"There are going to be a number of muni defaults, but it’s where you draw the line. Will states be allowed to default? Will legislation be introduced to allow states to restructure? I don’t believe that’s the case. I believe states will not default."
The Business Insider has a fantastic Interview With Hayman Capital Founder Kyle Bass. Bass testified at the crisis hearings in Washington, about Fannie Mae, Freddie Mac, bank capital, bank leverage and derivatives. He discussed those issues with CNBC’s David Faber along with his forecast for Japan.
Here is a partial transcript.
Kyle Bass: …. China and Japan own a lot of Fannie and Freddie Debt. I think we are more sensitive to them losing money than we are to the US taxpayer losing money and I think that has to change. … Fannie and Freddie have paid $200 million into campaigns of 354 politicians over the last 10 years. This is an organization created by the lawmakers. Why are they paying the lawmakers? Let’s get rid of this structure and just have the government make mortgage loans. …
David Faber: Let’s talk briefly about some other things you are doing at Hayman. … We saw the mini-blowup in Dubai, we have heard a lot about Greece, when you look at the totality of sovereign risk, where are you focused?
Kyle Bass: I think the big canary in the coalmine is Japan. When you see how Japan has lost 20 years of their prosperity from 1990 to today, you see what happens when a government steps in and runs giant deficits to make up for the private market place pulling back and attempting to deleverage.
So what we’ve seen around the globe in the developed world, bad private assets are moving onto public balance sheets. Sovereign balance sheets have expanded 86% from pre-crisis levels of debt. If you extrapolate that from the beginning levels of debt, many of these countries around the world won’t be able to service their debt. So I think in the next 2-3-4 years you start to see
David Faber: Do you believe Japan is in a position where it might default and/or devalue its currency as well, in the next 3-4 years?
Kyle Bass: I do not think Japan has a way out of this.
David Faber: Why Not?
Kyle Bass: You have a secular decline in population, and you have a huge funding structure at below market rates. So Japan’s weighted cost of capital is only 1.4% and their sovereign balance sheet is much worse
In keeping with the warnings presented by Kyle Bass warned that the entire housing bubble is now being ported over to the taxpayer’s balance sheet, Edward Pinto, a former chief credit officer for Fannie Mae claims that the Federal Housing Administration will likely require a major taxpayer bailout "in the next 24 to 36 months" as it is likely to incur $56 billion more in losses than it can withstand.
For those that think the NINJA loans are a thing of the past, think again – the Fed is now actively encouraging just those same reckless standards that brought America to the brink:
The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The trend has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said. The program insures loans with down payments as low as 3.5 percent and has no formal credit-score requirements.
The FHA Commissioner, David Stevens, is keeping to his side of the story, which is that everything is being properly accounted for, and there is no risk in the future of the Administration. Don’t expect this story to change until the next time the handout hat startrs getting tossed around legislators. In the meantime, the deterioration in loan standards keeps accelerating:
About 14.4 percent of FHA loans were delinquent as of June 30 and 2.98 percent were already being foreclosed upon, according to the Mortgage Bankers Association. The combined percentage for all mortgages was a record 13.16 percent, according to data from the Washington-based trade group, which said in releasing the figures the share of FHA loans past due is being suppressed by the large amount new debt.
So there you have it: housing bubble 2.0, now openly sponsored by the Administration. The more things change (insert appropriate slogan reference here)…
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
Key indexes around the globe are exhibiting little volatility in the wake global conflict. The Nikkei and Dow closed the day down 0.10% and 0.16%, respectively. The Eurozone's STOXX 50 was up 0.12%.
The S&P 500 took center stage for US indexes, setting new intraday and closing records despite ongoing tensions in Europe and the Middle East. The index opened higher, quickly sold off to its -0.05% intraday low and then rallied to a record intraday high, up 0.29%. After a minor lunch-hour dip, it spent the afternoon in a narrow trading range to its 0.18% gain for a record close.
The yield on the 10-year note ended the day at 2.48%, unchanged from yesterday's close. It is now only 4 bps above its interim closing low of May 28th.
Here is a 15-minute chart of the past five sessions. The S&P 500 is up 7.50% year-to-date.
In what could be the most unpatriotic report ever, Fidelity reports that average IRA contributions for tax year 2013 reached $4,150 - an all-time high. That's great news, right? Not if you ask Janet Yellen as Fidelity notes younger investors, those in their 20s, 30s and 40s, are adopting the strongest savings behaviors as Americans are "saving more, paying off debt, and spending less." This is not acceptable in the new normal, don't they know debt is the bridge between hard work and play?
There is no better way to describe what the recently departed CFTC commissioner Scott O'Malia just did when he bailed from the commodity watchdog to become the new head of the International Swaps and Derivatives Association, aka ISDA, the biggest banking group that has constantly opposed every intervention and attempt to regulate the swaps market by the CFTC since the Lehman crisis, than an epic farce.
For those who are unaware ISDA is a global OTC derivative lobby group, counting the world's largest investment banks among its members, and has frequently fought regulatory efforts to reform the market after the financial crisis. ISDA itself was exposed as a complete joke during the European crisis when due to the overhang of avoiding Europe's ins...
The Environmental Protection Agency is considering a review of its 1977 rule that limits the amount of whole-body radiation that any member of the public can be exposed to as a result of the uranium fuel cycle.
While they have not made any immediate determination to change the current level of 0.25 millisieverts per year of allowable radiation, they are reviewing the scientific data to decide if changes need to be made.
Items under review include water resource protection, spent fuel storage facilities and alternative technologie...
A large call spread initiated on Orexigen Therapeutics, Inc. (Ticker: OREX) on Monday morning looks for shares in the name to rally approximately 30% by September expiration. The September expiration is noteworthy as the company awaits the results of the FDA’s review of its resubmitted New Drug Application (NDA) for NB32, an investigational medication being evaluated for weight loss, after the review was extended for three months back in June. The upcoming Prescription Drug User Fee Act (PDUFA) date is September 11, 2014, according to a press release issued by the company. Shares in Orexigen today are up roughly 0.40% at $5.34 as of 2:15 p.m. ET.
Despite a highly eventful week in the news, not much has changed from a stock market perspective. No doubt, investors have grown immune to the daily reports of geopolitical turmoil, including Ukraine vs. Russia for control of the eastern regions, Japan’s dispute with China over territorial waters, Sunni vs. Shiite for control of Iraq, Christians being driven out by Islamists, and other religious conflicts in places like Nigeria and Central African Republic. But last Thursday’s news of the Malaysian airliner tragically getting shot down over Ukraine, coupled with Israel’s ground incursion into Gaza, had the makings of a potential Black Swan event, which in my view is the only thing that could derail the relentless bull march higher in stocks.
Nevertheless, when it became clear that the airline...
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We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people's list of "things to worry about."
All three major indices gave up some ground with the Nasdaq composite taking the hardest hi...
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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