August 2, 2016

An Each Way Bet On Boom And Bust

A report from Bloomberg. “Japanese government bonds’ steepest tumble in more than three years is feeding speculation that central-bank easing is nearing its limits. A four-day rout pushed 10-year yields to within three basis points of turning positive on Tuesday for the first time since March, after Bank of Japan policy makers disappointed investors last week by leaving bond buying and their negative deposit rate unchanged. Pacific Investment Management Co. and former Ministry of Finance official Eisuke Sakakibara both say central bank Governor Haruhiko Kuroda is running out of room to expand stimulus.”

“‘The selling is insane,’ Satoshi Shimamura, head of rates and markets for the investment strategy department of MassMutual Life Insurance in Tokyo, said Tuesday. ‘The market is picturing an end to Kuroda easing. There’s no telling how far this will go.’”

“For some investors and economists, and at least one member of the BOJ’s policy board, this year is reminiscent of 2003, when benchmark yields almost tripled within three months. Known in Japan as ‘The VaR Shock,’ an initial jump in yields triggered a sudden selloff by breaching models banks were using for estimating potential losses, based on the statistical technique of ‘value at risk.’”

“The four-day surge in Japan’s 10-year bond yield brings it in line with Germany’s for the first time since April 2015, when bunds experienced a rout of their own. There are parallels in Japan now, where the BOJ’s record bond purchases have sapped liquidity and hampered the market’s efficiency. The central bank owns more than a third of outstanding debt, the most of any investor class, and volatility has surged this year to the highest level since 1999.”

From CNBC. “Japan’s failure to stimulate much with its latest stimulus serves as a reminder of how few tools global policymakers have left to drive growth. Fiscal and monetary authorities announced more plans over the past few days to spur inflation in hopes of driving broader economic hopes. They were rewarded with a stronger currency, a sea of red in both global equity prices and bond yields, and a market that generally was disappointed that Japanese leaders were not willing to do more to jump-start the long-moribund economy.”

“Japan has tried this literally dozens of times over the past quarter century, most often with the same results — perhaps a momentary bounce in activity that ultimately leads back to the same dreary growth pace. Despite all the stimulus, the economy has grown by barely 1 percent a year. In the U.S., a variety of stimulus packages over the years also have failed to achieve exceptional results. The 2009 spending package of $830 billion, seven years of near-zero interest rates and about $3.7 trillion in money-printing — called quantitative easing — resulted in an economy that has yet to register a calendar-year gain above 3 percent since the financial crisis.”

“The Fed now finds itself with a credibility problem in which investors not only doubt its ability to goose the economy; there are also questions about the veracity of policy statements and forecasting acumen, as well as doubts about whether the central bank will be able to act should an unexpected crisis hit. Some $11.5 trillion in sovereign debt now carries negative interest rates. There are trillions more with yields barely in positive territory or running well below historical averages.”

“The situation with low-yielding debt has gotten so extreme that Fitch Ratings warned Tuesday that a simple normalization of yields to 2011 levels could cause investor losses of $3.8 trillion. The losses would come in the form of principal plunges, as prices fall when rates rise. The low-yielding debt is held almost exclusively by institutional investors, meaning it poses systemic risks.”

“‘After all the QEs, after bond rallies globally, nothing appears to be the antidote to lumbering, low growth both in the U.S. and other developed economies,’ Marilyn Cohen, CEO of boutique money managers Envision Capital Management, told clients. ‘We are looking straight at the Japanification of the U.S.’”

“Cohen’s advice to clients is representative of a growing chorus that believes central bank maneuvers have run their course. ‘Under no circumstances should you listen to the Fed. Cover your ears and maybe hold your nose — this Fed and their Fed speak is so out of touch, so out of tune, that we deem their words white noise,’ she said. ‘In the past the saying, ‘don’t fight the Fed,’ were words to believe in. Not now.’”

From Ian Verrender at ABC News. “In Japan, the central bank on Friday developed a severe case of cold feet, with a decision to not push even further into the monetary policy unknown. It was expected to embrace a new round of radical policy known as Helicopter Money. While it did announce an extra round of stimulus, with a policy to pump even more cash into the economy, it opted not to board the chopper.”

“Helicopter Money is a process where the government rains cash down on the country with direct deposits into citizens’ and company accounts. The idea is that this would be financed by the central bank buying government bonds. That, however, is a policy that ultimately destroys the concept of an independent central bank, as monetary policy is employed to finance government largesse.”

“The fact that it was a close call tells you that not only is it being considered but that the global economy is in serious trouble.”

“After decades of poor performance, Japan has embraced the most radical monetary policies the world has ever witnessed and on a scale that could never have been imagined. It has ramped up its Quantitative Easing program - a euphemism for money printing - to never before seen levels and hacked interest rates to below zero, a policy it swore it would never embrace. On Friday, Bank of Japan governor Haruhiko Kuroda merely tinkered around the edges with some modest extra spending. More importantly, he raised questions about whether the central bank had gone far enough and said it was time to assess the impact of their policies.”

