The Housing Bubble

May 7 2015 at 12:55 PM Updated May 7 2015 at 7:48 PM
Chinese investors to pump $60 billion into housing
Chinese investors are expected to pump $60 billion into housing in the next six years. Fiona Morris
by Nick Lenaghan

Chinese buyers could pump as much as $60 billion into Australian housing over the next six years, with much of that investment going into new housing, according to a Credit Suisse report.

Strategist Hasan Tevfik and his team produced a landmark analysis last year revealing the scale of Chinese housing investment for the first time.

Now they have revised those original forecasts dramatically upwards in the wake of the latest foreign investment figures.

Over the next six years to 2020, Chinese spending on housing will more than double what it has been over the previous six years.

China has become Australia’s biggest source of approved foreign investment for the first time after a $12.4 billion splurge on real estate in the last financial year.

Of that total around two-thirds, $8.7 billion, was spent by investors based in China or by new immigrants from China on residential real estate, according to the Credit Suisse analysis.

That represents an increase of 60 per cent on Chinese spending in the year. It is also equivalent to 15 per cent of the national housing supply.

“Purchases are concentrated in Sydney and Melbourne where Chinese demand is the equivalent of 23 per cent and 20 per cent of new supply, respectively,” Mr Tevfik said in a client note this week.

“While new foreign investment proposals may make Australian real estate less attractive for Chinese buyers, we believe the potential erosion of demand will be marginal.

“After all, Australia is on the doorstep of the greatest wealth creation in three centuries. Despite moderating growth, we expect more Chinese wealth to be invested abroad.”
…

Grexit means the Eurozone house of cards comes tumbling down. Which is going to happen at some point, but the ECB and Brussels will kick the can down the road for as long as possible.

The media has completely forgotten Greece. Apparently all is well and the crisis is over with.

Schaeuble Says Greece Playing Chicken With Default Risk
by Eleni Chrepa
1:32 AM PST
May 9, 2015

German Finance Minister Wolfgang Schaeuble warned that governments can sometimes default by accident, in a jab at Greek officials still holding out for a better deal from creditors as their cash supplies run critically low.

Greece is preparing for a meeting of euro-region finance ministers on Monday with the European Central Bank threatening to restrict the country’s access to bank funding unless there’s progress toward an aid deal. Greece’s creditors say the government’s plans for fixing the economy aren’t yet detailed enough to justify more financial support.

“Experience elsewhere in the world has shown that a country can suddenly become unable to pay its bills,” Schaeuble said in an interview with Frankfurter Allgemeine Sonntagszeitung published Saturday. Schaeuble said he’ll do everything he can to keep Greece in the euro. “If it fails, it won’t be because of us,” he added.
…

Why China’s slowdown matters
By Andrew Walker BBC World Service economics correspondent
8 May 2015

After a long period of stunning growth, China’s economy is now slowing.

The economy grew at an average rate of 10% a year for the three decades up to 2010.

It has slowed markedly. Last year, the Chinese economy grew 7.4%. The International Monetary Fund (IMF)’s most recent forecast is 6.8% for this year and 6.3% for 2016.

So why is this significant?

Why is China’s economy slowing?

The government wanted a slowdown, and has encouraged it because there are long-term forces that mean it was inevitable sooner or later.

Better, if possible, to have a gentle slowdown - called a “soft landing” - than a disruptive one.

More fully, China’s very fast economic growth was based on some factors that could not last forever.

Very high levels of investment have been part of the story.

Last year, the figure was 48% of economic activity, or gross domestic product (GDP), according to IMF data.

There are only a few other economies where the figure is so high.

Most are in the 15-30% range.

Investment is certainly essential for improving the capacity of the economy for the future.

High investment rates have been important factors in other Asian economic success stories.

But you can have too much of a good thing.

There is always a risk with large-scale investment that some projects will be uneconomic.

It can lead to instability in property prices if there is heavy investment in construction, and there have been persistent concerns about whether China might have a property market crash.

And if much of that debt that sprung into being is to remain there then somehow the prices that justified - that supported - all that debt will have to come back.

But if these prices don’t come back then the support for the debt won’t be there and hence the debt will collapse.

Which means anyone who is somehow connected to this non-supported debt is going to get hosed.

hmmmm….

“preowned single-family home sales rose by 7 percent last month. And sales of condominiums and townhouses were 13 percent higher than in April 2013“

Why 2013? Let’s take a look at the 2014 data Idgits. Uh oh.

