iftttwall

White men may not have jobs, but at least they will have more time to enjoy sports actvities such as basketball, and finally learn to jump. As for any associated sport injuries: there’s always Obamacare.

 

 

(h/t @Not_Jim_Cramer)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/QrHvhJde0LA/story01.htm Tyler Durden

White men may not have jobs, but at least they will have more time to enjoy sports actvities such as basketball, and finally learn to jump. As for any associated sport injuries: there’s always Obamacare.

 

 

(h/t @Not_Jim_Cramer)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/QrHvhJde0LA/story01.htm Tyler Durden

Despite the ECB’s recent “stunning” rate cut, which sent the EUR modestly lower by a few hundred pips, the resultant resurge in the European currency has left the European Central Bank even more stunned: just what does it have to do to force its currency lower and boost Europe’s peripheral economies, especially in a world in which every other major central banks is printing boatloads of money each and every month.

We hinted at precisely what the next steps will be two days ago when in “Next From The ECB: Here Comes QE, According To BNP” we said “BNP is ultimately correct as the European experiment will require every weapon in the ECB’s arsenal, and sooner or later the ECB, too, will succumb to the same monetary lunacy that has gripped the rest of the developed world in the ongoing “all in” bet to reflate or bust. All logical arguments that outright monetization of bonds are prohibited by various European charters will be ignored: after all, there is “political capital” at stake, and as Mario Draghi has made it clear there is no “Plan B.” Which means the only question is when will Europe join the lunaprint asylum: for the sake of the systemic reset we hope the answer is sooner rather than later.” Two days later, the answer just appeared when moments ago the WSJ reported that the ECB hinted more QE is, as we predicted, on the table.

From the WSJ:

The European Central Bank could adopt negative interest rates or purchase assets from banks if needed to lift inflation closer to its target, a top ECB official said, rebutting concerns that the central bank is running out of tools or is unwilling to use them.

 

“If our mandate is at risk we are going to take all the measures that we think we should take to fulfill that mandate. That’s a very clear signal,” ECB executive board member Peter Praet said in an interview Tuesday with The Wall Street Journal. Annual inflation in the euro zone slowed to 0.7% in October, far below the central bank’s target of just below 2% over the medium term.

 

He didn’t rule out what some analysts see as the strongest, and most controversial, option: purchases of assets from banks to reduce borrowing costs in the private sector. “The balance-sheet capacity of the central bank can also be used,” said Mr. Praet, whose views carry added weight as he also heads the ECB’s powerful economics division. “This includes outright purchases that any central bank can do.”

 

The ECB could do more if necessary, Mr. Praet said. “On standard measures, interest rates, we still have room and that would also include the deposit facility,” he said. The central bank’s deposit rate has been set at zero for several months. Making it negative would effectively levy a fee on commercial banks that park funds at the ECB.

 

The ECB purchased safe bank bonds and government bonds at the height of the global financial crisis and the euro debt crisis, but in small amounts compared with other major central banks.

Of course, there are some legal hurdles:

The ECB’s charter forbids it from financing governments.

But, wily as always, the ECB appears to have found a loophole:

The ECB must respect its legal constraints, Mr. Praet said, however its rules “do not exclude that you intervene in the markets outright.”

And sure enough, the Euro tumbles just as mandated by the ECB’s talking head: let’s see if it actually stays lower this time.

And now check to the Germans, who will be positively giddy that first Europe accused it of unfair export-led growth, and now the ECB is openly contemplating tearing off the Weimar scab.

Looks like things in Europe are about to get exciting all over again.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qW4crUgb6Ig/story01.htm Tyler Durden

House Oversight and Government Reform Committee Chairman Darrell Issa leads yet another hearing on the Obamacare implementation and the rollout of Healthcare.gov. The Committee will examine the operational challenges in the development of Healthcare.gov and the extent to which recognized Information Technology (IT) best practices were followed. This one should be fun since its the techies answering the questions – US CTO Todd Park and Deputy CIO Henry Chao answering the questions…

 

Live stream via Bloomberg (click here if embed not functioning):

 

Chairman Issa issued the following statement on next week’s hearing:

“When HealthCare.gov launched on October 1, testing was incomplete, the system had not yet been fully tested for security concerns, and new problems kept appearing. This was President Obama’s signature legislative achievement. His administration had hundreds of millions of dollars and total control to complete the project.

