California has an unexpected and welcome revenue windfall, but it creates a dilemma on what to do with it.
(Dan Walters) As Gov. Gavin Newsom makes the final decisions on writing a 2021-22 budget, he’s receiving some good revenue news from his bean counters.
During the first four months of the 2020-21 budget cycle, which began on July 1, state general fund revenues were more than $11 billion higher than the apocalyptic estimates on which the budget was based. Moreover, the windfall could easily double to $26 billion in the first months of 2021, according to the Legislature’s budget analyst, Gabe Petek.
L.A. Home Sales Soar as California’s Housing Market Defies Covid
(Alex Tanzi) — When it comes to L.A. real estate, “Sunset” is still selling — even nine months into the pandemic.
With interest rates at some of their lowest levels ever, many renters are reassessing their housing options, said Jason Oppenheim, star of “Selling Sunset,” a Netflix reality series featuring a team of brokers and the glitzy properties they’re selling across Los Angeles.
“Let’s face it, the 1% are doing very well right now, with markets at all-time highs and interest rates extremely low,” said Oppenheim, who runs his Oppenheim Group brokerage along Sunset Boulevard, which the show’s built around. “Houses are affordable right now and people want to get out of their cramped apartments.”
Los Angeles isn’t alone. Since Covid-19 was declared a public health emergency in March, home-buyers across California’s biggest cities have shown no let-up when it comes to betting on real estate.
Along with Los Angeles, San Jose, San Diego, Sacramento and San Francisco were the U.S. markets with the biggest jump in new mortgages during the third quarter, according to research by ATTOM Data Solutions, which tracked metro areas nationwide with at least 1 million people. And that happened in the three months that saw a record increase in the number of residential purchase mortgage originations in the country.
What Pandemic?
Nationally, lenders issued roughly 1.05 million home-purchase mortgages in the third quarter, up 25% from the same period in 2019, ATTOM’s data showed. New home loans accounted for about 34.5% of total mortgage activity last quarter.
“The housing market is still operating as if the recession brought on by the pandemic didn’t exist,” said Todd Teta, ATTOM’s chief product officer. “Buyers and owners, lured by low mortgage rates, kept lining up for loans at levels not seen in more than a decade.”
Along with renters, younger buyers are entering the market.
“The simple fact is that millions of well-qualified millennials are seriously shopping for houses, and they are competing for a shortfall of homes for sale,” said Jeff Tucker, senior economist at the real estate company Zillow.
Intense demand in a tight market has pushed month-over-month and quarterly home-value growth to levels not seen since 2005, according to Zillow.
Low Inventory
The tight supply is reflected in many California markets, where “for sale” signs quickly disappear from front yards. Listings in Los Angeles were down 17.5% from a year ago for the week ending Nov. 14. In San Diego, they’re 33% lower, and listings dropped 37.2% in Sacramento. In Riverside, east of Los Angeles, they declined by almost half, Zillow’s data showed.
Some of the new buyers are going straight for high end after amassing fortunes from the technology boom. The tech-heavy Nasdaq Composite Index reached a record in the third quarter and is hovering near that level, while the S&P 500 Index hit a new high earlier in the week.
“Instagram, TikTok, YouTube, young people are killing it out here,” Oppenheim said. “I am selling a ton of $5 million to $10 million dollar homes to people on social media.”
Still, not all markets are outperforming, as job losses from the pandemic continue to weigh on consumer confidence elsewhere in the U.S. Teta at ATTOM cautioned that “the pandemic and other factors could come together and halt the market boom.”
Pittsburgh, Upstate New York’s Rochester and Buffalo, Detroit, and New York City are among the large metro areas that registered declines in mortgages from a year earlier.
Despite the mixed signals, Zillow anticipates 2021 will be the best year for home sales since 2006.
“People have zero apprehension about buying into this market,” said Oppenheim. “We’re probably going to see a few good years ahead of us.”
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(ZeroHedge) Last quarter, amid the bank panic resulting from surging loan loss provisions, we observed that the heart of the debt-addicted US economy was hit especially hard by the double whammy of collapsing consumer loan supply, with the August Senior Loan Officer Survey finding that banks reporting tighter loan conditions had surged to the highest level since the Lehman bankruptcy, while consumer demand for most loan types had tumbled, in some cases to record low levels.
However, in the subsequent three months much has changed, following the latest round of bank earnings which saw a collapse in loan loss provisions across the US banking sector, which miraculously plunged from near all time highs back to pre-covid levels in the span of just a few weeks.
This dramatic turnaround in bank outlooks on future loan losses also had a profound impact on loan issuance standards.
Specifically, the Q3 SLOOS found that lending standards for commercial and industrial (C&I) loans again tightened in 2020 Q3, but improved from the devastation observed in Q2. 38% of banks on net tightened lending standards for large and medium-market firms, which was a nearly 50% improvement from the 71% in the previous quarter, while 31% of banks on net tightened lending standards for small firms vs. 70% on net in the previous quarter.
There was also an improvement in pricing with 13% of banks increasing spreads of loan rates over the cost of funds for large firms vs. 59% last quarter, but a smaller share of banks on net reported tightening terms in Q3 on maximum size of credit lines (7% vs 41% in Q2) and for premiums on riskier loans (29% vs 59% in Q2).
Among the banks that tightened credit standards or terms for C&I loans or credit lines, 26% cited a deterioration in the bank’s capital position as playing a role, 95% cited worsening industry-specific problems, 91% cited a less favorable or more uncertain economic outlook, 69% cited a reduced tolerance for risk, 18% cited decreased liquidity in the secondary market for loans, 11% cited a deterioration in the bank’s own liquidity position, and 9% cited increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards.
Other loan types saw a similar improvement, with standards for commercial real estate (CRE) loans also tightening on net in Q3, but at a far smaller net share of banks compared to last quarter. 57% (a 24% improvement) of banks on net reported tightening credit standards for construction and land development loans, 55% (vs 78%) reported tightening standards for loans secured by nonfarm nonresidential properties, and 45% (-19pp) on net reported tightening lending standards for loans secured by multifamily residential properties.
A similar picture was seen in the real estate loan sector, as far fewer banks on net tightened standards for mortgage loans compared to in Q2, a move facilitated by the tremendous inflow of capital to the housing market. Lending standards for GSE-eligible (-43pp to 12%), non-jumbo non-GSE eligible (-45pp to 14%), Qualified Mortgage jumbo (-49pp to 20%), non-Qualified Mortgage jumbo (-51pp to 19%), non-Qualified Mortgage non-jumbo (-44pp to 20%), and subprime (-10pp to 33%) mortgages all tightened.
Completing the supply side, banks’ willingness to make consumer installment loans was basically unchanged after sharp decreases in the previous two quarters; credit standards for approving credit card applications tightened further (27% on net vs. 72% previously), while a modest share of banks also tightened standards for auto loans (14% vs. 55% previously).
However, while supply clearly is thawing, it was the demand side that was troubling, especially in the key – for the US economy – Commercial & Industrial (C&I) loan category, where demand from large-and medium-sized firms, weakened further in Q3 as 35% of banks on net reported weaker demand for C&I loans for large and medium-market firms, compared to 23% on net reporting stronger demand in the previous survey. This was the lowest net demand in this series since the financial crisis.
That said, there were some signs of recovery in other loan classes: demand for CRE loans fell on net across all three categories, but by less than in Q2. And while demand for mortgage loans increased further in Q3, it was credit card loan demand that saw a major reversal, with demand for credit card loans virtually unchanged at 2% on net vs. a collapse of -65% in Q2, while demand for auto loans picked up at a small share of banks (8%) after steep declines the previous two quarters.
In summary, while Americans aggressively took out loans which serve merely to satisfy their own personal consumption needs and prefund that next car or TV purchase, and which merely pull demand from the future, when it comes to the all important C&I loans which result in capex spending and overall economic growth, here the picture continues to deteriorate despite an easing in loan issuance standards. This simply means that for the vast majority of Americans, the economic environment remains so dismal that demand for C&I loans is now at levels last seen just around the Lehman crisis. And since the consumption-funding loans which are going gangbusters will soon re-freeze following the next round of covid closures, we doubt it will take too long before this translates into a sharp swoon in the broader economy.
Mortgage Delinquencies Fall To 7.65% While Mortgage Foreclosures Decline To 0.59% (Covid /= Disaster For Mortgage Markets)
(Anthony B. Sanders) ‘Covid-19 has been a disaster TEMPORARILY for the US economy, but the US economy is resilient.’ According to the Atlanta Fed’s GDPNow real time GDP is now at 3.514%, higher than GDP before the Covid outbreak.
While the US mortgage market saw a rapid increase in mortgage delinquencies thanks to Covid, it did not materialize into a foreclosure wave as did during the financial crisis.
The reason why? Forbearance. And loans in forbearance has been gradually declining.
So unless states and cities continue their Covid lock downs, we should see a normalization in mortgage delinquencies.
LONDON (Reuters) – U.S. investment bank JPMorgan expects the S&P500 index to surge to 3,900 points if U.S. President Donald Trump is re-elected next week, calling such an outcome the most favorable for stock markets.
A rise to 3,900 would mark a 12.6% jump from Friday’s closing level.
A clean sweep by Democrats would be “mostly neutral” for markets, JPM said in a note received on Monday, adding: “We see an ‘orderly’ Trump victory as the most favorable outcome for equities.”
The odds of a “blue wave” have narrowed slightly since mid-October. Former vice president Joe Biden has a substantial lead in national opinion polls, although the contest is closer in battleground states likely to decide the race.
JPMorgan said several of its data gatherings, such as voter registration, Twitter sentiment, point to a “tightening race”. The bank sees a gridlock in the election as a “net positive” for stocks.
Within sectors, JPM sees beaten down energy and financial stocks to likely be key beneficiaries of a Trump victory, while a Biden win could trigger a rotation from U.S. growth stocks to non U.S. growth stocks, given the risk of higher taxes.
“We find that energy, financials and healthcare sectors could likely see the most outsized moves as they have been explicitly referenced by each candidate on the campaign trail,” the bank added.
When we recently described the upcoming “Unprecedented monetary overhaul” which will come in the form of the Fed sending out digital dollars directly to “each American”, we explained that “absent a massive burst of inflation in the coming years which inflates away the hundreds of trillions in federal debt, the debt tsunami that is coming would mean the end to the American way of life as we know it. And to do that, the Fed is now finalizing the last steps of a process that revolutionizes the entire fiat monetary system, launching digital dollars which effectively remove commercial banks as financial intermediaries, as they will allow the Fed itself to make direct deposits into Americans’ “digital wallets”, in the process enabling truly universal basic income, while also making Congress and the entire Legislative branch redundant, as a handful of technocrats quietly take over the United States.”
European equities slumped to near one-month lows on Thursday, as soaring COVID-19 cases across the continent weighed on sentiment. In recent months, virus cases have spiked across Europe, with Spain becoming the first country on the continent to surpass the one million infection mark. At the same time, Italy has just set a record increase in daily cases.
The surge in European coronavirus cases has shifted sentiment lower for businesses, with downside risks emerging for the continent’s economy in the fourth quarter.
Bloomberg, citing a new McKinsey & Co. survey conducted in August, describes a particularly gloomy outlook for Europe’s small and medium-sized businesses, warns that at least half of them could enter into bankruptcy proceedings in the next year if revenues continue to stagnate.
Days before the State of Wisconsin denied Foxconn’s request for state tax credits – in the form of direct payments from the state to Foxconn’s bank account – related to the “factory” built by the world’s largest contract tech manufacturer in Mount Pleasant, Wisconsin. The project was announced shortly after President Trump’s upset election victory, but quickly ran aground as reporters complained that the facility being built by Foxconn bore little resemblance to the enormous Gen 10.5 LCD factory the company had promised.
(ZeroHedge) In what remains the most under covered financial topic of the year, if not century, we remind readers that starting about a year ago, central banks around the world launched an unprecedented if stealthy attempt to overhaul the entire monetary architecture of fiat money by implementing digital dollars, a transformation to a cashless society which in recent months has also received the tacit support of Congress, which is actively drafting bills to send “digital dollars” to the unbanked. For those just catching up, read the following recent articles:
The effects of allowing chaos to prevail in liberal run cities across America might not be obvious to liberals now, but when their cities empty out completely, it’s going to become crystal clear.
Such is the case in San Francisco, where the city’s new normal of shoplifting and chaos has driven another Walgreens pharmacy out of the city.
The move to close the Walgreens at Van Ness and Eddy came after “months of seeing its shelves repeatedly cleaned out by brazen shoplifters”, according to the SF Chronicle. The location served “many older people” who lived in the area.
One customer told the paper: “All of us knew it was coming. Whenever we go in there, they always have problems with shoplifters.”
The same customer photographed someone in the store, days prior, “clearing a couple shelves and placing the goods into a backpack”. Because when there’s no police and politicians are afraid to enforce the law – why not?
The penalty for shoplifting is a “nonviolent misdemeanor” that carries a maximum sentence of 6 months. But in most cases, for simple shoplifting, the criminal is simply released with conditions.
The customer, who lives a block away, said: “I feel sorry for the clerks, they are regularly being verbally assaulted. The clerks say there is nothing they can do. They say Walgreens’ policy is to not get involved. They don’t want anyone getting injured or getting sued, so the guys just keep coming in and taking whatever they want.”
Well, you have to laugh really. Amid the greatest economic contraction in US history, rising social unrest, ongoing extreme unemployment, and demands for further trillions in handouts from the government (or the world will come to an end), there is one group that is ‘loving it’!
According to the National Association of Home Builders, home builder sentiment has surged to a new record high at 85 in October…
The October reading was stronger than the expected 83, and marked the sixth straight month builder sentiment has exceeded the consensus estimate.
By region, builder sentiment in the West and Northeast rose to the highest levels on record, while confidence eased in the South and Midwest.
The NAHB’s gauge of current single-family home sales rose by 2 points to a record 90 in October, while a measure of the outlook for purchases climbed 3 points to an all-time high of 88. The group’s index of prospective buyer traffic held at 74.
“The concept of ‘home’ has taken on renewed importance for work, study and other purposes in the Covid era,” Chuck Fowke, chairman of NAHB, said in a statement.
“However, it is becoming increasingly challenging to build affordable homes as shortages of lots, labor, lumber and other key building materials are lengthening construction times.”
Home buyer sentiment has rebounded but remains drastically below previous peak levels…
Does make one wonder…maybe we should have pandemics (and riots) more often?
(by Graham Allison) China has now displaced the U.S. to become the largest economy in the world. Measured by the more refined yardstick that both the IMF and CIA now judge to be the single best metric for comparing national economies, the IMF Report shows that China’s economy is one-sixth larger than America’s ($24.2 trillion versus the U.S.’s $20.8 trillion). Why can’t we admit reality? What does this mean?
While the rapid deterioration in diplomatic relations between the US and China has been put on hiatus until after the election, at which point Beijing hopes that a Biden administration would promptly restore amicable relations between Beijing and DC, trade relations within the Pacific Rim region are getting worse by the day, with nobody getting more impacted by China’s desire to flex its muscles than Australia: escalating bilateral tensions have resulted in China’s “unofficially” asking cotton and ore traders to stop buying products from Australia.
After slowing its rebound dramatically in August, analysts expected another small lift in September, but Industrial Production disappointed gravely, falling 0.6% MoM (against expectations of +0.5%)…
The big driver of the plunge in industrial production was utilities (plunging 5.6%) as demand for air conditioning fell by more than usual in September. Mining production increased 1.7 percent in September; even so, it was 14.8 percent below a year earlier….
US manufacturing also dropped in September, sliding 0.3% MoM (against expectations for a 0.6% rise)…
This leaves US Industrial Production unchanged since May 2006…
On Thursday, China for the first time sold dollar-denominated bonds directly to US buyers and with the Chinese 10Y offering a record 2.5% pickup in yield compared to 10Y Treasuries, it’s hardly a surprise that demand was off the charts.
The $6 billion bond offering which took place in Hong Kong, drew record demand, in part due to the attractive yield offered by Chinese paper and in part due to China’s impressive recovery from the coronavirus, with an orderbook more than $27 billion, or roughly $10 billion more than an offering of the same size last November, according to the FT, which added about 15% of the offering went to American investors.
The $6BN USD-denominated bond offering was as follows:
$1.25BN in 3-year dollar bonds at 0.425%
$2.25BN 5-year dollar bonds at 0.604%
$2BN 10-year dollar bonds at 1.226%
$500MM 30-year dollar bonds at 2.310%
The yield on the 10-year bond was about 0.5% above the equivalent US Treasury, and helped the bond sales receive “a strong reception from US onshore real money investors”, said Samuel Fischer, head of China onshore debt capital markets at Deutsche Bank, which helped arrange the deal. Other arrangers of the bond sale included Standard Chartered, Bank of America, Citigroup, Goldman Sachs and JPMorgan.
What was unique about today’s offering is that unlike previous issuance, “the debt was sold under a mechanism that gave institutional investors in the US the chance to buy in.”
Somewhat surprising is that frictions between Beijing and Washington had no impact “at all” on demand from US buyers, which included an American pension fund, one banker told the FT. In fact, the strategic timing of the bond sale which was arranged by the Chinese government just weeks before Americans head to the polls for the presidential election was meant to show “how tightly the financial systems of the two countries are linked, despite a trade war and tensions over technology and geopolitics.”
“This is the investor community showing confidence in [China’s] recovery,” said another banker on the sale, who added that “US investor participation in Chinese paper is not reduced by any means.”
Analyst responses were broadly enthusiastic about the offering:
Hayden Briscoe, head of fixed income for Asia Pacific at UBS Asset Management, said the bonds would help “set the benchmark” for Chinese corporates such as petrochemical groups Sinopec and Sinochem, which also borrow in dollars. “A lot of their expenses are in US dollars, and they borrow in the dollar market to match funds to that.”
He added that the bonds benefited from strong demand partly due to their scarcity value. “There’s so few of them and they suit sovereign wealth fund type buyers — they tend to just disappear.”
If you are making less than $3,000 a month, you have plenty of company, because about half of the country is in the exact same boat. The Social Security Administration just released new wage statistics for 2019, and they are pretty startling. To me, the most alarming thing in the entire report is the fact that the median yearly wage was just $34,248.45 last year. In other words, half of all American workers made less than $34,248.45 in 2019, and half of all American workers made more than $34,248.45. That isn’t a whole lot of money. In fact, when you divide $34,248.45 by 12 you get just $2,854.05.
In a world where over $16 trillion in debt now trades with negative yields…
… the US remains one of the outliers where nominal yields are still positive (if not for too long). Still, with rates in the US remaining caught in a tight range, and as bank funding conditions increasingly normalize, it means that yields on mortgages continue to shrink, and sure enough according to the latest Freddie Mac data, the average yield for a 30-year, fixed loan dropped to 2.81%, down from 2.87% last week, which was not only the lowest in almost 50 years of data-keeping, but also the 10th record low this year. The previous all time low – 2.86% – held for about a month.
The availability of record cheap loans – which is unlikely to change with the Fed signaling it will hold its benchmark rate near zero through at least 2023 – has fueled a home buying spree which while bolstering the pandemic economy, has resulted in yet another bubble (for more details see Visualizing The U.S. Housing Frenzy In 34 Charts)
Meanwhile, the surging demand for the scarce supply of properties on the market is pushing up prices, putting home ownership out of reach for many Americans, and leading to even greater wealth inequality which, as a reminder, is how we got here in the first place. Adding insult to injury, lenders have tightened credit standards to near record levels, presenting another potential obstacle for would-be buyers.
“It’s important to remember that not all people are able to take advantage of low rates, given the effects of the pandemic,” Sam Khater, Freddie Mac’s chief economist, said in the statement.
First JPMorgan admitted that over 500 of its generously paid employees had “illegally pocketed” covid-relief funds and then summarily fired most of them – and now it’s chronic lawbreaking recidivist Wells Fargo’s turn.
The bank, whose stock tumbled today after reporting dismal results and then was hit with even more selling after cutting its net interest income outlook, has fired more than 100 employees for illegally getting covid relief funds which were meant to help small businesses, Bloomberg reported citing a person familiar.
Warren Buffett’s favorite bank uncovered dozens of employees who defrauded the Small Business Administration “by making false representations in applying for coronavirus relief funds for themselves,” according to an internal memo reviewed by Bloomberg. Similar to JPMorgan, the abuse was tied to the Economic Injury Disaster Loan program and was outside the employees’ roles at the bank, according to the memo.
“We have terminated the employment of those individuals and will cooperate fully with law enforcement,” David Galloreese, Wells Fargo’s head of human resources, said in the memo. Wells Fargo’s actions follow JPMorgan Chase & Co.’s finding that more than 500 employees tapped the EIDL program which hands out as much as $10,000 in emergency advances that don’t have to be repaid, and dozens did so improperly.
The bank “will continue to look into these matters,” Galloreese added, saying the employees’ abuse didn’t involve customers… for once. “If we identify additional wrongdoing by employees, we will take appropriate action.”
As Bloomberg notes banks were urged by the SBA to look out for suspicious deposits from the EIDL program to their customers and even their own staff, after an analysis identified that at least $1.3 billion was sent out from the SBA for suspicious payments. While the program offers loans to businesses, much of the concern has focused on its advances of as much as $10,000 that don’t have to be repaid.
Wells Fargo is best known for its role in a massive account fraud scandal in which the bank created millions of fraudulent savings and checking accounts on behalf of Wells Fargo clients without their consent over a 14-year period. The fallout led to the bank paying $3 billion to settle criminal charges and former CEO John Stumpf losing his job after a historic Congressional grilling, while also agreeing pay a personal $17.5 million fine. In 2018, Wells Fargo agreed to an unprecedented consent order from the Fed which capped the size of its balance sheet and limited how many loans the bank can issue, one of the factors behind the dismal performance of its stock in recent years, which even prompted Warren Buffett to finally dump some of his Wells Fargo holdings.
With few buyers willing to take a risk, credit bids become far more common in bankruptcy sales, says RB’s The Bottom Line.
Shutterstock
(Jonathan Maze) Last week, California Pizza Kitchen canceled its auction after no worthy bidders came forward to buy the casual-dining chain. The result: The company will likely end up in the hands of its lenders.
That came the same week that Ruby Tuesday started its bankruptcy process with a plan that hands the keys to the chain to its lenders.
Such deals are far from uncommon and totally understandable. But it’s indicative of the state of the business that once-venerable chains can’t even scrounge up bidders to help fuel bankruptcy auctions.
Indeed, several companies that have filed for bankruptcy since the pandemic have ended up sold in credit bids. CraftWorks, the owner of Logan’s Roadhouse and Old Chicago that declared bankruptcy before the pandemic, was sold through a credit bid in May. Aurify Brands acquired both Le Pain Quotidien and Mayson Kaiser by first acquiring the debt for the two brands and then using that to take over the company.
“With too many restaurants per capita pre-pandemic and uncertainty about COVID-19 heading into winter, strategic buyers are scurrying to their foxholes to avoid the shakeout,” they said. “Existing lenders have no choice but to play out their option, hoping that less competition, strong digital adoption and execution, a slimmer balance sheet, a reduced footprint and focused management will bridge them to an industry comeback.”
To be sure, the companies above occupy some of the most challenging sectors or sub-sectors during the pandemic.
Both Le Pain Quotidien and Maison Kayser, for instance, are bakery-cafe concepts in urban areas. Those types of concepts face an uncertain future thanks to empty offices as consumers work from home, along with a potential flight of residents toward the suburbs.
Ruby Tuesday has been struggling and shrinking for more than a decade. It has closed nearly half of its units since 2017 and is less than a third of the size it was back in 2008. Bar and grill casual dining itself faces significant questions—TGI Fridays, once the leading casual-dining chain, is also shrinking.
Buyers simply aren’t ready to take the plunge on those types of concepts. The business for dine-in sales is weak. It is also expected to remain weak for some time. That leaves the companies with little choice but to hand the keys to the lenders and walk away.
