Saturday, November 9, 2019
Weekly Commentary:
Extraordinary Monetary Disorder
by Doug Noland
the full column is here:
Items that interested me
are summarized below:
Ye Editor
For the week ending
November 8, 2019:
S&P500 up 0.9% (up 23.4% y-t-d)
Dow Industrials up 1.2% (up 18.7%)
Dow Utilities down 3.7% (up 17.1%)
Dow Transports up 3.1% (up 20.7%)
S&P 400 Midcaps up 0.8% (up 20.2%)
Small cap Russell 2000 up 0.6% (up 18.6%).
Nasdaq100 up 1.2% (up 30.4%).
Nasdaq100 up 1.2% (up 30.4%).
Biotechs up 1.2% (up 8.6%).
With gold bullion down $55,
the HUI gold stock index
was down 6.5% (up 27.5%)
U.K.'s FTSE increased 0.8% (up 9.4% y-t-d).
Japan's Nikkei rose 2.4% (up 16.9% y-t-d).
France's CAC40 jumped 2.2% (up 24.5%).
German DAX rose 2.1% (up 25.3%).
Spain's IBEX 35 increased 0.7% (up 10.0%).
Italy's FTSE MIB surged 2.6% (up 28.4%).
Brazil's Bovespa declined 0.5% (up 18.3%)
Mexico's Bolsa slipped 0.3% (up 5.0%).
South Korea's Kospi jumped 1.8% (up 4.7%).
India's Sensex increased 0.4% (up 11.8%).
China's Shanghai added 0.2% (up 18.9%).
Turkey's Istanbul National 100 surged 4.8% (up 13.0%).
Russia's MICEX jumped 1.5% (up 25.5%).
US BONDS & MORTGAGES:
Ten-year Treasury bond yields
rose 23 bps to 1.94% (down 74bps).
Thirty-year Traesury bond yields
surged 24 bps to 2.425% (down 59bps).
Freddie Mac 30-year fixed mortgage rates
dropped nine bps to 3.69% (down 125bps y-o-y).
dropped nine bps to 3.69% (down 125bps y-o-y).
Fifteen-year rates
fell six bps to 3.13% (down 120bps).
fell six bps to 3.13% (down 120bps).
Five-year hybrid ARM rates
declined four bps to 3.39% (down 75bps).
declined four bps to 3.39% (down 75bps).
Jumbo mortgage 30-year fixed rates
up a basis point to 4.12% (down 73bps).
up a basis point to 4.12% (down 73bps).
FEDERAL RESERVE BANK:
Federal Reserve Credit
last week surged to $4.000 TN,
with a seven-week gain of $276bn.
Over the past year,
Fed Credit
contracted 2.5%.
M2 money supply
gained 6.9%
over the past year.
With two months to go,
2019 M2 growth is on track
to easily exceed 2016’s
record $854 billion
expansion.
Over six months,
M2 surged
at a +9.3%
annual growth
rate.
Since the end of 2008,
M2 has inflated $7.027 TN,
or 86%.
Money Market Fund Assets
have increased $517 billion
year-to-date (to $3.555 TN),
an almost 20% annualized rate.
Over six months,
MMFA surged
at a +35%
annual growth
rate !
It is worth pondering
that money fund growth
hasn’t been this robust
since 2007.
Commodities Watch:
Bloomberg Commodities Index
declined 0.9% this week (up 3.8% y-t-d).
declined 0.9% this week (up 3.8% y-t-d).
Spot Gold dropped 3.7% to $1,459 (up 13.8%).
Silver sank 6.8% to $16.823 (up 8.3%).
WTI crude rose $1.04 to $57.24 (up 26%).
Gasoline declined 1.3% (up 23%)
Natural Gas jumped 2.8% (down 5%).
Copper rose 1.1% (up 2%).
Wheat fell 1.1% (up 1%).
Corn sank 3.1% (up 1%).
