http://www.zerohedge.com/fullrss2.xml/feed en BofAML Explains Why The Ag Economy Isn't Likely To Get Much Better In 2017 http://www.zerohedge.com/news/2017-02-27/baml-explains-why-ag-economy-isnt-likely-get-much-better-2017 <p>The fact that farm incomes have come under increasing pressure over the past couple of years should come as little surprise to our readers (for those who missed our latest update, see: "<a href="http://www.zerohedge.com/news/2017-02-09/midwest-farm-bubble-continues-collapse-farm-incomes-expected-crash-2017">Midwest Farm Bubble Continues Collapse As Farm Incomes Expected To Crash In 2017</a>").&nbsp; Unfortunately, at least according to Bank of America's Global Ag Chemical team led by Steve Byrne, farmers shouldn't expect a reprieve any time in the near future.</p> <p>As BAML points out, the <strong>grain commodity farmers of the U.S. are locked in a vicious cycle, the result of which is a perpetually oversupplied market.</strong>&nbsp; To summarize the key takeaways,<strong> farmers continue to plant so long as cash profits are positive</strong> (because depreciation isn't a real cost and who cares about returns on capital anyway...silly finance people) <strong>while yield growth continues to outpace demand growth which leaves markets perpetually oversupplied and commodity prices well below what would be required to provide a normalized profit level for farmers</strong>.&nbsp; Meanwhile, since farmers seem to be incapable of unilaterally reducing supply, an external supply shock (e.g. a weather-related event) seems to be the only hope of the industry ever normalizing again.</p> <p>With that, here is a little more detail on the vicious ag cycle per BAML...</p> <p>Yield growth per acre continues to average 1-2% per annum...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Yields continue to improve with no sign of abatement as seed technology improves and farmers utilize better information technology</strong> (precision ag) to gain better understanding of acreage and maximize yield potential. While weather can disrupt yields year-to-year, directionally <strong>yields have improved at a 1-2% CAGR for corn, soy and wheat since 2000.</strong> In our view, this will continue to place deflationary pressure on crop prices longer-term, particularly given the extent to which global yields trail yields in more developed ag economies.</p> </blockquote> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Yield.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Yield_0.JPG" alt="Farms" width="600" height="397" /></a></p> <p>&nbsp;</p> <p>...which continues to drive new record highs in production despite an already weak pricing environment.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Global corn production is similarly heading for a new record high in 2016/17, up 7% YoY and driven mostly by an almost equally big rise in yields.</strong> The US 2016/17 crop that was just harvested looks especially strong. Concerns over whether ear filling was impeded by the hot and dry summer weather are now fading as the harvest is done and the USDA revised up its yield estimate by 1% to 11.01mt/ha in November. <strong>Meanwhile, in LatAm farmers are currently planting for the 2016/17 harvest and production looks even stronger, up 26% on presumed yield normalization and exacerbated by a 7% increase in acreage.</strong></p> </blockquote> <p><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Global%20corn%20production_0.JPG" alt="Farms" width="600" height="463" /></p> <p>&nbsp;</p> <p>Meanwhile, global corn demand is expected to recover somewhat in 2016/2017 but no where near the expected 7% supply increase.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Global corn demand growth slowed to just 2% per annum in the past two years, due to a drop in global pork production. </strong>Corn is the staple diet of the word’s more than 1bn pigs. The decline in pork production was mainly caused by an environmental crackdown in the Chinese farming sector, and the country’s pork production fell by 3% in 2015 and another 5% likely in 2016.</p> <p>&nbsp;</p> <p>Then in March 2016, China ended its domestic corn price floor, giving relief to pig farmers, and corn demand started picking up again. Corn demand from pig production will continue to rise structurally in the years to come on the ramp-up of new modern mega farms in Northern China. <strong>Overall global corn demand can recover to 3% growth this market year (2016/17) and hold up at 2-3% growth annually in the years to come, in our view. </strong>However, we have started to see signs of slowing feed demand as elevated corn prices have led to substitution to other feeds, in some instances. Global feed demand levels will be key in determining the aggregate corn demand picture.</p> </blockquote> <p><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Corn%20demand_0.JPG" alt="Corn" width="600" height="455" /></p> <p>&nbsp;</p> <p>All of which is expected to keep global grain stocks at all time highs for the foreseeable future...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>World carryout corn stocks are likely to finish 2016/17 at a record high, with stock-to-use ratios up marginally from the year prior. </strong>There is debate over the level of Chinese stocks, with estimates ranging from China’s corn reserve estimate of 270Mmt vs USDA estimate of ~110mn mt. The USDA expects Chinese corn production to decline by ~3% in 2016/17, and inventory levels to decline by ~8% in 2016/17 after swelling from 81mn mt in 2013/14 to 110mn mt in 2015/16. Recent policy aimed at reducing production out of lower-yielding regions could also help alleviate China’s elevated inventory position. Media reports have also indicated more than 900 companies have applied for import quotas for 2017, which could be supportive of global prices. USDA data suggests soybean inventories in China remain elevated as well and account for over 20% of global stocks (Chinese stocks to use ration remains well over 100%). China accounts for over 60% of global soybean imports, and thus inventory levels in China are a key factor in gauging global demand expectations. A clear indication of a drawdown in Chinese soybean stocks could provide price support, in our view. Nonetheless, China’s inventory levels, trade data and policy direction will remain key components of corn and soybean prices in the coming year.</p> </blockquote> <p><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Corn%20Stocks_0.JPG" alt="Farms" width="600" height="472" /></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Grain%20Stocks.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Grain%20Stocks_0.JPG" alt="Farms" width="600" height="211" /></a></p> <p>&nbsp;</p> <p>And, of course, as long as cash margins remain positive then farmers keep planting...which doesn't do much for that weak pricing environment.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Farm income, planted acres of row crops, and commodity prices all peaked in 2012 following the prior decade long super-cycle. P<strong>rior periods of ag credit cycle downturns lasted 5 years (68-72) and 9 years (83-91) while ag business cycle downturns have averaged 2 years since 1960.</strong> Inflation adjusted crop prices have been declining for over 100 years as gains in productivity (+1-2%) and acreage expansion (0-1%) outpace gains in demand (1-2%). New technologies such as precision agriculture and gene editing could accelerate productivity gains in the medium term. Cyclical upside could occur from increased demand for protein, reduced supply from marginal acres, or a weather event.</p> <p>&nbsp;</p> <p><strong>We expect cash margins for corn, soybeans and wheat to collectively be slightly higher than the prior year, but well below the ~2007-2014 profitability boom amidst elevated prices. </strong>We expect crop commodity prices for each to remain low amid elevated global stocks.<strong> Profitability will also likely remain a challenge and at similar levels to prior year levels exacerbated by elevated leverage, with US farm debt to net cash income at its highest level since 1984.</strong></p> <p>&nbsp;</p> <p><strong>In our view, cash margins may have room to fall before seeing a rational supply response. Margins are still above breakeven levels that occurred 15 years ago (1999-2003) and not at levels that could drive meaningful changes in farmer behavior, such as walking away from land rent or simply not planting acres in a given year.</strong></p> </blockquote> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%201.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%201_0.JPG" alt="Farms" width="600" height="402" /></a></p> <p>&nbsp;</p> <p>But, at least farmers have that whole trade war with Mexico to look forward to...luckily Mexico is just our second largest corn importer...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>In our view, the risk of a trade war with key importers of US crops remains a key risk for the US ag economy.</strong> Trade with China (14.8%) and Mexico (13.6%) represent top destinations for US ag export demand. <strong>Additionally, a potential border adjustment tax could significantly inflate fertilizer prices and together with lower grain prices could further impair farmer margins. </strong>Potential reform to the Renewable Fuel Standard is also a downside risk for US growers given 40% of domestic corn demand is derived from ethanol. A stronger USD resulting from proposed policies would also be a headwind for US growers. Washington will remain critical for agriculture with upside risks being the status quo and downside risks being more meaningful.</p> </blockquote> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Trade%20War.