zaterdag 17 november 2018

"Situation Growing Worse With Every Passing Day": Cali Wildfire Sparks New Housing Crisis

As California fire officials continue to battle the state's deadliest blaze, a new crisis has emerged; tens of thousands of evacuees are now homeless and struggling to survive in freezing conditions with a storm expected to roll in on Wednesday. California officials estimated earlier in the week that 50,000 people had been evacuated from the fire-ravaged Paradise region, and over 1,000 are currently in sanctioned shelters. Making things worse, norovirus has broken out in at least three evacuation shelters, requiring isolation tents to try and contain its spread. As the Sacramento Bee notes; "the situation is growing worse with each passing day"...


# "This is on an order of magnitude beyond what we thought was one of the worst disaster recoveries we would be faced with," said Kelly Huston, deputy director of governor Jerry Brown's Office of Emergency Services. Sacramento Bee writes "After the Camp Fire erased most of the town of Paradise, destroying more than 9,800 residences, emergency services officials are dealing with what some say is an escalating humanitarian crisis with no quick solutions. Some evacuees will be able to return to unburned homes. Most, now hunkered in hotels, staying with family and friends, or stuck in evacuation centers or unauthorized camps, have no home to return to, and are left wondering where their future lies"...

Embedded video

# Justin Michaels @JMichaelsNews 26,000 are homeless in #Paradise, CA. 9,700 homes, 290 buildings destroyed, 15,500 structures still threatened. 63 have died, 631 still missing. The #CampFire is the largest/deadliest wildfire in CA history. The tragedy has no end. @weatherchannel is reporting from Paradise...


"Wallywood"; Many residents have turned to makeshift communities where sanitation and safety are top concerns. In particular, hundreds of evacuees have been squatting at a camp in a Walmart parking lot, "a ramshackle village some inhabitants call Wallywood, a sardonic mash-up of their location and reduced circumstances," reports the Bee...


# Officials pull together; On Friday afternoon, the Butte County Board of Supervisors held an emergency meeting, voting to open large shelters in order to consolidate Camp Fire evacuees who are currently spread throughout six shelters - mostly in churches. The problem, reports the Bee, is that the shelters are up to 30 miles apart, making it more difficult for the county to provide medical, law enforcement, food, clothing and other services. "Because they’re scattered all over, it’s so much more difficult to provide those services to them," said Butte County Supervisor Bill Connelly. "We need to be able to house them, clothe them, give them sanitation, medical care, help them with paperwork. We have rain coming so our immediate need is to consolidate our evacuees in to areas we can provide that"...


State lawmakers in Sacramento said on Friday that they will look for money to help rebuild, as well as find ways to build cheap and fast housing - such as mobile homes. Federal Emergency Management Agency (FEMA) crews working out of Cal OES headquarters in Sacramento say they have registered 10,000 people in need of help, and have an office open in the former Sears building in the town of Chico to register evacuees. Those who had to flee the fire are being given rental housing vouchers, grants for rebuilding their homes, low-interest loans and other charity-based aid programs, said spokesman Michael Hart. The first step, Huston said, is to “at least get you into something where you can settle and then you can make some good decisions about what your future looks like.” The massive scope of the problem is forcing government to look farther away to find space to house people. That includes turning to private industry, such as the short-term rental company Airbnb. County officials said they face a problem that could have ramifications in communities beyond the immediate area. “Big picture, we have 6,000, possibly 7,000 households who have been displaced and who realistically don’t stand a chance of finding housing again in Butte County,” county housing official Mayer said. “I don’t even know if these households can be absorbed in California.” (Sacramento Bee)
# The county can place 800 - 1000 households in permanent residences, said Mayer, as Butte County housing was already in a crunch before the deadly Camp Fire - with a vacancy rate less than 2% which "is considered a crisis state," added Mayer. As of Saturday morning, the death toll in the Camp Fire stood at 71, making it the deadliest fire in California state history. Meanwhile, over 1,000 people remain unaccounted for. The blaze is currently 55% contained and has scorched 148,000 acres...


# California Senator Dianne Feinstein on Friday said that she will help to ensure that "all necessary resources are available," for the rehousing of now-homeless evacuees. "As we move into the recovery phase, it’s important to know that federal funds are available now to help wildfire victims with their immediate needs. Those affected should register with FEMA as soon as possible to begin receiving aid," Feinstein said in a statement. "Our housing dollars are scarce, but clearly our hearts go out to the fire victims," said California Assemblyman David Chiu, a San Francisco Democrat who chairs the Assembly housing committee. "I think there would be significant support for assisting with the development of housing and particularly affordable housing in those areas." Lawmakers are discussing using modular housing, which can facilitate cheaper and faster construction, to rebuild fire-torn areas, he said. He also thinks they should consider streamlining housing production in those areas by reducing regulations that can slow building. And he said it’s possible the Legislature will allocate money to help rebuild (Sacramento Bee)....

November Snow In Texas? Experts Warn Decreased Solar Activity Will Shatter All Global Climate Models