“Most Americans tossed off their insurance plans haven’t yet had the opportunity to experience online sticker shock.  This hearing will ask top Administration technology officials what went wrong, what they’re doing to fix it, and whether recognized IT best practices were really followed.”

Hearing Details:
Wednesday, November 13, 2013
“ObamaCare Implementation: The Rollout of HealthCare.gov”
Full Committee, Chairman Darrell Issa (R-CA)
9:30 a.m. in 2154 Rayburn House Office Building

Witnesses:
Mr. Frank Baitman
Deputy Assistant Secretary for Information Technology
Department of Health and Human Services

Mr. Henry Chao
Deputy Chief Information Officer
Deputy Director of the Office of Information Services
Centers for Medicare and Medicaid Services

Mr. Todd Park
U.S. Chief Technology Officer
Office of Science and Technology Policy, The White House
Previously Chief Technology Officer
Department of Health and Human Services

Mr. Steve VanRoekel
U.S. Chief Information Officer
Administrator, Office of Electronic Government
Office of Management and Budget

Mr. David Powner
Director, Information Technology Management Issues
Government Accountability Office
 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sOwSVofny_Y/story01.htm Tyler Durden

House Oversight and Government Reform Committee Chairman Darrell Issa leads yet another hearing on the Obamacare implementation and the rollout of Healthcare.gov. The Committee will examine the operational challenges in the development of Healthcare.gov and the extent to which recognized Information Technology (IT) best practices were followed. This one should be fun since its the techies answering the questions – US CTO Todd Park and Deputy CIO Henry Chao answering the questions…

 

Live stream via Bloomberg (click here if embed not functioning):

 

Chairman Issa issued the following statement on next week’s hearing:

“When HealthCare.gov launched on October 1, testing was incomplete, the system had not yet been fully tested for security concerns, and new problems kept appearing. This was President Obama’s signature legislative achievement. His administration had hundreds of millions of dollars and total control to complete the project.

“Most Americans tossed off their insurance plans haven’t yet had the opportunity to experience online sticker shock.  This hearing will ask top Administration technology officials what went wrong, what they’re doing to fix it, and whether recognized IT best practices were really followed.”

Hearing Details:
Wednesday, November 13, 2013
“ObamaCare Implementation: The Rollout of HealthCare.gov”
Full Committee, Chairman Darrell Issa (R-CA)
9:30 a.m. in 2154 Rayburn House Office Building

Witnesses:
Mr. Frank Baitman
Deputy Assistant Secretary for Information Technology
Department of Health and Human Services

Mr. Henry Chao
Deputy Chief Information Officer
Deputy Director of the Office of Information Services
Centers for Medicare and Medicaid Services

Mr. Todd Park
U.S. Chief Technology Officer
Office of Science and Technology Policy, The White House
Previously Chief Technology Officer
Department of Health and Human Services

Mr. Steve VanRoekel
U.S. Chief Information Officer
Administrator, Office of Electronic Government
Office of Management and Budget

Mr. David Powner
Director, Information Technology Management Issues
Government Accountability Office
 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sOwSVofny_Y/story01.htm Tyler Durden

While the only topic of discussion for “sophisticated” investors everywhere is when (and if) the Fed will ever dare to reduce its monthly flow injection into US markets from $85 billion to a paltry $75 billion, everyone has forgotten that across the Pacific, for the past seven months the BOJ has been calmly injecting another $75 billion each and every month into the market, with no risk of this liquidity boost ever being tapered (since the broad 2% inflation target relies on ever broader wage increases that will never come). However, much to Japan’s chagrin, in the current insta-globally fungible capital markets, over the past five months the bulk of this liquidity has found its way to the US stock bubble, leaving the Nikkei in the dust. As a result, the local Japanese liquidity junkies have started to loudly complain once again, and now the FT reports that “as excitement over the world’s second-biggest stock market has faded, some are now crying out for another jump-start.”

