"Loans take time to season and go bad, and Wall Street loves to package and pass along risk. The music will stop — it always does — and this will not end well.”
Since the beginning of 2014, the 225 companies that have gone public in China have returned an average of 418% on their way to an average P/E of nearly 100X while growing earnings by an average of just 4%. Most absurd of all, software IPOs have returned 1,124%, have an average P/E of 311X on earnings growth of -5%.
- The fake: Avon-Offer Hoax Shows It’s Easy to Put One Over on SEC’s Edgar (BBG)
- And the real: US buyout group TPG snaps up UK discounter Poundworld (FT)
- El Niño near-certain to last through summer: U.S. climate center (Reuters)
- Oil Sands Land Becomes Alberta’s Hot Real Estate as Oil Rebounds (BBG)
- SEC a stumbling block in banks' forex guilty pleas: sources (Reuters)
- Pimco’s Stocks Chief Maisonneuve to Leave as Funds Closed (BBG)
- Bank of America’s Woes Test ‘Fixer’ CEO (WSJ)
- Puerto Rico Governor, Lawmakers Agree on Revenue Proposal (BBG)
According to Fitch, nearly 40% of credit in China is outside bank loans, meaning that between forced roll-overs, the practice of carrying channel loans as "investments" and "receivables", inconsistent application of loan classification norms, and the dramatic increase in off balance sheet financing, the 'real' ratio of non-performing loans to total loans is likey far higher than the headline number.
The FDIC explains, banks have grown far larger and even more complex since 2008, and that "[s]uch trends have not only continued, they accelerated as a result of the crisis." The FDIC goes on to suggest that its current tools and business model are “not sufficient to mitigate the complexities of large institution failures." Not only are they not equipped to handle it, they’re not entirely sure what to do: that’s why the FDIC is "seeking comment on what additional regulatory action should be taken..."
The fact is that much of the globe, particularly the developed west, is up to its eyeballs in debt. Mind, you, this is based solely on official public debt numbers. If you include unfunded liabilities, then the US, most of Europe, Japan, and even China are sporting Debt to GDP ratios well over 300%.
Sitting in Silicon Valley, it feels like we’ve reached the peak again. Hot money is chasing deals at ridiculous valuations. Housing prices are more than incomes can cover. Optimism is high. Jobless Claims are at cyclical lows. We’ve seen this before, in 2000 and 2007.
No Bubble Here: $1.5 Million 750 SqFt. Flat; Rent-A-Bed $1,000/Month Or 20 Beds In 7-Bedroom House $21,000/MonthSubmitted by Tyler Durden on 05/14/2015 11:34 -0400
The incredible luxury of having a bedroom to yourself is out of reach for all but the very well-paid. Having an apartment to yourself requires serious money.
- Amtrak train in Philadelphia wreck was traveling at twice speed limit (Reuters)
- The engineer has no recollection of the crash and “no explanation” for what happened (WSJ)
- Taliban claim attack on Afghan guesthouse that killed 14 (Reuters)
- Chicago’s Junk Rating From Moody’s Puzzles Investors (BBG)
- House votes to end spy agencies' bulk collection of phone data (Reuters)
- Wesley Clark: The Penny-Stock General (BBG)
- AOL’s Armstrong to Leave $213 Million Richer After Verizon Deal (BBG)
Real Estate is a highly “illiquid” asset class ‘most of the time’. It always has been and always will be. However, some times, such as now - and from 2003 to 2007 as a prime example - when liquidity is flowing like water, Real Estate’s illiquidity is masked. Speculators can do no wrong. Simply having access to short-term or mortgage capital to purchase Real Estate guaranties a double-digit return. This continues until one day, suddenly, it doesn’t; and, the snap-back to the true, historical illiquid nature of the Real Estate sector happens suddenly and is amplified at first. This creates a snowball effect from which both house supply and illiquidity surge at the same time. Price then becomes the liquidity fulcrum and will drop, relentlessly ripping speculators faces off, until capital begins to view the asset class as a relative value once again.
- Obama, McConnell missteps undercut trade pact in U.S. Senate (Reuters)
- Bears Beware: Rout Puts Investors on Wrong Side of Central Banks (BBG)
- U.S. Set to Rip Up UBS Libor Accord, Seek Conviction (BBG)
- Greece’s Creditors Said to Seek EU3 Billion in Budget Cuts (BBG)
- Amtrak train derails in Philadelphia, killing at least five (Reuters)
- Oil glut worsens as OPEC market-share battle just beginning (Reuters)
- China Stimulus Aims at Restructuring Trillions in Local-Government Debt (WSJ)
Following yesterday's turbulent bond trading session, where the volatility after the worst Bid to Cover in a Japanese bond auction since 2009 spread to Europe and sent Bund yields soaring again, in the process "turmoiling" equities, today's session has been a peaceful slumber barely interrupted by "better than expected" Italian and a German Bund auction, both of which concluded without a hitch, and without the now traditional "technical" failure when selling German paper. Perhaps that was to be expected considering the surge in the closing yield from 0.13% to 0.65%. Not hurting the bid for 10Y US Treasury was yesterday's report that Japan had bought a whopping $23 billion in US Treasurys in March, the most in 4 years so to all those shorting Tsys - you are now once again fighting the Bank of Japan.
At the core, a healthy housing market is one where owner-occupied buyers dominate the bulk of home sales. That is simply not the case. This is how you have well paid tech workers in San Francisco cramming into a 2-bedroom apartment like a clown car simply to get by. One thing that is certain from the overall trend is that larger investors are pulling back from the market dramatically.
As the years have passed without Washington hearing, Russia and China have finally realized that their choice is vassalage or war. Had there been any intelligent, qualified people in the National Security Council, the State Department, or the Pentagon, Washington would have been warned away from the neocon policy of sowing distrust. But with only neocon hubris present in the government, Washington made the mistake that could be fateful for humanity.
As data on non-performing loans at Chinese banks shows the biggest sequential increase on record in Q1, Fitch wonders if perhaps the data actually obscures a far larger problem. Official figures on China's NPLs are obscured by a number of factors and may be grossly understated the ratings agency suggests. Furthermore, Fitch says "a protracted downturn in property markets could threaten the solvency of Chinese banks, given their modest loss-absorption capacity."