The Housing Bubble

How’d that tranch thingy work out for the banksters circa 2008?

Fool me once, shame on — shame on you. Fool me — you can’t get fooled again.

– George W. Bush

Ooooops, the link I posted for the Off Balance Sheet Transaction was actually a second one AMH did with Goldman Sachs. The first one - the one that is reflected on the latest reporting quarter - was done in May.

Go here for a peek: http://biz.yahoo.com/e/140528/amh8-k.html

So, apparently this is how AMH intends to make its money - or some of it at least - and that’s by selling off potential rental income to Goldman, and Goldman, in turn, will most likely pass these, er, investments to suckers, er, investors.

Combo, excellent work. Great post. Thanks.

My hometown. Nobody can afford to live here. If I post this on my pasadena facebook page they might call me a racist so i won’t post!

Nice post Combo…I am still working my way through the comments…Some are frightening and others are friggen hilarious…

With that said, this same thing seems to be happening in many area’s of our country and others…Question is; Is it a long term trend….

Unfortunately our culture is dead. The best revenge is to rent because 1) renting is far cheaper and 2) the money you save by renting can flow into other assets that will go up far more than those values of your beloved Pasedena area.

I’ve got something to say to these “Chinese investors”:

You and your dirty money are not welcome in my neighborhood, my town, my state, my country. That’s just my opinion of course, but I stand by it. I don’t want your dirty money chasing our families out of neighborhoods, towns, etc., so you can avoid your government as they chase after your ill-gotten gains. Rant off.

http://www.bloomberg.com/news/2014-10-14/dryships-seeks-bank-loan-as-700-million-debt-comes-due.html

The whole market is a pump and dump scheme.

Forbes Asia 9/25/2014 @ 1:59AM 2,267 views
Warning! Watch Out For A China Tech Bubble Burst
Nina Xiang, Contributor
I’m the editor at China Money Network

Tech investments in China are dangerously hot. They will cool down soon. Companies should buckle-up for a bumpy downhill ride.

These are the key messages from an internal letter written by veteran Chinese venture capitalist, Matrix Partners China‘s co-founder David Zhang, and sent to dozens of CEOs at Matrix’s portfolio companies two days ago.

“Several hours ago, my colleagues just signed papers for our 45th investment deal this year, and we are only at the end of the third quarter! I think it’s time to send you a letter,” writes Zhang, soberly.

The letter, which has been floating around Chinese social networks over the past couple of days, continues:

“If you paid any attention during the past nine months, you perhaps have felt the incredible heat of tech venture deals. Financing rounds are breaking records again and again, valuation and IPOs are becoming red hot.”

According to data tracker Dealogic, there are 107 venture investments in China’s technology sector with aggregate deal value of $4.66 billion year-to-date 2014, already surpassing the 98 deals with a total value of $4.45 billion for the whole year of 2013.

If the current pace continues for another three months, 2014 could break the previous tech venture investment record set in 2011, when 113 deals with total value of $5.05 billion were registered for the year.

Zhang, founding managing partner of the $1 billion-under-management Matrix Partners China and previously managing director at China-focused venture firm WI Harper, cautions that a greedy market can abruptly pivot to a fearful one.

Matrix Partners China, established in 2008 as an affiliate of U.S. venture firm Matrix Partners, have invested in over 190 companies in China.

Based on daily conversations with the firm’s portfolio companies, Zhang says he is sensitive to market changes. But he can’t say if a downturn will come in the next 12 months, later, or sooner.

But one thing he is sure: the Chinese technology market will cool down, eventually.

The market is simply too hot right now, Zhang writes. Several major venture firms in China, including Matrix, have so far this year made double the number of investments they made for the whole year of 2013.
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Major China VC to startups: raise funds now, a cooldown is imminent
September 25, 2014
at 4:15 pm
by Paul Bischoff

In an open letter addressed to his portfolio companies, Matrix Partners China co-founder David Zhang warned that an investment cooldown is imminent in the country. The letter was published earlier this week and has since gone viral on Chinese social media.

This year, a flood of venture capital hit Chinese startups, and that wave is still swelling. But Zhang says startups shouldn’t get comfortable, because this sort of growth is unsustainable. He advised those thinking about raising funds to do so immediately and worry less about their valuations. Those who have recently received investment should use it sparingly.

Matrix Partners China has invested in 190 companies in China, and recently made its 45th funding deal this year. The cumulative value of venture capital investments in China’s tech sector has already surpassed the total value for all of 2013. 2011 holds the record, but it looks like this year will set a new high. Late stage investments in China have most recently been spurred by Alibaba’s record-breaking IPO.

The word “bubble” is tossed around in his letter on a few occasions, citing that the S&P 500 has risen beyond where it when the 2008 financial crisis hit, but still below where the 2000 tech bubble burst. Zhang did not give a definitive timeline for when the downturn might occur, saying it could be either less or more than 12 months from now, but prepare for a dry spell in 2015.

Zhang quotes Bill Gurley from Silicon Valley’s Benchmark Capital VC:

No one’s fearful, everyone’s greedy, and it will eventually end.

