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
What If Corporate Earnings Have Topped Out? Submitted by Tyler Durden on 01/08/2013 10:13 -0500 Bear Market CPI ETC Gross Domestic Product Guest Post Medicare Unemployment Via Charles Hugh-Smith of OfTwoMinds blog , The market may have reached cyclical highs in corporate earnings. That does not bode well for additional stock market advances. If corporate earnings have topped out, what will push the stock market higher? The usual answer is "central bank intervention," but history suggests that in the long run, the market eventually correlates to corporate earnings. Earnings up, market up; earnings down, market down. Frequent contributor B.C. recently shared some insightful charts of SP 500 (SPX) earnings. Here are B.C.'s comments on the first chart: Note that real earnings (CPI adjusted) in '09 fell to the levels of the 1920s-30s, 1890s, and 1870s, and to the levels of the 1970s in nominal terms. A "typical" cyclical decline would take earnings back to the long-term trend from 1932 and the log trend line at $40s-$50s from $87 today. Also, recall that the Fortune 300 firms have revenues equivalent to 50% to 100% of private GDP at $425,000/employee, so they are the economy. A decline of 50% for profits would be the equivalent of 10% of private GDP, which would match or exceed the decline in '08-'09, risking an increase in the Unemployment rate of 50-100% and a fiscal deficit exceeding 100% of tax receipts after Social Security and Medicare receipts. The next two charts track long-term historic trends: here is B.C.'s commentary: Reported earnings of the SP 500 (SPX) are highly cyclical with a periodicity of ~51 months. Earnings are contracting year-over-year (yoy) as occurred in late '07 and early '08, early '01, etc. Profits as a percentage of GDP at 10-11% are 65-70% above the historical average and 130% above the historical average during recessions and bear market troughs, implying the risk of up to a 55-60% decline in profits and profits as a percentage of GDP, i.e., a roughly $1 trillion decline or an equivalent of 10% of private GDP. The 10-yr. average P/E and 16- and 20-year real changes and real total returns to date for the secular bear market imply the risk of a crash at some point in the next 1/2 to 4 years and no real change to the SP 500 for 20 years, indicating just how grossly overvalued stock prices are historically. Thank you, B.C. for the charts and incisive commentary. Is it mere coincidence that the SPX has doubled over the past four years as corporate profits soared? If we haven't yet reached the 51-month cycle peak, we are certainly close. What happens to the post-QE market if earnings decline? 4th Quarter Earnings Will be an Unmitigated Disaster (EconMatters) Average: 4.5 Your rating: None Average: 4.5 ( 4 votes)
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?
The chart below shows that banks have written off $218 billion of credit card debt since 2008. It also shows outstanding revolving debt falling from $1.01 trillion to $819 billion, a $191 billion decrease. For the math challenged, like any Wall Street shill paraded on CNBC, this means consumers have added $27 billion of credit card debt since 2008. Does that sound like deleveraging? Households have also taken on $300 billion of additional student loan debt since 2008, buying into the government sponsored scam to keep the unemployment rate lower by offering the false hope of jobs with useless on-line degrees from the University of Phoenix. Does that sound like deleveraging? Consumer Credit Card Debt and Charge-off Data (in Billions): Outstanding Revolving Consumer Debt Outstanding Credit Card Debt Qrtly Credit Card Charge-Off Rate Qrtly Credit Card Charge-Off in Dollars Q1 2012 $819.4 $803.0 4.37% $8.8 2011 $864.9 $847.6 Q4 2011 $864.9 $847.6 4.53% $9.6 Q3 2011 $826.2 $809.7 5.63% $11.4 Q2 2011 $819.2 $802.8 5.58% $11.2 Q1 2011 $810.7 $794.4 6.96% $13.8 2010 $857.4 $840.2 $77.9 Q4 2010 $857.4 $840.2 7.70% $16.2 Q3 2010 $836.0 $819.2 8.55% $17.5 Q2 2010 $847.5 $830.5 10.97% $22.8 Q1 2010 $860.3 $843.1 10.16% $21.4 2009 $921.9 $903.4 $85.6 Q4 2009 $921.9 $903.4 10.12% $22.8 Q3 2009 $922.2 $903.7 10.1% $22.8 Q2 2009 $933.1 $914.4 9.77% $22.3 Q1 2009 $946.1 $927.2 7.62% $17.7 Q4 2008 $1,010.3 $990.1 (Source: CardHub.com, Federal Reserve) They only people with the courage to tell it like it is are skeptics and outcasts from polite society inhabited by the power elite – people like Ron Paul , Michael Burry , and deceased critical thinkers like Frank Zappa and George Carlin . In one of his final appearances, Carlin brutally lashed out with a torrent of truth, only spoken by courageous people not worried about the consequences of their blunt honesty: “Politicians are put there to give you that idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, and they’ve long since bought and paid for the Senate, the Congress, the State Houses, and the City Halls. They’ve got the judges in their back pockets. And they own all the big media companies so they control just about all the news and information you get to hear. They’ve got you by the balls. They spend billions of dollars every year lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else. But I’ll tell you what they don’t want—they don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest. You know something, they don’t want people that are smart enough to sit around their kitchen table and figure out how badly they’re getting ****ed by a system that threw them overboard 30 ****ing years ago. They don’t want that, you know what they want? They want obedient workers, obedient workers. People who are just smart enough to run the machines and do the paperwork and just dumb enough to passively accept all these increasingly *****tier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it. The table is tilted folks, the game is rigged. Nobody seems to notice, nobody seems to care. Good honest hard working people, white collar, blue collar, it doesn’t matter what color shirt you have on. Because the owners of this country know the truth, it’s called the American Dream, because you have to be asleep to believe it.” : Source: Economix Blog
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