Our sun has been behaving very strangely, and this unusual behavior is really starting to affect our weather patterns. There have been virtually no sunspots in 2018 as solar activity has dropped to alarmingly low levels. As a result, our atmosphere has been cooling and shrinking, and experts are warning that we are heading for a bitterly, bitterly cold winter. And even though the official start of winter is well over a month away, winter weather is already sweeping the nation. As you will see below, a giant winter storm is about to slam into the east coast, but what is happening in Texas is even more unnerving.
# On Wednesday morning, the temperature in San Antonio plummeted to just 23 degrees, and that absolutely shattered the old record. “This shatters the old record low of 28 degrees set back in 1916,” the National Weather Service tweeted of Wednesday’s weather. Tuesday night just before midnight, the city hit 28 degrees, breaking the previous record of 29 set in 1907, records show. Typically, November temperatures are significantly warmer. The average high for the month is about 71 degrees and the normal low is 51 degrees. San Antonio’s average low this year has been comparable to other years, but its average high, a cool 66.6 degrees, has been lower than normal.
# Over in Houston, things were even stranger. When Houston residents woke up on Wednesday morning, they were stunned to see snow on the ground. An incredible sight danced over the cities glistening skyscrapers of Houston this morning and likely caused many to rub their eyes and shake their heads. No, it wasn’t your lying eyes but rather the earliest snowfall ever observed in the city of Houston and surrounding areas. It’s official, according to the National Weather Service, that Houston has recorded it’s earliest snowfall ever observed and not just by a day or two but by 10 days! The previous earliest trace snow was November 23rd, 1979. It isn’t supposed to snow in mid-November in Texas. Louisiana got snow too. On Twitter, one resident of West Monroe posted a photo of snow blanketing his vehicle on Wednesday morning, and it quickly went viral.
# Something very usual is happening, but the mainstream media doesn’t want to talk about it because it doesn’t fit the narratives that they are pushing. And all over the eastern half of the country, approximately 80 million people are about to be slammed by a perfect example of our new climate reality. A winter storm that’s already responsible for 2 deaths will bring a messy mix of snow, sleet and freezing rain to portions of the central and eastern U.S. over the next two days. Power outages, travel headaches and school closings are all likely as the storm strengthens. Over 80 million people live where some level of a winter storm alert is in effect, all the way from Arkansas to Maine over a distance of about 1,500 miles. Yes, everyone knew that we were headed toward a solar minimum eventually, but solar activity was not supposed to drop off this much so soon. This extremely unusual decline in solar activity is causing our atmosphere to rapidly cool down and shrink, and this is greatly alarming climate scientists such as Dr. Tony Philipps.
# Scientists say Earth’s atmosphere is about to get hit by some record cold, but it’s not because of anything caused by humans. It’s because of a lack of sunspots which means a major decrease in ultraviolet waves coming in our direction. Dr. Tony Philipps of SpaceWeatherArchive.com says there have been practically no sunspots in 2018, and that’s causing earth’s upper atmosphere to cool down and even shrink. Another scientist that is sounding the alarm is Martin Mlynczak of NASA’s Langley Research Center. According to him, NASA’s Thermosphere Climate Index is now showing a reading that is “10 times smaller than we see during more active phases of the solar cycle”. To help track the latest developments, Martin Mlynczak of NASA’s Langley Research Center and his colleagues recently introduced the “Thermosphere Climate Index.” The Thermosphere Climate Index (TCI) tells how much heat nitric oxide (NO) molecules are dumping into space. During Solar Maximum, TCI is high (meaning “Hot”); during Solar Minimum, it is low (meaning “Cold”). “Right now, it is very low indeed. 10 times smaller than we see during more active phases of the solar cycle,” says Mlynczak. 
# 10 times smaller? That doesn’t sound good. According to Mlynczak, this decrease in solar activity could result in “a Space Age record for cold”. “We see a cooling trend,” says Martin Mlynczak of NASA’s Langley Research Center. “High above Earth’s surface, near the edge of space, our atmosphere is losing heat energy. If current trends continue, it could soon set a Space Age record for cold.” So I hope that you are ready for a very chilly winter. Across the Atlantic, another expert that is sounding the alarm is Piers Corbyn. He believes that the lack of solar activity that we are witnessing could rapidly produce another “mini ice age”. Solar activity and jet stream forecasts suggest a pattern of cold similar to the historic Mini Ice Age which occurred during the mid-17th century. The period otherwise known as the Little Ice Age gripped Europe and North America and saw Britons hold frost fairs on the frozen River Thames. “What we are looking at is a pattern of circulation similar to that which was observed during the mini ice-age,” Mr Corbyn said. What he is referring to is a period of substantial global cooling that occurred during “the Maunder Minimum”.
# If you are not familiar with “the Maunder Minimum”, the following is what Wikipedia has to say about it. The Maunder Minimum, also known as the “prolonged sunspot minimum”, is the name used for the period around 1645 to 1715 during which sunspots became exceedingly rare, as was then noted by solar observers. During that time, farming became much more difficult and horrific famines erupted all over the globe. If our planet is now entering a similar period, we are going to be in very deep trouble very rapidly. Today, we barely produce enough food to feed the entire globe, and so a major worldwide climate shift could potentially produce unprecedented chaos on a global scale. So let us hope that solar activity returns to normal soon, because if it doesn’t, the unthinkable is going to begin to happen....

Danske Bank Probe Expands As JPM, Deutsche Bank, BofA Face Scrutiny

Pretty soon Baltic banks might find themselves effectively cut off from the global dollar system, regardless of how stringent their money laundering controls or how spotless their compliance records. Even banks with no exposure or involvement to Danske Bank's Estonian branch - the nexus of an unprecedented global money-laundering scheme that went uninterrupted for years - could face collateral damage from the broadening scandal as international regulators look past Danske's blatant disregard for European anti-money laundering controls and toward the international financial institutions that helped enable them by clearing their transactions: such as US and European megabanks. International banks like JP Morgan and Deutsche Bank already got burned during the catastrophic banking scandal in Latvia that almost brought down the country's financial system (the correspondent banks embarked on a wave of "de-risking" after staring down threats from regulators). Now, that scenario is playing out again, but on a much larger scale.
# According to Bloomberg, the DOJ has contacted Deutsche Bank AG and Bank of America Corp. to request information about transactions they cleared for the Danish lender's Estonia branch, the epicenter of what's believed to be the largest money laundering scandal in European history. In an internal audit, Danske said that nearly all of $230 billion in non-resident transactions processed by the bank between 2007 and 2015 are suspicious. Amazingly, Russian President Vladimir Putin has appeared in prosecutors' documents, as investigators in the US and Europe believe that some of the money moved through the branch belonged to the Russian leader and members of his inner circle. Danske's CEO and its chairman have been forced out over the scandal. And some investors worry that the fallout could cost Denmark its 'AAA' credit rating. The investigation is still in its infancy, and there are no signs yet as to whether the banks themselves are targets. But the SEC and DOJ are raising questions about whether the banks applied appropriate AML scrutiny to their correspondent businesses.
# JPMorgan stopped providing correspondent services to the Danske Bank branch in 2013. Deutsche Bank and Bank of America continued for another two years, according to the reports and the people familiar with the matter. Deutsche Bank handled the bulk of these transactions during the period under scrutiny, one of the people said. In the past, correspondent banks have been treated by US authorities as "unwitting dupes." But setting aside the fact that the vast majority of Danske's Estonian clients weren't actually Estonian (the branch catered almost exclusively to non-residents from the CIS), it's difficult to imagine how the massive sums flowing through the tiny branch, which dwarfed the GDP of Estonia, didn't warrant a second look by the banks' compliance staff. The only sensible explanation is that a degree of magical thinking, or willfull ignorance, was involved.
# Also, JPM, BofA and Deutsche each decided to terminate their correspondent banking relationship with Danske, but at different times. In June 2013, according to the Danske Bank internal investigation, a JPMorgan executive told a Danske Bank board member that it planned to terminate services for the Estonia branch because of its high percentage of nonresident clients, a potential sign of money laundering. When it did so two months later, another of Danske Bank’s correspondent banks - Bank of America - agreed to expand its dollar-clearing business with the branch, according to the internal report. It’s unclear whether Bank of America was aware of JPMorgan’s concerns. Danske Bank conducted an "internal review" after Estonian investigators started investigating the Estonian branch in 2014. But while they noted certain irregularities (like the fact that a staggering 90% of the branch's profits came from non-resident clients) they didn't take any meaningful action to step up their AML controls. Why? We'll give you one guess...