Dallas/Fort Worth Housing Demand Collapses 22% YoY

http://files.zillowstatic.com/research/public/Metro/Metro_Turnover_AllHomes.csv

Remember…. I can ask $50k for my 10 year old Chevy truck but where is the buyer at that price?

So it is with any other depreciating asset like a house.

The whole thing is bizarre:

‘Elton Simpson and Nadir Soofi were useful idiots. The two men — who drove to Garland, Texas, from their apartment in Phoenix to shoot up a contest where the $10,000 prize went to a cartoonist deemed to have drawn the best mocking picture of Islam’s Prophet Mohammed — were the only Muslims who rose to the provocation of Pamela Geller and her organization, the American Freedom Defense Initiative.’

‘Yes, people are talking about Geller now — including me, obviously — but the debate is over whether Pam Geller is a bigoted champion of free speech or just a bigot. That’s not the conversation she wanted. You know you’re not faring well when Donald Trump calls you an “obnoxious blowhard” whose “taunting” Mohammed-drawing event was “disgusting.”

‘By haplessly dying, Simpson and Soofi deprived Geller of what she most wants, which is for us to be afraid of Muslims, like she is.’

‘What we have is a series of provocations against Muslims not only in the US but also throughout the West, funded and promoted by right-wing movements who believe the West is being sold out by pro-Muslim “appeasers” and whose devotion and loyalty to Israel borders on the fanatic. The effect if not the conscious goal of these movements – which exist in countries with substantial Muslim populations – is to recreate the conditions under which Israel itself suffers: a state of siege constantly reinforced by the prospect of terrorist attacks.’

‘Who benefits from this evolving state of affairs?’

‘The best way to find this out is to follow the money, but in Geller’s case one runs up against a wall of obfuscation. The Forward was able to tease out a $100,000 donation in 2013 and 2014 “sent through the Jewish Communal Fund, a donor-advised charity that allows the original funding source to direct where it wants its donation to go while masking its identity.” But that’s just half of Geller’s annual salary. How is it they were able to write a check for $12,500 to Bosch Fawstin, the winner of the Hate Mohammed contest? How could they have afforded $50,000 for the extra security around the Garland event? Their 990 forms – which must be filed with the IRS in order to secure their tax-exempt status – are singularly uninformative, listing only the total amount of nearly a million dollars in revenue for 2013, the latest tax year available.’

‘It’s highly likely that they received their funding from the same sources that the neoconservatives have grown fat off of for all these years: the big conservative foundations. This report, Fear, Inc., compiled by the Center for American Progress, hauls out the usual suspects – all of them the same moneybags neocons have been feeding off since they took over the conservative movement in the cold war years, including: Donors Capital Fund, the Richard Mellon Scaife foundations, the Lynde and Harry Bradley Foundation, the Newton D. & Rochelle F. Becker foundations and charitable trust, the Russell Berrie Foundation, the Anchorage Charitable Fund and William Rosenwald Family Fund, and the Fairbrook Foundation.’

‘In just the first half of this decade more than $42 million passed into the coffers of the hating-on-Muslims industry, courtesy of these foundations.’

‘Neoconservative ideologue Jamie Kirchick says Pamela Geller, the well-known anti-Muslim demagogue, is an “embarrassment.” “She’s what you would get,” he writes, “if Fran Drescher and the late ultranationalist anti-Arab rabbi-turned-political leader Meir Kahane reproduced.” But why is Kirchick embarrassed? After all, what has Geller to do with him?’

‘The answer is that Geller says what he and his “respectable” confreres over at National Review, the Weekly Standard and Commentary magazine only dare to imply, and she says it loudly, braying her bigotry without regard for facts or fashion. She’s the neocons’ portrait of Dorian Gray, sitting up in the attic hidden from the world, but now it’s coming down the stairs – and that’s embarrassing for the Park Avenue neocons who wrinkle their noses at the brazen ugliness of her pronouncements, which so perfectly reflect their own worldview.’

Everyone who disagrees with you is paid? I wish I was getting paid.

Nice Alinsky though, I have to give you credit.

“… and can hire some broke @ss folks.”

Cheap. Can hire some broke @ss folks cheap.

… and the trickle down tooth fairy will put a twenty under my pillow.

Is your equity line running out?

