Monthly Archives: July 2014

Seth Klarman On “Born Bulls”, Bitcoin, & “The Truman Show” Market

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“Robert Schiller’s cyclically adjusted P/E valuation is over 25, a level exceeded only three times before – prior to the 1929, 2000 and 2007 market crashes.  Even with the ranks of the unemployed and underemployed still bloated and the economy barely improved from a year ago, the S&P 500, Dow Jones Industrial Average, and Russell 2000 regularly posted new record highs.  Our assessment is that the Fed’s continuing stimulus and suppression of volatility has triggered a resurgence of speculative froth. Margin debt measured as a percentage of GDP recently neared an all-time high. IPO activity in 2013 was greater than it has been in years, approaching 2007’s record of 288 transactions.”

http://www.zerohedge.com/news/2014-03-08/seth-klarman-born-bulls-bitcoin-truman-show-market

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In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates

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“Millions of Americans with shoddy credit are easily obtaining auto loans from used-car dealers, including some who fabricate or ignore borrowers’ abilities to repay. The loans often come with terms that take advantage of the most desperate, least financially sophisticated customers.  Auto loans to people with tarnished credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to people with credit scores at or below 640.  Many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds.”

http://dealbook.nytimes.com/2014/07/19/in-a-subprime-bubble-for-used-cars-unfit-borrowers-pay-sky-high-rates/?_r=0

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Subprime Credit Card Offers Are Everywhere

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“For the first time since the financial crisis began, approximately 33% of new credit cards were placed in the hands of subprime borrowers, those with credit scores under 660. By comparison, the most credit-worthy customers generally have scores between 725 and 850, where the scale tops out.  What is prompting this party atmosphere? A recovering economy and brighter jobs picture are surely part of the reason, as well as the fact that banking revenue from other areas such as mortgages has become almost nonexistent. This last factor makes subprime borrowers, who usually pay much higher interest rates than prime customers, especially attractive.”

http://www.fool.com/investing/general/2014/07/13/credit-card-offers-are-everywhere-but-that-may-not.aspx

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Study: 35 percent in U.S. facing debt collectors

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“The study found that 35.1 percent of people with credit records had been reported to collections for debt that averaged $5,178, based on September 2013 records. The study points to a disturbing trend: The share of Americans in collections has remained relatively constant, even as the country as a whole has whittled down the size of its credit card debt since the official end of the Great Recession in the middle of 2009.  Health care-related bills account for 37.9 percent of the debts collected, according to a new report commissioned by the Association of Credit and Collection Professionals. Student loan debt represents another 25.2 percent, and credit cards make up 10.1 percent.”

http://www.sltrib.com/sltrib/money/58237523-79/percent-debt-credit-collections.html.csp

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1.1 million UK households could be in ‘debt peril’ by 2018: report

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“A modest increase in interest rates could render almost 25 percent of UK households in severe financial stress, according to a report published on Thursday. The Bank of England (BOE) has confirmed that such rate hikes are imminent.  High levels of household debt – resulting from consecutive years of easy credit – mean even a moderate rise in interest rates could create profound financial struggle for one in four households in the UK.  Despite a five year run of exceptionally low interest rates, many UK mortgage holders have struggled to pay their debts as a result of a troubled jobs market and very low wage growth, according to the RF.”

http://rt.com/uk/175368-debt-crisis-uk-recession/

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Bank of England warns of a bubble as UK house prices rise 10.5%

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“Mark Carney told MPs on the Treasury select committee that the threat of a property bubble was the ‘biggest risk’ to economic recovery over the medium term, as official figures showed house prices rose by 10.5% in the year to May – and more than 20% in London. Outlining in detail why the Bank’s financial policy committee made the decision last month to limit the proportion of high loan to income mortgages granted by lenders, he said that a proliferation of highly indebted households could tip the economy back into recession.  Prices have risen more quickly for first-time buyers than for those moving home, going up by 11.3% over the year to an average of £202,000.”

http://www.theguardian.com/money/2014/jul/15/ons-uk-house-prices-may-london

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Rising home prices a global concern

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“Take a look at the world’s dizzying surges in the price of housing for 12 months at the end of June: London, up 20%. Manhattan, 18%. Sydney, 15.4%.  Some Singaporeans have bought homes in neighbouring Malaysia, which requires a passport-control stop and a two-hour drive when traffic is heavy to reach the business district.  Prices on Hong Kong island, roughly the size of Manhattan where about 1.2 million people live, are the third-most expensive in the world after Monaco and London, at US$1,920 per square foot.  While housing costs about half as much in the northernmost New Territories, prices there rose 140% from 2008 through 2012.”

http://www.therakyatpost.com/business/2014/07/30/rising-home-prices-global-concern/

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Australian Regulators Stand By as Global Mortgage Debt Drives Up Prices

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“Central banks from Scandinavia to the U.K. to New Zealand are sounding the alarm about soaring mortgage debt and trying to curb risky lending. In Australia, where borrowing is surging, regulators are just watching.  Australian household debt is at a 25-year high, according to statistics bureau figures, and a government inquiry this month found housing to be a significant source of risk to the financial system.   The central bank has reduced its benchmark interest rate to a record-low 2.5 percent to aid a recovery in non-mining industries, including residential construction, as the nation’s resources boom slows.”

http://www.bloomberg.com/news/2014-07-27/australian-regulators-watch-as-debt-drives-up-prices-mortgages.html

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Peter Schiff and Doug Casey on the Real State of the Economy

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“The president is bragging now that the deficit is finally below $1 trillion, but that’s the deficit in the recovery. If we slip into a legitimate or acknowledged recession, where are the deficits going to go, $1.5 trillion, $2 trillion? And how can we possibly finance that when the world is already saturated with the debt that we’ve issued to stimulate us out of prior recessions?  [..]  I think we are on the edge of something that is much worse than what we had in 2008 and 2009. I look around the world at places where you can put your capital, real estate is overpriced, the stock market is greatly overpriced, the bond market is in a historic bubble, that’s about the best short sale I can think of in the world.”

http://www.internationalman.com/articles/peter-schiff-and-doug-casey-on-the-real-state-of-the-economy

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Why the Fed’s Taper Hasn’t Hurt the Stock Market… Yet

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“Normally, monetary tightening produces undesirable effects. But none of those effects has shown up yet. Stocks continue to rise. Long-term interest rates remain ultra-low. The unemployment rate is improving. And inflation—at least as the government reports it—is rising only modestly.  Naturally, the question is: how has the Fed managed to taper without roiling markets?  The answer: the Fed has printed so much money in the past few years that it can afford to take a breather. Since 2013, the Fed has been growing its balance sheet (by buying Treasuries and mortgage-backed securities) faster than the government debt has grown.”

http://www.caseyresearch.com/cdd/why-the-feds-taper-hasnt-hurt-the-stock-market-yet

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