Lenders Worry A Borrower Could Default At The Same Time Values Are Decreasing
A report from Yahoo Money. “With the jobless rate spiking into the double digits, more Americans may look to unlock the wealth tied up in their homes to get through the crisis. Problem is, banks won’t give up the key. Lenders are increasingly turning away homeowners looking for equity lines of credit or a cash-out refinance, spooked by the surge in unemployment and the jump in requests by borrowers to skip mortgage payments. ‘This is a good lesson that home equity is a very illiquid asset,’ said Matt Hylland, a partner at Arnold and Mote Wealth Management.”
“Fannie Mae and Freddie Mac have promised to buy loans in forbearance from lenders to help keep the mortgage market working. But they refuse to purchase mortgages in forbearance that were cash-out refinances, making those types of loans riskier for lenders to originate and carry. As a result, lenders are upping their standards for these loans. Mortgage company PennyMac announced in late April that it won’t do any cash-out refinances that exceed 80% of the property’s market value.”
“Lenders also worry about Americans’ ability to pay back loans at a time when an unprecedented number of workers have filed jobless claims in the last seven weeks. They also expect property values could dip, especially if the economy falls into a recession, increasing their risk on mortgages and other house-backed loans they hold. That’s caused major banks to pull back on issuing new home equity lines of credit, or HELOCs. Both Chase and Wells Fargo recently announced they would pause new HELOC applications.”
“Lenders worry a borrower who becomes unemployed could default on the payments at the same time that home values are decreasing, eroding even more equity. If the lender is forced to foreclose and sell the home, it may not recoup what’s owed. ‘The lenders will have no profit,” said Kevin Leibowitz, founder of Grayton Mortgage. ‘The guy in the second position isn’t crazy to think that 10% can be wiped away.'”
“‘It is always a good idea to build up a sizable emergency savings before paying any extra payments on your mortgage to ensure you have savings available when you need it most,’ Hylland said. ‘If you are dependent on debt to make ends meet you should be aware that at times you need it most, debt financing may not be there for you.'”
From DS News. “The impact has been dramatic, with one model showing mortgage credit availability has plunged by more than 25% since the U.S. outbreak of the virus. In March, riskier borrowers ‘could get a mortgage but just pay a higher price than other people,’ said Michael Neal, a senior research associate at the Urban Institute Housing Finance Policy Center. ‘Now, some people are just not going to get mortgages.'”
From Liveabl. “The Mortgage Bankers Association (MBA) has released its Mortgage Credit Availability Index (MCAI) for the month of April, recording a 12.2 percent decline over the previous 31-day period to 133.5. The lower the index gets, the harder it is to qualify for a mortgage home loan, and the MCAI hasn’t sunk to these depths since December 2014 when the nation was still recovering from the 2008 housing crash.”
“The MCAI for jumbo loans, which are used to finance high-priced homes and are deemed riskier because they aren’t backed by the government, plummeted 22.6 percent. The Conventional MCAI, including mortgage loans from private lenders like banks and credit unions, dipped 15.2 percent.”
“‘The abrupt weakening of the economy and job market — and the uncertainty in the outlook — drove credit availability down in April for the second consecutive month,’ said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. ‘The overall index fell to its lowest level since December 2014, and the sub-indexes pointed to tightened credit supply for all loan types. The decline was largely driven by lenders dropping many low credit score and [high loan-to-value] programs, as well as further reduction in jumbo and [non-qualified mortgage] products.'”
The Real Deal. “WeWork’s efforts to renegotiate several of its leases and skip rent payments is causing the price of bonds backed by payments from the company to plummet. Many WeWork tenants have requested rent relief or the termination of their contracts since the onset of the coronavirus pandemic, which has hurt the commercial mortgage-backed securities that rely on rent from WeWork to pay investors, according to the Financial Times.”
“Overall, about $5.5 billion worth of CMBS deals include properties that count WeWork as a tenant, according to data from Trepp. These include some of the company’s flagship locations in New York and San Francisco. A $240 million loan backed by a WeWork location in San Francisco is now trading at 73 cents on the dollar, down from 100 cents in March.”
“Michelle Orman, a WeWork tenant in Brooklyn, said to the Financial Times that she is not going to renew her lease after May and had tried to cancel it sooner. She has ‘no intention of going back to [WeWork] after this experience.'”