Pass the adult diapers, please

“Can Clinton claim to stand for ‘everyday Americans,’ while hauling in huge sums of cash from the very wealthiest of us?” ??

The answer is yes….Because, you can’t bring a knife to a gun fight…Raise money to be able to fight the likes of Adleson or you loose…Want to get the likes of Adleson and others out of politics, tell it to the Supreme Court or get congress to pass a constitutional amendment…In the mean time, disparaging Clinton for raising cash to compete against the neocons seems odd or more likely just partisan attack…

Best argument for voting for Hillary: if you don’t want the Chamber of Commerce establishment GOP to control all three branches of government.

Reposting this for like the 4th time here, Wall Street “can’t lose” with Jeb/Hillary:

http://nypost.com/2015/02/08/wall-streets-no-lose-view-of-2016/

Why would they buy it when they’re already renting it for half the monthly cost?

“Carlos and Maritza are preapproved for a $500,000 FHA loan.”

‘Merica… what a country!

1:27 pm ET
May 7, 2015
Central Banking
It’s Bonds That Are Overvalued, Not Stocks. Here’s Why
Federal Reserve Chair Janet Yellen discusses market risks and other issues with International Monetary Fund Managing Director Christine Lagarde at the Institute for New Economic Thinking Conference on Finance and Society at the IMF in Washington.
JACQUELYN MARTIN/ASSOCIATED PRESS

Janet Yellen, the Federal Reserve chairwoman, shook up markets yesterday by noting that stock market valuations were “quite high.”

She also acknowledged stocks aren’t quite so pricey when compared to bonds. And that’s an important caveat, because it’s bonds, not stocks, whose valuations are extreme; so extreme they make stocks positively cheap.

The two are very much connected. Bonds are expensive for the same reason stocks are cheap: the world is still afraid of disaster. And that holds important lessons for both the investors, and the Fed.

Stocks are expensive, based on the most common valuation metric: Standard & Poor’s 500-stock index trades at 17.5 times last year’s earnings, well above the 10-year average of 15.8. But that’s not the best metric of stock valuation; a better one is to ask how much stocks are likely to return over the next decade or so compared to bonds.

Stocks are supposed to return more than bonds because they’re riskier; they can be waylaid by a recession or a bear market. The magnitude of that extra return, called the “equity risk premium,” can be inferred from current bond yields and expected growth in profits and dividends.

Analysts have different measures of the equity risk premium, but most conclude it is either around or above normal. For example, Goldman Sachs global investment research group puts it at 4.5% right now, well above the 3% range of a decade ago.

This means an investor choosing between the two asset classes today could expect to earn 4.5 percentage points more on stocks than bonds over the next 10 to 20 years.

Stocks look cheap on this metric because bond yields are so low—lower than fundamentals can explain. For example, in theory, the return on a 10-year bond should be roughly equal to the return on holding Treasury bills for 10 years, plus a bit extra, which is called the term premium.

The term premium compensates investors for the fact that bonds are much more volatile than T-bills, largely because investors may guess wrong on the path of short-term rates. For 10-year bonds it has averaged 1.6 percentage points since 1961, according to estimates by staff of the Federal Reserve Bank of New York.

With inflation low, the economy operating below capacity, and the Federal Reserve promising to tighten monetary policy ever so slowly, Treasury bills aren’t going to return much for a while. Yet even after taking that into account, bond yields are strangely low, because the term premium is close to zero. Indeed, until a a few weeks ago it was negative. In other words, investors were actually paying up to own bonds rather than Treasury bills, which is not the way the world is supposed to work.

What can explain the fact that investors are wary of the risk in owning stocks but so cavalier about bonds? It comes down to the threats that hang over the world economy. As Kenneth Rogoff of Harvard University has argued, bonds do more than protect your portfolio against garden-variety recessions and bear markets. They also act as insurance policy against black swan-type disasters.

If another financial crisis or deflation sucked the rich economies down, China fell into a slump, a big European government defaulted, a war broke out in eastern Europe, there was a 9/11-type terrorist attack or a pandemic swept the world, stocks would crater and terrified investors would rush for the security of bonds, driving their prices up and their yields down.

The recent roller-coaster on bond yields is probably due not just to changing perceptions of what the Fed or European Central Bank will do, but fluctuating fears of disaster. Central banks should actually take comfort, then, if bond yields are headed up, because less fear of disaster means more confidence, more spending and more investment. The fact that bonds act as valuable insurance policies also means central banks and regulators should avoid creating artificial shortages of them.

