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June 17, 2018 | Next Mortgage Default Tsunami Isn’t Going to Drown Big Banks but “Shadow Banks”

As banks pull back from mortgage lending amid inflated prices and rising rates, “shadow banks” become very aggressive. In the first quarter 2018, banks and non-bank mortgage lenders – the “shadow banks” – originated 1.81 million loans for residential properties (1 to 4 units). In the diversified US mortgage industry, the top 10 banks and […]

June 3, 2018 | Visa Goes Down in the UK, Chaos Ensues, Cash is Suddenly King

For over 12 hours on Friday, shopping centers in the UK and other parts of Europe were plunged into chaos as millions of consumers were unable to use their Visa debit or credit cards at points of sale. The credit card company, which was finally able to restore normal service early Saturday morning, said it […]

May 29, 2018 | Update on the Most Splendid Housing Bubbles in America

Some beautiful spikes too. Prices of houses and condos across the US surged 6.5% from a year earlier (not seasonally-adjusted), according to the S&P CoreLogic Case-Shiller National Home Price Index for March, released today. The index is now 7.8% above the crazy peak of “Housing Bubble 1” in July 2006 just before it all came […]

May 26, 2018 | Is This the Next Big Retailer to Melt Down? Its Bonds Crashed

The PE-firm-owned brick-and-mortar retailer grapples with its fate. PetSmart, the largest brick-and-mortar pet supply and services retailer in the US and Canada, with 55,000 employees, 1,600 big-box stores, 200 pet boarding facilities, and $8.7 billion in revenues in fiscal 2017, has a little problem: $8.1 billion in debt. And you guessed it: Half of this […]

May 15, 2018 | US Treasury 10-Year Yield Breaks Out, Mortgage Rates Jump to Highest in 7 Years

But no blood in the streets. Just a rate-hike cycle at work. Today the US Treasury 10-year yield broke out of its recent range and surged 8 basis points to 3.08% at the close, the highest since July 2011. The price of a bond falls when its yield rises. The odds have been stacked against […]

May 10, 2018 | Consumer Price Index Rises Fastest since February 2017

But What’s Going on with Used Vehicle Retail Prices? Been reading misleading headlines about low inflation again? That is was “softer than expected” or whatever? So here are the numbers: The Consumer Price Index (CPI) for April, which the Bureau of Labor Statistics released this morning, was 2.5% higher than a year ago. That increase may […]

May 2, 2018 | Wow that’s Fast: Mortgage Rates Jump to 2011 Levels

What will Housing Bubble 2 do when mortgage rates hit 6%? Wow, this was fast. The average interest rate for 30-year fixed-rate mortgages with conforming loan balances – $453,100 or less with 20% down) jumped to 4.80% for the week ending April 27, from 4.73% in the prior week, and from 4.66% two weeks ago, […]

April 24, 2018 | Update on the Most Splendid Housing Bubbles in the US

Everything spikes. Prices of houses and condos across the US surged 6.3% from a year earlier (not seasonally-adjusted), according to the S&P CoreLogic Case-Shiller National Home Price Index for February, released this morning. The index is now 6.7% above the crazy peak of “Housing Bubble 1” in July 2006 just before the hot air hissed […]

April 20, 2018 | “Financial Stress” in the Credit Markets v. the 2-Year Yield

The two-year yield, now surging, is a leading indicator. The Financial Stress Index, released weekly by the St. Louis Fed, is designed to track financial conditions that companies face in the markets. It reached record lows in November – meaning that there was extraordinarily little “financial stress” in the markets after years of ultra-easy monetary […]

April 11, 2018 | Fed Warns Markets: Don’t Get Spooked about Coming Spike in PCE Inflation

Inflation day didn’t disappoint. “Underlying Inflation” hottest since July 2006. After the Bureau of Labor Statistics released its Consumer Price Index for March this morning, including a hotter-than-expected (or feared) reading for the core Consumer Price Index – more on that in a moment – several other inflation gauges were released, all based on various […]

April 4, 2018 | Toronto’s Epic Housing Bubble Turns to Bust

Prices of detached houses plunge C$207,000 from a year ago as sales collapse. After having ballooned for 18 years with barely a dip during the Financial Crisis, Toronto’s housing market, Canada’s largest, and among the most inflated in the world, is heading south with a vengeance, both in terms of sales volume and prices, particularly […]

March 30, 2018 | What Could Dethrone the Dollar as Top Reserve Currency?

Central banks seem leery about the Chinese yuan. What will finally pull the rug out from under the dollar’s hegemony? The euro? The Chinese yuan? Cryptocurrencies? The Greek drachma? Whatever it will be, and however fervently the death-of-the-dollar folks might wish for it, it’s not happening at the moment, according to the most recent data. […]

March 23, 2018 | China’s Empty Threat of Dumping its US Treasuries

“We are looking at all options.” In an interview about the trade sanctions that President Trump is throwing at China and at Corporate America – whose supply chains go through China in search of cheap labor and other cost savings – Ambassador Cui Tiankai defended the perennial innocence of China, as is to be expected, […]

March 13, 2018 | Why are Investors in China so Eager to Buy US Homes?