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Wong downplays China buyer housing fears
Date
October 19, 2014 - 12:31PM

Labor has described as “overblown” fears that Chinese investors are pushing up property prices and locking first home buyers out of the market.

A parliamentary committee is examining overseas investment in residential real estate, as Liberal chairwoman Kelly O’Dwyer complains the Foreign Investment Review Board is not enforcing restrictions.

But Labor trade spokeswoman Penny Wong said debate over housing affordability needed to deal with facts “and not with people’s fears”.

“I think there’s some overblown anecdotes about the effect of Chinese or foreign investment on property prices,” she told Sky News.
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“It doesn’t seem to me …. that’s the primary issue driving housing affordability.”
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Opinion
Op-Ed Contributors
China’s housing market rescue still risky business
Yi Xianrong
2014-10-17
16:20 (GMT+8)
Residential apartments in Shijiazhuang, Hebei province, July 30. (Photo/Xinhua)

The relaxed mortgage rules announced on Oct. 1 indicate the Chinese government’s intention to rescue the property market by luring speculators back.

The measures, including the introduction of favorable mortgage deals and taxation, are aimed at reducing the inventory level of housing units and facilitating a soft landing for the housing market, even though it is generally agreed that China’s housing market is unsustainable, given the huge bubble that has formed.

In fact, a university’s recently established research project on how to resolve the record housing bubble shows that Chinese authorities have reached a consensus on the seriousness of the problem.

Chinese banks have not expressed great interest in following the new mortgage rules and have yet to begin lending money to home buyers on more favorable terms, since so few of them have announced details regarding the introduction of mortgage deals under the new rules.

This is the result of mortgages having fallen out of favor with banks, and smaller banks having totally abandoned this part of their business due to higher risks and diminishing margins.

The recent media hype about the securitization of mortgages to introduce funds of up to 10 trillion Chinese yuan (US$1.63 trillion) in the market is not true, since the securitization already began in China a decade ago, yet the legal framework created little profit and thus never caught the banks’ interest.

The future direction of the housing market will be determined by whether expectations in the market take an upward turn or not.

The uncertainties in the market will only mean that it will become increasingly difficult for speculators to obtain cheap liquidity, as banks will see little change in interest rates and leverage, despite the relaxed rules.

Even if the housing market sees an uptick in interest, the rebound is likely to be short lived, as speculators are likely to quickly lock in their profits and cash out.

On the other hand, if expectations remain pessimistic, China’s housing market will face a steep correction, with home buyers taking on mortgages under the new relaxed rules and then becoming trapped in the deals after the housing bubble bursts.
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Economy Oct 18, 2014
Why the next global recession will be made in China
By Vivek Kaul
The Great Wall of China. Image: Flickr/Creative Commons

A Central Intelligence Agency (CIA) paper on China is titled The Art of China Watching. In this paper, the author Gail Solin concedes that “[t]he art of China-watching is imprecise at best…. The explanation, or blame, for this often frustratingly lies mainly with the way the Chinese conduct their affairs. To say the Chinese have a penchant for secrecy is almost an understatement.”

This CIA paper was written sometime in the 1970s. Things haven’t changed nearly four decades later. China-watching is still imprecise at best. Or, as one China-watcher put it in May 2013 “It’s a big black box, and it’s quite scary.”

The Chinese property sector is not in the best shape. Home prices fell by 9.3% between April and June 2014, in comparison to the same period last year. Further, data from the National Bureau of Statistics shows that in August 2014 home prices fell in 68 out of the 70 major cities.

This is a worrying trend given that a substantial part of the China growth story is built on the belief that the real estate prices will only go up. Analyst Wei Yao of Societe Generale explained the situation the best in a recent research note titled China: easing mortgages will not make the pain go away, where she said that there was a “strong belief in ever-rising property prices” and that “has been a major incentive for [people] to make investments in this illiquid asset class.”

Once people give up on this belief, they will stop buying property, which in turn will have massive economic consequences. As Yao puts it “Whether there will be a harsh correction in real estate investment or a mild one, the property price developments in the next two quarters will be the key.”

Nevertheless, the data that has come in up until now, isn’t looking too good. As mentioned earlier housing prices fell by 9.3% between April and June 2014. The situation deteriorated further during July 2014, when the sales fell by 16.3%. This has been the deepest contraction in home sales since late 2008, when the current financial crisis started.
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Financial Times
Life & Arts
October 19, 2014 4:01 am
China’s developers park bulldozers in slack market
Josh Noble in Hong Kong
A collage of a pig, solar panels, and a woman holding a smartphone©AFP/Getty

China’s hard-pressed property developers are responding to a housing market downturn by parking their bulldozers and turning to a variety of new businesses ranging from hog farming to solar panels to online shopping.

Their search for fresh ideas mirrors Beijing’s efforts to pivot the Chinese economy away from investment- and construction-led growth towards consumer spending and services.

The ultimate aim for developers, says Wee Liat Lee at BNP Paribas, is to “build an ecosystem” that can generate sustainable revenue.

“The business model will revolve around a single person – the resident. He becomes the client for the next 10 years,” said Mr Lee. “The relationship between developer and homebuyer will become very long-lasting.”