Quotes from the News:
November 6 – Reuters (David Brunnstrom and Matt Spetalnick):
“A meeting between U.S. President Donald Trump and Chinese President Xi Jinping to sign a long-awaited interim trade deal could be delayed until December
as discussions continue over terms and venue, a senior official of the Trump administration told Reuters…. The official, who spoke on condition of anonymity, said it was still possible the ‘phase one’ agreement aimed at ending a damaging trade war would not be reached, but a deal was more likely than not.”
“A meeting between U.S. President Donald Trump and Chinese President Xi Jinping to sign a long-awaited interim trade deal could be delayed until December
as discussions continue over terms and venue, a senior official of the Trump administration told Reuters…. The official, who spoke on condition of anonymity, said it was still possible the ‘phase one’ agreement aimed at ending a damaging trade war would not be reached, but a deal was more likely than not.”
November 4 – Reuters (Valerie Volcovici):
“The Trump administration said… it filed paperwork to withdraw the United States from the Paris Agreement, the first formal step in a one-year process to exit the global pact to fight climate change.
The move is part of a broader strategy by President Donald Trump to reduce red tape on American industry, but comes at a time scientists and many world governments urge rapid action to avoid the worst impacts of global warming.”
“The Trump administration said… it filed paperwork to withdraw the United States from the Paris Agreement, the first formal step in a one-year process to exit the global pact to fight climate change.
The move is part of a broader strategy by President Donald Trump to reduce red tape on American industry, but comes at a time scientists and many world governments urge rapid action to avoid the worst impacts of global warming.”
November 5 – Associated Press:
“U.S. service companies grew at a faster pace in October after sinking to a three-year low in September. The Institute for Supply Management… reported… its service index grew to 54.7% last month, up from 52.6% in September…
Measures of sales, new orders and employment all rebounded from the previous month. The service sector, which accounts for more than two-thirds of U.S. economic activity, has been expanding for 117 straight months, according to the survey-based ISM index.”
“U.S. service companies grew at a faster pace in October after sinking to a three-year low in September. The Institute for Supply Management… reported… its service index grew to 54.7% last month, up from 52.6% in September…
Measures of sales, new orders and employment all rebounded from the previous month. The service sector, which accounts for more than two-thirds of U.S. economic activity, has been expanding for 117 straight months, according to the survey-based ISM index.”
November 5 – CNBC (Jeff Cox):
“As the administration continues its efforts to close the first phase of a tariff deal with China, the trade balance remains 13.1% higher from the $46.4 billion level when President Donald Trump took office.”
The U.S. trade deficit with its global partners contracted to $52.5 billion in September as the White House continued its efforts to close the gap in goods and services… The deficit was slightly above expectations of $52.2 billion… August’s shortfall was just over $55 billion.
“As the administration continues its efforts to close the first phase of a tariff deal with China, the trade balance remains 13.1% higher from the $46.4 billion level when President Donald Trump took office.”
The U.S. trade deficit with its global partners contracted to $52.5 billion in September as the White House continued its efforts to close the gap in goods and services… The deficit was slightly above expectations of $52.2 billion… August’s shortfall was just over $55 billion.
November 6 – Reuters (Jason Lange):
“American workers were unexpectedly less productive during the third quarter, with growth in their output failing to keep up with hours worked.
…Nonfarm productivity, which measures hourly output per worker, fell at a 0.3% annualized rate between July and September, the biggest decline in almost four years. The last drop that was sharper was in the fourth quarter of 2015… Unit labor costs, the price of labor per single unit of output, rose at a 3.6% rate in the third quarter.”
“American workers were unexpectedly less productive during the third quarter, with growth in their output failing to keep up with hours worked.
…Nonfarm productivity, which measures hourly output per worker, fell at a 0.3% annualized rate between July and September, the biggest decline in almost four years. The last drop that was sharper was in the fourth quarter of 2015… Unit labor costs, the price of labor per single unit of output, rose at a 3.6% rate in the third quarter.”
November 7 – Bloomberg (Prashant Gopal):
“The median price of an existing single-family home in the U.S. was $280,200, up 5.1% from a year earlier…
By comparison, the annual gain in the second quarter was 4.3%.”
“The median price of an existing single-family home in the U.S. was $280,200, up 5.1% from a year earlier…
By comparison, the annual gain in the second quarter was 4.3%.”