From Hospitality.net. “All of travel is taking a beating from the pandemic. Our consultancy workshopped a contrary scenario stemming from many conversations with owners who have had to pull the plug on all opex and have come to us for valuations in case they need to sell. As more and more of these travel restraints were put in place around the globe, the home-sharing market was forced into a similar situation as the rest of us, with proprietors and hosts looking at zero occupancy on the books for the next few months while the bills still need to be paid.”
“And it’s this last part that’s critical to understand insofar as how hotels are uniquely adept at weathering this tempestuous storm over the likes of Airbnb, VRBO, Homestay and other platforms of this ilk. In most cases, hoteliers have a longer tarmac and a better standing with the banks than, say, a ghost hotel operator who has leveraged ownership in several disparate accommodations to purchase several more. Put another way, while each home sharing’s margin of revenue to operating costs on each night’s stay may be drastically more than that of a hotel, their per-unit fixed costs are oftentimes substantially greater than those for a traditional property.”
“For a bull market, any per-unit cost inefficiencies on the home-sharing proprietor’s part are more than adequately buffered by incoming revenues, thereby strongly incentivizing the acquisition of more units and other forms of overcapitalization. But now as we are thrust into a negative growth environment, all those mortgage annuities, property taxes, apartment maintenance fees and utility bills become unsurmountable for an unincorporated sharing economy operator.”
“For the ghost hotel operator, this foreclosure sequence of events may apply. To stave off a total bloodbath and depletion of its global inventory in major markets, Airbnb promptly created a host relief fund that numbers in the hundreds of millions of dollars, but this still may not be enough to get all the superhosts through unscathed if the pandemic persists for much longer.”
“If there’s one bright light at the end of the coronavirus tunnel, it’s that this outbreak may force the insolvency of those pesky, and largely illegitimate, ghost hotel operators that we have been trying to regulate for nearly a whole decade now.”
From WTGS in Georgia. “Although traffic on Tybee beaches is up, sales for short term rental companies are still suffering. Tybee Beach Vacation Rentals say they’re getting multiple cancellations every day, some as far out as September. ‘I will be surprised if we are about 50% of our normal summer. What we’re canceling is larger than what’s coming in,’ said Keith Gay, a managing partner with Tybee Beach Vacation Rentals. He estimates his company has lost hundreds of thousands of dollars to COVID-19 so far.”
From Long Island Business News in New York. “The first full month under the COVID-19 lockdown has ravaged the Long Island housing market, as pending home sales in Nassau and Suffolk counties last month were the lowest for any April on record. There were 1,077 homes contracted for sale in Nassau and Suffolk last month, a 66.5 percent drop from the 3,214 homes that were contracted for sale in April 2019, according to preliminary statistics from OneKey MLS. “
“The biggest decline in sales was felt in Nassau. There were 403 homes contracted for sale in Nassau last month, 70.2 percent fewer than the 1,345 Nassau homes contracted for sale in April 2019. In Suffolk, there were 674 pending home sales last month, down 64 percent from the 1,869 pending sales recorded in April last year.”
“Pending sales of Long Island homes this April fell 56.6 percent from the 2,481 homes contracted for sale in March, when the virus and its stay-at-home order first took hold. For a historical perspective, last month’s pending sales on Long Island were about 40 percent lower than they were in April 2009, when the region was in the grips of the housing crisis that hastened the last recession.”
The Tampa Bay Times in Florida. “Josh Stenger, who rents out a house in Clearwater and one in St. Petersburg, said he hasn’t received rent on time from either of his tenants since the pandemic began. One lost her job as a nanny and has communicated with him and provided partial payment. The other tenant, he fears, is taking advantage of the pandemic’s protections against eviction and is failing to pay on time even though he didn’t lose employment.”
“Stenger has seen news of rent strikes in New York City and worries people are forgetting that many landlords depend on the income from rent. He still owes money on one of the houses. ‘I just want communication,’ Stenger said. ‘They’re making landlords seem like the villains, but landlords have expenses, too.'”
“There are signs even larger companies are feeling the pinch. Dean & DeWitt, a prominent St. Petersburg property management company for apartments and historic homes, sent an email to tenants earlier this month urging that they contact their members in Congress to ask that they include direct support for renters and landlords in the next coronavirus relief bill.”
The San Mateo Daily Journal in California. “SummerHill Housing Group CEO Robert Freed speculated that the slowed economy may yield difficulties for some developers seeking funding for new developments. ‘Projects that haven’t come out of the ground yet might have trouble with financing,’ he said.”