China’s large, primarily state-owned property developers were among the main beneficiaries of the government’s stimulus largesse, unleashed in 2009 in response to the global financial crisis. The building boom that followed coincided with a house price surge that delivered real estate companies high growth rates, chunky profit margins, and a flood of cash.

But with house prices and transactions now falling across much of China, developers are experimenting to find new ways to generate steady income, turning them into farmers, retailers and landlords.
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‘What are the chances the next global recession will emanate from China?’

Well, they are one of the smartest countries in the room, so what could go wrong? /s

How Tough Is The Mortgage Market? Even Bernanke Can’t Get Refinanced
by Krishnadev Calamur
October 03, 201410:45 AM ET
Ben Bernanke stepped down as the chairman of the Federal Reserve in January. He told an audience in Chicago on Thursday that he has had trouble refinancing his home.
Susan Walsh/AP

Banks have made it tougher for people to get mortgages after the Great Recession. Just how hard is it? Former Fed Chairman Ben Bernanke told an audience in Chicago Thursday that he was unable to refinance his home loan.

“Just between the two of us,” he told moderator Mark Zandi of Moody Analytics, “I recently tried to refinance my mortgage and I was unsuccessful in doing so.”

The audience at a conference of the National Investment Center for Seniors Housing and Care laughed, prompting Bernanke to add: “I’m not making that up.”

The comments were reported by Bloomberg.

The former Fed chairman added that “it’s entirely possible” lenders “may have gone a little bit too far on mortgage credit conditions.”
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October 09, 2014, 04:00 pm
Why you and Ben Bernanke can’t get a mortgage
By Andre F. Shashaty

If you are one of the millions of Americans with a good household income and reasonably good credit who cannot get a mortgage to buy a home, I have bad news: The lawyers, lobbyists and politicians in Washington, DC have no intention of making a mortgage loan available to you or even Ben Bernanke anytime soon. The former Fed Chair recently said he got turned down in an attempt to refinance his mortgage.

Don’t blame the bankers, though. It is your government and your elected officials who stand between you and your dream house.

It’s been exactly six years since former Fed Chair Alan Greenspan described the housing crisis and the collapse of the mortgage finance systems as a “once in a century credit tsunami.”

While the storm may have passed, the damage remains.

After being taken over by the federal government, the American mortgage finance system still hasn’t been fixed, and it may not be for several more years.

No one argues that mortgage lenders should be left to their own devices. But respected leaders are now saying that Washington has swung from reckless disregard of what lenders were doing to extreme micromanagement of the lending process.

The result is a major shortage of home mortgage loans, especially for people of color and at lower income levels. That in turn has kept unemployment stubbornly high as home sales and new home construction have remained sluggish. Earlier this year, the Mortgage Bankers Association said that its index measuring the availability of mortgage credit had declined by 75 percent from the pre-bubble level of 2004.

After the foreclosure crisis, the federal government became the conservator of Fannie Mae and Freddie Mac, which provide liquidity to the lenders who make mortgage loans. The first day of the conservatorship was Sept. 8, 2008, marking the peak of a disaster that left millions of Americans with homes that were worth less than their mortgages or worse, with no homes at all.

You could read dozens of books about the complexities of what’s going on in Washington, but it boils down to two basic and stubborn problems.

The first is uncertainty about the future of Fannie Mae and Freddie Mac. A full six years after they were taken over by the government, there’s no way to tell when they will be replaced, restructured or restored to private ownership. This puts a drag on the supply of mortgage credit, particularly for the minorities and low- and moderate-income folks who benefited most from Fannie Mae and Freddie Mac programs.
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Wonkblog
How mortgage rates affect car purchases, credit card debt and jobs
By Dina El Boghdady
October 9, 2014

Back when interest rates plummeted, homeowners with adjustable-rate mortgages ended up saving $150 per month on average, which dramatically reduced their chances of falling behind on their loans.

But that’s not all. The savings also led to more automobile purchases among those borrowers, less credit card debt, and more jobs in their communities, according to researchers at the University of Chicago, Columbia Business School and Fannie Mae.

This goes to show that the Federal Reserve policy that pushed mortgage rates lower all those years ago helped stimulate consumer spending and rev up the economy, just as the Fed had hoped, the researchers said in a working paper for the National Bureau of Economic Research.

The conclusions came after tracking the payment history on 400,000 adjustable rate mortgages and other types of debt owed by the borrowers who took out those mortgages — including credit card and auto loan debt.

The mortgages had a fixed rate for five years and then adjusted every year thereafter. All of them were issued between January 2003 and July 2007, so they started to reset at a time when interest rates hit historic lows as a result of steps taken by the Fed.

Late into the 2008 financial crisis, the Fed began buying a sizeable chunk of Treasury bonds and mortgage-backed securities. The purchases immediately pushed down interest rates. When the Fed conducted two more rounds of purchases, rates fell even more. Today, they remain low by historical standards.

That’s why the borrowers whose rates adjusted since the Fed policy took effect saw their monthly mortgage payments decline. As a result, their default rates dropped by 40 percent compared to another group of homeowners with similar characteristics whose loans were not adjusting at that time, the study concluded.