November 3 – Wall Street Journal (Laura Kusisto):
“Homeowners nationwide are remaining in their homes typically 13 years, five years longer than they did in 2010, according to… Redfin.
When owners don’t trade up to a larger home for a growing family or downsize when children leave, it plugs up the market for buyers coming behind them. ‘If people aren’t moving on, there just are fewer and fewer homes available for new home buyers,’ said Daryl Fairweather, Redfin’s chief economist.”
“Homeowners nationwide are remaining in their homes typically 13 years, five years longer than they did in 2010, according to… Redfin.
When owners don’t trade up to a larger home for a growing family or downsize when children leave, it plugs up the market for buyers coming behind them. ‘If people aren’t moving on, there just are fewer and fewer homes available for new home buyers,’ said Daryl Fairweather, Redfin’s chief economist.”
November 7 – Bloomberg (Katia Dmitrieva):
“U.S. consumer credit rose in September at the slowest rate since mid-2018 as Americans carried smaller credit-card balances.
Total credit increased $9.5 billion, less than forecast, after a revised $17.8 billion gain in August… Borrowing increased at a 2.8% annualized rate, the slowest since June 2018.”
“U.S. consumer credit rose in September at the slowest rate since mid-2018 as Americans carried smaller credit-card balances.
Total credit increased $9.5 billion, less than forecast, after a revised $17.8 billion gain in August… Borrowing increased at a 2.8% annualized rate, the slowest since June 2018.”
November 6 – Bloomberg (Noah Buhayar and Christopher Cannon):
“ The median price for a house in California now tops $600,000, more than twice the national level.
The state has four of the country’s five most expensive residential markets—Silicon Valley, San Francisco, Orange County and San Diego. (Los Angeles is seventh.)
The poverty rate, when adjusted for the cost of living, is the worst in the nation. California accounts for 12% of the U.S. population, but a quarter of its homeless population…
‘Broadly speaking, there is no solution to the California housing crisis without the construction of millions of new houses,’ said David Garcia, policy director for the Terner Center for Housing Innovation at the University of California, Berkeley.”
“ The median price for a house in California now tops $600,000, more than twice the national level.
The state has four of the country’s five most expensive residential markets—Silicon Valley, San Francisco, Orange County and San Diego. (Los Angeles is seventh.)
The poverty rate, when adjusted for the cost of living, is the worst in the nation. California accounts for 12% of the U.S. population, but a quarter of its homeless population…
‘Broadly speaking, there is no solution to the California housing crisis without the construction of millions of new houses,’ said David Garcia, policy director for the Terner Center for Housing Innovation at the University of California, Berkeley.”
November 5 – Wall Street Journal (Heather Gillers):
“As the bull market enters its 11th year, state and local pension plans are piling on risk, as they try to make up shortfalls. Public plans had a median 47.3% of their assets in U.S. equities at the end of the third quarter, according to database Wilshire Trust Universe Comparison Service. That is more than they have had since 2007 and up from 44.1% a year earlier.
Taking on more exposure to stocks is a riskier bet… Those risks can translate to consequences in a decline: Big hits to pension funds’ stock portfolios during the financial crisis were followed by a wave of benefit cuts for government workers hired since then. Retirement systems that manage money for firefighters, police officers, teachers and other public workers are banking on market returns of 7% or more to help cover shortfalls.
State and local pension plans have about $4.4 trillion in assets…, $4.2 trillion less than the value of promised future benefits.”
“As the bull market enters its 11th year, state and local pension plans are piling on risk, as they try to make up shortfalls. Public plans had a median 47.3% of their assets in U.S. equities at the end of the third quarter, according to database Wilshire Trust Universe Comparison Service. That is more than they have had since 2007 and up from 44.1% a year earlier.
Taking on more exposure to stocks is a riskier bet… Those risks can translate to consequences in a decline: Big hits to pension funds’ stock portfolios during the financial crisis were followed by a wave of benefit cuts for government workers hired since then. Retirement systems that manage money for firefighters, police officers, teachers and other public workers are banking on market returns of 7% or more to help cover shortfalls.