“”Other industry experts agreed, with expectations that banks may be reticent to lend money for developments amid an unstable economy. These anxieties are heightened by local officials establishing rent moratoriums and other restrictions on the flow of money into the real estate sector, setting off a chain reaction of debt and risk sensitivities.”
“‘I would not be surprised if the financial basis for these projects might be teetering a little bit,’ said Burlingame Community Development Director Kevin Gardiner. ‘Every city we have talked to is concerned about their budget.'”
The Southern California Newsgroup. “Commercial real estate values nationwide fell 9% in April as pandemic containment throttled the economy. Green Street Advisors in Newport Beach tracks commercial real estate values in two ways. Analysts watch both publicly owned real estate investment trusts traded on Wall Street and property dealings among privately held funds. Once a month Green Street combines that research into indexes tracking real estate performance in key categories.”
“The coronavirus outbreak halted what had been commercial real estate’s long rebound from the depths of the Great Recession, where values plummeted by one-third. Business limitations due to various stay-at-home mandates have hurt property owners’ ability to collect rents as tenants lost jobs or cash flow. The industry also found that renting empty spaces — whether it be overnight (think, hotels) or a longer term — was very challenging.”
“Green Street’s overall commercial real estate index, measuring ‘unlevered’ valuations, for April was down 9% in a month and down an overall 8% in the past 12 months. In April, all 11 subindexes fell for the month and only two had gains in the past year. April’s bigger loser was malls; smallest losses were seen in industrial, self-storage and healthcare properties.”
“Here’s how Green Street broke down values by commercial real estate niches. Office: down 9% in a month and lost 6% in the year. Apartments: down 10% in a month and lost 3% in the year. Self-storage: down 5% in a month and lost 2% in the year. Hotels: down 7% in a month and lost 16% in the year. Student housing: down 12% in a month and lost 9% in the year.”
“Malls: down 20% in a month and lost 33% in the year. Strip malls: down 15% in a month and lost 13% in the year. Healthcare: down 5% in a month and lost 5% in the year. Net-lease properties: down 8% in a month and lost 9% in the year.”
The Sun Gazette in California. “Beacon economist Chris Thornberg made his third stop in three years in Visalia to talk about the economic outlook for Tulare County. This time, he tailored his message to the economic impact of the novel coronavirus pandemic. And where some economists forecast a deep recession, Thornberg said the recession will be short and outlooks will be righted by quarter three and four.”
“‘This is being driven by choices and by public health mandates. We understand millions have been let go but if some genius tomorrow came up with a cure, within two to three days many people would be back to work,’ Thornberg said. ‘Things are pretty good out there. People are enjoying a higher standard of living… This is not a fragile consumer sector.'”
“Thornberg said that an economic recovery will likely come from the pent-up demand. So a sustained recession does not seem likely. ‘This is an economy that can weather a tough storm. And this is a tough storm…This is not like a housing market that is going to have a 15% foreclosure rate,’ Thornberg said.”
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Agoura Hills, CA Housing Prices Crater 24% YOY As Foreclosures Rot Southern California Housing Market
https://www.zillow.com/agoura-hills-ca/home-values/
*Select price from dropdown menu on first chart
As one Los Angeles broker reported, “Housing prices were tanking fast before Corona.”
‘last month’s pending sales on Long Island were about 40 percent lower than they were in April 2009, when the region was in the grips of the housing crisis that hastened the last recession’
Oh dear…
‘last month’s pending sales on Long Island were about 40 percent lower than they were in April 2009, when the region was in the grips of the housing crisis that hastened the last recession’
That sounds pretty bad.
Perhaps young adults packed into Brooklyn might consider moving to suburban Long Island. But not at Baby Boomer prices, because they do not and never will have Baby Boomer incomes.
New York is a very high tax state, with most of the excess burden at the local government level. NYC has a long income tax, something very few places have. But on Long Island, the entire excess burden is in the form of higher property taxes.
Larry dont think so Long island you need a car, and that’s not cheap on top of rents. It takes planning to be on a major bus route and to commute to your job by bus, people dont think of these things before they move.
It certainly seemed that way to me, which is why I live in Brooklyn.
When we bought a row house here, however, a raised ranch in Levittown and a later-built row house with a garage in Forest Hills Queens all cost about the same. Since then, the relative cost of the Brooklyn row house has gone insane, a bubble inside a bubble.
I like where I am, but could my children afford it?
Nope you will leave the house to your kids as their inheritance, my parents transferred their house to us 20 years ago wayyyy before they would have gotten sick, the 5 year look back rule but have living rights….my sunnyside landlord did the same for his 2 family house.