Danske

Michael Snyder; Signs That The US Economy Is Starting To Slow Down Dramatically

The pace at which things are changing is shocking the experts. Just a few months ago, many of the experts were still talking about how the U.S. economy was “booming”, but since then a major shift has taken place. Most of the headlines have been about the huge stock market declines that we have been witnessing, but things have not been going well for the real economy either. Home sales are way down, auto sales are plummeting, the retail apocalypse is escalating, the middle class continues to shrink and economic optimism is rapidly evaporating. We haven’t seen anything like this since 2008, and many believe that the economic downturn that is now upon us will ultimately be even worse than what we experienced a decade ago. The following are 11 signs that the U.S. economy is starting to slow down dramatically...
#1 When economic activity is rising, demand for oil increases, and oil prices tend to go up. But when economic activity is slowing down, demand for oil diminishes, and oil prices tend to go down. That is why what is happening to the price of oil right now is so alarming… US oil prices plummeted 7% to a one-year low of $55.69 a barrel on Tuesday. It was crude’s worst day since September 2015. The losses in the oil world have been staggering as worries deepen about excess supply. Crude is down 12 straight days, the longest losing streak since futures trading began in March 1983.
#2 One new poll has found that only 13 percent of Americans plan to buy a home in the next year. That number has fallen for three quarters in a row, and it is now down by almost half over the last twelve months.
#3 As the market dries up, the inventory of unsold homes is absolutely soaring nationwide. With that in mind, it comes as no surprise that inventory countywide soared 86% among single-family homes and 188% among condos in October compared to a year prior, according to newly published data by the Northwest Multiple Listing Service. It was the most massive year-over-year increase on record, dating back to the Dotcom bust, a rhythm that has some asking: Is the housing industry about to go bust?
#4 California once had the hottest housing market in the entire nation, but now home prices in the state are plummeting like it is 2008 all over again.
#5 According to the latest Bank of America survey, global fund managers are the most bearish that they have been since the financial crisis of 2008. According to the survey, 44% of the fund managers expect global growth to decelerate in the next year, the worst outlook since November 2008. What’s more, 54% are anticipating a slowdown in Chinese growth in the next year, the most bearish they’ve been in over 2 years.
#6 America’s ongoing retail apocalypse just continues to accelerate. According to a recent Bloomberg article, things are going so poorly for some mall operators that they “handing over their keys to lenders even before leases end”. Things are getting worse for malls across America. So much worse that their owners are walking away early from struggling properties, a trend that has mortgage bond investors bracing for losses. Mall operators, eyeing defaults caused or made more likely by shuttered stores such as Sears Holdings Corp, are handing over their keys to lenders even before leases end. That’s forcing loan-servicing companies to either take a shot at running the properties or sell them cheap. And if they’re unable to salvage the debt payments, investors in commercial mortgage-backed securities will take a hit.
#7 Despite the eruption of a major trade war, the U.S. trade deficit with the rest of the world is on pace to set a brand new all-time record in 2018.
#8 One new study discovered that 62 percent of all U.S. jobs do not currently pay enough to support a middle class lifestyle. 
#9 At this point, most Americans barely have any financial cushion at all. According to one recent survey, 58 percent of all Americans have less than $1,000 in savings.
#10 Right now, more than half of all U.S. children are living in households that receive financial assistance from the federal government.
#11 As the economy slows down, an increasing number of Americans are being forced into the streets. More than half a million Americans are currently homeless, and that number is growing with each passing day.
*) Meanwhile, more troubling news continues to emerge from Wall Street on a daily basis. One of the big stories this week has been the fact that General Electric appears to be on the verge of “collapse”. They have been completely locked out of the commercial paper market, they are being completely overwhelmed by the giant mountain of debt that they are carrying, and their formerly “investment grade” bonds are now being traded like junk. Two weeks after we reported that GE had found itself locked out of the commercial paper market following downgrades that made it ineligible for most money market investors, the pain has continued, and yesterday General Electric lost just over $5bn in market capitalization. While far less than the $49bn wiped out from AAPL the same day, it was arguably the bigger headline grabber. The shares slumped -6.88% after dropping as much as -10% at the lows after the company’s CEO, in an interview with CNBC yesterday, failed to reassure market fears about a weakening financial position. The CEO suggested that the company will now urgently sell assets to address leverage and its precarious liquidity situation whereby it will have to rely on revolvers, and the generosity of its banks, now that it is locked out of the commercial paper market. 
# GE is not a financial company, but could this be a candidate to become “the next Lehman Brothers”? The upward economic downturn of the last couple of years is totally gone, and many believe that there will soon be a feverish race for the exits on Wall Street. If you have not already positioned yourself for the coming crisis, now is the time to do so. As we saw in 2008, markets tend to go down a whole lot faster than they go up. And once things get really crazy on Wall Street, the real economy can fall apart at a pace that is breathtaking. In 2008, millions of people lost their jobs within a matter of months. This will happen again, and there are an increasing number of signs that this is going to happen much sooner than most people had anticipated....

IMF Sounds The Alarm On Leveraged Lending

Five months after the IMF sounded the alarm over junk bonds, it has now moved on to the credit market bogeyman du jour and overnight joined others such as the Fed, BIS, Oaktree, JPMorgan, and Guggenheim in "sounding the alarm on leveraged loans." We warned in the most recent Global Financial Stability Report that speculative excesses in some financial markets may be approaching a threatening level. For evidence, look no further than the $1.3 trillion global market for so-called leverage loans, which has some analysts and academics sounding the alarm on a dangerous deterioration in lending standards. They have a point. This growing segment of the financial world involves loans, usually arranged by a syndicate of banks, to companies that are heavily indebted or have weak credit ratings. These loans are called “leveraged” because the ratio of the borrower’s debt to assets or earnings significantly exceeds industry norms...


With interest rates extremely low for years and with ample money flowing though the financial system, yield-hungry investors are tolerating ever-higher levels of risk and betting on financial instruments that, in less speculative times, they might sensibly shun. For their part, speculative-grade companies have been eager to load up on cheap debt. Globally, new issuance of leveraged loans hit a record $788 billion in 2017, surpassing the pre-crisis high of $762 billion in 2007. The United States was by far the largest market last year, accounting for $564 billion of new loans. So far this year, issuance has reached an annual rate of $745 billion. More than half of this year’s total involves money borrowed to fund mergers and acquisitions and leveraged buyouts (LBOs), pay dividends, and buy back shares from investor, in other words, for financial risk-taking rather than plain-vanilla productive investment. Most borrowers are technology, energy, telecommunications, and health care firms...


At this late stage of the credit cycle, with signs reminiscent of past episodes of excess, it’s vital to ask: How vulnerable is the leveraged-loan market to a sudden shift in investor risk appetite? If this market froze, what would be the economic impact? In a worst-cast scenario, could a breakdown threaten financial stability? It is not only the sheer volume of debt that is causing concern. Underwriting standards and credit quality have deteriorated. In the United States, the most highly indebted speculative grade firms now account for a larger share of new issuance than before the crisis. New deals also include fewer investor protections, known as covenants, and lower loss-absorption capacity. This year, so-called covenant-lite loans account for up 80 percent of new loans arranged for nonbank lenders (so-called “institutional investors”), up from about 30 percent in 2007. Not only the number, but also the quality of covenants has deteriorated...


Furthermore, strong investor demand has resulted in a loosening of nonprice terms, which are more difficult to monitor. For example, weaker covenants have reportedly allowed borrowers to inflate projections of earnings. They have also allowed them to borrow more after the closing of the deal. With rising leverage, weakening investor protections, and eroding debt cushions, average recovery rates for defaulted loans have fallen to 69 percent from the pre-crisis average of 82 percent. A sharp rise in defaults could have a large negative impact on the real economy given the importance of leveraged loans as a source of corporate funding...


A significant shift in the investor base is another reason for worry. Institutions now hold about $1.1 trillion of leveraged loans in the United States, almost double the pre-crisis level. That compares with $1.2 trillion in high yield, or junk bonds, outstanding. Such institutions include loan mutual funds, insurance companies, pension funds, and collateralized loan obligations (CLOs), which package loans and then resell them to still other investors. CLOs buy more than half of overall leveraged loan issuance in the United States. Mutual funds that invest in leveraged loans have grown from roughly $20 billion in assets in 2006 to about $200 billion this year, accounting for over 20 percent of loans outstanding. Institutional ownership makes it harder for banking regulators to address potential risk to the financial system if things go wrong...


Regulators in the United States and Europe have taken steps in recent years to reduce banks’ exposures and to curb market excesses more broadly. The effectiveness of these steps, however, remains an open question. For example, there is evidence that these actions have contributed to a shift of activities from banks to institutional investors. These investors have different risk profiles and may pose different risks to the financial system than banks. While banks have become safer since the financial crisis, it is unclear whether institutional investors retain a link to the banking sector, which could inflict losses at banks during market disruptions. Furthermore, few tools are available to address credit and liquidity risks in global capital markets. So it is crucial for policymakers to develop and deploy new tools to address deteriorating underwriting standards. Having learned a painful lesson a decade ago about unforeseen threats to the financial system, policymakers should not overlook another potential threat....

