Junk Debt Drops Below 5% Yield For First Time On Record Submitted by Tyler Durden on 05/08/2013 15:24 -0400 Barclays Bond CDO Collateralized Debt Obligations High Yield While most comprehend that when buying credit-risky instruments the most critical aspect of return is the spread (or additional compensation over the risk-free rate) which itself is in 'bubble' territory; it is nevertheless spell-binding that the so-called 'High Yield' corporate bond market is now trading with a yield below 5% for the first time on record - a level at which 10 Year Treasuries were trading in July 2007... Barclays high yield index 'yield' is now below 5% - the same as US Treasuries in July 2007! and the bubble in credit risk re-emerges with the Fed as provider of excess liquidity as opposed to CDO creation last time... Charts: Bloomberg Average: 4.833335 Your rating: None Average: 4.8 ( 6 votes) Tweet - advertisements - Login or register to post comments 8664 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: The First-Loss Insurance Providing EFSF Is A Truly Unique Vehicle Financial Lexicon 101: Summary Of Key Terms Portuguese 10 Year Bond Yield Hit Fresh Lifetime Highs The LBO Refi Wave Approaches: $800 Billion In Junk Debt Maturing By 2014, Adds To Multi Trillion Fixed Income Refi Cliff Whither Prop Trading? Thoughts From Whitney And Bernstein
Germany's Virtuous Circle Takeover Of Europe Submitted by Tyler Durden on 04/26/2013 15:01 -0400 France Germany Recession Reuters German finance minister Schaeuble just explained, in a seeming effort to assuage rising fears that the one core nation left in Europe will choose the game-theoretically optimal first-defection wins strategy, that "Germany benefits from the Euro more than others." Indeed it does; as German firms are buying up strong competitors, clients or suppliers at a time when those companies are struggling to stay afloat through years of recession in their home markets and as shaky banks restrict access to credit. It appears that the slow-and-steady bloodless invasion of Europe can be summed up by the following virtuous circle of Germany's hidden strategy. Of course, as Schaeuble explained later in his missive, "it is nonsense" that Germany wants a German Europe and that the Euro exchange rates is "Okay" for Germany. As Reuters notes , ... Strong companies are attracting interest among the "Mittelstand" , medium-sized and often family-owned manufacturing firms to which Germany owes much of its exporting prowess. That is in large part due to the economic and labour market reforms bailout countries have been forced to implement - making it easier to hire and fire and reducing wage costs - which less stricken countries such as France have been slower to embrace. "For financially strong German Mittelstand firms, the crisis is turning out to be an opportunity . They are increasingly active with acquisitions in Spain," ... German firms are buying up strong competitors, clients or suppliers at a time when those companies are struggling to stay afloat through years of recession in their home markets and as shaky banks restrict access to credit. ... What makes southern Europe alluring is the benefits from tough austerity measures and reforms that euro zone policymakers, led by Germany, have pushed for in return for financial bailouts. ... "The reforms Germany is pushing for there will massively strengthen these countries' competitiveness compared to Germany. It's not a surprise German companies say Europe is interesting ." ... "More often than not the companies have known one another for a long time, and the southern European ones want to be bought. They are the ones taking the initiative because they need money. "
How to increase home prices in the face of stagnant household incomes. Submitted by drhousingbubble on 11/02/2012 13:20 -0400 Federal Reserve fixed Housing Market Las Vegas Real estate Underwater Homeowners It is easy to get swept into the momentum of the housing market. The Federal Reserve has managed to push interest rates to historically low levels creating additional buying power for US households. As we enter the slower fall and winter selling season, there is unlikely to be any major changes until 2013 as the election year concludes. We do face major challenges ahead. This current momentum in housing isn’t being caused by flush state budgets or solid wage growth. No, this is being caused by low inventory, big investors crowding out households, and a concerted effort to push mortgage rates lower. If you simply follow the herd, you would think that prices are now near peak levels again (or soon will be) and household incomes are hitting record levels. Let us examine where things stand today deep in 2012. California and nation It is clear that 2012 has pushed home prices higher overall. This has occurred both on a nationwide basis and also for California. Yet California home prices are far away from that peak reached in 2006. However, some mid-tier markets never really corrected and we are now seeing flippers selling homes for prices that are near peak levels. The argument is that overall things corrected but then this is applied to niche areas where prices are now back near peak levels (at least with the current prices being seen with some flips). The low inventory and the narrative that the bottom is here is causing a flood of people to buy especially with low interest rates. In lower priced areas, a good portion of the market is being over bought by Wall Street and big money investors . This is still anything but a normal market. US home prices It is evident that US home prices have hit a new trend in 2012. Prices are moving up. Yet the driving force behind this is low interest rates, low inventory, and the high amount of investors buying up properties. Keep in mind that low interest rates and especially investment buying is finite. This money will dry up. In housing what you want to be seeing is sustainable appreciation in combination with rising household incomes and a healthy