State and local pension plans have about $4.4 trillion in assets…, $4.2 trillion less than the value of promised future benefits.”
November 3 – Financial Times (Chris Flood):
“General Electric’s recent decision to freeze retirement benefits for 20,000 employees provides the latest unwelcome illustration of the problems confronting millions of US workers battling to secure a decent income in old age.
The pain felt by GE’s employees is shared by more than half a million workers across multiple US industries that also face cuts to pension benefits… GE’s pension obligations stood at $91.8bn at the end of last year, significantly higher than the industrial conglomerate’s $66bn market value on December 31.”
“General Electric’s recent decision to freeze retirement benefits for 20,000 employees provides the latest unwelcome illustration of the problems confronting millions of US workers battling to secure a decent income in old age.
The pain felt by GE’s employees is shared by more than half a million workers across multiple US industries that also face cuts to pension benefits… GE’s pension obligations stood at $91.8bn at the end of last year, significantly higher than the industrial conglomerate’s $66bn market value on December 31.”
November 6 – CNBC (Maggie Fitzgerald):
“CEO departures hit a record high for the year through October, with 1,332 U.S. based companies announcing CEO departures.
In the past two weeks, McDonald’s and Under Armour lost their CEOs, continuing the record-setting pace of exits this year by the heads of U.S. businesses. October marked the highest month on record with 172 chief executives leaving their posts, according to… Challenger, Gray & Christmas. The firm started tracking CEO departures in 2002, a period that includes the financial crisis. This year is on pace to have the most departures on record.”
“CEO departures hit a record high for the year through October, with 1,332 U.S. based companies announcing CEO departures.
In the past two weeks, McDonald’s and Under Armour lost their CEOs, continuing the record-setting pace of exits this year by the heads of U.S. businesses. October marked the highest month on record with 172 chief executives leaving their posts, according to… Challenger, Gray & Christmas. The firm started tracking CEO departures in 2002, a period that includes the financial crisis. This year is on pace to have the most departures on record.”
November 9 – Bloomberg:
“China’s consumer inflation rose to a seven-year high last month on the back of rising pork prices, complicating policy makers’ decision on whether to further ease funding for the country’s weakening industrial sector. The consumer price index rose 3.8% in October from a year earlier, up from 3% in the previous month.”
November 5 – Financial Times (Sun Yu and Tom Hancock):
“The dozens of abandoned, unfinished buildings in the central business district of Kaifeng, a city of 5m in central China, are a telling symbol of the country’s stuttering efforts to stimulate its economy — and the dwindling effect it is having on global growth.
Previous slowdowns, most notably in 2008-09 and 2015-16, saw the ruling Communist party approve huge lending programmes to spur construction, reviving the domestic economy and boosting global demand. But although growth has this year slowed to its lowest level for three decades, posing a substantial drag on the global economy, Beijing’s policy response has been limited to measures such as tax reforms, cuts to bank reserve requirements and tweaks to local government bond issuance… China’s central bank describes its stimulus policy as ‘targeted’ at specific sectors, rather than what it calls the ‘flood-like’ easing of previous slowdowns.”
“The dozens of abandoned, unfinished buildings in the central business district of Kaifeng, a city of 5m in central China, are a telling symbol of the country’s stuttering efforts to stimulate its economy — and the dwindling effect it is having on global growth.
Previous slowdowns, most notably in 2008-09 and 2015-16, saw the ruling Communist party approve huge lending programmes to spur construction, reviving the domestic economy and boosting global demand. But although growth has this year slowed to its lowest level for three decades, posing a substantial drag on the global economy, Beijing’s policy response has been limited to measures such as tax reforms, cuts to bank reserve requirements and tweaks to local government bond issuance… China’s central bank describes its stimulus policy as ‘targeted’ at specific sectors, rather than what it calls the ‘flood-like’ easing of previous slowdowns.”
November 7 – Bloomberg:
“Signs of stress within China’s legion of small banks are cropping up across China.
