credit terms" and "no money down" led to a consumption boom that offset a decline in actual economic productivity, incomes and savings.  Of course, the basic lesson of economics is that it is savings that ultimately leads to productive investment,  production and economic growth.  Unfortunately, we have precious few of those key ingredients available. 

However, there are two potential issues with the current re-leveraging cycle.  First, the increase in the latest report, outside of real estate related mortgages as shown in the chart below, was primarily driven by increases in student and auto loan debt. 

The two primary areas of increase in debt are also those with the highest default rates as they are primarily "sub-prime" in nature.  However, with low savings rates and rising costs of living, it is not surprising that debt is used to offset the differential.  The chart below shows  the gap between incomes and spending. 

What is important to remember is that a BIG chunk of the "deleveraging" process that occurred was not from consumers becoming more conscious about the financial stability.  Primarily that process occurred through "force" as the financial crisis led to a wave of foreclosures, bankruptcies, debt forgiveness and restructuring.  In the past, a "bankruptcy" meant no credit for at least seven years.  Today, as long as you can blame the financial crisis for your personal insolvency, credit can be quickly restored.  There is already emerging evidence that subprime borrowers are once again gaining traction in the credit markets, bonds are being issued on very risky collateral such as "rental income streams" and mortgages are being issued with very low, or no, down payments.  Since it all worked out so well before, it makes perfect sense to do it again.

The good news is that median debt to income ratios per capita has declined from all-time peaks.  However, as stated above this was primarily by "force" rather than choice.  However, for those hoping that a resurgence in personal debt will lead to the next great economic boom – there is likely to be some disappointment.   With the deviation from the long-term median debt to income ratio still extremely elevated, it is likely there is little room to recreate the consumption boom of the 90's.

Furthermore, it is important to remember that the demographic shift will also play a key role as the massive "baby boomer" generation moves from "upsizing" to "downsizing."  The first chart above really tells the story of how debt masked a weakening economy over the last 30 years.  Of course, this is also why we stand at the crossroad between economic growth and recession. Much like a patient on "life support," economic growth remains tied to ongoing interventions of monetary policy. 

The mirage of prosperity created by massive levels of debt has begun to show it foundational cracks.  Without increased levels of personal savings, production and investment there is little ability to achieve stronger economic growth.  While we can certainly "hope" for something different, there are some basic laws which are insurmountable.  The physics of debt is one of them.

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“The American people are very leery of getting involved in another squabble in some other country,” warns Ron Paul following the breakdown in the truce in Ukraine and President Obama’s drawing of more red-lines. In this succinct interview with FOX, the former congressman sums it up perfectly, “That’s their business, and it certainly isn’t ours,” he said. “We’ve tried it for too long, and the American people are sick and tired of it, and we’re also out of money.” Indeed, but the Keynesians must be getting excited…

“the further we stay away from there, the better…”

“I would be willing to wager most of the people in the Ukraine would like to see the United States stay out, and they’d like to see the Russians stay out.”

via Zero Hedge http://ift.tt/1eYDgEe Tyler Durden

“The American people are very leery of getting involved in another squabble in some other country,” warns Ron Paul following the breakdown in the truce in Ukraine and President Obama’s drawing of more red-lines. In this succinct interview with FOX, the former congressman sums it up perfectly, “That’s their business, and it certainly isn’t ours,” he said. “We’ve tried it for too long, and the American people are sick and tired of it, and we’re also out of money.” Indeed, but the Keynesians must be getting excited…

“the further we stay away from there, the better…”

“I would be willing to wager most of the people in the Ukraine would like to see the United States stay out, and they’d like to see the Russians stay out.”

via Zero Hedge http://ift.tt/1eYDgEe Tyler Durden

It seems the Democratic Republic of Congo has been learning its diplomacy from other nations…

• *DEMOCRATIC REPUBLIC OF CONGO POLICE FIRE ON OPPOSITION RALLY
  
• *CONGO POLICE FIRED TEAR GAS, BULLETS AT RALLY IN BUKAVU
  
• *CONGO POLICE BLOCKED OPPOSITION LEADER KAMERHE AT RALLY
  
• *CONGO OPPOSITION SAY SEVERAL WOUNDED AFTER SHOTS FIRED
  

Of course, we will have to see if China (who has been building interest in Africa), Russia, the US, or France (who seem to like to stir things up in Africa) get involved?

via Zero Hedge http://ift.tt/1hz3m8J Tyler Durden

It seems the Democratic Republic of Congo has been learning its diplomacy from other nations…

• *DEMOCRATIC REPUBLIC OF CONGO POLICE FIRE ON OPPOSITION RALLY
  
• *CONGO POLICE FIRED TEAR GAS, BULLETS AT RALLY IN BUKAVU
  
• *CONGO POLICE BLOCKED OPPOSITION LEADER KAMERHE AT RALLY
  
• *CONGO OPPOSITION SAY SEVERAL WOUNDED AFTER SHOTS FIRED
  

Of course, we will have to see if China (who has been building interest in Africa), Russia, the US, or France (who seem to like to stir things up in Africa) get involved?

via Zero Hedge http://ift.tt/1hz3m8J Tyler Durden

With all eyes focused on Ukraine, the situation in Venezuela has once again escalated as protest leader Leopoldo Lopez' arrest (and possible 10 year jail sentence) prompted more violence overnight. However, as we warned, the government crackdown is starting to raise concerns about the stability of the government.

• *VENEZUELA PROTESTS ESCALATING INTO NATIONWIDE UNREST: IHS
• *ESCALATION OF PROTESTS PUTS STABILITY OF GOVT AT RISK: IHS
• *RISING VIOLENCE COULD LEAD TO MADURO OUSTER BY MILITARY: IHS

As opposition leader Capriles asks Venezuela's military to uphold the constitution, he exclaims that "the poor' must participate for government to change.

• *VENEZUELA HATILLO MAYOR DAVID SMOLANSKY SPEAKS IN CARACAS
• *VENEZUELA PEOPLE WON'T STAY QUIET: SMOLANSKY
• *SMOLANSKY SAYS VENEZUELA SUFFERED TERROR LAST NIGHT
• *SMOLANSKY CALLS FOR MASSIVE VENEZUELA PROTESTS SATURDAY

The opposition leader speaks:

• *VENEZUELA OFFICIALS SHOT AT PROTESTERS YDAY: CAPRILES
• *VENEZUELA ARMED FORCES SHOULD ALLOW PEACEFUL MARCHES: SMOLANSKY
• *VENEZUELA STRENGTHENING TIES WITH CUBA, RAMIREZ SAYS
• *VENEZUELA GOVT USING VIOLENCE TO HIDE ECO PROBLEMS: CAPRILES
• *CAPRILES SAYS SOME IN VENEZUELA GOVT WANT MADURO OUT
• *CAPRILES ASKS VENEZUELA ARMED FORCES TO UPHOLD CONSTITUTION
• *VENEZUELA POOR MUST PARTICIPATE FOR GOVT TO CHANGE: CAPRILES
• *CAPRILES SAYS HE WON'T BE FORCED TO TALK TO VENEZUELA GOVT

And IHS warns:

• *VENEZUELA PROTESTS ESCALATING INTO NATIONWIDE UNREST: IHS
• *ESCALATION OF PROTESTS PUTS STABILITY OF GOVT AT RISK: IHS
• *RISING VIOLENCE COULD LEAD TO MADURO OUSTER BY MILITARY: IHS

Images from last night suggest this is getting considerably worse…despite Maduro's claims of "absolute calm"

and of course the terrible death of a former Miss Venezuela…

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