With more cash in their pockets, these borrowers felt more confident buying a car. Their chances of purchasing one increased significantly – by 10 percent in relative terms – two years after the rates were reduced.

Those who had high credit card balances used more than 70 percent of the money saved to pay down those debts the first year after their rates reset. The behavior was rational considering that the average rate on a credit card was roughly five times higher than the rate on a mortgage at the time. Whittling down the credit card debt helped people improve their overall credit standing – and certainly helped the credit card companies, the study said.

But it did not generate much consumer spending among those borrowers, said Tomasz Piskorski, one of the study’s authors and an associate professor at Columbia Business School. “That’s one impediment of this policy,” Piskorski said. “If the goal is to stimulate household spending, policy makers might consider tackling the cost of the credit card debt.”
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A wide array of REIC constituents stand to benefit from loosening credit standards.

Hey, no problem, the wealthy Chinese will buy everything up.

http://www.zerohedge.com/news/2014-10-18/welcome-arcadia-%E2%80%93-california-suburb-where-rich-chinese-stash-cash-mcmansions

Heh, if the CDC says it isn’t, it most definitely is. And this is polio, pure and simple. A little more of it and people will sit up and take notice.

Interesting to notice that so far, more have died in the US from this than ebola.

Relax, people. Our best and brightest have this whole Ebola situation well in hand.

http://www.zerohedge.com/news/2014-10-19/after-golfing-obama-holds-late-ebola-meeting-guess-who-missed-it-again

Given the pressure to act and apparent urgency to calm the public over the Ebola pandemic, it is likely no surprise to hear that President Obama decided to play a quick round of golf (for 5 hours) Saturday morning before arranging a late evening meeting convening “members of his national security and public health teams to update him on the response to the domestic Ebola cases,” according to The Daily News. “The meeting concluded with a discussion of broader steps to increase the preparedness of our health sector nationwide,” which one would imagine the newly appointed Ebola Czar would be directing - think again!

Pumpkin Fest?

Financial Times
October 17, 2014 6:41 pm
Equities rally on hints of lower rates for longer
Ralph Atkins and Chris Giles in London and Vivianne Rodrigues in New York
TRADERS MONITOR SCREENS AT CREDIT SUISSE FIRST BOSTON BANK IN LONDON…A trader monitors his screens on the trading floor at the Credit Suisse First Boston bank in London March 13, 2001. Britain’s FTSE 100 share index put a brake on early losses by mid-morning today but was still pinned down at levels not seen for two years after an overnight sell-off on Wall Street. REUTERS/Kieran Doherty©Reuters

Global equities rallied strongly on Friday, encouraged by hints that US and UK monetary policy tightening could be delayed and capping a turbulent week in financial markets that saw dramatic swings in bond yields.

The FTSE All World index jumped 1.4 per cent by late afternoon in London, but the rises failed to wipe out overall losses for the week. Eurozone stocks closed up 3 per cent – their biggest one-day gain in more than two years – while the US S&P 500 closed 1.3 per cent higher.

The turnround closed a volatile week where investors rushed into safe assets such as US Treasuries and German Bunds on fears of slower global growth, renewed eurozone political tensions and worries about US quantitative easing ending this month.

The ferocity of market moves appears to have alarmed policy makers, with Andy Haldane, the Bank of England’s chief economist, saying on Friday that he favoured delayed interest rate rises. He said evidence of a weaker global economy, lower inflation pressures and low wage growth had forced him to reassess the UK economic outlook.

His comments followed those by James Bullard of the St Louis Fed on Thursday, who said the US Federal Reserve should carry on with its asset purchases in October, instead of halting them as scheduled.

The round of central bankers’ supportive comments “smells of a co-ordinated attack to help boost declining sentiment”, said Adrian Miller, director of fixed-income strategy at GMP Securities. “Markets need to check into the Betty Ford Center and go into rehab, to wean themselves off this addiction to central bank support. If that means more volatility and lower prices in some asset classes, so be it.”
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Epic fail.

Financial Times
October 17, 2014 6:39 pm
Markets: Into uncharted waters
By John Authers
After the volatility, investors face the hard reality that stocks and bonds still look expensive
Pedestrians using their mobile phone are reflected in an electronic board displaying the graph of the recent fluctuations of the Tokyo Stock Exchange Stock Price Index (TOPIX) outside a brokerage in Tokyo October 17, 2014. Asian stocks clawed back some of this week’s losses on Friday after a solid set of U.S. data calmed turbulence in global financial markets, though underlying worries about slowing world economic growth kept investors on edge. REUTERS/Yuya Shino (JAPAN - Tags: BUSINESS)©Reuters

After a week in which global markets experienced the most severe volatility in more than two years, a phenomenon that investors have been trying hard to ignore came into sharp focus. Even after a bout of frantic selling, nothing looked cheap – bonds and stocks were still historically expensive. But there were few other safe places to park their money, with cash yielding virtually nothing.