US Household Debt Hits Record $13.5 Trillion As Delinquencies Hit 6 Year High

Total household debt hit a new record high, rising by $219 billion (1.6%) to $13.512 trillion in Q3 of 2018, according to the NY Fed's latest household debt report, the biggest jump since 2016. It was also the 17th consecutive quarter with an increase in household debt, and the total is now $837 billion higher than the previous peak of $12.68 trillion, from the third quarter of 2008. Overall household debt is now 21.2% above the post-financial-crisis trough reached during the second quarter of 2013. Mortgage balances, the largest component of household debt, rose by $141 billion during the third quarter, to $9.14 trillion. Credit card debt rose by $15 billion to $844 billion; auto loan debt increased by $27 billion in the quarter to $1.265 trillion and student loan debt hit a record high of $1.442 trillion, an increase of $37 billion in Q3...


Balances on home equity lines of credit (HELOC) continued their downward trend, declining by $4 billion, to $432 billion. The median credit score of newly originating mortgage borrowers was roughly unchanged, at 760...


Mortgage originations edged up to $445 billion in the second quarter, from $437 billion in the second quarter. Meanwhile, mortgage delinquencies were unchanged improve, with 1.1% of mortgage balances 90 or more days delinquent in the third quarter, same as the second quarter. Most newly originated mortgages continued went to borrowers with the highest credit scores, with 58% of new mortgages borrowed by consumers with a 760 credit score or higher...


The median credit score of newly originating borrowers was mostly unchanged; the median credit score among newly originating mortgage borrowers was 758, suggesting that with half of all mortgages going to individuals with high credit scores, mortgages remain tight by historical standards. For auto loan originators, the distribution was flat, and individuals with subprime scores received a substantial share of newly originated auto loans. In what will come as a surprise to nobody, outstanding student loans rose $37BN to a new all time high of $1.44 trillion as of Sept 30. It should also come as no surprise, or maybe it will to the Fed, that student loan delinquencies remain stubbornly above 10%, a level they hit 6 years ago and have failed to move in either direction since...


While flows of student debt into serious delinquency, of 90 or more days, spiked in Q3, rising to 9.1% in the third quarter from 8.6% in the previous quarter, according to data from the Federal Reserve Bank of New York...



The third quarter marked an unexpected reversal after a period of improvement for student debt, which totaled $1.4 trillion. Such delinquency flows have been rising on auto debt since 2012 and on credit card debt since last year, which has raised a red flag for economists. Auto loan balances also hit an all time high, as they continued their six-year upward trend, increasing by $9 billion in the quarter, to $1.24 trillion. Meanwhile, credit card balances rose by $14 billion, or 1.7%, after a seasonal decline in the first quarter, to $829 billion. Despite rising interest rates, credit card delinquency rates eased slightly, with 7.9% of balances 90 or more days delinquent as of June 30, versus 8.0% at March 31. The share of consumers with an account in collections fell 23.4% between the third quarter of 2017 and the second quarter of 2018, from 12.3% to 9.4%, due to changes in reporting requirements of collections agencies. Auto loan balances also hit an all time high, as they continued their six-year upward trend, increasing by $27 billion in the quarter, to $1.265 trillion. Meanwhile, credit card balances rose by $15 billion to $844 billion. In line with rising interest rates, credit card delinquency rates rose modestly, with 4.9% of balances 90 or more days delinquent as of Sept 30, versus 4.8% in Q2.
# Overall, as of September 30, 4.7% of outstanding debt was in some stage of delinquency, an uptick from 4.5% in the second quarter and the largest in 7 years. Of the $638 billion of debt that is delinquent, $415 billion is seriously delinquent (at least 90 days late or “severely derogatory”). This increase was primarily due to the abovementioned increase in the flow into delinquency for student loan balances during the third quarter of 2018. The flow into 90+ day delinquency for credit card balances has been rising for the last year and remained elevated since then compared to its recent history, while the flow into 90+ day delinquency for auto loan balances has been slowly trending upward since 2012. About 215,000 consumers had a bankruptcy notation added to their credit reports in 2018Q3, slightly higher than in the same quarter of last year. New bankruptcy notations have been at historically low levels since 2016. This quarter, for the first time, the Fed also broke down consumer debt by age group, and found that debt balances remain more concentrated among older borrowers. The shift over the past decade is due to at least three major forces. First, demographics have changed with large cohorts of baby boomers entering into retirement. Second, demand for credit has shifted, along with changing preferences and borrowing needs following the Great Recession. Finally, the supply of credit has changed: mortgage lending has been tight, while auto loans and credit cards have been more widely available...


In addition to an overall increase in the share of debt held by older borrowers, there has been a noticeable shift in the composition of debt held by different age groups. Student and auto loan debt represent the majority of debt for borrowers under thirty, while housing-related debt makes up the vast majority of debt owned by borrowers over sixty...


Confirming what many know, namely that Millennial borrowers are screwed, the Ny Fed writes that older borrowers have longer credit histories with more borrowing experience, as well as higher and typically steadier incomes; "thus, they often have higher credit scores and are safer bets for lenders." Tighter mortgage underwriting during the years following the Great Recession has limited mortgage borrowing by younger and less creditworthy borrowers; meanwhile, student loan balances - and as most know "student" loans are usually used for anything but tuition - and participation rose dramatically and credit standards loosened for auto loans and credit cards. Consequently, there has been a relative shift toward non-housing balances among younger borrowers, while housing balances moved to the older and more creditworthy borrowers with lower delinquency rates and better performance overall. And since this is a circular Catch 22, absent an overhaul of how credit is apportioned by age group, Millennials and other young borrowers will keep getting squeezed out of the credit market resulting in a decline in loan demand, and supply, which is slow at first and then very fast....