Any buyer of such chains will want that company reduced to only the most profitable locations. And they’re going to want that company for a considerably smaller price than the face value of the secured debt.
A lot of investors live to buy concepts through credit bids. They buy the secured debt on the secondary market, often for considerably discounted prices—lenders, believing they’ll be unlikely to get their money back and eager to get an unworkable loan off the books, will sometimes sell the debt at a discount.
Investors step in and buy the debt cheap. That can give them the inside track when a company ends up in bankruptcy. If a buyer willing to pay the face value of the debt emerges during an auction, the investor can make money based on the discount they paid for that debt. If not, they get the chain and can run it until the situation improves.
But such sales can often prolong the life of a chain that wouldn’t survive on its own, extending the life of “zombie” chains that aren’t growing and aren’t innovating and simply exist. The pandemic, of course, is creating zombies in all sorts of industries. Restaurant chains included.
ZeroHedge observed many times throughout the pandemic that the coronavirus-related lock downs, especially as impacting restaurants, bars, theaters and other night venues, have made living in already expensive big cities like New York much less attractive.
It appears this trend of people ‘escaping’ the big cities as the prime lure of being there has largely evaporated — also after a summer of chaotic race and police shooting related protests and mayhem —ispoised to hit San Francisco, despite it previously witnessing steady population growth over the past three decades. New tax numbers freshly out suggest a major exodus is already in progress.
But for the first time in recent history, and as the city’s large tech employers like Google, Facebook and Uber have kept their employees at home working remotely, city data shows that“Sales tax data shows San Francisco’s population likely declined during the coronavirus pandemic,” according the city’s chief economist Ted Egan.
The San Francisco Chronicle reports a whopping shortfall in revenue, detailing that “From April to June, the city’s sales tax revenue dropped to $30.8 million, down 43% from the prior year.”
While this is the kind of thing other cities have naturally also experienced over the course of pandemic closures of venues, many have been able to close the gap given simultaneous growth in taxable online sales as households turned to Amazon, Wal Mart and other home delivery services.
San Francisco’s taxable online sales were up only 1% in that three-month period compared to the same period a year ago, while other California cities saw gains over 10% as people ordered more home deliveries. The modest increase likely shows that residents left the city entirely and weren’t at home to receive packages, Egan said.
“We’re the worst in the state,” he said. “That’s a sign to me that people aren’t here.”
No doubt compounding the trend is the past years of perhaps the most left-wing city policies in the country, a reflection of what conservatives derisively write off as “San Francisco values” and what even NPR has lately dubbed“San Francisco Squalor”.
After all, who really wants to pay a million dollars for some posh condominium in the city, only to walk out into needle and feces strewn streets?
Restaurant and bar sales were down 65% as indoor dining was prohibited, while food and drug store sales were down 8%. (Food staples at grocery stores aren’t taxed but prepared meals and other items are.)
Rents are tumbling and the number of homes listed for sale are soaring — all signs that the COVID 19 exodus from San Francisco was not losing its momentum six months into the pandemic. https://t.co/LhpHw798NV
Considering too that major tech companies like Microsoft are using the pandemic to make dramatic changes like allowing most employees to work from home on a permanent basis, it doesn’t look like those making a recent ‘escape’ from San Francisco will be moving back anytime soon.
In September, 10.6% of Vegas tenants missed a rent payment, up from 4.1% a year earlier, the largest increase in the U.S., according to data on the top 50 metropolitan areas from RealPage Inc. New Orleans, also heavily dependent on tourism, had the highest overall share of people not paying, at 12.9%, up from 8.6%.
Tenants are most likely to stop paying in areas with the hardest-hit economies, including expensive cities from Los Angeles and Seattle to New York, where unemployment benefit payments aren’t enough to cover high rents and living expenses.
“There’s more stress in hospitality-focused and expensive markets,” said Greg Willett, chief economist at RealPage. “The wild card in everything is what happens in the economy and what happens in the economy is dependent on what happens with the pandemic.”
Across the U.S., rent payments have remained relatively stable, with 7.8% failing to pay in September, up 1.5 percentage points from a year ago, according to the National Multifamily Housing Council.
The data covers tenants who still occupy their units and doesn’t include single-family rentals. It’s from professionally managed buildings and more representative of large landlords. Smaller ones tend to own older buildings with poorer tenants more vulnerable to job loss.
(Bryan Horwath) The median sale price of existing homes in the Las Vegas area grew to record high $337,250 in September, according to a monthly report from Las Vegas Realtors.
That’s an increase of 9% from September of last year, and a bump of about $2,000 from August.
The median price for September sets a new all-time for the region, though a shortage of inventory has led to an unbalanced market despite near all-time low mortgage rates.
The continued rise of home prices has come despite a global pandemic that has decimated the region’s tourism-based economy.
“Local home prices keep setting records, which is remarkable when you think about the challenges we’re facing,” said Tom Blanchard, president of Las Vegas Realtors and a longtime area agent. “The pause during the beginning of the pandemic seems to have pushed the traditional summer sales season into the fall.”
For town homes and condominiums, the median sale price for a unit in September was $195,500, which represented a 14% increase from September 2019.
With Gov. Steve Sisolak’s order that allowed open houses to resume earlier this month, Blanchard said he envisions the potential for market activity in the coming weeks and months.
“We’ll see if we can sustain this momentum heading into next year,” Blanchard said. “We’re also dealing with a housing shortage, with no signs of that changing anytime soon.”
The number of homes available for sale remains “well below” the six-month supply that’s generally considered to represent a balanced market. At the end of last month, just under 4,800 homes — not including condos or town homes — were listed for sale without an offer, down 35% from September 2019.
(Christopher Whalen) Watching the talking heads pondering the next move in US interest rates, we are often amazed at the domestic perspective that dominates these discussions. Just as the Federal Open Market Committee never speaks about foreign anything when discussing interest rate policy, so too most observers largely ignore the offshore markets. Yen, dollar and euro LIBOR spreads are shown below.
Zoltan Pozsar, the influential money-market strategist at Credit Suisse (NYSE:CS), warns that the short-end of the US money markets are likely to be awash in cash over the end-of-year liquidity hump. Unlike the unpleasantness in 2018, for example, we may see instead a surfeit of lending as banks scramble for yield in a wasteland bereft of duration. Would that it were so.
The Pozsar view does not exactly fit well with the rising rate, end of the world scenario popular in some corners of the financial media ghetto. The 10-year note is certainly rising and with it the 30-year mortgage rate. Indeed, Pozsar reminds CS clients that yen/$ swaps are now yielding well-above Treasury yields for seven years. Hmm.
We believe short-term rates will remain low in the US, even as offshore demand for dollars soars. If the 10-year Treasury backs up much further, then we’d look for the FOMC to act on some calls by governors to buy longer duration securities. That is, a very direct and large scale increase in QE and particularly on the long end of the curve.
We expect that Chairman Powell knows that underneath the comfortable blanket of low interest rates lie some truly appalling credit problems ahead for the global economy, the US banking sector and also for private debt and equity investors. We expect the low interest rate environment to drive volumes in corporate debt and residential mortgages, even as other sectors like ABS languish and commercial real estate gets well and truly crushed.
“The pandemic is putting unprecedented stress on CMBS markets that even the Fed is having difficulty offsetting,” writes Ralph Delguidice at Pavilion Global Markets.
“Limited reserves are being exhausted even as rent collection and occupancy levels remain serious issues… Bondholders expecting cash are getting keys instead, and in our view, ratings downgrades and significant losses are now only a formality.”
We noted several months ago that the resolution of the credit collapse in commercial mortgage backed securities or CMBS will be very different from when a bank owns the mortgage. As we discussed with one banker this week over breakfast in Midtown Manhattan, holding the mortgage and even some equity in a prime property allows for time to recover value.
With CMBS, the “AAA” tranche is first in line, thus the seniors have no incentive to make nice with the subordinate investors. The deals will liquidate, the property will be sold and the junior bond investors will take 100% losses. But as Delguidice and others note with increasing frequency, this time around the “AAA” investors are getting hit too. More to come.
Manhattan
Meanwhile, over in the relative calm of the agency collateral markets, large, yield hungry money center banks led by Wells Fargo & Co are deploying liquidity to buy billions of dollars in delinquent government loans out of MBS pools.
The bank buys the asset and gives the investor par, with a smidgen of interest. Market now has more cash, but less cash than it had before buying the mortgage bond in the first place. Why? Because it likely took a loss on the transaction. Buy at 109. Prepayment at par six months later. You get the idea.
In fact, if you look at the Treasury yield curve, rates are basically lying flat along the bottom of the chart out to 48 months. Why? Because this nice fellow named Fed Chairman Jerome Powell, along with many other buyers, are gobbling up the available supply of risk free assets inside of five years.
Spreads on everything from junk bonds to agency mortgage passthroughs are contracting, suggesting that the private bid for paper remains strong. When you look at the fact that implied valuations for new production MBS and mortgage servicing rights (MSR) have been rising since July, this even though prepayment rates are astronomical, certainly implies that there is a great deal of cash sitting on the sidelines.
Remember that the price of an MSR is not just about cash flows and prepayments, but it’s also about default rates and the relationship with the consumer. We described in our last missive for The IRA Premium Service (“The Bear Case for Mortgage Lenders”), that a rising rate environment could generate catastrophic losses for residential lenders, particularly in the government loan market. We write:
“For both investors and risk professionals operating in the secondary mortgage market, the next several years contain both great opportunities and considerable risks.We look for the top lenders and servicers to survive the coming winter of default resolution that must inevitably follow a period of low interest rates by the FOMC.The result of the inevitable consolidation will be fewer, larger IMBs.”
Don’t get distracted by the rising rate song from the Street. We don’t look for short or medium term interest rates to rise in the near term or frankly for years. Agency 1.5% coupons “did not find a place in the latest Fed’s purchase schedule. It is possible (they) are included in the next update,” writes Nomura this week. This seems a pretty direct prediction of lower yields. But as one veteran mortgage operator cautions The IRA: “Not just yet.”
We don’t think that the Fed is going to take its foot off the short end of the curve anytime soon, in part because the system simply cannot withstand a sustained period of rising rates. In fact, we note that our friends at SitusAMC are adding 1.5% MBS coupons to forward rate models this month. But that does not necessarily mean that mortgage rates will fall any time soon.
We hear that the Fed of New York has bought a few 1.5s in recent days, but supply is sorely lacking. You see, the mortgage industry is not quite ready to print many new 1.5% MBS coupons and will not do so anytime soon. As the chart above suggests, mortgage rates are in fact rising. Why? Is not the FOMC in charge of the U.S mortgage market?
No, the market rules. Today you can make more money selling a new 1-4 family residential mortgage into a 2.5% coupon from Fannie, Freddie or Ginnie Mae at 105. You book a five point gain on sale and are therefore a hero. And a year from now, after the liquidity does in fact migrate down to 1.5s c/o the beneficence of the FOMC, you can again be a hero.
Specifically, you call up that same borrower and refinance the mortgage into a brand new 1.5% Fannie, Freddie or Ginnie Mae at 105. You take another five point gain on sale. Right? And who paid for this blessed optionality? The Bank of Japan, Peoples Bank of China, and PIMCO, among many other fortunate global investors.
These multinational holders of US mortgage bonds may not like negative returns on risk free American assets, but that’s life in the big city. And thankfully for Chairman Powell, it’s not his problem. Many years ago, a friend in the mortgage market said of loan repurchase demands from Fannie Mae: “What do you want from me?”
After a slight uptick last week, active forbearance volumes plummeted over the past seven days, falling by 649K from the week prior. An 18% reduction in the number of active forbearances, this represents the largest single-week decline since the beginning of the pandemic and its related fallout in the U.S. housing market.
New data from Black Knight’s McDash Flash Forbearance Tracker shows that as the first wave of forbearances from April are hitting the end of their initial six-month term, the national forbearance rate has decreased to 5.6%. This figure is down from 6.8% last week, with active forbearances falling below 3 million for the first time since mid-April.
This decline noticeably outpaced the 435K weekly reduction we saw when the first wave of cases hit the three-month point back in July.
As of October 6, 2.97 million homeowners remain in COVID-19-related forbearance plans, representing $614 billion in unpaid principal.
… Though the market continues to adjust to historic and unprecedented conditions, these are clear signs of long-term improvement. We hope to see a continuation of the promising trend of forbearance reduction in the coming weeks, as an additional 800K forbearance plans are slated to reach the end of their initial six-month term in the next 30 days.
Central banks are weighing their own digital currencies – this is what they could look like
(Ryan Browne) LONDON — After Facebook shocked policymakers with its plan to launch a digital currency last year, central banks have been forging ahead with discussions on how they could create their own virtual money.
Now, they’ve come up with a rough framework for how such a system could work. On Friday, the Bank for International Settlements and seven central banks including the Federal Reserve, European Central Bank and the Bank of England published a report laying out some key requirements for central bank digital currencies, or CBDCs.
Among the recommendations the central banks made were that CBDCs compliment — but not replace — cash and other forms of legal tender, and that they support rather than harm monetary and financial stability. They said digital currencies should also be secure, as cheap as possible — if not free — to use and “have an appropriate role for the private sector.”
The report on CBDCs comes as various central banks around the world consider their own respective digital currencies. Blockchain, the technology that underpins cryptoc urrencies such as bitcoin, has been touted as a potential solution. However, crypto currencies have drawn a lot of scrutiny from central bankers, with many concerned they open the door to illicit activities like money laundering.
In China, a country where digital wallets like Alipay and WeChat Pay have seen widespread adoption, the central bank is already partnering with a handful of private sector companies to trial an electronic currency it’s been working on for years. Meanwhile, Sweden’s central bank is working with consulting firm Accenture to pilot its proposed “e-krona” currency.
“A design that delivers these features can promote more resilient, efficient, inclusive and innovative payments,” said Benoit Coeure, the former European Central Bank official who now leads BIS’ innovation efforts.
“Although there will be no ‘one size fits all’ CBDC due to national priorities and circumstances, our report provides a springboard for further development of workable CBDCs.”
It’s worth emphasizing that these central banks aren’t taking a stance yet on whether they and other institutions should issue digital currencies; they’re still looking into whether such virtual currencies are feasible. Advocates for digital currencies say they could enhance financial inclusion by on boarding people without access to a bank account. But there are concerns this could leave out commercial banks.
Central bank work around digital currencies appeared to gather steam last year after Facebook introduced its own version — libra — which is backed by a coalition of companies including Uber and Spotify. The troubled project was met with an intense regulatory backlash as well the departure of high-profile backers like Mastercard and Visa. The group overseeing the initiative, called the Libra Association, has since scaled back its approach, opting for multiple currency-pegged cryptocurrencies instead of the previously proposed single digital coin backed by multiple currencies.
Something odd happened to the US economy in the past two months as many in the media, the political establishment and even various Fed hacks (recall on August 3 Neel Kashkari Saying Only Way To “Save Economy” Is To Lock It Down “Really Hard” For 6 Weeks), were feverishly counting the daily new US covid cases and warning that only a new shutdown could spare the US from imminent disaster: it has almost fully reopened and according to real-time indicators, it is now recovering at a far faster pace than most had expected (as the Fed’s latest economic projections confirmed).
And nowhere is this more visible than in the US restaurant space where with various exceptions – most notably across Manhattan where policy seems to change on a daily if not hourly basis – spending appears to be almost back to pre-covid levels.
In an analysis conducted by BofA analysts looking at daily restaurant trends through September 26th, the Bank of America aggregated credit and debit data showed national restaurant spending improving another 1.7% to down 8% (for the seven days ended September 26th) from a down 9% (from the week prior). While the BofA analysts note that performance on weekends continues to lag weekdays by about 1%-2%, the trend is clear: we are almost back to normalcy.
Prince Harry could face a ‘monumental’ tax bill unless he takes a break from his £11 million Californian mansion next month, according to experts.
The Prince moved to Los Angeles with his wife Meghan and their baby son Archie in early May after leaving a rented mansion in Vancouver, Canada, in March.
The couple were first reported to be staying at a sprawling Beverly Hills mansion owned by TV producer Tyler Perry on May 7 – meaning that, as of today, Harry has been in the US for at least 151 days. If he reaches 183 days he is legally liable to pay taxes there.
Smoky skies in San Francisco (Springfield News Sun)
A new report confirms what we’ve been talking about since the early days (read: here) of the virus pandemic, that is, an exodus out of major cities.
According to real estate analytics company Zumper, the exodus, out of San Francisco has been so great, that the median rent for a one-bedroom apartment collapsed more than 20% in September from a year ago to $2,830. Month over month, September rent for a one-bedroom apartment in the city fell by 7%.
The Internal Revenue Service said Tuesday that lenders who make Paycheck Protection Program loans that are later forgiven under the CARES Act should not file information returns or furnish payee statements to report the forgiveness.
In Announcement 2020-12, the IRS said that when all or a portion of the stated principal amount of a covered loan is forgiven because the recipient satisfies the forgiveness requirements under section 1106 of the CARES Act, an entity isn’t required to, “for federal income tax purposes only,” and should not, file a Form 1099-C information return with the IRS or provide a payee statement to the recipient as a result of the forgiveness.
The IRS noted that filing such information returns with the IRS could result in the issuance of under reporter notices on the IRS’s Letter CP2000 to eligible recipients, and furnishing payee statements to those recipients could therefore cause confusion. The IRS issued the announcement with the goal of preventing such confusion.
The announcement may lead to some confusion anyway, however, as the transparency around the PPP loans has been the subject of some wrangling in Congress. Earlier this year, Democrats pressured the Small Business Administration to release more information about the recipients of the loans. Some information eventually came out in the form of spreadsheets, but the data proved to be inaccurate in many cases. Earlier this month, the Justice Department’s Criminal Division charged 57 defendants with PPP-related fraud and has identified nearly 500 people suspected of COVID-related loan fraud.
Over the past 6 months ZeroHedge has repeatedly discussed the plight of commercial real estate which unlike most other financial assets, failed to benefit from a Fed bailout or backstop (but that may soon change). It culminated in June when we wrote that the “Unprecedented Surge In New CMBS Delinquencies Heralds Commercial Real Estate Disaster.” The ongoing crisis in structured debt backed by commercial real estate in general and hotel properties in particular, prompted Wall Street to launch the “Big Short 3.0“ trade: betting against hotel-backed loans, which had the broadest representation in the CMBX 9 index, whose fulcrum BBB- series has continued to slide even as the broader market rebounded.
As we noted last month, the US housing market is reflecting the extremes of the economy right now – between those who can’t make ends meet due to the pandemic, and those who are either still employed, are sitting on a pile of equity, or both.
One one end of the spectrum you’ve got affluent borrowers locking in record-low rates, while mortgage originations reached a record $1.1 trillion in the second quarter as rates on 30-year mortgages dipped below 3% for the first time in history in July, according to Bloomberg.
Meanwhile, refis may just be getting started.
There are still nearly 18 million homeowners with good credit and at least 20% equity who stand to cut at least 0.75% off their current rate by refinancing, according to Ben Graboske, president of Black Knight data and analytics.
“We would expect near-record-low interest rates to continue to buoy the market,” he said in a statement Tuesday. –Bloomberg
What’s impressive is that the quarterly spike in new mortgage originations occurred while under nationwide public health measures that restricted home showings, appraisals, and in-person document signings, according to the report. That said, refis accounted for around 70% of home loans issued during the period.
Also notable is that the average loan-to-value ratio is above 90%, as borrowers are having no trouble securing loans with just 10% or less down.
At the other end of the spectrum, mortgage delinquencies are up 450% from pre-pandemic levels, with around 2.25 million mortgages at least 90 days late in July – the most since the credit crisis, according to Black Knight, Inc.
“The money is in the homes and people with college education are still working, but the pain is being felt where people are unemployed,” said Wharton real estate professor, Susan Wachter, adding “COVID-1984 will drive an increase in the already high income-inequality gap, and wealth inequality, actually, which is much more extreme.”
While the unemployment rate fell to 8.4% in August, more than 11 million jobs were still lost in the pandemic, the Labor Department reported last week. Supplemental benefits for the unemployed of $600 a week expired in July and Congress has been at an impasse over a follow-up aid package. –Bloomberg
More findings from Black Knight (via Bloomberg):
More borrowers with ability to refinance are using their equity to get cash. About $44.5 billion in equity was tapped through cash-out refinancing in the second quarter, the most in more than a decade.
Markets with the biggest delinquency increases in July were Miami, Las Vegas, Orlando, New York and New Orleans.
The number of homeowners in forbearance continued to fall last week and is down by 1 million from its May peak. But the July 31 expiration of extra unemployment benefits means this month “may provide the true test,” Black Knight said in a Sept. 4 report.
Homeowners with less equity and lower credit quality were more than twice as likely to have entered forbearance plans. About 11.5% of loans by the Federal Housing Administration and Department of Veterans Affairs were in forbearance last week, compared with 5.1% for Fannie Mae and Freddie Mac borrowers, who have better credit and more equity in their houses.
The major exchange operators previously have gone to court over proposals that they said would harm markets. NYSE, Nasdaq Inc. and CBOE Global Markets even took the extreme step of suing their main regulator, the U.S. Securities and Exchange Commission, over a transaction-fee pilot program last year. They won.
“A financial transaction tax is a recycled idea with a lousy track record — all over the world,” said the Equity Markets Association, a trade group that represents the three companies.
The move by New Jersey would “cause unintended and irreparable harm to the U.S. capital markets,” CBOE said in a separate statement. “A transaction tax is a direct cost shouldered by investors, who will also end up paying for the price of diminished liquidity and wider spreads in our markets.”
And as we noted previously, the NYSE has already threatened to depart the moment a tax was enacted:
“We have data centers in various states and the ability to move trading outside of New Jersey in a business day,” said Hope Jarkowski, co-head of government affairs for New York Stock Exchange parent Intercontinental Exchange.
And today, the exchange, in coordination with Nasdaq, CBOE Global Markets, and other industry participants, ramped up the rhetoric, saying that it will conduct a test of all its exchanges operating from their secondary locations on Sept. 26 to “confirm the industry’s ability to seamlessly move live trading out of New Jersey,” according to a statement.
Audience: NYSE, NYSE AmericanEquities, NYSE American Options, NYSE Arca Equities, NYSE Arca Options, NYSE Chicago, NYSE National, FINRA/NYSE TRF, and Global OTC Traders
Subject: NYSE exchanges to prepare for potential move from New Jersey data center, including temporary relocation of NYSE Chicago on September 28
Numerous NYSE member firms have recently reached out to the Exchange to understand our plans should New Jersey institute its proposed tax on financial transactions processed through electronic infrastructure located in the state. They are concerned, as are we, that any tax imposed will be passed through to NYSE members, and ultimately their clients, who are often the very same Main Street investors who reside in states like New Jersey and elsewhere.
NYSE has the ability to operate all of its markets out of either its primary data center in Mahwah, New Jersey or an alternate data center. Designed for various disaster recovery scenarios, a change in location can be performed in a matter of minutes, if necessary.
If our members express a strong preference to permanently relocate our trading infrastructure out of New Jersey, the process to do this is well-documented, regularly tested and would not cause any disruption to NYSE operations.
To help test and prepare our members for any such action, NYSE will implement two immediate measures:
1. Relocation of production trading for NYSE Chicago the week of September 28: The NYSE will operate one of its equity exchanges, NYSE Chicago, from its secondary data center from September 28th to October 2nd. This will confirm the industry’s ability to seamlessly move live trading out of New Jersey.
2. Weekend test of all markets: The NYSE, in coordination with Nasdaq, CBOE, SIFMA and other industry participants, will conduct a test of all its exchanges operating from their secondary locations on Saturday, September 26, 2020. This controlled test will exercise the industry’s preparedness for a potential wholesale transition out of New Jersey. Details for the weekend test will follow in a separate announcement.
* * *
Of course, the big question, as we previously noted, what happens when all the states in which NYSE have data centers follow NJ in establishing a paywall for ultra fast trades which do nothing to make the market more efficient unless one counts surging flash crashes “efficiency”?