Investors who have enjoyed impressive returns in recent years are confronting a difficult new period. All year, the US Federal Reserve has been winding down the loose monetary policies that helped fuel the market rallies. As the process nears its end, volatility that had been restrained for several years has returned with a vengeance. And there are few compelling narratives that investors can use to guide them as they try to decide where to put their money.

Surveying this landscape, it appears they are choosing the least bad option and pumping money back into expensive stocks, as they did yesterday. Some investors worry that this is could soon become a problem.

Jeremy Grantham, founder of GMO, the asset manager in Boston, has predicted that rising dealmaking would “push the market up to true bubble levels, where it will once again become very dangerous indeed”. Yet in its latest long-term forecast, released this week, GMO says that returns from cash, US bonds and US stocks during the next seven years will be lower than inflation.

Bearish long-term forecasts are well founded. With yields so low, government bonds are very unattractive. Long-term valuation measures show that US stocks are badly overpriced, even if they are not in a bubble.

By one widely used metric, prices of stocks in the S&P 500 are only slightly below their peak in 2007 before the financial crisis – and higher than the peak in 1966 before the long bear market of the 1970s.

Normally a dose of market volatility and a purgative sell-off will ease such problems and create some bargains. But this sell-off has yet to run its course. To understand why, look at the drivers of the return to volatility.

Pivotal was the US Treasury market, where an epic move by hedge funds into bonds twice brought the 10-year yield, regarded as the risk-free rate for many transactions, below 2 per cent.

This made many market experts look bad. As the year began, the Federal Reserve had announced the beginning of its programme to taper off its purchases of government and mortgage-backed bonds, known as quantitative easing. These purchases were intended to stimulate the US economy by keeping bond yields low. Removing the stimulus, as the Fed did steadily throughout the year, was expected to raise yields.

US government bonds

No fewer than 97 per cent of economists surveyed by Bloomberg in January expected interest rates as set by the bond market to rise over the next six months. By April, this figure rose to 100 per cent. Instead, the yields fell steadily all year – until this week, when the fall turned into a rout. Many investors were caught betting the wrong way and had to abandon bets that had already lost them a lot of money.
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Financial Times
Editorial
October 17, 2014 5:53 pm
The sound and the fury in global markets
The turmoil is a reminder of the importance of fighting deflation

This was a week to remember in the markets, a week when many traders will be itching to retreat to their country piles with a book and box of aspirin. Global markets have been hectic. Yields on government paper plunged and soared well outside their normal range. The price of oil tested multi-year lows. A measure of volatility known as the “fear index” reached levels double those seen in the summer.

Market movements seldom tell neat stories, but those seeking some bleak justification for this turmoil do not have to look hard. Seldom has the international mood been so febrile. Autumn headlines have been dominated by civil war in the Middle East, the ugly standoff in Ukraine and a cascading epidemic in west Africa. The reaction of the west to these challenges has been both disunited and flat-footed, its confidence sapped by the failure of past ventures.
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Nor are silver linings hard to discern. One can be found in the plummeting price of oil, which delivers a boost to energy importers such as India and Japan. While spendthrift oil exporters and the US shale industry may struggle, cheaper fuel also provides a windfall to millions of US consumers.

The other positive is the quick reaction from central bankers to the market alarm. James Bullard and Andrew Haldane, who vote on interest rate in the US and UK respectively, have spoken of their concern about increasing downside risks to growth. Their hints that interest rate rises have been pushed into the future met with a bullish reaction. For all the controversy about how quantitative easing works, markets clearly understand that monetary policy still matters.

On this subject it would be unwise to question the market view. This week has been about macroeconomic concerns. The big worry is that aggregate demand may fail to keep up with potential supply, thereby generating a perilous deflationary dynamic. Fighting deflation is a job central bankers can do – so long as they remain alert.

This week the gloomsters harked back to the economic collapse that started in the summer of 2008. Such talk is premature, but lessons from that disaster are still relevant. Six years ago, the markets’ warnings of an impending global recession were met with hawkish noises from many central banks, and even a rate rise from the European Central Bank. This time so far has been different. For that, if nothing else, there are reasons to be modestly cheerful.

Financial Times
October 17, 2014 10:36 pm
When risky stuff hits trouble, all asset classes get involved

Tony Jackson
Switch round in equity and bond yields since 2008 tells story, says Tony Jackson

Much has been written about the immediate reasons for this week’s upheaval in world markets. Quite right too: but I would rather look at some of the underlying causes. These help explain not only why such an upset was to be expected but why it seems bound to recur.

Begin with the dominant fact that the economies of the western world have been slowing down for years, arguably since well before the crash of 2008. That has prompted the official response – not only to slash interest rates but to flood the world with cash.

The inevitable result of that is a rising risk of asset bubbles and instability in the financial system. Hence the final piece of the puzzle – an attempt by regulators to control that risk by clamping down on parts of the system, the banks in particular.

But that only moves the risk around. Squeeze the toothpaste tube here, and it bulges there.

Each of these factors is worth teasing out a little. Secular stagnation, a long period of slow to zero economic growth, is a term dating back to 1930s America. As a prediction, it was proved wrong then, though it took a world war to do it, and it may prove wrong again.

