April 15, 2015

The Third Episode Of The Global Financial Crisis

A housing bubble report from News day. “Take an evening stroll on either side of New York’s Central Park and you will notice how few lights are on in the newer apartment buildings. That’s because no one lives there. Across the globe, empty luxury apartments darken many of the most desirable cities—Miami; San Francisco; Vancouver, British Columbia; Honolulu; Hong Kong; Shanghai; Singapore; Dubai; Paris; Melbourne, Australia; and London. The reason: The world’s richest people are buying these grand residences not to live in but to store their wealth. In Paris, for instance, one apartment in four sits empty most of the time.”

“Some of these wealthy owners are looking for status, others a good investment. And for rich people in unstable countries, or those whose incomes depend on dubious businesses, holding real estate in foreign countries functions as private insurance. Some buyers use luxury housing to hide criminal proceeds, often acquiring their real estate through shell companies set up in jurisdictions from Wyoming to Panama to the Cayman Islands, which make it easy to conceal ownership.”

“Jane Kim, a San Francisco supervisor, said that in her downtown district ‘a lot of units are sold to international and out-of-town owners, so it is great in terms of property-tax revenues and paying into a general fund by people who do not make much use of municipal services. But it also means we are not filling the needs of people who want to live in the city, because they cannot compete’ for housing due to high prices for both owned and rented apartments, ‘even though they make good money.’”

From Bloomberg on the UK. “As housing crises in London go, it could be worse. Mayfair, the neighborhood favored by Middle East royalty and hedge fund managers, is facing a glut of multi million-pound residences. Thirty-six homes were sold in the area in the six months to the end of March, a 30 percent decline from a year earlier, according to property data provider Lonres. ‘With so many high-profile projects planned, all aimed at the world’s wealthiest, there’s is going to be no shortage of choice,’ said Alex Newall, founder of broker Hanover Private Office. ‘That’s going to put pressure on prices.’”

“‘There’s just too much planned and the market isn’t there,’ said Andrew Langton, chairman of luxury-property broker Aylesford International. ‘These developers may be caught with their trousers down.’”

The National on Dubai. “Dubai’s property market has shown more signs of a first quarter slowdown as new housing comes on stream at a time of slowing sentiment. Figures acquired from Reidin data, confirm a CBRE report last week which showed that average house prices in the city are falling for the first time since the 2008 global financial crisis wiped up to 60 per cent off property values. Some Dubai estate agents already report that they are asking sellers to drop their asking prices by as much as a fifth.”

“‘The first quarter of the year continued to see subdued activity in Dubai’s real estate market,’ said Craig Plumb, head of research at JLL’s Dubai office. ‘As Dubai’s residential market moves towards a period of correction, the next driving force is predicted to be end-users or middle-income earners, as opposed to speculative buyers.’”

This Day Live on Nigeria. “It is estimated that more than 1,000 buildings are vacant or abandoned in various cities in the country and rising. A drive around Ikoyi or Banana Island or Victoria or the Lekki-Ajah corridor, which are traditional areas where people stay for long years on the queue to get a roof over their heads, shows there are an alarming number of vacant buildings, both old and new. The same is applicable to Abuja where several properties in Asokoro, Maitama, Wuse, and Garki are lying empty.”

“In this period of economic crunch, real estate operators agree it is almost impossible to sell or rent vacant housing units and buildings across the country. ‘Those who usually buy property in bulk are not showing interest because the banks are after them to repay their old loans,’ says Ms. Bimpe Adedoyin.”

The Melbourne Leader in Australia. “Foreign investors have snapped up more than 70 per cent of development sites sold in inner Melbourne in the past few years, with most to be developed as high-rise apartments, a planning expert says. RMIT Environment and Planning Professor Michael Buxton said research showed foreign investment was about 13 per cent of turnover in the total Australian real estate market but was much higher in Melbourne.”

“And up to 60 to 80 per cent of the new inner-urban Melbourne apartment market was investor owned, made up of foreign and local investment, he said. Prof Buxton said in the 12 months to June 2013, almost $6 billion in Chinese investment was put into Australian commercial and residential property, the most investment from any foreign country. Other countries that were major buyers of Australian real estate included Canada, the US, Singapore and Malaysia. ‘Up to three-quarters or more of Melbourne CBD inner-urban brownfield land sales in recent years have been to foreign investors,’ Prof Buxton said.”

“Wesley Spencer, director of Rara Architecture, said building developments were often designed with the buyer in mind and not the occupier. He said Melbourne was forecasted to grow by a further 100,000 people by 2035. ‘Given that there are currently an estimated 65,000 vacant apartments within Docklands alone, and inner city development going strong, Melbourne will most certainly be set to saturate the real estate market in terms of supply and demand.’”

The Global Times on China. “China’s second-largest loan-guarantee enterprise has suspended its guarantee business due to a payment crisis, media reported over the weekend, a move which analysts said might have a negative effect on a number of the country’s financial institutions. Hebei Financing Investment Holding Group, which has been beset by financial problems for a long time, suspended all its guarantee business and was officially put under the control of Hebei Construction & Investment Group, the largest State-owned capital investment and operating enterprise in North China’s Hebei Province, news portal cnr.cn reported, citing unnamed sources.”

“The problem arose because a lot of small companies whose loans were backed by Hebei Financing had encountered financial problems and could not pay back their loans, Cao Xiao, a professor of finance at Shanghai University of Finance and Economics, told the Global Times. If Hebei Financing suspends its guarantee business, the 50 billion yuan’s worth of loans will face a risk of default and those financial institutions may suffer a loss, Cao said. ‘It may influence investor confidence toward those institutions, particularly the P2P lending firms which have already faced huge financial problems,’ Cao said.”

“According to news portal nandu.com’s report in December, about 50 P2P lending firms went bankrupt in 2014. The fluctuations in the financial system may continue at a time when China’s loan-guarantee enterprises are facing increased operational difficulties, Zhou Dewen, president of Small and Medium Enterprises Development Association in Wenzhou, told the Global Times. For instance, the number of loan-guarantee enterprises in Wenzhou, East China’s Zhejiang Province, shrunk from around 300 at the sector’s peak to about 30, according to Zhou.”