What do you say when you’re asked to cut your commission? Are you regularly asked to cut your commission? Do you immediately “cave” and cut your commission when asked?
(Nina Hollander) In my personal experience, when prospective sellers ask Realtors to cut their commission it’s more often than not because the agents have not properly presented and defined their value to the seller. This means having a very detailed and specific listing presentation that leaves no doubt about what you will do to market their home, along with impressive statistics such as your average days on market versus your market’s average agent’s.
Then, there are those sellers who read on the internet that they should always ask for a commission reduction up front. What always amuses me is that when I ask why they’re asking and say no in a nice way, these sellers typically smile and say “well, you know we had to ask.” I always smile back and answer “yes, I know.” Then I steer the conversation on to other topics. More often than not, sellers drop the conversation about commissions right there and then. But you should always ask why they are asking… you can’t respond properly until you know what’s behind their question.
Let’s face it, you don’t want to lose a potential listing client, but you also don’t want to immediately slash your rate and devalue your worth. Since the commission cutting conversation never seems to go away, here’s a link to some great scripts from McKissoc Learning to show prospective listing clients why you’re worth every penny of what you earn without sounding defensive. These scripts address the three primary reasons home sellers ask for a commission cut according to McKissoc Learning:
The sellers don’t have sufficient equity in their home
The sellers are being “savvy” consumers, looking for the “best” deal they can get.
The sellers don’t see the true value of what you bring to the table.
Clearly, there’s not much you can do about the lack of equity. And maybe that is a listing you don’t want to be handling The two second reasons are totally in our control to handle in the listing presentation/conversation.
The plandemic-induced summer of escape from New York continues at a moment violent crime is on the rise, restaurant and public venue closures make the city less appealing, public transit is reeling in debt, and remote working set-ups are giving those with means greater mobility.
More worrisome trends… or rather signs of the times signalling that for many the gentrified Big Apple has as one family recently put it reached its “expiration date”. Two separate NY Times reports on Sunday detailed that moving companies are so busy they’re in an unprecedented situation of having to turn people away, while simultaneously the suburbs are witnessing an explosion in demand “unlike any in recent memory”.
And then there’s fresh data showing that during the plandemic Americans are fast getting the hell out of the more expensive “real estate meccas” of New York and New Jersey.
According to FlatRate Moving, the number of moves it has done has increased more than 46 percent between March 15 and August 15, compared with the same period last year. The number of those moving outside of New York City is up 50 percent — including a nearly 232 percent increase to Dutchess County and 116 percent increase to Ulster County in the Hudson Valley.
“The first day we could move, we left,” a dentist was cited as saying of the moment movers were declared an “essential service” by Gov. Cuomo late March. Her family moved to Pennsylvania where they had relatives.
And second, the Times details the unprecedented boom in the suburban real estate as an increasingly online workforce is fed up with closures in the city, losing its appeal and vibrancy.
July alone witnessed a whopping 44% increase in home sales among suburban counties near NYC compared to the same month last year, as the report details:
Over three days in late July, a three-bedroom house in East Orange, N.J., was listed for sale for $285,000, had 97 showings, received 24 offers and went under contract for 21 percent over that price.
On Long Island, six people made offers on a $499,000 house in Valley Stream without seeing it in person after it was shown on a Facebook Live video. In the Hudson Valley, a nearly three-acre property with a pool listed for $985,000 received four all-cash bids within a day of having 14 showings.
Since the pandemic began, the suburbs around New York City, from New Jersey to Westchester County to Connecticut to Long Island, have been experiencing enormous demand for homes of all prices, a surge that is unlike any in recent memory, according to officials, real estate agents and residents.
They’re not just fleeing for the suburbs or upstate, but also to the significantly cheaper and lower cost of living areas of the country like Texas, Florida, South Carolina, and Oregon, or to rural areas.
COVID-1984 is fast reviving American mobility on scales reminiscent of the mid-20th century. Bloomberg describes separately that“Far more people moved to Vermont, Idaho, Oregon and South Carolina than left during the pandemic, according to data provided to Bloomberg News by United Van Lines.”
“On the other hand, the reverse was true for New York and New Jersey, which saw residents moving to Florida, Texas and other Sunbelt states between March and July,” the report finds.
General fear of living in densely populated areas, better enterprise video communications platforms making possible fully remote workplaces which in some cases are ‘canceling’ the traditional office space altogether, and a lack of nightlife or entertainment allure of big cities is driving the exodus.
In addition to the aforementioned states, “Illinois, Connecticut and California, three other states with big urban populations, were also among those losing out during the plandemic,” according to United Van Lines data.
A new tax on millionaires, a 22.5% gas tax hike (bringing the total increase to 250% in 4 years), and now a tax on high frequency trades: it is becoming obvious to most – except perhaps the state’s democratic leadership – that New Jersey is now actively trying to drive out its tax-paying population and top businesses with a series of draconian measures to balance its deeply underwater budget, instead of slashing spending. The state-imposed limitations on commerce, mobility and socialization due to the covid pandemic have also not helped. And in case it is still unclear, the trend of New Jersey’s ultra wealthy residents fleeing for more hospitable tax domiciles which started with David Tepper years ago, is now spreading to members of the middle class.
According to the latest data from United Van Lines and compiled by Bloomberg, people have been flooding into Vermont, Idaho, Oregon and South Carolina, eager to flee such financially-challenged, high-tax, protest-swept, Democrat-controlled states as Connecticut, Illinois and New York. But no other state has seen a greater exodus than New Jersey, where out of every 10 moves, 7 have been households leaving the state, or nearly three times as many moved out than moved in.
On the opposite end were bucolic, pastoral states such as Vermont and Idaho, which have seen between 70% and 75% of all inbound moves.
A hypothetical move from New York City to Vermont is priced at $773 compared to $236 for the reverse trip, according to a Bloomberg analysis of U-Haul pricing. This price differential is due to numerous variables, one being that more people are moving out of a city than into it
Those claiming this record exodus from the Tri-State area is purely a result of Covid, think again: as United Van Lines reported back in its latest Annual Movers Study held before the coronavirus plandemic struck, the exodus was already present, as New Jersey (68.5 percent), New York (63.1 percent) and Connecticut (63 percent) were all included among the top 10 outbound states for the fifth consecutive year. Primary reasons cited for leaving the Northeast back in January were retirement (26.85 percent) and new job/company transfer (40.12 percent). To that we can now add soaring taxes and stifling COVID-1984 linked mandates.
How long will this exodus persist is unclear: at some point the recipient states will realize they too have to follow with similar fiscal policies or else they too risk becoming the next New Jersey. However until then, one thing is clear: the more New Jersey and its tri-state peers seek to impose every possible form of tax on their rapidly diminishing residents, the fewer people will actually stick around to pay those taxes.
Ohio’s $16 billion Police & Fire Pension Fund is following in the steps of Warren Buffett and making a big statement about owning gold. It has approved a 5% allocation to gold to help diversify the fund’s portfolio and to “hedge against the risk of inflation” according to Bloomberg.
The change was approved as “the first step” in an ongoing asset review that was presented to the fund’s board on August 26.
The fund was following the advice of its investment consultant, Wilshire Assocaites, in adding the gold allocation, according to Pensions & Investments. Additionally, the fund plans on adding the gold stake by borrowing; the fund is reportedly increasing its leverage from 20% to 25% to make the change.
“No new manager has been selected, and there currently is no timeline for implementing this change,” P&I reported.
Buffett’s move into gold has opened the door for fund managers to follow suit. Except, instead of playing in a hundred trillion dollar equity market, they are dealing with barely over $1 trillion in investable gold. This means that if the fund becomes a trend setter in the industry and if others follow suit, look out above.
Peter Schiff said on a recent podcast: “Warren Buffett seems to have a very good understanding of inflation. He doesn’t regard it as rising prices, he regards it as money supply. He’s talked about inflation as a hidden tax on savers. As a cruel tax. He understands the loss of value of money. He basically says that that’s inflation: the erosion of purchasing power of money. I think Buffett now has a much darker outlook on inflation than he did in the past.”
“Buffett is now of the opinion that inflation is going to be so high that gold is going to be particularly important to own, rather than just owning businesses,” he says.
You can listen to Schiff’s comments here:
If the inflation message starts to become clear to pension funds and main street asset managers, we could see a major sea change in psychology regarding gold as an investment.
Additionally, Rick Rule recently commented about exactly how under-owned gold was in the U.S.: “A major bank study, which I read, and I’ve quoted it before in interviews with you, says that between 0.3%-0.5% of savings and investment assets in the United States involve precious metals or precious metals securities.”
He continued: “That may have gone up because the denominator has declined the value, the Dow is an example, but the three decade-long mean was between 1.5%-2%. So gold is still very broadly under-owned, and I would suggest it’s even under-owned among people who are listening to this broadcast.”
But in plain English, another way to say it is that there simply isn’t enough gold available in the world for every pension fund to make the same 5% allocation.
Barbaric relic, pet rock, public enemy #1> Gold has begun a major transition> Buffett is attracted to enormous cash flow & dividend potential of Barrick, then Reserve Bank of India signals higher allocation, and now OHIO Police & Fire Pension approves a 5% allocation.
Things are going so great in California that Pinterest just paid $89.5 million to cancel its 490,000-square-foot lease at the upcoming 88 Bluxome project in San Francisco.
The company blames working from home as a result of the pandemic as the reason for abandoning the lease – but we’re sure the state’s rising taxes, impending real estate market crash and conversion of the property to a temporary homeless shelter in March likely helped contribute to the decision making.
Either way, Pinterest wanted out of the lease so badly they were willing to fork over a hefty sum to ensure they would not be held to it. The company’s total lease obligations for the property would have amounted to $440 million.
Pinterest’s CFO told the San Francisco Chronicle: “As we analyze how our workplace will change in a post-COVID world, we are specifically rethinking where future employees could be based. A more distributed workforce will give us the opportunity to hire people from a wider range of backgrounds and experiences.”
Rendering of 88 Bluxome as it would exist years from now. Today, the city has converted the property to a homeless shelter.
Pinterest appears to be following in the steps of companies like Facebook, who has also embraced the idea of remote work for its staff. Facebook aims to have half of its company working remotely “within a decade”, CEO Mark Zuckerberg has said.
To us, it appears to be more of a statement about San Francisco’s real estate market than about Pinterest. After all, the company was the first and only lease commitment “in San Francisco’s 230-acre Central South of Market district, where numerous large commercial and residential projects have been approved after the city raised height limits last year,” the Chronicle said.
They were to help contribute to 30,000 new jobs and 20,000 new residents in the district, which the city hoped would fuel more than $2 billion in public benefits. The project is “now in doubt”. The proposed 88 Bluxome project was supposed to start construction this year, but current plans for the project are now “unclear”.
And in peak San Francisco fashion, the city converted the tennis club currently on the lot to a homeless shelter in March.
While mayor Lori Lightfoot continues to try and assure the public that she has everything under control, the exodus from Chicago as a result of the looting and riots are continuing. Citizens of Chicago are literally starting to pour out of the city, citing safety and the Mayor’s ineptitude as their key reasons for leaving.
Hilariously, in liberal politicians’ attempt to show the world they don’t need Federal assistance and that they don’t need to rely on President Trump’s help, they are inadvertently likely creating more Trump voters, as residents who seek law and order may find no other choice than to vote Republican come November.
And even though residents who support BLM understand the looting and riots in some cases, they are not waiting around for it to get better on its own, nor are they waiting around for it to make its way to their house, their families or their neighborhoods.
One 30 year old nurse that lives in River North told the Chicago Tribune: “Not to make it all about us; the whole world is suffering. This is a minute factor in all of that, and we totally realize that. We are very lucky to have what we do have. But I do think that I’ve never had to think about my own safety in this way before.”
The city’s soaring crime has been national news this year and many residents are claiming they “no longer feel safe” in the city’s epicenter, according to the Tribune report. Aldermen say their constituents are leaving the city and real estate agents say they are seeing the same.
The “chaotic bouts of destruction in recent months” are the catalyst, the report says.
Residents of the Near North Side told a Tribune columnist that they would be moving “as soon as we can get out” and others “expressed fear” of returning downtown. The Near North Side is 70% white and 80% of residents have a college degree. The median household income is $99,732, which is about twice the city’s average.
Real estate broker Rafael Murillo says people are moving to the suburbs quicker than planned: “And then you have the pandemic, so people are spending more and more time in their homes. And in the high-rise, it starts to feel more like a cubicle after awhile.”
(Stewart Jones) As the Federal Reserve’s quantitative easing practices generate the biggest debt bubble in history, gold futures are trading at record highs, a phenomenon some have called “a bit of a mystery.” However, this “mystery” was solved long ago by the laws of economics. The only “mystery” here is why—contrary to centuries of economic wisdom—we allowed centralized paper money to become the dominant form of currency in the first place.
As recent waves of civil unrest and economic turmoil have prompted some to look back in time and reflect on the observations of the Founding Fathers, it seems most have opted to reject them entirely. Yet among the founders’ many warnings against the institutions that would eventually dominate the modern world are the timeless—and astonishingly accurate—warnings against central banking.
On August 1, 1787, George Washington wrote in a letter to Thomas Jefferson that “paper currency [can] ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.” Jefferson also opposed the concept, warning that “banking establishments are more dangerous than standing armies.” James Madison called paper money “unjust,” recognizing that it allowed the government to confiscate and redistribute property through inflation: “It affects the rights of property as much as taking away equal value in land.”
In other words, inflation is a hidden form of taxation. Washington understood this. Jefferson understood this. Madison understood this. And generations of preeminent economists since then—from Ludwig von Mises to F.A. Hayek, to Murray Rothbard—have understood this quite clearly.
And there’s nothing controversial or mysterious about sound money, that is, currency backed by some form of secure, fixed weight commodity like gold or silver. Both have been valued in some fashion for six thousand years and have been used as currency for around twenty-six hundred years. As confidence in the dollar continues to nosedive, the market is not only putting more confidence in gold and silver, but in some crypto currencies sharing many of the characteristics of gold.
The presidencies of Woodrow Wilson and Franklin D. Roosevelt are rightfully regarded as some of the darkest years for freedom in America. Often overlooked, however, are the deeply repressive monetary policies introduced by both presidents. In 1838, Senator John C. Calhoun foreshadowed the economic evils that would eventually emerge at the peak of the Progressive Era, explaining,
“It is the nature of stimulus…to excite first, and then depress afterwards….Nothing is more stimulating than an expanding and depreciating currency. It creates a delusive appearance of prosperity, which puts everything in motion. Everyone feels as if he was growing richer as prices rise.”
Seventy-five years later, the autocrats running the Wilson administration dealt two devastating blows to liberty with the Federal Reserve Act and the Revenue Act, forever marking 1913 as a tragic year for liberty. Both laws struck at the heart of property rights by establishing the Federal Reserve System and the income tax, respectively. Then, in 1933, Roosevelt issued Executive Order No. 6102, requiring Americans to surrender much of their gold to the US government. Shortly after, Congress passed the Gold Reserve Act of 1934, artificially raising the price of gold and guaranteeing the government a profit of $14.33 for each ounce of gold it had seized from the people.
Finally, in 1971, President Richard Nixon—like any self-respecting twentieth-century Keynesian—committed himself to finishing the work of Wilson and Roosevelt by closing the gold window, forever divorcing the gold standard from the dollar. Rather than usher in a new era of economic stability, this unnatural union between the Fed and the federal government produced a vicious loop of boom-bust cycles and depressions. The consequences have not only been inflation and devaluation (both of which have stripped the people of their purchasing power and savings); now, every time a depression hits, the government is allowed to do two things: grow its power and tax and spend at will without fear of accountability.
In other words, with every inflation of currency comes an inflation of government power.
With government shutdowns of local economies, the second economic quarter of this year was among the worst in history, with the total debt-to-GDP reaching a staggering 136 percent. As the national debt approaches $27 trillion (with even bigger spending bills in the works), we can expect the days of such flagrant government spending to come to a screeching halt. If we continue on this path, that correction will result in an unprecedented collapse of the dollar and the monetary system. The ultimate danger in this scenario: the government eventually confiscates the vast majority or even all private property in order to pay off the national debt. As German American economist Hans Sennholz once said, “Government debt is a government claim against personal income and private property—an unpaid tax bill.”
This is why a dramatic downsizing of government is key to bringing the US out of this manic, outmoded cycle of depressions and upswings. For the government to fulfill its core function as a safeguard of liberty, we must prevent it from meddling in affairs beyond the boundaries prescribed by the Founding Fathers. This includes a swift withdrawal from the use of paper fiat currency and spending cuts across the board.
Such a sweeping transformation could begin with the state governments, the legislatures of which could override the federal government by passing legislation allowing individuals to use gold and silver currency.
Regardless, if meaningful legislative action is not taken somewhere, we have little choice other than to acquiesce to the gloom and terror of socialism—a system that would devour all in its path and make slaves of once free people for generations to come. Freedom is the natural ability of people to control their own destiny. Sound money has the ability to help keep people free.
Miami is seeing a massive surge in supply in its condo market as Covid continues to have profound economic effects in South Florida, according to a new report from The Real Deal.
The market now has a glut of 30 months worth of unsold condos and 100 months worth of luxury units (units over $1 million), according to an analysis of Multiple Listing Service data by Condo Vultures Realty. The data is ex-pre-construction sales and consists of “the area between Edgewater and Brickell, east of I-95”.
The condo data is based on 711 sales that closed in the first 6 months of this year, which averages out to about 119 sales per month. As of this week, there are still 3,579 condo listings awaiting suitors in Miami. The average asking price is about $758,000 – which contrasts sharply with the average closing price of $511,000 this year.
The luxury market is in even worse shape than the condo market: only 36 units sold in the first 6 months of the year. There are about 600 luxury condos on the market asking an average of $2.05 million. 26 sales are pending.
Peter Zalewski, principal at Condo Vultures Realty, told The Real Deal: “This is giving me flashbacks to 12 years ago in 2007, when the Miami condo market started to go bad. Early indications are that this pandemic combined with the oversupply that already existed is going to turn this into a serious buyer’s market.”
Shadow inventory, consisting of units that individual landlords put on the market, which are typically condos, and those that institutional owners will lease out, oftentimes without using the MLS, is also on the rise, according to Zalewski. He says that individual condo landlords and institutional owners are “dropping their prices and offering deals on units”.
There is about 6 months of supply of shadow rental units listed on the MLS, the report says. An average of 541 leases per month were signed in the first six months of the year. 3,167 remain on the market for rent.
Zalewski says that more price cuts and deep discounts are on their way: “The day of the all cash buyer is coming, and coming quickly. Those all cash buyers are not looking to pay market value. They’re not even looking for a discount. They’re looking for a haircut.”
Readers may recall last week ZeroHedge outlined the dam of pent up mortgage delinquencies continued to crack, with the share of delinquent Federal Housing Administration’s loans hitting a record high in the second quarter.
With millions of Americans out of work due to the virus-induced recession, their personal income has become overly reliant on Trump stimulus checks, as we’ve outlined, a quarter of all personal income now comes from the government.
A fiscal cliff hit the economy on August 01, when the program to distribute stimulus checks to tens of millions of broke Americans ran out of funds. Even though President Trump signed an executive order to fund additional rounds of checks, only one state, as of August 21, has paid out new jobless benefits and paused evictions as stimulus talks in Washington have failed to materialize into a deal.
The number of homes with mortgage payments past due by 90 days or more rose by 376,000 in July to a total of 2.25 million. Serious mortgage delinquencies have jumped by 1.8 million since July 2019, a decade high, not seen since the last financial crisis.
Black Knight’s July 2020 Month-End Mortgage Performance Statistics:
Black Knight said, “foreclosure activity continues to remain muted due to widespread moratoriums; though starts rose for the month, overall activity remains near record lows.”
Cracks in the dam of pent up mortgage delinquencies are becoming larger as the presidential election nears. Still, millions of folks are unable to service mortgages, remain protected from foreclosure by the federal forbearance program, in which borrowers with pandemic-related hardships can delay payments for as much as a year without penalty. What happens when the program finally ends, and all the payments that were deferred come due could result in housing market weakness.
The prospect of a tidal wave of foreclosures could be ahead as the mortgage industry and government’s policies were merely short-term measures to push a housing crisis off until after the election.
If homeowners still can’t find jobs as the labor market recovery falters, then their ability to service future mortgage becomes impossible. At the same time, deep economic scarring is being realized, resulting in the shape of the economic recovery transforming from a “V” to a “Nike Swoosh.”
Even with part of the housing market booming, that is primarily due to folks ditching metro areas for suburbia and ultra-low mortgage rates pulling demand forward in such a massive way that today’s boom will lead to much lower activity in the future.
Think about it, millions of folks still can’t pay their mortgage, and many of them still can’t find jobs. But, of course, none of that matters as President Trump distracts the sheep and points to how well the Nasdaq is doing.
Following May’s unexpected slowdown in growth, analysts expect June’s Case-Shiller Home Price Index to show further deceleration, and it did – but notably worse than expected.
The Case-Shiller 20-City Composite Home Price rose 3/46% YoY in June (the latest data), well below expectations of a +3.60% and May’s 3.61% prints…
And it seems that even with mortgage rates hitting record lows, prices have stopped appreciating so fast…
Is this emblematic of the exodus from the cities (highest cost housing?)
After June’s continued resurgence in US home sales, July is expected to see a significant slowdown in that recovery, with new home sales expected to rise 1.8% MoM. Instead, new home sales soared a stunning 13.9% MoM. This means new home sales in the US rose 36.3% YoY – the most since 1996…
Driven by and 81.4% increase in Midwest New home sales, highest since Jan 1992. New Home Sales SAAR is 901k (against expectations of 790k), the most since Jan 2007…
Median new home price rose 7.2% y/y to $330,600; average selling price at $391,300
Is this more evidence of the mass exodus from cities?
(Wolf Richter) On Tuesday, August 18, during morning rush hour, I walked through and around the Financial District of San Francisco and took photos to document the spookiness of it all. Pedestrians used to rush to work on crowded sidewalks, balling up at red lights, then stream across the intersection, and disappear into the entries of office towers as they went, and cars used to be stuck in traffic, and thick throngs of people would pour out of the Montgomery BART and Muni Metro station.
I started taking photos at Columbus Street where it ends at Montgomery Street, and then turned south into Montgomery Street and walked through the Financial District to the Montgomery Station at Market Street. Then I zigzagged back through the Financial District.
What you will see are streets and sidewalks and entrances into office towers that were eerily deserted during what used to be “rush hour,” with just a sprinkling of pedestrians, a few cars, the occasional skateboarder, some guys working on construction projects, and curiosities where you might be tempted to think, “only in San Francisco.”
With hindsight, it was the last beautiful sunny morning before the thick acrid smoke from the wildfires moved into San Francisco.
The data of how work-from-home impacts office patterns in a city like San Francisco are grim. According to Kastle Systems – which provides access systems for 3,600 buildings and 41,000 businesses in 47 states, and therefore has a large sample of how many people are entering offices during the Pandemic – office occupancy in San Francisco was still only at 13.6% of where it had been at the beginning of March, meaning it was still down by 86.4%, just above New York City:
What is staring at us now is the haunting shift brought about by work-from-home.
The Financial District is an area of office buildings. There are also shops, cafes, restaurants, and service establishments, such as bank branches and barbers, that workers go to before, during, or after work. There isn’t much else. Other parts of the City are busy, and restaurants that are open (outside seating only) are hard to get into. But this is what office life looks like….
On Columbus Street, looking at the intersection with Montgomery Street, with the Transamerica Pyramid in the background. I’m standing in the middle of the street to take this photo. Why? Because I can:
Former hedge fund manager and entrepreneur James Altucher says New York City is dead and it’s not coming back.
Born and bred in New York, Altucher took his family and fled to Florida after the Black Lives Matter riots in June when someone tried to break into his apartment.
Since then, the city has continued to suffer a huge surge in shootings and violent crime as well as an anemic financial recovery from the coronavirus lock down.