Nevertheless, the markets implicitly believe in it. This can be simply demonstrated by comparing the yield on bonds versus equities.

For half a century up to the 2008 crash, equity yields in the developed world, Japan latterly excepted, were lower than the yield on ostensibly safer government bonds. This was mainly because investors expected growth in corporate profits and cash flows to more than offset equities’ greater risk.

That has dramatically changed, in every western economy with the partial exception of the US. For a stark example take Switzerland, where in early 2007, that is, just before alarm bells started ringing, 10 year government bonds yielded 2.5 per cent and the Swiss equity market 1.7 per cent. Today’s figures are 0.4 per cent and 3.4 per cent respectively.

UK equities and bond yields

Next, consider the effects of loose monetary policy, which has pushed real interest rates below zero and steadied government bond markets by huge purchases. The first has created a hunger for yield, the second a disregard for risk.

The latter is partly due to the low volatility created by government intervention in the markets. According to the International Monetary Fund, volatility across asset classes globally was recently at a 15 year low – which, as it happens, takes us back to the eve of the dotcom crash.
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History has not dealt kindly with the aftermath of protracted periods of low risk premiums.

– Alan Greenspan

Stock Market Lookahead
Nightmare on Wall Street: Is it over?
By Matt Egan @mattmegan
October 19, 2014: 9:19 AM ET

NEW YORK (CNNMoney)
For a stock market that’s effortlessly climbed higher for years, the past month has felt like something ripped out of a Hollywood horror film.

Frightening plot twists like plunging oil prices and the Ebola outbreak teamed up with ghosts from the past (Greece, deflation jitters in Europe) to create a toxic mix of market scares.

Last week even featured a few quasi-heroes like strong quarterly report cards from corporate giants like General Electric (GE) and Morgan Stanley (MS) and the Federal Reserve official who calmed the panic by suggesting additional stimulus could be possible if the economy deteriorates.

When the dust finally settled, the Dow was left in a 1% hole for the year. The S&P 500 is up about 2% in 2014, but well off its all-time high.

So what’s going to determine whether this week is another scary ride or something far more tame?

Sure, investors will continue paying attention to what’s kept them awake at night like Ebola and Europe. But they’ll also get the chance to hear from a massive parade of companies expected to reveal decent quarterly numbers, including Amazon.com (AMZN, Tech30), Apple (AAPL, Tech30), Coca-Cola (KO), General Motors (GM) and McDonald’s (MCD).

Related: Time to shop ’til you drop for cheap stocks
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“One focus is the spread of “political smears, astroturfing, misinformation…

“While the vast majority of memes arise in a perfectly organic manner, driven by the complex mechanisms of life on the Web, some are engineered by the shady machinery of high-profile congressional campaigns,” the university explained.”

I would very much like to see this studied. Who wouldn’t? Other than those involved in it, of course.

Let’s find the troll lairs, and expose them to a little sunlight.

You need to buy a farm or a ranch. Disengage and urban living don’t go together. What is the endgame?

Personally I take offense to certain politicians and media, mostly on the right side of the aisle, who whip up panic and fear about Ebola for political gain. The “gotcha” politics on both sides is corrosive to the nation.

Regarding the Ebola Czar, it was the GOP in Congress that demanded a czar be appointed and, as is typical, Obama caved in.

This is a perfect example of the daily fraud involving realtors, inspectors and appraisers in the housing business. The resale housing business is a den of criminality, fraud and ethical and business misconduct.

I will say this is nothing new. It’s so common that it’s considered business as usual. This is the problem. Talk to the players involved in this and they act as though it’s no problem.

SUGUY, what’s E*I, please?

Hillary would be the monkey. AIPAC, Wall Street, and Goldman Sachs would be the organ grinder. Same as it ever was.

Do you mean the San Francisco 49ers about to crater in Denver 10 minutes from now?

You are a racist

Social Justice Warriors™ will decide what you’re allowed to think

Forward

More political Kabuki, eh?

+1 Whew!

Markets More: Stock Market David Rosenberg
ROSENBERG: I’ve Been Through A Lot Of Crises, But Nothing Was Like October 19, 1987
Myles Udland
Oct. 19, 2014, 8:56 AM
Monday is the third Monday in October, marking the anniversary of “Black Monday,” the day of the 1987 stock market crash that saw the Dow fall more than 22%, its worst day in history.

It was sheer panic on Wall Street.

David Rosenberg, now chief strategist at Gluskin Sheff, told Barry Ritholtz on his Masters in Business radio program back in September that “Black Monday” is the scariest thing he’s seen in his time on Wall Street.

“I’ve been through the savings & loan crisis, I’ve been through what happened in 1994, the tech wreck, I was there on Wall Street between New Century Financial, and Bear Stearns, and Lehman, and AIG, but I’ll tell you something: the palpable fear, there was nothing like October 19, 1987,” Rosenberg said.

“People actually thought that the world was going to come to an end.”

Black Monday also happened to be Rosenberg’s first day on Wall Street.

On that Monday, Rosenberg joined the Bank of Nova Scotia as an economist after working for the Canada Housing and Mortgage Corporation, which Rosenberg said is like the Canadian equivalent of Fannie Mae.