On Thursday, Guangdong Nanyue Bank made a rare decision to skip early redemption on its local tier-two bond without giving a reason, sparking fresh concern about its financial strength. Two other banks have faced runs at some branches in recent days… Many other lenders are embarking on efforts to bolster capital. The drumbeat of news is heightening investor concerns about China’s more-than 3,000 small banks, many of which are coping with a mountain of bad loans and a government crackdown on risky funding practices. To prevent panic, authorities are considering a package of measures to shore up any cracks in the world’s largest banking system -- a complex challenge.”
“Signs of stress within China’s legion of small banks are cropping up across China.
On Thursday, Guangdong Nanyue Bank made a rare decision to skip early redemption on its local tier-two bond without giving a reason, sparking fresh concern about its financial strength. Two other banks have faced runs at some branches in recent days… Many other lenders are embarking on efforts to bolster capital. The drumbeat of news is heightening investor concerns about China’s more-than 3,000 small banks, many of which are coping with a mountain of bad loans and a government crackdown on risky funding practices. To prevent panic, authorities are considering a package of measures to shore up any cracks in the world’s largest banking system -- a complex challenge.”
November 4 – Bloomberg (Ina Zhou):
“China’s private companies have been hit disproportionately hard as the economy slows, with their default rate doubling to 12% this year, compared with 1.5% for the overall domestic bond market,
according to China International Capital Corp. Since the first onshore bond default in 2014, 93 private firms have defaulted on 278.7b yuan ($39.7bn) bonds as of Oct. 29, compared to their outstanding onshore bonds of 2.4 trillion yuan, CICC said…The private company default rate in China was 6.2% last year and close to 2% in 2017, it said.”
“China’s private companies have been hit disproportionately hard as the economy slows, with their default rate doubling to 12% this year, compared with 1.5% for the overall domestic bond market,
according to China International Capital Corp. Since the first onshore bond default in 2014, 93 private firms have defaulted on 278.7b yuan ($39.7bn) bonds as of Oct. 29, compared to their outstanding onshore bonds of 2.4 trillion yuan, CICC said…The private company default rate in China was 6.2% last year and close to 2% in 2017, it said.”
November 6 – Wall Street Journal (Zhou Wei and Serena Ng):
“In the trenches of China’s debt-addled economy, the government has made a startling decision: Let companies fail.
That has left creditors angry, debtors fighting to save their businesses and judges on a mission to promote the benefits of bankruptcy. After years of pumping out financial support to keep the economy humming and workers happy, China has embarked on a debt reckoning. Beijing is building a bankruptcy system to take on a significant pickup in corporate defaults. The country now has more than 90 U.S.-style specialized bankruptcy courts to help sort through a morass of corporate debt that, until recently, would have been swallowed by state banks and other creditors.”
“In the trenches of China’s debt-addled economy, the government has made a startling decision: Let companies fail.
That has left creditors angry, debtors fighting to save their businesses and judges on a mission to promote the benefits of bankruptcy. After years of pumping out financial support to keep the economy humming and workers happy, China has embarked on a debt reckoning. Beijing is building a bankruptcy system to take on a significant pickup in corporate defaults. The country now has more than 90 U.S.-style specialized bankruptcy courts to help sort through a morass of corporate debt that, until recently, would have been swallowed by state banks and other creditors.”
November 7 – Reuters (Lusha Zhang and Ryan Woo): “China’s exports and imports contracted less than expected in October, providing some relief for the economy as Beijing tries to reach a partial trade deal with Washington…
China’s October exports fell for the third straight month, down 0.9% from a year earlier…, less than a 3.9% fall forecast in a Reuters poll and September’s 3.2% contraction… China’s imports shrank for the sixth consecutive month, though the 6.4% drop was smaller than an expected 8.9% and September’s 8.5% decline.”
China’s October exports fell for the third straight month, down 0.9% from a year earlier…, less than a 3.9% fall forecast in a Reuters poll and September’s 3.2% contraction… China’s imports shrank for the sixth consecutive month, though the 6.4% drop was smaller than an expected 8.9% and September’s 8.5% decline.”