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Trade%20War_0.JPG" alt="Farms" width="600" height="280" /></a></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Trade%20War%202.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Farms%20-%20Trade%20War%202_0.JPG" alt="Farms" width="600" height="207" /></a></p> <p>&nbsp;</p> <p>It's pretty rough when your only hope of making money in your chosen profession will come only after a devastating weather event that may or may not force you into bankruptcy.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1350" height="900" alt="" src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/Cornfield_2.jpg?1488220284" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/baml-explains-why-ag-economy-isnt-likely-get-much-better-2017#comments 2007–08 world food price crisis Agriculture Agriculture in Mesoamerica Business Business cycle China Energy crops Environment Ethanol fuel Food and drink Food industry Food vs. fuel Information Technology LatAm Maize Mexico northern China seed technology Soybean Trade War USDA Zea Tue, 28 Feb 2017 03:15:00 +0000 Tyler Durden 589065 at http://www.zerohedge.com Up-Ending The Fed - Can Trump Reshape The Most Powerful Central Bank In The World? http://www.zerohedge.com/news/2017-02-27/ending-fed-can-trump-reshape-most-powerful-central-bank-world <p><a href="http://dimartinobooth.com/latest-weekly-newsletter/"><em>Via Danielle DiMartino Booth of DiMartinoBooth.com,</em></a></p> <p><em><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/02/27/20170227_fed.jpg"><img height="298" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/02/27/20170227_fed_0.jpg" width="600" /></a></em></p> <p><span style="text-decoration: underline;"><strong><em>&ldquo;Remember Red, hope is a good thing, maybe the best of things, and no good thing ever dies.&rdquo; </em></strong></span></p> <p>Wiser words were never spoken on the big screen than those of&nbsp;T<a href="http://www.imdb.com/title/tt0111161/">he Shawshank Redemption</a>&rsquo;s main character Andy&nbsp;Dufrense. We are none of us beyond&nbsp;redemption, so we are taught by this banker from Maine, even when we are punished for crimes we did not commit. In briefly researching the movie, one comes to learn that it is based on Stephen King&rsquo;s 1982 novella <a href="https://en.wikipedia.org/wiki/Rita_Hayworth_and_Shawshank_Redemption">Rita Hayworth and Shawshank</a> <a href="https://en.wikipedia.org/wiki/Rita_Hayworth_and_Shawshank_Redemption">Redemption</a>. No doubt, Hayworth&rsquo;s role in the movie stands out in all our minds, which is saying something as the superstar was no longer with us.</p> <p>Dig deeper and you learn that King&rsquo;s longer than&nbsp;a&nbsp;short story, but shorter than&nbsp;a novel, was part of a series called,&nbsp;<em>Different Seasons</em>, subtitled&nbsp;<em>Hope Springs Eternal</em>. How reassuring if enigmatic. More perplexing still is this master of the horror genre&rsquo;s inspiration &mdash;&nbsp;<a href="https://en.wikipedia.org/wiki/God_Sees_the_Truth,_But_Waits">Leo Tolstoy&rsquo;s&nbsp;<em>God Sees the Truth, But Waits</em></a>. It would seem that Carrie has met&nbsp;Anna Karenina.</p> <p>Clearly, it&rsquo;s easier to judge those who write books by their most famous covers. But why not set such preconceived notions aside. You too can bask in King&rsquo;s gorgeous prose from Shawshank and even Tolstoy&rsquo;s beautiful words of inspiration: &ldquo;If you want to be happy, be.&rdquo; And redemption: &ldquo;Everyone thinks of changing the world, but no one thinks of changing himself.&rdquo;</p> <p><strong>These words resonate so against the backdrop of a country that remains intent on fomenting division, on splitting itself at the seams, bent on self-destruction.</strong> Perhaps it will have to come down to one man and his ability to change himself, to draw in more than his avid followers but his doubters as well.</p> <p>For yours truly, it has thus been curious, nay fascinating that on matters of the Federal Reserve one Donald J. Trump has been silent as a mouse whose paws cannot bang out 140-character rants. Perhaps, just maybe, he is busy doing late night reading on the foundations of this venerable institution. If that&rsquo;s the case, maybe he came across this little gem that was passed along recently:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;In selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve district, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.&rdquo;</strong></p> </blockquote> <p>Maybe that&rsquo;s why the media has begun to dispense with the labels &ldquo;hawk&rdquo; and &ldquo;dove&rdquo; and is beginning to replace the&nbsp;aviary with simple human beings who have been there and done that, who have been on the receiving end of Fed policy for their entire careers. Take this from&nbsp;<a href="https://www.wsj.com/news/author/8142">Kate&nbsp;Davidson&nbsp;at&nbsp;the Wall Street Journal</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;After his campaign criticism of the central bank&rsquo;s low-interest-rate policies, many observers speculated he would seek more &ldquo;hawkish&rdquo; candidates who would favor higher borrowing costs. But his choices may be driven less by these issues and more by their practical experience, judging from his early picks for other top economic policy posts in the administration&mdash;drawn from investment banking, private equity and business&mdash;and the pool of early contenders for the Fed jobs.&rdquo;&nbsp;</strong></p> </blockquote> <p>Meanwhile, the <a href="http://blogs.ft.com/gavyndavies/">Financial Times&rsquo; Gavyn Davies</a> had this to say:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;The last four Fed Chairs have all been clearly on the economist side of the line, and because they have all bought into the Fed&rsquo;s economic orthodoxy, their actions have been considered somewhat predictable&nbsp;by the markets. A business person or banker might be less predictable, at least initially, and more prone to shake up the Fed&rsquo;s orthodoxies, for good or ill.&rdquo;</strong></p> </blockquote> <p>With deference to Mr. Davies, there can be no &lsquo;for ill&rsquo; in shaking up the Fed&rsquo;s orthodoxies, if you can call them that.&nbsp;Orthodoxy, from the Greek word orthodoxia, implies officials are cleaving to a correct creed.&nbsp;But what if policymaking has devolved from correct to simply accepted?</p> <p>That would imply a good dose of heterodoxy, also Greek from&nbsp;heterodoxos, was in order, as in a departure from the official position. To be crystal clear, heterodoxy does not equate to heretical, from the Greek&nbsp;hairetikos, (pardon the digression but who gave the Greeks a monopoly on multisyllabic, cool words?).&nbsp;Even so, a bit of heresy would also do the Fed a world of wonders. The literal Greek translation means &lsquo;able to choose.&rsquo;</p> <p><strong>A recent study determined the study of economics in academia had itself become incestuous with a great preponderance of students being trained in the same school of thought. </strong>This determination was not only disturbing and dangerous, it demands politicians introduce a bit of heresy into our nation&rsquo;s central bank.</p> <p>Perhaps President Trump, his administration and all members of Congress should sit down for a tutorial on Heterodox Economics (nope, not making that one up), which refers to schools of economic thought which fall outside of mainstream &mdash;&nbsp;read Keynesian &ndash; economics, which is predictably referred to as orthodox economics. Maybe, just maybe, it&rsquo;s high time a variety of schools are incorporated, as in&nbsp;the&nbsp;post-Keynesian,&nbsp;Georgist, social, behavioral and dare say, Austrian&nbsp;approaches.</p> <p><strong>That last one, the Von Mises-inspired Austrian school of economics is apparently public enemy number one. </strong>The FT&rsquo;s Davies goes on to warn that some candidates up for those open and opening positions on the Fed&rsquo;s Board of Governors are&nbsp;&lsquo;Austrian&rsquo; economists,&nbsp;<em>&ldquo;</em><em>a school that has apparently influenced Vice President Pence.</em><em>&nbsp;</em><em>An &ldquo;Austrian&rdquo; candidate wou</em><em>ld certainly alarm the markets.&rdquo;</em></p> <p>Davies&nbsp;has apparently done his homework. Back in 2010, <strong>one Mike Pence was serving in Congress as a representative of Indiana. In response to the Fed&rsquo;s insistence on launching a second round of asset purchases, which the markets adoringly embraced as QE2, he blasted back that, &ldquo;Printing money is no substitute for pro-growth fiscal policy.&rdquo;</strong></p> <p>Pence&rsquo;s words certainly ring&nbsp;Austrian,&nbsp;as the school considers&nbsp;malinvestment&nbsp;to be a menace, as well any rational person would.&nbsp;Malinvestment&nbsp;(we can finally score one for the Latins!) is defined as a mistaken investment in wrong lines of production, which inevitably lead to wasted capital and economic losses, subsequently requiring the reallocation of resources to more productive uses.</p> <p><strong>And we wonder why we&rsquo;ve&nbsp;had such a long run of jobless recoveries that happens to coincide with the post-Greenspan era.&nbsp;</strong>Why would the markets abhor an Austrian? Clearly, we would not have starved productivity by overbuilding residential real estate in the years prior to the crisis. Nor would companies have gorged on record share buybacks in the years that followed.&nbsp;Agreed, these phenomena juiced returns. But to what end aside from protecting the legacy of the mythological &lsquo;wealth effect&rsquo;?