“Investors in Chinese junk bonds are taking the biggest gamble in at least a decade. Leverage for speculative-grade Chinese companies is at its highest since at least 2004, whether measured by earnings relative to interest expense or total debt to a measure of cash-flow, according to data compiled by Bloomberg using a Bank of America Merrill Lynch index. Borrowers have also piled on the most debt relative to their assets since 2007.”

“The deterioration in credit quality coincides with the slowest annual growth since 1990 for Asia’s biggest economy, and helps explain why Fitch Ratings Ltd. predicts defaults will climb. That’s bad timing for bond investors who swallowed a record $209.2 billion of Chinese-company notes denominated in either dollars, euros or yen last year, Bloomberg data show.”

“The typical high-yield company in China earned an average 2.7 times the interest they paid in 2014 and has about 35.5 times more debt than their yearly operating income, according to data compiled by Bloomberg using Bank of America Merrill Lynch index data. Average debt taken out by the 65 companies in the index climbed to 34.3 percent of assets.”

“‘When credit grows that fast, it’s normally a strong sign misallocations of capital have taken place,’ Sander Bus, the head of high-yield credits, and Victor Verberk, the head of investment-grade credits, at Dutch money manager Robeco Groep NV, wrote in an April 10 e-mail. ‘We wouldn’t be surprised if China, and some other emerging countries that face similar increases in debt, turns out to be the place of the third episode of the global financial crisis after the U.S. and Europe,’ they wrote.”




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91 Comments »

Comment by Ben Jones
2015-04-15 03:08:58

‘According to a statement from the U.S. Department of Homeland Security, it will simplify the repatriation process for Chinese fugitives and ensure regular charter flights that will return them to China.’

‘Considering that there is no extradition treaty between the two nations, China should welcome this news as a positive step on its countercorruption path.’

‘Figures regarding the actual number of Chinese fugitive officials and the wealth they have transferred offshore are unclear but without doubt, they are substantial.’

‘The top destinations for China’s runaway officials — the United States, Canada and Australia — have for a long time been favored by corrupt officials. In turn, many “naked” officials, those who have sent their families abroad, were encouraged by the success of those that had fled before them.’

‘However, the tables have turned, with the Sky Net countercorruption campaign seeing boosted cooperation between China and other countries on repatriation or investigation; soon there will be no safe havens for Chinese fugitive officials.’

‘The US statement stopped short of detailing the agreement, and many countries that have signed judicial cooperation agreements with China still require evidence of criminal activity or proof that assets were illegally gained.’

‘In another example, the rule of default judgement does not apply in China, which means the courts cannot pronounce suspects guilty in absentia. To help ensure the success of international efforts, China must do more, through strengthening the combined efforts of graft-busters from the Communist Party of China, the police, courts, prosecutors, and financial regulators tasked with money-laundering detection.’

‘Securing cooperation from the US is not easy but it can be taken as a sign of things to come in terms of international cooperation.’

Comment by Housing Analyst
2015-04-15 06:15:23

And don’t forget these fugitives family members act as proxy. There millions of the them in the US.

Comment by Florida Skeptic
2015-04-15 06:41:26

Obama is the King of dirty money laundering. Just look at his campaign contributions, 1/3 of them as “unitemized”. Then there are the Tarp funds that were hijacked, like $400 Billion with Geithner, Jaret and Holder.

If we give them back the Chinese money, surly our housing market would collapse?

Comment by Larry Littlefield
2015-04-15 06:59:31

Aren’t unitemized contributions those too small to be required to be itemized?

I think the problem is that it’s only one third.

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Comment by Florida Skeptic
2015-04-15 10:13:13

The data distribution of the itemized donors gives away the under limit donation lie. The 2008 campaign actually reported alot of under limit donations. By best estimate, they actually only had about $40 million that was unreported that was under the limit and around $210 million was just dirty money.

Other fraud involved phoney donors like King Kong and Good Will and donors with foreign addresses who did not provide verification of citizenship. The database of donations of approximately 2.6 million records, contained less than 700,000 unique donors, alot of them, actually over-limit, using name and address variations.

You can find this information in FEC complaint MUR6142

 
Comment by Albuquerquedan
2015-04-15 13:04:47

Aren’t unitemized contributions those too small to be required to be itemized?

“Breaking Bad” had a scene where Walter was using his son website set up for donations for Walter’s cancer treatment to launder drug money. I have long believed that most of those “small contributions” were actually provided by someone like George Soros.

 
Comment by Florida Skeptic
2015-04-15 14:47:25

They are supposed to be contributions under the limit. In 2008 that was $200. But there are a lot of contributors listed in the database with totals under that amount. Conversely, Obama claimed he had around $250,000,000 in contributions under $200.

The problem is, the candidate can claim he had $250,000,000 in these small donations and how do you prove it is not true? The data distribution analysis tells us with 99%+ certainty that it is not, but that is not legal proof.

His story was that they came from like 2-3 million people. That would be around $100 per donor. But there is essentially no proof that these millions of $100 donors exist.

The rumor is that most of it came from Soros and the Saudi Kings. Soros also put MoveOn behind the campaign and probably put around a billion dollars into getting Obama elected. Coincidentally, his net rose from around $9 Billion before the Obama Presidency and was around $30 Billion last I heard. Rumor is that Soros laughs about it and calls Obama a cheap date.

It is further rumored that the agent Soros sends to give Obama his marching orders actually does not go to the Whitehouse so much as meets him for golf. That is why Obama is always on the golf course during crisis.

 
 
 
Comment by AmazingRuss
2015-04-15 08:45:18

Shh… Barak HUSSSSSSEIN Obama is the Debil!

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Comment by Florida Skeptic
2015-04-15 06:48:08

So maybe we can negotiate some of our national debt for return of these “fugitives”. Aren’t they just another way we have borrowed money from China?

 
 
Comment by Housing Analyst
2015-04-15 03:27:18

“Take an evening stroll on either side of New York’s Central Park and you will notice how few lights are on”

With 25 million excess, empty and defaulted houses in the US, just how many are there globally?