“It was my first day on the trading floor, and it was pure pandemonium,” Rosenberg said. “If somebody had offered me a ticket back to my cushy civil servant job in Ottawa, I probably would’ve taken it.”
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I started working full time in the FIRE sector in Spring 1987. The Black Monday crash was quite an eye opener for me. My immediate boss’s comment, which turned out to be right on target, was, “Now is the time to buy.”

Another senior colleague (a female) seemed genuinely concerned that we might be entering another Great Depression. But Alan Greenspan avoided that outcome by “supplying liquidity” to the market in the wake of the Black Monday crash, a stock market bailout mechanism which later was popularly referred to as the Greenspan Put.

Financial Times
20 October 2014 8:13pm MARKETS
Loans to buy US shares at record levels
Previous peaks have come ahead of stock market downturns
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China central bank to inject $32.6 billion
Published: Oct 18, 2014 10:37 a.m. ET
By Lingling Wei

BEIJING–China’s central bank is planning to inject 200 billion yuan ($32.6 billion) into the banking system, according to financial executives briefed on the matter, as recent credit-easing measures have failed to push the world’s second-largest economy back to stronger growth rates amid deepening worries about a global slowdown.

The latest effort by the People’s Bank of China, which will offer funds to about 20 large national and regional banks, follows last month’s move to pump 500 billion yuan into the country’s five major state-owned banks. It comes as concerns mount in Beijing that the nation will miss its growth target–set at 7.5% this year–for the first time since the 1998 Asian financial crisis.

China’s move highlighted nervousness among officials around the world about slowing economic growth. Global financial markets broke into convulsions throughout the past week due to the economic unease and worries about whether policy makers would respond.

In the U.S. and Europe, major stock indexes faced sharp dives in the first half of the week before recovering some ground with sharp gains on Friday attributed in part to statements by officials at the European Central Bank and Federal Reserve that they stand ready to support their economies if needed.

China’s slowdown is among the key drivers of the latest round of global worries. Germany, the powerhouse of the eurozone whose fifth-largest export market is China, reported a drop in manufacturing.

Australia, whose economy expanded at a rate unmatched by other major rich nations on the back of exports to commodity-hungry China, is seeing its dollar tumble amid concerns that demand from the Asian giant is slumping.

Brazil, also heavily reliant on China, posted its biggest trade gap in five years last month and is struggling to pull itself out of a recession after growing at an average 3.7% in the last decade.

Oil prices this week tumbled to lows seen at the worst of the European debt crisis in 2011, reflecting underlying weakness in big buyers like China. That’s weighing on major oil producers such as Nigeria, Angola and Algeria that count on crude exports to finance their budgets.

“As China rebalances and moves to more service-sector growth rather than industrial growth, a lot of the commodity-exporting countries are suffering,” said Ryan Rutkowski, an economist at the Peterson Institute for International Economics.

China’s growth hit 7.4% in the first quarter, an 18-month-low, then rebounded to 7.5% in the second quarter, the same level as the year-earlier period. But it likely weakened again in the third quarter, to 7.4%, according to the median estimates of economists polled by The Wall Street Journal. Third-quarter data for gross domestic product are expected on Tuesday.
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China’s Town
The priciest homes, the best schools, the hottest handbags: From Newbury Street to the waterfront, big-money Chinese buyers are spending millions. Are we cashing in or selling out?
By Ben Schreckinger | Boston Magazine | October 2014
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Why is China being blamed for a rise in Australian real estate prices?
by Mark Benson on October 13, 2014

The impact of Chinese investment on an array of different markets around the world has caught the headlines of late with many suggesting the “flood” of Chinese investment is pushing markets away from the general public. One area which has received significant focus over the last few years is the Australian real estate sector and the countries blossoming relationship with China. However, while on the surface many are blaming Chinese investment for the “Australian real estate bubble” is this fair?

Before we begin to look at the details surrounding Chinese investment in the Australian real estate market it is worth noting that the Australian Foreign Investment Review Board (FIRB) is actually in charge of approving all foreign investment across Australia. So, what do the figures look like with regards to Australian real estate?

Is $16.6 billion a large investment in Australian real estate?
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Your cash is welcome
Here’s the trouble with letting Chinese investors buy their way into North America
A contractor’s sign stands outside a mansion currently under construction in a Vancouver neighbourhood popular with Chinese buyers September 9, 2014. Chinese investors’ global hunt for prime real estate is helping drive Vancouver home prices to record highs and the city, long among top destinations for wealthy mainland buyers, is feeling the bonanza’s unwelcome side-effects. The latest wave of Chinese money is flowing into luxury hot spots. But it has also started driving up housing costs elsewhere in a city which already ranks as North America’s least affordable urban market. Picture taken September 9.
Vancouver’s builders know who their customers are. (Reuters/Julie Gordon)
Written by Tim Fernholz@timfernholz
October 10, 2014

When money changes hands and the prize is a chance to live in a prosperous Western democracy, anything goes—a lesson that politicians in Canada and the US are learning this fall.