In other words: the BOJ must do “moar” to push the Nikkei bubble even higher following its rangebound trade since May.

A bigger problem is that suddenly hope is fading: “The chief Asian investment officer at one major global asset manager says foreign investors are getting increasingly “antsy” with the apparent lack of progress. “Personally, I wouldn’t be a major buyer of Japan,” he says. “If you buy now you are still buying on hope.“

Intuitively, one can see why Japan should be worried: while the epic debasement of the Yen – the direct outcome of the BOJ’s unprecedented dilution of its currency – had worked to stimulate the “wealth effect” early on, now there is hardly any wealth effect to speak of, while the pernicious consequences of Abenomics, soaring food and energy import costs, are here to stay, and will only get worse especially if Japan is unable to restart its mothballed nuclear power plants.

So without stock gains to at least psychologically offset the price shock apparent everywhere except in rising wages, which instead have declined for 16 months in a row, suddenly Abenomics finds itself trapped. And the only possible resolution it seems is for the BOJ to do even more to offset the languisihing stock market.

Sure enough, the junkies are worried. FT reports:

Money from abroad is still coming in, rising to a year-to-date total of $108bn in the last week of October, as institutional investors start handing out mandates to Japan managers. But having ranked as the best-performing major market over the first six months of the year, Japan has languished in the bottom half of the pack since then.

 

“The market needs more than mega long-only pension funds accumulating [stocks] on weakness, which doesn’t drive prices,” says Peter Eadon-Clarke, head of Japan research at Macquarie Securities in Tokyo. “We need those aggressive macro traders looking for a mini-replay of the BoJ’s major loosening at the beginning of this year.”

 

With or without another nudge from Mr Kuroda, something needs to happen, say analysts.

 

The rally that began exactly one year ago, when former prime minister Yoshihiko Noda called the election that would sweep Shinzo Abe to power for a second time, has not come close to reclaiming its peak of late May, when fears over US tapering jolted world markets.

And so the worst-case scenario for Japan has materialized. Because while the Fed recently understood that flow is all that matters, Japan which continues to provide copious amount of monetary flow each month, has found that said flow not only is not doing much to boost its own stock market, but is promptly departing for greener pastures, mostly found in the collocated servers in the NYSE facility in Mahwah.

All Japanese attempts to redirect this flow direction have so far failed:

The awarding of the 2020 Olympics to Tokyo in September did not provide much of a lift. Neither did the government’s October decision to increase the consumption tax, which had been seen as a test of Japan’s determination to put its state finances in order as it tries to haul itself out of more than decade of mild but persistent deflation.

 

A good first-half earnings season thus far has not roused investors either. As Morgan Stanley notes, only those companies beating forecasts by more than 10 per cent have seen a surge in their share prices.

 

The TS multiple – or the Topix index divided by the S&P 500, described by Mizuho strategist Yasunari Ueno as “a report card on ‘Abenomics’” – has recently dropped below 0.7 times, and continues to fall.

 

“Overseas investors are now less inclined to put their faith in further progress,” he says.

Oh no, not loss of fiath, pardon faith. How can the fanatic monetary religion function if the faith in future upside is gone? Well… enter the BOJ.

So eyes are turning once more to the BoJ, where the governor has promised to supply more stimulus should the economy weaken next April when taxes go up. But some say the central bank cannot wait that long.

 

A pledge to buy even more assets at the BoJ’s meeting next week could weaken the yen once more, pushing up profits at exporters, and would send the broader message that Japan is absolutely serious about emerging from deflation, says Mikio Kumada, Hong Kong-based global strategist at LGT Capital Partners Asia, which manages the assets of the House of Liechtenstein.