Chantilly, VA Housing Prices Sink 11% YoY As Inventory Billows

http://www.zillow.com/chantilly-va/home-values/

Comment by Puggs
2015-04-15 09:57:15

…And a ton of this buildup happened after one of the worse financial crashes since 1929. They have only themselves to blame for their profound stupidity!

 
 
Comment by Dman
2015-04-15 05:04:24

‘We wouldn’t be surprised if China, and some other emerging countries that face similar increases in debt, turns out to be the place of the third episode of the global financial crisis after the U.S. and Europe,’ they wrote.”

That’s probably a reasonable assumption, and then when the U.S. and Europe crash again, the central banks can blame China instead of themselves.

Comment by Ben Jones
2015-04-15 06:05:48

Almost every situation is a result of what happened a few years ago. The Nigerian article:

‘Between 2006 and 2007, property prices in Nigeria reached an all-time high, attracting equally record high investments. The economy was on a roll, money was available and so were willing buyers. But then, a crack appeared on the financial wall in 2008, bringing down prices but not as rapidly as it turned out recently after the banking reform claimed the big chiefs.
Experts have concluded that the lifeline provided banks by the Central Bank of Nigeria will not in any way lead to an upturn in the real estate market, even though it is a major gauge of how well the economy is recovering. “There is no uptake in the system and this is a worrisome sign, because even though sales were slow last year, but we did not expect it to grind to a halt instead of picking up with CBN’s intervention,” remarked Tajudeen Olanikan, a real estate broker on Lagos Island.
“Now the market is replete with office buildings, homes and apartments that are vacant and not selling. Property owners have come to the realisation that the market is down and would not pick up in a hurry. They are not going to get the price they want,” Olanikan added.’

Comment by Combotechie
2015-04-15 06:15:47

“Between 2006 and 2007, property prices in Nigeria reached an all-time high, attracting equally record high investments.”

The high prices attracted equally high investments. It figures.

Raise the price and the attraction also rises? People, people everywhere, really are crazy.

“But then, a crack appeared on the financial wall in 2008, bringing down prices but not as rapidly as it turned out recently after the banking reform claimed the big chiefs.”

So now what? If rising prices are so wonderful and attractive then what should one expect to happen to wonderful and attractive when prices fall?

 
 
 
Comment by Combotechie
2015-04-15 05:37:53

“The world’s richest people are buying these grand residences not to live in but to store their wealth. In Paris, for instance, one apartment in four sits empty most of the time.”

To store their wealth, similar to the reason why these people use to buy fine art.

But creating fine art doesn’t have to employ a lot of people while building grand residences does. And owning fine art doesn’t requite a lot of maintenance while owning these grand residences does. And then there’s that tax thingy.

So there’s a lot of expenditures - initial expenditures and continuing expenditures - involved with these grand residences that conventional things such as fine art doesn’t have, and these expenditures tend to pump up economies way beyond what creating and owning fine are would do, so when the IN THING such as buying grand residences is IN then there’s a boom that spreads money in all directions from the epicenter of the boom and if and when the boom ever comes to a halt then the spread of this money will also come to a halt.

So if your economy, your job, is dependent on the inflow of money from these rich guys then you had better hope these rich guys will remain forever rich and forever happy to pump money into your economy because if they ever change their minds (if the IN thing ever stops being the IN thing) then your economy will end up a being bit stranded.

Comment by Dani W
2015-04-15 07:38:00

And of course, hoping these guys stay rich means they are draining wealth from the poor and middle class.

Taxing the rich and using the tax money for things that actually help the population at large would be much better for society than allowing the wealthy to create useless ornaments.

Both methods employ lots of people.

 
Comment by Professor Bear
2015-04-15 14:50:49

“But creating fine art doesn’t have to employ a lot of people while building grand residences does. And owning fine art doesn’t requite a lot of maintenance while owning these grand residences does. And then there’s that tax thingy.”

There is also a huge draw on energy and industrial materials that go into building. Is it any wonder industrial commodities prices recently tanked?

 
Comment by Neuromance
2015-04-15 15:50:53

Combotechie: To store their wealth, similar to the reason why these people use to buy fine art.

Art’s an interesting way to store wealth. It can burn, it can break or tear. Even diamonds burn. Gold is interesting in that it’s impossible to damage outside of laboratory conditions.

 
 
Comment by Housing Analyst
2015-04-15 05:52:51

Riverside, CA Housing Inventory Skyrockets 116% As Demand Plummets Statewide

http://www.movoto.com/riverside-ca/market-trends/

 
Comment by Combotechie
2015-04-15 05:55:59

“‘When credit grows that fast, it’s normally a strong sign misallocations of capital have taken place.’”

Misallocations of capital –> a boom.

The correction of misallocations of capital –> a bust.

Comment by Ben Jones
2015-04-15 06:46:17

From the article:

‘The deterioration in credit quality coincides with the slowest annual growth since 1990 for Asia’s biggest economy, and helps explain why Fitch Ratings Ltd. predicts defaults will climb. That’s bad timing for bond investors who swallowed a record $209.2 billion of Chinese-company notes denominated in either dollars, euros or yen last year, Bloomberg data show.’

“The credit cycle in China has peaked,” said Hong Kong-based Arthur Lau, the head of fixed income for Asia ex-Japan at PineBridge Investments Asia Ltd., which manages $35.3 billion of debt globally. “Corporate earnings are negative in general and investors are bracing for a deterioration in metrics.”

‘In the past month, developer Kaisa Group Holdings Ltd. and coking-coal importer Winsway Enterprises Holdings Ltd. have both missed bond coupon payments, and water-treatment company Sound Global Ltd. flagged potential audit issues. Hotpot restaurant-turned-Internet firm Cloud Live Technology Group Co. also became the second onshore-debt defaulter ever in China after failing to repay noteholders.’

‘China’s debt has ballooned amid soaring bad loans and shrinking industrial profits. Aggregate social financing, a measure of credit that covers traditional and off-balance sheet lending, increased to double China’s gross domestic product at the end of December. While that’s below the peaks reached earlier last year, it’s close to the highest since Bloomberg started tracking the data in 2003.’

‘Moody’s Investors Service lowered the scores of Chinese junk-rated companies 11 times in the first three months of 2015 and only upgraded once, Bloomberg data show. The ratio is the worst since at least 2006.’