employment market. Those should be the driving forces instead of the Fed committing to another $500 billion of MBS purchases via QE3. Median household income This is the one argument that is always missing from the home boom 2.0 narrative. Is it possible to have sustained rising home prices when household incomes are falling or stagnant? It isn’t and the Fed and banks are fully aware of this. So the Federal Reserve has decided to push affordability via low rates as far as they can. It is a win-win for the financial industry. They can unload properties at much higher prices courtesy of the low interest rate. Some people think this comes at no expense. It does. Carrying a negative interest rate is pummeling those on fixed incomes and also, with one out of seven Americans on food stamps many are seeing those monthly deposits not going so far when they go shopping for food. Ultimately the cost is being shouldered by those who can least afford it. Ironically this flood of investors has also pushed rental prices higher as well creating a double-whammy. LA Tiered home prices Probably one of the better measures of price is the Case Shiller Index. This looks at repeat home sales so we are measuring apples to apples. The median price is also important but it is prone to changes with the mix of sales. Right now, the big drop in foreclosure resales is causing prices to surge. Yet it is important for trend shifts and also because the media and the public rely on this for their purchasing behavior. As you can see from the chart above, each tier in Los Angeles County has shifted up a bit. We are far from peak prices and given the mania in certain areas , you would think this would be rising much faster. You are not missing anything. For those thinking they are missing something you might as well go to Las Vegas and try your hand at the tables. There is a mini mania in prime areas of California happening right now. As you see from the above charts, household incomes simply do not justify this movement. The momentum right now is in favor of higher prices but for fleeting reasons. Home sales and trends If things are so hot, why are home sales not running at a higher pace? The 12 month moving average is running a little bit higher than 35,000. This is the pace we’ve had since 2009 when the market was flying off a cliff. From 1998 to 2007 the moving average was above 45,000 sales per month. So what really is going on then with prices rising so fast overall? The explanation comes from a few items: -1. Inventory is low (we even hear complaints from real estate agents about this) -2. Low rates increased leverage in the face of falling incomes (refer to earlier chart) -3. From the bottom everything is higher (the increase is big from the bottom but put into context, still has us way below the 12 month moving average from over a decade ago) -4. You are competing with big money investors This is why sales are not exactly off the charts given all the favorable elements that are being perceived. For this market to continue on this path, nothing from the above can be removed. Keep in mind that with the “fiscal cliff” some items on the table include the mortgage interest deduction cap. This will hit California hard especially in these mania locations. There is no reason for the nation to allow mortgage interest deduction above a certain level (i.e., $500,000 or capped at certain income levels). “( LA Times ) But since only about one-third of taxpayers itemize on their returns — the rest opt for the standard deductions — who's really getting these tax savings? As you might guess, people who have higher incomes are more likely to itemize and claim mortgage interest and other housing deductions. Citing the latest data on the subject, published by the IRS in 2009, Kolko found that only 15% of households with incomes below $50,000 took itemized deductions, while 65% of those with incomes between $50,000 and $200,000 did. Just about everybody with incomes above $200,000 — 96% — itemized on their returns.” And guess who was number one on the list? “California ranked No. 1 in the size of home mortgage deductions, with $18,876 on average. Next came Hawaii ($16,730), the District of Columbia ($16,720), Nevada ($15,502), Washington ($14,262), Maryland ($14,162) and Virginia ($14,094).” There is little reason for the mortgage interest deduction to allow for such a large write-off especially when the typical US home price ranges from $150,000 to $170,000. We are in massive debt and for the nation to subsidize expensive California housing does not make sense. Underwater Even with home prices moving up we still have over 9,000,000 underwater homeowners. This is a sizeable number. The above chart highlights underwater mortgages at various increases or decreases in home prices. The distressed inventory is still large but is decreasing. The thing with the housing market is that it largely isn’t a market anymore. So with all of these market incentives and the fiscal situation looming next year, there has to be a catch. We have yet to see household incomes increase. The economy is still on shaky ground. Yet in many pocket markets you have people ignoring the macro economy and just running around their little enclaves with blinders on. Hot money is flowing in. There is no doubt about that. Yet it is not sustainable. Since election years usually produce very little change, we’ll have to wait until 2013 to see if this trend actually has some real teeth. Do you think household incomes are important when it comes to home price? Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information. Average: 4 Your rating: None Average: 4 ( 6 votes) Tweet drhousingbubble's blog Login or register to post comments 4553 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Rising home values in the face of stagnant incomes A theory on the bounce and slog housing market. A modern day feudal system for real estate The resurgence of the low down payment market The Canadian Real Estate Bubble?