Appearing on Fox News Business, Altucher referred to images that were broadcast during the interview showing 6th avenue to be virtually empty.
“We have something like 30 to 50 per cent of the restaurants in New York City are probably already out of business and they’re not coming back,” he pointed out.
Altucher said that despite offices in midtown being allowed to be open, they’re still largely empty because companies like Citigroup, JP Morgan, Google, Twitter and Facebook are encouraging their employees to work remotely from home “for years or maybe permanently.”
“This completely damages not only the economic eco-system of New York City…but what happens to your tax base when all of your workers can now live anywhere they want to in the country?” asked the entrepreneur, noting that many were fleeing to places that are cheaper to live like Nashville, Austin, Miami and Denver.
Warning that the situation was “only going to get worse,” Altucher said that the old New York was not coming back and that creative and business opportunities would now be dispersed throughout the entire country.
“What makes this different now is bandwidth is ten times faster than it was in 2008 so people can work remotely now and have an increase in productivity,” he added.
As we document in the video below, the blame for all this lies firmly at the feet of two people, Governor Cuomo and Mayor de Blasio.
(Tom Delorey) Most U.S. coin collectors know that the United States Mint continued to pump 1964-dated 90% silver dimes, quarters and half dollars into circulation through 1965 and into early 1966. The reasons for doing this were several, some of them quite reasonable at the time.
What most collectors do not know is that in the second half of 1967 the Mint secretly began clawing some of that silver back, melting down dimes and quarters and refining it back into .999 fine bars that could be sold at a higher price than the face value on the coins so destroyed.
The first good reason to issue the coins was to discourage the hoarding of rolls and bags of Brilliant Uncirculated modern coins. In the post-WW2 era there were several years where the total annual mintage of a given date and mint mark combination was relatively low across various denominations. This reflected the fact that the Federal Reserve System routinely recycled older coins back into circulation (minus worn-out or damaged pieces condemned as “uncurrent”) and only ordered new coins from the Mint when the current demand exceeded the recycled supply.
One of the most famous examples of a low-mintage modern coin is the 1950-D Jefferson nickel, with only 2,630,030 made and easily half of those snapped up by speculators. By the end of the decade original $2 rolls were selling for around 10 times that much.
In 1960, the Philadelphia Mint struck only 2,075,000 cents with a Small Date style in early January before switching production over to foreign coins for the next few months. By the time the Mint resumed domestic production in late March the date style on the cent had changed to a large format, and rolls of the Small Date cent skyrocketed. People began hoarding anything BU in the hope that lightning would strike a third time.
Other factors influencing U.S. monetary policy included a surge in the use of vending machines, so that the net demand for coinage always exceeded the recycled supply, and the introduction of the wildly popular Kennedy half dollar in 1964. On top of these factors the Treasury Department, a major player in the bullion markets for over a century, faced an inexorable rise in the market price of silver that threatened to make silver coins worth more as bullion than their face values.
A 1964-dated quarter. Struck in either 1964, 1965, or 1966. Who knows for sure when…
For years it protected the silver coinage supply from being melted by selling virtually unlimited supplies of pure silver at $1.29 an ounce (the level at which the silver in a silver dollar was worth one dollar) but it knew that if it kept on doing this that it would eventually run out of silver.
The Treasury had seen three previous periods when precious metal coins were hoarded and/or melted for their metal (gold in 1834, silver in 1857 and both during the Civil War), and it needed to keep an adequate supply of silver coins in temporary circulation while it ginned up a permanent replacement for them.
That search took time, however, and while it was taking place the Mint had to keep providing coins to the banking and vending machine industries. And so in late 1964 the Treasury announced that they would be freezing the date on coins of all denominations at 1964 until further notice. It saw one immediate victory as the speculative market in rolls and bags of modern coins crashed spectacularly, but there was still the issue of silver going out into circulation.
The testing of new coinage materials included various exotic compositions that might have been more secure in the long run, but in the end the immediate needs of the vending machine industry won out over the exotic materials that might work better years down the road. The sandwich materials authorized by the Coinage Act of 1965 included two copper-nickel outer layers clad upon a pure copper core for the dime and quarter, and two 80% silver/20% copper outer layers clad upon a 20.9% silver/79.1% copper core for the half dollar, the total coin averaging 40% silver.
The new coins were of approximately the same thickness as their 90% silver predecessors but because copper and nickel are less dense than .900 fine silver they weigh a bit less. This weight difference soon became extremely important.
The Mints began striking 1965-dated CN-clad quarters on August 23, 1965, while continuing to strike 1964-dated .900 fine quarters until January of 1966. The last silver quarters were struck at the San Francisco Assay Office (the former San Francisco Mint, which had closed in 1955 due to a then lack of demand for coinage!), which had been re-opened in the early 1960s to help fight the coin shortage. Coins made there before 1968 were struck without mint marks to discourage hoarding.
After a large quantity of clad quarters had been stockpiled (again to discourage hoarding), they were released into circulation in November 1965. The production of CN-clad dimes began a few months after the quarters, but they were not released until January 1966, probably to avoid interfering with the 1965 Christmas shopping season. In those days, when credit cards were not as common as they are today, the Mint typically saw an increased demand for coins from Thanksgiving until the new year. The striking of .900 fine dimes at Denver ended in early 1966.
The 1965 cent and nickel began production on December 29, 1965, and the 1965 half on December 30, but the half dollar does not figure into the silver withdrawal story. Huge quantities of 1965-dated dimes and quarters were struck through the end of July 1966, followed by huge quantities of 1966-dated dimes and quarters in the last five months of 1966.
Normal dating resumed in 1967, but the Mints continued to produce huge quantities of clad dimes and quarters in that year. The reason for this huge mintage was that the Treasury Department wanted to start clawing some of the silver coins back, because it knew that ordinary citizens were doing just that!
Take, for instance, my parents, and my first wife’s parents. All four of them were born around 1920, and they were all old enough to be fully aware of how damned hard life was during the Great Depression. When the clad quarters and dimes appeared both families began hoarding the older .900 fine silver dimes, quarters and halves. Millions of other “Depression Babies” did the same. My mother always told me that she slept better knowing it was there in her hiding place.
As the budding numismatist in the family I was responsible for checking the dates on the coins and putting them in paper rolls and marking the rolls “SILVER”. Canadian silver coins, common in Detroit (except for 50 cent pieces) were rolled and marked separately. My only mistake was when my parents asked if they should start saving the 40% silver halves as well. I did the math and calculated that silver would have to rise above $3.38 for the coins to ever be worth more than face value, and that would never happen! Never say never.
My brothers-in-law tell me that their Dad used to stop at his bank on payday and get rolls of dimes and quarters and bring them home where he and the boys would look through them. When the silver in the rolls dried up, my future in-laws bought quantities of “junk silver” coins from a Chicagoland coin dealer.
While they were doing this, the Treasury Dept. decided at some point during 1967 to go after the silver coins themselves.
During testimony before a House Subcommittee on Appropriations on February 27, 1968, Mint Director Eva Adams said “During 1967 the Mint was assigned an additional task resulting from the decision to recall circulating coins from the Federal Reserve System in order that silver Dimes and Quarters could be held as reserve inventories for emergency situations. The Mint will separate the mixed lots of subsidiary coins returned, retaining the silver coins.”
Mint Director Eva Adams watches a coin sorting machine pull out silver quarters. Image Credit: Numismatic Scrapbook Magazine / Coin World. Used with Permission.
Elsewhere in the testimony it is revealed that the separation was accomplished using a “delamination inspection machine” built by American Machine & Foundry. Thirteen prototypes of this machine had been authorized in June of 1967 “to replace the present manual-vision reviewing” system. I believe that this new machine was originally intended for the Fourth Philadelphia Mint then under construction, which finally opened in 1969. I assume that eventually all of the Mints would have used them.
I could not find any details anywhere on what this machine was or how it operated. My best guess, based upon the name, is that it was originally intended to find and segregate CN-clad planchets that had had one or both cladding layers split off, or de-laminate, prior to being struck. It was expected to ultimately test up to 50 planchets per second, and the best way I can think of it doing that would be by weight. A clad layer constituted one-sixth of the thickness of a planchet, and so a de-laminated planchet would be 16.67% underweight.
When sorting silver and clad coins, just set your desired weight at that of the silver coins, and the clad coins–which are slightly over 9% lighter–will go into the reject bin. Return those to circulation and keep the silver ones. A few “slick” silver coins, coins worn almost smooth (which typically average about 7% lighter), might have gone into the reject bin as well, but perfection was not the object and the Mint had a LOT of coins to sort.
The high volume of coins eventually sorted by the Mint was made possible by a little trick at the Federal Reserve Banks.
Starting at that unrecorded date in 1967, the FRBs stopped automatically recycling the dimes and quarters received by it from member banks and started warehousing them. Between December 1966 and June 1968 the total face value of all coins held by Federal Reserve Banks rose from $277.5 million to $413.5 million, presumably much of it as mixed silver and clad batches awaiting sorting.
During this secret diversionary program the commercial demand for dimes and quarters was met almost exclusively with clad coins struck during those huge mintages of 1965, 1966 and 1967-dated coins. There are references to some mixed batches of clad and silver coins being intentionally re-released when commercial demand temporarily outstripped the supply of new clad coins, but there are indications that the banks sampled the silver content of incoming batches, which would have enabled them to re-release those with the highest percentages of clad coins.
During that Congressional hearing, Ms. Adams was asked if the Mint had a rule of thumb for estimating how many silver coins remained in circulation. She replied: “This was handled through the Federal Reserve banks. We have a sampling process set up as to the approximate proportion of silver and clad which should be expected. I think the ratio of silver to clad coins is going rapidly down. The silver coins are being held out, or they have been used up. It is getting this way all over the country. This morning we received the January report of a coin sample done by one of our groups. 74.8% of the sample were clad compared to 73.5% in December.”
“We are getting many more clad in with the silver. In other words, the silver coins just aren’t there any more.” Congressman Steed replied: “That indicates that you are in sort of a race with the public, generally, trying to take these coins out of circulation?”
Ms. Adams replied: “I think this was anticipated.”
At the signing of the Coinage Act of 1965 on June 23rd of that year, President Johnson said: “Our present silver coins won’t ever disappear and they won’t even become rarities… If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.”
My parents and future in-laws disagreed with him, as did millions of other Americans. The Mint did too.
According to the Annual Report by the Secretary of the Treasury for the Fiscal Year Ended June 30, 1970, a total of 212.3 million fine ounces had been recovered during the first three years of the program, or approximately $294.5 million face worth of dimes and quarters.
Even then there may have been more bins of mixed coins sitting in Federal Reserve Banks waiting to be sorted. Mint Reports did not bother to mention them. Curiously, silver half dollars were not recalled, either because there were not enough of them coming into the FRBs to bother with or, more likely, because they would have had to have been replaced with 40% silver half dollars, and the gain in silver would have been much less.
(Matthew Vadum) Under legal pressure, the rule-making arm of California’s court system, the largest in the United States, has rescinded its pandemic-related emergency order that blocked the state’s courts from hearing eviction proceedings.
Landlords in California and across the country have reportedly been hard hit by emergency eviction moratoriums and by the inability of some of their tenants to pay rent in the troubled economy.
The Judicial Council of California voted 19–1 to scuttle emergency rules governing evictions and judicial foreclosures imposed by the body on April 6.
California Chief Justice Tani G. Cantil-Sakauye, who was appointed to her post in 2010 by then-Gov. Arnold Schwarzenegger, a Republican, acknowledged in a statement that the council had overreached.
“The judicial branch cannot usurp the responsibility of the other two branches on a long-term basis to deal with the myriad impacts of the pandemic,” she said. “The duty of the judicial branch is to resolve disputes under the law and not to legislate. I urge our sister branches to act expeditiously to resolve this looming crisis.”
The Judicial Council of California acted after it was sued June 15 by two small landlords in the Kern County branch of the Superior Court of California.
The landlords argued that by initiating a ban on evictions, the Judicial Council undermined the state’s separation of powers and seized policy making power from the legislature and governor to block landlords’ access to courts.
“Constitutional limitations on government are never more important than during an emergency,” said landlord lawyer Damien M. Schiff, a senior attorney at Pacific Legal Foundation, a public interest law firm headquartered in Sacramento, California.
“In this case, we challenged an eviction moratorium enacted not by the politically responsible branches of California’s government, but rather by the judiciary. Because it attempted to codify policy rather than merely regulate the practice of state courts, the rule exceeded the Judicial Council’s authority under the California Constitution. We are pleased not only that the Judicial Council has voted to rescind the rule, but also that the Council recognized” that its usurpation of legislative and executive powers to deal with the effects of the pandemic was improper.
The council took its lead from Gov. Gavin Newsom, a Democrat, who “ostensibly using his emergency powers, issued an executive order in March that essentially invited the Judicial Council to come up with some eviction moratorium plan, and the council responded by promulgating about a dozen what it called emergency rules of court.”
Newsom has urged the Trump administration to do more to prevent a potential wave of evictions and foreclosures after a four-month congressional moratorium protecting renters and homeowners during the current pandemic lapsed on July 24. The administration has responded that the president has done everything he’s legally allowed to do to halt evictions.
But even if you think an eviction moratorium is “a good idea, it’s not something that the judiciary is capable of doing constitutionally,” Schiff said in an interview.
“And the first of the rules, Emergency Rule 1, essentially imposed a blanket ban on the court-processing of eviction lawsuits,” he said.
The legal complaint stated that the rule “violates the fundamental rights of property owners by indefinitely suspending their right to initiate unlawful detainer actions [i.e., evictions] … [and] creates the perverse incentive for all tenants, whether they face financial hardship or not, to refuse to pay their rent during the crisis. And it immunizes from eviction even tenants who create nuisances, damage property, conduct illegal activity, or violate lease terms.”
The rule “effectively closes the courthouse doors to Petitioners and obstructs their right to re-enter their own property. It does so because the Judicial Council determined as a matter of policy that tenants should be immunized from eviction in virtually all cases. The rule therefore constitutes a legislative decision forbidden to the Judicial Council under the principle of separation of powers embodied in Article III, Section 3, of the California Constitution.”
“Eviction moratoriums don’t make sense,” Schiff said.
“There’s the more fundamental problem that, the government, sure, has the power to take reasonable action to protect the health, safety, and welfare of its citizens, but if it takes their rights or it takes their property it has to pay for it. And here you have essentially landlords’ property being commandeered into a larger governmental effort to slow the spread of the virus.”
Because the goal of the lawsuit has been accomplished, the legal action has been withdrawn, Schiff added.
As ZeroHedge noted earlier, existing home sales are expected to surge in July (the latest data), playing catch up to the huge rebound in new- and pending-home sales in June.
After a 20.7% MoM surge in June, July’s existing home sales were up a stunning 24.7% MoM (crushing expectations of a 14.6% MoM) and sending home sales up 8.72% YoY.
The SAAR rose from 4.70mm to 5.86mm in July, the highest since Dec 2006…
“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days,” said Lawrence Yun, NAR’s chief economist.
“With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.”
The median existing-home price for all housing types in July was $304,100, up 8.5% from July 2019 ($280,400), as prices rose in every region. July’s national price increase marks 101 straight months of year-over-year gains. For the first time ever, national median home prices breached the $300,000 level.
Total housing inventory at the end of July totaled 1.50 million units, down from both 2.6% in June and 21.1% from one year ago (1.90 million).
“The number of new listings is increasing, but they are quickly taken out of the market from heavy buyer competition,” he said. “More homes need to be built.”
Unsold inventory sits at a 3.1-month supply at the current sales pace, down from 3.9 months in June and down from the 4.2-month figure recorded in July 2019.
“Luxury homes in the suburbs are attracting buyers after having lagged the broader market for the past couple of years,” Yun said.
“Single-family homes are continuing to outperform condominium units, suggesting a preference shift for a larger home, including an extra room for a home office.”
For the second consecutive month, sales for July increased in every region and median home prices grew in each of the four major regions from one year ago.
Existing-home sales in the Northeast rocketed 30.6%, recording an annual rate of 640,000, a 5.9% decrease from a year ago. The median price in the Northeast was $317,800, up 4.0% from July 2019.
Existing-home sales jumped 27.5% in the Midwest to an annual rate of 1,390,000 in July, up 10.3% from a year ago. The median price in the Midwest was $244,500, an 8.0% increase from July 2019.
Existing-home sales in the South shot up 19.4% to an annual rate of 2.59 million in July, up 12.6% from the same time one year ago. The median price in the South was $268,500, a 9.9% increase from a year ago.
Existing-home sales in the West ascended 30.5% to an annual rate of 1,240,000 in July, a 7.8% increase from a year ago. The median price in the West was $453,800, up 11.3% from July 2019.
The question is – just how low do rates have to keep going (from already record lows now) to maintain this momentum?
Chief Economist @TheSamKhater: “Purchase housing demand continues to accelerate, ultimately providing support to an economy that otherwise has stagnated." pic.twitter.com/jURPvVu8fP
The biggest difference between these two eras – and this is the thing that will be our downfall – is that we are now a nation of consumers instead of producers…
The separateness in New York, and by extension much of the nation curled around it from America’s eastern edge, stands out. There are the hyper-wealthy and there are the multi-generational poor. They depend on each other, but with COVID who needs who more has changed.
It’s easy to stress how far apart the rich and the poor live, even though the mansions of the Upper West Side are less than a mile from the crack dealers uptown. The rich don’t ride public transportation, they don’t send their kids to public schools, they shop and dine in very different places with private security to ensure everything stays far enough apart to keep it all together.
But that misses the dependencies which until now have simply been a given in the ecosystem. The traditional view has been the rich need the poor to exploit as cheap labor—textbook economic inequality. But with COVID as the spark, the ticking bomb of economic inequality may soon go off in America’s greatest city. Things are changing and New York, and by extension America, needs to ask itself what it wants to be when it grows up.
It’s snapshot simple. The wealthy and the companies they work for pay most of the taxes. The poor consume most of the taxes through social programs. COVID is driving the wealthy and their offices out of the city. No one will be left to pay for the poor, who are stuck here, and the city will collapse in the transition. A classic failed state scenario.
New York City is home to 118 billionaires, more than any other American city. New York City is also home to nearly one million millionaires, more than any other city in the world. Among those millionaires some 8,865 are classified as “high net worth,” with more than $30 million each.
They pay the taxes. The top one percent of NYC taxpayers pay nearly 50 percent of all personal income taxes collected in New York. Personal income tax in the New York area accounts for 59 percent of all revenues. Property taxes add in more than a billion dollars a year in revenue, about half of that generated by office space.
Now for how the other half lives. Below those wealthy people in every sense of the word the city has the largest homeless population of any American metropolis, which includes 114,000 children. The number of New Yorkers living below the poverty line is larger than the population of Philadelphia, and would be the country’s 7th largest city. More than 400,000 New Yorkers reside in public housing. Another 235,000 receive rent assistance.
That all costs a lot of money. The New York City Housing Authority needs $24 billion over the next decade just for vital repairs. That’s on top of a yearly standard operating cost approaching four billion dollars. A lot of the money used to come from Washington before a multi-billion dollar decline in federal Section 9 funds. So today there is a shortfall and repairs, including lead removal, are being put off. NYC also has a $34 billion budget for public schools, many of which function as distribution points for child food aid, medical care, day care, and a range of social services.
The budget for a city as complex as New York is a mess of federal, state, and local funding sources. It can be sliced and diced many ways, but the one that matters is the starkest: the people and companies who pay for New York’s poor are leaving even as the city is already facing a $7.4 billion tax revenue hit from the initial effects of the coronavirus. The money is there; New York’s wealthiest individuals have increased their net worth by $44.9billion during the pandemic. It’s just not here.
New York’s Governor Andrew Cuomo has seen a bit of the iceberg in the distance. He recently took to MSNBC to beg the city’s wealthy, who fled the coronavirus outbreak, to return. Cuomo said he was extremely worried about New York City if too many of the well-heeled taxpayers who fled COVID decide there is no need to move back.
“They are in their Hamptons homes, or Hudson Valley or Connecticut. I talk to them literally every day. I say. ‘When are you coming back? I’ll buy you a drink. I’ll cook. But they’re not coming back right now. And you know what else they’re thinking, if I stay there, they pay a lower income tax because they don’t pay the New York City surcharge. So, that would be a bad place if we had to go there.”
Included in the surcharge are not only NYC’s notoriously high taxes. The recent repeal of the federal allowance for state and local tax deductions (SALT) costs New York’s high earners some $15 billion in additional federal taxes annually.
“They don’t want to come back to the city,” Partnership for NYC President Kathryn Wylde warned. “It’s hard to move a company… but it’s much easier for individuals to move,” she said, noting that most offices plan to allow remote work indefinitely. “It’s a big concern that we’re going to lose more of our tax base then we’ve already lost.”
While overall only five percent of residents left as of May, in the city’s very wealthiest blocks residential population decreased by 40 percent or more. The higher-earning a neighborhood is, the more likely it is to have emptied out. Even the amount of trash collected in wealthy neighborhoods has dropped, a tell-tale sign no one is home. A real estate agent told me she estimates about a third of the apartments even in my mid-range 300 unit building are empty. The ones for sale or rent attract few customers. She says it’s worse than post-9/11 because at least then the mood was “How do we get NYC back on its feet?” instead of now, when we just stand over the body and tsk tsk through our masks.
Enough New Yorkers are running toward the exits that it has shaken up the greater area’s housing market. Another real estate agent describes the frantic bidding in the nearby New Jersey suburbs as a “blood sport.” “We are seeing 20 offers on houses. We are seeing things going 30 percent over the asking price. It’s kind of insane.”
Fewer than one-tenth of Manhattan office workers came back to the workplace a month after New York gave businesses the green light to return to the buildings they ran from in March. Having had several months to notice what not paying Manhattan office rents might do for their bottom line, large companies are leaving. Conde Nast, the publishing company and majority client in the signature new World Trade Center, is moving out. Even the iconic paper The Daily News (which published the famous headline “Ford to City: Drop Dead” when New York collapsed in 1975 without a federal bailout) closed its physical newsroom to go virtual. Despite the folksy image of New York as a paradise of Mom and Pop restaurants and quaint shops, about 50 percent of those who pay most of the taxes work for large firms.
Progressive pin-up Mayor De Blasio has lost touch with his city. After years of failing to address economic inequality by simply throwing free money to the poor and limiting the ability of the police to protect them, and us, from rising crime, his COVID focus has been on shutting down schools and converting 139 luxury hotels to filthy homeless shelters. Alongside AOC, he has called for higher taxes on fewer people and demanded more federal funds. As for the wealthy who have paid for his failed social justice experiments to date, he says “We don’t make decisions based on a wealthy few. Some may be fair-weathered friends, but they will be replaced by others.”
What others? The concentration of major corporations once pulled talent to the city from across the globe; if you wanted to work for JP Morgan on Wall Street, you had to live here. That’s why NYC has skyscrapers; a lot of people once needed to live and especially work in the same place. Not any more. Technology and work-at-home changes have eliminated geography.
For the super wealthy, New York once topped the global list of desirable places to live based on four factors: wealth, investment, lifestyle and future. The first meant a desire to live among other wealthy people (we know where that’s headed), investment returns on real estate (not looking great, if you can even find a buyer), lifestyle (now destroyed with bars, restaurants, shopping, museums, and theaters closed indefinitely, coupled with rising crime) and…
The future. New York pre-COVID had the highest projected GDP growth of any city. Now we’re left with the question if COVID continues to hollow out the city, who will be left to pay for New York? As one commentator said, NYC risks leading America into becoming “Brazil with Nukes,” a future of constant political and social chaos, with a ruling class content to wall itself off from the greater society’s problems.
(Dennis Miller) At the local convenience store, my wife Jo handed the clerk a $5 bill and waited for her change; finally asking for it. The clerk said, “We have a coin shortage. We have to round things to the nearest dollar.” Screw that! She dug in her purse, cobbled together the correct change and demanded the clerk give her a dollar back – while the line of “social distanced” customers behind her grew long.
