Investment/Trends

China Devaluation Is Blow to Cash-Strapped Argentina’s Reserves

"China’s devaluation couldn’t come at a worse time for Argentina. About a quarter of the country’s $33.7 billion of foreign reserves are now denominated in yuan, which suffered its biggest loss since 1994 on Tuesday. The move is eroding the cash Argentina uses to pay its debt and comes as the nation is effectively shut out of overseas bond markets and struggling to defend its slumping peso at home. The country’s yuan holdings have ballooned since it signed an $11 billion currency-swap agreement with the People’s Bank of China in July. In the unregulated market Argentines use to sidestep the government’s currency controls, the peso has sunk 12 percent in the past two months." Continue reading →

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Chinese Brokers Now Selling Margin Loan-Backed Securities

"Now, the PBoC will look to supercharge efforts to re-engineer a stock market bubble via leverage by pushing brokerages to issue ABS backed by margin loans. If brokerages simply offload the margin loan risk to investors and use the proceeds to fund still more margin lending which can also be turned into still more ABS, and so on, then the effect will be to pile leverage on top of leverage. What happens in the event the underlying stocks become completely illiquid (i.e. Beijing decides to suspend trading on three quarters of the market again)? The punchline: the senior tranche (which accounts for CNY475 million of the total CNY500 million deal) is rated AAA." Continue reading →

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China currency devaluation hits stocks; dollar gains on currency war fears

"China's 2 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit Wall Street and other global equity markets as it raised fears of a new round of currency wars and fed worries about slowing Chinese economic growth. U.S. stock indices dropped more than 1 percent and stocks also fell in Asia and Europe as investors contemplated the implications of a move designed to support China's slowing economy and exports. Companies that sell to China were hit hard, with heavy equipment maker Caterpillar losing 3.13 percent and Germany's Volkswagen dropping 4 percent. Energy and materials shares also tumbled on China demand concerns." Continue reading →

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Former Fed chief Alan Greenspan warns of bond market bubble

"Alan Greenspan, who served as Fed chairman between 1987 and 2006, told Bloomberg: 'I think we have a pending bond market bubble. If we merely substitute the structure of equity prices, and we have the price of bonds, and instead of expected equity return we have expected interest rate return, that price earnings ratio is in an extraordinary unstable position.' Mr Greenspan, who has been criticised for fuelling the US housing bubble by keeping rates down in the early 2000s and failing to keep a closer eye on banks, said behavioural economics was playing a central role in investor decision making. Mr Greenspan also said oil prices had further to fall." Continue reading →

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Should Puerto Rico Shut Down Schools to Pay Its Debts?

"The hedge fund report, authored by a trio of former International Monetary Fund economists, noted that Puerto Rico’s education spending had risen 39 percent in a decade during which school enrollment actually fell by a quarter. Surely, there must have been some unnecessary fat in the system to cut. It's easy to understand why this might seem outrageous. Firing teachers in the middle of what's essentially a nine-year depression seems like a good way to further exacerbate Puerto Rican unemployment, possibly while sacrificing some childrens' educations." Continue reading →

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Australian inquiry says digital currencies are real money

"An Australian government inquiry will recommend treating digital currencies as money, simplifying tax for people who trade with them while forcing bitcoin exchanges to monitor customers for potential money laundering and terrorism financing activities. The Senate committee recommendations underscore governments' growing acceptance of the role of so-called 'cryptocurrencies' around the world. If implemented, the changes would align Australia with the United Kingdom and Spain by having people pay sales tax just once if they buy something with bitcoin, while leaving other nations like Sweden to fret over its true legal status. The changes would also match Australia with Canada and Singapore." Continue reading →

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J.P. Morgan makes it easier for rich to take out mortgages

"J.P. Morgan Chase & Co. is loosening its underwriting criteria for big mortgages, as lenders ramp up competition to grab a bigger share of the high-end housing market. The nation’s largest bank plans to announce as soon as Tuesday that it is lowering the minimum credit score and down payment it requires for mortgages as big as $3 million. At the same time, some big banks are backing away from smaller loans where they see higher regulatory costs and litigation risks. By dollar volume, jumbo mortgages given out by lenders last year accounted for about 20% of all first-lien mortgages. That is up from 5.5% in 2009. The last time jumbo mortgages accounted for a larger share was in 2005." Continue reading →

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The Next Financial Disaster Starts Here

"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." Continue reading →

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Central Banks and Our Dysfunctional Gold Markets

"First, it remains unclear whether or not much of the gold that is being sold as shares and in certificates actually exists. Second, paper gold can theoretically be printed into infinity just like regular currency — although private-sector paper-gold sellers have considerably less leeway in this regard than central banks. Third, new electronic gold pricing — replacing, as of this past February, the traditional five-bank phone-call of the London Gold Fix in place since 1919 — has not necessarily proved a more trustworthy model. Fourth, there looms the specter of the central bank, particularly in the form of volume trading discounts that commodity exchanges offer them." Continue reading →

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U.S. Homeownership Rate Falls to 20-Year Low

"The U.S. homeownership fell to its lowest level in 20 years at the end of 2014—levels last seen when national leaders embarked on a broad push to expand homeownership in the mid-1990s. Over the past year, President Barack Obama and other administration officials have voiced alarm that lending has gone from one extreme during the bubble—too loose —to the other—too tight—in the aftermath of the bust. Officials have walked a fine line in attempting to bar a return of the reckless products and practices that allowed the bubble to inflate 10 years ago while loosening some standards elsewhere to provide broader access to homeowners without perfect credit or big down payments." Continue reading →

Continue ReadingU.S. Homeownership Rate Falls to 20-Year Low