What’s the lesson for investors? If fear of disaster suddenly fades, yields will shoot up and prices will plunge. For stocks, it’s more complicated. Higher bond yields will squeeze the equity risk premium and thus make them less attractive over the next decade. On the other hand, a reduced fear of disaster should coincide with greater confidence in economic growth and profits and a greater appetite for holding stocks.
…

I suppose there have been a few recent articles that document the crash underway.

Markets
European Bonds Back to Pre-QE Levels After Weeklong Selloff
Levels back to where they were before stimulus began
By Christopher Whittall and Tommy Stubbington
Updated May 7, 2015 3:20 p.m. ET

A weeklong selloff in European bonds has wiped out much of the rally sparked by the vast stimulus program that the European Central Bank announced in January.

After five straight days of declines, European bonds accelerated their fall Thursday morning before returning roughly to where they had started the day. Yields rise as prices fall. The yield on 10-year German government bonds shot up to 0.78% before falling back to 0.60% late in the European afternoon, a level last seen in mid-December, according to Tradeweb.

“Right now the market is in a state of shock,” said Zoeb Sachee, head of European government-bond trading at Citigroup Inc. “A lot of people are staying clear, and that makes the market less liquid, which is helping to exaggerate market moves.”

As bonds have sold off, traders said some dealers intermittently stopped quoting prices on electronic platforms.

Activity was most frantic in futures markets. The volume of trading in futures on 10-year German government bonds, or bunds, was more than double the average for the past five years. German 10-year bonds are considered the eurozone’s safest debt, and like U.S. Treasurys, they are used as a benchmark for prices of other fixed-income assets.

At an auction Thursday, France paid its highest 10-year funding costs since November. During the session, yields on France’s 10-year bond hit 1.10%, before falling back to 0.90% late in the day. The equivalent Italian bond yield hit 2.03% and came back to 1.76%.

The ECB’s stimulus program—an effort to pump cash into the economy by buying eurozone bonds with huge amounts of newly created euros—had pushed prices of bonds to record highs in recent months.

Now, the moves have reversed so sharply that levels are back where they were before the stimulus was announced. In mid-April, bund yields hit a low of 0.05% as a result of the ECB program. In Spain, 10-year yields traded at 1.74% late Thursday, a level last seen in early January. The yield had dropped to a record 1.06% after the ECB began buying bonds in March.

“It’s as though QE disappeared—it didn’t exist,” said Franck Dixmier, chief investment officer for European fixed income at Allianz Global Investors, which oversees €197 billion ($224 billion) of fixed-income assets. “In one week we had a total unwinding of all QE-related trades.”
…

Why does the MSM scream bloody murder if stocks crash, but sleeps right through a bond market crash?

Markets
Bill Gross’s Fund Takes Hit Amid Bond Selloff
Large losses in latest week at famed money manager’s bond fund undercut a nascent comeback
WSJ’s Kisten Grind joins MoneyBeat and details significant losses suffered by Bill Gross’s Janus Capital Group fund amid a selloff in corporate and government bonds. Photo: Getty
By Gregory Zuckerman and Kirsten Grind
Updated May 6, 2015 7:27 p.m. ET

Bill Gross’s fledgling bond fund at Janus Capital Group Inc. suffered large losses over the past week, undercutting a nascent comeback for the famed money manager who has yet to attract investors en masse at his new firm.

The cause of the fund’s troubles hasn’t been disclosed. But the 2.7% decline at the Janus Global Unconstrained Bond Fund in the week ended Tuesday comes amid a nine-week-long selloff for government and corporate bonds that has inflicted pain on investors around the globe.

As of March 31, the latest date Janus detailed holdings for the fund, his largest holding was a wager against German bonds, which have been falling in price, a move that would benefit the fund. Two of the largest four holdings in Mr. Gross’s fund were bets on U.S. Treasurys, whose prices also have been falling after a long run-up. The fund’s portfolio construction is complex, and it is unclear if Mr. Gross took any steps to shield against losses from any Treasury positions.

Mr. Gross also owned large amounts of emerging-market bonds, including debt from Brazil, the fund’s third-largest holding as of that date. Emerging-market debt prices have fallen lately, though not as much as U.S. or German bonds. At the time, over 31% of Mr. Gross’s fund was in U.S. investment-grade-rated corporate debt, a sector that has dropped in value in recent weeks.