The next day she bought a fountain Coke, normally $1.00 plus tax. The clerk said, “$1.00 please.” The merchant absorbed the tax. There are signs in the local stores saying they have a shortage and will buy rolled coins.
My BS meter went into full alert. A government capable of putting a man on the moon could solve a coin shortage in a matter of a few weeks. If there is a shortage, it’s because some politicos, or bankers want to create one.
California’s housing market continued to recover as home sales climbed to their highest level in more than two and a half years in July, while setting another record-high median home price, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.
Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 437,890 units in July, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2020 if sales maintained the July pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
July’s sales total climbed above the 400,000 level for the first time since February 2020, before the COVID-19 crisis depressed the housing market, and was the highest level in more than two and a half years. July sales rose 28.8 percent from 339,910 in June and were up 6.4 percent from a year ago, when 411,630 homes were sold on an annualized basis. July marked the first time in five months that home sales posted an annual gain.
Housing inventory continued to trend downward on a year-over-year basis, with active listings falling more than 25 percent for the eighth consecutive month. The year-over-year 48 percent decline was the biggest drop in active listings since January 2013. The continued recovery in closed escrow sales, combined with a sharp drop in active listings, led to a plunge in the Unsold Inventory Index (UII) to 2.1 months in July, down from 3.2 months a year ago. The index indicates the number of months it would take to sell the supply of homes on the market at the current rate of sales. The July UII was the lowest level since November 2004.
CR Note: Existing home sales are reported when the transaction closes, so this was mostly for contracts signed in May and June. Sales-to-date, through July, are down 10% compared to the same period in 2019.
Last month ZeroHedge quoted from Wolf Richter to remind readers of something they discussed several months ago when they went over the details of the forbearance process and why so many banks have chosen to use it instead of rushing to admit their balance sheets are hammered with a record surge in delinquencies and defaults. As a reminder, “mortgages that are in forbearance and have not missed a payment before going into forbearance don’t count as delinquent. They’re reported as “current.” And 8.2% of all mortgages in the US, some 4.1 million loans, are currently in forbearance according to the Mortgage Bankers Association. But if they did not miss a payment before entering forbearance, they don’t count in the suddenly spiking delinquency data.”
Everything changed in April when there was a sudden onslaught of delinquencies according to CoreLogic, which came after 27 months in a row of declining delinquency rates. These delinquency rates move in stages – and the early stages are now getting hit, with the Transition from “Current” to 30-days past due suddenly soaring.
To wit, in April, the share of all mortgages that were past due, but less than 30 days, soared to 3.4% of all mortgages, the highest in the data going back to 1999. This was up from 0.7% in April last year. During the Housing Bust, this rate peaked in November 2008 at 2% (chart via CoreLogic):
Fast forward to today, when the dam of pent up mortgage delinquencies cracked some more, with the Federal Housing Administration reporting that its mortgages which represent the affordable path to home ownership for many first-time buyers, minorities and low-income Americans, now have the highest delinquency rate in at least four decades.
The share of delinquent FHA loans rose to 15.7% in the second quarter, up a whopping 60% from about 9.7% in the previous three months and the highest level in records dating back to 1979, the Mortgage Bankers Association said Monday. The delinquency rate for conventional loans, by comparison, was 6.7%.
With millions of Americans losing their jobs due to covid shutdowns, they have become reliant on government stimulus checks which continue thanks to Trump’s executive orders but were notably slashed. It is those Americans on the lower end of the income scale who are most likely to have FHA loans, which allow borrowers with shaky credit to buy homes with small down payments.
Still, despite their inability to pay, most remain protected from foreclosure by the federal forbearance program, in which borrowers with pandemic-related hardships can delay payments for as much as a year without penalty.
According to Bloomberg, New Jersey had the highest FHA delinquency rate, at 20%.
The state also had the biggest increase in the overall late-payment rate, jumping to 11% in the second quarter from 4.7%. Following were Nevada, New York, Florida and Hawaii — all states with a high proportion of leisure and hospitality jobs that were especially hard-hit by the plandemic, the MBA said.
The delinquency rate increased nearly 4%, or 386 basis points, from the first quarter of 2020 and was up 369 basis points from one year ago. For the purposes of the survey, MBA asks servicers to report loans in forbearance as delinquent if the payment was not made based on the original terms of the mortgage.
“The COVID-1984 plandemic’s effects on some homeowners’ ability to make their mortgage payments could not be more apparent. The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA’s survey,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high delinquency rate for FHA loans.”
What’s even more ominous is that while millions of “forbeared” loans remain delayed from entering the delinquency pipeline, Walsh said that “there was also a movement of loans to later stages of delinquency, with the 60-day delinquency rate reaching a new survey-high, and the 90+-day delinquency rate climbing to its highest level since the third quarter of 2010.“
(Michael Snyder) In all of U.S. history, we have never seen anything like “the mass exodus of 2020”. Hundreds of thousands of people are leaving the major cities on both coasts in search of a better life. Homelessness, crime and drug use were already on the rise in many of our large cities prior to 2020, but many big city residents were willing to put up with a certain amount of chaos in order to maintain their lifestyles. However, the COVID-1984 plandemic and months of civil unrest have finally pushed a lot of people over the edge. Moving companies on both coasts are doing a booming business as wealthy and middle class families flee at a blistering pace, and most of those families do not plan to ever return.
Los Angeles is a perfect example of what I am talking about. Once upon a time it attracted wealthy and famous people from all over the globe, but in 2020 it is “a city on the brink“…
Today, Los Angeles is a city on the brink. ‘For Sale’ signs are seemingly dotted on every suburban street as the middle classes, particularly those with families, flee for the safer suburbs, with many choosing to leave LA altogether.
British-born Danny O’Brien runs Watford Moving & Storage. ‘There is a mass exodus from Hollywood,’ he says.
Almost half of the entire homeless population of the entire country now lives in the state of California, and a large proportion of them are addicted to drugs. Needless to say, this has created a nightmarish environment…
Junkies and the homeless, many of whom are clearly mentally ill, walk the palm-lined streets like zombies – all just three blocks from multi-million-dollar homes overlooking the Pacific.
Stolen bicycles are piled high on pavements littered with broken syringes.
Could you imagine trying to raise a family in such a community?
I certainly couldn’t.
And the worse economic conditions become, the worse the problem gets. Crime is skyrocketing in L.A., and some residents have been shocked to discover strangers actually “defecating in their front gardens”…
TV bulletins are filled with horror stories from across the city; of women being attacked during their morning jog or residents returning home to find strangers defecating in their front gardens.
Of course Los Angeles is definitely not the only major city dealing with such issues.
According to online real estate company Zillow, there is a mass exodus of people looking to get out of San Francisco real estate – as the housing market is on fire in the Bay Area suburbs, all the way to Lake Tahoe.
According to the company’s “2020 Urban-Suburban Market Report,” home prices in the city have fallen 4.9% year-over-year, while inventory has jumped 96% during the same period, as a flood of new listings hit the market.
In the end, a lot of people may have to take losses on their homes, but it will be worth it simply to get out of California.
And the state legislature has apparently decided that the mass exodus is not happening fast enough, because a bill is being introduced that would impose a new “wealth tax” on the very wealthy…
Fast forward to today when the ultra-liberal state of California is now ready to take this “socialist” idea from concept to the implementation phase, with the SF Chronicle reporting that a group of CA state lawmakers on Thursday proposed a first-in-the-nation state wealth tax that would hit about 30,400 California residents and raise an estimated $7.5 billion for the general fund.
The proposed tax rate would be 0.4% of net worth (most likely ended up far higher), excluding directly held real estate, that exceeds $30 million for single and joint filers and $15 million for married filing separately.
In the old days, a lot of Californians would just head north to Portland or Seattle, but those two cities are not exactly desirable options at this point.
The civil unrest in Seattle never seems to end, and Acting Department of Homeland Security Secretary Chad Wolf recently said that there had been “twelve official riots” in the first ten days after federal law enforcement officials left Portland.
Sadly, the east coast has experienced plenty of chaos as well, and the mass exodus out of New York City has been particularly dramatic.
In a previous article, I discussed the fact that the the New York Times had reported that 420,000 New Yorkers had moved out of the city between March 1st and May 1st.
But the exodus certainly didn’t end there.
According to the local Fox affiliate, between May and July there was “a 95 percent year over year increase in interest in moving out of Manhattan”…
According to the most recent data from United Van Lines, between May and July, there was a 95 percent year over year increase in interest in moving out of Manhattan. That compares with a 19 percent increase in moving interest in the U.S., overall.
The top destinations for people who moved out of New York City between March and August were Florida and California – which together comprised 28 percent of relocations. Texas and North Carolina made up 16 percent of moves.
J.C. Penney and Neiman Marcus, the anchor tenants at two of the largest malls in Manhattan, recently filed for bankruptcy and announced that they would shutter those locations.
The Subway restaurant chain has already closed dozens of locations in New York City in recent months,
Le Pain Quotidien has permanently closed several of its 27 stores in the city and plans to leave others closed until more people return to the streets, an executive at the chain’s parent, Aurify Brands, told the Times.
Earlier today, I watched a video that someone had taken of all the boarded up shops along 5th Avenue.
If you have not seen that video yet, you can watch it right here.
I couldn’t believe what I was seeing. At one time 5th Avenue was a playground for the elite of the world, but now it essentially looks “like a demilitarized zone”…
De Blasio’s New York has finally hit an all-time low: the once bustling city is now on the verge of looking like a demilitarized zone. Between the pandemic and the riots in the city, iconic 5th Avenue now looks more like a dystopian nightmare in a recently shot video posted to Twitter.
The video follows a car driving down a deserted 5th Avenue, with almost all of the area’s high end stores boarded up and shut down. There are few people seen on what is usually a busy street.
“Look at everything. Everything’s boarded up. Even the hotel. Boarded up,” the video’s narrator, who is obviously fed up with how the city looks, says.
In about six months, most of the progress that New York City has made since the dark days of the 1970s and 1980s has completely disappeared.
Homelessness and poverty are both exploding, and crime rates are shooting into the stratosphere.
If you can believe it, the number of shootings in July was 177 percent higher than for the same month last year.
If the deplorable conditions in our major cities were just going to be temporary, I don’t believe that we would be seeing such a mass exodus.
But at this point it should be clear to all of us that things aren’t going to turn around any time soon, and many people are convinced that things are just going to continue to get even worse.
Our major cities are degenerating right in front of our eyes, and there doesn’t seem to be any hope of reversing this process now that it has started.
In life, the decisions that we make always have consequences, and the consequences for the decisions that we have made as a nation as a whole will be very bitter indeed.
With more people telecommuting than ever due to the COVID-19 pandemic, it appears that the allure of cramped, expensive urban housing, poo-covered sidewalks and homeless people shooting up in Starbucks has worn off.
San Francisco Street Poop Patrol
According to online real estate company Zillow, there is a mass exodus of people looking to get out of San Francisco real estate – as the housing market is on fire in the Bay Area suburbs, all the way to Lake Tahoe.
According to the company’s “2020 Urban-Suburban Market Report,” home prices in the city have fallen 4.9% year-over-year, while inventory has jumped 96% during the same period, as a flood of new listings hit the market. Zillow notes that they aren’t seeing the same trend in cities such as Miami, Los Angeles, Washington D.C. or Seattle.
Via Zillow:
When comparing the principal city to its surrounding suburbs, the San Francisco metro area does break the mold. Higher levels of inventory, up 96% YoY following a flood of new listings during the pandemic, are sitting on the market in the city proper, a significantly larger jump than the surrounding suburbs. Whereas in similar cities like Los Angeles, Miami, Boston, Seattle, and Washington, D.C., declining or flat inventory is a consistent trend within and outside the city limits. Relatively higher inventory has different causes by city, and is not clearly attributable to either supply or demand. In San Francisco, though, the softening is clear as sellers inundate the market and buyers have not changed their pace to match — newly pending sales in the city are up only 1.7% YoY.
Meanwhile, both urban and suburban markets nationally are seeing homes sell more quickly than they were in February, while “most areas have seen price cuts decelerate relative to February, and slightly more so in the suburbs,”according to the report.
That said, Zillow is seeing about the same percentage of people searching for urban vs. suburban listings YoY, which would suggest that at least as of June, the ongoing BLM protests which have turned urban cities into Escape From [insert your big blue Democrat run city here].
It was about about nine years ago when consulting company BCG first suggested that in a time of out of control spending and soaring debt loads, the only fiscally sustainable “solution” was to implement a wealth tax (see “There May Be Only Painful Ways Out Of The Crisis“).
While the idea was well ahead of its time in 2011, and was quickly shut down in the court of public opinion, several years later none other than the IMF resurrected the idea of a wealth tax, which has only gained momentum in recent months, and despite widespread grassroots push back, the concept of a “wealth tax” has moved front and center and most recently the chairman of Capital Economics, Roger Bootle, said that the world’s wealthiest could be subjected to higher tax rates as governments scramble to fund spending and repair their economies amid the coronavirus crisis.
Fast forward to today when the ultra-liberal state of California is now ready to take this “socialist” idea from concept to the implementation phase, with the SF Chronicle reporting that a group of CA state lawmakers on Thursday proposed a first-in-the-nation state wealth tax that would hit about 30,400 California residents and raise an estimated $7.5 billion for the general fund.
The proposed tax rate would be 0.4% of net worth (most likely ended up far higher), excluding directly held real estate, that exceeds $30 million for single and joint filers and $15 million for married filing separately.
Oakland Democrat Rob Bonta, who is the lead author of the wealth tax proposal AB2008, justified the wealth expropriation by saying that California is facing a big budget deficit because of the health and economic crisis brought on by the coronavirus, and “we can’t simply rely on austerity measures,” to close it. It wasn’t immediately clear why austerity doesn’t work considering that California has never actually tried it, but in any case the Democrat’s proposal was clear: “We must consider revenue generation.”
California State assembly member Rob Bonta, D-Okland, is the lead author of AB 2088, which would create a first–in-the-nation wealth tax
And in doing that, California will trigger an exodus of billionaires who will be the first to realize which way the wind is blowing, and end up hurting the state far more than helping it as hundreds of ultra wealthy taxpayers leave for places like Florida or – for that matter – any other place in the world.
Bonta said that the union-sponsored bill will not be heard before the Legislature adjourns Aug. 31, but “it can be reintroduced on day one of the next session.”
Now what most normal Americans (i.e. those not living in California) may not know, is that this would be the second wealth tax set to pass in California. Bonta said he would like to see a wealth tax passed in addition to the “millionaires tax” proposed in a bill introduced in late July. AB1253 would add surcharges of 1% to incomes (joint or single) between roughly $1 million and $2 million, 3% on income between $2 million and $5 million, and 3.5% on income greater than $5 million, bringing the top rate to 16.8%.
California’s top rate today, at 13.3%, is already the highest in the nation, and it’s only going higher.
There was some good news: “Directly held real property, and mortgages and other liabilities secured by directly held real property,” must be reported, but would not be considered in calculating the taxpayer’s worldwide net worth, the bill said. How wonderful… oh wait, someone realized that this would simply be double taxing the same assets: “Real estate would be exempt from the wealth tax because it’s already subject to property tax, at a higher rate”, Bonta said.
Among those handful of rational voices who call out this sheer idiocy for what it is was Jared Walczak, a vice president with the Tax Foundation, a think tank, who said that “it is far easier to call for a state-level wealth tax than it is to actually design an enforceable one.” Maybe that’s why no state has imposed one.
However now that California is on the verge of passing a wealth tax, every other insolvent state will follow suit, staring with New York.
“Some New York legislators are floating the idea, but Governor Cuomo has poured cold water on the notion, rightly concerned that it would lead to an exodus of high net worth individuals from the state,” Walczak said via email. Somehow California believes it is exempt from such an exodus. Spoiler alert: it isn’t, and the state’s wealthiest residents won’t think twice to up root and move their tax residence to a state which treats their wealth with respect.
There is of course the possibility that this idiotic idea will somehow die before it is enacted. Walczak said that implementing a wealth tax at the state level “would be extremely complex, with questions of how to value illiquid assets and whether residents’ out-of-state wealth — including their investment holdings — can be taxed.” He added that “any tax that is actually effective at taxing wealth, however, would be equally effective at driving wealth out of state.”
Emmanuel Saez, a UC Berkeley economics professor, i.e., a socialist, said income tax is not an effective way to tax the ultra-wealthy, because they can avoid the income tax as long as they don’t cash in their investments. Facebook CEO Mark Zuckerberg could avoid the income tax as long as he doesn’t sell his Facebook stock, and if he moved to Florida before realizing his gains, he may never owe tax to California, Saez said during a call announcing the bill.
Saez, like any other socialist who has a terminal inability of grasping who the world really works and that every idiotic action by the state will have an appropriate reaction by the population, said the bill would not deter startups because it would let entrepreneurs defer the wealth tax for a period of time. Brilliant.
“Liquidity-constrained taxpayers with ownership interests in hard-to-value assets and business entities, such as startup businesses, shall be able to elect for an unliquidated and deferred tax liability to be attached to these assets instead of the net value of these assets being assessed at the end of a tax year.” The taxpayer would have to sign a contract with the state specifying when the tax would be paid.
Well, Emmanuel, instead of signing a “contract” with the state when the tax will be paid, all those entrepreneurs that keep the state afloat will simply… leave. And guess what happens to the already dismal tax collections then.
None of this matters to the Berkeley socialist, and instead he pointed to a paper he co-authored, saying that California has 12% of the U.S. population but 17% of all U.S. millionaires and 25% of its billionaires. In 2011, California had only 15.5% of the nation’s millionaires and 21% of billionaires. The wealth tax, he said, would hit about 0.15% of California tax filers.
We can’t wait for the paper’s second edition published in 2025 when the “professor” finds that California has none of the US’ billionaires.
Until then, the rare voices of reason such as that of Robert Gutierres, president of the California Taxpayers Association, will become increasingly rare:
“The state approved $9.2 billion in business tax increases in the new budget, but Sacramento politicians and special interests continue to seek income tax increases, property tax increases, a ‘headcount tax’ on in-state employees, and this new annual tax on money that was left over after all the other taxes were paid,” Gutierrez said, adding that “a very small number of Californians pay the vast majority of state income taxes. When the constant drumbeat for outrageous tax hikes drives them away, who will pick up the tab?”
(Alasdair Macleod) There appears to be no way out for the bullion banks deteriorating $53bn short gold futures positions ($38bn net) on Comex. An earlier attempt between January and March to regain control over paper gold markets has backfired on the bullion banks.
Unallocated gold account holders with LBMA member banks will shortly discover that that market is trading on vapour. According to the Bank for International Settlements, at the end of last year LBMA gold positions, the vast majority being unallocated, totalled $512bn — the London Mythical Bullion Market is a more appropriate description for the surprise to come.
An awful lot of gold bulls are going to be disappointed when their unallocated bullion bank holdings turn to dust in the coming months — perhaps it’s a matter of a few weeks, perhaps only days — and synthetic ETFs will also blow up. The systemic demolition of paper gold and silver markets is a predictable catastrophe in the course of the collapse of fiat money’s purchasing power, for which the evidence is mounting. It is set to drive gold and silver much higher, or more correctly put, fiat currencies much lower.
This is only the initial catalysing phase in the rapidly approaching death of fiat currencies.
At least that is the case with the housing industry which – like all other industries – is working to adapt to what life is going to be like in a post-pandemic world. For KB Homes, that means acknowledging that less people will be going into the office on a daily basis and including new, built-in offices in homes that they sell.
The KB Home Office, as it’s being called, is “is a dedicated room that delivers comfort, function and aesthetics,” the company said in a press release. “In this private work space, homeowners can host online presentations or small in-person meetings and boost their productivity,” it continued.
In the press release, KB acknowledges that the shift to work-from-home inspired the new office concept: “The pandemic has served to accelerate the trend of working from home. During the past few months, Americans have accepted makeshift workstations despite challenges and frustrations, because they have been viewed as temporary. Now, as many companies shift to working remotely for the foreseeable future, and for some, perhaps permanently, homeowners are seeking to optimize their work-from-home experience.”
The new KB Home Office includes:
Built-in workstation with generous counter and cabinet space
Large open shelving for displays, books, files and other accessories
Upgraded electrical package, including receptacles, ultra-fast USB charging outlet and additional data/teleport
Jeffrey Mezger, Chairman, President and Chief Executive Officer of KB Home, commented: “Our homes have taken on even greater significance in our lives. Many people are now working from home, which has made home offices more desired and essential than ever before.”
He continued: “We have redesigned our floor plans to meet the needs of today’s homeowners and are pleased to offer the KB Home Office, a dedicated room our customers can easily personalize for the way they work, at a price that fits their budget.”
Homebuyers also have the option of personalizing the office by selecting different options available by the manufacturer. Options include enhanced soundproofing/insulation packages, tailored lighting, ceiling fans, window treatments and a beverage center.
The concept is set to be rolled out nationwide in coming months.
And here it is. THIS is how The Fed is going to finish it, via an EPIC binge of money creation unlike ANYTHING that has been seen before. The effect of this will be much higher prices of Gold, Silver, Crypto, Crude, AND Stocks…
The Fed Is Expected To Make A Major Commitment To Ramping Up Inflation Soon
(Jeff Cox) In the next few months, the Federal Reserve will be solidifying a policy outline that would commit it to low rates for years as it pursues an agenda of higher inflation and a return to the full employment picture that vanished as the coronavirus pandemic hit.
Recent statements from Fed officials and analysis from market veterans and economists point to a move to “average inflation” targeting in which inflation above the central bank’s usual 2% target would be tolerated and even desired.
To achieve that goal, officials would pledge not to raise interest rates until both the inflation and employment targets are hit. With inflation now closer to 1% and the jobless rate higher than it’s been since the Great Depression, the likelihood is that the Fed could need years to hit its targets.
The policy initiatives could be announced as soon as September. Addressing the issue last week, Fed Chairman Jerome Powell said only that a yearlong examination of policy communication and implementation would be wrapped “in the near future.” The culmination of that process, which included public meetings and extensive discussions among central bank officials, is expected to be announced at or around the Federal Open Market Committee’s meeting.
Markets are anticipating a Fed that would adopt an even more accommodative approach than it did during the Great Recession.
“We remain firmly of the view that this is a deeply consequential shift, even if it is one that has been seeping into Fed decision-making for some time, that will shape a different Fed reaction function in this cycle than in the last,” said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.
Indeed, Powell said the policy statement will be “really codifying the way we’re already acting with our policies. To a large extent, we’re already doing the things that are in there.”
Guha, though, said the approach “would be sharply more dovish even than the strategy followed by the [Janet] Yellen Fed” when the central bank held rates near zero for six years even after the end of the Great Recession.
All in on inflation
One implication is that the Fed would be slower to tighten policy when it sees inflation rising.
Powell and his colleagues came under fire in 2018 when they enacted a series of rate increases that eventually had to be rolled back. The Fed’s benchmark overnight lending rate is now targeted near zero, where it moved in the early days of the pandemic.
The Fed and other global central banks have been trying to gin up inflation for years under the reasoning that a low level of price appreciation is healthy for a growing economy. They also worry that low inflation is a problem that feeds on itself, keeping interest rates low and giving policymakers little wiggle room to ease policy during downturns.
In the latest shot at getting inflation going, the Fed would commit to enhanced “forward guidance,” or a commitment not to raise rates until its benchmarks are hit and, in the case of inflation, perhaps exceeded.
In recent days, Fed regional Presidents Robert Kaplan of Dallas and Charles Evans of Chicago have expressed varying levels of support for enhanced guidance. Evans in particular said he would like to keep rates where they are until inflation gets up around 2.5%, which it has not been for most of the past decade.
“We believe that the Fed publicly would welcome inflation in a range of 2% up to 4% as a long overdue offset to inflation running below 2% for so long in the past,” said Ed Yardeni, head of Yardeni Research.
