I predicted this clearly, with loads of evidence, last spring. I even tipped the SEC/UK authorities. Tthe chickens come home to roost. Let it be known, Wall Street's margin IS my business model!!!
Don’t you just hate the smuggish guys that sit behind desks and that say ‘I told you so’? There’s probably only one thing you hate more and that’s the racers that are running to predict the end of the world. Doom and gloom.
The topic of China's real estate bubble, its ghost cities, and its emerging middle class - who now have enough money to invest and have piled into houses not stocks - and have been dubbed "fang nu" or housing slaves (a reference to the lifetime of work needed to pay off their debts); is not a new one here but, as Bloomberg reports, the latest report from economist Gan Li shows China’s households are massively exposed to an oversupplied property market.
The Federal Reserve is the primary engine of income/wealth inequality in the U.S. Eliminate "free money for cronies," bailouts of the "too big to fail" banks that own the Fed, manipulation of markets, the purchase of impaired private assets at high prices, and all the other tools of financialization the Fed wields to enforce its grip on the nation's throat--in other words, abolish the Fed--and the neofeudal structure that feeds inequality will vanish along with the feudal lords that enforced it. We don't need to "fix" things as much as remove the obstacles that are blocking the way forward. The Federal Reserve is the primary obstacle to reducing income/wealth inequality.
That margin debt just soared to new all time highs in december should come as no surprise to anyone. However what may come as a shock to many is that the other key metric provided by the NYSE - total net free credit - also known as investor net worth (calculated as Free Credit Cash plus Credit Balances in Margin Accounts less Margin Debt) just dropped to a whopping $148 billion, double where it was in February 2013, and double where it was during the peak of the last stock (and credit and housing) bubble, when it rose to a then-all time high of $79 billion in June 2007. It was all downhill from there.
- Emerging sell-off hits European shares, lifts yen (Reuters) - but not really if you hit refresh since the latest central bank bailout announcement
- Apple’s Holiday Results to Show Whether Growth Is Back (BBG)
- Israel attacked Syrian base in Latakia, Lebanese media reports (Haaretz)
- Abenomics FTW: Japan Posts Record Annual Trade Deficit as Import Bill Soars (BBG)
- When all else fails, Spain's hope lie in a 16th century saint: Saint “might help Spain out of crisis,” says interior minister (El Pais)
- Global Woes Fail to Send Cash Into U.S. Stocks (WSJ)
- IMF's Lagarde sees eurozone inflation "way below target" (Reuters)
- Minimum wage bills pushed in at least 30 states (AP)
- AT&T Gives Up Right to Offer to Buy Vodafone Within 6 Months (BBG)
Back in the years just before the previous housing bubble burst (not to be confused with the current, even more acute one), one person did the math on subprime, realized that the housing - and credit bubble - collapse was imminent, and warned anyone who cared to listen - almost nobody did. That man was Kyle Bass, and because he had the guts to put the money where his mouth was, he made a lot of money. Fast forward to 2014 when subprime is all the rage again and the subprime bubble is bigger than ever: it may comes as a surprise to some that in 2013, subprime debt was one of the best performing fixed income instruments, returning a whopping 17% in a year when most other debt instruments generated negative returns. And this time, while Kyle Bass is busy - collecting nickels (each costing a dime) perhaps - it is someone else who has stepped into Bass' Cassandra shoes: that someone is Jeff Gundlach. “These properties are rotting away,”
The elimination of low-risk interest income in favor of risky speculative credit/asset bubbles has led to a monumental misallocation of capital and the institutionalization of perverse and highly corrosive incentives. Needless to say, the current bubbles in stocks, bonds and real estate will implode, and the phantom wealth that the bubbles temporarily generated will vanish.
Bernanke may be printing the wealth effect to the benefit of the richest 1%, but that only serves to make the already wealthiest even wealthier. When it comes to the creation of new millionaire households, the epicenter of new wealth creation is about as far from Wall Street, West Putnam Avenue or Rodeo Drive as can be. In fact, the state that saw the fastest climb up in millionaire rankings in 2013 doesn't have a single Tiffany or Saks Fifth Avenue, and the closest BMW dealership is a six-hour drive from the capital (stats which are guaranteed to change by the end of the year). Presenting North Dakota: the state which jumped 14 spots in the latest ranking of millionaire households.
In his 712-page tour de force, The Great Deformation, David Stockman dissects America’s descent into the present era of “bubble finance.” it’s hard to refute Stockman’s perspective on the Fed’s role in the housing bubble. But that won’t stop some from trying, and especially the many academic economists beholden to the Fed. Research papers have stealthily danced around the Fed’s culpability for our crappy economy, as we discussed here. More importantly, if Stockman is right about bubble finance, there’s more mayhem to come. Consider that denying failure and persisting with the same strategy are two sides of the same coin. Just as investors avoid the pain of admitting mistakes by holding onto losing positions, Fed officials who claim to have done little wrong are also more committed than ever to propping up asset markets with cheap money. For those concerned about another policy failure, a key question is: “As of today, where do we stand with respect to bubbles and bubble finance?”
The housing recovery is ultimately a story of the "real" employment situation. With roughly a quarter of the home buying cohort unemployed and living at home with their parents the option to buy simply is not available. The rest of that group are employed but at the lower end of the pay scale which pushes them to rent due to budgetary considerations and an inability to qualify for a mortgage. The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief was that the Government, and Fed's, interventions would ignite the housing market creating a self-perpetuating recovery in the economy - it did not turn out that way. Instead, it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression. While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2014 - the lack of recovery in the home ownership data suggests otherwise.
You can reflate a credit bubble in which spending rises briefly... But at the end of the day, all this does is set the stage for another economic collapse when people once again default on their credit card payments/ mortgage payments.
Welcome To The Blackstone Recovery: Over 11 Million Americans Spend More Than Half Their Income On RentSubmitted by Tyler Durden on 01/13/2014 17:47 -0400
As 11.3 million Americans spend more than half their income on rent, a record increase of 28% in four years, increasingly more are faced with the core "New normal recovery" choice: “We either eat, or we pay rent.” Welcome to the Blackstone recovery...
Most are aware of Alan Greenspan’s 1966 essay - written when he was an acolyte of Ayn Rand - in which he sang the praises of the gold standard. Obviously, that early work would later prove awkward for Greenspan, as he held the reins of the fiat money engine known as the Federal Reserve. However, a reporter for Barron's unearthed a copy of Greenspan’s NYU doctoral dissertation, which he took great pains to bury, showing that when his professional ambition wasn’t involved, Greenspan could understand perfectly well (a) the virtues of a commodity money and (b) the dangers of a housing bubble. If the Austrians are right in laying the blame for the housing bubble on Greenspan’s loose monetary policy following the dot-com crash, then Greenspan can’t plead ignorance: He knew what he was doing.
Last week, Grant Williams reviewed the equity markets in an attempt to see how equity investors managed to scamper through 2013 with the friskiness of puppies when all about them lay doubt and potential disaster. His answer - of course - quantitative easing. This week Williams takes a deep dive into bonds and bullion in an effort to comprehend how the bond market managed to navigate the same 12-month period and see what can be learned about 2013 in order to forecast for 2014. The effect on the Fed’s balance sheet is plain to see - a very steady, predictable line; and markets love steady and predictable. So what happens when the 'predictability' ends...? The guardians of the global economy are relying on numerous logical fallacies to continue their path to oblivion...