 

But this and other “third-arrow” structural reforms need to be seen to be advancing, say analysts, especially in light of the Rakuten row. Last week Hiroshi Mikitani, the founder of Japan’s largest online shopping site, complained that a government decision to exclude some over-the-counter medicines from an internet sales law was a victory for vested interests and suggested the Abe administration was ducking difficult reforms.

Even cries for moar, moar, moar may fall on deaf ears: because first it was the Rakuten CEO saying Abenomics is failed, and now such statist dignitaries as the CEO of Allianz are chiming in saying that “Abenomics will fail without third arrow.” What a funny name to give to a stuck CTRL-P combo. As for any actual reforms: forget it – as the Fed whistleblower yesterday so eloquently described, “Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy.” The same goes for Japan.

But even if the BOJ relents, the one commodity that is in increasingly short supply in Japan is hoap pardon hope: hope that the BOJ, and Abe, have any idea what to do besides diluting the currency even more.

The chief Asian investment officer at one major global asset manager says foreign investors are getting increasingly “antsy” with the apparent lack of progress.

 

“Personally, I wouldn’t be a major buyer of Japan,” he says. “If you buy now you are still buying on hope.”

 

This impatience bothers some market veterans. Japan has always been a slow-burn story, says Rupert Kimber of London-based Tiburon Partners, who runs a £1.5bn ($2.4bn) open-ended fund.

In the meantime, as we predicted all along, Abenomics is actually imploding from within:

The growing appeal of the Japanese market has little to do with the return of Mr Abe, he says, and everything to do with the likes of Japan Tobacco, which said last month it would shut plants and cut 15 per cent of its domestic workforce to protect profits.

 

“If the Japanese labour market is so rigid and unmovable, those things aren’t possible, are they?”

In short: as a result of its decision to double the monetary base, Japan delayed the inevitable thanks to the distraction of a surging stock market, but now that the surge is over, attention has returned to the flaming wreck that is Japan’s economy. And while its bond yields have been stable for the time being, this will be the final domino to fall before Abe is once again carted off stage left following another epic bout of diarrhea as Abenomics officially fails, and the sun finally sets on the radioactive land of the formerly rising sun.

It is all, as Kyle Bass foretold many times before, just a matter of time.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/jDu7bjAzRZE/story01.htm Tyler Durden

While the only topic of discussion for “sophisticated” investors everywhere is when (and if) the Fed will ever dare to reduce its monthly flow injection into US markets from $85 billion to a paltry $75 billion, everyone has forgotten that across the Pacific, for the past seven months the BOJ has been calmly injecting another $75 billion each and every month into the market, with no risk of this liquidity boost ever being tapered (since the broad 2% inflation target relies on ever broader wage increases that will never come). However, much to Japan’s chagrin, in the current insta-globally fungible capital markets, over the past five months the bulk of this liquidity has found its way to the US stock bubble, leaving the Nikkei in the dust. As a result, the local Japanese liquidity junkies have started to loudly complain once again, and now the FT reports that “as excitement over the world’s second-biggest stock market has faded, some are now crying out for another jump-start.”

In other words: the BOJ must do “moar” to push the Nikkei bubble even higher following its rangebound trade since May.

A bigger problem is that suddenly hope is fading: “The chief Asian investment officer at one major global asset manager says foreign investors are getting increasingly “antsy” with the apparent lack of progress. “Personally, I wouldn’t be a major buyer of Japan,” he says. “If you buy now you are still buying on hope.“

Intuitively, one can see why Japan should be worried: while the epic debasement of the Yen – the direct outcome of the BOJ’s unprecedented dilution of its currency – had worked to stimulate the “wealth effect” early on, now there is hardly any wealth effect to speak of, while the pernicious consequences of Abenomics, soaring food and energy import costs, are here to stay, and will only get worse especially if Japan is unable to restart its mothballed nuclear power plants.

So without stock gains to at least psychologically offset the price shock apparent everywhere except in rising wages, which instead have declined for 16 months in a row, suddenly Abenomics finds itself trapped. And the only possible resolution it seems is for the BOJ to do even more to offset the languisihing stock market.