The market weighs in
The investing implications are substantial.
Yardeni said the approach would be “wildly bullish” for alternative asset classes and in particular growth stocks and precious metals like gold and silver. Guha said the Fed’s moves would see “real yields persistently lower, the dollar lower, volatility lower, credit spreads lower and equities higher.”
Investors have been making heavy bets that would be consistent with inflation: record highs in gold, sharp declines in the U.S. dollar and a rush into TIPS, or Treasury Inflation Protected Securities. TIPS funds have seen six consecutive weeks of net inflows of investor cash, including $1.9 billion and $1.5 billion respectively during the weeks of June 24 and July 1 and $271 million for the week ended July 29, according to Refinitiv.
Still, the Fed’s poor record in reaching its inflation target is raising doubts.
“If there’s any lesson that should have been learned by all the world’s central banks it’s that picking an inflation target is easy. Trying to actually get there is extraordinarily difficult,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Just manipulating interest rates doesn’t mean you get to some finger-in-the-air inflation rate that you choose.”
“It doesn’t make any economic sense whatsoever,” he said. “The consumer is very fragile right now. The last thing we should be shooting for is a higher cost of living.”
(Anthony B. Sanders) The Federal Reserve has a dual mandate: stable inflation and low unemployment. Well, core inflation is currently at 1.2% (core PCE growth is at only 0.95%) and unemployment (thanks to Covid-19) is at 11.1%. Not quite on target.
The Taylor Rule model using an aggressive specification suggests that The Fed lower their target rate to -8.58%.
Of course, Congressional spending is out of control with mandatory spending (entitlement programs, such as Social Security, Medicare, and required interest spending on the federal debt) since the days of George HW Bush and Bill Clinton. And especially post financial crisis.
Of course, mandatory spending on Medicare is soaring out of control.
Defense outlays are projected to grow with non-defense outlays declining,
Of course, the TRUE dual mandate of The Federal Reserve is propping up the S&P 500 index and NASDAQ.
Good luck to everyone trying to cope with out of control Congressional spending and Fed money printing.
The question is … will Congress and President Trump/Biden reign in their prodigious spending after Covid-19 passes?
Here is my answer. Where are the Budget Hawks when we need them??
If you’re holding your pension with the Bank of Ireland, you are now officially being charged to do so.
Christine Madeleine Odette Lagarde is a career, ‘stick it to the people’ French politician and lawyer serving as President of the European Central Bank since November 2019. Between July 2011 and November 2019, she served as chair and managing director of the International Monetary Fund.
In a move that we’re sure is going to have absolutely no consequences, the bank is starting to impose negative interest rates on cash held in pensions, according to The Irish Examiner. The bank is applying a rate of 0.65% on pension pots, which means customers will now pay the bank $65 on every $10,000 held.
The bank commented: “European Central Bank interest rates have been negative since 2014. Since then banks have been subject to negative interest rates for holding funds overnight and market indications are that rates will remain low for some time.”
It continued: “As a result, we have applied negative rates on deposits for large institutional and corporate customers since 2016. We recently wrote to 14 investment and pension trustee firms to inform them about a rate change to their accounts, which is reflective of the negative interest rate environment.”
“The average amount held on deposit by investment and pension trustee firms is in excess of around €100m, therefore it is no longer sustainable for the Bank to continue with the current rate of interest. We provided 3 months’ advance notification of this rate change to our investment and pension trustee firm customers,” the bank concluded.
Ulster Bank is also considering similar rates in the future. The bank’s CEO, Jane Howard, said: “In terms of Ulster Bank, we did introduce negative rates earlier this year and we’ve introduced it for larger businesses with balances of over €1m.”
She continued: “As I sit here today we have no plans to charge negative interest rates for our personal customers but given the way everything happens, like Covid, so unexpectedly, it is not something I can rule out forever.”
By now, it feels like it is only a matter of time before the U.S. follows suit. And to think, none of this “prosperity” would be possible without the miracle of modern central banking.
Well, with everyone and everything else getting a bailout, may as well go all the way.
(Got enough water, food, tools, ammo, silver and gold?)
Two months after ZeroHedge reported that the state of California is trying to turn centuries of finance on its head by allowing businesses to walk away from commercial leases – in other words to make commercial debt non-recourse – a move the California Business Properties Association said “could cause a financial collapse”, attempts to bail out commercial lenders have reached the Federal level, with the WSJ reporting that lawmakers have introduced a bill to provide cash to struggling hotels and shopping centers that weren’t able to pause mortgage payments after the coronavirus (plandemic) shut down the U.S. economy.
The bill would set up a government-backed funding vehicle which companies could tap to stay current on their mortgages. It is meant in particular to help those who borrowed in the $550 billion CMBS market in which mortgages are re-packaged into bonds and sold to Wall Street.
What it really represents, is a bailout of the only group of borrowers that had so far not found access to the Fed’s various generous rescue facilities: and that’s where Congress comes in.
To be sure, the commercial real estate market is imploding, and as ZeroHedge reported at the start of the month, some 10% of loans in commercial mortgage-backed securities were 30 or more days delinquent at the end of June, including nearly a quarter of loans tied to the hard-hit hotel industry, according to Trepp LLC.
“The numbers are getting more dire and the projections are getting more stern,” said Rep. Van Taylor (R., Texas), who is sponsoring the bill alongside Rep. Al Lawson (D., Fla.).
Van Taylor (R-Texas) is sponsoring the bill to aid shopping centers and hotels for CRGs (certified rich guys)
Under the proposal, banks would extend money to help these borrowers and the facility would provide a Treasury Department guarantee that banks are repaid. The funding would come from a $454 billion pot set aside for distressed businesses in the earlier stimulus bill.
Richard Pietrafesa owns three hotels on the East Coast that were financed with CMBS loans. They have recently had occupancy of around 50% or less, which doesn’t bring in enough revenue to make mortgage payments, he said.
He said he is now two months behind on payments for one of his properties, a Fairfield Inn & Suites in Charleston, S.C. He has money set aside in a separate reserve, he said, but his special servicer hasn’t allowed him to access it to make debt payments.
“It’s like a debtor’s prison,” Mr. Pietrafesa said.
Those magic words, it would appear, is all one needs to say these days to get a government and/or Fed-sanctioned bailout. Because in a world taken over by zombies, failure is no longer an option.
While any struggling commercial borrower that was previously in good financial standing would be eligible to apply for funds to cover mortgage payments, the facility is designed specifically for CMBS borrowers.
It gets better, because not only are taxpayers ultimately on the hook via the various Fed-Treasury JVs that will fund these programs, but the new money will by default be junior to existing insolvent debt. As the Journal explains, “many of these borrowers have provisions in their initial loan documents that forbid them from taking on more debt without additional approval from their servicers. The proposed facility would instead structure the cash infusions as preferred equity, which isn’t subject to the debt restrictions.“
Yes, it’s also means that the new capital is JUNIOR to the debt, which means that if there is another economic downturn, the taxpayer funds get wiped out first while the pre-existing debt – the debt which was un-reapayble to begin with – will remain on the books!
Perhaps sensing the shitstorm that this proposal would create, the WSJ admits that “the preferred equity would be considered junior to other debt but must be repaid with interest before the property owner can pull money out of the business.”
What was left completely unsaid is that the existing impaired CMBS debt will instantly become money good thanks to the junior capital infusion from – drumroll – idiot taxpayers who won’t even understand what is going on.
How did this ridiculously audacious proposal come to being? Well, Taylor led a bipartisan group of more than 100 lawmakers who last month signed a letter asking the Federal Reserve and Treasury to come up with a solution for the CMBS issues. Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell have indicated that this may be an issue best addressed by Congress.
In other words, while the Fed will be providing the special purpose bailout vehicle, it is ultimately a decision for Congress whether to bail out thousands of insolvent hotels and malls.
And if some in the industry have warned that an attempt to rescue the CMBS market would disproportionately benefit a handful of large real-estate owners, rather than small-business owners, it is because they are precisely right: roughly 80% of CMBS debt is held by a handful of funds who will be the ultimate beneficiaries of this unprecedented bailout; funds which have spent a lot of money lobbying Messrs Taylor and Lawson.
Of course, none of this will be revealed and instead the talking points will focus on reaching the dumbest common denominator. Taylor said the legislation is focused on – what else – saving jobs. What he didn’t say is that each job that is saved will end up getting lost just months later, and meanwhile it will cost millions of dollars “per job” just to make sure that the billionaires who hold the CMBS debt – such as Tom Barrack who recently urged a margin call moratorium in the CMBS market– come out whole.
“This started with employees in my district calling and saying ‘I lost my job’,” Taylor said, clearly hoping that he is dealing with absolute idiots.
And while it is unclear if this bill will pass – at this point there is literally money flying out of helicopters and the US deficit is exploding by hundreds of billions every month so who really gives a shit if a few more billionaires are bailed out by taxpayers – should this happen, well readers may want to close out the trade we called the “The Next Big Short“, namely CMBX 9, whose outlier exposure to hotels which had emerged as the most impacted sector from the pandemic.
Alternatively, those who wish to piggyback on this latest egregious abuse of taxpayer funds, this crucifxion of capitalism and latest glorification of moral hazard, and make some cash in the process should do the opposite of the “Next Big Short” and buy up the BBB- (or any other deeply impaired) tranche of the CMBX Series 9, which will quickly soar to par if this bailout is ever voted through.
While the Federal Reserve and the Trump administration plow trillions of dollars into corporate America, buying investment-grade bonds and rocketing the stock market to new highs, there’s a much different story playing out of economic hardships for the everyday American.
There’s a massive pullback by credit card issuers at the moment, reducing credit limits and canceling accounts of consumers.
CompareCards’ new survey shows the economic fallout from the virus-induced recession is far from over. About 25% of Americans with credit cards had an account involuntarily canceled between mid-May to mid-July, while 33% said card companies slashed their credit limit.
About 70 million people – more than one-third of credit cardholders – said they involuntarily had a credit limit reduced or a credit card account closed altogether in a 60-day period stretching from mid-May to mid-July.
The report is a clear sign that credit card issuers are still closing cards and reducing credit limits on cardholders in huge numbers, months after an April 2020 CompareCards survey showed that nearly 50 million cardholders had a card closed or credit limit reduced in the first month in which the coronavirus pandemic took hold of the country. – CompareCards
Matt Schulz, the chief industry analyst at CompareCards, told Yahoo Money that “an awful lot of Americans had one of their financial security nets taken out from under them in one of the most difficult economic times in American history.”
The pullback by credit card companies was last seen during the Great Recession when about 16% of cardholders saw limits reduced and accounts involuntarily closed.
“This is, in a lot of ways, a much bigger issue today than it was in the Great Recession,” Schulz said. “It makes sense that banks are taking an even harder line with lending because there’s so much that they don’t know, and they’re so nervous about risk.”
The key takeaway from the survey is that card closures and credit limit reductions continue through summer, even though the Trump administration promotes a ‘rocket ship recovery’ in the economy.
Millennial generation have had the most credit limits slashed and cards closed.
Even folks making over $100,000 have seen limits reduced and cards closed.
Most of the credit limit reductions weren’t huge.
This all suggest that credit card companies don’t trust consumers and are preparing for the next downturn that will pressure households once more. With a fiscal cliff looming, and if the next round of stimulus isn’t passed quickly, another credit crunch for the bottom 90% of Americans could be just ahead.
Freddie Mac reported that the Single-Family serious delinquency rate in June was 2.48%, up from 0.81% in May. Freddie’s rate is up from 0.63% in June 2019.
This is the highest serious delinquency rate since October 2013.
Freddie’s serious delinquency rate peaked in February 2010 at 4.20%.
These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.
With COVID-19, this rate will increase significantly again in July (it takes time since these are mortgages three months or more past due).
Mortgages in forbearance are being counted as delinquent in this monthly report, but they will not be reported to the credit bureaus.
This is very different from the increase in delinquencies following the housing bubble. Lending standards have been fairly solid over the last decade, and most of these homeowners have equity in their homes – and they will be able to restructure their loans once they are employed.
The eviction moratorium expired last Friday nearly four months after the US economy effectively shutdown due to the covid plandemic, and more than 12 million renters – all behind on rent payments because of the virus-induced recession – are now at imminent risk of getting booted to the curb.
This Friday, some 25 million Americans will no longer receive their weekly $600 federal unemployment checks, and the next round of government handouts, currently discussed by Republicans and Democrats, could see benefits slashed from $600 to $200 (or be nothing at all if no deal is reached in Congress). This would crush household finances across middle-class America, resulting in an even higher number of households unable to pay their rent bill in the months ahead.
That said, Trump’s top economic advisor Larry Kudlow, who has religiously pumped stocks with meaningless headlines any time the S&P is even barely in the red, recently said an extension for the eviction moratorium program could be seen. But what if there isn’t one?
In late July, more than 31 million Americans collected unemployment benefits of some form. The economic recovery reversed in late June, as the next crisis among households looms.
“It’s like nothing we’ve ever seen,” said John Pollock, coordinator of the National Coalition for a Civil Right to Counsel.
In 2016, there were 2.3 million evictions, Pollock said.
“There could be that many evictions in August,” he said.
On Sunday, food bank lines reemerged as people’s benefits ran out. The number of jobless Americans is staggering and downright, depressionary, suggesting no labor market recovery this year or next.
With a fiscal cliff unfolding, benefits set to run out, and a rebound in the economy reversing, Household Pulse Data from mid-July outlines an even gloomier rent crisis unfolding.
The analysis is based on Household Pulse Data from mid-July and it found that some states will be hit harder than others. For example, West Virginia is estimated to have the highest share of renter households facing eviction at close to 60%. Tennessee, Minnesota, Mississippi, Florida and Louisiana are all among the states set to be worst impacted with shares at 50% or higher. Elsewhere, Vermont is the state where renters will be at the lowest risk of eviction, though 22% of them will potentially lose their homes over the course of the crisis. – Forbes
Shown below (charted by Statista), here are the states where renters will be pressured the most.
The Trump administration doesn’t have the tools to solve the crisis – fiscal and monetary policy can only delay round two of the economic crash until after the elections. Meanwhile chaos and disagreement on Capitol Hill means that there is still no deal on a rent moratorium extension, which means that the coming weeks could see the largest ever US rent crisis, one which would make 2008 look like child’s play.
(Wolf Richter) There is a lot of discussion about the low levels of inventory for sale, as potential sellers have pulled their homes off the market or are not wanting to list their homes at the moment, waiting for the Pandemic to blow over, or waiting for more certainty or whatever; or their mortgage is now in forbearance and they don’t want to make a move.
These discussions cite buyers who, after being kept out of the housing market for a couple of months due to the lock downs, are now swarming around out there, stumbling all over each other, looking for homes to buy, jostling for position, and engaging in bidding wars with each other.
And then there is the widely reported move to the suburbs, or to small towns, and away from big densely populated cities, by those who have shifted to work-from-home, to work-from-anywhere, which blatantly contradicts some of the other stories of big cities being overrun by buyers engaging in bidding wars.
Those are some of the narratives we’re hearing, and they all make some intuitive sense. But this is not the case everywhere. So we’re going to look at San Francisco, one of the most expensive housing markets in the US, based on weekly data that was compiled by real-estate brokerage Redfin, from local multiple listing service (MLS) and Redfin’s own data, updated at the end of last week.
San Francisco is now flooded with homes for sale. “Active listings” surged to 1,344 homes in the week ended July 5, up 65% from the same week last year, and the highest number since the housing bust, amid a 145% year-over-year surge in “new listings.”
There normally is a seasonal surge in active listings after Labor Day that peaks in late October. But this month, the surge of active listings (1,344) has already blown by those peaks in October, including the multi-year peak of 1,296 in October 2019. This is “pent-up supply” coming on the market at the wrong time of the year when supply normally declines (chart via Redfin):
Redfin’s data doesn’t go back that far. But the 1,344 active listings would be the highest since 2011, during the final stretch of the San Francisco Housing Bust, based on MLS data provided by local real-estate site, SocketSite.
Supply of homes for sales has more than doubled, from 7.8 weeks last year at this time to 16.6 weeks now, at the current rate of sales. Note the spike of supply in May, a function of sales that had collapsed (chart via Redfin).
Homes are being pulled off the market again: 61 homes were delisted, over double the number in the same week last year. The chart below shows the spike in delisted homes that started in mid-March during the early phases of the lock down. It also shows the normal seasonal spike of delistings ahead of the holidays in December – yes, inventory is low because sellers pull their unsold property off the market. But now, with the flood of inventory for sale on the market, the surge in delisted homes has started again (chart via Redfin):
Pending sales lack pent-up demand. Pending sales had collapsed 77% by early April compared to the same time last year, but then started digging out of that trough. In early July, pending sales were still down 8% from last year and now are following the seasonal downtrend and appear to be back on track, just slightly lower.
In terms of the recovery, that was pretty good. But there is no sign of pent-up demand, and the home sales that didn’t happen during the collapse in March, April, and May have not created a surge in deals, and there is no sign of pent-up demand (chart via Redfin).
Buyers now have the largest choice of homes for sale since the Housing Bust nearly a decade ago. And there is no need to engage in bidding wars or other foolishness.
Sellers might be motivated, as they say. Among the sellers might be those who – given the issues of the Pandemic, or future Pandemics – are itching to leave the second most densely populated city in the US, and one of the most expensive, and head to cheaper pastures inland in California, or to other states, or to smaller towns with big price tags along the California coast.
There are lots of anecdotal reporting on these trends, including housing markets that have caught fire in places such as Carmel-by-the-Sea, a beach town on California’s Monterey Peninsula, on Highway 1, about 110 miles south of San Francisco and about 75 miles south of Silicon Valley.
And with work-from-home in place, it might be convenient too. It doesn’t take very long to drive to San Francisco and less long to Silicon Valley for the twice-a-month meeting, especially now, with work-from-home having cleared up some of the previously infernal congestion.
There are all kinds of anecdotal observations and theories people are spinning at the moment, trying to come to grips with the changes underway. But one thing we can now see: The sellers have come out of the woodwork in San Francisco. Just don’t look for the usual thicket of open-house signs on the sidewalk. The process has gone digital and by appointment only.
Briggs & Stratton Corporation, the world’s largest manufacturer of small gasoline engines with headquarters in Wauwatosa, Wisconsin, filed petitions on Monday morning for a court-supervised voluntary reorganization under Chapter 11, along with plans to sell “all the company’s assets” to KPS Capital Partners.
The Fortune 1000 manufacturer of gasoline engines was able to secure a $677.5 million in Debtor-In-Possession (DIP) financing to support operations through reorganization efforts. The Company also said it “entered into a definitive stock and asset purchase agreement with KPS.”
To facilitate the sale process and address its debt obligations, the Company has filed petitions for a court-supervised voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Company has also obtained $677.5 million in DIP financing, with $265 million committed by KPS and the remaining $412.5 from the Company’s existing group of ABL lenders. Following court approval, the DIP facility will ensure that the Company has sufficient liquidity to continue normal operations and to meet its financial obligations during the Chapter 11 process, including the timely payment of employee wages and health benefits, continued servicing of customer orders and shipments, and other obligations.
This process will allow the Company to ensure the viability of its business while providing sufficient liquidity to fully support operations through the closing of the transaction. Briggs & Stratton believes this process will benefit its employees, customers, channel partners, and suppliers, and best positions the Company for long-term success. This filing does not include any of Briggs & Stratton’s international subsidiaries. – Briggs & Stratton’s press release states
Todd Teske, Briggs & Stratton’s CEO, stated the Company faced “challenges” during the virus pandemic that made reorganization “necessary and appropriate” for the survivability of the Company.
“Over the past several months, we have explored multiple options with our advisors to strengthen our financial position and flexibility. The challenges we have faced during the COVID-19 pandemic have made reorganization the difficult but necessary and appropriate path forward to secure our business. It also gives us support to execute on our strategic plans to bring greater value to our customers and channel partners. Throughout this process, Briggs & Stratton products will continue to be produced, distributed, sold and fully backed by our dedicated team,” said Teske.
Briggs & Stratton is the world’s top engine designer and manufacturer for outdoor power equipment, with 85% of the small engines produced in the U.S. The pandemic and resulting virus-induced recession have been brutal for the Company, with declining engine sales, resulting in a reduction in the US workforce.
Financial Times noted, in June, the Company had difficulty refinancing a $175 million bond that matured in September. Sources told FT the Company’s deteriorating position made it impossible to obtain refinancing funds in the bond market.
Add Briggs & Stratton to the list of bankrupted companies as an avalanche of bankruptcies is expected in the second half of the year.
Not surprising whatsoever, Robinhood day traders have panic bought collapsing Briggs & Stratton shares.
The bankruptcy wave is not over, it’s only getting started as the virus-induced recession will be more prolonged than previously thought.
As confirmed by several economic outlets, including Bloomberg, Bank of England governor Andrew Bailey took part in a VTALK with students this past Monday for Speakers for Schools. When the subject of digital currency came up, Bailey said:
We are looking at the question of, should we create a Bank of England digital currency. We’ll go on looking at it, as it does have huge implications on the nature of payments and society. I think in a few years time, we will be heading toward some sort of digital currency.
The digital currency issue will be a very big issue. I hope it is, because that means Covid will be behind us.
Whilst only a short quote, there are several strands to pick up on here.
Firstly, Bailey stating that the BOE are looking into creating a CBDC is not a new revelation.I posted a series of articles in May which looked extensively at a discussion paper published by the bank days before the Covid-19 lock down was enforced. The paper, ‘Central Bank Digital Currency – Opportunities, challenges and design‘, went as far as detailing the possible technological composition of a future CBDC. It was in 2014 when the BOE first began discussing digital currencies in their September quarterly bulletin. Six years on, those discussions have advanced notably.
Consider that this is taking place amidst the Bank for International Settlements ‘Innovation BIS 2025‘ initiative, something which I have regularly written about. This is the ‘hub‘ which brings all leading central banks together in the name of technological innovation.
The RTGS ‘renewal‘ will allow for the bank’s payment system to ‘interface with new payment technologies’, which given the information that the BOE has so far disseminated would likely include distributed ledger technology and blockchain.
For the bank to introduce a CBDC accessible to the public, they will require the reformation of their systems, which is exactly what is happening.
Thirdly, Bailey admits that introducing a CBDC would have ‘huge implications on the nature of payments and society‘. On the payments front, the BOE are pushing the narrative that any CBDC offering would be a ‘complement‘ to cash. It would not, according to them, mean that cash would be withdrawn from circulation. But as I have noted previously, the General Manager of the BIS, Agustin Carstens, made clear in 2019 that in a CBDC world ‘he or she would no longer have the option of paying cash. All purchases would be electronic.‘
The trend of digital payments outstripping cash has been present for several years now. My position is that instead of simply outlawing cash, the state will allow the use of banknotes to fall to the point that the servicing costs of maintaining the cash infrastructure outweigh the amount of cash still in circulation and being used for payment. They will take the gradual approach as opposed to prising cash away from the public. In the end it has the same effect but appears less premeditated. From the perspective of the state, it is much more desirable if people are seen to have made the decision themselves to stop using cash, rather than the state imposing it upon the population.
It was also revealed this week that during the Covid-19 lock down, over 7,000 ATM’s across the UK were closed due to social distancing measures. This represents over 10% of the UK’s ATM network. Some of these ATM’s still remain out of use, particularly at supermarkets and outside certain bank branches. Equally, some of these branches remain closed four months after the lock down was introduced, and those that are open are only allowing in a couple of people at a time.
You will recall the hysteria around the supposed dangers of using cash as Covid-19 was labelled a pandemic. On no scientific basis whatsoever, people have been led to believe that handling cash can transmit the virus. This is primarily why cash withdrawals at ATM’s crashed leading into the lock down by around 50%. This time last year transaction volume was at 50.9 million. Today it is 30.8 million, a 40% drop. From personal experience as a cash office clerk, cash use is now beginning to pick up, but remains well below pre-lockdown levels.