“On Tuesday, our very own central bank gathers to ponder the very same questions. It will be Glenn Stevens last meeting as governor. Pressure is mounting for the Reserve Bank of Australia to apply pressure to the currency, to deflate the Australian dollar in a bid to boost inflation and lift global competitiveness.”

“Having deliberately fired up the already inflated east coast housing market to promote a construction boom, the central bank can ill afford for prices to head further into la la land. Stopping that will require it to restrict lending for housing, a policy it has been reluctant to implement and even more hesitant to enforce.”

“Then there is the point Kuroda made on Friday. Would another cut have any beneficial impact? Would it encourage greater consumption or ignite business investment? The answer is probably no. Australians have the highest household debt in the world and the rate cuts have prompted many to merely pay down their loans quicker. There is nothing wrong with that. But the point is, it comes at the expense of boosting consumption and business turnover.”

“When it comes to business, lower rates have had the perverse effect of inhibiting investment. Shareholders, unable to secure a decent return on bonds or cash, have demanded ever greater dividends from corporations.”

“For more than two years, bonds and stocks have been heading in the same direction. Both have been hitting record highs. It’s an each way bet on boom and bust and it’s unheard of. Something has to give at some stage. Either the global economy will recover, rates will rise and those holding bonds or overpriced real estate will do their shirts. Or stock market investors will wake up one day and discover that central banks have run out of ammunition causing a stampede for the exits. Either way it won’t be pretty.”

RSS feed


Comment by Ben Jones
2016-08-02 18:25:01

‘It was expected to embrace a new round of radical policy known as Helicopter Money. It opted not to board the chopper.’

‘The fact that it was a close call tells you that not only is it being considered but that the global economy is in serious trouble’

This is how I’ve seen it; what’s next in this absurd, fresh hell? What lunatic scheme will they come up with next? This may be a small bloodletting. Or maybe more:


One thing is undeniable; we’ve been put in a situation where we are one bond panic away from a global sh*t sandwich. It could happen this week, or next year or it might have already started. But there is no question it could happen just as easily as some bond traders freaking out because the helicopter has been cancelled.

Comment by Ben Jones
2016-08-02 18:47:12

BTW, starting early tomorrow I’ll be on a 2 or 3 day business trip and I have no idea how much time I’ll have around a computer. So posts may be limited and moderation will be delayed at times.

Comment by palmetto
2016-08-02 19:46:46

Well, you’ve certainly earned it, but I have a feeling the next 2-3 days are going to be action packed in the financial world.

Comment by Ben Jones
2016-08-02 20:20:47

It might be nothing. But it stuns me that we are sitting on a powder keg that may or may not blow up:

‘The situation with low-yielding debt has gotten so extreme that Fitch Ratings warned Tuesday that a simple normalization of yields to 2011 levels could cause investor losses of $3.8 trillion. The losses would come in the form of principal plunges, as prices fall when rates rise. The low-yielding debt is held almost exclusively by institutional investors, meaning it poses systemic risks’

The other day I posted a quote saying a 1% increase in rates would cause a 50% loss of principle in some Euro country 50 year bonds. The guy said, “think about that.”

(Comments wont nest below this level)
Comment by Professor Bear
2016-08-02 21:35:19

‘The low-yielding debt is held almost exclusively by institutional investors, meaning it poses systemic risks’

Sounds like more quantitative easing may be needed really soon in order to ensure that systemically risky institutions don’t blow the entire global financial economy to smithereens again.

Comment by Cynical Cynosure
2016-08-02 22:09:00

that a simple normalization of yields to 2011 levels

That’s a lot of “if’s”, baby!

Did Japanese yields ever “normalize” to 1987 levels?


Comment by azdude
2016-08-03 05:49:24

all we need is a catalyst and sh@t will hit the fan because all of the leverage.

Comment by Ben Jones
2016-08-03 06:06:43

‘normalization of yields to 2011 levels’

‘That’s a lot of “if’s”

Were rates that high in 2011? Or will you stamp your little feet if money doesn’t rain out of helicopters? Which is more likely?

Bonds, real estate and stocks at all time highs, at the same time. Somebody is going to do their pants.

Comment by AbsoluteBeginner
2016-08-03 08:36:50

‘Sounds like more quantitative easing may be needed really soon in order to ensure that systemically risky institutions don’t blow the entire global financial economy to smithereens again.’

No chance of black swans either /s

Comment by aNYCdj
2016-08-03 08:59:30

the last thing on anyone’s mind is credit card interest rates.. i’m still holding on to a discover card with a zero balance but its like 19% interest.. i use it a few times a year just to keep it active….you never know when the car breaks down 300 miles from home.

Comment by Mike
2016-08-02 22:06:30

Hi Ben,

I hope it’s a successful trip for you. Thanks for all you do at this site. I love knowing that I can come here everyday and get new content. And not only is it local and regional… it’s even global. It’s awesome.