November 7 – Bloomberg:
“China’s car-market gloom continued in October as the traditional post-holiday demand peak failed to materialize,
leaving automakers with few easy answers to attract buyers back to showrooms. Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles dropped 6% from a year earlier to 1.87 million units… The decline was the 16th in the past 17 months…”
“China’s car-market gloom continued in October as the traditional post-holiday demand peak failed to materialize,
leaving automakers with few easy answers to attract buyers back to showrooms. Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles dropped 6% from a year earlier to 1.87 million units… The decline was the 16th in the past 17 months…”
November 4 – Bloomberg:
“Beijing is getting ready for another gray winter after China eased air quality targets, signaling the government is focusing on bolstering slowing growth at the expense of cleaner air.
In September, the government eased its target for a key air quality indicator in northern China, including industrial areas surrounding the capital. It is seeking a 4% drop in concentrations of deadly PM 2.5 particles in the October-to-March period from a year earlier, lower than the 5.5% decline it sought in an earlier draft of pollution-control goals.”
“Beijing is getting ready for another gray winter after China eased air quality targets, signaling the government is focusing on bolstering slowing growth at the expense of cleaner air.
In September, the government eased its target for a key air quality indicator in northern China, including industrial areas surrounding the capital. It is seeking a 4% drop in concentrations of deadly PM 2.5 particles in the October-to-March period from a year earlier, lower than the 5.5% decline it sought in an earlier draft of pollution-control goals.”
November 4 – Reuters (Stephen Addison and Alistair Smout):
“Britain will impose an immediate moratorium on fracking, the government announced on Saturday,
saying the controversial gas extraction technique risked causing too much disruption to local communities through earth tremors. The move could win support for Prime Minister Boris Johnson’s Conservatives in constituencies in northern England where fracking had been planned, but was dismissed by the opposition Labour party as a ‘stunt’ ahead of December’s election.”
“Britain will impose an immediate moratorium on fracking, the government announced on Saturday,
saying the controversial gas extraction technique risked causing too much disruption to local communities through earth tremors. The move could win support for Prime Minister Boris Johnson’s Conservatives in constituencies in northern England where fracking had been planned, but was dismissed by the opposition Labour party as a ‘stunt’ ahead of December’s election.”
November 7 – Bloomberg (Viktoria Dendrinou):
“The European Commission cut its euro-area growth and inflation outlook amid global trade tensions and policy uncertainty, warning that the bloc’s economic resilience won’t last forever.
The EU’s executive arm sees economic momentum remaining muted through 2021, forecasting an expansion of 1.2% for that year. At 1.3%, inflation is projected to remain well below the European Central Bank goal of just below 2% over the medium term.”
“The European Commission cut its euro-area growth and inflation outlook amid global trade tensions and policy uncertainty, warning that the bloc’s economic resilience won’t last forever.
The EU’s executive arm sees economic momentum remaining muted through 2021, forecasting an expansion of 1.2% for that year. At 1.3%, inflation is projected to remain well below the European Central Bank goal of just below 2% over the medium term.”
November 7 – Wall Street Journal (Avantika Chilkoti and Caitlin Ostroff):
“Some pension-fund managers are venturing further into unusual investment territory as this year’s plunge in bond yields makes it even harder to find decent long-term returns.
Funds are dabbling in riskier asset classes, including private markets, real-estate projects, infrastructure financing and direct lending. Some are making riskier fixed-income bets, buying volatile assets such as 100-year Argentine government bonds. Others are going farther afield, investing in greenhouses and waste management… The giant pools of retirement money are under pressure to take on more risk following decades of declining interest rates that have chipped away at returns from their traditional bond-heavy portfolios… Pension funds’ allocations to alternative asset classes rose to 26% in 2018 in the U.S., U.K., Japan, Australia, Canada, Switzerland and the Netherlands, from 19% in 2008, according to… Thinking Ahead Institute…”
“Some pension-fund managers are venturing further into unusual investment territory as this year’s plunge in bond yields makes it even harder to find decent long-term returns.