Raul Ilargi;Nationalists, Patriots And Former Rothschild Bankers

If and when a former Rothschild banker starts telling us what the words in our respective languages actually mean, beware. Even if he has dozens of professional speech writers and spin doctors to do it for him. And even if the meaning and interpretation of words, though they may seem easily translatable, differ between English, French, German, Russian, Chinese to such an extent that Lost in Translation may appear to be an understatement. But if you’re that Rothschild banker who became president of France through a process that nobody will ever understand, and you host the 100th commemoration of perhaps the worst war ever in history, to be ‘celebrated’ with ‘leaders’ none of whom have exhibited any memory through their actions of the ‘This must never happen again’ that the war ended with, you can expect to get away with bending both history and language. Macron’s entire audience was ready for, and willing to absorb, a message that seemed so benevolent and sincere and loving, and that perhaps most of all was yet another jab at one of his guests, the American president. They were eating it up. As long as they can appear to stand together against Trump, they can make their people, their voters, and perhaps even each other forget how divided they themselves are.
# It was nothing but one more circus, one more theater piece, albeit this one extremely carefully scripted for many months and by many of the finest directors and script writers France has to offer. The underlying theme: the EU is good, so is the UN, NATO is good etc. The list would include the IMF, World Bank and on and on. Big global institutions are good, the bigger the better, and criticism of them is not. Macron’s spin doctors had come up with a few choice lines to express these sentiments. And since I couldn’t find anyone who had looked at those lines with anything but silent and blind admiration (undoubtedly only due to the solemn occasion) , please allow me. Here’s some of the things Macron said, the way they were translated into English, according to Anglo media: “The old demons are rising again, ready to complete their task of chaos and of death.” “Patriotism is the exact opposite of nationalism. Nationalism is a betrayal of patriotism. “In saying, ‘Our interests first, whatever happens to the others’, you erase the most precious thing a nation can have, that which makes it live, that which causes it to be great and that which is most important: its moral values.” Well, yes, the old demons are rising again. Or rather, they have been for years. French arms sales to countries and their often dictatorial leaders who one could classify as ‘nationalists’ have never really abated in the past 100 years.
# As a country, as a society, at least on the leadership level, nothing has been learned. The only ‘excuse’ Paris could provide for this is that all the other countries who sent away their young and strong to be slaughtered never learned a thing either. But the spin doctors’ finest hour comes after this: “Patriotism is the exact opposite of nationalism. Nationalism is a betrayal of patriotism.” I’m not a linguist, but I know enough about languages -and so do you- to know this is utter nonsense. You may attempt to find some differences between nationalism and patriotism, if you want, but they will never be each other’s opposite. Unless you either are Macron looking for a catchy line or you write his speeches for him. Obviously, Macron said this because Trump declared himself a nationalist recently. And Macron could now claim that this means Trump is not a patriot. Which we all know is hollow talk. Because Trump said it while speaking about trade, about the US economy. Which does nothing to ‘prove’ he doesn’t love his country. But that is what Macron suggests. He claims patriots love their country, and since nationalism is the opposite of patriotism, Trump does not love America. Also, and again referring to Trump without mentioning him (if only he had the guts), Macron alleged that nationalists don’t care one bit about what happens to anyone who’s not a citizen of their country. Whereas it is much more likely to mean, I’m treading softly here- that there are people who look out for their own people first, and others after, and they expect all countries to do the same. Macron does the same.
# A long way away from “whatever happens to others”. Trump was elected because many Americans feel shortchanged, because jobs have disappeared, because they can’t make ends meet. Macron was elected for largely similar reasons: the existing political system failed to protect people. In many other countries, the exact same dynamics are playing out. Macron’s answer to this is to emphasize -make that celebrate- the importance of the exact institutions that have been instrumental in making it all happen. Ergo: Macron is a globalist. Or maybe I should say he believes in globalism, before someone chimes in to link this to Judaism. Macron believes in global economies and global institutions, whereas Trump does not. The Donald recognizes that global banks and multinationals are responsible to a large extent for the loss of American jobs to low-wage countries. His tariffs, especially on China, address exactly that. Even if he’s clearly conflicted when it comes to US companies who profit from the exact same thing. Still, that doesn’t mean Trump is not a patriot. But that is precisely what Macron insinuated on Sunday. According to him, one can’t be both a nationalist and a patriot. He might have done better to let the millions who died a 100 years ago, and whom he commemorated, have their own say on that. Did the unfortunate frail forms bleeding to death in the trenches see themselves as nationalists or patriots? Wouldn’t that have been the last thing on their minds?
# Doesn’t that question tell the entire story? Doesn’t it put into perspective Macron’s veiled attacks on Trump while the latter was sitting right there? The wonderboy banker trying to gain some sort of moral superiority over the real estate mogul over the heads and rotten bodies and memories of the French and British AND American troops who died deaths the western world can no longer even imagine (while they actively help inflicting them on Yemen) ? And then the entire media run with how beautiful Macron’s words, nay dedications, were? 100 years after the ‘Never Again’, France, Britain, Germany, Russia and the US are still selling billions worth of arms to regimes they know will abuse them. As long as they get their cut, right? The suggestion that Trump is somehow worse than the rest is ludicrous. If anything Trump is a little better on the warmonger front. He still has to prove that, true. The rest have proven their role already though. Last thought: Xi Jinping is going out of his way to claim China is opening up its economy. That makes him a globalist, right? And globalists can only be nationalists, according to Macron, never patriots? Can we get someone to ask Xi how he sees this? And what about Vladimir Putin? Russia’s been bounced off the global stage through sanctions and allegations, but perhaps he would still like to be a globalist. So is Putin a nationalist or a patriot? Asking for a friend....

