Tag: finance

Via DoctorHousingBubble.com,

The rise in rents and home prices is adding additional pressure to the bottom line of most California families.  Home prices have been rising steadily for a few years largely driven by low inventory, little construction thanks to NIMBYism, and foreign money flowing into certain markets.  But even areas that don’t have foreign demand are seeing prices jump all the while household incomes are stagnant.  Yet that growth has hit a wall in 2016, largely because of financial turmoil.  We’ve seen a big jump in the financial markets from 2009.  Those big investor bets on real estate are paying off as rents continue to move up.  For a place like California where net homeownership has fallen in the last decade, a growing list of new renter households is a good thing so long as you own a rental. 

The problem of course is that household incomes are not moving up and more money is being siphoned off into an unproductive asset class, a house.  Let us look at the changing dynamics in California households.

More renters

Many people would like to buy but simply cannot because their wages do not justify current prices for glorious crap shacks.  In San Francisco even high paid tech workers can’t afford to pay $1.2 million for your typical Barbie house in a rundown neighborhood.  So with little inventory investors and foreign money shift the price momentum.  With the stock market moving up nonstop from 2009 there was plenty of wealth injected back into real estate.  The last few months are showing cracks in that foundation.

It is still easy to get a mortgage if you have the income to back it up.  You now see the resurrection of no money down mortgages.  In the end however the number of renter households is up in a big way in California and homeownership is down:

Source:  Census

So what we see is that since 2007 we’ve added more than 680,000 renter households but have lost 161,000 owner occupied households.  At the same time the population is increasing.  When it comes to raw numbers, people are opting to rent for whatever reason.  Also, just because the population increases doesn’t mean people are adding new renter households.  You have 2.3 million grown adults living at home with mom and dad enjoying Taco Tuesdays in their old room filled with Nirvana and Dr. Dre posters.

And yes, with little construction and unable to buy, many are renting and rents have jumped up in a big way in 2015:

Source:  Apartmentlist.com

This has slowed down dramatically in 2016.  It is hard to envision this pace going on if a reversal in the economy hits (which it always does as the business cycle does its usual thing).

Homeownership rate in a steep decline

In the LA/OC area home prices are up 37 percent in the last three years:

Of course there are no accompanying income gains.  If you look at the stock market, the unemployment rate, and real estate values you would expect the public to be happy this 2016 election year.  To the contrary, outlier momentum is massive because people realize the system is rigged and are trying to fight back.  Watch the Big Short for a trip down memory lane and you’ll realize nothing has really changed since then.  The house humping pundits think they found some new secret here.  It is timing like buying Apple or Amazon stock at the right time.  What I’ve seen is that many that bought no longer can afford their property in a matter of 3 years!  Some shop at the dollar store while the new buyers are either foreign money or dual income DINKs (which will take a big hit to their income once those kids start popping out).  $2,000 a month per kid daycare in the Bay Area is common.

If this was such a simple decision then the homeownership rate would be soaring.  Yet the homeownership rate is doing this:

In the end a $700,000 crap shack is still a crap shack.  That $1.2 million piece of junk in San Francisco is still junk.  And you better make sure you can carry that housing nut for 30 years.  For tech workers, mobility is key so renting serves more as an option on housing versus renting the place from the bank for 30 years.  Make no mistake, in most of the US buying a home makes total sense.  In California, the massive drop in the homeownership rate shows a different story.  And that story is the middle class is disappearing.

via Zero Hedge http://ift.tt/20jUvIP Tyler Durden

Ever since early 2015, we have repeated that with the world caught in a negative rate “race to the bottom”, which even S&P now admits, it is inevitable that the US will join the rest of the DM central banks, especially after the flawed and much delayed attempt to hike rates into what is at least a quasi recession.