</p> <p>As my dear friend <a href="http://www.cnbc.com/peter-boockvar/">Peter&nbsp;Boockvar</a>&nbsp;wrote of the wealth effect in response to the Fed&rsquo;s meeting minutes from its January meeting: <strong><em>&ldquo;The concept,&nbsp;invented by Alan Greenspan, and carried on by Mr. Bernanke and Mrs. Yellen, is&nbsp;the unspoken&nbsp;third?mandate of the Fed. Well Fed, you certainly got what you wanted in terms of a dramatic rise in asset prices over the past 8 years (just look at the&nbsp;value of equities relative to the underlying US economy) but a wealth effect did not happen if the pace of personal spending in this expansion is any indication. For many, it&rsquo;s the wages they earn and the savings they keep that drive spending decisions, not the value of their stock portfolios.&rdquo;</em></strong></p> <p>For taxpayers&rsquo; money, because they will pay in the end, it would seem we need Peter to fill&nbsp;one&nbsp;of those vacancies on the Fed&rsquo;s Board. Just&nbsp;sayin&rsquo;. Would the man who coined the term, &lsquo;monetary constipation&rsquo; to describe the, &ldquo;constant hemming and hawing over a rate hike&hellip;even in the face of a&nbsp;world that clearly changed on November 8th? and as we approach the 8th ?year of this expansion.&rdquo;</p> <p><u><strong>President Trump, can you hear Peter??</strong></u> This is not the time to be obtuse.&nbsp;This is the time to bring back the good things in life, beginning with the best &ndash; hope. Dig as deep as you can and ask yourself some probing questions.&nbsp;Can you stand up to the orthodoxy that&rsquo;s robbed the business cycle of its very cyclicality? Are you man enough to populate the Fed with leaders who are so strong there&rsquo;s no need to audit the out-of-control institution? Pray God, does Mike Pence have your ear? You may be a debt kind of a guy, you&rsquo;ve said so yourself. But you&rsquo;re also beholden to no one and have a once-in-a-century opportunity to reshape the world&rsquo;s most powerful central bank and in doing so safeguard the sanctity of the U.S. dollar.</p> <p>As Andy&nbsp;Dufrense&nbsp;explained to us all, <strong>&ldquo;I guess it comes down to a simple choice, really. Get busy living or get busy dying.&rdquo;</strong> It&rsquo;s time we got back to the business of living in this country, every single one of us.&nbsp;Who are we to question if it takes a heretic to get&nbsp;us back to where we need to be?</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="730" height="363" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170227_fed.jpg?1488233830" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/ending-fed-can-trump-reshape-most-powerful-central-bank-world#comments Alan Greenspan Alan Greenspan Austrian School Austrian School of Economics Borrowing Costs Business Business cycle Congress Cyclicality Economics Economy Federal Reserve Fed’s Board of Governors Freemen of the City of London Heterodox economics Heterodoxy Indiana Keynesian economics None Peter Boockvar Private Equity Real estate Schools of economic thought The Economist Thought US Federal Reserve Wall Street Journal Tue, 28 Feb 2017 02:50:00 +0000 Tyler Durden 589078 at http://www.zerohedge.com Gas Taxes Set To Surge In Roughly A Dozen States http://www.zerohedge.com/news/2017-02-27/gas-taxes-set-surge-roughly-dozen-states <p>Nearly 20 states have raised gas taxes or recalculated gas-tax formulas in recent years to generate additional revenues.&nbsp; Which, of course, is an extremely <strong>politically expedient way to raise taxes on the unsuspecting masses since when gas prices soar later those price increases can simply be blamed on those evil oil corporations.</strong></p> <p>As the<a href="https://www.wsj.com/articles/states-push-to-raise-gasoline-taxes-1487673018"> Wall Street Journal</a> points out, the ease with which higher gas taxes have been passed through state governments over the past two years have emboldened at least a dozen more states, all of which are now actively considering additional gas taxes.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Tennessee </strong>Gov. Bill Haslam is putting his fellow Republican lawmakers to the test, with a plan to raise the state’s gas taxes for the first time in nearly three decades.</p> <p>&nbsp;</p> <p>In <strong>Alaska</strong>, Gov. Bill Walker, an independent, proposed tripling the state’s gas tax to 24 cents a gallon by 2018. The state has the lowest gas tax in the country and hasn’t raised it since 1970. In his recent state of the state address, Mr. Walker said he is trying to deal with a $3 billion fiscal gap, after state revenues collapsed by more than 80% from four years ago due in large part to the drop in oil and natural-gas prices.</p> <p>&nbsp;</p> <p><strong>New Jersey’s</strong> Republican Gov. Chris Christie raised the state’s gasoline tax last year by 23 cents a gallon, his first tax hike in two terms as governor, which he offset with some other tax reductions.</p> <p>&nbsp;</p> <p>On Thursday, the Republican-dominated <strong>Indiana </strong>House voted 61 to 36 in favor of increasing the state gas tax from 18 cents a gallon to 28 cents with annual adjustment increases possible through 2024. The bill now goes to the state Senate.</p> </blockquote> <p>In yet another map that looks eerily similar to the 2016 electoral college map, here is where states currently stand on gas taxes.&nbsp; Of course, the irony here is that the ultra-liberal states of the Northeast and West coast have the highest gas taxes...and while that might play well with their global warming narrative, gas taxes are among the <strong>most regressive forms of tax </strong>as they disproportionately impact lower-income families.&nbsp; <strong>And unfortunately, unlike the cost of other goods and services that are driven to artificially high levels by misinformed government policies (did someone say Obamacare?), we suspect you'll never see the leftist states of America subsidizing gasoline for poor people.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Gas%20Taxes%201.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Gas%20Taxes%201_0.JPG" alt="Gas Taxes" width="600" height="931" /></a></p> <p>&nbsp;</p> <p>Despite serving as an easy scapegoat, as the U.S. Energy Information Administration notes, only 48% of the price that Americans pay at the pump actually goes to the evil oil companies for crude production.&nbsp; Meanwhile, on average, nearly 20% of gas costs get sent to various federal, state and local government entities with the highest taxed states like PA, WA, NY and CA collecting even more.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Gas%20Taxes%202.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20Gas%20Taxes%202_0.JPG" alt="Gas Tax" width="600" height="593" /></a></p> <p>&nbsp;</p> <p>But, higher gas problems aren't a significant long-term threat because everyone will just buy an $80,000 Tesla, right?&nbsp; And, for those reading this post from the state of California please continue to ignore the fact that your Tesla is fueled by coal...</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="730" height="451" alt="" src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017.02.27%20-%20Gas%20Taxes%20Tease.JPG?1488208522" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/gas-taxes-set-surge-roughly-dozen-states#comments Business Carbon tax Crude Economy Ecotax Energy economics Fuel tax Fuel taxes in the United States Gasoline and diesel usage and pricing Global Warming Indiana Indiana House Obamacare Politics Senate Tax Taxation in the United States Transport Transport economics U.S. Energy Information Administration Wall Street Journal West Coast Tue, 28 Feb 2017 02:40:00 +0000 Tyler Durden 589037 at http://www.zerohedge.com Boston Dynamics Unveils Its Latest "Nightmare-Inducing" Robot http://www.zerohedge.com/news/2017-02-27/meet-handle-nightmare-inducing-robot-boston-dynamics <p>One year ago, <a href="http://www.zerohedge.com/news/2016-02-24/googles-skynet-robots-are-all-grown-and-downright-terrifying">when we showed readers </a>the SkyNet-like robots produced by Boston Dynamics, a company acquired by Google in 2013 (which then tried to flip it to <a href="http://www.techtimes.com/articles/161546/20160529/google-selling-robotics-division-boston-dynamics-to-toyota.htm">Toyota last year</a> but reportedly failed)&nbsp; we called the robotic creations "terrifying." Little did we know that compared to Boston Dynamics' next spawn, that particular batch was downright Johnny 5-friendly by comparison. Because after being briefly shown off at an event early this month, the robotic designed has officially revealed its latest creation, “Handle,” which the company’s founder previously described as “nightmare-inducing." </p> <p>Four weeks ago, Boston Dynamics - which is best known for its bipedal and quadrupedal robots - revealed it had been experimenting with some radical new tech: the wheel. The company named its new wheeled, upright robot is named <a href="https://youtu.be/-h5qpXO3isM?t=3m45s">Handle </a>(“because it’s supposed to handle objects”) and looks like a cross between a Segway and the two-legged Atlas bot <a href="http://www.theverge.com/circuitbreaker/2017/2/1/14468126/boston-dynamics-new-wheeled-robot-handle">according to the Verge</a>. Handle, which had not been officially unviled yet, was shown off by company founder Marc Raibert in a presentation to investors. Footage of the presentation was <a href="https://www.youtube.com/watch?v=-h5qpXO3isM&amp;feature=youtu.be&amp;t=3m45s">uploaded to YouTube </a>by <a href="https://twitter.com/dfjsteve/status/826531584085893122">venture capitalist </a>Steve Jurvetson.</p> <p>Creating a more efficient robot that can, pardon the pun, handle basic tasks like moving objects around a warehouse would certainly be of benefit for Boston Dynamics. Although the company has consistently wowed the public with its robots, it’s struggled to produce a commercial product that’s ready for the real world. That may soon change.