“There are two reasons for downgrades, one is that companies take too much debt and the other is that the operational environment is deteriorating,” said Joep Huntjens, the head of Asian debt at Netherlands-based NN Group NV, which had about $197 billion under management as of Dec. 31. “What’s happening in China is the latter, a lot of companies are suffering from excess capacity.”

‘The latest 2014 filings showed Winsway and underground mall builder Renhe Commercial Holdings Co. didn’t earn enough in their normal course of business to pay interest on their borrowings. Texhong Textile Group Ltd., developer Oceanwide Holdings Co. and Yingde Gases had the highest amount of debt compared with their assets.’

Comment by Ben Jones
2015-04-15 07:03:42

‘A Chinese power-transformer maker said it’s uncertain it can pay bond interest due next week after China’s onshore debt market this month had its second default ever.’

‘Baoding Tianwei Group Co. is unsure if it can make the 85.5 million yuan ($13.8 million) payment on April 21 because of “huge losses” last year in its alternative energy business, listed affiliate Baoding Tianwei Baobian Electric Co. said in statement Tuesday to the Shanghai Stock Exchange.’

‘Cloud Live Technology Group Co. missed a bond payment on April 7 after Premier Li Keqiang told parliament last month he is prepared to tolerate individual cases of “financial risk.” China’s corporate debt is the biggest in the world, a former central bank adviser wrote in the official China Daily, as data released today showed economic expansion at its weakest since 2009 last quarter.’

Comment by Dman
2015-04-15 09:38:23

“China’s corporate debt is the biggest in the world…”

And it’s starting to unwind big time. Combine that with falling real estate prices and huge local government debts, and you’ve got yourself a show worthy of a whole barrel of popcorn.

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Comment by Combotechie
2015-04-15 07:05:47

“The deterioration in credit quality coincides with the slowest annual growth since 1990 for Asia’s biggest economy, and helps explain why Fitch Ratings Ltd. predicts defaults will climb.”

Isn’t this fun?

“The deterioration in credit quality coincides with …”

…meaning it goes hand-in-hand-with, meaning one reinforces the other …

“… the slowest annual growth since 1990.”

The slower growth causes a deterioration of credit quality and this deterioration of credit quality causes a deterioration of growth. So the prices decline and thus so does the quality of the debt.

Note the QUANTITY of debt does not decline, only the QUALITY declines.

Interesting Times.

 
Comment by Blue Skye
2015-04-15 07:05:52

“a lot of small companies whose loans were backed by Hebei Financing had encountered financial problems and could not pay back their loans…”

Alot!

 
Comment by rj chicago
2015-04-15 07:36:55

‘The deterioration in credit quality coincides with the slowest annual growth since 1990 for Asia’s biggest economy, and helps explain why Fitch Ratings Ltd. predicts defaults will climb. That’s bad timing for bond investors who swallowed a record $209.2 billion of Chinese-company notes denominated in either dollars, euros or yen last year, Bloomberg data show.’

GOT CHICAGO?!!! Seems the Chi comms have learned well from the inside commies known as the Demo c RAT party in CHICAGO ILLANNOY!!!

 
 
 
Comment by Housing Analyst
2015-04-15 05:59:46

You paid how much for a depreciating asset and you financed it?

You’re screwed.

Oxnard, CA Housing Inventory Explodes 1500%+; Prices Slide 6%

http://www.movoto.com/oxnard-ca/market-trends/

Comment by Puggs
2015-04-15 09:58:32

If you financed ANYTHING yer screwed!

PAY CASH.

Comment by Housing Analyst
2015-04-15 17:23:34

If you pay cash you’re screwed too.

Why pay a 200% premium for a depreciating asset like a house?

 
 
 
Comment by Ben Jones
2015-04-15 06:15:38

‘China’s Evergrande Real Estate Group has cut leverage on its balance sheet over the past two years to a third by classifying some of it as equity, according to analysts’ calculations based on its public filings.’

‘Evergrande, the most indebted developer among China’s top 10 property firms, is seeking additional funding to expand, and a lower proportion of debt to equity makes it easier and less costly for a company to borrow.’

‘Evergrande lowered the proportion of debt on its balance sheet by issuing so-called perpetual debt instruments and classifying them as equity, corporate filings for 2013 and 2014 show. The developer also increased fair value gains on some of its properties, according to the filings.’

‘The accounting treatments are legal and not uncommon. But they effectively mask the amount of debt a company actually holds and in Evergrande’s case, they may obscure how highly leveraged it is, analysts say.’

‘Excessive leverage is not a problem as long as China’s No. 4 property developer manages debt payments and credit markets remain liquid, but analysts say it has a small margin of error if markets dry up or lose momentum or if it runs into liquidity issues.’

“Evergrande needs to rely on short-term loans such as bank and trust lending to refinance when the short-term debt matures. This is risky capital management because banks loosen and tighten lending from time to time and it’s unpredictable,” said Moody’s Investors Service analyst Franco Leung.’

‘It began issuing perpetuals in 2013, doubling the amount to 52.9 billion yuan ($8.5 billion) as of end-December, equivalent to nearly half of its equity, corporate filings show…In Evergrande’s 2014 earnings report, published on March 30, its net debt-to-equity ratio was 85.9 percent. If perpetuals were classified as debt, that figure jumps to 292 percent, Barclays said in a note published a day later.’

‘Among developers, Evergrande has been particularly hard hit with most of its projects in less developed cities, where home prices have had some of the biggest drops. It has also borrowed heavily to diversify into food, energy and sports. Independent financial analysts CreditSights, which classifies perpetuals as debt, says Evergrande’s 2014 debt was 11.7 times earnings before interest, taxes, depreciation and amortisation (EBITDA), meaning it would take 11.7 years to repay based on its current cashflow.’

‘That ratio is 50 percent higher than the sector average, according to Thomson Reuters data.’

Comment by Mr. Banker
2015-04-15 06:26:36

“China’s Evergrande Real Estate Group has cut leverage on its balance sheet over the past two years to a third by classifying some of it as equity, according to analysts’ calculations based on its public filings.”

I like it.

If it looks like a duck and walks like a duck and it quacks like a duck and you can convince your investors that it’s a chicken, then you should tell them it’s a chicken.