Now, with sellside chatter that it is only a matter of time before the Fed will likewise join the fray despite stern warnings by the likes of Deutsche Bank that more easing will only exacerbate conditions for global financial firms, JPM’s Michael Feroli has set the “bogey” or the catalyst for what will be needed for the Fed to finally admit defeat and go not only back to zero but below it. To wit:

While we earlier mentioned that negative nominal rates should affect the economy no differently than ordinary policy easing, there is some evidence that the exchange rate channel is particularly pronounced in the case of NIRP. The leadership role of the Federal Reserve in the global monetary system may lead to some hesitancy to engage in what may be uncomfortably close to a skirmish in the currency wars. Lastly, there is the political issue. To be sure, political concerns about NIRP are not unique to the Fed; presumably one reason central bankers abroad sought to limit the pass-through to retail depositors was to avoid pushback from the political establishment. Even so, it seems reasonable to judge that the Fed’s current political situation is more parlous than is the case among its overseas counterparts. For all of the above reasons, we believe the hurdle for NIRP in the US is quite high, and we would need to see recession-like conditions before the Fed seriously considered this option.

So the “hurdle is quite high”, but all that will be needed for Yellen and co. to surpass this hurdle is for “recession-like” conditions to emerge.

Which means be on the lookout for “recession-like” conditions because a few more days of stocks crashing and wiping out years of the Fed’s carefully planned out “wealth effect” and the Fed wil have no choice but to beg the Department of Commerce to come up with quadruple seasonal adjustments that make every data release as bad as during the depth of the credit crisis, something which will be urgently needed to provide the Fed with the much needed “political cover” to admit the latest central bank defeat.

via Zero Hedge http://ift.tt/1KB1oDv Tyler Durden

Almost every other day I read an article telling me that owning Gold is dumb or that Gold is doomed as an investment.

These articles would be useful or insightful if they weren’t based on “analysis” that is either misleading or downright wrong.

To whit…

Gold has absolutely CRUSHED stocks since 2000. During this period we’ve had two of the biggest stock market bubbles in history. Yet Gold’s performance has made stocks’ performance look like a flat-line.

H/T Bill King.

Put another way, Gold has demolished stocks during a period in which the Fed was printing money by the trillions of Dollars. The Fed and other Central Banks may want to boost stocks, but Gold is the biggest beneficiary from their insanity.

However, Gold’s long-term outperformance of stocks is even more incredible.

Most “analysis” of Gold as an investment runs back for 100 years or so. However, this analysis is deceptive as Gold was pegged to major currencies up until 1967.

Of course, the geniuses in the media overlook this little tidbit because once major countries began to de-peg their currencies from Gold in 1967, the precious metal has absolutely DEMOLISHED stocks in terms of performance.

H/T Bill King

Since 1967, Gold has risen 33 fold. The S&P 500 is up just 21 Fold.  Had you ignored stocks completely and simply bought Gold you would be significantly RICHER.

Owning Gold is just one of the methods investors can use to generate real wealth in today’s market of financial bubbles. We outline two others in our 21-page investment report titled Stock Market Crash Survival Guide.

To pick up yours, swing by:

http://ift.tt/1HW1LSz

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

via Zero Hedge http://ift.tt/1UYfqzy Phoenix Capital Research

And you thought Greece was "fixed"…

The last 3 days have seen Greek bank stocks cut in half…

Which has slammed Greek stocks to their lowest since December 1989…breaking below Draghi's "Whatever it takes" lows…

And Greek bond yields are back above 10% – the highest since last year's crisis…

Greece is no longer "fixed" as it appears the troubled nation is once again facing a funding crisis (looming in June) unable to meet "Europe"'s demands on its pension reform and refugee aceptance. As MNI reports,

Greece's negotiations with international creditors could take months if Athens does not cooperate fully on its fiscal consolidation plan and officials are not expected to return to Athens before they receive concrete and acceptable proposals, Eurozone officials told MNI Monday.

 

Furthermore, the officials warn that any attempt by the Greek government to politicise the negotiations in order to get relaxation will not be tolerated by the majority of the currency area member states.

 

One high-ranking official said that "the talks carried out last week were just exploratory" and that the institutions "did not make specific demands" as they lack hard data, despite leaks from the Greek government on potential taxation increases and pension cuts.

 

"There is still a big gap between what we ask and what the Greek government has submitted so far. We have not defined yet the fiscal gap for this year, which is a crucial component for the evaluation," the source said.