</p> <p>Raibert described Handle as an “experiment in combining wheels with legs, with a very dynamic system that is balancing itself all the time and has a lot of knowledge of how to throw its weight around.” He added that using wheels is more efficient than legs, although there’s obviously a trade-off in terms of maneuvering over uneven ground. </p> <p><strong>“This is the debut presentation of what I think will be a nightmare-inducing robot,” </strong>said Raibert. </p> <p>He wasn't kidding: as the video below reveals, Handle is officially about 6 foot 5, weights about 100lbs, and can roll around at around 9 mph, while preserving perfect balance and even engaging in complex aerial acrobatics: Handle can keep its balance over rough terrain, and can even jump 4 feet in the air, as well as going down stairs without an issue.</p> <p><iframe src="https://www.youtube.com/embed/-7xvqQeoA8c" width="560" height="315" frameborder="0"></iframe></p> <p>While we are confident Amazon will promptly order a few thousands of these to bring even more streamline automation and efficiency to its behemoth warehouses while putting countless part-time workers out of work, we don't know if to dread or yearn for the moment when RoboHandle emerges in a quiet patrol of your neighborhood street, armed and ready to use lethal force, and gradually replacing the local police force around the country.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="874" height="485" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/handlge.jpg?1488248471" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/meet-handle-nightmare-inducing-robot-boston-dynamics#comments Atlas Boston Dynamics Google Marc Raibert Robot Robot locomotion Robotics Science and technology in the United States Technology Toyota Tue, 28 Feb 2017 02:23:18 +0000 Tyler Durden 589089 at http://www.zerohedge.com Trump To States With Recreational Pot: Drop Dead http://www.zerohedge.com/news/2017-02-27/trump-states-recreational-pot-drop-dead <p><a href="https://mises.org/blog/trump-states-recreational-pot-drop-dead"><em>Via Ryan McMaken of The Mises Institute,</em></a></p> <div class="body-content clearfix"> <p><strong>In the days following the 2016 election, <a href="https://mises.org/blog/jeff-sessionss-drug-war-may-end-whats-left-states-rights">there were already worrying signs</a> that the Trump administration didn&#39;t merely view the War on Drugs as a useful source of rhetoric to please some&nbsp;Conservatives. </strong>With the appointment of Jeff Sessions &mdash; who appears to be a true believer in the War on Drugs &mdash; the threat to federalism, states&#39;s rights, and local control was all too real.&nbsp;</p> <p>The fears continue to be stoked by the administration itself, and yesterday White House spokesman Sean Spicer announcing that <strong><em>&quot;I do believe that you&#39;ll see greater enforcement of [federal law against marijuana].&quot;&nbsp;</em></strong></p> <p>So, in an administration where Trump&#39;s promised health care reforms are anything but a done deal&nbsp;&mdash;&nbsp;and which is plagued with leaks and conflict with the US intelligence establishment &mdash; <em><strong>Spicer suggests the administration has enough extra time to ramp up prosecutions of American citizens for smoking a joint</strong></em>. The fact that <a href="https://www.youtube.com/watch?v=XKPAn7uRcVY" target="_blank">81 percent of all drug arrests are for simple possession</a> means that yes, increasing&nbsp;federal enforcement is about arresting and prosecuting small-time users.&nbsp;</p> <p>Spicer justifies this with <a href="http://fox8.com/2017/02/23/trump-administration-hints-at-greater-enforcement-of-marijuana-laws/" target="_blank">the well-worn claim</a> often made by Conservatives that <em>&quot;There is still a federal law that we need to abide by ... when it comes to recreational marijuana and other drugs of that nature.&quot;</em></p> <p><strong>At the core of this statement is the same hypocrisy that infects much of the&nbsp;right wing on the Drug War issue.&nbsp;</strong></p> <p>Conservatives like to talk a good game about states&#39;s rights and local control when it comes to issues like gun laws and Obamacare, but federalism and the Constitution go&nbsp;right out the window on the drug issue.&nbsp;</p> <p>This has long been obvious, and was solidified in federal court when Trump&#39;s nominee to head the EPA, Scott Pruitt, sued Colorado in federal court when he was attorney general&nbsp;of Oklahoma. <strong><a href="https://mises.org/blog/red-state-fascism-strikes-again-time-nebraska-and-oklahoma">Pruitt and the GOP attorney general from Nebraska both</a> attempted&nbsp;to get the federal court to render Colorado&#39;s drug laws null and void &mdash;&nbsp;which would have essentially destroyed what&#39;s left of federalism and states&#39;s rights down to its foundations. </strong>Pruitt, however, was making this same argument at the very same time he was arguing that the states had the right to override Obamacare mandates.&nbsp;</p> <p>But the hypocrisy does not stop there. Conservatives love to talk about following the &quot;original intent&quot; of the US Constitution and demanding the federal government do nothing that is not authorized by the Constitution. That, of course, is then conveniently forgotten on the drug issue.&nbsp;</p> <p>Although Sean Spicer certainly won&#39;t admit it, the &quot;federal law we need to abide by&quot; is not some federal statute passed by Congress about drugs. The law we need to abide by is found in the US Constitution &mdash; specifically the Tenth Amendment &mdash; where it clearly states that &quot;The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.&quot;</p> <p><em><strong>So does the Constitution delegate to the United States government the power to regulate what sort of plants people eat, smoke, or grow? Here&#39;s a hint: No, it doesn&#39;t.&nbsp;</strong></em></p> <p>This refrain of Drug Warriors that those who don&#39;t like the Drug War need to &quot;change the law&quot; before they can complain requires a willful ignorance of the law contained in the US Constitution itself.&nbsp;</p> <p>Indeed, in more honest times, everyone <em>knew</em> the Constitution did not allow federal control of such matters which is why most everyone accepted that <a href="https://en.wikipedia.org/wiki/Eighteenth_Amendment_to_the_United_States_Constitution" target="_blank">a Constitutional amendment was necessary</a> to authorize federal prohibition of alcohol. It was only later that politicians realized they could just forget about all that Constitution stuff and pass federal statutes banning various substances at will.&nbsp;</p> <p>Of course even if the Constitution<em> did</em> authorize such things, it would be worthy of being ignored, just as federal laws and Constitutional provisions protecting slavery were always worthless and should have been ignored by everyone everywhere.</p> <p><strong>Spicer then went on to make other fact-free claims in&nbsp;his attempt to connect marijuana use to recent surges in opioid deaths. </strong>Lizzy Acker in <em>The Oregonian </em><a href="http://www.oregonlive.com/marijuana/index.ssf/2017/02/trump_administration_takes_aim.html" target="_blank">reports</a>:&nbsp;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;I think that when you see something like the opioid addiction crisis blossoming in so many states around this country,&quot; Spicer said, &quot;the last thing that we should be doing is encouraging people.&quot;</p> <p>&nbsp;</p> <p>Though Spicer drew a connection between opioid use and marijuana, there is no known connection between the two.&nbsp;<a href="https://www.cdc.gov/drugoverdose/index.html" target="_blank">According to the Centers for Disease Control</a>, in 2015 more than 33,000 people died from opioid overdoses, which includes both heroin and prescription painkillers, &quot;more than any year on record.&quot;</p> <p>The CDC reported that &quot;nearly half of all opioid overdose deaths involve a prescription opioid.&quot;</p> <p>&nbsp;</p> <p>Marijuana overdoses account for no deaths,&nbsp;<a href="https://www.dea.gov/druginfo/drug_data_sheets/Marijuana.pdf" target="_blank">according to the Drug Enforcement Administration</a>. In fact, a study reported in&nbsp;<a href="http://time.com/4419003/can-medical-marijuana-help-end-the-opioid-epidemic/" target="_blank">&quot;Time&quot; in 2016</a>, said that &quot;when states legalized medical marijuana, prescriptions dropped significantly for painkillers.&quot;</p> </blockquote> <p>As Mark Thornton <a href="https://mises.org/blog/heartless-solution-heroin-epidemic">shows</a>,<u><strong> the problem of opioid deaths can be traced back to the mainstream medical profession&#39;s frequent use of prescription painkillers, and has nothing at all to do with marijuana:&nbsp;</strong></u></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>One class of prescription drugs is directly related to the heroin epidemic, on which<a href="https://mises.org/library/legalization-cure-heroin-epidemic">&nbsp;I have recently reported</a>. To recap, drug companies that make opiate pain killers have influenced the American Academy of Pain Medicine to change their guidelines for prescribing pain killers. The changes in the guidelines have made it much more likely for doctors to prescribe pain killing opiate drugs such as Oxycontin and Vicodin for things like ordinary injuries and surgeries. The DEA, FDA, and the AMA monitor prescribing behavior of doctors, so they are more likely to follow such guidelines to avoid risk of sanction.