And for the rest of y’all… I actually like the political discussion around here. I have both some conservative and some progressive sides of me. But I’m the least PC person you’ll ever meet and I like to see people speak their mind openly.

The thing I keep wondering is… if you want zirp to end, who do you vote for this fall? Clearly not Clinton or Trump. So, do you vote Johnson?

I know I might get grilled for this, but I find it unfortunate that it was the fed doing all of the stimulus after the crash because the government just bailed out bankers. I would have preferred stimulus into American infrastructure and technology, but that ship has sailed. What do we do now? (I do believe that proper stimulus after a crash can yield very positive results, but at this time, all bets are off.)

Comment by Big Mac
2016-08-03 06:11:01

Falling prices my friend. Falling prices. It is falling prices that will accelerate the economy and create jobs like nothing else can.

(Comments wont nest below this level)
Comment by oxide
2016-08-03 07:04:10

You can’t really vote for these central bankers directly. I suppose the best indicator would be a candidate’s choice for Secretary of the Treasury. FWIW Trump has suggested Carl Icahn and Jack Welch* for Treasury Secretary — both of whom love easy money and big business. Clinton has not put forth any names, but she has said that half her Cabinet will be women, so you probably won’t see much tough love there either.

You might be stuck.

*IMO the choice of Jack Welch shows how scatterbrained Trump is. Trump’s main calling card is stopping the outsourcing of American jobs… meanwhile Welch was practically the drum major of the outsourcing parade.

(Comments wont nest below this level)
Comment by snake charmer
2016-08-03 07:24:32

I am on the left and find Clinton utterly odious. I am considering voting for Stein. I will listen to what Johnson has to say.

I hope these third-party candidates will be allowed to participate in the debates, but recognize that it has almost no chance of happening.

(Comments wont nest below this level)
Comment by Professor Bear
2016-08-03 08:06:20

“…if you want zirp to end, who do you vote for this fall? Clearly not Clinton or Trump. So, do you vote Johnson?”

That is not part of the political debate, which is focused on whether Donald Trump will ever stop attacking Muslim parents of slain soldiers long enough to appear presidential, and whether Hillary Clinton is in league with Lucifer.

(Comments wont nest below this level)
Comment by scdave
2016-08-03 08:18:06

would have preferred stimulus into American infrastructure and technology, but that ship has sailed ??

It has not sailed, its been at port…Its getting ready to sail though…IMO, there are going to be some very big changes coming..Major tax reform..Infrastructure development…More manufacturing coming back to the United States..

(Comments wont nest below this level)
Comment by Raymond K Hessel
Comment by Ben Jones
2016-08-02 19:20:38

‘For more than two years, bonds and stocks have been heading in the same direction. Both have been hitting record highs. It’s an each way bet on boom and bust and it’s unheard of. Something has to give at some stage. Either the global economy will recover, rates will rise and those holding bonds or overpriced real estate will do their shirts. Or stock market investors will wake up one day and discover that central banks have run out of ammunition causing a stampede for the exits’

This has been right out there for all to see.

Comment by Raymond K Hessel
2016-08-03 06:34:56

“But nobody saw it coming. Nobody.” — Every MSM corporate presstitute and Fed official, post-crash.

(Comments wont nest below this level)
Comment by snake charmer
2016-08-03 07:20:06

Officially, no one will see the next one coming either. It amazes me how much effort was put into discrediting proponents of contrarian views after 2008. The events of 2008 proved that proponents of contrarian views often are correct. Even now, there are plenty of politicians, economists and pundits who claim that our problem is bad attitudes, rather than a captured government, crony capitalism, historic inequality, and failed doctrines.

Comment by Professor Bear
2016-08-02 21:33:38

“Helicopter Money”

Same old, same old

Comment by Neuromance
2016-08-03 04:24:15

If manipulating the money supply, and deft, subtle redistribution could bring prosperity, Haiti and Zimbabwe would be prosperous.

These policy makers are not scientists. They apply a stimulus, see some changes, and their egos tell them that whatever positive effect is going on is their doing, and any negative effects are handwaved away, or blame assigned.

And then they double down.

I’ve always thought that while the cronies were getting rich and the politicians were getting re-elected, the PTB would keep doing what they were doing. But ultimately central banks are political, regardless of the facade they wish to project (recall Justice Ginsburg breaking the facade of Olympian neutrality and going on a tirade against Trump).

Japan is the model as leading economics pundits have stated. If it is losing its nerve as it reaches the end game of money supply manipulations, it will be both a nerve-wracking and informative period.

The finger pointing will be epic:
Central Bank: “We bought you time to fix the problem and you did nothing.”
Government: “What you did was to prevent necessary change, creative destruction, in the systems that needed them the most.”


Comment by Raymond K Hessel
2016-08-03 07:00:05

Don’t forget Venezuela, a cautionary tale for what happens when the sheeple vote collectivist kleptocrats into power and let them loot and mismanage the economy into the ground. Coming soon to a Democrat-maladministered state, territory, or country near you.