 

Another source said that despite the goodwill expressed by Greece's European creditors – the European Commission, the European Central Bank and the European Stability Mechanism – to discuss counter-measures to offset certain unpopular ones such as cutting further primary pensions and the minimum wage, "Greece seems unable to deliver such measures."

 

"There is a lot work to be done. We agreed to disagree. Judging from (last week's) talks, the negotiations could drag for months. Anyway, I don't see any real funding needs for Greece until June," the official claimed.

 

The comments come amid massive reaction in Greece by farmers protesting potential tax increases and social unrest for the formation of immigration camps in certain islands and the north of Greece.

In other words – prepare for another ATM-halting, crisis-confronting Spring and Summer in Europe as Schaeuble goes to war with Tspiras once again… obver pension reforms and refugee concessions.

via Zero Hedge http://ift.tt/23SOGGJ Tyler Durden

US Treasury yields are collapsing across the entire curve, down  9-10bps from their pre-opening highs this morning. While 10Y pushed belwo 1.80% (to one-year lows), it is 5Y yields that have traders the most anxious as they look to break out below three-year channel lows…

What happens next?

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

Submitted by Yonathan Amselem via The Mises Institute,

On January 12, America’s central planner-in-chief gave his State of the Union address. The president promised nothing less than to feed the hungry, create jobs, shape the earth’s climate, and make everyone a college graduate. There’s nothing new here, though. We’ve heard variations of this silly song and dance every year under both Democrats and Republicans. The president lambasted naysayers as fear-mongers that were too partisan to admit we have a booming economy. The fact that the Dow Jones cratered roughly 9 percent in the same thirty-day period President Obama gave his address did nothing to quell Obama's optimism about America’s future. In fact, he labeled the US economy “the strongest and most durable in the world.”

Despite our leader’s unwavering confidence in America’s fortunes, a quick peak under the hood reveals a pretty grim state of American commerce.

1. The Federal Reserve and US Government Have Warped the American Economy

In just the past decade, the Federal Reserve’s balance sheet has grown from roughly $800 billion to over $4 trillion. Our central bankers engaging in massive asset purchases to pummel interest rates downward is not news to anyone. We’ve been living in a world of falling interest rates since the 9/11 terrorist attacks. Yet, few mainstream economists have taken a good look at the destructive effects of this unprecedented monetary expansion. The calamitous distortions Fed policy has created for actors on both Main Street and Wall Street since 2008 have laid the groundwork for yet another crash.

Low interest rates stemming from a growing money supply are the only reason the US government has managed to service its gargantuan debt in recent years. The Congressional Budget Office itself has pointed out that even a slight rise in interest rates could potentially result in anywhere from $700 to $900 billion in annual tax payments just to service the interest on our debt. At this pace, paying the republic’s creditors will become our largest government program in no time. Future Americans might go to work and have 50 percent of their paychecks seized not to pay for government services, but simply to service debt forced on them by central planners.

But public debt is far from the only distortion artificially low rates have wrought. Mortgages, auto loans, credit cards, and student loans have ballooned total consumer debt to $12 trillion, and this number is only trending upward. The easy credit economy manufactured by central bankers has obliterated American savings and replaced them with debt. The average American consumer has less than $1,000 in his bank account. He lives praying for no car trouble or a broken arm. There was a time when Americans were rewarded for saving their earnings with double-digit interest rates but this is a distant memory. If Americans want to earn a return nowadays they must play the central-bank sponsored stock market casino. In fact, calling the stock market a casino is a little insulting to casinos — at least Blackjack has consistent rules.

2. American Corporations Are Debt-ridden and Unproductive

The post-recession bull market inspired a lot of confidence in the American economy and Obama’s recovery, but this is akin to praising great happy hour specials on the Titanic. Soaring stock market prices are not a result of increased productivity or innovation — they are a symptom of central bank fueled asset inflation and corporate debt. In fact, since 2008, corporate debt has doubled. Almost 100 percent of all corporate issued debt has been used to buy back stocks and prop up equity prices. This bears repeating. Almost none of America’s recently issued corporate debt has gone toward investing in plant and equipment, increasing the workforce, research and development, or expanding operations in any meaningful way.