</p> <p>&nbsp;</p> <p>These drugs are highly effective for pain, but can be addictive and deadly themselves (16,000 deaths in 2015 alone). When the injuries heal, addicted patients can no longer get refills for the drugs. For those who have become addicted their choices are going cold turkey, enter an addiction treatment program, or obtain the drugs on the black market. In other words, they have no good choices.</p> </blockquote> <p>And, while Spicer suggests arresting some pot users might somehow miraculously do something to cut down opioid use, the FDA is approving opioid use for 11 to 16 year olds, thus encouraging greater use on children. If the Trump administration is in the mood to crack down on somebody connected to the&nbsp;opioid addiction problem, there&#39;s no need to go out to Colorado or Oregon to do it. Trump can just drive over to the FDA headquarters in Maryland.&nbsp;</p> <p><strong>And finally, this is just the latest indication that the Trump administration&#39;s priorities are not where they need to be. </strong>Earlier this month, <a href="https://mises.org/blog/stockman-trump-its-economy-stupid">David Stockman complained</a> that Trump is letting himself get sidetracked from the important business of freeing up the economy. Stockman was apparently more right than he knew.&nbsp;</p> <p>When asked about drug issues in far-off states that have legalized recreational marijuana, Spicer <em>could</em> have simply said &quot;we&#39;re concentrating on repealing Obamacare right now&quot; or &quot;we&#39;re really focused on helping small business people make a living&quot; or &quot;we&#39;re focused on finding peaceful solutions to pressing international issues right now, as in Syria.&quot; All of those issues require immense focus, time and effort from Trump himself and his advisors. But no, the administration&nbsp;decided to declare war on seven US states instead.&nbsp;</p> <p>There are only so many hours in the day. Trump might want to take a closer look at how he uses them.</p> <p>*&nbsp; *&nbsp; *</p> <p>Update: This afternoon, AG Sessions noted:&nbsp; THERE&#39;S &#39;VIOLENCE&#39; AROUND POT SMOKING</p> </div> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="226" height="126" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170227_mj.jpg?1488232524" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/trump-states-recreational-pot-drop-dead#comments AMA American Academy of Pain Medicine Congress Conservatism in the United States Donald Trump Drug Enforcement Administration Environmental Protection Agency FDA federal government Mises Institute Mises Institute Obamacare Oklahoma Politics Presidency of Donald Trump Republican Party Sean Spicer Spicer The War on Drugs Trump Administration Turkey U.S. intelligence United States government White House White House Tue, 28 Feb 2017 02:00:00 +0000 Tyler Durden 589077 at http://www.zerohedge.com Artist's Impression Of The Oscars http://www.zerohedge.com/news/2017-02-27/artists-impression-oscars <p>As President Trump noted: <strong><em>"<span id=":2vv.co" dir="ltr">Oscar night was sad. They focused too much on politics (on attacking me) and messed things up after all."</span></em></strong></p> <p>&nbsp;</p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/02/19/20170227_oscars_0.jpg" width="600" height="439" /></p> <p><em><a href="https://townhall.com/political-cartoons/2017/02/27/148993">Source: Townhall.com</a></em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="676" height="495" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170227_oscars.jpg?1488223894" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/artists-impression-oscars#comments American people of German descent Business Climate change skepticism and denial Conservatism in the United States Donald Trump Politics Politics of the United States The Apprentice The Heritage Foundation Townhall Trump United States WWE Hall of Fame Tue, 28 Feb 2017 01:46:00 +0000 Tyler Durden 589063 at http://www.zerohedge.com China Accounts For Half Of All Global Debt Created Since 2005: Here Are The Implications http://www.zerohedge.com/news/2017-02-27/half-all-global-debt-created-2005-was-china-here-are-implications <p>Over three years ago, in November 2013, when the world&#39;s attention was still largely focused on what the &quot;Big 4&quot; central banks would do with QE and/or interest rates, we wrote an article <a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/11/China%20banks%20teaser_1.jpg">showing in one simple</a> chart&nbsp; &quot;<a href="http://www.zerohedge.com/news/2013-11-26/chart-day-how-five-short-years-breakneck-liquification-china-humiliated-worlds-centr">How In Five Short Years, China Humiliated The World&#39;s Central Banks</a>&quot;, and noted that in just the brief period since the financial crisis &quot;<em>Chinese bank assets (and by implication liabilities) have grown by an astounding $15 trillion, bringing the total to over $24 trillion. In other words, China has expanded its financial balance sheet by 50% more than the assets of all global central banks combined.&quot;</em></p> <p>Fast forward to today, when not only is China&#39;s debt the biggest wildcard for the stability of the global financial system (recall last week <a href="http://www.zerohedge.com/news/2017-02-22/ubs-calls-itthe-global-credit-impulse-suddenly-collapsed-negative">UBS observated </a>that for the first time in years, the global credit impulse had tumbled to negative largely as a result of a slowdown in Chinese credit creation), but even central banks openly admit that China&#39;s relentless debt-issuance spree is a major risk factor for global financial stability. One such bank is the NY Fed, which earlier today issued a report titled &quot;<a href="http://libertystreeteconomics.newyorkfed.org/2017/02/chinas-continuing-credit-boom.html"><strong>China&rsquo;s Continuing Credit Boom</strong></a>&quot;, which while containing nothing that regular readers don&#39;t already know, provides a handy snapshot of the full extent of China&#39;s debt problems.</p> <p><em>Here are some of the higlights:</em></p> <ul> <li>Debt in China has increased dramatically in recent years, <strong>accounting for roughly one-half of all new credit created globally since 2005</strong>.</li> <li><strong>The country&rsquo;s share of total global credit is nearly 25&nbsp;percent, up from 5&nbsp;percent ten years ago</strong>. By some measures (as documented below), China&rsquo;s credit boom has reached the point where countries typically encounter financial stress, which could <a href="http://www.imf.org/%7E/media/files/publications/spillovernotes/spillovernote7.ashx" target="“_blank”">spill over</a> to international markets given the size of the Chinese economy.</li> </ul> <ul> <li><strong>Nonfinancial debt in China has increased from roughly $3 trillion at the end of 2005 to nearly $22 trillion</strong>, while banking system assets have increased sixfold over the same period <strong>to over 300 percent of GDP. </strong></li> <li><strong>In 2016 alone, credit outstanding increased by more than $3 trillion, with the pace of growth still roughly twice that of nominal GDP</strong>. As a result, the &ldquo;<a href="http://www.bis.org/statistics/c_gaps.htm" target="“_blank”">credit-to-GDP gap</a>&rdquo;&mdash;<strong>the difference between the debt-to-GDP ratio and its long-run trend&mdash;has reached almost 30 percentage points</strong>. The <a href="http://www.bis.org/publ/work421.htm" target="“_blank”">international experience</a> suggests that such a rapid buildup is often followed by stress in domestic banking systems. Roughly <a href="https://www.imf.org/external/pubs/ft/sdn/2012/sdn1206.pdf" target="“_blank”">one-third of boom cases end up in financial crises</a> and another third precede extended periods of below-trend economic growth.</li> </ul> <p><strong><span class="ts-blog-rcol-head">Drivers of China&rsquo;s Credit Growth</span></strong></p> <p>As seen in the chart below, rising nonfinancial sector debt was driven initially by a surge in corporate borrowing in response to the global financial crisis. This additional debt was comprised mostly of medium- and long-term corporate loans related to infrastructure and property projects.</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/02/08/6a01348793456c970c01bb097c8c41970d-500wi.jpg" style="width: 460px; height: 438px;" /></p> <p><strong>Shadow Banking</strong></p> <p>The chart below shows that while bank lending is the largest component of China&rsquo;s credit boom, nontraditional or &ldquo;shadow&rdquo; credit has also grown rapidly. Nonbanks, often in cooperation with banks, have <a href="https://www.brookings.edu/wp-content/uploads/2016/06/shadow_banking_china_elliott_kroeber_yu.pdf" target="“_blank”">found ways around authorities&rsquo; efforts to restrict lending to certain sectors</a> (such as real estate and industries with excess capacity like steel and cement) following the initial surge in credit in 2009. This shadow credit (in the form of trust loans, entrusted lending, and undiscounted bankers&rsquo; acceptances) is included in official data and accounts for about 15 percent of total credit&mdash;31 percent of GDP&mdash;compared with 5 percent ten years ago. Authorities have slowed the growth in reported shadow lending since 2013 through macroprudential measures, <a href="http://www.fsb.org/wp-content/uploads/China-peer-review-report.pdf" target="“_blank”">although this may have caused credit to migrate to other lending channels</a>.