(Comments wont nest below this level)
Comment by Senior Housing Analyst
2016-08-02 18:26:44

Chesire, CT Housing Prices Plunge 11% YoY As Housing Correction Accelerates

Comment by palmetto
2016-08-02 18:34:51

Good evening, Selfish Hoarder, a lovely evening it is here, the rain is pattering gently against the glass sliders and….AAAAAAAND, IT”S GONE!

oh dear.

B-b-b-but, I thought,

“This theft is impossible. Bitcoin has blockchain™®© tehcnology that makes theft impossible. Fonestar told us so.”

Comment by palmetto
2016-08-02 19:00:05


Comment by TheCentralScrutinizer
2016-08-02 19:33:10

Easy come, easy go…

Comment by Raymond K Hessel
2016-08-03 06:35:59
(Comments wont nest below this level)
Comment by Raymond K Hessel
Comment by palmetto
2016-08-02 19:43:06

No one expects the Spanish Inquisition!

Comment by Raymond K Hessel
2016-08-02 19:45:11

Best ZH poster comment:

“Whats in your wallet?!”

Apparently 30% less than otherwise thought…lol…sorry, I just couldn’t let another BitCRASH thread go without saying…SOMETHING! ;-)

Comment by The Selfish Hoarder
2016-08-02 20:26:14

Yes it is a terrific evening!

Now,I can get more Bitcoin per fiat dollar.

Comment by The Selfish Hoarder
2016-08-02 20:37:10

You Trump a$$ kissing state worshippers still don’t realize I have less than 1% of my net worth in crypto currency.

Go ahead and worship the Fed. Oh wait. You post against the Fed. But wait again. You post against any alternative to the fiat.

Comment by jerzdebil
2016-08-03 00:04:43

Projection on your part. I favor the precious metals - gold, silver and lead. Bitcoin intrigues me, more specifically blockchain and its future. But I look to the past for safety going forward.

Comment by palmetto
2016-08-03 05:46:40

Well said.

“I have less than 1% of my net worth in crypto currency.”

Well, now you do.

I’m all for alternatives to the fiat. Just not bitcoin, at least not at this time

(Comments wont nest below this level)
Comment by The Selfish Hoarder
2016-08-03 08:45:46

Well you nutcase,

I buy bitcoin weekly. Look at its chart over 18 months and tell me it was bad to buy it 78 times.

What an idiot. You guys are supposed to be smart. Your on the HBB.

You are supposed to understand diversification and risk awareness in assets. bitcoin is high risk. Riskier than precious metals. Therefore I put 1% of my assets in crypto.

Precious metals is high risk. PB gave me a bad time for months about gold and kept saying it is a barbarous relic. He’s been quiet since gold came back up from $1080 in november.

But I put no more than 10% of my net worth in precious metals. FRIGGING 10 TIMES MORE THAN I PUT IN BITCOIN AND ALT COINS. Stocks do better than the precious in the long run so I have most of my assets in stocks.

You guys are a bunch of jackals.

You cannot talk about any asset class on this site without a nattering nabob saying it’s going to go to zero and you will end up broke.

Comment by Big Mac
2016-08-03 09:17:23

Why expose yourself to those kinds of losses?

Comment by Rental Watch
2016-08-03 09:26:50

I don’t have any bitcoin, but when I’ve thought about it, my personal number was something less than 0.5% of my net worth…either it works and the 0.5% ends up being worth a lot of money, or it doesn’t and my life doesn’t change one bit.

I don’t own any precious metals…mainly because I have so much invested in real assets. If I have more investment $, I’ll likely be putting it in stocks (although maybe for the medium term–the next 2-3 years, I’ll be building cash).

Investment science isn’t complicated. I used to joke that in my various investment classes, if you answered “diversification” to every question, you would at least get a “B-”. If you answered “diversification among non-correlated assets”–that would get you a “B+”.

And that’s the challenge today–there is too much correlation among the more liquid assets. If I were to invest more in the stock market today, I don’t think I would buy an index–I think there are garbage companies that are part of indices that are priced way too highly.

I’d be looking for boring companies that have a long track record of both building book value per share, and paying dividends, and being reasonably priced based on how much book value per share they create and how much dividend they pay.

I may be hunting a creature that doesn’t exist, but at least I know what I’m hunting.

Comment by cactus
2016-08-03 10:16:28

Sold foreign index fund and I bought REITS in a index fund in a IRA.

60% stocks 30% bonds 10% cash, and a house I own about half of it since it went up so much. FWIW

Don’t really count the house but it’s nice I don’t have massive rent increases ..

Comment by The Selfish Hoarder
2016-08-03 11:57:57

“Why expose yourself to those kinds of losses?”

What losses? At this time of posting, Bitcoin is up 12% in three months. Is the S&P 500 up 9% in three months? Bitcoin is up 69% in one year.

Comment by Big Mac
2016-08-03 12:15:42

Your undisclosed losses.