Comment by Mr. Banker
2015-04-15 06:52:07

I think Amy and I should get together and dream up something like a “Debt Is Wealth Re-Classification Plan” to go along with my Dotted Line Specials.

 
 
 
Comment by Housing Analyst
2015-04-15 06:18:53

“Arroyo Grande Realtor Arrested On Suspicion Of Child Molestation”

http://www.ksby.com/story/28803885/arroyo-grande-citizen-of-the-year-arrested-for-child-molestation

 
Comment by Ben Jones
2015-04-15 07:06:40

‘Federal Reserve Bank of St. Louis President James Bullard repeated his call for beginning to normalize monetary policy and said maintaining interest rates near zero risks destructive asset-price bubbles.’

“A risk of remaining at the zero lower bound too long is that a significant asset-market bubble will develop,” Bullard said in prepared remarks in Washington on Wednesday. “If a bubble in a key asset market develops, history has shown that we have little ability to contain it,” he said, citing the housing bubble that preceded the last recession.’

Comment by Blue Skye
2015-04-15 07:37:06

It’s only called a risk in public after it has happened.

Comment by Professor Bear
2015-04-15 14:52:01

It’s only called a bubble after it collapses.

 
 
 
Comment by Ben Jones
2015-04-15 07:10:59

Read the MSM wonder out loud:

‘So what if the bank paid you to take out a loan? That’s what’s happening in some European countries, where interest rates have gone negative amid efforts by central bankers to boost economic activity.’

‘NPR’s Audie Cornish spoke with NPR’s John Ydstie about this unusual turn of financial events. Audie Cornish: What’s going on? John Ydstie: Interest rates are being pushed so low in Europe — in fact into negative territory — that some banks are paying borrowers to take loans. And while some mortgage holders from Denmark to Spain might be quite happy about it, for the most part, the banks are not happy and are losing money as a result. If these negative rates became too widespread they could create serious problems.’

‘So, for instance, let’s say you had a variable rate mortgage in Spain. Maybe your interest rate started out at 2 percent, but now it’s possible it’s fallen to negative 1 percent, meaning the bank has to give you a rebate or maybe pay down a bit more of your principal each month.’

‘Some people who’ve got a mortgage would like that deal.’

‘True, but it doesn’t make bankers happy. If they’re going to make money in this situation, they’re going to have to charge people to take their deposits. That’s not a great way to attract depositors. Instead, people might just want to stick the money under the mattress.’

‘So this sounds a little like Bizarro World. Much as I would like to have the bank pay me interest on my mortgage, it doesn’t sound healthy.’

‘Well, there are risks posed by these ultralow and even negative rates. Banks have trouble making money in this kind of environment, and the health of eurozone banks is already a subject of debate, so that’s not good. Another risk is that very low rates might reignite the European housing bubble, pushing real estate prices irrationally high because mortgage rates are so attractive. The third risk is that low or negative interest rates could cause underfunding of pension plans because many plans are required to invest in government bonds, some of which are now yielding negative rates.’

‘So are people starting to think that maybe the European Central Bank may have gone too far?’

‘Yes, if these negative interest rates become entrenched it may have gone too far. But I think supporters of the policy would actually say it’s working better than expected.’

Comment by Dman
2015-04-15 10:01:03

“‘Well, there are risks posed by these ultralow and even negative rates. Banks have trouble making money in this kind of environment…”

How could banks have trouble making money when they have to pay people to take out loans? Me not understand.

Comment by RJK
2015-04-15 11:29:30

They’ll make it up on volume of course.

 
 
 
Comment by Ben Jones
2015-04-15 07:23:11

‘Two of the world’s largest banks say Australia will be the biggest loser from iron ore price falls, with dire fiscal consequences. BNP Paribas and JP Morgan have joined the growing list of experts forecasting long spells of low prices for Australia’s largest export commodity.’

‘The former warns of a $20 billion hit to Australia’s $200 billion-plus export earnings in calendar 2015, as the iron ore price remains around half of what it was a year ago. The federal budget is expected to suffer a $30 billion revenue writedown over the next four years because of the iron ore price plunge, according to Prime Minister Tony Abbott.’

‘The bleak outlook, and news that China’s economy slowed to a new post-GFC low of seven per cent in the March quarter, have tempered any hope sparked by a modest rally in the iron ore price this week.’

‘Monetary Fund predicts, and BNP’s chief Asia economist Richard Iley is among the many expecting the Reserve Bank to deliver an interest rate cut in May. “Australia is inevitably the biggest loser … fiscal implications are dire,” he said.’

‘Small and mid-sized miners are reeling, with Atlas Iron reportedly set to fall into voluntary administration due to pressure from its lenders after it decided to suspend mining. Citi analysts say BC Iron should do the same if prices keep falling.’

‘Economist Tom Kennedy estimates that Treasurer Joe Hockey faces a $45 billion deficit for 2014/15, a result that would be about $5 billion worse than Treasury’s forecast. “It looks like revenues are going to be somewhere in the vicinity of $6 billion lower, purely due to iron ore,” he said.’

‘The massive expansions of BHP Billiton and Rio Tinto have largely been largely blamed for an iron ore supply glut, but BNP Paribas highlights China’s own unsustainable construction bonanza, and its inevitable slowdown.’

‘A key feature of China’s economic boom during the years of double-digit economic growth has been extraordinary levels of steel and cement production, BNP said. But it also caused a property bubble and a looming housing crash, due to what BNP called egregious real estate over supply.’

‘That doesn’t augur well for future steel and iron ore demand, despite what Rio Tinto and BHP Billiton’s executives say, Mr Iley said. “The outlook for Chinese demand, in contrast to the optimistic forecasts of producers, is skewed heavily to the downside,” he said.’

‘Unwanted growth in iron ore supply is continuing, with majors still growing and China cutting taxes for high cost domestic iron ore miners to prevent them from failing and causing mass job losses.’

‘Mr Iley said the mining giants are still profitable despite iron ore’s price fall, and would enjoy more market power as other miners fail and the Australian dollar falls.’

 
Comment by Housing Analyst
2015-04-15 07:43:40

Remember….. housing is a depreciating asset that costs you money every day you own it.