</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/02/08/6a01348793456c970c01b7c8d9b1cc970b-500wi.jpg" style="width: 460px; height: 337px;" /></p> <p>More recently, rapid mortgage lending has been a key driver of credit growth, with residential mortgage loans increasing by 35 percent year over year at the end of December 2016. Mortgages account for roughly 18&nbsp;percent of bank loans in China (compared to 30 percent in South Korea, 23 percent in Japan, and 25 percent in the United States). The pace of mortgage lending appears likely to slow going forward as Chinese authorities <a href="https://www.ft.com/content/73ee3eb0-c592-11e6-8f29-9445cac8966f" target="“_blank”">tighten macroprudential policy on property-related lending</a>.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/09/05/china%20mortgage%20loans.jpg"><img height="311" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/09/05/china%20mortgage%20loans_0.jpg" width="462" /></a></p> <p>The increasing complexity of China&rsquo;s financial system has made it difficult to estimate the true level and growth rate of credit. Official data put nonfinancial debt at roughly 205 percent of GDP. However, adjustments for <a href="http://www.scmp.com/business/money/money-news/article/1995453/chinas-shadow-banking-system-now-78pc-gdp-and-growing-says" target="“_blank”">additional sources of credit not fully captured in the official data</a> suggest total credit could be higher. As shown in the chart below, the pace of total credit growth is higher when swaps of local government-related bank loans for municipal bonds are included. China&rsquo;s credit measure excludes swapped bank loans but does not add back the municipal bonds they were exchanged for.</p> <p><strong><span class="ts-blog-rcol-head">A Nation of Banking Behemoths, Especially The Small Ones</span></strong></p> <p>Chinese banks have become global behemoths. The country is home to four of the five largest banks in the world by asset size. Yet, China&rsquo;s credit expansion has been driven by relatively small banks, which have been growing their total assets at two to three times the pace of the largest commercial banks.</p> <p>Joint stock commercial banks (JSBs), city commercial banks (CCBs), and other smaller-scale institutions have increasingly used less stable funding sources to finance their balance sheet expansion, primarily by tapping the interbank market and issuing wealth management products (WMP), as seen in the chart below. WMPs are predominantly short-term investment products sold by banks and nonbank financial institutions that provide investors with higher rates of return than bank deposit rates. WMPs can have a range of underlying assets, including bonds, money market funds, and even a limited amount of bank loans. <strong>Official data on banks&rsquo; WMPs show an almost sixfold increase since 2011, to the equivalent of about $4&nbsp;trillion or 37 percent of GDP. </strong>The growing reliance of Chinese banks on this type of funding has increased concerns over potential shocks to market-based funding, a risk highlighted by the International Monetary Fund in its<a href="http://www.imf.org/external/pubs/ft/gfsr/2016/02/pdf/text.pdf" target="“_blank”"> October 2016 Global Financial Stability Report</a>.</p> <p><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/02/08/6a01348793456c970c01bb097c8bbc970d-500wi.jpg" style="width: 460px; height: 494px;" /></p> <p><strong>Credit Offers Less Boost to Growth</strong></p> <p>An interesting development is that credit appears to be providing less of a boost to Chinese GDP growth than it used to. <strong>As shown in the chart below, the credit impulse&mdash;the change in the flow of new credit as a percentage of GDP&mdash;appears to be providing less bang to output for each additional yuan of credit</strong>, underscoring questions over how much lending is going to <a href="http://english.gov.cn/news/top_news/2016/05/22/content_281475354775531.htm" target="“_blank”">unproductive &ldquo;zombie&rdquo; companies</a>. Improving credit efficiency going forward will require reforms, such as hardening budget constraints at state-owned enterprises and local governments, reducing implicit and explicit guarantees in the financial system, and slowing aggressive balance sheet growth at smaller financial institutions.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/02/08/6a01348793456c970c01bb097c8bbc970d-500wi.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/02/08/6a01348793456c970c01b8d263bfa6970c-500wi.jpg" style="width: 460px; height: 404px;" /></a></p> <p>That&#39;s the bad news.&nbsp; Below are the four features which offset some of the concerns laid out above:</p> <p>Despite its vulnerabilities, China&rsquo;s financial system has several features that reduce the associated risks.</p> <ul> <li>Unlike many emerging-market credit booms that have ended in busts, China&rsquo;s credit growth has been funded primarily by high domestic saving, of which bank deposits are the vast majority.</li> <li>Chinese authorities have ample liquidity tools, including high required reserve ratios, the ability to extend short-term liquidity via an array of facilities, and a financial sector dominated by state-owned lenders and borrowers.</li> <li>By some measures, the Chinese financial system has a smaller <a href="http://www.fsb.org/wp-content/uploads/global-shadow-banking-monitoring-report-2015.pdf" target="“_blank”">nonbank segment than its counterparts in advanced economies do</a>.</li> <li>China has substantial fiscal resources to address losses in its financial system and among troubled state-owned debtors. According to IMF projections, China&rsquo;s total government gross debt (including off-balance-sheet borrowing implicitly guaranteed by the state) <a href="https://www.imf.org/external/pubs/ft/scr/2016/cr16270.pdf" target="“_blank”">was around 60 percent of GDP at the end of 2016</a>&mdash;lower than the level seen in most advanced economies. The government&rsquo;s balance sheet is further bolstered by sizeable, albeit declining, foreign exchange reserves.</li> </ul> <p>For now, the positive factors still are able to outweigh the negative, but it&#39;s only a matter of time before this changes. As we wrote last week, &quot;<a href="http://www.zerohedge.com/news/2017-02-20/people-are-suddenly-very-worried-about-china">People Are Suddenly Worried About China (Again</a>)&quot; and none more so than Goldman. Now that the ex-Goldman partner run NY Fed has also warned about the risk of a Chinese credit crisis, it suddenly feels that the positive will not be able to outweigh the negative for much longer.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="460" height="249" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/china%20bank%20teaser.jpg?1488245737" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/half-all-global-debt-created-2005-was-china-here-are-implications#comments Bank Business Central Banks China Chinese financial system Credit Crisis Debt Economics Economy Economy of the United States Finance Finance in China Financial crisis of 2007–2008 Great Recession International Monetary Fund International Monetary Fund Japan Macroprudential regulation Money Mortgage Loans Nominal GDP None NY Fed Real estate Shadow Banking Shadow banking system Stock market crashes Systemic risk Yuan Tue, 28 Feb 2017 01:37:48 +0000 Tyler Durden 589088 at http://www.zerohedge.com New Rules Force Banks To Charge For Research; Hedge Funds Push Back: "We Won't Pay For Crap" http://www.zerohedge.com/news/2017-02-27/30-euro-research-analysts-chopping-block-hedge-funds-refuse-pay-crap <p>What if we were to tell you that for the <strong>bargain basement price of just $10,000 per hour you could buy yourself the privilege of a 1-hour conversation with an equity research analyst from a top-notch investment bank</strong>, would that be something that might interest you?</p> <p>While we hate to be overly pessimistic, we're gonna go out a limb and guess that most of you answered in the negative to our question posed above.&nbsp; Unfortunately, at least for a bunch of research analysts in Europe who either (i) actually believe their time is a bargain at $10k per hour and/or (ii) simply require that much to justify their existence to their employers, that is exactly what investment banks in Europe are proposing to their buyside clients.</p> <p>As the <a href="https://www.ft.com/content/3cc2e2e6-fab8-11e6-bd4e-68d53499ed71">Financial Times</a> points out, European investment banks are locked in a heated negotiation with their buyside clients at the moment over exactly how much they should be able to charge for equity research services.&nbsp; <strong>The discussion has been prompted by a new regulation, known as Mifid II,</strong> which will go into effect in 2018 and require i-banks to break out the pricing of equity research charged to buyside clients, which up until now had been provided 'free of charge' but effectively covered by trading commissions.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The tense discussions over how much analyst research is worth have intensified since the start of the year as the investment industry readies itself for the introduction of new European rules, known as Mifid II, in 2018.</p> <p>&nbsp;</p> <p><strong>The rules will force fund companies to explain clearly to investors how much of their money is spent on research. </strong>Previously research was sent to fund managers for free in return for the business asset managers provided to banks and brokerages when they placed trades. The cost of the research was included in the price of trading. </p> </blockquote> <p>Unfortunately, there seems to be a pretty wide bid/ask spread between what research analysts think their services are worth and what their buyside clients are willing to pay.