Wells Fargo

Goldman confirms precisely what we’ve been saying all along which is that the risks inherent in subprime lending are materializing and at the margin, growth in US auto sales has all been created by lowering credit standards and extending terms to a whole load of 'new' auto buyers.

On a daily basis individuals jump into the financial markets with their "savings" in the hope of a thrilling ride. However, very much like skiing, inevitably you are going to take a tumble. Importantly, that "tumble" generally occurs when one becomes overly confident in their abilities and pushes the "risk" just beyond their inherent capabilities to react quickly enough. The result has tended to not be a pretty one. As we discussed earlier this week, there are many signs that suggest the current market environment has begun to push the outer boundaries of the "risk" curve. While this doesn't mean that the markets are about to "crash," it does suggest that individuals with a lesser skill set may want to be a bit more cautious.

Both sides held a gun to the nation’s head. The gun backfired.

Last week, Buffett moved the goalposts.  If money were what really matters, Warren Buffett would have no peer. He has had unparalleled success in this world; surely he has a first-class ticket to the next. And if his good fortune were of his own making, what would he have to fear? But what if fortune, which smiled on him so broadly for so many years, begins to frown?

"Three big private equity firms — the Blackstone Group, Colony Capital and Cerberus Capital Management — are betting that so-called landlord loans to small and midsize investors will become the next big opportunity to profit from the rebound in the United States housing market. The private equity firms are providing financing indirectly to hundreds of real estate funds buying single-family homes, something that until recently was not widely available."

The deterioration in the subprime auto market is perhaps the clearest sign yet that we have learned literally nothing from the crisis years. That is, this is precisely the same dynamic and it will end precisely the same way: defaults will rise, investors in assets backed by these loans will suffer outsized losses, and the assets themselves will become completely illiquid.

• Hilsenrath: Fed Ushering in New Era of Uncertainty on Rates (WSJ)
• Is Supreme Court's chief justice ready to take down ObamaCare? (The Hill)
• Netanyahu arrives in U.S., signs of easing of tensions over Iran speech (Reuters)
• Nemtsov Murder Fuels Suspicion, Fails to Spur Russia Selloff (BBG)
• ECB uncomfortable with leading role in Greek funding drama (Reuters)
• Video shows Los Angeles police shooting homeless man dead (Reuters)
• Iraq Military Begins Campaign to Reclaim Tikrit (WSJ)
• How Billionaires in London Use Secret Luxury Homes to Hide Assets (BBG)

The day the Buffet "value-investing" fanatics have been looking forward to all year, almost as much as the annual pilgrimage to Omaha, has finally arrived - hours ago Warren Buffett released his historic, 50th annual letter to shareholders, which is extra special because as the Oracle notes in the foreword, "Fifty years ago, today’s management took charge at Berkshire. For this Golden Anniversary, Warren Buffett and Charlie Munger each wrote his views of what has happened at Berkshire during the past 50 years and what each expects during the next 50."

• Central Banks With Negative Rates Spur Question of How Low to Go (BBG)
• DHS to keep running: Congress edges toward domestic security funding patch (Reuters)
• Setbacks for Tsipras Stir Discord in Greek Ruling Party (BBG)
• Greece’s Challenge: Appeasing Its Creditors and Its Population (WSJ)
• Buffett, a cheerleader for America, takes his checkbook abroad (Reuters)
• Oil’s Big Swings Are the New Normal: Market has rarely been more volatile (WSJ)
• Ukraine Left Behind as Russian Stock Gains Are Unmatched (BBG)
• Brent rises to $61, set for first monthly gain since July (Reuters)

• Goldman Employees Reaped $2 Billion From 2008 Options Last Year (BBG)
• On Bush turf, Obama blames immigration woes on Republicans (Reuters)
• Tougher Internet rules to hit cable, telecoms companies (Reuters)
• Russia's Gazprom says can exempt rebel-held areas from Ukraine gas contract (Reuters)
• Allianz Says Pimco Seeing ‘Substantially’ Lower Outflows (BBG)
• Merkel Faces Stepped-Up Dissent on Greek Bailout in Party (BBG)
• SEC Probes Companies’ Treatment of Whistleblowers (WSJ)
• 2-Year Trek From Turf to Table Delays Cheaper U.S. Beef (BBG)
• Turkish jets violate Greek air space (Kathimerini)

Janet Yellen is very alarmed that some members of Congress want to conduct a comprehensive audit of the Federal Reserve for the first time since it was created. During testimony this week, she made “central bank independence” sound like it was the holy grail. Even though every other government function is debated politically in this country, Janet Yellen insists that what the Federal Reserve does is “too important” to be influenced by the American people. Does any other government agency ever dare to make that claim? If the Fed is doing everything correctly, why should Yellen be alarmed? What does she have to hide?

• Yellen faces Senate grilling on Fed rate policy, transparency (Reuters)
• Big Banks Face Scrutiny Over Pricing of Metals (WSJ)
• Greece makes more concessions to euro zone, Germany sets vote (Reuters)
• Time for another executive order: Longer Lives Hit Companies With Pension Plans Hard (WSJ)
• The Syria invasion "false flag" approaches: Islamic State in Syria abducts at least 90 from Christian villages (Reuters)
• Why Lenders Love the $2.5 Million Home Loan (BBG)
• Reuters journalist Maria Golovnina dies in Pakistan aged 34 (Reuters)
• Qatar’s Ties to Militants Strain Alliance (WSJ)

"... should interest rates rise later this year, some households and corporations may find themselves overleveraged as interest rates and borrowing costs rise. When looking at interest rate sensitivity by loan product, we see that auto loans rates are the most sensitive to changes in the fed funds target rate. In addition, we can see that for each one-percentage point rise in the fed funds rate, the interest rate on a 48-month new car loan rises 0.61 percentage points."

With historically low long-term interest rates, the opportunity cost of holding gold and silver are close to zero or even negative, in other words you would “lose” money if you buy bonds (the benchmark) instead of gold and silver. When people realize that their money is not “safe” with the banks they will start withdrawing cash from their accounts and buy physical gold and silver instead. Depending on circumstances this could possibly bring down the (fractional) banking system. Why keep money in an account that gives you a negative return? Swiss banks are already witnessing stronger than normal interest for physical gold.

• Greece to submit loan request to euro zone, Germany resists (Reuters)
• Ukrainian forces start to quit besieged town (Reuters)
• Bank of Japan maintains policy, no surprises (FT)
• China Considering Mergers Among Its Big State Oil Companies (WSJ)
• Soros Shifts to Europe, Asia as Investors Cut U.S. Equities (BBG)
• Putin tells Kiev to let troops surrender as Ukraine ceasefire unravels (Reuters)
• Venezuela Squanders Its Oil Wealth (BBG)
• Swiss prosecutor raids HSBC office, opens criminal inquiry (Reuters)