Funds are dabbling in riskier asset classes, including private markets, real-estate projects, infrastructure financing and direct lending. Some are making riskier fixed-income bets, buying volatile assets such as 100-year Argentine government bonds. Others are going farther afield, investing in greenhouses and waste management… The giant pools of retirement money are under pressure to take on more risk following decades of declining interest rates that have chipped away at returns from their traditional bond-heavy portfolios… Pension funds’ allocations to alternative asset classes rose to 26% in 2018 in the U.S., U.K., Japan, Australia, Canada, Switzerland and the Netherlands, from 19% in 2008, according to… Thinking Ahead Institute…”
November 5 – Bloomberg (Rich Miller):
“U.S. financial regulators led by the Treasury’s Steven Mnuchin and the Federal Reserve’s Jerome Powell have been put on notice about the risk of an economically damaging cash crunch in the $11 trillion home mortgage market.
Behind the concern aired recently at the Financial Stability Oversight Council headed by Secretary Mnuchin: The rapid growth of so-called shadow banks in the origination and servicing of home loans, especially riskier ones. ‘There is a real weakness here,’ said University of California, Berkeley professor Nancy Wallace, who co-authored a 2018 paper entitled ‘Liquidity Crises in the Mortgage Market’… ‘Many of these firms are financially fragile.’ That’s because they’re dependent on short-term bank credit lines that could be pulled at times of financial stress.”
“U.S. financial regulators led by the Treasury’s Steven Mnuchin and the Federal Reserve’s Jerome Powell have been put on notice about the risk of an economically damaging cash crunch in the $11 trillion home mortgage market.
Behind the concern aired recently at the Financial Stability Oversight Council headed by Secretary Mnuchin: The rapid growth of so-called shadow banks in the origination and servicing of home loans, especially riskier ones. ‘There is a real weakness here,’ said University of California, Berkeley professor Nancy Wallace, who co-authored a 2018 paper entitled ‘Liquidity Crises in the Mortgage Market’… ‘Many of these firms are financially fragile.’ That’s because they’re dependent on short-term bank credit lines that could be pulled at times of financial stress.”
November 4 – Bloomberg (Claire Boston):
“A security with high-risk characteristics is starting to take off. It’s called the non-qualified mortgage -- basically a loan granted to borrowers whose checkered financial record made them ineligible for conventional mortgages.
Lenders have bundled more than $18 billion worth of these loans into bonds this year that they then sold to investors, a 44% increase from 2018 and the most for any year since the securities became common post-crisis. This surge in issuance of non-QM bonds, as they’re called, comes just as some initial indications of delinquency rates on the loans are starting to emerge. The short answer: They’re high. About 3% to 5% in some bonds… That’s multiples of the current 0.7% delinquency rate on Fannie Mae loans.”
“A security with high-risk characteristics is starting to take off. It’s called the non-qualified mortgage -- basically a loan granted to borrowers whose checkered financial record made them ineligible for conventional mortgages.
Lenders have bundled more than $18 billion worth of these loans into bonds this year that they then sold to investors, a 44% increase from 2018 and the most for any year since the securities became common post-crisis. This surge in issuance of non-QM bonds, as they’re called, comes just as some initial indications of delinquency rates on the loans are starting to emerge. The short answer: They’re high. About 3% to 5% in some bonds… That’s multiples of the current 0.7% delinquency rate on Fannie Mae loans.”
November 7 – Reuters (Daren Butler):
“Turkish President Tayyip Erdogan accused the United States and Russia… of failing to fulfill their part of a deal for Kurdish militia to leave a Syrian region bordering Turkey, and said he would raise this with President Donald Trump next week…
Erdogan is set to discuss implementation in talks with Trump in Washington on Nov. 13. Turkish officials confirmed… the visit would go ahead, after a phone call between the leaders. ‘While we hold these talks, those who promised us that the YPG... would withdraw from here within 120 hours have not achieved this,’ Erdogan said…”
“Turkish President Tayyip Erdogan accused the United States and Russia… of failing to fulfill their part of a deal for Kurdish militia to leave a Syrian region bordering Turkey, and said he would raise this with President Donald Trump next week…
Erdogan is set to discuss implementation in talks with Trump in Washington on Nov. 13. Turkish officials confirmed… the visit would go ahead, after a phone call between the leaders. ‘While we hold these talks, those who promised us that the YPG... would withdraw from here within 120 hours have not achieved this,’ Erdogan said…”
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