&nbsp; In fact, a<a href="http://www.reuters.com/article/us-eu-banks-research-idUSKBN1661A6"> recent survey</a> of fund managers by consultancy Quinlan &amp; Associates found that <strong>analyst headcounts at banks would have to fall by 30% by 2020 in order to eliminate all of the costs that funds simply wouldn't be willing to absorb</strong> (a.k.a. the "crap" as one fund manager put it).&nbsp; </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“The figures are all over the place at the moment. <strong>Some [quotes] are fair and reasonable, and [with others] we thought: there is no way we are paying that — they will have to recalibrate their business models or part ways with us altogether.”</strong></p> <p>&nbsp;</p> <p>“This is the biggest problem,” he said. “It will cause a lot of problems in 2018 because no one has worked out how much the research is worth.</p> <p>&nbsp;</p> <p><strong>“There will be a lot of c**p that clients won’t pay for and that is when the big cuts [to the analyst workforce] at the global banks will come.</strong> The feedback from many [in asset management] is that the price of research is too high and not granular enough.”</p> </blockquote> <p><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/02/27/2017.02.27%20-%20ER%201_0.JPG" alt="ER" width="600" height="329" /></p> <p>&nbsp;</p> <p>Meanwhile, with banks looking to charge each client $300,000 - $500,000 per year for their equity research alone, it's the small asset management funds that will be shut out of the market.&nbsp; </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>The head of a boutique fund company, which has a yearly research budget of £1.1m, said brokers were now asking for $300,000 for an annual subscription to their research. </strong>“As a global house covering emerging and global markets, you might need a dozen brokers. That’s a huge bill,” he said.</p> <p>&nbsp;</p> <p><strong>“For smaller managers this is a big problem. They just don’t have the scale to put a cheque of that size through.</strong> We had one broker say it might be $500,000 [to access their research annually], but that’s a nonsense starting negotiation position.”</p> <p>&nbsp;</p> <p>Brijesh Malkan, a former Legal &amp; General fund manager and senior consultant at BCA Research, an independent research provider, said <strong>some of his clients have been asked to pay up to $10,000 for phone calls with top bank analysts.</strong></p> <p>&nbsp;</p> <p><strong>Banks have also requested a $30,000 annual fee to provide an individual with access to their research platforms, and up to $10m to provide a fund company with the same level of access across its workforce,</strong> according to Mr Malkan, who has more than 2,200 fund management clients. </p> </blockquote> <p>But, while equity research analysts may like to think their time is invaluable, real life comps would seem to paint a slightly different picture with <a href="https://www.clsa.com/clsa-announces-changes-us-equity-broking-business/">CLSA just announcing</a> today they will be shutting down their U.S. equity research efforts <strong>"driven by declining revenue."</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Today, CLSA Americas CEO Rick Gould announced changes to CLSA’s equities platform in the US. Going forward, <strong>CLSA will pivot its US domestic equity broking business to focus on execution services and trading.</strong></p> <p>&nbsp;</p> <p><strong>Driven by declining revenues in equity research </strong>and increasing investor demand for low-touch, best-execution strategies the changes announced today will impact US domestic research, sales, trading, corporate access and associated support staff.</p> <p>&nbsp;</p> <p>CLSA Americas will continue to offer its current full suite of execution and trading services, including sector trading, ADR trading, portfolio trading, electronic execution and commission management to provide clients with best execution globally.</p> <p>&nbsp;</p> <p>CLSA Americas has one of the largest Asia-sales teams of any brokerage operating in the United States and will continue to offer Asian research and global execution services to US clients. Asia sales and Asia trading teams located in the US will not be impacted.</p> <p>&nbsp;</p> <p>Since 2009, CLSA Americas has built an outstanding equity research platform with some of the best analysts on the street. Our focus has always been to provide US and global investors differentiated insights on US stocks. <strong>While we succeeded in this regard, the economics of providing US equity research have become increasingly challenged. Our focus now, is to continue to provide our clients access to liquidity and best execution.</strong></p> </blockquote> <p>Of course, at least to us, this all seems like an awful lot of money to spend to have the same people give you the same advice over and over again, namely <strong>"buy more stocks, faster."&nbsp; </strong>There, we just summarized 90% of all equity research that will ever be written for the rest of history in 4 simple words and completely free of charge.&nbsp; You're welcome.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="683" height="375" alt="" src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017.02.27%20-%20ER%201.JPG?1488228417" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/30-euro-research-analysts-chopping-block-hedge-funds-refuse-pay-crap#comments Bank BCA Research Business CLSA CRAP Economy Finance Financial analyst Financial services Investment banking Investment management Markets in Financial Instruments Directive Money RSRCHXchange Securities research Technology UBS Tue, 28 Feb 2017 01:10:00 +0000 Tyler Durden 589076 at http://www.zerohedge.com Friendly Dinosaur Warren Buffett Thinks WSJ And NYT Have "Assured Future" Thanks To Digital Subscription Models http://www.zerohedge.com/news/2017-02-27/friendly-dinosaur-warren-buffett-thinks-wsj-and-nyt-have-assured-future-thanks-digit <p><img src="https://ibankcoin.com/zeropointnow/files/2017/02/dino.jpg" width="400" height="300" style="margin-right: auto; margin-left: auto; display: block;" /></p> <p>I&nbsp;know Warren Buffet is hallowed ground for some of you, but the Oracle from Omaha just cobbled together the weakest investment thesis since Yahoo! bought Broadcast.com, making Mark Cuban the luckiest son of a bitch on the face of the planet -&nbsp;even if he does <a href="https://ibankcoin.com/zeropointnow/files/2017/02/mav1.png" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">consistently</span></span></a>&nbsp;pick <a href="https://ibankcoin.com/zeropointnow/files/2017/02/losingteam.png" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">losing teams</span></span></a>.</p> <p>Get this - Buffet, who's never&nbsp;sent a Tweet,&nbsp;thinks that Rupert Murdoch's Wall St. Jounal&nbsp;(of recent&nbsp;<a href="http://ibankcoin.com/zeropointnow/2017/02/16/disney-google-wsj-attack-on-pewdiepie-backfiring-spectacularly-generation-z-now-woke/" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">failed PewDiePie hit-job</span></span></a> fame) and Carlos Slim's New York Times (of generally failing fame)&nbsp;are going to be the only two publications with an "assured future" thanks to their robust online models. Jeff Bezos' Washington Post (of government&nbsp;mouthpiece fame) gets an honorable mention.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>There are only two papers in the United States that I think have an assured future because they have a successful internet model to go with their print model, and that's the Journal and the New York Times. They have developed an online presence that people will pay for.</p> <p>&nbsp;</p> <p>Now the third that may do it, again going back to Bezos, is the Washington Post - and he's improved dramatically their situation online, so it's conceivable that their math works.</p> </blockquote> <p><img src="https://ibankcoin.com/zeropointnow/files/2017/02/1dxet4.jpg" width="430" height="242" style="margin-right: auto; margin-left: auto; display: block;" class="aligncenter wp-image-6359" /></p> <p>Sorry Warren -&nbsp;faith in the MSM&nbsp;is completely broken,&nbsp;and people are increasingly migrating&nbsp;to sites like ZeroHedge and iBankCoin to avoid corporate-globalist propaganda. Plus, anything in the WSJ / NYT is available from about a dozen sources for free.</p> <p><a href="https://ibankcoin.com/zeropointnow/files/2017/02/lets-look2.png" target="_blank"><img src="https://ibankcoin.com/zeropointnow/files/2017/02/lets-look2.png" width="921" height="684" style="margin-right: auto; margin-left: auto; display: block;" class="aligncenter wp-image-6579" /></a></p> <p>Now let's take a look at how WSJ and WaPo are actually doing in terms of internet traffic&nbsp;- the cornerstone of Warren's rad thesis -&nbsp;especially since iBankCoin's "<a href="http://ibankcoin.com/zeropointnow/2017/02/09/fake-newsflow-are-the-ny-times-guardian-and-wapo-buying-clicks-china-jumps-from-trickle-to-half-of-all-traffic-in-two-months/" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">clickgate</span></span></a>" article&nbsp;showed how&nbsp;mystery internet traffic from China as measured by Alexa.com (which shares an owner with the Washington Post) appeared to be synthetically inflating their rankings.&nbsp;Interestingly, the Chinese traffic&nbsp;has suddenly&nbsp;disappeared from the Alexa metrics, painting a dramatically different picture of&nbsp;NYT and WaPo's&nbsp;penetration in the digital space.</p> <p><a href="https://ibankcoin.com/zeropointnow/files/2017/02/assuredfutures.png" target="_blank"><img src="https://ibankcoin.com/zeropointnow/files/2017/02/assuredfutures.png" width="831" height="856" style="margin-right: auto; margin-left: auto; display: block;" class="aligncenter size-full wp-image-6573" /></a></p> <p>Sorry Warren - these media outlets all suck, they're being <a href="http://www.zerohedge.com/news/2017-02-26/ny-times-every-time-trump-tweets-it-drives-our-subscriptions-wildly" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">exposed for sucking</span></span></a>, and you're on the wrong side of the trade.