 
Comment by 2banana
2015-04-15 07:46:50

If you like your American job, you can keep your American job…

————————

Record number of H-1B applicants sparks immigration debate
San Jose Mercury News | 04/14/2015 | Matt O’Brien

Companies are seeking more foreign workers than ever before to fill highly skilled jobs in technology and other industries…

Comment by AmazingRuss
2015-04-15 09:21:03

Damn unionist liberals, gutting the middle class by undercutting them with foreign labor…

 
 
Comment by rj chicago
2015-04-15 07:55:34

Here we go again…..
People are just so….f…ing stoooooopid!!!! They learn NOTHING!
A fool and his money are soon parted.

http://www.marketwatch.com/story/more-homeowners-are-cash-out-refinancing-2015-04-14

Comment by Ben Jones
2015-04-15 08:08:02

‘Cash-out refinancing has made up 28% of refinancing mortgage applications this year, Bank of America Merrill Lynch analyst Michelle Meyer said, citing internal Bank of America data. That’s up from as low as 0.6% in February 2012, right before home prices bottomed, she said.’

‘The risks of cash-out refinancing were shown in the last financial crisis. According to one study, losses were five times as great as they could have been without cash-out refinancing for mortgage lenders from June 2006 to December 2008. That same study estimated that the percentage of underwater homes, where mortgages were worth more than the underlying property, would have been just 3%, instead of 18%, in the absence of cash-out refinancing.’

And we learned a week or so ago that ‘non-bank lenders’ were making GSE backed loans to people who can’t document income. The MSM was all over that - not!

Comment by rj chicago
2015-04-15 08:14:48

Ben - the question remains - when is the front of this potemkin village gonna fall down in a cloud of dust? I suspect that once it does the sheeple are gonna be bleating all the way to the streets ready to burn down what remains.

Comment by Ben Jones
2015-04-15 08:29:02

I don’t have a crystal ball. I suspect these junk bonds are the weakest part. Debt will unravel mal-investments first. Like the NPR report; ‘hmm, banks paying borrowers and charging depositors, something might be wrong!’

And, ‘there are hundreds of thousands of super expensive condos all over the world that are empty - something might be wrong!’

I don’t know how it’s going to play out, but these situations are unsustainable and from an investment viewpoint, stupid. A $2 million condo in Dubai is a money bleed in the long run. And the market has worked its magic; price too high, you’ll get more than you need and hammer the speculators, developers and buyers.

The participants haven’t learned anything. You would think pre-construction-condo would be an ugly word. I can tell you spec housing was only said in hushed tones for years after the Texas bust.

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Comment by rj chicago
2015-04-15 08:24:07

couple the potemkin village collapse with that of the most self centered generation EVER!!!
A fool and his money are soon parted.
I am a boomer - when I look at the pathetic state that most of my age related peers are in I thank God everyday I paid no heed to how my age related peers lived their lives - and NOW - the window of opportunity is closing rapidly for those of my generation.
“Hope I die before I get old”…..Pete Townshend and the Who

Retiring well? Not most baby boomers
* Only 60 percent of baby boomers report having any retirement savings
* 36 percent said they plan to retire at 70 or later
* 27 percent are confident they will have enough for retirement

Comment by Florida Skeptic
2015-04-15 10:38:29

I am in line with those stats but they are not the results of boomers living large and abusing the system. More the outsourcing of jobs and the war on the middle class by the two parties of oligarchy who control our government. The money from the middle class has disappeared into the coffers of the elite.

I have held a productive job and worked all but a few months of my adult life and never have lived large. I get no interest on my savings and I am coerced by the FED to go play in the Wallstreet casino or housing market for any return on investment. I have been trying to figure out how to buy a house in Florida for over a year and, for the life of me, I cannot figure out how to do that without getting burned.

We have turned into a society of financial cannibals. It is like something out of Ayn Rand and Atlas Shrugged.

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Comment by snake charmer
2015-04-15 11:31:20

If you don’t mind me asking, where do you live? Most of us from Florida who post here are from central Florida; I’ve always been curious why we don’t have a large south Florida contingent.

Way back when, we had a few posters from West Palm Beach. Whatever happened to Bad Andy?

 
Comment by Florida Skeptic
2015-04-15 12:06:55

I am in Boynton Beach, about 15 miles south of West Palm Beach. The market is insane and we had the rental companies out here buying stuff. Most of it ends up with Waypoint. I had a couple move in next door and try to harass me out of my cheap rental. I had to get a no-tresspass order on them. They bought up 3 houses in my development and there was some subsequent activity but then nothing for the last 8 months.

We have 200-300 foreclosure sales per week in Palm Beach County (Population 1 million). The rental companies and some foreign money pumped up prices for awhile and everybody got excited.

I would love to buy something but I have to be careful with my funds. Current projections are for 1-2% rises per year but there are 15% under water and 12-15% delinquent where I would need to locate so I am holding off for now.

 
 
 
Comment by rj chicago
2015-04-15 08:29:24

And think about that dolt in the back of the cab in the commercial for insurance company “The Prinicple” when he says - ummmmm…..my life expectancy is 24 years and my money is expected to last 15 years.

Every time I see this ad I just scream - you f….ing idiot - do the f….ing math - you’ll be a broke a$$ loser before you are dead - you f….ing deadbeat boomer!!!

 
 
Comment by Housing Analyst
2015-04-15 08:14:59

That’s what happens after you pay a grossly inflated price for a depreciating asset. Your cashflow evaporates.

Comment by Dman
2015-04-15 10:08:26

That’s what happens when you buy a house thinking it’s a retirement investment - you end up working the rest of your life to support the house.

 
 
Comment by Professor Bear
2015-04-15 14:53:28

They are obviously banking on future foreclosure moratoriums and various other “Save Our Homes” bailout measures such as those which have been in play since the 2007-08 housing downturn to bring prices back up to “normalcy.”

 
 
Comment by Ben Jones
2015-04-15 08:15:47

Dan, start picking the wine to go with the crow:

‘China’s old growth model is spluttering. Cement output plunged 21 percent in March from a year earlier, electricity output dropped 3.7 percent, and crude steel fell in the first quarter for the first time in 20 years. The declines are symptomatic of sliding investment in homes, the once vital engine that powered China’s economy. Property investment growth slowed to 8.5 percent in March, the National Bureau of Statistics said Wednesday, the slowest since early 2009 when China was hit by the global recession.’