Comment by Raymond K Hessel
2016-08-03 07:02:21

Projection on your part. I favor the precious metals - gold, silver and lead. Bitcoin intrigues me, more specifically blockchain and its future. But I look to the past for safety going forward.

Ditto, and well said.

(Comments wont nest below this level)
Comment by oxide
2016-08-03 06:00:10

“state worshipping”

Nobody worships the State more than you, Bill. If you didn’t worship the State, then you would take your decades of government-paid salary and give it back. But of course, you won’t do that. You’ll hate on the government, but you’ll take their money just the same. And god forbid if anyone else does it; that would be “theft.”

Comment by The Selfish Hoarder
2016-08-03 08:12:24

“Nobody worships the State more than you, Bill.”

The one exception is you Oxide. Thanks for voting of Obama TWICE! He gave me a lot of good defense work from 2009 to 2012. I suppose some of the stuff I worked on for your GOD B.O. killed a lot of people who had nothing to do with terror.

I hope you are happy with that you State worshipper.

(Comments wont nest below this level)
Comment by palmetto
2016-08-03 08:30:52

Leave oxy alone, bill. You don’t have a friggin’ leg to stand on. And let me point out that for sheer braggadocio, Trump’s got nothin’ on you, especially when it comes to braying about “conquests” of the fairer sex.

Have a bowl of steel cut sawdust, go for a swim, have a bit of the old antiseptic in and out, and then figure out how you’re going to replace that $$ that went poof! in the night. Oxy didn’t make that happen, some hacker did.

Comment by palmetto
2016-08-03 08:37:47

Could have been a state-sponsored hacker, though. I’ll give you that.

Comment by The Selfish Hoarder
2016-08-03 09:15:10

Go pound dirt palmy.

You guys are making a mountain out of a molehill only because I hate the fascist and you worship the fascist.

Comment by Blue Skye
2016-08-03 11:02:34

This is a lot of fussing over some lost imaginary wealth. Here on the beach, everyone has pretty much the same stuff. If you spill your beer, somebody will get you another one. We’re all wealthy.

Comment by Professor Bear
2016-08-02 21:38:50

Am I correctly reading that graph to show a 30% price decline since earlier today?

Big ouch!

Comment by TheCentralScrutinizer
2016-08-02 22:21:24

But bitcoin is cheap now… back up the truck!

Well, the imaginary truck, that never gets full of imaginary money…

Comment by Raymond K Hessel
2016-08-03 06:26:19

Odd, I never recall this happening to my physical precious metals in my safe deposit box.

Comment by The Selfish Hoarder
2016-08-03 09:17:35

Cold storage wallets are never hacked. If you say that is false you do not know what you are saying because you are not a cryptographer nor do you know the process of creating cold storage wallets.

Comment by snake charmer
2016-08-03 07:28:34

This is another reason why outlawing cash isn’t a good idea. Crime simply will expand further into the digital domain.

Comment by Ben Jones
2016-08-02 18:45:24

‘The Death of the Central Bank’

July 29, 2016 By Michael Schuman

‘For the past 70 years, Japan has been a crucible of experimentation in economic policy. During its go-go years, Tokyo’s unusual practices to spur rapid growth became a model for much of the rest of Asia, while its unconventional attempts to revive its post-bubble economy have helped economists understand what should and could be done to recover from financial crises.’

‘Now Japan may be offering the world yet another lesson in economics — on the outer limits and ultimate effectiveness of monetary policy itself. Bank of Japan Governor Haruhiko Kuroda disappointed investors on Friday when he offered only a minor boost in his asset-buying program as his latest effort to beat deflation and raise growth. With talk of “helicopter money” and other exotic strategies, many had convinced themselves that the BOJ would try to surprise markets with a much more dramatic decision. Voices immediately called for greater action. “We still expect the Bank to do more,” wrote economist Marcel Thieliant of Capital Economics in a Friday note.’

‘Kuroda has already thrown everything into his fight to save Japan. Through his extensive program of quantitative easing, his bank now holds a third of all outstanding government bonds, and some experts believe there are limits to his ability to buy more and more of them. Yields on many of these bonds are already negative, which means the investors who are lending their money to the government are paying for the privilege. The total assets of the BOJ have more than doubled in the just the past three years.’

‘Even if Kuroda could expand the easing program, there’s little reason to think it will make a big difference. At this point, further rate cuts or more bond-buying would only be on the margins of his actions thus far. And those haven’t gotten the BOJ very far. By one key measure, the economy sunk deeper into deflation in June.’

‘The fact is that BOJ can pump out as much cash as it wants, but unless companies and consumers use it to invest and spend, Kuroda’s “bazooka” can only fire blanks. The government simply hasn’t advanced the critical reforms — from deregulation to labor market repair — that would unleash new opportunities and convince investors to borrow, build and create.’

‘Arguably, the case could be made that Japan would be much worse off without Kuroda’s experiments. But with so much largesse creating so little positive effect, we at least need to question if further easing could achieve that much more. In fact, greater action could have a damaging effect, by further straining banks and punishing savers. And those concerns are only going to grow over time.’