</p> <p>Something about the NYT having to lease 8 floors of their headquarters, push Twitter ads advertising 40% off digital subscriptions, and their earnings over the last several years tells me they <a href="https://ibankcoin.com/flyblog/2017/02/12/suggesting-nyt-isnt-dying-in-spite-of-digital-subscription-growth-is-fake-news/" target="_blank">aren't doing so hot</a>&nbsp;(price indicated from 2/12/17):&nbsp;</p> <p><img src="http://ibankcoin.com/flyblog/files/2017/02/NYT3.png" width="800" height="460" style="display: block; margin-left: auto; margin-right: auto;" /><br /><span style="font-size: 13.008px;">Of hilarious note, Squawk Box's Becky Quick asked Buffet about "assholes" at the end of the interview!</span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #0000ff;">Becky</span>: So, how often do you think "that guy's an asshole" but not tell him</p> <p>&nbsp;</p> <p><span style="color: #0000ff;">Buffet</span>: Well I've certainly thought that over the years, but it hasn't all&nbsp;been guys either!</p> </blockquote> <p>Warren gets a few bonus points for handling that like a boss - even if he does&nbsp;need to fire whichever ivy league MBA told him digital subscriptions work.</p> <div class="wpview wpview-wrap"><iframe src="https://www.youtube.com/embed/zY6-UGc0Cz4?feature=oembed" width="618" height="348" frameborder="0"></iframe><span class="mce-shim">&nbsp;</span><span class="wpview-end">&nbsp;</span></div> http://www.zerohedge.com/news/2017-02-27/friendly-dinosaur-warren-buffett-thinks-wsj-and-nyt-have-assured-future-thanks-digit#comments Becky Quick Blue Origin Broadcast.com Buffet Business China Economy Jeff Bezos New York Times Personal life PewDiePie Science and technology in the United States Tau Beta Pi The Wall Street Journal Twitter Twitter WAPO Warren Buffett World Wide Web YouTube Tue, 28 Feb 2017 01:08:59 +0000 ZeroPointNow 589087 at http://www.zerohedge.com So Who's Pumping Up This "New Normal" Housing Market? http://www.zerohedge.com/news/2017-02-27/so-whos-pumping-new-normal-housing-market <p><a href="http://wolfstreet.com/2017/02/23/whos-driving-this-new-normal-housing-market/"><em>Via Wolf Richter of WolfStreet.com,</em></a></p> <h3><span style="text-decoration: underline;"><strong>America becomes &ldquo;Landlord Land.&rdquo;</strong></span></h3> <p>&ldquo;A housing recovery that is highly dependent on real estate investors is a bit of a double-edged sword,&rdquo; explained Daren Blomquist, senior VP at ATTOM Data Solutions. &ldquo;Rapidly rising home values have been good for homeowner equity, but also have caused an affordability crunch for the first-time homebuyers the housing market typically relies on for sustained, long-term growth.&rdquo;</p> <p><em><strong>So the housing market is &ldquo;starkly different than a decade ago,&rdquo; </strong></em>said Alex Villacorta, VP of research and analytics at Clear Capital. &ldquo;As such, it&rsquo;s imperative for all market participants to understand the nuances of the New Normal Real Estate Market.&rdquo;</p> <p>They were both <a href="http://www.realtytrac.com/news/company-news/analyzing-the-who-behind-recent-real-estate-boom" target="_blank">commenting on a joint white paper</a>&nbsp;by ATTOM and Clear Capital, titled &ldquo;Landlord Land,&rdquo; that analyzes who is behind the US housing boom that drove home prices to new all-time highs, and in many markets far beyond the prior crazy bubble highs &ndash; even as homeownership has plunged and remains near its 50-year low.</p> <p>First-time buyers are the crux to a healthy housing market, but they aren&rsquo;t buying with enough enthusiasm. In 2012, buyers with FHA-insured mortgages &ndash; &ldquo;who are typically first-time homebuyers with a low down payment,&rdquo; according to the report &ndash; accounted for 25% of all home purchases. In 2013, their share dropped to about 20%, in 2014 to 18%. Then hope began rising, briefly:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>However, in January 2015, FHA lowered its insurance premium 50 basis points, and there was a modest resurgence in FHA buyers &ndash; a trend perhaps indicative of loosening credit requirements or of a desire to re-enter the housing market for those displaced during the crash.</p> </blockquote> <p>Their share of home purchases ticked up to 22.3%. Alas, &ldquo;the FHA resurgence was short lived&rdquo; and in&nbsp;2016 eased down to 21.7%.</p> <p><em><strong>With first-time buyers twiddling their thumbs, who then is buying? Who is driving this housing market?</strong></em></p> <p><u><strong>Institutional investors?</strong></u> Defined as those that buy at least 10 properties a year, they include the largest buy-to-rent Wall Street landlords, some with over 40,000 single-family homes, who&rsquo;ve &ldquo;picked up the low-hanging fruit of distressed properties available at a discount between 2009 and 2013,&rdquo; as the report put it. That was during the foreclosure crisis, when they bought these properties from banks.</p> <p>In Q3, 2010, institutional investors bought 7% of all homes. In Q1 2013, their share reached 9.5%. As home prices soared, fewer foreclosures were taking place. By 2014, when home prices reached levels where the large-scale buy-to-rent scheme with its heavy expense structure wasn&rsquo;t working so well anymore, these large buyers began to pull back. In 2016, the share of institutional investors dropped to just 2% of all home sales.</p> <p><strong>But as institutional investors stepped back, <u>smaller investors</u> jumped into the fray in large numbers, &ldquo;willing to purchase in a wider variety of market landscapes and operate on thinner margins.&rdquo;</strong></p> <p>To approximate total investor purchases of homes, the report looks at the share of purchases where the home is afterwards occupied by non-owner residents. In 2009, according to this metric, 28% of all home purchases were investor-owned properties. In 2010, it rose to 30%. In 2011, 32%. Then as big investors pulled out, it fell back to 30%. But by 2015, small investors arrived in large numbers, and by 2016, investor purchases jumped to 37%, an all-time high in the ATTOM data series going back 21 years.</p> <p>The chart shows the share of purchases in a given year. <em><strong>Note the declining share of first-time buyers (blue line), the declining share of institutional investors (gray bars), and the surging share of smaller investors (green line).</strong></em> In other words, smaller investors are now driving this housing boom:</p> <p><img class="alignnone size-full wp-image-30802" src="http://wolfstreet.com/wp-content/uploads/2017/02/us-home-buyers-by-category.png" style="width: 500px; height: 442px;" /></p> <p>The pie chart below shows the share of properties owned by investor size. Among investors in today&rsquo;s housing market, <strong>small landlords that own one or two properties own in aggregate the largest slice of the rental housing pie &ndash; 79%:</strong></p> <p><img class="alignnone size-full wp-image-30803" src="http://wolfstreet.com/wp-content/uploads/2017/02/US-landlords-by-number-of-properties.png" style="width: 500px; height: 591px;" /></p> <p>However, <strong>Wall Street landlords are concentrated in just a few urban areas.</strong> For example, Invitation Homes, the 2012 buy-to-rent creature of private-equity firm Blackstone, which owns over 48,000 single-family homes and has nearly unlimited financial resources, <a href="http://wolfstreet.com/2017/01/24/us-government-fannie-mae-guarantees-rental-home-mortgage-backed-securities-blackstone-invitation-homes-win/" target="_blank">including government guarantees on some of its debt</a>, is concentrated in just 12 urban areas, where it has had an outsized impact.</p> <p><strong>Whereas small investors own properties across the entire country</strong>, in urban and rural areas, in cheap markets and ludicrously expensive markets. They own condos, detached houses, duplexes, and smaller multi-unit buildings.</p> <p><strong>So when the industry tells us about low inventories and strong demand in the housing market, it&rsquo;s good to remember where a record 37% of that demand in 2016 came from: investors, most of them smaller investors. </strong>And when the financial equation no longer works for them, they&rsquo;ll pull back, just like institutional investors have already done.</p> <p><strong>In what are now deemed the most expensive multifamily rental markets in the world &ndash; San Francisco and New York City &ndash; the commercial property bubble is already deflating. </strong><em>Read&hellip;&nbsp; <a href="http://wolfstreet.com/2017/02/16/sell-now-multifamily-rentals-san-francisco-new-york-city-most-expensive-markets-in-the-world/">Here are the Top &ldquo;Sell Markets&rdquo; in an Overpriced World as &ldquo;the Apartment Cycle Draws Closer and Closer to the End&rdquo;</a></em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="496" height="362" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170227_housing.jpg?1488230910" /> </div> </div> </div> http://www.zerohedge.com/news/2017-02-27/so-whos-pumping-new-normal-housing-market#comments Business Causes of the United States housing bubble Economic bubble Economy Finance Financial crises Foreclosures Housing Market Institutional Investors Loans Money Mortgage industry of the United States Mortgage loan New Normal New York City Real estate Real estate Real estate bubble Real estate economics recovery Tue, 28 Feb 2017 00:45:00 +0000 Tyler Durden 589073 at http://www.zerohedge.com