Sure enough, the junkies are worried. FT reports:

Money from abroad is still coming in, rising to a year-to-date total of $108bn in the last week of October, as institutional investors start handing out mandates to Japan managers. But having ranked as the best-performing major market over the first six months of the year, Japan has languished in the bottom half of the pack since then.

 

“The market needs more than mega long-only pension funds accumulating [stocks] on weakness, which doesn’t drive prices,” says Peter Eadon-Clarke, head of Japan research at Macquarie Securities in Tokyo. “We need those aggressive macro traders looking for a mini-replay of the BoJ’s major loosening at the beginning of this year.”

 

With or without another nudge from Mr Kuroda, something needs to happen, say analysts.

 

The rally that began exactly one year ago, when former prime minister Yoshihiko Noda called the election that would sweep Shinzo Abe to power for a second time, has not come close to reclaiming its peak of late May, when fears over US tapering jolted world markets.

And so the worst-case scenario for Japan has materialized. Because while the Fed recently understood that flow is all that matters, Japan which continues to provide copious amount of monetary flow each month, has found that said flow not only is not doing much to boost its own stock market, but is promptly departing for greener pastures, mostly found in the collocated servers in the NYSE facility in Mahwah.

All Japanese attempts to redirect this flow direction have so far failed:

The awarding of the 2020 Olympics to Tokyo in September did not provide much of a lift. Neither did the government’s October decision to increase the consumption tax, which had been seen as a test of Japan’s determination to put its state finances in order as it tries to haul itself out of more than decade of mild but persistent deflation.

 

A good first-half earnings season thus far has not roused investors either. As Morgan Stanley notes, only those companies beating forecasts by more than 10 per cent have seen a surge in their share prices.

 

The TS multiple – or the Topix index divided by the S&P 500, described by Mizuho strategist Yasunari Ueno as “a report card on ‘Abenomics’” – has recently dropped below 0.7 times, and continues to fall.

 

“Overseas investors are now less inclined to put their faith in further progress,” he says.

Oh no, not loss of fiath, pardon faith. How can the fanatic monetary religion function if the faith in future upside is gone? Well… enter the BOJ.

So eyes are turning once more to the BoJ, where the governor has promised to supply more stimulus should the economy weaken next April when taxes go up. But some say the central bank cannot wait that long.

 

A pledge to buy even more assets at the BoJ’s meeting next week could weaken the yen once more, pushing up profits at exporters, and would send the broader message that Japan is absolutely serious about emerging from deflation, says Mikio Kumada, Hong Kong-based global strategist at LGT Capital Partners Asia, which manages the assets of the House of Liechtenstein.

 

But this and other “third-arrow” structural reforms need to be seen to be advancing, say analysts, especially in light of the Rakuten row. Last week Hiroshi Mikitani, the founder of Japan’s largest online shopping site, complained that a government decision to exclude some over-the-counter medicines from an internet sales law was a victory for vested interests and suggested the Abe administration was ducking difficult reforms.

Even cries for moar, moar, moar may fall on deaf ears: because first it was the Rakuten CEO saying Abenomics is failed, and now such statist dignitaries as the CEO of Allianz are chiming in saying that “Abenomics will fail without third arrow.” What a funny name to give to a stuck CTRL-P combo. As for any actual reforms: forget it – as the Fed whistleblower yesterday so eloquently described, “Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy.” The same goes for Japan.

But even if the BOJ relents, the one commodity that is in increasingly short supply in Japan is hoap pardon hope: hope that the BOJ, and Abe, have any idea what to do besides diluting the currency even more.

The chief Asian investment officer at one major global asset manager says foreign investors are getting increasingly “antsy” with the apparen
t lack of progress.

 

“Personally, I wouldn’t be a major buyer of Japan,” he says. “If you buy now you are still buying on hope.”