Finally, Bailey commented that he hoped ‘the digital currency issue will be a very big issue‘, because if it was it would mean that ‘Covid will be behind us.‘ A valid question to ask here is why when Covid-19 is ‘behind us‘ should that make the case for a CBDC stronger? The answer lies partly in the growing narrative of life after the pandemic, which plays directly into the World Economic Forum devised ‘Great Reset‘ agenda. Part of the ‘Great Reset‘ includes Blockchain, Financial and Monetary Systems and Digital Economy and New Value Creation.
On first glance, you can see how Covid-19 benefits the drive towards central bank digital currencies.
We are told at every turn that life cannot possibly go back to how it was pre coronavirus, including our relationship with money. Predictably, it did not take global institutions like the BIS long to begin reaffirming the cashless agenda. In April they published a bulletin called, ‘Covid-19, cash, and the future of payments‘ where they stated:
In the context of the current crisis, CBDC would in particular have to be designed allowing for access options for the unbanked and (contact-free) technical interfaces suitable for the whole population. The pandemic may hence put calls for CBDCs into sharper focus, highlighting the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats.
Global planners are seizing on the opportunity that Covid-19 has created. But no one should be deceived into thinking that their prescription for a digital monetary system, with CBDC’s at the center, is only coming to light because of the pandemic. This has been in the works for years.
The banking elites are hoping that once global payment systems have been reformed, CBDC’s will not be far behind.Judging by their own timelines, by 2025 a global network of CBDC’s is a real possibility. The more people that turn away from using cash today, the easier the transition away from tangible assets will prove for those who are angling for it to happen.
A cashless society means no cash. Zero. It doesn’t mean mostly cashless and you can still use a ‘wee bit of cash here & there’. Cashless means fully digital, fully traceable, fully controlled. I think those who support a cashless society aren’t fully aware of what they are asking for. A cashless society means:
* If you are struggling with your mortgage on a particular month, you can’t do an odd job to get you through.
* Your child can’t go & help the local farmer to earn a bit of summer cash.
* No more cash slipped into the hands of a child as a good luck charm or from their grandparent when going on holidays.
* No more money in birthday cards.
* No more piggy banks for your child to collect pocket money & to learn about the value of earning.
* No more cash for a rainy day fund or for that something special you have been putting $20 a week away for.
* No more little jobs on the side because your wages barely cover the bills or put food on the table.
* No more charity collections.
* No more selling bits & pieces from your home that you no longer want/need for a bit of cash in return.
* No more cash gifts from relatives or loved ones.
What a cashless society does guarantee:
* Banks have full control of every single penny you own.
* Every transaction you make is recorded.
* All your movements & actions are traceable.
* Access to your money can be blocked at the click of a button when/if banks need ‘clarification’ from you which will take about 3 weeks, a thousand questions answered & five thousand passwords.
* You will have no choice but to declare & be taxed on every dollar in your possession.
* The government WILL decide what you can & cannot purchase.
* If your transactions are deemed in any way questionable, by those who create the questions, your money will be frozen, ‘for your own good’.
Forget about cash being dirty. Stop being so easily led. Cash has been around for a very, very, very long time & it gives you control over how you trade with the world. It gives you independence. I heard a story where a man supposedly contracted Covid because of a $20 bill he had handled. There is the same chance of Covid being on a card as being on cash. If you cannot see how utterly ridiculous this assumption is then there is little hope.
If you are a customer, pay with cash. If you are a shop owner, remove those ridiculous signs that ask people to pay by card. Cash is a legal tender, it is our right to pay with cash. Banks are making it increasingly difficult to lodge cash & that has nothing to do with a virus, nor has this ‘dirty money’ trend.
Please open your eyes. Please stop believing everything you are being told. Almost every single topic in today’s world is tainted with corruption & hidden agendas.
Pay with cash & please say no to a cashless society while you still have the choice.
(Reuters) – Wells Fargo & Co (WFC.N) said on Thursday it has hired Flagstar Bank’s Kristy Fercho to run its mortgage division following the retirement of 23-year veteran Michael DeVito from the company.
Fercho will oversee home lending operations of the largest mortgage lender in the United States during a time of uncertainty in the industry. She had run Flagstar’s mortgage business for the past three years.
Wells Fargo has pared back some mortgage offerings and raised requirements for certain kinds of loans during the coronavirus-fueled economic downturn. As of last month, the bank had received forbearance requests for roughly 13% of its mortgage balances, it has said.
Since taking over as chief executive late last year, Charles Scharf has shaken up leadership at the bank and installed a slew of former colleagues in top positions. In the wake of racial tensions across the United States, Scharf has also pledged to diversify the bank’s leadership team.
“She has been an inspiring and vocal leader across the mortgage industry while driving transformational growth at Flagstar,” said Mike Weinbach, new CEO of Consumer Lending at Wells Fargo, referring to Fercho, who is Black.
DeVito, who ran the mortgage division for two years, will retire later this summer.
(Reuters) – Private credit firms are requiring their borrowers maintain a strong liquidity cushion as the coronavirus pandemic forces middle market companies to wrestle with spiking leverage levels and falling profits.
These investors, also known as alternative lenders, are amending existing deals to put minimum liquidity covenants in credit agreements, provisions that require businesses to have a certain amount of cash on hand, as a way to safeguard their investments, according to several private credit sources.
The covenant measures the amount of money a company needs to run its business and meet its financial obligations. The provision has increased in usage since the onset of the health crisis. Companies, reckoning with dwindling profit margins – often measured as earnings before interest, taxes, depreciation and amortization (Ebtida) – are seeking relief from tests in their credit agreements, noted law firm Ropes & Gray.
As Ebitda falls, leverage can rise, making a borrower more likely to trip covenants, which are provisions to help keep the borrower on the financial straight and narrow.
“A liquidity covenant is a good yardstick for measuring the financial health of a distressed or stressed borrower,” said Gary Creem, a partner at law firm Proskauer. “It provides downside protection for a lender by serving as an early warning sign of further financial trouble while providing a borrower with flexibility to recover from a temporary period of financial difficulty.”
Private credit behemoth Ares Management in April and Teligent agreed to include a minimum liquidity provision in the pharmaceutical company’s borrowing documents. Ares is a lender on a first-lien revolving credit facility and a second-lien loan, according to credit agreement amendments submitted to the Securities and Exchange Commission (SEC).
The Buena, New Jersey-based borrower, which markets US Food and Drug Administration-approved injectable medicines and topical products, must now operate within a liquidity range of US$4m-US$10m. A total net leverage covenant was also eliminated, the SEC filings show. Doing so allows Teligent to focus on cash management.
Getting rid of a leverage covenant gives the borrower a reprieve from concerns about the level of its Ebitda, so the company can focus on other aspects of its financial health. Spokespeople for Ares and Teligent declined to comment.
Exela Technologies is another company that was forced to add minimum liquidity covenants to its borrowings, SEC filings show. In May, the company amended its first-lien credit agreement, initially hammered out in July 2017, to require a minimum liquidity of US$35m, according to an SEC disclosure.
Business development companies (BDC) Garrison Capital and Investcorp Credit Management BDC are lenders to the business process automation company, according to Refinitiv LPC BDC Collateral. Representatives for the firms did not respond to emails requesting comment.
Exela lined up a five-year US$160m accounts receivable (A/R) securitization facility with BDC Sixth Street Specialty Lending in January, Shrikant Sortur, the company’s chief financial officer, said in an email, noting the company also completed a US$40m asset sale in the first half of the year.
The A/R facility requires that Exela have minimum liquidity of US$40m. He said the company has been “almost exclusively focused on liquidity” since November and has plans this year to complete additional asset sales of between US$110m and US$160m.
A spokesperson from Sixth Street declined to comment. ALL ROADS TO ROME
Borrowers can arrive at the minimum liquidity amount in several ways.
The US dollar amount needed is often derived from updated financial models provided to lenders by company management or the borrower’s private equity owner. It can be measured by cash on hand or borrowing availability under the company’s revolver.
Healthcare borrowers have used liquidity covenants where they have been impacted by stay-at-home orders and the cancellation of elective procedures, Creem said. The travel and retail sectors, among other spaces, use liquidity covenants in connection with restructuring procedures.
When lenders have tried to calculate a borrower’s Ebitda, they have used different methodologies, according to Rob Wedinger, a vice president at investment bank Houlihan Lokey.
Some private debt managers are drawing up a “deemed Ebitda,” a proxy for the profit level of the borrower had the coronavirus pandemic not occurred, he said. But others are avoiding that exercise altogether.
“Some people don’t want to spend time and energy to quantify the Ebitda covenant because it will require a revenue adjustment,” Wedinger said. “If you just look at minimum liquidity, you take Ebitda out of the equation. Every conversation has ended up around liquidity.”
Demand for gold delivery is exploding, and that is a big reason for the upward price pressure. What about silver? Why is it lagging behind gold? It takes nearly 100 ounces of silver to equal 1 ounce of gold today. That ratio is going to start coming down dramatically. Financial writer and precious metals expert Craig Hemke explains why, “JP Morgan has been accumulating all this silver and shorting against it as a hedge, managing the price and monopolistically controlling it. Now, the COMEX is a delivery vehicle, and people were standing for delivery. JP Morgan was short nearly 6,000 contracts (of silver) on delivery day, and JP Morgan had to deliver (29 million ounces of physical silver). In doing so, they have now reduced their stockpile down to 120 million ounces of physical silver… Now, JP Morgan is left with a dilemma. They can continue to play this game of shorting or hedging … and run the risk of losing another 8,000 to 10,000 contracts (at 5,000 ounces per contract) and see that stockpile of physical silver get cut again. Or, they can stand down and stop shorting. Either way, they are in a jam… If they keep shorting while there is increasing demand for delivery, they are going to lose it all, and once they lose it all, they won’t be able to issue anymore contracts. This is going to allow the price (of silver) to go up. If they simply stop shorting, once again, the price of silver goes up… JP Morgan may not have a choice but to stand down… The demand is going to continue to grow… JP Morgan will make $120 million for every $1 silver goes up… I think they have to stop interfering with the market. When JP Morgan stops shorting silver, you are going to get the change to the question of why is silver not going up?” Hemke says there will come a time in the markets when there will be no sellers of physical gold or silver. Then, Hemke says the price will skyrocket. Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Craig Hemke of TFMetalsReport.com.
The virus pandemic and social unrest have sparked an exodus of city dwellers to rural communities and towns. Remote access for work, and the recession, coupled with high unemployment, will extend this outbound emigration trend for the next several years as people seek cheaper living accommodations ex-metro areas.
It appears the factors mentioned above have dealt a heavy blow to the Manhattan real estate market, which suggests a correction in apartment prices are ahead.
Manhattan apartment sales plunged 54% in 2Q20 compared with the same period last year, marking the most significant decline in 30-years, according to Miller Samuel and Douglas Elliman. The median sales price fell 18% to $1 million, the largest decline in a decade. According to real estate firm Compass, there were only 1,147 sales in the quarter, the lowest on record, due mostly because of coronavirus lock vdowns barred agents from showing apartments until June 22.
“Manhattan was effectively shut down throughout the second quarter until the final week,” the report said.
“Agents are going nonstop right now,” said Bess Freedman, CEO of Brown Harris Stevens, told CNBC.
“Sellers can’t be married to pre-pandemic prices,” Freedman said. “Everyone needs to be reasonable and fair about the new environment.”
“There is going to be an incredible supply of rentals,” he said. “We are going to see a lot of negotiating and landlord incentives.”
The latest indicator that the Manhattan real estate market is turning could be the number of signed contracts in June, were down 76%, compared with the same time last year.
Further, an entire floor apartment at the “coveted” One57 building, one of the flagships of billionaire’s, aka bagholder’s row, just sold for $28 million about six years after it was initially purchased for $47.4 million.
It marks a 41% discount for the luxury apartment in the span of about a half-decade. The plunge in prices would be the most significant discount to date at the building.
If readers aren’t familiar with the current exodus trends ex-cities – here’s the latest:
To sum up, if you haven’t considered leaving a major city because its unaffordable – now might be the time, due mostly because a correction in housing prices is likely underway.
Massive Shifts Underway, Rental Market Reacts in Near-Real Time: Rents Plunge in San Francisco & Oil Patch, Drop in Expensive Cities. But Long List of Double-Digit Gainers
There are now at least three factors that have plowed into the US housing market – and the rental market is reacting in near-real time to them: The unicorn-startup bust that began last year and built up into a crescendo this year; the Pandemic-inspired move to work-from-home; and the oil-and-gas bust that took on special vigor this spring when crude oil prices totally collapsed.
People are bailing out of some places and moving elsewhere. In the most expensive cities, rents are dropping, but in other cities – a lot of them – rents are skyrocketing by the double-digits.
Crazy-overpriced San Francisco rents.
Rents in San Francisco plunged more than in any other major market in June. This is still the most expensive city to rent in, though there are a few zip codes in Manhattan and in Los Angeles where rents are more expensive than in the most expensive zip code in San Francisco. But it got less expensive in June.
In June, the median asking rent for a one-bedroom apartment dropped 2.4% from May, to $3,280, down 11.8% from June last year, which made the city the fastest-dropping rental market in the US.
The median asking rent for two-bedroom apartments in June fell 1.8% from May to $4,340 and was down 9.6% year-over-year.
The still crazy-overpriced San Francisco market – it’s called the “Housing Crisis” locally – had hit a ceiling in October 2015, with the median asking rent for a 1-BR apartment at $3,670 and for a 2-BR at $5,000. Then rents declined by close to 10% into 2017 before picking up again. While 1-BR rents eked out a new record in June last year (by $50), 2-BR rents never got close to their October 2015 record and are now 13.2% below it.
These are median asking rents. “Median” means half the asking rents are higher, and half are lower. “Asking rent” is the advertised rent. This is a measure of the current market in near-real time, like the price tag in a store that can be changed from day to day to attract shoppers, depending on market conditions. Asking rent is not a measure of what tenants are currently paying on their existing leases or under rent-control programs.
A sea of red in the 17 most expensive rental markets.
The table below shows the 17 most expensive major rental markets by median asking rents. The shaded area shows their respective peaks and changes from those peaks. Almost all of them have declined from their peaks – with eight of them by the double digits, led by Chicago and Honolulu, where rents have gotten crushed since their respective peaks in 2015.
Seattle is now solidly on the list of double-digit decliners, booking the third largest decline-from-peak in 2-BR rents (-15.1%), behind Chicago and Honolulu, and the ninth largest in 1-BR rents (-9.5%).
Denver, not long ago one of the hottest rental markets in the US, has frozen over, with declines-from-peak in the -10% range.
The rents we’re discussing here are for apartments in apartment buildings, including new construction. Not included are rents for single-family houses, condos for rent, rooms, efficiency apartments, and apartments with three or more bedrooms. The data is collected by Zumper from over 1 million active listings, including Multiple Listings Service (MLS) in the 100 largest markets.
The Cities with the biggest %-declines in 1-BR rents.
The table below shows the 31 cities with the largest year-over-year rent declines in June for 1-BR apartments, with San Francisco at the top, followed by Syracuse, NY, a college town now under siege from the Pandemic. Denver, with a 10% year-over-year decline, rounds out the double-digit decliners.
Then there are a bunch of cities in the Texas-Oklahoma-Louisiana oil-patch on this list, including Tulsa and Houston in 5th and 6th place. There are eight cities in Texas on this list. Louisiana is represented by New Orleans (#18) and Baton Rouge (#31).
The oil patch is in serious trouble. The oil bust started in mid-2014, when the price of crude oil grade WTI began its long decline from $100-plus per barrel to a low of $26 a barrel in early 2016. Then the price began to recover but never made it back to levels where the shale oil industry can survive long-term.
In January this year, WTI started heading lower again, and this April hit a new low, when in some places the price at the wellhead dropped to zero and when WTI futures briefly collapsed below zero for the first time ever.
Hundreds of oil-and-gas drillers have filed for bankruptcy over the past three years, and the speed and magnitude of those bankruptcy filings is picking up, with one of the biggies, Chesapeake, which is based in Oklahoma City, filing for bankruptcy on Sunday.
Houston is the center of the US oil patch, and despite its vast and diversified economy, the city has gotten slammed by the oil-and-gas bust in various ways, including by the highest office vacancy rates in the US, now at a catastrophic 24.5%.
Also on this list are Silicon Valley (San Jose), Southern California (Los Angeles, Anaheim, Santa Ana), and three markets in Florida, among others.
Biggest Declines, in %
1 BR Rent
Y/Y %
1
San Francisco, CA
$3,280
-11.8%
2
Syracuse, NY
$860
-11.3%
3
Denver, CO
$1,440
-10.0%
4
Irving, TX
$1,080
-9.2%
5
Tulsa, OK
$590
-9.2%
6
Houston, TX
$1,100
-9.1%
7
Madison, WI
$1,080
-8.5%
8
Aurora, CO
$1,090
-8.4%
9
San Jose, CA
$2,300
-8.0%
10
Orlando, FL
$1,220
-6.9%
11
Durham, NC
$1,040
-6.3%
12
Laredo, TX
$780
-6.0%
13
Anaheim, CA
$1,600
-5.9%
14
Jacksonville, FL
$900
-5.3%
15
Charlotte, NC
$1,200
-4.8%
16
Fort Worth, TX
$1,100
-4.3%
17
Los Angeles, CA
$2,150
-3.6%
18
New Orleans, LA
$1,380
-3.5%
19
Santa Ana, CA
$1,720
-3.4%
20
Seattle, WA
$1,800
-2.7%
21
Plano, TX
$1,130
-2.6%
22
Tampa, FL
$1,150
-2.5%
23
Corpus Christi, TX
$830
-2.4%
24
Louisville, KY
$860
-2.3%
25
San Antonio, TX
$880
-2.2%
26
Salt Lake City, UT
$1,050
-1.9%
27
Raleigh, NC
$1,020
-1.9%
28
New York, NY
$2,890
-1.7%
29
Boston, MA
$2,410
-1.6%
30
Dallas, TX
$1,230
-1.6%
31
Baton Rouge, LA
$820
-1.2%
The Cities with biggest %-increases in 1-BR rents.
OK, get ready. Among the 100 largest rental markets are 9 cities where rents skyrocketed by over 15% year-over-year in June. And except for Philadelphia, all of them sport median asking rents for 1-BR apartments that are well below the national median ($1,229 according to Zumper). Meaning these cities with these huge rent increases are still deep in the lower half of the rental spectrum. In total, there are 20 cities with double-digit rent increases:
Biggest Increases, in %
1 BR Rent
Y/Y %
1
Cleveland, OH
$940
16.0%
2
Indianapolis, IN
$870
16.0%
3
Columbus, OH
$810
15.7%
4
Rochester, NY
$970
15.5%
5
Chattanooga, TN
$900
15.4%
6
Cincinnati, OH
$900
15.4%
7
Philadelphia, PA
$1,510
15.3%
8
St Louis, MO
$910
15.2%
9
Norfolk, VA
$920
15.0%
10
Lincoln, NE
$770
14.9%
11
Newark, NJ
$1,320
14.8%
12
Des Moines, IA
$930
14.8%
13
Detroit, MI
$700
14.8%
14
Wichita, KS
$700
14.8%
15
Bakersfield, CA
$840
13.5%
16
Reno, NV
$1,030
13.2%
17
Baltimore, MD
$1,320
11.9%
18
St Petersburg, FL
$1,230
11.8%
19
Akron, OH
$610
10.9%
20
Boise, ID
$1,060
10.4%
21
Tucson, AZ
$700
9.4%
22
Buffalo, NY
$1,080
9.1%
23
Chesapeake, VA
$1,080
9.1%
24
Fresno, CA
$1,090
9.0%
25
Nashville, TN
$1,340
8.9%
26
Memphis, TN
$790
8.2%
27
Sacramento, CA
$1,360
7.9%
28
Colorado Springs, CO
$990
7.6%
29
Arlington, TX
$880
7.3%
30
Albuquerque, NM
$750
7.1%
31
Gilbert, AZ
$1,280
6.7%
Among the top 100 cities, 59 cities experienced year-over-year increases in the median asking rent in June. In eight cities, there was no change in rents. And in 33 cities, asking rents declined, including in many of the largest cities in the US.
The top 100 rental markets, from most expensive to least expensive.
The list goes from San Francisco to Tulsa, with asking rents for 1-BR and 2-BR apartments, in order of 1-BR rents, from $3,280 in San Francisco (-11.8%) to $590 in Tulsa (-9.2%).
These rents that are dropping in some markets and surging in others show two things:
Rental markets are local, and the median national rent is irrelevant at the local level.
Big shifts are underway in housing, and the rental market is pointing out the weaknesses in demand where it exists in near-real time.
Markets where rents are increasing 10% or 15% a year are asking for trouble unless they have a booming job market with surging wages – this was the case in San Francisco, Seattle, and other hot markets. But if they don’t have surging wages, many renters, who are already tapped out, will run out of money. And it’s renters that keep the show going.
You can search the list list via the search box in your browser. If your smartphone clips this 6-column table on the right, hold your device in landscape position:
The economic realities that a V-shaped recovery is not possible in the back half of 2020 are being realized in Baltimore’s downtown area.
Downtown Baltimore Skyline
The Downtown Partnership of Baltimore (DPOB) published its annual State of the Downtown report on Tuesday and there are new concerns the COVID-19-induced recession from quarantining healthy people for the first time in history will have long-lasting impacts.
Downtown Baltimore
“The areas that were impacted, as you can imagine more significantly tourism, restaurants, some of our cultural institutions… and those are the ones that we really have to rally behind now,” DPOB President Shelonda Stokes told WJZ Baltimore.
DPOB conducted two surveys in mid-March, just around the time, Maryland Gov. Larry Hogan initiated virus-related lock downs. Out of 150 respondents, DPOB said strict public health orders heavily impacted at least 94% of the businesses in the downtown district. About 29% of respondents said it would take upwards of three months to recover.
The survey found hospitality and restaurant/food service industries were the most impacted. It said restaurants, hotels, and retail shopping stand to lose billions of dollars. Nevertheless, DPOB claims COVID-19 has directly and indirectly impacted 46,000 jobs.
“We’re at a place that you could see even from the consumer sentiment survey that we’re still fearful. We’re cautiously re-entering, we’ve been comfortable in our homes, we’ve figured out how to work from home and be effective,” Stokes said.
Baltimore City is facing a double whammy – it’s not just the virus that has deterred people from traveling to the Inner Harbor area – but also crime across the city is out of control. On a per-capita basis, the city is one of the most dangerous in the country. Readers may recall our countless articles on the socio-economic implosion of Baltimore, starting years before the pandemic.
“Any level of violent crime in unacceptable,” said Councilman Eric Costello.
DPOB is confident some businesses may not survive the virus-induced economic downturn and urged residents to support local businesses in this time of crisis.
Businesses, and to be specific, small businesses, and the bottom 90% of Americans, have been devastated in the last couple of months.
Days ago, readers may recall we noted a quarter of all personal income in the US now comes from the government – this shows how reliant the population has become on the government, or should we say socialist Trump checks.
Twitter handle Long View pointed out last week that “Retail sales bounced back like a rubber band because of stimulus (Trump checks, PPP, UE bonus). It’s all over in a few weeks & with the new uptick we likely see at least 6 more weeks of contraction with no plug. The real hit starts now.”
Knowing the backdrop of consumers, as to how they’re very reliant on Trump checks for consumption, there can be no V-shaped recovery this year – nevertheless, commercial shopping districts like the one in Baltimore – will remain depressed for the foreseeable future which will result in a period of high unemployment.
All of this comes at the worst possible time for Baltimore as the population crashes to a 100-year low – the tax base is collapsing as folks are quickly exiting the city for the suburbs. Coronavirus has exposed just how fragile the economy, society, and municipalities really are, which suggests the worst of the crisis is ahead.
Readers may recall, as early as March, city dwellers in California fled to suburbs and remote areas to isolate from the virus pandemic. The proliferation of remote work arrangements has led this shift to become more permanent.