‘There are uncomfortable lessons here for other central bankers. Mario Draghi, president of the European Central Bank, is, like Kuroda, under constant pressure to take more drastic steps to stoke inflation and growth. But Kuroda’s experience should act as a warning that his bank may eventually hit a ceiling as well. In China, where policymakers are easing money to spur growth, the BOJ’s traumas are clear proof that expanding cash without implementing true structural reforms only goes so far.’

‘Kuroda’s only hope may be to tinker further with his unorthodox policies and take even more radical decisions — such as lending to banks at negative rates. Perhaps Japan will continue to be a laboratory of economic innovation. The results, though, are likely to be sobering.’

Comment by Ben Jones
2016-08-02 18:50:14

From CNBC. “Corporate debt is projected to swell over the next several years, thanks to cheap money from global central banks, according to a report that warns of a potential crisis from all that new, borrowed cash floating around. By 2020, business debt likely will climb to $75 trillion from its current $51 trillion level, according to S&P Global Ratings. Under normal conditions, that wouldn’t be a major problem so long as credit quality stays high, interest rates and inflation remain low, and there are economic growth persists.”

“However, the alternative is less pleasant should those conditions not persist. In that case, a ‘Crexit,’ or withdrawal by lenders from the credit markets, could occur and lead to a sudden tightening of conditions that could trigger another financial scare. ‘A worst-case scenario would be a series of major negative surprises sparking a crisis of confidence around the globe,’ S&P said in the report. ‘These unforeseen events could quickly destabilize the market, pushing investors and lenders to exit riskier positions (’Crexit’ scenario). If mishandled, this could result in credit growth collapsing as it did during the global financial crisis.’”

“In fact, S&P considers a correction in the credit markets to be ‘inevitable.’ The only question is degree. ‘Central banks remain in thrall to the idea that credit-fueled growth is healthy for the global economy,’ S&P said. ‘In fact, our research highlights that monetary policy easing has thus far contributed to increased financial risk, with the growth of corporate borrowing far outpacing that of the global economy.’”

Comment by Ben Jones
2016-08-02 18:51:55

From that same post:

‘A weekend topic on the housing bubble and policy starting with the Evening Standard. “It is generally a mistake to assume that because someone is in charge, they know what they are doing. It is not just politicians we should worry about, however. The same can be said of technocrats, many of whom wield as much power. This list comprises many business leaders but, most of all in today’s world, it also includes central bankers. For the past eight years, we have by and large assumed these figures of authority knew what they were doing, even when they pursued ever more extreme and experimental policies — always with the best of intentions, but with no real idea of how they might pan out.”

“In a speech earlier this month, Hans Hoogervorst, the one-time Dutch politician who now chairs the International Accounting Standards Board, drew attention to the reservations expressed by Jaime Caruana, general manager of the Bank for International Settlements — the central bankers’ club. Caruana said with refreshing honesty: ‘At this stage, we don’t fully understand the implications of low or even negative interest rates for the financial system and the economy as a whole.’”

“It is not as if we do not know some of the negative side-effects of ultra-low interest rates, which are at the core of current unconventional monetary policies. Hoogervorst even quotes the 82nd BIS annual report, which talks about how low rates increase leverage in the system. The 2008 blow-up was a classic credit crisis caused by the excessive build-up of debt in the economy. But thanks to low interest rates, leverage today is now even higher than it was then.”

“McKinsey has done the sums. In 2007, the combined worldwide debt of households, governments, corporations and the financial sector was an astonishing 269% of global GDP. By the end of 2014, it was an even more astonishing 286%. Add in the unfunded pension liabilities of various governments round the world, which Citigroup estimated in March to be $78 trillion (£59 trillion) for the 20 leading OECD economies, and the overall indebtedness of the world’s economy today comes to more than 400% of global GDP.”

“As Hoogervorst says, it is hard to see how this is going to end well or how these obligations can be met in an orderly fashion. There is a social cost, too. Unconventional policies such as quantitative easing fuel asset-price inflation in stock markets and property. This contains the seeds of future instability and, with expensive housing in particular, can have huge negative consequences for society, accentuating inequality and intergenerational unfairness. London housing is now 50% higher than it was before the 2008 crash.”

“‘To be in bubble territory again so soon after one of the worst credit crunches in history defies common sense,’ Hoogervorst says.”

Comment by Raymond K Hessel
Comment by Professor Bear
2016-08-02 21:42:01

Money soon to be expatriated for use in purchasing U.S. and Canadian real estate…

Comment by Mike
2016-08-02 21:58:42

Meanwhile, in LA…

A house near Hamilton High, not a great area, not too bad… was just bought for cash $800K by an Israeli for some inlaws to live in.

On the LA/Santa Monica border, a decent, slightly luxurious 3 bed, 2 bath condo went for $985 cash.

Please let it crash… please, please, please… let it crash.