 

This impatience bothers some market veterans. Japan has always been a slow-burn story, says Rupert Kimber of London-based Tiburon Partners, who runs a £1.5bn ($2.4bn) open-ended fund.

In the meantime, as we predicted all along, Abenomics is actually imploding from within:

The growing appeal of the Japanese market has little to do with the return of Mr Abe, he says, and everything to do with the likes of Japan Tobacco, which said last month it would shut plants and cut 15 per cent of its domestic workforce to protect profits.

 

“If the Japanese labour market is so rigid and unmovable, those things aren’t possible, are they?”

In short: as a result of its decision to double the monetary base, Japan delayed the inevitable thanks to the distraction of a surging stock market, but now that the surge is over, attention has returned to the flaming wreck that is Japan’s economy. And while its bond yields have been stable for the time being, this will be the final domino to fall before Abe is once again carted off stage left following another epic bout of diarrhea as Abenomics officially fails, and the sun finally sets on the radioactive land of the formerly rising sun.

It is all, as Kyle Bass foretold many times before, just a matter of time.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/jDu7bjAzRZE/story01.htm Tyler Durden

The big news from the Q3 2013 earnings announcements so far is that the mainstream financial media has discovered non-bank financials.  The non-bank sector has been growing fast, this as the traditional financials comprised of depositories and broker dealers have been flat to down in terms of revenue and earnings.  The non-banks include a number of different platforms and strategies, making the selection and analysis process difficult for novice observers.  But if you’re looking for top line growth in the post Dodd-Frank world, non-banks are the place when it comes to financials. 

The publicly traded names in the non-bank sector can be divided into several categories, including various flavors of large multi-asset managers like Blackstone (BX), The Carlyle Group (CG) and Fortress (FIG).  There are specialized finance companies like CIT Group (CIT) and ORIX Corporation (IX).  And then there are real estate companies and investment trusts or REITs focused on a wide range of residential assets from whole loans to residential mortgage backed securities (RMBS) to 1-4 family rental properties to mortgage servicing rights (MSR). 

Some of mortgage REITs have affiliates that provide financing and/or management services, as in the case of PennyMac Mortgage Investment Trust (PMT) and PennyMac Financial Services (PFSI).  FIG and its progeny, like Nationstar (NSM), Newcastle (NCT), New Residential Investment Corp. (NRZ) and a myriad of other FIG-controlled legal entities comprise one of the more complex corporate groupings operating in the mortgage space today.

Perhaps the most visible sector in terms of growth is non-bank mortgage servicer/lenders, led by names such as Ocwen Financial (OCN), Walter (WAC) and NSM.  According to Inside Mortgage Finance, OCN ranks number four in terms of total servicing and NSM ranks sixth. Wells Fargo is the largest loan servicer in the US and the biggest among the top banks, roughly 2.5x the market share of JPMorgan Chase (JPM).  There are many other smaller lender/servicers in the non-bank sector that specialize in areas such as asset management and distressed servicing, including my employer.    

The major difference between commercial banks and non-banks is funding costs and regulation.  Banks today fund their operations at something like 1/10th the cost of non-banks, which generally finance their assets via cash, short-term credit lines and repurchase agreements.  The latter source of liquidity comes from, well, commercial banks.  This capital and funding asymmetry and consequent liquidity risk is a major concern of regulators looking at the non-bank sector today.  Long-term debt is another sources of funding, but one that is very expensive.  Even large players like FIG, for example, still pay over 6.5% for unsecured parent level funding vs. a 3% dividend yield on FIG’s common.  Compare this with 3/8th of a point blended cost of funds for WFC and other large money center banks. 

In terms of capital, on the other hand, commercial banks are at a decided disadvantage to non-banks.  Commercial banks are required to allocate at least 100% capital weightings (or $8 per $100 of assets) to risky exposures like non-agency mortgages or business loans, while government and agency obligations require a fraction of the capital cover.  Under the Basel III accord, banks are actively discouraged from lending on most real estate transactions or any type of “at risk” lending for new, entrepreneurial business ventures.  It is amazing how little comment one sees in the media about the stifling effects that Dodd-Frank and Basel III have on private credit creation, and thus jobs and consumer spending. The poor economic situation is not about “austerity,” as the Krugmanite socialists believe, but a dearth of credit creation in the private sector.