Brandon Smith; The Fed Will Continue Tightening Until Everything Breaks

Around three years ago, in September 2015, I wrote an article titled ‘The Real Reasons Why The Fed Will Hike Interest Rates‘ in which I predicted that the Federal Reserve, in the face of criticism, would soon pursue a program of interest rate hikes into economic weakness. I argued that this plan would be somewhat similar to what the Fed did in the early 1930’s; an action that prolonged the Great Depression for many more years. So far, my prediction has proven to be correct. Despite the fact that the Fed keeps raising rates as it tightens the noose around the supposed economic “recovery”, there are still many people out there who refuse to accept that the central bank would deliberately implode the fiscal bubble that it has spent the last ten years inflating. Even today, I still see arguments proclaiming that the Fed will be forced to pull back if stocks fall beyond 15% to 20%. I also see claims that Fed officials like Jerome Powell had "better start looking for another job" because Donald Trump won’t be happy with Fed policies that could cause a crash. This is pure delusion from people who do not understand how the Fed operates.
# First and foremost, let’s be clear, the Federal Reserve is an autonomous entity that does not answer to government oversight. It never has and it probably never will. This reality is supported by admissions by former Fed officials like Alan Greenspan, who publicly noted that the Fed answers to no one. The central bank functions in quite the opposite capacity from what many people assume. As Carroll Quigley, prominent American historian and mentor to Bill Clinton, noted: "The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."
# In other words, governments do not assert control over central banks; central banks assert control over governments. That said, there are some exceptions to this rule. For example, an act of Congress can be used to enforce a full audit of Fed activities, something which has never been done. Fed propaganda asserts the lie that the bank is audited annually by the Government Accounting Office (GAO), but this is NOT an audit of Fed financial actions and policy initiatives. Rather, it is an audit of minor expenditures. Knowing how many pencils and desks the Fed purchases in a year does not help us to understand the bank’s influence over our economic security. All other audits of the Fed are done internally by the Fed’s own Board of Governors. This is hardly transparent or independent. The only time the public has gained access to even a partial government audit of Fed activities was during the audit of TARP. This alone exposed trillions of dollars in bailouts and overnight loans to various banks and corporations, many of which were foreign. The GAO did nothing in terms of regulatory action against the Fed after it was revealed that they were funneling trillions in capital into foreign corporations. All they did was make a ledger of the transactions, and remained silent on the rest. I remind readers of this history and the conditions surrounding Fed actions because I want to drive the point home that, for now, the Fed and other central banks dictate the rules of the game. Some may say this has changed with the election of Donald Trump, but I disagree. If anything, as long as Trump is in office, the Fed will chase higher interest rates and steeper balance sheet cuts. They will not stop until markets break. And, the only solution (shutting down the Fed entirely) also comes with a set of extreme fiscal consequences. There is a wall of cognitive dissonance when some in the public are confronted with this notion. They prefer to believe in a set of standard lies rather than accept that the Fed is a saboteur of our financial system. Here are those lies, listed in no particular order.
Lie #1: The Fed Is Unaware Of The Bubbles it Creates; Mainstream economists and Fed officials alike use this lie regularly. Not once has the Board of Governors of the Fed ever been audited or punished in light of an economic crisis they created. When central bank culpability is obvious, they simply claim they had no idea the fiscal bubble was as inflated as it became. The disaster “surprised them”. The Fed’s creation of easy credit and zero oversight, not to mention its opposition to any regulation of derivatives, fed the bubble prior to 2008. Then they ignored all obvious warning signs that the bubble was about to burst. But what about the current “everything bubble” that the Fed has created through near zero interest rates and endless fiat money manufacturing? Well, Fed officials openly admit to their involvement. As the former head of the Federal Reserve Dallas branch Richard Fisher admitted in an interview with CNBC, since 2009, the U.S. central bank has made its business the manipulation of the stock market to the upside: "What the Fed did, and I was part of that group, is we front-loaded a tremendous market rally, starting in 2009. It’s sort of what I call the “reverse Whimpy factor”, give me two hamburgers today for one tomorrow. I’m not surprised that almost every index you can look at, was down significantly." [After the first Fed rate hike] The Fed knows when it is conjuring a bubble environment; they just won’t admit it as the bubble is deflating and economic pain is everywhere.
Lie #2: The Fed Is Unaware That It's Tightening Policies Cause Extreme Economic Contraction; So, if the Fed is aware when it causes a bubble, is it aware when it is popping a bubble? Absolutely. As Ben Bernanke admitted in a speech in 2002: "In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn. Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again." Bernanke was referencing Milton Friedman’s assertion that the Fed’s tightening policies in the early 1930’s, after they had made markets dependent on easy credit through the 1920’s, had caused negative feedback in the system at the perfect time, destabilizing any possible recovery for years to come. The problem is twofold, of course. The Fed was allowed to fuel a fraudulent market bubble in the first place. Then, it was allowed to pop the bubble in the most destructive way through tightening policies (like higher interest rates), which crushed Main Street support. If this sounds familiar, it is, because the same tactic is being used by the Fed today.
# In an October 2012 meeting of the Federal Reserve, minutes indicate that Jerome Powell was highly vocal about what would happen if the Fed pulled support from debt addicted markets by raising interest rates and cutting assets: "My third concern, and others have touched on it as well, is the problems of exiting from a near $4 trillion balance sheet. We’ve got a set of principles from June 2011 and have done some work since then, but it just seems to me that we seem to be way too confident that exit can be managed smoothly. Markets can be much more dynamic than we appear to think. When you turn and say to the market, “I’ve got $1.2 trillion of these things,” it’s not just $20 billion a month, it’s the sight of the whole thing coming. And I think there is a pretty good chance that you could have quite a dynamic response in the market. I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy." Jerome Powell is now the Fed Chairman, and yet, he is following through with the same tightening actions that he warned about in 2012. He is pretending that the tightening process will be painless even though fundamental economic conditions are just as weak now as they were six years ago. Again, Powell knows the Fed is going to cause a crash, but he is moving forward anyway and he is not warning the public about the danger.
Lie #3: The Fed Is The Center Of Establishment Power, Therefore They Need The U.S. Economy To Thrive; While it is true that the Fed is currently in charge of the dollar as the world reserve currency, the idea that the Fed is somehow indispensable to the global establishment has always bewildered me. Everything the Fed has done since its inception in 1913 has been designed to diminish the U.S. economy and erode the purchasing power of our currency. I ask, at what point has the Fed ever taken an action which did NOT result in a bubble or a bubble collapse? At what point has the U.S. economy ever improved at a fundamental level because of the Fed, rather than diminished in the wake of a fake recovery the Fed conned the public into believing in?
# What else does the Fed do besides sabotage? I believe the truth is that the Fed does not care about the U.S. economy, or even the survival of the dollar, as is obvious in their actions. The Fed is merely a puppet entity of larger institutions like the Bank for International Settlements or the International Monetary Fund. These institutions seek centralization at a global level, with a global currency system and global economic authority, as they have openly admitted to in their own publications. The U.S. economy as we know it today, and the Fed by extension, are expendable in this pursuit. The Fed will continue on its current course no matter the cost, because there is a greater strategy in play. In fact, some elites may even welcome a shutdown of the Fed at this time because this opens the path for the death of the dollar as the world reserve currency and the introduction of a new world monetary system, while all the consequences surrounding the shift can be blamed on political chaos and coincidence. To drive the point home, I leave readers with a revealing quote from Christine Lagarde, the head of the IMF, as she outlines why crisis in national economies is actually good for the IMF: "When the world around the IMF goes downhill, we thrive. We become extremely active because we lend money, we earn interest and charges and all the rest of it, and the institution does well. When the world goes well and we’ve had years of growth, as was the case back in 2006 and 2007, the IMF doesn’t do so well both financially and otherwise"....

Jeff Gundlach’s Warning To Corporate Bond Investors

Corporate bonds offer incredibly poor prospects under any scenario, according to Jeffrey Gundlach. If rates rise, prices will drop quickly because their durations are between 7 and 10 years. Falling rates are no better, he said, because they would be accompanied by a bear market in stocks with effects that would extend to corporate bonds.  The problem facing the corporate bond market is excessive debt and an oversupply of bonds. There is a lot of leverage among corporations, Gundlach said, which can be seen in “massive increases” in the size of the investment-grade market and a deterioration in the quality of debt. Spreads are tight, according to Gundlach, but are “tighter than you think, because quality has been systematically going down” in the covenants that are offered by corporate issuers. “Spreads and debt levels are out of sync with one another,” Gundlach said. That dichotomy is illustrated in the graph below. The shaded area depicts leverage (the corporate debt-to-GDP ratio) and the black line is the option-adjusted spread between high-yield (junk) and Treasury bonds. The two moved in sync from 1994 until 2013, after which leverage increased without a similar increase in spreads...


As a result, both corporate and high-yield bonds are at or close to their most extreme levels of overvaluation historically, based on DoubleLine’s proprietary methodology. That methodology looks at the spreads of those bonds relative to similar-risk Treasury bonds; those spreads are approximately two standard deviations above their normal level. The BBB-rated market, which has the lowest rated corporate bonds, is two-times bigger than the high-yield market. If those bonds are downgraded to junk, Gundlach said, it will “flood” the high-yield market...


If corporate bonds were rated based on their degree of leverage, then 55% would be rated junk, according to Gundlach. They have not been downgraded by the ratings agencies because corporate issuers have made “soothing statements” to assuage the agencies. Gundlach called those statements “hopeful talk” about addressing debt in the future, which has kept ratings high. But a supply shock would lower junk bond prices, he said. Gundlach said he doesn’t own a lot of corporate bonds relative to his fund’s normal weightings. He also commented on the economy, politics and prospects for economic growth.
# Deciphering the global stock markets; The driving force behind global economic performance is central-bank monetary policy. The G4 central-bank balance sheets are now shrinking, largely due to the Fed’s $50 billion per month quantitative tightening (QT), which Gundlach said represents bond issuance that will add to the size of the deficit. On a cash-account basis, he said our $1.3 trillion deficit will increase to $2.0 trillion with QT, plus there is “hundreds of billions” of pending corporate-bond issuance. (By “cash basis,” he includes money which is borrowed to support the Social Security system.) The global stock market has changed course, Gundlach said. Those markets rose in parallel with rising central-bank balance sheets, but are now falling across the globe, he said...


The NYSE composite is down 4% on a price-basis year-to-date. It peaked on January 26. Since then the U.S. and global equity markets followed one another until early May, at which point the rest of the world fell sharply. The S&P went up until early October, when the U.S. and the rest of the world fell and moved in sync, he said...


Why did the rest of the world fail to keep pace with U.S. markets until October? Gundlach said that it is because tariffs are clearly worse for other counties than the U.S, which has only 8% of its economy reliant on exports. For other counties, that percentage is much higher, he cited 43% for South Korea. The U.S. has outperformed the rest of the world since 2009, as it has out-earned other countries on an EPS basis, he said. “But the most recent up-move was not justified on an EPS basis,” Gundlach said, in reference to the S&P gains until October...