Lots of Yellen bucks going to money heaven in California.
‘For a bull market, any per-unit cost inefficiencies on the home-sharing proprietor’s part are more than adequately buffered by incoming revenues, thereby strongly incentivizing the acquisition of more units and other forms of overcapitalization. But now as we are thrust into a negative growth environment, all those mortgage annuities, property taxes, apartment maintenance fees and utility bills become unsurmountable for an unincorporated sharing economy operator’
‘For the ghost hotel operator, this foreclosure sequence of events may apply’
The STR thing always depended on the bubble.
https://www.marketwatch.com/story/airbnb-hosts-built-mini-empires-now-theyre-crumbling-2020-05-07-15116586?mod=mw_more_headlines
It was about capturing the appreciation. The STR part was just monthly payment assistance. Most of these clowns were cash flow negative from the get-go.
not doubting you RIP – but do you have some additional info on why airbnb were cash negative.
I was seeing in some press that airbnb was covering expenses – and that 1 year rentals were not
“Ghost hotel operator” – what a great term!
Oh Boy, I hate these guys… who want to keep making money from FB that barely afford payments… anything to keep those commission checks coming…now begging to congress that taxpayers pay the rent of millions of people so rich’s people’s real estate investment dont lose value. F*** this guy
Vancouver, WA Housing Prices Crater 19% YOY As Portland And Seattle Housing Glut Drives Prices And Rents Lower
https://www.zillow.com/vancouver-wa-98684/home-values/
A distinguished economist stated, “A housing ‘recovery’ is falling prices to dramatically lower and more affordable levels by definition.”
“…more Americans may look to unlock the wealth tied up in their homes to get through the crisis. Problem is, banks won’t give up the key.”
The bankers are exercising financial prudence, and the fake news media is pretending that this is some kind of a crime.
Don’t forget that one man’s borrowed money is also some grandma’s savings. Certainly the real journalist wouldn’t throw his own grandma under the bus in order to offer a high risk loan to some underwater homeowner?
Certainly the real journalist wouldn’t throw his own grandma under the bus in order to offer a high risk loan to some underwater homeowner?
Probably depends on the commission structure.
Khan, here it comes…
“During an earnings call for the brokerage’s parent company, Elliman chairman Howard Lorber said the firm cut staff by 25 percent, reduced all salaries by 15 percent and is seeking to consolidate offices and negotiate “rent reductions, deferrals or holidays” with landlords nationwide. And that’s despite not yet feeling the full effects of the “severe decline” in sales activity.”
“Lorber attributed the March dropoff in closed sales to New York State’s ban on in-person showings. He said the New York market accounts for 70 percent of Elliman’s brokerage revenues and business has been “tough” without “being able to show anyone’s apartment.”
https://therealdeal.com/national/2020/05/08/douglas-ellimans-losses-mount-and-the-worst-is-yet-to-come/
business has been “tough” without “being able to show
He’s lying. Realtors are still showing houses here, they just can’t go inside with the shopper.
‘The lenders will have no profit’
This makes Baby Jesus smile.
I found this layoff tracker.
https://projects.sfchronicle.com/2020/layoff-tracker/
It looks like people losing their jobs are mostly in the hospitality business. Lots of food and travel and entertainment. Not much in Tech. Tech folks WFH making six figures and not spending money on Gas commuting of out buying lunch. those techies are loaded with money and not spending any of it.
those techies are loaded with money and not spending any of it
For all we know they order takeout every night and have grub hub deliver.
Not much in Tech.
I think Lyft, Uber, Airbnb and perhaps WeWork are considered tech although they arguably shouldn’t be.
In that case the Sunshine Taxi Co and Motel 6 are also “tech”.
You just need an app to be considered tech.
In that case most fast food chains are “tech”. Ditto supermarkets and just about any major retailer. Even KMart has an app.
Call me old school, but to be “tech”, I’d say you actually have to sell tech you design.
Silly Valley VCs didn’t get that memo.
Silly Valley VCs didn’t get that memo.
That dude at SoftBank sure didn’t.
you actually have to sell tech you design
Technology is literally everything about methods, procedures to make stuff (any kind of stuff) and to accomplish outcomes. I realize this term is co-opted by people who write programs to process data and such, but it is a very broad term. Yes, the burger place has its own technique, or technology.
I have over the years worked on programming here and there. Mostly I called it Debuggery.