Our central bankers, regulatory agencies, and fiscal policies have created a financial system so distorted and removed from real assets and real cash flow generation that corporate executives can rake in billions in bonuses while producing almost nothing of real value. Investing in the real American economy is just not worth the risk. The massive long-term obligations assumed by American companies high on low interest rates will slowly crush the life out of our economy. The only answer is to start producing real goods and begin generating real cash flow. But this won’t happen in the bubble-finance nightmare cycle we’re now in.

Our current money commissar, Janet Yellen, recently “raised rates” from 0.25 percent to a paltry 0.5 percent. If this rounding error of a rate hike can send the market tumbling off a cliff, what would happen if the fed raised the target rate back up to 6 percent like in 2000?

3. American Entrepreneurship is Dying and American Workers Are Unproductive

Financial chicanery aside, we have to come to terms with the fact that Americans themselves just aren’t built like they used to be. President Obama’s administration constantly cites low unemployment as a sign that our economy is back on track. To say unemployment numbers are massaged is an understatement. Of course unemployment recovered since 2008, President Obama was sworn in at the end of a market crash! But more importantly, the American economy is not producing architects, engineers, machinists, or other high value, goods-producing workers. We are pumping out an army of waiters, social workers, and associate professors with worthless six-figure degrees they have no hope of paying off in this life or the next. American workers are not interested or encouraged to start businesses, learn new skills, or innovate in some way. The typical American graduate firmly believes he can turn a six-year sociology degree into a job that doesn’t involve bringing people mimosas for brunch.

Our unproductive workforce is not all the fault of its members.The disincentives for entrepreneurship and wealth creation are colossal in this country. Dealing with licensing boards, zoning commissions, health inspectors, unions, and other regulatory bodies at the federal, state, and municipal level is extraordinarily burdensome, particularly for the poor and nascent immigrants. Successful entrepreneurs then have taxes levied at the federal, state, and local level across a cavalcade of confusing forms and attachments. The state and its many institutions make it nearly impossible for the average American citizen to just try something. This is the lifeblood of a “durable economy.” Unfortunately, business failures are now outpacing business startups.

The political class has completely disrupted the American structure of production, made American workers uncompetitive, snuffed the life out of entrepreneurs, and burdened the entire nation with a debt obligation the size of Jupiter. The US economy is not the strongest and most durable in the world — it is an unskilled thirty-two-year-old waiter crashing at his parent’s place and trying to pay down an $80,000 international relations degree.

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

With China celebrating the Lunar New Year and offline until next weekend, and with the US in the usual post-payrolls macro newsflow lull, the markets will have more than enough time to stew in the latest source of contagion fears, namely Europe, the same Europe which until recently was fixed but is broken all over again. The highlight of the week will be Janet Yellen’s semi-annual testimony to Congress where she is expected to confirm she is trapped: either push the market even lower by sounding hawkish, or admit the US is on the verge of a recession and admit policy error.

Here is what else to expect, ironically from DB’s Jim Reid:

It’s a fairly quiet start to proceedings this week with the only data of note in Europe being German industrial production for December and confidence indicators for the Euro area and France. The usual post-payrolls lull in the US means there’s no data due across the pond today.

Tuesday’s highlights include trade reports covering the December month out of both Germany and the UK, while across the pond the January NFIB small business optimism reading is due out, along with the December JOLTS report and wholesale inventories and trade sales data for the same month.

Turning to Wednesday we’re starting in Japan where the latest January PPI numbers are due out. In Europe we’ll get regional industrial production reports for Italy, France and the UK while the sole release in the US in the afternoon is the January Monthly Budget Statement.

It’s a particularly quiet day for data on Thursday with nothing of note in Europe and just initial jobless claims data due in the US.

It looks like we’ll have a busy end to the week on Friday with Euro area Q4 GDP and industrial production, French employment data and German Q4 GDP and CPI all due out. In the US the big focus will be on the January retail sales data along with the first reading for the University of Michigan consumer sentiment print for February and December business inventories data.