“The core of the fund remains corporate bonds,” Janus told investors in a letter at the end of last quarter. It added that the fund also was wagering against volatility in the bond, stock and currency markets, something that may have weighed on returns lately.

A Janus spokeswoman declined to comment on the cause of the decline. Mr. Gross declined to comment through the spokeswoman. The latest holdings of his fund will be released at the end of the second quarter.

Until recently, Mr. Gross seemed on the comeback trail. After poor returns and a public fallout with colleagues at his former firm, Pacific Investment Management Co., Mr. Gross left in September to take over a new fund at Janus.

For much of this year, Mr. Gross was on a roll, beating three-quarters of the fund’s peers.

But the recent reversal put his bond fund at the bottom of its fund-industry category, trailing 99% of similar funds. During the same seven-day period, similar bond funds gained an average of 0.01%, according to Morningstar Inc.

Through Tuesday, the fund was down 0.09% in 2015, compared with a gain of 0.09% for its benchmark index, the three-month dollar London interbank offered rate.

The sharp one-week drop is rare for a bond fund, said analysts, even one that falls in the “unconstrained” category, allowing it to be more aggressive than some others.

“Bond funds aren’t supposed to lose money,” said Todd Rosenbluth, director of mutual fund and exchange-traded-fund research at S&P Capital IQ.

The price of the 10-year U.S. Treasury note dropped 1.8% last week, pushing the yield up to 2.12% from 1.92%. On Wednesday, the note traded at 2.23%. Bond yields move inversely to prices.

The bond-market selloff has been “dramatic,” said Michael Novogratz, president of hedge-fund firm Fortress Investment Group LLC, who spoke at the SALT hedge-fund conference in Las Vegas on Wednesday and warned of more pain for debt markets.
…
There are 13 comments.

Andrew Wilt
3 days ago
Doesn’t Mr. Gross have enough money to buy an island somewhere and retire in luxury?

Ron Peterman
3 days ago
Bill, what you experience we call it, QE (I guess it will be QE1 for JANUS… more to come). Good choice taking advise from your new consultant.

RONALD WONG
3 days ago
Mr. Gross is more concerned with his personal success then the success of his investors. When PIMCO called him on performance he trashed them and fled costing investors millions.

Greg San
2 days ago
@RONALD WONG
Not really, the pimco fund is top 10% of performers since he left. You only lost money if you cashed out and moved your money.

One thing seems entirely clear: With bond yields at or near historically low zero or negative levels around the world, there is a vanishingly small pool of investors who have a clue of how to navigate this treacherous investing landscape.

Caution: LANDMINES AHEAD!

Wonkblog
The mystery of Germany’s crazy bonds
By Matt O’Brien
May 8, 2015
Source: Bloomberg

Germany’s borrowing costs have shot up from nothing to slightly more than that in violent fashion, and it’s either a sign that Europe’s economy is finally beginning to recover or that the European Central Bank’s efforts to do so are coming up short. It’s not clear which.

Just a few weeks ago, it looked like it would only be a matter of time until investors were paying for the privilege of lending to Germany for 10 years. In other words, that Germany’s 10-year bond yield would slip from its low of 0.05 percent and into negative territory. Since then, though, it rocketed up to as much as 0.78 percent on Thursday, before falling back a bit to 0.59 percent later in the day. That’s a massive one-day swing, given that bond yields usually only move a couple of hundredths of a percentage point on any given day.

Still, it’s worth keeping a little perspective here. These aren’t through-the-looking-glass borrowing costs, but they’re at least pushing up against the looking glass — by any historical standard, they’re still crazily low. That said, it is disconcerting how quickly Germany’s bonds have sold off — bond prices go down when yields go up — and Europe’s stocks have, too. This has narrowed the gap between interest rates in the United States and Europe, which has made holding money in euros more attractive — and, in turn, pushed the euro back up.

What’s going on? Well, Europe’s bond yields were lower than ours to begin with because of their lower growth and lower inflation. But then in January, with inflation falling into negative territory, the ECB announced that it would start buying bonds with newly-printed money — aka quantitative easing — to try to jumpstart its economy. This, as you can see above, sent bond yields on what seemed like an inexorable journey to zero and below. Indeed, as much as $1.9 trillion worth of euro zone debt had negative yields by February. Investors were betting that they could buy bonds at near-to-subzero yields and then sell them back to the ECB a few months later for an easy profit. Now, the ECB clarified that it wouldn’t buy bonds yielding less than -0.2 percent, which set a little bit of a ceiling on how low borrowing costs could go, but still left plenty of room for them to set records for all-time lows. And they did.