San Francisco is toast…WFH is now accepted, and those techies are now free to live in Tahiti or wherever they want. The small businesses that relied on the army of commuters in Silicon Valley will not survive.
Not really Tahiti
What i am hearing is that they will understand (and fully support) if employees work from home going forward, but come in for important engineering reviews (i.e. 1 day every 1 or 2 weeks).
This does mean that folks can live 2 hours out of the core – and drive/train in for those meetings.
I would hate to have a inventory of $1M condos in Silicon Valley
From what I’ve read the Airbnb relief fund will not make the slightest difference, hosts receive little if anything when they apply. https://www.cnbc.com/2020/04/22/airbnb-hosts-getting-almost-nothing-from-250-million-relief-fund.html
Would be glad to see them gone, Airbnb has been a seriously negative force locally….has helped to drive rents sky high and neighbors of Airbnb units regularly have to deal with noise, drunk and unruly guests, trash, parking problems, etc.
The real question is how was Airbnb able to get a foothold to begin with? It’s an illegal hotel operation, skirting local laws and stiffing the tax authorities.
Brown envelopes were involved, I believe.
From top to bottom, rule of law is over in this country. If you want to do something, act like you’re entitled to do it and just go. Nobody stands up anymore.
“(A)ct like you’re entitled to do it”. Just like our fearless orange leader. Grab that pu@#&. Who’s going to stop you?
Consensual sex is absolutely disgusting. I hope you’ve never been a victim of it. Really I do.
At least DJT wasn’t caught on tape trying to grab it or flaunting an erection, but by all means continue with “orange man bad, sexist, racist.”
Bill Clinton Gropes a Flight Attendant
SNAKES ON A PLANE: Photos Of Obama’s Strange 2008 ‘Erection’ [VIDEO] (but YouTube removed the video)
South Lake Tahoe, CA Housing Prices Crater 10% YOY As Foreclosures Rot Southern California Housing Market
https://www.zillow.com/south-lake-tahoe-ca/home-values/
*Select price from dropdown menu on first chart
As one Los Angeles broker conceded, “If you’re a buyer, the broker is lying to you. I know a liar when I hear one. I’ve been lying my entire life.”
Fault lines beget earthquakes.
The Economist
A dangerous gap
The market v the real economy
Financial markets have got out of whack with the economy. Something has to give
Leaders
May 7th 2020 edition
Editor’s note: The Economist is making some of its most important coverage of the covid-19 pandemic freely available to readers of The Economist Today, our daily newsletter. To receive it, register here. For our coronavirus tracker and more coverage, see our hub
STOCKMARKET HISTORY is packed with drama: the 1929 crash; Black Monday in 1987, when share prices lost 20% in a day; the dotcom mania in 1999. With such precedents, nothing should come as a surprise, but the past eight weeks have been remarkable, nonetheless. A gut-wrenching sell-off in shares has been followed by a delirious rally in America. Between February 19th and March 23rd, the S&P 500 index lost a third of its value. With barely a pause it has since rocketed, recovering more than half its loss. The catalyst was news that the Federal Reserve would buy corporate bonds, helping big firms finance their debts. Investors shifted from panic to optimism without missing a beat.
…
https://la.curbed.com/2020/5/6/21248730/joshua-tree-house-for-sale-airbnb
Look at this beauty. In the middle of the desert with no AC and bring your own water.
Central bankers’ financial crack cocaine is no longer enough to juice these rigged, fraudulent “markets.”
https://www.marketwatch.com/story/china-shares-stagnant-even-after-beijing-hints-at-more-powerful-stimulus-2020-05-12?mod=mw_latestnews
Senior care facilities are a no-brainer of a winning investment in the Baby Boomer retirement era…aren’t they!?
The Financial Times
Coronavirus business update 30 days complimentary
Coronavirus
Coronavirus hits senior homes — and their owners
Investors rushed into sector hoping to profit from greying of baby boom generation
Priscella Bauer, left, chats with her son, Kevin Bauer, via mobile phone during a through-the-door visit at Brookdale Arlington Senior Living in Arlington, Virginia
© Jahi Chikwendiu/Washington Post/Getty
Joshua Chaffin in New York
2 hours ago
The rush of investors into senior housing in recent years has been based on a straightforward thesis: the greying of the baby boomer generation is creating millions of new customers for specialised residential facilities.
That rationale has proved particularly compelling as an abundance of cheap capital has made it harder for traditional real estate developers to find returns elsewhere.