The midterm election outcome will widen the deficit further, Gundlach said. Democrats will support a 10% middle-class tax reduction, as will Republicans and Trump. “I think that will go through,” he said. Nancy Pelosi, the likely next speaker of the House, has been talking about infrastructure, he said, as has Trump. This could happen as well, he said, which would “get the deficit growing further.” The outlook for deficit reform is cloudy. Four of the 2020 Democrat presidential candidates (Cory Booker, Kamala Harris, Bernie Sanders and little-known Andrew Yang) are all campaigning by advocating a form of “free money,” Gundlach said. Their programs range from negative income taxes to straight giveaways to segments of the population.
# All quiet on the recession watch; All of the recession indicators are “flat-out positive” (not signaling a recession) or are not in a flashing-yellow warning zone, Gundlach said. There has never been a recession without the leading economic indicators going below zero. “We are a long way from that,” he said. Small business optimism is just below its all-time high, CEO confidence is at a very high level and consumer confidence is its highest in 16 years, he said. High-yield bond spreads over Treasury bonds rose approximately 400 basis points prior to the 2001 and 2007 recessions. Those spreads have recently widened by about 75 basis points, Gundlach said. “It looks a little bit like the 2007 recession, but it is not definitive,” he added...


As the Fed started its QT, the 10-year Treasury yield has risen pretty much in sync with the shrinkage of the Fed’s balance sheet, Gundlach said. When the stock market fell in October, the 30-year Treasury yield went up slightly, he said. It is very unusual for this to happen when equities are in distress, according to Gundlach. As a result, he said it’s very possible yields could go up in a recession, if for no other reason than the large amount of pending bond issuance...


# The deficit suicide mission; Strong economic growth in the U.S. is being caused by the growth in the deficit, Gundlach said. “This is good for the short term, but we are borrowing from the future.” Historically, the Fed has cut rates when economy was bad, and vice versa. That Keynesian view changed after the global financial crisis, according to Gundlach, when the Fed started raising rates while the deficit rose. That was because of Trump’s policies, specifically, the Tax Cuts and Jobs Act. As a result, he said the deficit is now 4% of GDP, “but if you include loans from Social Security it is 6%. This is why interest rates have been stubborn to fall”...


“These are very alarming trends,” Gundlach said. There are $7 trillion of Treasury bond maturities due in the next five years with a 2% average coupon, he said. With yields at 3%, those bonds will have to be replaced with higher cost debt, resulting, he said, in another $150 billion of interest-rate expense given current market conditions. “We are on a suicide mission,” Gundlach said. “This will be an important issue in the next five years.” How will the deficit crisis be resolved? Gundlach said it will be through devaluation – by entitlement reform “once the nation wants it, once the nation realizes that path we are on leads to catastrophe.”
# Problems abroad; Gundlach referenced “underlying problems in the core of the European banking system,” based on the fact that the stock prices of Deutsche Bank and Credit Suisse, two large European banks, have declined precipitously. Emerging markets have been weak as the dollar has strengthened, he said. “The success and failure of emerging markets are with the fate of the dollar,” he said. “Bullishness on the dollar is extraordinary,” but he said he does not expect the dollar to rise to the level of its high in 1984...

 

China and the European central bank want to have a role as a reserve currency, according to Gundlach. China is trading oil futures of its own currency, the Yuan. “Once you start trading in global commodities,” he said, “you are taking steps to be a reserve currency.” Treasury bonds are unattractive to foreign borrowers because of the U.S. trade policies and because hedging costs are too high, Gundlach said; the currency-hedged yields on foreign sovereign bonds are below zero. Domestic demand for Treasury bonds has been higher and has offset the lack of foreign demand... 


There is a positive, albeit small, real rate of return on Treasury bonds. Unless inflation goes down (which Gundlach said is likely) Treasury bonds are unattractive to domestic buyers...


The 30-year yield could be 5% or 6%, he said, “but it may take a while. We are on track to hit 6% by 2021,” as per a prediction he made some time ago. Those looking for a risk-free investment should opt for two-year Treasury bonds, he said, which yield 2.90%. When they mature, he said, there will be better opportunities....

The Untold Lives Of The Saudi Royal Family

Saudi Arabia is a controversial region of the world thanks to its royal family known as the House of Saud. They have dealt with turmoil within the ranks and have wreaked havoc on those who disobeyed them (youtube)...

Foreigners Dump US Treasuries As They Liquidate A Record Amount Of US Stocks

Earlier this week, DoubleLine's Jeff Gundlach held his latest webcast with investors in which he warned that as a result of rising hedging costs, US Treasury bonds have become increasingly unattractive to foreign buyers. This can be seen in the chart below which shows the yield on the 10Y US TSY unhedged, and also hedged into Yen and Euros. In the latter two cases, the yield went from over 3%, to negative as a result of the gaping rate differential between the Fed and ECB or BOJ... 


This is also why, as the next chart from Gundlach showed, foreign holdings of US Treasurys have been declining in recent years, and dropped to just over 36% as a percentage of total holdings, the lowest in over a decade, as domestic holdings of US paper have risen to just shy of 50% and near all time highs...


Which brings us to today's latest monthly TIC data which showed that, as Gundlach would expect, the holdings of the two largest foreign US creditors, China and Japan, declined to multi year low. As shown in the chart below, China’s holdings of U.S. Treasuries fell to the lowest level since mid-2017 as the world’s second-largest economy sold US reserves to stabilize the yuan which has been depreciating in recent months due to the ongoing trade war...


Chinese holdings of U.S. Treasuries declined for a fourth month to $1.151 trillion in September, from $1.165 trillion in August, a $14 billion decline. Despite the drop, China remained the biggest foreign creditor to the U.S., followed by Japan whose Treasury holdings also dropped by $2 billion to $1.028 trillion, the lowest since 2011...


Investors have been searching for clues whether China is dumping its vast holding of U.S. Treasuries to retaliate against U.S. tariffs, though Beijing has given no indication it’s doing so; meanwhile while the TIC data is relatively accurate, it tends to be revised rather materially which is why it is certainly possible that China's real holdings, when adjusted for valuation and currency changes, are far lower. Of course, instead of selling Treasurys, China may have decided to hold on to its reserves and allow the yuan to depreciate against the USD, but not too much: so far 7.00 has emerged as a "red line" for the PBOC. The Chinese currency has already depreciated more than 4 percent against the dollar in the past year amid signs of an economic slowdown and capital outflows. In September, China’s foreign-exchange reserves stockpile fell by $22 billion to touch the lowest level since July 2017, however much of that number was due to valuation adjustments. Going down the list, while Russia's Treasury liquidation was well documented in June and July, two new aggressive sellers of US paper emerged in the latest data: France, whose Treasury holdings declined from $118.4BN to $97.7BN... 


Ireland, which sold over $25BN Treasuries in September, bringing the total to $290BN...


Not everyone was a seller: the infamous Belgium, host of Euroclear, added $10 billion to $164.7BN, likely working on behalf of some unknown foreign entity, while Saudi Arabia added another $6.6BN, bringing its total to a record $176.1BN, perhaps in hopes of showing Trump just what a good friend of the US it is...


Finally, away from US Treasuries, and looking at total flows, foreigners added a total of $7.5BN in long-term US securities, led by nearly $30BN in Agencies...


What was perhaps more notable is that in September, foreigners sold another $16.9BN in US stocks, the 5th consecutive month of selling, matching a record long stretch of foreign sales of US equities, and one during which official and private foreign investors sold a total of $102 billion over the past 5 months, a record high...