Comment by Big Mac
2016-08-03 03:36:42

All houses are bought with cash. Borrowed cash.

Comment by Combotechie
2016-08-03 05:19:17

“All houses are bought with cash. Borrowed cash.”

The dynamics is such:

The seller gets paid in full, and in cash.

The buyer neither has to pay in full or does he have to pay in cash.

These dynamics promote some interesting prices - prices that could otherwise never be reached.

Comment by azdude
2016-08-03 05:51:29

This character has been on the sidelines for 10 years and all he can talk about is being in cash. I would not follow his advice.

(Comments wont nest below this level)
Comment by Blue Skye
2016-08-03 12:23:30

Combo might indeed be on the sidelines looking in, but I believe that you sir fell right into the hole long ago.

Comment by Big Mac
2016-08-03 05:54:22

A distinction without a difference.

(Comments wont nest below this level)
Comment by palmetto
2016-08-03 06:22:50

And meanwhile, here in my neck of the woods:

Oh GAWD, you’d have to be familiar to understand how surreal this transaction is. This “waterfront mansion” is on a swampy spit of land that sticks out into Tampa Bay, a fetid, polluted body of water that rots the undersides of watercraft. This property has great views of all the industrial/commercial stuff around the bay, including the belching smoke stacks of the Tampa Electric plant and the Mosaic Fertlizer plant.

Ruskin itself is a more or less downtrodden little burg. Take the main drag through it and it feels like Tiajuana mated with some former mill town in North Carolina. There are a handful of “upscale” homes in the area, side by side with trailer parks and crumbling concrete block shacks.

Why anyone would pay that price for this property is beyond me.

Comment by palmetto
2016-08-03 06:57:57

B-b-b-but, Ruskin has a lot of potential! And it always will.

Don’t get me wrong, I actually enjoyed living there. In 2000, it was quiet, cheap, much of it was still rural and it was easy to get wherever you wanted to go. Traffic was very light. The people were generally very nice, although downtrodden. It was a great escape from South Florida. I thought I died and went to heaven.

Of course, when people asked where I lived and I told them, there’d be this sort of pause and an “oh”. I didn’t mind, in fact I liked it. Nobody wanted to live there and that was part of the advantage.

And then they started developing the area, without improving anything. Not to mention Amazon moved in. Traffic is horrible now. And it’s hotter here than ever during the summer. Ugh.

Comment by oxide
2016-08-03 07:21:46

Here it is:

I have to say I’m not impressed. There are much better properties to be had for $4.6M.

Comment by palmetto
2016-08-03 07:56:58

That’s exactly my point. If I was going to spend 4.6 million, that is certainly not where I’d spend it. Well, the gal made a nice commission, that’s for sure. More power to her. I guess.

Comment by snake charmer
2016-08-03 07:39:50

Ruskin used to be tomato farms, too.

The weather has been molten hot these last two summers. Not unusual during the day, but it’s not cooling off at night. Yesterday’s paper noted that this last July tied for the hottest in 125 years of recordkeeping.

Comment by palmetto
2016-08-03 08:18:16

Ruskin still has tomato farms and some other minor agricultural stuff, like ornamental plants. But it’s a lot less agricultural than it used to be.

What’s gone now are all the orange groves, except for one family owned business that does consumer gift type stuff, during Christmas and Thanksgiving. It wasn’t long ago that a person could smell those orange blossoms in the air during the spring and fall. In fact, sometimes the scent was so heavy that it was more cloying than pleasant on occasion.

Then all those groves got sold off to developers en masse and in their place, now we have massive Homes for Hillsborough (for those not familiar, Hillsborough is a county in Florida that includes the city of Tampa) low (cough) income housing developments, funded by the USDA, where people can provide “labor” as part of their down payment. I’ve written about this before, one lady told me she did a landscape design as part of her down payment, I kid you not.

People don’t realize how massive this program is, because you have to drive the back roads of Ruskin and Wimauma to really get a feel for how sprawling the development is. But, low income my arse. $150,000 is low income housing? Give me a break. The only thing low income about it was the down payment program. Most people who live there don’t have a pot to piss in or a window to throw it out of. They’re one air conditioner breakdown away from total ruin. They’ve got to jam those houses full of friends and family to make their monthly payments and even then.

When the final story is told on this program, I’m betting we’ll find out it was riddled with fraud. Just like everything else these days, sigh.

Comment by Middle Coaster
2016-08-03 10:43:45

This is still happening all over Florida. Near where my family members live farther south in the state, Babcock Ranch has been sold off to developers. It’s pretty far inland, is a wildlife area, and there is absolutely no need to build there with so many lots and plots available in areas that already have sewer, water and electricity. Who is going to live there? Probably the same low-income people you have described. Madness.

(Comments wont nest below this level)
Comment by Big Mac
2016-08-03 11:28:07

Comment by Middle Coaster
2016-02-17 13:03:16
HA/MB is impervious to suggestion, cajoling, criticism, pleading and insults. He’s like a tank. An obnoxious, repetitive, putrid tank.