But the senior care business has never been easy. With coronavirus, it is becoming far more difficult: occupancy levels are falling at many senior communities and nursing homes as potential residents shy away from facilities that have been ravaged by the virus — and many that have not. According to a New York Times tabulation, at least 27,600 residents and staff have died so far, accounting for about a third of all US fatalities.
Investors in the sector are being forced to recognise that they are more than mere landlords. They are critical service providers — facing rising expenses to clear and disinfect properties, provide protective equipment and reinforce staff.
“The cost structures of all these communities are going to go up,” said David Schwartz, the chief executive of Waterton, a Chicago-based developer that owns a senior housing company, Pathway to Living. “You’ll see certain investors who don’t want to be in it any more because the margins are compressed.”
Shares of Brookdale Senior Living, a real estate investment trust that is the largest US senior housing chain, have fallen from more than $8 in mid-February, as the pandemic was taking hold in the US, to just under $3 on Monday. A competitor, Ventas, has seen its shares cut in half — from $62.40 to $29.04 — over the same period. Many facilities are owned by private equity groups and smaller investors, who are also being hit.
In addition to the financial strain, some are suffering reputational damage and greater regulatory scrutiny. Authorities in New York and New Jersey — the two US states that have recorded the most coronavirus deaths — have launched investigations into care homes’ response to the pandemic after gruesome revelations about bodies stacked in makeshift morgues and relatives who were unable to contact their loved-ones until it was too late.
…
$5,000 a month and up already, and it’s going to cost more now. Who on Earth who could possibly afford to live in the cramped stench of these facilities is going to even want to now?
There goes your entitled flood of cheap desperately unloaded boomer homes. Everyone that has the ability to age in place is going to do that instead.
The majority of Boomers already spent all their money.
La la la-la-la they lived for today
La la la-la-la they lived for today
They didn’t worry, about tomorrow
They want someone else to pay!
https://www.youtube.com/watch?v=G5NtzB-voZo
I think Seniors have always been sitting ducks for many viruses in nursing homes.
I posted data that in regular years people die on average within 2.2 years and a high percentage within 6 months.
Also, the highest percent of deaths is over 80.
It appears nursing homes are more like a hospice situation where they expect the average to die within 2.2 years.
So if they knew that these Seniors were sitting ducks for a new virus , than why didn’t they target this area for extra protection against
Covid-19. No, they locked down the whole Nation instead.
Also, once a virus goes airborne and Worldwide your best solution is herd immunity, which is the process that burns the bug out.
Dr Fauci is testifying in the Senate right now talking about the possible second wave of C19. They are starting to push vaccines now . I’m feeling a hidden agenda here being the sale of vaccines.
Not-so-hidden
Vaccines with windows 11 microchips in them!
Are you concerned that UQE may be undermining the bond market’s ability to signal future inflation or default risk?
Are all assets hence forth risk free?
The Financial Times
Coronavirus business update 30 days complimentary
US Treasury bonds
Investors struggle to hear signals from bond markets
Huge scale of Fed buying obscures once-reliable signs on the path of inflation
Fed chairman Jay Powell painted a gloomy picture on prospects for the US economy at the recent monetary policy meeting
© FT montage
Colby Smith in New York and Tommy Stubbington in London yesterday
When the Federal Reserve stepped in to support the world’s largest debt market in March, fixed income investors were relieved. But in successfully staving off a more pronounced financial crisis, the Fed has further distorted markets, they say, overwhelming the once-reliable signals that bonds used to give about the path of the economy and inflation.
Over the past two months, the Fed has snapped up roughly $1.5tn of Treasuries and another $600bn or so of agency mortgage-backed securities as part of its pledge to buy an unlimited quantity of government debt. According to JPMorgan, the total of the Fed’s bond-buying in just a handful of weeks is in line with what the Fed purchased during the nearly three-year period covering its second and third rounds of quantitative easing after the financial crisis.
The result is that no matter what the likely path of inflation, no matter how fierce or mild the threat to global economic health, bonds are going nowhere fast.
“There’s so much QE, it waters down your conviction on what the bond market is telling you,” said David Vickers, a multi-asset portfolio manager at Russell Investments.
For market participants, these muted signals have implications far beyond the Treasury market. Government bond yields in the US and other big economies reflect the return investors can expect to earn without taking risk, in the process serving as “the foundation on which you build every asset”, according to Rick Rieder, BlackRock’s chief investment officer of global fixed income. If Treasury yields are distorted, so too are prices for stocks, corporate bonds and just about everything else, some analysts argue.