Arguably the focus of the week will be away from the data and instead reserved for the aforementioned Fed Chair Yellen’s semi-annual testimony to the House Financial Services on Wednesday and the Senate on Thursday. Also due to speak will be the Fed’s Williams on Wednesday and Dudley on Friday. Meanwhile we’ll also see the attention for the US presidential election move to New Hampshire which is due to hold the first-in-the-nation primary on Tuesday.

Elsewhere, earnings season rumbles on and we’ve got 64 S&P 500 companies set to report including Coca-Cola, Walt Disney and Cisco. In Europe we’ve got 80 Stoxx 600 companies reporting including Total, L’Oreal, Heineken and Nokia.

And the key US events in table format

Source: DB, BofA

via Zero Hedge http://ift.tt/1Ri9sdS Tyler Durden

FANG stocks are collapsing in the pre-market as faith in the "growth at any cost" meme crashing on the shores of reality once again. Now down over 16% from their post-Fed-rate-hike highs, the stocks you should never sell are being sold in size as large crowds and small doors press NFLX and AMZN (and TSLA for good measure) down over 30% year-to-date. Even Mark Cuban is hedging…

It's carnage in the pre-open…

"For those of following my stock moves, I just bought puts against my entire Netflix position," Cuban posted on the site.

"I'm not selling. But I have no idea what this market will do."

Which will drag the broad FANGs to 5-month lows…

As we noted earlier, via JPMorgan's Kolanovic,

For instance, a popular group of stocks held by investors is known by the abbreviation “FANG” (Facebook, Amazon, Netflix, Google). We use these stocks as an illustration for a broader group of similar stocks that have the highest rankings according to momentum and growth metrics (and surprisingly in some cases even low volatility metrics). Given that traditional value metrics look expensive when applied to this group, one can compare these momentum/growth companies on a new set of metrics. For instance, one  can look at the ratio of current price to earnings that the company delivered over all of its lifetime (instead of just the past year). Another metric could be a ratio of CEO or founder’s net worth to total company earnings delivered during its lifetime (see below):

 

Aggregating all FANG earnings since these companies were listed, one arrives at a ratio of current price to all earnings since inception of ~16x. This can be contrasted to a ratio of price to last years’ earnings for all other S&P 500 companies also at ~16x. We think this is extraordinary given that FANGs are neither small nor new companies. In fact, these are some of the largest companies in the S&P 500 and among the largest holdings of US retirees. Given that the three largest FANG stocks are now twice more valuable than the entire US S&P small-cap universe (600 companies), a legitimate question to ask would be “is such a high allocation by long-term investors to these stocks prudent?” Statistically, over a long period of time smaller companies outperform mega-caps ~75% of times. Note also that the current size ratio of mega-cap stocks to small-cap stocks is at highest level since the tech bubble of 2000.

 

Furthermore, such allocation is also questionable from a risk angle. For example, the idiosyncratic risk of holding three stocks in one sector is certainly much higher than the risk of owning, e.g., ~1,000 medium- or small-cap companies diversified across all sectors and industries.

Finally we leave with the thoughts of infamous MacroMan – Just Say No To Equity Market Drugs

The real stock junkies probably go for the really hard stuff: equity market smack. 

 

 

Long FANG and short GDX was a prodigious trade over the past several years, with that spread rising  more than 10-fold from Facebook's IPO in May 2012 to Thanksgiving of last year.   The high was great while it lasted, but coming down has proven to be unpleasant to say the least.  If you wanted one chart to illustrate the pain in equity space, this would be the one.   As Macro Man noted last week, GDX looks like breaking out, potentially inflicting more pain.

*  *  *

This won't end well – it never does.

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

The saga of the gas giant Aubrey McClendon’s built, Chesapeake Energy, enters its endgame, when moments ago following a Debtwire report that the company has hired Kirkland and Ellis as its restructuring/bankruptcy attorney – typically a step taken just weeks ahead of a formal Chapter 11 filing – the stock has plunged 22% to $2.40, the lowest price in the 21st century, and for all intents and purposes, ever.

In a few weeks we will see just how many banks were properly “provisioned” for this now imminent bankruptcy that may just unleash the default wave so many have been waiting for.

via Zero Hedge http://ift.tt/20F1H7P Tyler Durden