At least until now. It’s hard to tell what’s going on, though, because it’s hard to tell what QE does to borrowing costs. The simple story is that buying bonds should push their prices up, and, as a result, their yields down. But the problem is things aren’t that simple, because QE also makes markets expect more growth and inflation — which go the other way and push bond yields up. That’s why, as I’ve pointed out before, interest rates actually rose every time the Federal Reserve started buying bonds and fell every time it stopped. But, again, the problem is things aren’t even as simple as that. Just look at Japan. It also started buying bonds, and also saw interest rates start to rise when it did, until its central bank chief said that they shouldn’t rise — and then they didn’t. In other words, even though higher borrowing costs are usually a sign that QE is working, it isn’t always the case.
…

The bear market in bonds has arrived
Head of U.S. Treasury strategies at RBS Securities says march to higher rates has begun
May 9, 2015 @ 6:06 am
By Bloomberg News

A bear market in Treasuries is under way, even after a late-week rebound, according to Royal Bank of Scotland Group Plc.

“What we’ve seen in recent weeks is not a blip, it’s the beginning of higher rates,” said William O’Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Conn. “Everything unraveled all at once. What we’ve had is the first of a series of bouts of bond-market vertigo.”
…

Investing: Time for a no-bond portfolio?
John Waggoner, USA TODAY 11:37 a.m. EDT May 8, 2015

Living in the modern world means living with a constant feeling of impending doom. You could lose your job! The market could crash! Your dog could be an alien!

In recent weeks, the biggest fear of the day has been that interest rates would rise, clobbering bond funds and ruining the plans of Joe Btfsplk, the only person in the United States who hasn’t refinanced his mortgage in the past seven years.

And those fears have some merit. The bellwether 10-year Treasury note yield is hovering near 2.20%, up from the low of 1.40% set in July 2012. And even at current levels, it could be a long, painful rise to the average long-term yield of 6.44%. So perhaps it’s time to consider a no-bond portfolio.

Let’s start at the beginning. In recent weeks, several prominent investors — Warren Buffett, CEO of Berkshire Hathaway, and Bill Gross, manager of Janus Unconstrained Bond, Jeremy Grantham of GMO — have warned that the long bull market in bonds could be at an end.

The bull market is, after all, more than three decades old. In the upside-down world of bonds, a bull market is a sustained period of falling interest rates. (More on this in a moment.) Interest rates have been falling since Sept. 30, 1981, when the 10-year note yielded an astonishing 15.84%.

Falling rates mean rising prices for bonds. Think of it this way: Suppose you owned a bond that paid 5% annual interest. Investors who owned bonds yielding 2.25% would treat you like a god. They would wax your car to a high gloss. They would even pay you more than the face value of your bond, because your yield was more than twice what they could currently get.

Could Treasury yields go lower? Sure, and they have. And government bond yields overseas are somewhere in the third sub-basement parking lot. The 10-year German bund yields 0.59%, and the Swiss 10-year note yields 0.10%.

Nevertheless, you should be aware that at least a partial unwinding of the bond bull market is likely. When rates rise, investors make videos of your 2.20% bond and mock it on the Internet — because, after all, newly issued bonds yield more. Should you want to sell your bond, you’ll have to cut the price, and your 2.20% yield will provide little cushion.

If you own individual bonds, a bond bear market isn’t much of an issue, unless you sell before your bond matures. If you hold your bond to maturity — barring a default — you’ll get your interest and principal back. But bond mutual funds have to price their holdings every day. And for most bond funds, rising rates mean lower share prices.

Bond bear markets tend to be less severe than bear markets in stocks, but they make up for that by lasting a long time. It’s a bit like being attacked by box turtles.
…

Keep the faith, sheeple! Bonds always go up, in the long run…

Ahead: Retire Your Way
Don’t give in to bond market hysteria
By Walter Updegrave @CNNMoney

I know bonds will take a hit when interest rates rise, but don’t know what to do about that — go to short maturities, intermediate, get out of bonds? I’m confused. What do you think?

–Dave C.