A whole industry has sprung up on both sides of the Pacific to dodge the rules on both sides of the Pacific. Today, the Federal Reserve, in its function as banking regulator, wagged its finger at Industrial and Commercial Bank of China (ICBC) for insufficient procedures to detect illicit money transfers and other prohibited transactions […]

March 6, 2018 | Home Prices Sink, Sales Plunge in Toronto

Homeowners who bought a year ago are down C$110,000 on average.  Home sales in the Greater Toronto Area, Canada’s largest housing market, plunged 35% in February compared to a year ago, to 5,175 homes. The plunge in volume was spread across all types of homes. Even the previously white-hot condo sector froze over: Detached houses […]

March 1, 2018 | Fed’s QE Unwind Marches Forward Relentlessly

During the sell-off, it ignored the whiners on Wall Street. The fifth month of the QE-Unwind came to a completion with the release this afternoon of the Fed’s balance sheet for the week ending February 28. The QE-Unwind is progressing like clockwork. Even during the sell-off in early February, the QE-Unwind never missed a beat. During […]

February 21, 2018 | What will Spiking Mortgage Rates, High Home Prices, & the New Tax Law Do to the Housing Market?

Surging home prices have primed the housing market for this. The average interest rate for 30-year fixed-rate mortgages with a 20% down-payment and with conforming loan balances ($453,100 or less) that qualify for backing by Fannie Mae and Freddie Mac rose to 4.64%, the highest since January 2014, according to the Mortgage Bankers Association’s Weekly […]

February 14, 2018 | Retail Sales, Inflation Add Fuel to Fed’s Rate-Hike Trajectory, Treasuries Dive as Yields Surge

But something funny happened on the way to the headlines. In describing the retail-sales data released today, words like “slumps” and “declines” kept cropping up in the headlines. This referred to the seasonally adjusted month-over-month data, so the percentage change from December retail sales (peak holiday selling season) to January retail sales (peak merchandise-return season). […]

February 7, 2018 | Who Was Selling Stocks Last Week Before the Monday Rout?

And who was buying? Answers emerge. The S&P 500 index hit an all-time high on January 26, which was a Friday. The following week, it started to fall, including a messy 2.1% selloff on Friday that brought the weekly loss to 3.8%, the worst such decline since the selloff that ended on February 7, 2016. […]

February 1, 2018 | Fed’s QE Unwind Accelerates Sharply

With a sense of urgency. No more dilly-dallying around. The Fed’s balance sheet for the week ending January 31, released this afternoon, completes the fourth month of QE-unwind. And it’s starting to be a doozie. This “balance sheet normalization” impacts two types of assets: Treasury securities and mortgage backed securities (MBS) that the Fed acquired […]

January 21, 2018 | What Will Rising Mortgage Rates Do to Housing Bubble 2?

Oops, they’re already rising. The US government bond market has further soured this week, with Treasuries selling off across the spectrum. When bond prices fall, yields rise. For example, the two-year Treasury yield rose to 2.06% on Friday, the highest since September 2008. In the chart, note the determined spike of 79 basis points since […]

January 17, 2018 | Asset Class of Vintage Cars Drops More than during 2008/2009

But this time, there’s no Financial Crisis, and no QE in sight. The asset class of beautiful machines is suffering. These assets range from a rare 1962 Ferrari 250 GTO Berlinetta, which sold for $38.1 million with impeccable timing in August 2014 before the peak, to American muscle cars that can be acquired for a […]

January 4, 2018 | US Auto Sales Fall for 2nd Year at GM, Ford, FCA, Toyota, BMW, Mazda. Total 2017 Sales Drop Below 2015

Tesla gets crushed by the big boys. Total new-vehicle sales in the US fell 5.2% year-over-year in December to 1.6 million units. For all of 2017, sales declined by 320,000 vehicles, or 1.8%, to 17.23 million units. It was the first overall decline since the Financial Crisis. Compared to 2015, sales fell by 249,033 vehicles, […]

December 30, 2017 | The Dreaded “Flattening Yield Curve” Meets QE Unwind

During prior incidents of an “inverted” yield curve, the Fed had no tools to get the market to push up long-term yields. Today it has one: the QE Unwind. The price of three-month Treasury securities fell and the yield — which moves in the opposite direction — rose, ending the year at 1.39%, after having […]

December 5, 2017 | Bank of Japan Tapers (Quietly), QE Party Over

No flashy announcement, to avoid alarming the markets. After years of blistering asset purchases, the Bank of Japan disclosed today that it held a total of ¥521.6 trillion in assets as of November 30, including Japanese Government Bonds (JGBs), gold, corporate bonds, Japanese REITs, equity ETFs, loans, etc. That is quite a pile, so to speak. […]

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