These arguments have become commonplace since the massive stimulus launched in the wake of the last financial crisis. But the unprecedented central bank interventions in response to coronavirus have given them new urgency.
…
Fed says it will start buying corporate-bond ETFs on Tuesday
Published: May 11, 2020 at 9:11 p.m. ET
By Greg Robb
The Federal Reserve’s new lending facility will begin purchasing corporate bond exchange-traded funds on Tuesday, the New York Fed announced Monday evening. The Fed said most of the purchases would be in exchange-traded funds with exposure to U.S. investment-grade corporate bonds, but some of the purchases will be of ETFs whose primary exposure is to U.S. high-yield corporate bonds. The Fed said it will soon start purchasing debt issued by companies directly. Analysts said the Fed’s announcement of the lending program in early April was enough to arrest turmoil in corporate bond trading and has allowed businesses like Boeing to issue debt.
…
“…high-yield corporate bonds.”
…aka Junk Bonds.
Wolf: ‘Cowardly’ counties ‘choosing to desert’ virus fight
‘York County restaurant owner Themi Sacarellos reopened his two diners Sunday and offered table service — something that is prohibited everywhere in the state right now — saying eight weeks was long enough to be shut down.’
“We don’t believe we’re defying the governor’s orders,” Sacarellos said Monday. “We believe he’s defying the people.”
https://www.timesleader.com/news/783397/wolf-cowardly-counties-choosing-to-desert-virus-fight-2
The Luk Fook Holdings (International) (HKG:590) Share Price Is Down 42% So Some Shareholders Are Getting Worried
https://au.finance.yahoo.com/news/luk-fook-holdings-international-hkg-034243027.html
Are you saying it Luks like they are Fooked?
Bend, OR Housing Prices Crater 11% YOY As Portland And Seattle Housing Bust Expands
https://www.movoto.com/bend-or/market-trends/
As one builder conceded, “If you paid more than $50 a square foot for a house, you got ripped off.”
Will COVID-19 wake up the banking system from its dumb reliance on low-interest, high-risk debt financing?
The Financial Times
Coronavirus business update 30 days complimentary
Opinion The FT View
The world needs a new attitude towards debt
Borrowing will help businesses survive but makes economies fragile
The editorial board
Promises made in good faith in one situation cannot always be ruthlessly enforced when the world changes
© Jerome Favre/EPA/Shutterstock
The editorial board 5 hours ago
Resilience has become the watchword for governments across the world. Mostly it is being applied to healthcare systems and manufacturing supply chains that risk being overwhelmed by Covid-19. But a new approach towards corporate finance is also called for: a preference for debt over equity has left economies more fragile than they should have been going into this crisis.
The capability for debt to produce instability has been comprehensively demonstrated twice in little over a decade. The 2008 financial crisis, at its root, was caused by excess debt. The destructive power of the financial innovations that prompted the moment of crisis itself were amplified by the leverage of the banks. A long decade of meagre growth followed on the heels of the crisis, partly as banks and governments attempted to repair their finances.
While the present crisis is not caused by debt, the side effects of lockdown are made worse thanks to businesses’ stretched balance sheets. Companies that used cheap borrowing to lever up and juice their profits are now struggling to meet interest rate payments during an enforced shutdown. Borrowing that in good times kept costs low can become a millstone in bad times.
Debts are, at their heart, a promise, but circumstances change and promises made in good faith in one situation cannot always be ruthlessly enforced when the world changes. Doing so can be destructive to businesses and investors alike; debt overhangs and technical defaults can force otherwise viable companies on to the scrap heap. When promises are broken the question becomes how to distribute the pain; equity has that capacity built in.
Yet the existing infrastructure for handling default and bankruptcy is not adequate to cope with such a large and rapid wave of restructurings. Bankruptcy courts are concerned with ensuring that contracts are honoured and untangling the competing claims of creditors rather than protecting economic activity. Out-of-court renegotiations are difficult at the best of times, an era of social distancing and massive uncertainty makes them even harder.
Incentives to rely on debt rather than equity should be removed after the crisis. Corporation taxes fall on the profits distributed to shareholders and not interest to bondholders. Chief executives are rationally responding to the incentives put in front of them when they tap bond rather than stock markets. Central bank policies, like quantitative easing, reduce the cost of financing generally — both debt and equity. The reliance on borrowing reflects the incentives companies face.