“When we are talking about China’s slowdown, we’re talking about the rapid declines in the traditional industries of property and steel for instance,” said Zhu Haibin, the Hong Kong-based chief China economist for JPMorgan Chase & Co. “It takes time for new industries to take over — the so-called new sectors are at best stabilizers, not new growth engines.”

“In the past, the government could just start new infrastructure projects and overall investment would be good, but now additional spending on infrastructure will barely offset the weakening property market,” said Xu Gao, the chief economist of China Everbright Securities Co. in Beijing who previously worked at the World Bank. “China has to relax property policies further to aid growth.”

Caw!

 
Comment by Housing Analyst
2015-04-15 09:00:22

A China sized moon crater chock full of donkeys…..

Let it crater then buy later for 65% less.

 
Comment by Albuquerquedan
2015-04-15 09:07:55

Yet they still have 7% growth and the stock market ,even after today’s drop, is up close to 95% over the last year. Old industries are stagnant, new industries like high tech, solar and nuclear are booming. They have higher margins and higher growth rates. I do not see any crow in my future, the U.S. will collapse decades before China.

Comment by Housing Analyst
2015-04-15 09:11:23

and a GPD growth rate down a whopping 50% since 2008.

Comment by Professor Bear
2015-04-15 14:54:42

“…the stock market ,even after today’s drop, is up close to 95% over the last year.”

Is that considered a healthy sign?

I recall noting a similar rate of increase in the bitcoin price before the recent collapse…

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Comment by Ben Jones
2015-04-15 09:12:34

Looks like it’s collapsing right now.

Comment by Albuquerquedan
2015-04-15 09:27:21

Check my links below including one from someone that helped George Soros make his billions. The bad mouthing by the MSM China is directly related to China asserting its financial strength by creating a development bank that directly competes with the banks dominated by our banksters.

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Comment by Albuquerquedan
2015-04-15 09:35:46
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Comment by Housing Analyst
2015-04-15 09:43:31

Damn Ban….. you’re babbling like Lola.

 
 
Comment by Housing Analyst
2015-04-15 09:58:13

Falling Prices. Collapsing Demand.

 
 
 
Comment by AmazingRuss
2015-04-15 09:23:57

Next you’ll be touting increased pollution as a good thing in defense of your thoroughly discredited view.

 
Comment by Dman
2015-04-15 10:13:03

Wow, a stock market that’s up 95% when every other segment of the economy is collapsing. What does that tell you about China’s stock market?

Comment by Albuquerquedan
2015-04-15 10:40:35

Stocks selling for 16 times earnings is hardly a huge bubble, particularly when the economy is growing at 7%, by most metrics they would be said to be undervalued for that level of growth.

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Comment by Professor Bear
2015-04-15 14:55:58

“What does that tell you about China’s stock market?”

It is a lagging indicator.

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Comment by Professor Bear
2015-04-15 15:39:25

‘Cement output plunged 21 percent in March from a year earlier, electricity output dropped 3.7 percent, and crude steel fell in the first quarter for the first time in 20 years.’

It’s quite amazing how huge plunges in production for so many different individual sectors of the economy can add up to 7 percent aggregate growth.

 
 
Comment by Housing Analyst
2015-04-15 09:21:00

“American Oil Production Grew by the Most in Recorded History Last Year”

http://www.slate.com/blogs/moneybox/2015/03/30/u_s_oil_production_it_grew_by_the_most_in_recorded_history_last_year.html

Falling prices of all items…. oil, housing, copper, finished goods… is positively bullish and good for the economy.

Comment by Albuquerquedan
2015-04-15 09:47:31

Key words “last year”, unfortunately, you lose 70% of the production from the wells within one year.

Comment by Housing Analyst
2015-04-15 09:55:14

Well…. not really. Not at all.

All these wells are still cranking at high speed which should explain why crude is cratering.

Not that it’s going to save CA housing prices from falling. They’re already falling.

Comment by Albuquerquedan
2015-04-15 10:02:32

Oil is up $2.32 a barrel today alone, buy gasoline much?

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Comment by Housing Analyst
2015-04-15 11:43:17

And $50 in the last year…. And falling.

Remember, falling prices to dramatically lower and more affordable levels is positively bullish and good for the economy.

 
 
 
Comment by Puggs
2015-04-15 10:05:16

Having invested in wells in Oklahoma and seen shale first hand in Texas I have to totally agree. People don’t realize what a flash in the pan shale oil stateside is. Shale IS NOT long term. Oil up to $55 today. I can see it easily passing $60 by May.

Comment by Housing Analyst
2015-04-15 14:47:46

If it doesn’t reach $20 by then.

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Comment by Dman
2015-04-15 10:15:09

And can’t they just crank up those closed wells when it becomes profitable to do so, thus creating a permanent ceiling on future oil prices?

Comment by Albuquerquedan
2015-04-15 10:37:40

They are not closing wells, they are using up the oil from the wells. They are also drilling out all the prime locations. Yes, there are some wells not being fracked but opening them will just keep production from falling as fast. The only thing that will restore production to the previous growth path is $100 a barrel oil and it would still be a flash in the pan since it would still be used up in four or five years.

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Comment by Housing Analyst
2015-04-15 11:44:53

Fracking a developed well is SOP, Dan. Nothing new.

 
 
 
 
 
Comment by prime+1
2015-04-15 11:28:15
Comment by Housing Analyst
2015-04-15 11:46:01

You may want to investigate that a little further. Rental rates are sinking and inventory is rising in Houston.

That is a good thing.

 
 
Comment by Professor Bear
2015-04-15 14:35:47

If this is such an extreme concern, then why would the international central banking establishment ever allow it? I.e., why not pin rates to the floor forevermore?

