Trader Alert: REITS Trigger FED Warning as American Capital Buys $100 Billion of Mortgages, US Savings Rate Near Record Low, Per Capita Disposable Income Almost Back To December 2006 Level, Citigroup Is Selling Synthetic Securities That Yield 13% To 15% Annually – Based On Credit Derivatives! And Cyprus Crisis Just Lit The Fuse!
REITs bought more than $100 billion of government-backed mortgage securities in 2012, the most since at least the credit crisis, and will purchase another $60 billion in 2013, JPMorgan Chase & Co. estimated this month. Fed Governor Jeremy Stein pointed to the expansion of mortgage REITs, which have amassed almost $400 billion of the debt, during a speech last month on risky behavior in credit markets influenced by the central bank holding borrowing costs near zero for a fifth year and investors searching for high-yielding assets.
“Agency mortgage REITs deserve attention in particular because they have exploded in size,” said John Gilbert, chief investment officer at General Re-New England Asset Management, a unit of Warren Buffett’s Berkshire Hathaway Inc. (A) that oversees $64 billion. “We’ve been dealing with the unintended consequences of monetary policy for a long time. We have to be on the lookout for the downside.”
When one cries wolf a few too many times, this is what happens. From Yonhap:
‘North Korea announced Saturday that it has entered a state of war against South Korea.
In a special statement, the North said it will deal with every inter-Korean issue in a wartime manner.’
And… nothing. In fact, if the market was open the ES would likely ramp limit up on the non-news. By now the world is so numb to the constant provocations by North Korea’s confused leader, who is desperate to be finally paid off as nuisance value by the Western powers, that the most he can extract from anyone is laughter when one wonders if the iMac sitting on the desk of glorious leader wasn’t hacked by some brand new FBI-launched virus issuing world war 8-Ks and press releases (although with the Ethernet cable unplugged, “no risk” of that as Geithner would say).
Speaking of, here is tonight’s caption contest:
Glorious leader hard at work hatching his devious global domination plans.
It comes from SocGen’s Sebastien Galy, who sends his ultra-quick missive:
Technically the two countries have been at war just stopped fighting, but in the game of rhetoric it feels a bit like closing the door behind you. Should give the USD a bid and shake some positions if it is anything close to meaning significant action. A butterfly flapping through the minefields.
Second, while incomes did rebound after the plunge in January, the modest increase represented a rise in the personal savings rate to just 2.6% – the second lowest monthly savings print since 2007, excluding only the abysmal January 2.2% print. In other words, there is hardly much if any new room for additional spending with the savings rate nearly at record lows, and with US consumer continuing to reduce their outstanding revolving credit, the Q1 retail sales miracle will hardly be repeated in future months as US consumers seek to rebuild some cash buffer.
For those claiming there is something called a “recovery” underway, perhaps they can point out just where on this chart of Real Disposable Income per capita one can find said recovery. Because we are confused: with the average Real Disposable Income of $32,663 per person, or lower than where it was in December 2006 ($32,729), one may be excused for scratching their head.
Citigroup Is Selling Synthetic Securities That Yield 13% To 15% Annually – Based On Credit Derivatives!
The craziness on Wall Street, the reckless for-the-moment-only behavior that led to the Financial Crisis, is back. This time it’s Citigroup that is once again concocting “synthetic” securities, like those that had wreaked havoc five years ago. And once again, it’s using them to shuffle off risks through the filters of Wall Street to people who might never know.
What bubbled to the surface is that Citigroup is selling synthetic securities that yield 13% to 15% annually—synthetic because they’re based on credit derivatives. Apparently, Citi has a bunch of shipping loans on its books, and it’s trying to protect itself against default. In return for succulent interest payments, investors will take on some of the risks of these loans.
Cyprus Crisis – The Fuse Has Been Lit
In 2008 our economy collapsed. Since that time, the central bankers have been propping up the system to keep the game going. All indications are that we are running out of time. Like an elephant on stilts, it’s only a matter of time till it loses it’s balance and comes tumbling down. The question is when.
Savers in Cyprus’ largest bank face losing a far worse-than-expected 60pc of their deposits over €100,000 as part of a €10bn EU bail-out deal struck this week.
by Nick Squires, The Telegraph:
Under an arrangement expected to be announced on Saturday, depositors in Bank of Cyprus will receive shares in the lender worth 37.5pc of any savings over €100,000, while the rest may never be paid back, according to Reuters, citing a source with direct knowledge of the terms.
Of the 62.5pc of uninsured deposits not converted to bank shares, about 40pc will continue to accrue interest but will not be repaid unless the bank does well, while the final 22.5pc will cease to attract interest, the source told Reuters.
Government figures, including finance minister Michalis Sarris and central bank governor Panicos Demetriades, had previously indicated that depositors in the island’s largest lender would lose around 40pc of their uninsured savings as part of an 11th hour agreement reached in Brussels in the early hours of Monday.
The Cyprus Template is Global
The economic recovery has stumbled in the spring and summer of each the last three years.
It’s not the market’s biggest problem, but it looks like it might happen again this year. Reports this week showed new home sales unexpectedly fell 4.6% in February, the biggest monthly decline in two years. Pending home sales declined 0.4%. Basic durable goods orders (ex-volatile aircraft orders) declined 2.7% in February. The Conference Board’s Consumer Confidence Index fell sharply in March, dropping from 68.0 in February to 59.7 in March. The Chicago PMI Index, which is often a bellwether for the national ISM Mfg Index, unexpectedly fell from 56.8 in February to 52.4 in March. New weekly unemployment claims jumped by 16,000 last week.
Perhaps more ominous, FedEx, the global shipping giant, reported a 31% decline in quarterly earnings and warned that global trade has slowed to levels not seen since the last two significant economic downturns. And Caterpillar, the giant global manufacturer of construction and mining equipment, also considered to be a bellwether for global economic conditions, reported an unexpected 13% plunge in orders in the three-month period from December through February. The company said its Asia-Pacific sales plunged 26%, and North American sales fell 12%.
So it’s not just the signs that the economic recovery may stumble again this year, but that unlike the last three summers, this year as a stumble threatens the cyclical bull market from early 2009 has the S&P 500 back up to its previous peaks again.
And thus my recent advice to “Remain invested – but alert!”