Tag Archives: Perverse Incentives

Australia Orders More Foreign Homeowners to Sell

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“Several foreign owners of residential property across Australia have been ordered to sell as the government intensifies its crackdown on the abuse of homeownership laws by buyers from China and elsewhere.  Treasurer Joe Hockey said foreign investors have been ordered to sell six properties in the cities of Sydney, Brisbane and Perth.  The treasurer said he expects more divestment orders will be announced soon, and promised to increase penalties for those who break the rules. The conservative government is under pressure to make housing more affordable, and rein in surging investor buying that some fear may push the market to unsustainable levels, causing a crash.”

http://www.wsj.com/articles/australia-orders-more-foreign-homeowners-to-sell-1439024595

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The Next Financial Disaster Starts Here

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“Because junk bond ETFs appear liquid, most investors don’t see the danger. They think they can sell their junk bonds ETFs just as easily as they could sell shares of Apple.  But if too many people decide to sell junk bonds at once, it could overwhelm the market and cause prices to crash.  None of this has been a problem yet because junk bonds have been in a bull market. According to Bank of America, junk bonds have gained 149% since 2009.  But all bull markets eventually end. And when this one ends, junk bonds could cause massive losses to investors who don’t know about these risks.”

https://www.caseyresearch.com/articles/the-next-financial-disaster-starts-here

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China stock exchanges step up crackdown on short-selling

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“The Shanghai and Shenzhen exchanges said in separate statements on Monday night that new rules, effective immediately, banned traders from borrowing and repaying stocks on the same day – a step that raises risks for short-sellers. Many fund managers say the campaign against shorting has decayed into a general crackdown on risk management strategies, which could backfire.  China’s state margin-lending agency has injected 200 billion yuan ($32.21 billion) since July into five newly launched mutual funds. The China Securities Finance Corp is also managing a 120 billion yuan bailout fund formed by 21 brokerages, and last month provided 260 billion yuan in credit lines to brokerages.”

http://www.reuters.com/article/2015/08/04/us-china-markets-shorting-idUSKCN0Q909E20150804

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Here’s a risk to stocks you’ve likely overlooked

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“Michael Milken, the creator of junk bonds, once remarked: ‘Liquidity is an illusion…..It’s always there when you don’t need it, and rarely there when you do’.  The problems with liquidity underscore the distorting effects of central bank intervention in financial markets. Official policies in the aftermath of the financial crisis have forced excessive risk taking in search of returns. Yet regulatory changes have contributed to a reduction in trading liquidity. Over time, investors can become increasingly exposed to ever more risky financial assets that in a crisis would be difficult to trade — triggering a major collapse in prices.”

http://www.marketwatch.com/story/heres-a-threat-to-stocks-youve-likely-overlooked-2015-07-21

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Tiny California Towns Have Big Asset Forfeiture Histories

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“These forfeitures and the partnerships between municipal police and federal agencies rose as the economy of California slid into a slump. Forfeitures through the federal Equitable Sharing Program have tripled while forfeitures using the state’s process have remained flat (and much lower). The reason is pretty simple: California’s asset forfeiture law allows law enforcement agencies to keep only a maximum of 65 percent of the money they seize. The federal program allows law enforcement agencies to keep 80 percent. Some cities appear to be anticipating forfeiture revenue in advance and using forfeited funds to supplant budgeted spending for law enforcement agencies.”

http://reason.com/blog/2015/04/21/tiny-california-towns-have-big-asset-for

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Risky Loans Shunned by Banks Are Booming in Wall Street’s Shadow

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“Regulators’ efforts to rein in Wall Street’s biggest banks are in danger of backfiring.  Guidelines aimed at strengthening lending standards are shifting the market for high-yield credit to less-supervised loan funds, raising alarm this week from the Financial Stability Oversight Council. Because the funds don’t have depositors, some of their money comes from Wall Street banks, leaving systemically important institutions exposed to risks regulators hoped to avoid.  BDCs and private credit funds [are called] ‘Dodd-Frank banks’ because they’ve grown in the wake of the 2010 Dodd-Frank Act’s heightened supervisory scrutiny of regulated lenders.”

http://www.bloomberg.com/news/articles/2015-05-22/wall-street-flouts-fed-standards-to-fund-high-risk-loans

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China Shows How to Destroy a Market

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“The strongest collapse in U.S. equities took place after the SEC banned short selling in September 2008.  Consider the long buyer in a market selloff: They are catching the falling knife or anvil. They risk being early, and the trade is a money loser. Short sellers suffer no such disadvantage. Indeed, it is not much of a stretch to suggest that every short sale is a future buy.  How ineffective are prohibitions of short-selling? Recall the ban in the 1930s — despite that, the Dow eventually fell 80 percent from its highs. When the A-share market reopens in 2016, a bigger question will remain: Why would anyone want to invest in a market where you might not ever be able to sell?”

http://www.bloombergview.com/articles/2015-07-09/china-shows-how-to-destroy-a-market

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China Bans Margin Calls; Limits Pension Funds To Buying Stocks Only

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“What do you do when two policy rate cuts, $19 billion in committed support from a hastily contrived broker consortium, and a promise of central bank funding for the expansion of margin lending all fail to quell extreme volatility in a collapsing equity market?  Well, you can simply ban selling, which is apparently the next step for China.  According to Caijing, the country’s national social security fund is now forbidden from selling (but is welcome to buy).  The pension selling ban comes just days after China moved to curtail margin calls in a similary ridiculous attempt to stop the bleeding by simply making selling against the rules.”

http://www.zerohedge.com/news/2015-07-06/peak-desperation-china-bans-selling-stocks-pension-funds

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Puerto Rico’s Crisis Deals a Blow to Municipal-Bond Funds

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“In a low-interest rate world, Puerto Rico’s bonds have offered investors juicy yields over the past several years. Puerto Rico’s $3.5 billion in general-obligation bonds issued in 2014 initially had a yield of 8.7%. The yield on 10-year U.S. Treasury notes, by contrast, hovered between 2% and 3% last year.  But now investors are getting a fast lesson on the risk that comes with those sorts of high yields. More than half of all U.S. municipal-bond funds, or 298 of 565, have invested in Puerto Rico’s debt, according to the most recent fund holdings compiled by Morningstar.”

http://blogs.wsj.com/moneybeat/2015/06/30/puerto-ricos-crisis-deals-a-blow-to-municipal-bond-funds/

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US Bid to Contain Russia and Latin America Speeds New Alliances

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“Economist Ariel Noyola Rodriguez notes that US attempts to contain emerging economies including Russia and the countries of Latin America work only to hasten these nations’ efforts to create a new, truly multipolar world order independent of Washington’s influence.  The economist argues that the Eurasian Union project and Latin America’s  Mercosur complement each other, serving as ‘a crucial mechanism in the defense of sovereignty and the development of a multipolar world order.’  The two economic blocs have a combined territory of 33 million square kilometers, a population of nearly 450 million, and a combined GDP of 8.5 trillion dollars, or 11.6% of nominal global GDP.”

http://sputniknews.com/analysis/20150320/1019800596.html

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