# The bottom line: Trump told the world he doesn't need its generosity to either fund the US deficit or prop up stocks, and according to recent data, the world has taken up Trump on his dare, and has been actively liquidating US securities....

James Rickards: The Fed Is "Triple-Tightening" Into Crisis

It’s my job to continue pointing out the risks to the financial system that we still face and to try to help people prepare for the next crisis. Of course, central banks are a big part of the problem. If you have defective and obsolete models, you will produce incorrect analysis and bad policy every time. There’s no better example of this than the Federal Reserve. The Fed uses equilibrium models to understand an economy that is not an equilibrium system; it’s a complex dynamic system. The Fed uses the Phillips curve to understand the relationship between unemployment and inflation when 50 years of data say there is no fixed relationship. The Fed uses “value at risk” modeling based on normally distributed events when the evidence is clear that the degree distribution of risk events is a power curve, not a normal or bell curve. As a result of these defective models, the Fed printed $3.5 trillion of new money beginning in 2008 to “stimulate” the economy, only to produce the weakest recovery in history.
# That’s over now. The Fed’s cycle of monetary tightening has been ongoing in various forms for over five years. First came Bernanke’s taper warning in May 2013. Next came the actual taper in December 2013 that ran until November 2014. Then came the removal of forward guidance in March 2015, the liftoff in rates in December 2015, seven more rate hikes to date and the start of quantitative tightening in October 2017. Another rate hike is already in the queue for December, which would be the ninth rate hike since liftoff. During much of this tightening, the dollar was actually lower because markets believed the Fed would not raise in the first place or was overdoing it and would have to reverse course. Now that the Fed has shown it’s serious and will continue its tightening path (at least until they cause a recession), markets have no choice but to believe them. And since last October, the Fed has also been reducing its balance sheet with quantitative tightening (QT). When the Fed started QT last year, they urged market participants to ignore it. They said the QT plan was on autopilot, the Fed was not going to use it as an instrument of policy and the money burning would “run on background” just like a computer program that’s open but not in use at the moment. It’s fine for the Fed to say that, but markets have another view.
# Analysts estimate that QT is the equivalent of two–four rate hikes per year over and above the explicit rate hikes. Markets have already suffered two significant sell-offs this year, the most recent being October’s. While there were other contributing factors like the trade war and political uncertainty leading up to last week’s election, this monetary tightening cannot be dismissed. Tighter monetary conditions in the U.S. have led to a stronger dollar, capital outflows from emerging markets (EMs) and disinflation. The dollar is up about 4.5% this year against major competing currencies such as the euro, pound and yen. A stronger dollar is itself a form of monetary tightening. A stronger dollar cheapens imports for U.S. buyers because they need fewer dollars to purchase goods. That’s a deflationary vector that will make the Fed’s goal of achieving a persistent 2% inflation rate even harder to reach. The U.S. is now getting a triple shot of tightening in the form of higher rates, reduced money supply and a stronger dollar. At this rate, we may be in a recession sometime next year unless the Fed reverses course. We’ll see if the Fed wakes up to the danger before it’s too late. I’m not holding my breath. The Fed is always the last to know....

Jeffrey Snider Cautions On Contango, Currency And Contagion; "Past The Point Of No Return"

At the end of June, the crude curve really got out of hand. WTI futures had returned to backwardation many months before, and then the eurodollar/collateral explosion May 29 sapped some crude strength. Over the following month, curve backwardation would become extreme as the benchmark price seemed ready to skyrocket. After getting up near $80 a barrel, the price reversed. During the several weeks of weakness, the futures curve remained in steep backwardation, the expectation that the recovery (narrative) would continue whatever any short-term profit taking...


But as prices did rebound through September, there was already trouble underlying. The curve was changing shape, flattening out even beyond normalizing that pretty ridiculous backwardation spike late June/early July...


WTI would nearly match its earlier high on October 3, by then the curve was already a little threatening becoming unlike its shape from July. Since that day, it’s been a steep incline down in price as the futures curve has shipped back into contango...


It has continued to flatten out at the back and “fish hook” at the front. These are quite concerning signs about perceived future imbalance in the oil markets. Those concerns are not altogether about the oil markets. Of course, in the booming global economy of the mainstream this is the product of success; too much success. The US is pumping out a record amount of oil and the rest of the world (OPEC) has started to normalize to $100 oil expectations. It’s another supply glut. Stop me if you’ve heard this before. It should sound very familiar, too familiar. We need only go back four years for all the same general soundbites: the economy is booming, the energy sector is pumping record amounts, and WTI contango is the least of anyone’s concerns. Obviously, it didn’t quite turn out that way which raises the interesting question as to whether the same mistakes will be repeated. I’d bet they will, right up until the bitter (cycle) end. If we look at one very close calendar spread, say the 3-month, it can give us a sense of just how far this imbalance might have been running. This particular spread is the difference in contract price between the front month futures price, whatever happens to be first on the board at any given time, and the one three months behind. If either contango or backwardation swings in the opposite direction at a 3-month interval, then that’s something to pay attention to...


This started to happen in October 2014. Oil prices had overall come down from highs in June, and the curve had flattened a little bit through September that year. Then early October. You might remember those few weeks for other reasons, none of which had anything to do with US shale output. There were collateral disturbances in repo at the end of September 2014 and then the big, disruptive “buying panic” in UST’s on October 15. Global currency markets returned to life for all the wrong reasons, soon to make the disruptions of 2013 appear quaint and lovely by comparison. When the oil curve started to reshape during that time, WTI (front month) was still ~$95 a barrel. On October 2, 2014, it had fallen to $91.02. Then as the futures market rethought the whole narrative the reappearance of contango would coincide with the oil market’s worst crash since the second half of 2008 (another period fraught with funding and dollar difficulties). By the time the 3-month calendar spread reached $1 contango (the CL4 contract price $1 more than CL1, the front month) in mid-December, the oil price had dropped 38% from October 2 and was down 48% from the June high. Less than a month later, the 3-month spread was $2 contango with CL1 under $48. A week after that, on January 15, 2015, the Swiss National Bank shocked the world by removing the franc’s peg to the euro...


# Though the dollar wasn’t directly involved in that effort, it was the reason for the trouble. I wrote the month before, all the while contango was deepening, about Switzerland’s therefore oil’s setback: In that respect, the SNB is now in the same kind of conundrum (in opposite directions) as the Banco do Brasil in trying to ward off a currency problem that is not its own. The “dollar” missteps in the past six months are too immense for any one central bank to address. That is the problem here as this is not just a run of “dollar” disorder, though that is the primary symptom and means of “contagion”, but rather the global financial system is in a state of high pessimism and contraction. With currency crises raging all across the planet, it is a desperate warning that too much financial imbalance is unsustainable for the given economic reality as measured against prior economic expectations. Exchanging Switzerland (no longer pegged to the euro) for China and its RRR fight. The action in oil as eurodollars in December 2014 and January 2015 announced the arrival of the severe stuff. It was only the beginning of what was to come, but by the start of 2015 there was really no chance for things to go any other way. It was past the point of no return. How close are we to something like that? Inching closer every day, perhaps right on the cusp. Janet Yellen would say throughout the time that these were just “transitory” factors that wouldn’t impede expected global economic acceleration. She would spend the balance of 2016 confused, cautious, and regretting much. Jay Powell says the same thing now, only he hasn’t used the word “transitory” yet. Eurodollar futures are guessing he will at some point....