It’s possible to purchase residency or even citizenship in many countries around the world, and the US and Canada both have laws that give visas to foreigners with a certain net worth for investing in those countries—about $500,000 in the US and $715,000 in Canada. These programs have proven particularly popular with Chinese, who can afford the price, thanks to their own country’s impressive growth, but have an interest in seeking stability outside of China’s party-controlled political system.

But anytime a public good is essentially for sale, you can expect trouble.

Chinese investors are blowing up Vancouver’s real estate
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Chinese investment in NZ housing tipped to rise
5:00 AM Friday Oct 17, 2014
NZ house market will see more money once rules eased: economist

A BNZ-REINZ survey of real estate agents last year found residential property sales to foreigners accounted for 8 to 9 per cent of total sales. Photo / Peter Meecham A BNZ-REINZ survey of real estate agents last year found residential property sales to foreigners accounted for 8 to 9 per cent of total sales. Photo / Peter Meecham

China’s plans to ease the restrictions its citizens face when investing overseas will result in increased Chinese capital flowing into New Zealand’s property market and contribute to rising house prices, says an economist.

The world’s second-biggest economy still has a relatively closed financial system, with strict capital controls meaning the sprawling nation - which accounted for 10 per cent of global gross domestic product in 2011 - has a less than 3 per cent share of global holdings of assets and liabilities, according to a Bank of England report.

The People’s Bank of China, which wants to promote international use of the yuan currency, last week outlined a plan that will allow Chinese nationals to invest in overseas property and stocks through a Qualified Domestic Retail Investor Scheme.

No timing was provided for the scheme’s launch, nor any indication given of its size, Bloomberg reported.

But ANZ’s chief China economist, Li Gang Liu, told the Business Herald it was likely to be gradually phased in from later this year and ramped up during 2015.

Hong Kong-based Li Gang said the Chinese Government had been pushing its state-owned enterprises to go out into the world through investments and wanted to encourage its citizens to do the same.

“The overall trend has been that China would like to encourage more capital outflow,” he said.
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11:19 am HKT
Oct 17, 2014
Economy & Business
Chinese Real Estate Buyers Turn to Tokyo
A decling (SIC) yen is making Japanese property more appealing. Above, Tokyo Tower is shown in July.
Bloomberg News

Beijing and Tokyo may have territorial spats in the East China Sea, but economic ties are trumping politics. Chinese investors’ appetite for Japanese real estate is rising as the yen continues to sink. As the WSJ’s Wei Gu writes in this week’s People’s Money column:

So far this year, Chinese individuals and companies have bought almost $230 million in real estate, more than triple the amount from last year, according to data from Jones Lang LaSalle .
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The Japanese currency has fallen 25% against the yuan over the past five years, outstripping its 15% fall against the U.S. dollar in the same period. Chinese tourist arrivals in Japan hit a record high this year, partly due to the weak yen, spurring investment in vacation homes.

Rich Chinese are among the biggest foreign buyers in New York and Sydney. But other formerly popular investment destinations like Hong Kong and Singapore are becoming more costly due to taxes on nonresidents. In Hong Kong, Chinese buying is one reason real-estate prices have soared, causing social frictions with local residents.
…
While much of China’s investment is in retail and industrial projects, there has also been strong demand for private apartments. Since 2011, Chinese investors have bought some $84 million worth of apartments in Japan, Jones Lang LaSalle says.

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Don’t blame Chinese buyers for Australia’s real-estate boom
James Laurenceson

Last week I argued that blaming Chinese money for the worsening real estate affordability in Australia was off the mark (The property bubble myth that refuses to die 14 October 2014).

To recap: all foreign investment in the real estate sector requires approval from the Foreign Investment Review Board (FIRB). Drawing on FIRB data, research by the Reserve Bank of Australia (RBA) in June showed that over the past two decades the value of total foreign investment approvals in the real estate sector has fluctuated between just 5-10 per cent of total dwelling sales. The share rose to between 12-13 per cent in the first three quarters of 2013-14.

Chinese investment approvals are only a proportion of this. Since 2009, the Chinese share of total foreign investment approvals has been around 10 per cent. It’s likely higher right now but that’s hardly surprising coming from such a low base.

A potential limitation of this analysis is that FIRB data may under-estimate the true volume of foreign investment. This possibility has gained popularity since Kelly O’Dwyer, the Chair of the Inquiry into Foreign Investment in Residential Real Estate, cited anecdotal evidence that some foreign investors may be skirting the rules and not seeking FIRB approval before purchasing established homes. With few exceptions, the rules restrict them to buying new homes.

It was welcome news then when the National Australia Bank (NAB) released its third quarter 2014 residential property survey last week. A detailed discussion of the relative merits of FIRB data versus that from NAB can be put to one side for now. What is important is that the NAB data are compiled using a completely different methodology – a survey of 300 panellists with direct exposure to the sector such as real estate agents, investors, fund managers, and so on. In short, precisely the sort of respondent that some commentators view as being better informed of what is happening on the ground than FIRB.

One of the report’s findings was immediately trumpeted in the headlines – “One in six homes bought by foreigners”. So foreigners have been responsible for the sharp rise in Aussie house prices after all?

Not so fast.
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