One reporter who does not need a tutorial on non-banks is Kate Berry at American Banker. She recently did an important story, “Nonbank Mortgage Servicers’ Rapid Growth Alarms Investors,” that gets into some of the investor perception problems dogging non-banks. Berry writes that:

“[C]oncern is mounting among investors and analysts that Nationstar (NSM), Ocwen Financial (OCN) and Walter Investment (WAC) are getting so big so quickly that they are becoming too difficult to manage.  Shares of Ocwen and Nationstar have plunged in recent days following earnings announcements in which the companies disclosed a range of operational problems, including delays in integrating acquisitions of servicing portfolios. Meanwhile, Walter recently disclosed that it is under investigation by the Consumer Financial Protection Bureau and facing scrutiny from the Department of Housing and Urban Development over management of its reverse mortgage program and other issues.”

An interesting thing about the AB story is that it tracks quite a bit of the alarmist narrative coming from some financial regulators in Washington.  In particular the Consumer Financial Protection Bureau or CFPB, which fancies itself the paramount financial regulator in Washington in the post-Dodd-Frank era, has been making life miserable for many consumer lenders.  CFPB, for example, makes a lot of fuss over whether or not it will allow the larger mortgage servicers to continue growing via transfers of loan servicing from the TBTF banks. 

Delays of transfers of distressed loans from the large banks to specialty servicers hurt consumers and investors.  But the folks at the CFPB seem unconcerned about collateral damage as they move to regulate every aspect of consumer finance in the US, from making mortgages to loan servicing to auto loans to debt collection.   The hegemonic bluster from the CFPB comes as unwelcome news to the folks at the Federal Reserve Board, OCC, Financial Housing Finance Agency, and FHA, all of whom still have primary responsibility for the largest mortgage servicers.  There is even news of an impending civil war between the CFPB and the other federal regulatory agencies, but no shooting has been observed as yet. 

Suffice to say that all of the regulators are making life very difficult for loan servicers, each in their own special way, and especially for the largest commercial banks.  This is one reason why commercial banks are not willing to originate new loans other than prime mortgages with little likelihood of default.  In many respects, the only thing the CFPB is protecting Americans from is getting a mortgage.  Read more on the history of Dodd-Frank in my latest article for The National Interest below:

http://nationalinterest.org/article/dodd-frank-money-never-sleeps-9279

If you follow non-banks that are trying to build val
ue based on acquiring loans and/or mortgage servicing rights (MSRs) and have not read “FHFA’s Oversight of Fannie Mae’s 2013 Settlement with Bank of America,” you should do so.  The proclivity for regulation via enforcement at CFPB, FHFA and other agencies is greatly slowing the process of working through the several hundred billion worth of remaining distressed assets and REO in the US banking system.  And there are a lot more distressed assets still to be fixed inside the GSEs and HUD. 

FHFA report on BAC:  http://tinyurl.com/ocoe6g4

Meanwhile in the RMBS REIT space, the growing market angst regarding when and where the Federal Open Market Committee will change monetary policy is playing havoc with leveraged RMBS REITS such as Annaly Capital Management (NLY).  NLY is near its 52-week low despite a handsome $1.40 per share or ~ 12% dividend yield, the highest in the S&P 500.  Since the markets persist in predicting a change in the extreme monetary policy of the FOMC, this despite the poor quality of “better” jobs data, the result is extreme volatility for NLY.

Chart:  http://tinyurl.com/nvjm8ef

In the most recent form 10-Q, NLY reports that its interest rate risk is small, with just a 1% change in portfolio valuation given a 0.75% move in benchmark interest rates – “with Effect of Interest Rate Swaps and Other Hedging Transactions (Page 52).”  But the fact of shrinking unrealized gains and mounting unrealized losses on the NLY portfolio seem to be dominating the minds of investors, hedges or no.  The fact that these positions are funded with repurchase agreements maturing in one year or less seems to be another worry.  Even though NLY has doubled its cash position in the past nine months, the equity markets continue to punish this RMBS REIT. 

