Posts Tagged ‘Slideshows’

Plunging Rents Will Drag House Prices Down With Them

Plunging Rents Will Drag House Prices Down With Them

Courtesy of Henry Blodget at Clusterstock

Plunging rents are great news for renters, but they’re lousy news for homeowners.  Aaron Task and I discussed this issue on TechTicker this morning:

The vacancy rate for rental apartments in the U.S. is now 7.8% and climbing, says the Wall Street Journal.  This is the highest vacancy rate in 23 years.

Worse, the vacancy rate is expected to keep climbing through the winter, ultimately hitting the highest rate on record.

This is good news for renters and bad news for landlords.  It’s also bad news for anyone who owns and would like to sell a house.

Why are rising rental vacancies bad news for homeowners?

Because rising vacancies put pressure on rents, as landlords have to cut prices to woo a smaller pool of tenants.  As rents drop, meanwhile, one of the key measures of house-price value--the price-to-rent ratio--also changes, and not for the good.

All else being equal, when rents drop, the "Housing P/E ratio" — price to rent — increases as rents decrease.  This is the same thing that would happen to the P/E ratio of a stock if the company’s earnings began to shrink.

The more the rent/earnings shrink, the more expensive the house or company is as a multiple of the rent/earnings.

Will people suddenly refuse to pay as much for houses because the price-to-rent ratio rises a bit?  No.  But they may decide to rent instead of buy, which will remove some demand from the housing market.  And, this, in turn, will put pressure on house prices.

The chart below from Calculated Risk illustrates the price-to-rent ratio over the past 15 years.  As you can see, it got way out of whack during the peak bubble years and has now fallen back within the realm of normal.  As rents fall, however, the ratio will start rising again. 

That is, unless house prices fall, too, which is the more likely scenario.

crpricetorent.jpg 

See Also:  HOUSING RECOVERY!  (How’s Your City Doing?)

 


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Wells Fargo’s Ticking Time Bomb: Credit Default Swaps On Commercial Mortgages

Wells Fargo’s Ticking Time Bomb: Credit Default Swaps On Commercial Mortgages

WellsFlannelManBIG AP 10 03 08Courtesy of John Carney at Clusterstock

Outside experts hired by Wells Fargo to pour through its books are reportedly shocked at the bank’s exposure to derivatives trades it took on when it acquired Wachovia may trigger huge losses at the bank, Teri Buhl reports at BankImplode.com

It appears that Wachovia wrote credit default swaps on the junior tranches of commercial mortgage backed securities it was selling, which means that it is on the hook for losses in the riskiest CMBS tranches it sold. Wells itself might not even know the size of its exposure, Buhl reports.

From Buhl:

According to sources currently working out these loans at Wells Fargo when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer’s risk premium by writing credit default swap contracts against these subordinate bonds. Should the junior tranches eventually default, then the bank is on the hook. Dan Alpert of Westwood Capital says these were practices that he saw going on in the market at large.

Alpert says in reference to how he saw CMBS trades get done, “These guys would say ‘We’ll just take back that silly credit risk you’re worried about.’ Of course that was a nice increase to earnings when they got the security sold. The bank made money at the time.”

Buhl points out that investors might be caught off-guard if Wells has to start paying out on the swaps it sold. Wells, like most banks, almost certainly holds the credit default swap liabilities off balance sheet and most likely does not recognize them as a loss until they actually have to pay, Buhl writes. Wells says it carefully monitors its derivatives exposure. "We have provided extensive transparent disclosures on our derivatives in our 2008 annual report beginning on page 132,” Wells says.

Here’s Wells own calculation of its derivatives exposure as of the day it closed the Wachovia deal.

wachovia-wellscreditdefaultswaps.png

But it seems fair to wonder if Wells really understood all of the derivatives exposure it took on when it acquired Wachovia. Buhl wonders if Wells really has enough capital set aside to handle the derivatives liability.

…So could Wells really have enough capital to handle the liability of credit


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10 Bubbles In The Making

10 Bubbles In The Making

bubble bubbles kid child gum tbiCourtesy of Lawrence Delevingne at Clusterstock

One year after America’s brush with economic catastrophe, there’s plenty of looking back at the bubbles that caused financial chaos.

But what’s next?

There are surely dangerous economic bubbles forming as we speak. As Alan Greenspan warned this week, "They [financial crises] are all different, but they have one fundamental source," he said. "That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue."

The trick, of course, is spotting them. By definition, most people don’t spot a bubble before they form and burst.