The first thing you need to understand about bonds is that nobody knows for certain what bonds will do. Yes, I know that everyone “knows” that interest rates will rise from their current depressed levels and that bonds will lose value when they do. Some people also seem to be convinced that when the Federal Reserve acts to nudge rates upward, short-term yields will climb more than long-term, which could mean that short-term bonds will get hit harder than ones with longer maturities, which is the opposite of what usually happens when rates rise.

Pundits and various other bond gurus have been predicting that rising rates would inevitably wreak Armageddon in the bond market for some five years now and it hasn’t happened. The broad bond market has sagged occasionally — it lost 4.5% over the course of four months in 2013 — but it recovered nicely and has largely defied doomsayers’ prognostications, returning an annualized 4.4% the past five years.

As for trying to predict how bonds of different maturities might perform relative to one another when rates eventually rise, I think a paper titled “Reducing Bonds? Proceed With Caution” that Vanguard published in 2013 sums it up nicely: “Interest rate movements tend to follow a ‘random walk’ and to be driven by ‘new’ economic events, thus making interest rate predictions little more than guesswork.” Or to put it another way: Trying to outguess or time the bond market makes about as much sense as trying to outsmart the stock market — none.

So, if you’re concerned about bonds, what should you do?

For starters, you should step back a moment and think about why bonds should be part of a long-term investing strategy in the first place. Basically, they provide two things: income and ballast.

There’s no doubt they’re falling short on the income front these days what with two-year, five-year and 10-year Treasuries recently yielding a bit over 0.5%, 1.3% and 1.9%, respectively, with investment-grade corporates paying a bit more. But there’s not much you can do about that. You can stretch for more yield by moving into longer-term or lower-quality bonds, but you’ll be taking more risk too. One way or another you have to adjust your expectations to the realities of today’s market

As for insulating your portfolio from market setbacks, bonds at today’s lower yields may not provide quite as much protection as they have historically, but they should still do a good job of stabilizing your portfolio when stock prices head south.

For all the hysteria about bonds’ taking a hit when rates start to climb (whenever that may be), it’s important to remember that bonds have never come close to the 50%-or-more declines the stock market has weathered. In the U.S. investment-grade bond world, a loss of even 10% over 12 months would be rare. And while bonds and bond funds will take a hit when interest rates rise, investors who own a diversified fund of high-quality bonds will later see their returns rise as the fund re-invests interest payments in new bonds paying higher rates.

Given all this, I suggest that anyone investing for retirement and other long-term goals start with a broadly diversified portfolio of short- to intermediate-term investment-grade bonds. A total U.S. bond market index fund or ETF — which owns a mix of Treasury, government agency, mortgage-backed and high-quality corporate bonds — would do very nicely as a core holding.

If you feel you need a bit more protection against rising rates, you can put a portion of your bond stash into a short-term investment-grade bond fund. Again, I’d go with a short-term bond index fund or ETF. The more worried you are, the more you can invest in the short-term fund, although be aware that the more you favor short-term bonds, the more return you’ll likely be giving up over the long run.
…

Is This The Big One In Treasury Bonds?
By Dragonfly Capital (Gregory W. Harmon)
Bonds
May 07, 2015 11:22AM GMT

Bond prices have been falling for 7 days in a row. Yields are now knocking at 3% for the first time since December, when they were still falling. The yield has crossed its 200-day SMA for the first time since March 2014. All of this has many asking, like Fred Sanford, if this is the big one.

And it could be. But there are many signs that perhaps yields may pullback, at least for a short time first. The clues are in the chart below.
…

CNBC
Fed could lose control of bond yields: Boockvar
Tom DiChristopher
Thursday, 7 May 2015 | 7:38 AM
ETCNBC dot com

The Federal Reserve runs the risk of losing the control of bond yields as it prepares to raise interest rates later this year, analyst Peter Boockvar said Thursday.

“That’s maybe why we’re seeing some of the steepening—because the bond market could be sniffing out the bottoming of these inflation numbers and they think [Fed Chair Janet] Yellen is going to drag her feet in raising rates to respond to that, so the long end of the curve is going to tighten for her,” the Lindsey Group’s chief market analyst said on CNBC’s “Squawk Box.”