NLY 10-Q:  http://tinyurl.com/pkkr4em

Speaking of punishment, the latest disclosure from PMT suggests that the lender/servicer missed its interest rate hedges by a wide margin.  Paul Miller of FBR writes in his latest note on PMT: “The company reported disappointing mortgage metrics with correspondent locks of $6.7 billion and fundings of $7.8 billion leading to a revenue/expense mismatch that drove a significantly lower gain on sale of 37 bps compared to 85 bps last quarter.”  That’s a miss of $1.1 billion on hedging, a 16% gap between locks and funding. 

Then we had the announcement last week from NSM that it is selling its wholesale lending business to Stonegate Mortgage (SGM), a move that caught the analyst community be surprise.  The official line is that NSM saw lending margins fall due to interest rate volatility.  NSM says that will focus on servicing, solutions & REO sales, and investment vehicles due to higher margins.  With this announcement, NSM just took earnings down 30% and has guided investors to expect an operating loss in Q4 2013. 

A cynic might say that one reason for the NSM decision to sell most of its lending business to SGM is to reduce its profile with regulators and focus on the higher margin activities of servicing and buying MSRs.  In particular, pressure from CFPB and other regulators on both non-banks and banks is intense, and is forcing continued deleveraging in the credit markets.  Note that market leader WFC is down to 25% overall market share in 1-4s from 33% last year, and just 19% correspondent vs. 50% a year ago.

Meanwhile, the carnage in the commercial banking sector continues apace, with most of the major players in mortgage reporting double-digit declines in new origination volumes in Q3 of 2013 and related restructuring expenses.  This is all still a surprise to some, but the trend in terms of lower refinance volumes has been visible since the start of 2013.

Mortgage industry maven Rob Chrisman reports that U.S. Bancorp (USB) and Regions Financial Corp.  (RF), as well as other residential lenders, expect waning mortgage-refinancing activity to continue to create headwinds in the fourth quarter. USB estimates mortgage-banking revenue will decline about 30% from the previous quarter, Chief Financial Officer Andrew Cecere said Friday at an analyst conference in Boston.

http://www.robchrisman.com/

At WFC, the year over year comparisons in mortgage banking were grim, with a 43% YOY decline in revenue to just $1.6 billion in Q3 2013.  The 156% increase in servicing income miraculously made the overall drop in mortgage revenue seem less grievously bad. Mortgage loans held for sale fell by 25% YOY and overall the WFC balance sheet shows the worst effects of the Fed’s quantitative easing.  The yield on earning assets at WFC fell from 4.28% in Q3 2012 to just 3.79% in Q3 2013, illustrating how the Fed’s overdone monetary ease is starting to cause the cash flow inside the financial sector to shrivel along with the income of individual and corporate savers.

The one thing you can say about the growth in the non-bank sector over the past several years is that it is a direct result of government intervention in the marketplace.  Both Fed zero rate monetary policy and Dodd-Frank represent a massive intrusion by the federal state into the world of consumer finance.  The extreme monetary policies pursued by the FOMC have launched a number of new bubbles in the non-bank world that are obvious for all to see – RMBS, REO to rent, to name just two — but barely discussed in the media. 

Add to all this the fact that all of the regulation by the CFPB and other agencies is arguably offsetting the intended expansionary effect of QE on the economy and specifically consumer finance.  Along with the income shrinkage on savers of QE, the regulatory environment created by Dodd-Frank is retarding credit expansion for the private sector, hurting consumption and employment.  But the interest rate risk created by the Fed after years of zero rates is very real and may soon be “Topic A” for Janet Yellen and other members of the Federal Open Market Committee.  It’s like we all know that the emperor is naked, but none of us, not even the smallest child, is willing to say so. 

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