Here’s 10 for which you should be on alert →

And if history repeats, bubbles tend to share a common fate:

 


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House Price Crash Rate Finally Beginning To Ease

Good news! and bad news!

House Price Crash Rate Finally Beginning To Ease 

Courtesy of Henry Blodget at ClusterStock

Good news! The rate of the price decline in the housing crash has finally begun to ease.

Bad news! Prices are still falling 18% year over year.

Specifically, in April, according to the Case Shiller index, the rate of decline in nationwide house prices eased slightly in April--to 18% from 19% in March. The rate of decline has hovered around 19%-20% for the last several months.  And prices have now declined a staggering 33%-34% from the peak.

As we’ve noted over this period, before house prices can start recovering, they have to stop falling.  And the first step toward prices stopping falling is a decline in the RATE at which they are falling.  And we are finally beginning to see that.

But we’re still talking about an astonishing rate of collapse.  And we’re still looking at a peak-to-trough decline of at least 40% and probably closer to 50% nationwide, which would be unprecedented.  And even today, with prices down 33%-34% from the peak, prices are still above fair value.

So the folks who use this slight moderation in the rate of decline to spin tales of a "bottom" or, worse, a "recovery" are smoking something.  Prices have at least another 10%-15% to fall, and they’ll likely be falling for at least another year or two.

Here’s the small uptick in the rate of decline:

caseshillerrateapril.jpg

Prices have now rolled back to mid-2003 levels.  They’ll likely be back to 2000 levels before we’re through.

S&P/Case-Shiller Home Price Indices 

And here’s the positive spin from the S&P press release (always look on the bright side!):

The 10-City and 20-City Composites declined 18.0% and 18.1%, respectively, in April compared to the same month in 2008. These are improvements over their returns reported for March, down 18.7% for both indices. For the past three months, the 10-City and 20-City Composites have recorded an improvement in annual returns.  Record annual declines were reported for both indices with their respective January data, -19.4% for the 10-City Composite and 19.0% for the 20-City Composite.

“The pace of decline in residential real estate slowed in April,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “In addition to the 10-City and 20-City Composites, 13


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Your Field Guide To The Mortgage Collapse

Courtesy of Henry Blodget at ClusterStock

Your Field Guide To The Mortgage Collapse

mortgage meltdown, chart 5-9The housing market is crashing, and it’s taking us, our banks, our economy, and our government down with it.  Why?  Because of the debt!  The value of our houses is plummeting, but the value of our debt is staying just the same.

You knew that already.  What you didn’t maybe know, or at least fully appreciate, is exactly what’s happening in the mortgage market that’s causing all this hideousness.

Well, thankfully, Whitney Tilson has laid it all out for us.  START THE TOUR >

Whitney’s the managing partner at T2 Partners, a hedge fund and mutual-fund company.  He’s also just published a book called More Mortgage Meltdown: 6 Ways To Profit In These Bad Times.

In the book, Whitney lays out the whole mortgage disaster in pictorial form, and he has been kind enough to allow us to reprint some of his charts here.  If you’d like to see updated, interactive versions, please visit www.moremortgagemeltdown.com.  Or just head over to Amazon and buy the book.

START YOUR FIELD GUIDE TO THE MORTGAGE COLLAPSE >

 

 


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Zero Hedge

Mark Carney Speaks, Says BOE Will Likely Ease Monetary Policy Over The Summer - Live Webcast

Courtesy of ZeroHedge. View original post here.

Bank of England Gov. Mark Carney is delivering a speech on Thursday, a week after Britons voted to leave the European Union, the central bank said Wednesday. Carney stepped in to soothe financial markets Friday in the immediate aftermath of the shock Brexit vote, pledging the BOE would backstop the financial system with at least £250 billion ($334 billion) of loans to banks that needed them.

And, as many suspected, he just announced that the BOE will likely ease further over the summer:

  • BOE CARNEY: SOME MONETARY POLICY EASING LIKELY OVER SUMMER...


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Kimble Charting Solutions

Follow this leading indicator closely, resistance test in play

Courtesy of Chris Kimble.

Below compares the prices of Crude Oil and the New York Stock Exchange Index (NYSE) over the past couple of years.

Once Crude peaked in 2014, the NYSE Index make little upward movement after than, even though the trend for the prior few years was clearly up.

Over the past year (black rectangle box), the correlation has been quite high.

CLICK ON CHART TO ENLARGE

Are Crude Oil and the NYSE, both creating an inve...