U.S. Treasurys fell on Wednesday, weighed down by a global slide in government bond markets that is pushing yields to 2015 peaks. Benchmark 10-year Treasury note yields edge closer to 2.3 percent on Thursday, trading around 2.275 percent before easing back to 2.237 percent.
…

US Markets
Bonds are the scariest thing out there: Bessemer CIO
Tom DiChristopher
Tuesday, 5 May 2015 | 9:02 AM ETCNBC.com

The yield on 10-year Treasurys may be heading for a larger-than-expected move that could disrupt stock markets, Bessemer Trust’s chief investment officer said Tuesday.

“I think bonds are the scariest thing out there right now,” Rebecca Patterson said on CNBC’s “Squawk Box.”

Patterson said she is concerned because consensus has aligned to a great degree around the idea that bond yields will only move slightly higher by the end of 2015. The U.S. 10-year Treasury is currently yielding about 2.1 percent, and the Street expects the yield to rise only to about 2.5 percent, she said.

“It doesn’t mean great minds are all wrong, but usually when you have consensus view this widely held, it’s wrong. So bond yields I think have a very real chance of either being quite a bit higher,” or falling, contrary to expectations of a mild rise, she said.

Investors must be wary, because if bond prices correct as the U.S. economy gains some momentum, a period of volatility for equities could ensue, at least in the short term, she said.

The Federal Reserve is widely expected to raise its benchmark interest rate by 25 to 50 basis points. While that increase is not significant, some market watchers have said bond yields could spike suddenly as investors anticipate the path of future rate hikes.

Patterson also said 2015 is shaping up to be the year of “revenge of the global investor.”
…

Investors flee US stocks at financial-crisis levels
Alex Rosenberg | @CNBCAlex
Tuesday, 5 May 2015 | 6:00 AM
ETCNBC.com

Many investors appeared to ditch American stock funds in April, in the biggest exodus since the financial crisis. But far from taking that as a bad sign, some investors view the news as an indication that stocks have more room to run.

In April, U.S. equity mutual funds and ETFs saw outflows of $35.8 billion, according to TrimTabs. That’s the biggest move away from American stocks since October 2008. And the bearish tone is confirmed by the flows in the leveraged ETF space, where leveraged short ETFs saw an increase in assets of 4.6 percent, while leveraged long ETFs saw assets dip by 2.5 percent.

While flows information is by nature backward-looking and thus a poor trading catalyst, this bearish tone does stand in stark contrast to recent warnings that stocks are in an exuberant or bubbly condition.
…

Race to lever up to the hilt before interest rate liftoff continues…

The first White Appreciation Day happened back around 1845. A little California history: General Vallejo of Mexico was in charge of California territory. The Mexican government got word that Anglo settlers were coming in and squatting on land; they ordered Vallejo to drive out the invaders. Vallejo refused. Vallejo thought the Americans were putting the land to better use than Mexico ever would. Also, some Americans were marrying into Mexican families; Vallejo thought the whole gringo immigration deal was a good thing. Not long after a band of Americans staged a small revolt against Vallejo and declared California to be an independent country. That ended a few weeks later when the US Army arrived in declared NorCal to be a territory of the U.S.

So, yes, the first “open borders” policy was instituted by a rogue Mexican general who allowed uncontrolled by white illegals!

Yet still less than half the cost of buying at current grossly inflated asking prices of resale housing.

Foreclosure Stories
HAMP leads to great loan mod
Sandusky Register
Apr 30, 2015
Ronnie’s story

HIT WITH FORECLOSURE

The first time we met with Ronnie, he had just been hit with a foreclosure complaint. He was about eight months behind on his $1,100 per month mortgage payments. The good news was that both he and his wife had obtained steady employment and were in a much better position to move forward in their lives than they were when they first started missing payments.

Unfortunately, they would never have reached the foreclosure stage had their mortgage servicer done what it was legally required to do and qualified them for HAMP (Home Affordable Modification Program) relief.

THE SAD TALE OF HAMP

Ronnie’s situation represents an all-too-frequent occurrence in the mortgage servicing industry these days: False HAMP Denial. In other words, he clearly qualified for mortgage relief under HAMP, but he was wrongly denied it.

In a microcosm, Ronnie’s case is an example of why the program is being phased out at the end of this year. When it was initiated in 2009 the federal government projected 8 million people would qualify for HAMP, but to date, only 1 million have. The reason is because mortgage servicers make more money on servicing loans which are in default.
…

Cramdowns are coming.

Or that both economies are run by unaccountable central planners?