Or does the writer assume the existence of limits to the PTB’s power?

ft dot com > GlobalEconomy >
US Economy
April 15, 2015 2:23 pm
‘Super taper tantrum’ ahead, warns IMF
Sam Fleming and Shawn Donnan in Washington
A view of the US Federal Reserve January 27, 2015 in Washington, DC. AFP PHOTO / KAREN BLEIER
©AFP

The Federal Reserve’s first interest rate rise risks triggering a jolt to bond markets that could surpass the turmoil the central bank inadvertently set off in 2013, the International Monetary Fund has warned.

José Viñals, the director of the IMF’s monetary and capital markets department, warned of a “super taper tantrum” and spiking yields as the US central bank gets nearer to lifting rates from near-zero levels. “This is going to take place in uncharted territory,” he said in an interview.

In its Global Financial Stability Report, released on Wednesday, the IMF argued that risks have not only risen worldwide, but that they have rotated to parts of the financial world that are harder to monitor — including to the non-bank sector.

Among the key worries are “severe challenges” brewing in the EU life insurance sector amid plunging interest rates in the region. Many policies are offering generous return guarantees that are “unsustainable” in a prolonged low-interest rate environment, the IMF warned, highlighting German and Swedish firms.

Speculation about the impact of the first Fed hike in nearly a decade is dominating global markets. As things stand, markets are pricing in a lower trajectory for rate increases than Fed officials in the face of signals from the central bank that “lift-off” is looming this year.

In the report, the IMF said a sudden rise of 100 basis points in 10-year Treasury yields was “quite conceivable” once the market wakes up to the possibility of the first rise in official rates in nearly a decade. “Shifts of this magnitude can generate negative shocks globally, especially in emerging market economies,” the IMF said.

 
Comment by Professor Bear
2015-04-15 14:37:46

“Take an evening stroll on either side of New York’s Central Park and you will notice how few lights are on in the newer apartment buildings. That’s because no one lives there. Across the globe, empty luxury apartments darken many of the most desirable cities—Miami; San Francisco; Vancouver, British Columbia; Honolulu; Hong Kong; Shanghai; Singapore; Dubai; Paris; Melbourne, Australia; and London. The reason: The world’s richest people are buying these grand residences not to live in but to store their wealth. In Paris, for instance, one apartment in four sits empty most of the time.”

Dumb question of the day: Why not just store your wealth in the bank? Or in foreign currencies, if you want to diversify your risk?

Comment by Ben Jones
2015-04-15 14:52:54

Most probably expect to sell for huge profits. There’s even a hedge fund guy trying to flip $100 million Manhattan condos.

Comment by Professor Bear
2015-04-15 15:07:24

We’ve recently witnessed a similar runup to a crash.

The Wealth Report
Flip That Yacht
Rich Buyers Sell Unfinished Boats, Reaping Millions in Profits
By Robert Frank
Updated May 25, 2007 12:01 a.m. ET

Terry Taylor, a Florida car dealer, has purchased five yachts since 2001. But don’t expect to see him anchoring off the coast of Cannes this week. Mr. Taylor is boatless, having sold all of his yachts to other buyers for huge profits.

“I wouldn’t feel too bad for Terry,” jokes Felix Sabates, a partner in Trinity Yachts of Gulfport, Miss., which built Mr. Taylor’s boats. “He’s probably made more money off those boats than we did.”

Mr. Taylor is part of a new breed of wealthy boat buyers: yacht flippers, who sell their costly purchases often without taking them on a single cruise.

With demand for large yachts far outstripping supply, the market for half-finished or recently completed boats is soaring. Some buyers are selling their boats months before they’re ready, for millions more than they agreed to pay. Others are auctioning off their slots on yacht-builder waiting lines.

Today’s new rich, being entrepreneurial, can’t resist the lure of the deal even when it comes to the multimillion-dollar toys they are buying for their own pleasure. Yacht flippers are the superrich cousins of the real-estate flippers of the housing boom. Just as speculators bought Florida condos only to sell them, often unfinished, months later (which worked fine until prices fell), yacht flippers are banking on rising prices to buoy their investments.

“The risk, I guess, is that the yacht market collapses,” says Billy Smith, a partner in Trinity. “But with all the wealth that’s being created, there are no signs that that will happen.” That may be true today, but the yacht-building industry has a history of ups and downs that in some ways mirrors the real-estate market. Still, flippers are a tiny minority of yacht buyers, and their wealth should allow most of them to hold on to their boats if no buyers emerge.

 
 
 
Comment by Professor Bear
2015-04-15 14:47:43

“Some buyers use luxury housing to hide criminal proceeds, often acquiring their real estate through shell companies set up in jurisdictions from Wyoming to Panama to the Cayman Islands, which make it easy to conceal ownership.

But it also means we are not filling the needs of people who want to live in the city, because they cannot compete’ for housing due to high prices for both owned and rented apartments, ‘even though they make good money.’”

It’s great to know the investing priorities of international criminals rise above the concerns of ordinary US citizens who just want a home to live in.

 
Comment by Professor Bear
2015-04-15 22:26:05

The International Business Times
Latin American Economic Future Looks Grim Thanks To Commodity Prices: IMF World Economic Outlook
By Kathleen Caulderwood @kcaulderwood k.caulderwood@ibtimes.com on April 15 2015 1:33 PM EDT
Venezuela Economy
Men rest after salvaging metal on the 30th floor of the Tower of David skyscraper in Caracas, Venezuela, Feb. 3, 2014. The 45-story skyscraper was abandoned around 1994 after the death of its developer and the collapse of the financial sector. Now about 3,000 people call the tower their home.
Reuters/Jorge Silva

As the world’s major economies celebrate record-low oil prices, the outlook for countries in Latin America isn’t especially optimistic. New data from the International Monetary Fund say that economic growth in the region has declined for the fourth consecutive year, and thanks to record-low global commodity prices and continuing political problems, it doesn’t look to be improving anytime soon.

The latest IMF World Economic Outlook says the region’s gross domestic product (GDP) increased just 1.3 percent in 2014 — far below the 4.2 percent average it experienced between 2004 and 2013. This year, IMF analysts expect just 0.9 percent growth.

“The decline in the price of oil has led to a large reallocation of real income from oil exporters to oil importers,” IMF researcher Olivier Blanchard told reporters Tuesday. Global benchmark crude prices hit a six-year low last month, which has been a blessing for some and a curse for others.

 
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