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Chart School

Chicago PMI Rebounds in June

Courtesy of Doug Short's Advisor Perspectives.

The Chicago Business Barometer, also known as the Chicago Purchasing Manager's Index, is similar to the national ISM Manufacturing indicator but at a regional level and is seen by many as an indicator of the larger US economy. It is a composite diffusion indicator, made up of production, new orders, order backlogs, employment, and supplier deliveries compiled through surveys.

The June report for Chicago PMI came in at 56.8, a 7.5 point increase from last month's 49.3, it's highest since January 2015.

Here is an excerpt from the press release:

Chief Economist of MNI Indicators Philip Uglow said, "June’s sharp increase in the MNI Chicago Business Barometer needs to be viewed in the context of the weakness seen in April and May. Loo...



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ValueWalk

Care.com Inc (CRCM) Soars On Google Inc (GOOG) Investment

By Jacob Wolinsky. Originally published at ValueWalk.

Care.com Inc (NYSE:CRCM) is soaring this morning up about 39 percent at the time of this writing – why? Google Inc. (NASDAQ:GOOGL) just made a big capital injection into the family care company. Below is that the analysts are saying about the latest news.

Care.com Inc

Stifel opines:

Yesterday, Care.com announced that Google Capital made a $46.35mm investment in the company (versus the company’s market capitalization of $268.4mm at the close). The transaction marks Google Capital’s first investment in a public company and makes it Care.com’s largest shareholder. A portion of the proceeds will be used to repurchase $30.5mm worth of shares from Matrix partners. In addition, Laela Sturdy, a Partner at Google Capital, will gain a seat on Care.com’s Board of Directors. We view the in...



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Phil's Favorites

Italy's Zombie Banks on Death Bed, Bail-Ins Coming?

Courtesy of Mish.

Italy’s third largest bank by assets, Banca Monte dei Paschi is on the death bead. It’s been there since mid-2014.

Italian banks in general have €200 billion in non-performing loans. They have another pile of troubled loans that are late just some of the time.

To address the problem, Prime minister Matteo Renzi hatched a half-baked scheme dubbed “Atlas”. The idea was to leverage a mere €5 Billion to address a €200 billion hole.

As predicted, “Atlas” quickly died. Now, Renzi wants to use Brexit as an excuse to use state funds to bail out Banca Monte dei Paschi, but German chancellor Angela Merkel shot down that idea on Wednesday.

Please consi...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Oil Erases Brexit Selloff as U.S. Crude Supplies, Dollar Decline (Bloomberg)

Oil erased the two-day plunge that followed Britain’s vote to leave the European Union after U.S. crude inventories dropped for a sixth week while the dollar retreated against its peers.

Most banks get Fed clearance to lift dividends and increase stock buybacks...



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OpTrader

Swing trading portfolio - Week of June 27th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Mapping The Market

Thoughts on Brexit

I have mixed feelings about Brexit today. Clearly the European institution need reforming. The addition of so many countries in the last 20 years has created a top heavy administration. The Euro adds more complexities to the equation as the ECB policies cannot fit every country's problem. On the other hand, a unified Europe has advantages as well – some countries have benefited from the integration.

For Britain, it's hard to say what the final price will be. My guess is that Scotland might now vote for independence as they supported staying in Europe overwhelmingly. Northern Ireland might be tempted to leave as well so possibly RIP UK in the long run. I was talking to some French people and they were saying that now there might be no incentive for France to stop immigrants from crossing over to the UK like they do now and simply allow for travel there and let the UK deal with them. The end game is not clear to anyone at the moment....



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Digital Currencies

Bitcoin Tumbles 10%

Courtesy of ZeroHedge. View original post here.

One week ago, when bitcoin first crossed above $700 on the seemingly insatiable Chinese buying which we forecast last September (when bitcoin was trading at $230) would take place as a result of China's capital controls (to much pushback by the "mainstream" financial media), we tried to predict what may happen next. We said that "it could go much higher. That said, anyone who bought last September when the digital currency was trading at $230 may be advised to take some profits, and at least make...



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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Biotech

This Is Why Biotech Stocks May Explode Again

Reminder: Pharmboy and Ilene are available to chat with Members.

Here's an interesting article from Investor's Business Daily arguing that biotech stocks are beginning to recover from their recent declines, notwithstanding current weakness.

This Is Why Biotech Stocks May Explode Again

By 

Excerpt:

After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.

...



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Help One Of Our Own PSW Members

"Hello PSW Members –

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 jennifersurovy@yahoo.com 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.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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