…
CNBC can’t decide which direction to go for their hyperbolic reporting. Why not both?
https://www.cnbc.com/2020/05/12/core-consumer-prices-saw-the-largest-monthly-drop-ever-in-april.html
https://www.cnbc.com/2020/05/12/us-grocery-costs-jump-the-most-in-46-years-led-by-rising-prices-for-meat-and-eggs.html
Not really. You can have massive overall deflation in tandem with rising prices of specific products in shortage (e.g. groceries).
Don’t need to drive much nor to restock the wardrobe these daze, but still need to eat.
“Key Points
– Core CPI dropped 0.4% in April, the biggest decrease since records have been kept going back to 1957.
– Significant slides came from apparel and transportation services.”
The Market Is in the Eye of the Hurricane. 5 Things to Know Today.
Published: May 12, 2020 at 8:19 a.m. ET
By Barron’s
The stock market is often used as a gauge for what’s going on in the world—but the market isn’t always cut out for that job.
Take Monday. Stocks barely budged. But Monday wasn’t boring. Vice President Mike Pence self-isolated after one of his aides tested positive for the coronavirus then ended the self-isolation. Tesla’s Elon Musk said he would open his Fremont factory even if it meant he’d get arrested. The Fed was gearing up to enter the market to buy ETFs. Yes, ETFs.
The market as a proxy for life has shortcomings over longer time horizons, too. If an investor had ignored their portfolio since January, they would be forgiven if they believed nothing much happened over the past four-plus months. The Nasdaq Composite is up 2.9% year to date, including dividends. Of course, the index dropped 33% from its high before rising 40% to arrive at 2.9%. Definitely not boring.
Tuesday is shaping up to be another boring day in the markets. Stock futures are barely budging. Less market volatility is a welcome respite for investors who can use the break, perhaps.
Just don’t assume nothing’s happening in the real world.
—Al Root
‘Bars and restaurants across San Francisco are closing their doors for good with the coronavirus and costs to operate a business in the city, some business owners say they can’t keep up. KRON4 spoke to one owner who was forced to close and file for bankruptcy.’
“It’s devastating because I’ve spent my entire life building this business and getting to the place to be an owner and you know worked really hard my entire life. Did everything right. Paid my bills on time, always paid my rent on time, always took care of my guests and employees and to go from that position to the position I’m in now is kind of unbelievable,” Gabriel Bryant said.’
‘Bryant, owner of Archive Bar & Kitchen, recently filed for bankruptcy. He closed because of the shelter in place order and said take out wouldn’t generate enough sales to stay open. “It was kind of a perfect storm. I went from selling the restaurant, transferring the restaurant to a great caring group to having to file bankruptcy within a couple months,” Bryant said.’
https://www.kron4.com/news/bay-area/san-francisco-restaurants-forced-to-close-down-for-good-due-to-pandemic/
The restaurant business was already one of high turnover with a significant percentage of startups not successful; guess this just makes it that much worse.
One would think that there will be new ones to take the place of old, assuming some sort of “new normal” government regulating doesn’t make the business model unworkable.
Dense article but well worth the time. It tracks with what Dan Bongino covered on his podcast long ago. Be sure to read the comments for a 5/7/2020 letter to Acting Director of ODNI Grenell asking for declassification of NSA records relating to Seth Rich.
Why is Obama Panicking Now? – The Importance of Understanding Political Surveillance In The Era of President Obama…
“…NSA records relating to Seth Rich.”
The murder of Seth Rich occurred on Sunday, July 10, 2016, at 04:20 should’ve been ideal for smartphone geo-tracking. This case reminds me of JFK.
Kosminski posted this link a couple threads back. It is indeed a must watch.
MUST WATCH: Debunking the Narrative (With Prof. Dolores Cahill)
Thank you Redpilled, I saw that tape and I thought it was a must watch also.
About a quarter into the tape it really starts getting good.
The first part establishes her credibility so I understand why it’s there. She knows her $hit.
Yes she does know her shit.
I will check this out later when I have time,
Yup – this is gonna end well…….
A quote from the article……. ‘It used to be that working class folks could reasonably aspire to buy a house. And now I think buying a house has really become a privilege.’
— Glenn Kelman, CEO of Redfin
https://www.marketwatch.com/story/vacation-real-estate-markets-are-toast-because-of-the-pandemic-as-airbnb-owners-rush-to-offload-their-homes-redfin-ceo-says-2020-05-11?mod=home-page
buying a house has really become a privilege.’ In the near future having any kind of roof over one’s head will become a privilege.