March 13, 2016

When Wall Street Is Backing Main Street

A weekend topic around three articles. Bloomberg, “One of the reasons the American economy is performing better than any of the largest in Asia and Europe is that its regulators have repaired the damage of the financial crisis and the worst recession since the Great Depression. Led by the Federal Reserve, they replaced incentives for reckless speculation with catalysts for old-fashioned credit creation backed by levels of capital that are unprecedented in modern times. Banks today are most willing to lend money since at least 1990. Perhaps the best measure of restored confidence in the financial system is the 63 percent of Americans who are within 7 percentage points of the all-time-high valuation of their homes in 2006.”

“Home mortgages now total $9.95 trillion after bottoming in 2014 after the recession. That amount is comparable to the easy-credit days of 2006, before the financial crisis. Today, in contrast, the mortgage market shows no signs of the leveraged lending that precipitated the housing bust and, if anything, is poised to keep growing.”

“The average home price, up 30 percent since 2012, reflects an increasingly robust outlook for housing, according to data compiled by Bloomberg. U.S. homeowner equity now amounts to 93 percent of the 2006 peak, which means Americans from coast to coast and North to South can look forward to recovering value lost from their homes when the market collapsed during the recession, Bloomberg data show.”

“Warren Buffett, whose Berkshire Hathaway has increased its holdings of Wells Fargo, Visa and U.S. Bancorp the past several years, recently told his shareholders that they should ignore much of what they’re hearing from presidential candidates. ‘As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do,’ Buffett wrote. ‘That view is dead wrong: The babies being born in America today are the luckiest crop in history.’”

“Buffett should know. It can only happen when Wall Street is backing Main Street.”

The Wall Street Journal. “The Federal Reserve has been trying to prevent deflation, writes George Melloan, but the federal government has been ‘engineering its cause, excessive debt.’ And it’s not just our government. Global debt of all types has soared above 300% of GDP, notes Mr. Melloan.”

“Near-zero interest rates not only enabled government spending but also ‘encouraged consumers and business to releverage. Cars are now financed with low or no-interest five-year loans. With the 2008 housing debacle forgotten, easier mortgage terms have made a comeback. Corporations also couldn’t let cheap money go to waste, so they have piled up debts to buy back their own stock. Such ‘investment’ produces no economic growth, but it has to be paid back nonetheless.’”

From Business Insider. “With stocks rallying in recent days, the more bullish voices in the market seem to be gaining confidence. But Nomura’s Bob Janjuah, a strategist and noted perma-bear, thinks that the recent uptick is only a brief bounce along the market’s prolonged descent. While the reasons for the coming downturn are plentiful, in Janjuah’s opinion, central bankers have played a particularly notable role for setting up the decline.”

“‘We are entering an extremely worrying time and we have got here even faster that I had feared – a place where monetary policy and central banks become the problem and not the cure,’ Janjuah wrote. ‘The Fed is in a hole of its own making by using self-serving metrics to fix a debt and asset bubble crisis with a policy that relies on more debt and even bigger asset bubbles.’”

Bits Bucket for March 13, 2016

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