Comment by Middle Coaster
2016-08-03 13:33:39

Ha ha, HA. That really hit a nerve.

Comment by Big Mac
2016-08-03 14:26:17

It’s a gold star indicator that I live in your head….. rent free.

Comment by Raymond K Hessel
2016-08-03 06:23:23

One of the most debt-levered real estate markets on the planet (London) is moving in the wrong direction. Uh-oh….

Comment by Senior Housing Analyst
2016-08-03 06:25:15

Santa Barbara, CA Affordability Surges As Housing Prices Crater 12% YoY

Comment by Raymond K Hessel
2016-08-03 06:40:09

Why is it that the cities with the tightest gun control laws have the highest murder rates? Could there possibly be a connection between electing corrupt, incompetent collectivist kleptocrats aka Democrats, and urban centers descending into broke dystopian hellholes?

Comment by Middle Coaster
2016-08-03 10:49:54

No. It’s gangs that have broken down into block-by-block fiefdoms because the gang leaders who used to keep relative order are all in prison. The Tribune had a big investigative article on it last Sunday. The young punks have no respect for, or fear of, the old timers when they get out of prison and try to re-establish their previous authority. It’s anarchy and chaos. It has little to do with who’s in city government, what the law says with regard to gun ownership, or anything else outside of the hellholes where the gangbangers live.

Comment by Middle Coaster
2016-08-03 11:16:28

Another factor is that the decentralization of low-income housing has made it harder to keep an eye on the gangs. Back in the day, each gang was based in one complex or building. Now they are scattered around.

New York has the advantage of not being next door to a state where legal guns are easily obtained. Chicago sits next to the Indiana border. A short drive gets the enterprising entrepreneur a trunkful of weapons which can then be illegally resold.

Comment by oxide
2016-08-03 18:59:05

Thank you for all this insight! The liberals have this idealistic notion that if they scattered the riff-raff among the more well-behaved neighborhoods, the it-takes-a-village effect will kick in and those few riff-raff will be overwhelmed by love and mend their ways.

What seems to happen instead is that it takes only a few riff-raff to take down the entire village. Scatter the riff-raff, and you scatter the destruction — especially now that the ubiquitous cell phone negates any physical separation.

I don’t know what the solution will be.

Comment by Middle Coaster
2016-08-04 08:28:36

Who knew that tearing down the huge projects would have this effect? It appears no one has a solution…at least not a legal or ethical one.

(Comments wont nest below this level)
Comment by Big Mac
2016-08-03 06:54:57

If you have to borrow for 15 or 30 years it’s not affordable nor can you afford it.

Comment by Raymond K Hessel
2016-08-03 07:06:10

Another Establishment GOP corporate statist, neocon, globalist RINO shows her true colors.

Comment by Jesus Navas is my Lord Savior
2016-08-03 08:35:40

I could see them supporting libertarian or just abstaining, but to support a democrat….and Hillary for that matter…I mean that’s a stuff of……

Comment by Rental Watch
2016-08-03 09:34:58

If you truly think that Trump is dangerous, and having any corrupt politician in the Oval is better than Trump, AND you have a voice that will be heard across state lines, THEN I can understand being a vocal Hillary supporter, even if you are Republican.

However, if you live in a state like CA (like Meg Whitman), and no one in other states gives a sh*t about what you say (like most Republicans in the state of CA), then I agree with your statement.

Comment by Senior Housing Analyst
2016-08-03 07:17:58

Takoma Park, MD(DC Metro) Housing Prices Crater 28% YoY As Price Declines Ramp Up Nationally

Comment by phony scandals
2016-08-03 10:18:03

I need to borrow a copy of Khizr Khan’s pocket Constitutions to see where DHS got the power to grant temporary amnesty to more than 8,000 Syrians.

DHS Grants Syrians Temporary Amnesty

Can remain for up to 18 months longer no matter what their legal status…

Stephen Dinan | Washington Times - August 1, 2016

Homeland Security granted a new temporary amnesty Monday to more than 8,000 Syrians living in the U.S. right now, saying they can remain for up to 18 months longer no matter what their legal status.

Secretary Jeh Johnson issued “temporary protected status” to Syrians, saying that if they are in the U.S. as of Monday and continue to reside here permanently, they can apply for work permits and other documents to remain and live in the U.S. without fear of being ousted.

His order applies to some 5,800 Syrians who were granted status under a 2012 TPS program, and 2,500 new arrivals who don’t have a more permanent status here.

“Syria’s lengthy civil conflict has resulted in high levels of food insecurity, limited access to water and medical care, and massive destruction of Syria’s infrastructure. Attacks against civilians, the use of chemical weapons and irregular warfare tactics, as well as forced conscription and use of child soldiers have intensified the humanitarian crisis,” Mr. Johnson said in announcing the new program.

Name (required)
E-mail (required - never shown publicly)
Your Comment (smaller size | larger size)
You may use <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong> in your comment.

Trackback responses to this post