Many Americans are not buying the recent stock market rally. This is being reflected in multiple polls showing negative attitudes towards the economy and Wall Street. Wall Street is so disconnected from the average American that they fail to see the 27 million unemployed and underemployed Americans that now have a harder time believing the gospel of financial engineering prosperity. Americans have a reason to be dubious regarding the recovery because jobs are the main push for most Americans. A recent study shows that over 70 percent of Americans derive their monthly income from an actual W-2 job. In other words, working is the prime mover and source of their income. Yet the financial elite have very little understanding of this concept. Why? 42 percent of financial wealth is controlled by the top 1 percent. We would need to go back to the Great Depression to see such lopsided data. Many Americans are still struggling at the depths of this recession. We have 37 million Americans on food stamps and many wait until midnight of the last day of the month so checks can clear to buy food at Wal-Mart . Do you think these people are starring at the stock market? The overall data is much worse: Source: William Domhoff If we break the data down further we will find that 93 percent of all financial wealth is controlled by the top 10 percent of the country. That is why these people are cheering their one cent share increase while layoffs keep on improving the bottom line. But what bottom line are we talking about here? The Wall Street crowd would like you to believe that all is now good that the stock market has rallied 60+ percent. Of course they are happy because they control most of this wealth. Yet the typical American still has negative views on the economy because they actually have to work to earn a living: The above daily poll asks Americans about their view on the health of the economy. Only 13 percent believe the economy is good or excellent. Funny how that correlates with the top 10 percent who control 93 percent of wealth. Many Americans were sold the illusion of the bubble. They were sold on the idea that their homes were worth so much more than they really were. And many used this phony wealth effect to go out and spend beyond their means. They started spending as if they were part of this elite 10 percent crowd. But once the tide rolled out, it was clear they were not. And the horribly built bailouts demonstrate who is controlling our political system. This was not the rule of a capitalist system but a corporate run government . Just think about the bailouts and which companies were saved. We ended up bailing out the worst performing and troubled companies thus keeping alive companies that should have completely failed. Did we bail out Google? Proctor and Gamble? Of course not. These companies actually produce something that people want. Banks and especially the Wall Street kind merely keep that 42 percent happy by making sure their stock values stay high so they can keep on making money while the average Americans is sold up the river. Yet many were brought into the easy money fold by going into massive amounts of debt. And who has most of the debt? That is right, the average American : The bottom 90 percent have been saddled with 73 percent of all debt. In other words much of their so-called wealth is connected to debt. Debt is slavery for many especially with egregious credit card companies taking people out with absurd credit card tricks and scams . Yet the corporate propaganda machine is strong and mighty. Have you ever received an inheritance? A large one? Probably not because only 1.6% of all Americans receive an inheritance larger than $100,000. If this is the case, why in the world do politicians worry so much about the tax impacts of this? Because they want to keep the corporatocracy alive and well so their spawn can get a piece of their pie. They give the illusion to average Americans that if you only work hard enough you too can join this elusive club of cronies. The data shows otherwise. But if we start looking at investment assets, the true wealth in the country, we start realizing why Wall Street is all giddy about the recent stock market government induced rally: Of investment assets 90 percent of Americans own 12.2 percent. The rest goes to the top 10 percent. Welcome to the new serfdom. The bailouts that went out to the filthy rich were more about protecting their tiny corner of the world than actually making the economy better. That is why it is interesting to see companies fire people and Wall Street cheer for the increase in earnings per share. Good for the few at the expense of the many. Yet the propaganda out of Wall Street and our government is what is good for Wall Street is good for you. Just like that 1.6% inheritance issue, the vast majority of Americans won’t deal with that and their primary concern is simply a job. A job that has provided stagnant wages for a decade while the ultra wealth get richer and richer in a phony form of corporate socialism. If you break down the data you realize that most Americans don’t have time to speculate in stock markets: Only 34% of U.S. households make more than $65,000 per year. What is that after taxes? Let us use a state like California for example: Now if we breakdown this data further you will realize that most of the money is consumed by cost of living necessities, not Wall Street speculation. Just to show this example let us look at a family budget for someone in California making $100,000: Notice after running the budget we are in the hole for $1,000? That is because of many costs that typical families have. We can debate the merits of where they are spending money but the point is this; are these people really making beaucoup money from the stock market? They are putting away $12,000 a year into their 401k. As we have now found out, 8 percent a year is never guaranteed in the stock market although the corporate powers would like you to believe that so they can have other suckers to unload stocks onto. “Yet the median household income in the U.S. is $50,000 and not $100,000. They have even less to invest.” They are more concerned on working to have a paycheck to pay for necessities. They are more concerned about paying their house off by the time they retire and hopefully, have a little bit of retirement funds coming in. The sad fact is most Americans rely on Social Security when they retire. All those ads of unlimited golf and daily trips to Tahiti are propaganda of how Wall Street lives and they want to sell you the sizzle, and clearly not the steak. They live their lives paper pushing and sucking the life out of the productive part of our economy. The average American should now realize this since this financial crisis was primarily caused by them. They are now on a massive campaign to blame Americans for this. This is hypocrisy to the next level. Many Americans have paid for their mistake by losing their home through foreclosure. We have 300,000 foreclosure filings a month. Many have taken a hit to their overall stock portfolio (if they have one). Yet the corporate cronies have protected their horrible economy crushing debts at the taxpayer expense. Unlike you, many hold bonds on the companies and not common stock like many Americans. Bondholders have been protected at all costs during this crisis. Goldman Sachs through AIG received 100 cents on the dollar for their horrible bets. The banks have unlimited back stops thanks to taxpayers. This is how the top 1 percent rule the new feudal state. Welcome to the 2010 serfdom. Time to wake up and restructure the system. Many people are starting to wake up to this massive scam. If you enjoyed this post click here to subscribe to a complete feed and stay up to date with today’s challenging market!
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