At first, the exodus out of the city was due to virus-related lock downs, then social unrest, and now it appears a steady flow of folks are leaving the San Francisco Bay Area for rural communities as their flexible work environment (i.e., remote access) allows them to work from anywhere, more specifically, outside city centers where the cost of living is a whole lot cheaper.
Bloomberg notes, citing a new report from rental website Zumper, the latest emigration trend out of the Bay Area has resulted in rents for a San Francisco one-bedroom apartment to plunge 12% in June compared with last year, which is one of the most significant monthly declines on record.
“Zumper has been tracking rent prices across the country for over five years but we have never seen the market fluctuate quite like this,” Zumper co-founder and CEO Anthemos Georgiades said. “For example, rent prices in San Francisco have historically only gone up and typically only incrementally, yet now we are seeing double-digit percent rent reductions. This is unprecedented for this generation of renters.”
Georgiades said the ability to work remotely led to the exodus of city dwellers:
“The very real move of many mainly technology employers to a future of remote work, meaning millions of employees now looking outside of dense metropolitan areas for their next home now that their commute time is no longer a factor,” Georgiades said.
“Silicon Valley hubs such as Mountain View and Palo Alto also saw rents plunge — a sign residents of the tech-heavy region are taking advantage of remote work arrangements to flee to cheaper areas,” Bloomberg said.
“This is the strangest downturn I’ve ever seen,” J.J. Panzer with the Real Management Company told San Francisco KPIX 5.
Rental inventory in the Bay Area has increased since the pandemic began – allowing renters to renegotiate leases and ask for a 10-15% reduction in rents.
Other factors for the steep drop in rents is mainly because of the recession and high unemployment. People can no longer afford pricey rentals in San Francisco – must leave city centers for suburbs where rents are significantly less.
“As the pandemic persists on, the demand for rentals has continued to shift away from these pricey areas, and a significant amount of that demand seems to be moving toward neighboring, less expensive areas,” Zumper said on its blog.
“Your landlord, given the widespread nature of the job loss, actually does have an incentive to negotiate a lower rent with you,” said senior Zillow economist Skyler Olsen.
“Vacant units have no value coming upstream to pay their property taxes and their mortgage and that value as part of the system,” said Olsen.
Financial blog Market Crumbs notes, “with the rise of remote work seemingly inevitable at this point, this trend should continue in San Francisco as well as other major cities in the years to come.”
How are 19.29 million workers receiving unemployment insurance when they tell us 17.75 million are unemployed?
It’s official: “data” released from the Bureau of Labor Statistics has just crossed the streams and has given birth to the Stay Puft marshmallow man jumping the shark. Alas, it also means that jobs “data” is now completely meaningless.
For all the analysis of today’s job report, is it good, is it bad, is this data series too hot, and does it mean that the Fed will soon be forced to hike, we have just one response. None of it matters.
Why? Because a simple sanity check reveals that as of this moment the jobs report no longer makes logical sense.
Consider the continuing jobless claims time series, also also referred to as “insured unemployment”, and represents the number of people who have already filed an initial claim and who have experienced a week of unemployment and then filed a continued claim to claim benefits for that week of unemployment.
By its very definition, insured unemployment is a subset of all Americans who are unemployed. In a Venn diagram, the Continuing Claims circle would fit entirely inside the “Unemployed” circle, which also includes Initial Claims, Continuing Claims, and countless other unemployed Americans who are no longer eligible for any benefits.
Alas, as of this moment, the definitionally smaller circle is bigger than “bigger” one, and as the DOL reported today, there were 19.29 million workers receiving unemployment insurance. And yet, somehow, at the same time the BLS also represented that the total number of unemployed workers is, drumroll, 17.75 million.
If you said this makes no sense, and pointed out that the unemployment insurance number has to be smaller than the total unemployed number, then you are right. And indeed, for 50 years of data, that was precisely the case.
And yes, there is a “forced” explanation to justify how this may actually happen in the current situation where everyone is abusing jobless benefits, but in theory this should not be happening, and we fully expect that in the coming weeks, the already highly politicized BLS will quietly close this gap.
ZeroHedge recently penned a piece on a developing nationwide coin shortage sparked by the virus pandemic. As a result of the shortage, at least one major supermarket chain has removed the ability to pay in cash at self-scan checkout machines.
Meijer Inc., a supermarket chain based in the Midwest, with corporate headquarters in Walker, Michigan, announced last Friday, that self-scan checkout machines at 250 supercenters would only accept credit or debit cards, SNAP and EBT cards, and gift.
“While we understand this effort may be frustrating to some customers,” spokesman Frank Guglielmi told ABC12 News Team. “It’s necessary to manage the impact of the coin shortage on our stores.”
Fed Chair Powell admitted to lawmakers last week that The Fed has been rationing coins as the circulation of coins across the US economy ground to a halt due to the pandemic.
“What’s happened is that with the partial closure of the economy, the flow of coins through the economy … it’s kind of stopped,” Powell told lawmakers.
He said the shortage was due to the mass business closures that prevented people from spending their coins, as well as a lack of places that are open where people can trade coins for paper bills.
“We’ve been aware of it, we’re working with the Mint to increase supply, we’re working with the reserve banks to get the supply to where it needs to be,” Powell said, adding he expected the problem to be temporary.
Americans Googling “coin shortage” started to erupt in the back half of June and has since hit a record high. Mainly people in Midwest states are searching for the search term.
Google search “coin shortage” shows the issue isn’t limited to Meijer stores but is widespread.
Social media users report the shortage is happening at many big-box retailers.
(Chris Martenson) As you may know, I was one of the very first voices publicly reporting on Covid-19, issuing an alert that the virus was a significant pandemic event on Jan 23rd, 2020.
This was long before most media outlets even managed to write their first “It’s just the flu, bro!” article.
Using the same logic and scientific methodology I was trained in as a PhD, I was able to “predict” things well in advance of nearly every official or mainstream news source.
I’m using quotation marks around the word “predict” because it’s not really a prediction when you’re just extrapolating trends that are already underway.
Just as it’s not really a “prediction” to estimate where a thrown pitch will travel, it wasn’t much of a prediction to state that a novel virus with an R-Naught (R0) of well over 3 would be extremely difficult to contain once it arrived in a country. Note that I didn’t say impossible — South Korea, Australia, New Zealand, Thailand, Taiwan and Vietnam all get high marks for containment — but certainly difficult.
The US and the UK proved this in spades, as they’re both led by below-average ‘managers’ rather than leaders.
Leaders make tough decisions based on imperfect information. Managers dither and hedge and only make up their minds after the facts are already in and events well underway. Naturally, the US/UK managers were simply no match for the exponential rate that the Honey Badger Virus (aka Covid-19) spreads at.
I call it the Honey Badger virus because of its incredible ability to evade quarantine, as eagerly and easily as Stoffle, as seen in this short enjoyable video:
Such a determined foe as Covid-19 cannot be reasoned with, halted by decree or – much to the puzzlement of the central banks – resolved by printing more thin-air money.
It simply operates by natural laws and rules. Which, by the way, makes it rather easy to predict.
Much more difficult to predict, though, is when we humans will truly wake up to our true plight and begin making better decisions. And I’m not just talking about the coronavirus here. I’m talking about the dangerous levels of social inequity that the Federal Reserve is responsible for creating, both pre- and post-covid-19.
Given the enormous difficulty in getting whole swaths of the managerial and retail classes to grasp such simple and obvious logic as “Everyone should wear a mask!”, it seems thoroughly unrealistic to expect these same folks to thoughtfully tackle the hazards of runaway monetary and fiscal policy.
But they really need to.
Why?
Because the current monetary and fiscal trajectory society is on has been well-trod throughout history. We know where it ends — no place we want to be.
Commerce gets destroyed. Households fail. Government and social order fall apart. Fairness and freedoms are lost as it becomes difficult to distinguish between official policies and overt looting.
Real leaders know this history and would both think and act differently in order to avoid the worst risks. But managers? They just keep operating from the same manual, mindlessly repeating the same steps while hoping for a different result.
The Fed’s Dangerous Gamble
I’ve referred to the Federal Reserve as a bunch of psychopaths engaging in cultural vandalism. This is unfair to both psychopaths and vandals.
After all, the most ambitious of them don’t victimize more than several dozen in their lifetime. Maybe a few hundred, tops.
But the Fed? It’s ruining hundreds of millions of lives and livelihoods — both today and in the future.
Sadly, the Federal Reserve has been doing this — unchecked — for a very long time. Here’s a snippet I wrote for MarketWatch.com 6 years ago. Every word remains as true today as it was then:
The academic name for the Fed’s current policy is financial repression. But a more apt name would be “Throw granny under the bus,” because the program boils down to taking from savers and fixed-income recipients and transferring that purchasing power to other entities.
The cornerstone element of financial repression is negative real interest rates, of which the Federal Reserve is the prime architect and owner.
From the start of the Fed’s post-crisis intervention through 2013, the total cost of these negative real interest rates was over $750 billion just to savers alone. The loss of income to fixed-income investments (such as bonds held in pensions and money markets) was even larger.
But here’s the rub. That loss of income and purchasing power didn’t just vanish. It was transferred from pocket A to pocket B.
It magically appeared again in record Wall Street banking bonuses, in shrinking government deficits (due to lower than normal interest rates), in rising corporate profits (mainly benefiting the already rich), in record stock buybacks (ditto), and in rising wealth inequality.
More directly, when the Fed buys financial assets with printed money and — by definition — drives up the price of those assets, it cannot then act mystified why the main owners of financial assets have grown wealthier. Doing so simply insults our intelligence.
Federal Reserve Chair Alan Greenspan, then Ben Bernanke, then Janet Yellen, and now Jay Powell have all operated as mere managers (not leaders) choosing predictably safe plays from the Federal Reserve cookbook. It prescribes a gruel-thin routine of actions the main ingredient of which is printing currency out of thin air.
Each Fed Chairman has dutifully cooked up unhealthy dishes seasoned with hefty amounts of social corrosion, structural unfairness, elitism, and without even a whiff of historical context.
With no leadership on display and cheered on by a compliant press unable to formulate a single critical question, the Fed is now too deep into its cookbook to do anything besides see the process out to its inevitable conclusion.
The Fed has long pretended to be mystified by the rising inequality its policies are obviously causing. Jerome Powell recently and (in)famously declared during Q&A after a speech that the Fed “absolutely does not” contribute to inequality. That bold-faced lie is infuriating to those who realize just how socially and culturally unfair and damaging the Fed’s actions really are.
When things become too unfair, people stop participating. If laws are too one-sided and rigged, people stop following them. If new hires receive a higher salary for equivalent work, the veteran employees stop working as hard. If students know that their classmates are cheating and getting good grades, they’ll begin to cheat, too.
It’s just how we’re wired. An aversion to unfairness is in our social DNA.
Peak Prosperity readers know I’m a huge fan of this short video. It explains everything about the rising tide of social rebellion in America (and features cute monkeys, to boot!):
By unfairly accelerating the wealth gap between the top 1% and everyone else, the Fed is playing with fire. Seemingly with the same level of ignorance to the consequences as a chimpanzee with a magnifying glass on a tinder-dry savanna.
Money is our social contract.
When that contract is broken, that’s when things really go south for a nation. Zimbabwe, the Wiemar Republic, Venezuela and Argentina are all past (and some current again, sadly) examples of just how badly the standard of living can plummet when a nation’s money system breaks down.
The Inevitable
I cannot predict when all this breaks down as easily as I can predict that it will break down. A balance must always be maintained between money, which is a claim on things, and the things themselves. Too many claims and we get inflation. Too few and we get deflation.
The Fed and the other world central banks have always (always!) erred on the side of “too many claims” in this story. When in doubt, they print more currency.
And that process is now on hyperdrive. The post-Covid economy is in a very bad state, and so the money printing at the heart of the “rescue” efforts by the central banks is the biggest ever in history. By a long shot.
So claims go up and up and up, while the economy shrinks. Leaving us with a LOT more money chasing a LOT less “stuff”.
This also applies to financial assets, like stocks and bonds. Printing makes the markets go higher in price and makes investors increasingly dependent on more money printing to support these prices. Eventually, like the era we’re in now, the Fed must keep injecting liquidity on a permanent basis or else the markets will immediately crash.
So, the money printing just keeps happening.
And as a side benefit, those closest to the Fed get stupendously rich from all that fresh money flooding into the world. These are the same Wall Street firms who hire Fed staffers at the end of their tenure there, thanking them with plush jobs that have little responsibility and huge salary.
But, out in real America, there are hundreds of millions of us angry monkeys watching the Fed stuff grapes into the already full bellies of the elites. Eventually wide-scale pushback against the Fed’s injustice will erupt. Protests will increase in size and become more violent. The police will realize that they’re protecting the wrong people and switch sides. Then things will get really messy.
My strong preference in life is to avoid unnecessary pain and suffering. Why wait for the Fed to ruin everything for us? I’d prefer we get pro-active here to avoid a full-blown crisis. If don’t we’ll be forced to repeat history, whether we want to or not.
Sadly, repeating history and preserving the status quo is exactly what the national managers in the US are intent on doing. Most of the public still thinks of the Fed as the hero in this story instead of the villain it truly is, and so too much of the populace cheers the Fed along. The EU and the UK are more or less in the same boat.
All of which means that, just as I warned people to prepare for the Covid-19 pandemic before it hit with full force, you need to prepare now for the coming Fed-created economic/social crisis.
In Part 2: Into The Light: 8 Steps For Surviving What’s Coming, in attempt to be as informative as possible, I share a tremendous volume of the critical data points I’m currently closely monitoring to determine where we are on the timeline to crisis and what’s most likely to happen next. I then provide my eight recommended steps for protecting your wealth, loved ones, and property through the challenges to come.
Posted last day of Q2-Jun 30, 2020 by Martin Armstrong
COMMENT: Facing a vicious circle of conflicting demands and priorities, the California Public Employees Retirement System is turning to debt – a risky scheme to borrow billions of dollars in hopes of juicing its investment returns.
The California Public Employees Retirement System, the nation’s largest pension trust, benefited greatly from the run up in stocks and other investments during the last few years, topping $400 billion early this year.
CalPERS needed it because it was still reeling from a $100 billion decline in its investment portfolio during the previous decade’s Great Recession and was tapping state and local governments for ever-increasing, mandatory “contributions” to keep pensions flowing and reduce its immense “unfunded liability.” But it faced a backlash from local officials who said vital services were being cut to make their CalPERS payments.
Just when CalPERS appeared to be climbing out of its hole, the COVID-19 pandemic erupted early this year, sending the economy into a tailspin. Virtually overnight, the fund saw its value take a $69 billion hit as the stock market — CalPERS’ biggest investment sector — tanked. Stocks have since recovered, but CalPERS is still down about $13 billion from its high early this year.
Further investment erosions would, almost automatically, trigger even greater CalPERS demands for contributions from government employers, but the recession is also eating into their tax revenues, creating substantial budget deficits.
It underscores CalPERS’ vulnerability to capital market gyrations. Investments more immune to fluctuations would be safer but they offer very low returns and CalPERS could not safely meet its lofty earnings goal — an average of 7% a year.
It’s a vicious circle of conflicting demands and priorities, driven by an official policy of providing generous, inflation-adjusted pensions for government workers, bolstered by the political clout of public employee unions.
CalPERS desperately needs an escape route and has chosen the perilous path of debt.
It plans to borrow billions of dollars — as much as $80 billion — to fatten its investment portfolio in fingers-crossed hopes that earnings gains will outstrip borrowing costs. It mirrors the recent and risky practice of local governments borrowing heavily to pay their pension bills via “pension obligation bonds.”
“More assets refers to a plan to use leverage, or borrowing, to increase the base of the assets generating returns in the portfolio,” the system’s chief investment officer, Ben Meng, wrote in the Wall Street Journal recently. “Leverage allows CalPERS to take advantage of low-interest rates by borrowing and using those funds to acquire assets with potentially higher returns.”
What could possibly go wrong?
The new scheme is an implicit admission that CalPERS can’t meet its 7% mark without increasing its exposure to the vagaries of the market. “There are only a few asset classes with a long-term expected return clearing the 7% hurdle,” Meng wrote.
Perhaps, then, the real problem is the 7% goal, much higher than those of private industry pension plans.
CalPERS and other public systems use higher earnings projections because they need them to pay for the expensive pensions that politicians have awarded. Inferentially, if they fall short of the mark, they can tap employers — i.e. taxpayers — to close the gap. However, that option is pretty much maxed out, which may explain why the very risky borrow-and-invest approach is being adopted.
This is serious stuff, so risky that the Legislature should dump its informal hands-off policy toward CalPERS and order up a comprehensive and independent examination of the system’s assets, liabilities, and long-term prospects of meeting its pension obligations.
SB
REPLY: We are looking at state and local pension funds collapsing. There is not much they can do. This is the collapse of socialism of which I am referring to. This is why the 2020 election will be so critical. The left is determined to overthrow Trump because they are looking to raise taxes dramatically. The World Economic Forum is already suggesting a 400% increase in taxation in Europe. These people are insane. We have states raising property taxes between 30-40% because the lock downs have deprived them of revenues that are pushing pension funds over the edge. They are brain dead, for so many people live hand-to-mouth and cannot afford such drastic increases in taxation. The Democrats are really hoping to draft Hillary for they believe that is their best shot to beat Trump. This is the entire objective for career politicians who have no real business to return to and they will always exempt trusts and themselves. Trump would never agree to the agenda and this is the battle to the death here in 2020.
The Supreme Court issued a ruling today preserving the Consumer Financial Protection Bureau, but allowing the president to fire its director at will.
The 5-4 decision agreed with the position of Seila Law, a California law firm that sued the bureau, arguing that the CFPB’s leadership structure – in which a sole director could be fired only for cause – violated the Constitution’s separation of powers rule, CNBC reported.
“The agency may … continue to operate, but its Director, in light of our decision, must be removable by the President at will,” Chief Justice John Roberts wrote in the majority opinion. Roberts was joined in the decision by the other four conservative justices, CNBC reported.
Despite the decision that the CFPB director could be removed at will, Sen. Elizabeth Warren (D-Mass.) – who spearheaded the creation of the agency – celebrated the fact that the agency would be preserved.
“Let’s not lose sight of the bigger picture: after years of industry attacks and GOP opposition, a conservative Supreme Court recognized what we all knew: @CFPB itself and the law that created it is constitutional,” Warren tweeted. “The CFPB is here to stay.”
As colleges attempt to recover from the pandemic and prepare for future semesters, a New York University professor estimates that the next 5-10 years will see one to two thousand schools going out of business.
Scott Galloway, professor of marketing at the New York University Leonard N. Stern School of Business told Hari Sreenivasan on PBS’ “Amanpour and Co.” that many colleges are likely to suffer to the point of eventual extinction as a result of the coronavirus.
He sets up a selection of tier-two universities as those most likely not to walk away from the shutdown unscathed. During the pandemic, wealthy companies have not struggled to survive. Similarly, he says, “there is no luxury brand like higher education,” and the top names will emerge from coronavirus without difficulty.
“Regardless of enrollments in the fall, with endowments of $4 billion or more, Brown and NYU will be fine,” Galloway wrote in a blog post.
“However, there are hundreds, if not thousands, of universities with a sodium pentathol cocktail of big tuition and small endowments that will begin their death march this fall.”
“You’re gonna see an incredible destruction among companies that have the following factors: a tier-two brand; expensive tuition, and low endowments,” he said on “Amanpour and Co.,” because “there’s going to be demand destruction because more people are gonna take gap years, and you’re going to see increased pressure to lower costs.”
Approximating that a thousand to two thousand of the country’s 4,500 universities could go out of business in the next 5-10 years, Galloway concludes, “what department stores were to retail, tier-two higher tuition universities are about to become to education and that is they are soon going to become the walking dead.”
Another critical issue underlying the financial difficulties families and universities both face is the possibility that the quality of higher education has decreased.
Galloway argues that an education in the U.S. is observably unsatisfactory for the amount that it costs, given that if you “walk into a class, it doesn’t look, smell or feel much different than it did 40 years ago, except tuition’s up 1,400 percent,”he said during an interview with Dr. Sanjay Gupta.
And the pandemic, according to Galloway, has served to expose the quality of higher education.
The number of active mortgage forbearance plans rose by 79,000 in the past week, erasing roughly half of the improvement seen since the peak of May 22.
Increases happened every day for the past five business days.
As of Tuesday, 4.68 million homeowners were in forbearance plans, allowing them to delay their mortgage payments for at least three months.
This represents 8.8% of all active mortgages, up from 8.7% last week.
After declining for three weeks, the number of borrowers delaying their monthly mortgage payments due to the coronavirus rose sharply once again.
The number of active forbearance plans rose by 79,000 in the past week, erasing roughly half of the improvement seen since the peak of May 22, according to Black Knight, a mortgage data and technology firm. By comparison, the number of borrowers in forbearance plans fell by 57,000 the previous week. Increases happened every day for the past five business days.
As of Tuesday, 4.68 million homeowners were in forbearance plans, allowing them to delay their mortgage payments for at least three months. This represents 8.8% of all active mortgages, up from 8.7% last week. Together, they represent just over $1 trillion in unpaid principal.
The mortgage bailout program, part of the CARES Act, which President Donald Trump signed into law in March, allows borrowers to miss monthly payments for at least three months and potentially up to a year. Those payments can be remitted either in repayment plans, loan modifications, or when the home is sold or the mortgage refinanced.
While some borrowers who initially asked for the mortgage bailouts in March and April ended up making their monthly payments, the vast majority now are not. There were expectations that the mortgage bailout numbers would improve as the economy reopened and job losses slowed. But this surge is a red flag to the market that homeowners are still struggling as coronavirus cases continue to increase in several states.
By loan type, 6.9% of all Fannie Mae and Freddie Mac-backed mortgages and 12.5% of all FHA/VA loans are currently in forbearance plans. Another 9.6% of loans in private label securities or banks’ portfolios are also in forbearance.
The volumes rose across all types of loans but were sharpest for FHA/VA loans. FHA offers low down payment loans to borrowers with lower credit scores. Such loans are popular among first-time home buyers. The number of FHA/VA borrowers in forbearance plans increased by 42,000 last week, while government-sponsored enterprise and non-agency loan forbearances increased by 25,000 and 12,000, respectively.
At today’s level, mortgage servicers may need to advance up to $3.5 billion per month to holders of government-backed mortgage securities on Covid-19-related forbearances. That is in addition to up to $1.4 billion in tax and insurance payments they must make on behalf of borrowers.
Why it’s impossible to stop SARS-CoV-2 and what can be done about it …
Retail was hit the worst. The review site has also seen a spike in searches for Black-owned businesses.
Four in 10 retailers listed on Yelp that closed during the pandemic will never reopen. GETTY IMAGES
American states have been slowly reopening their economies in the wake of the coronavirus pandemic, but thousands of businesses are still closed — many of them for good.
As of June 15, 140,000 businesses listed on the Yelp YELP, -3.01% review site remained closed due to the coronavirus pandemic. And of all the business closures since March 1, 41% of them have shuttered permanently, according to Yelp’s latest Local Economic Impact Report.
Los Angeles recorded the largest total number of closures with 11,774 business establishments shuttering, but Las Vegas has had the highest number of closures relative to the number of businesses in the city at 1,921.
Although 20% of the businesses that were closed in April have reopened as states have started relaxing social distancing guidelines, retailers and restaurants remain especially hard-hit. Shopping and retail stores have suffered 27,663 closures, while 23,981 restaurants listed on Yelp are still closed. Beauty (15,348 closures) and fitness (5,589 closures) centers are also among the sectors struggling the most. It’s difficult for these establishments to incorporate the social distancing measures required to reopen in many places.
“By far, retail shopping was hit the hardest,” Justin Norman, Yelp’s vice president of data science, told the Wall Street Journal. “When you look at those two top categories [retail and restaurants], we’re potentially never going to see some of these businesses again.”
Across the country, 41% of businesses on Yelp that closed during the pandemic won’t reopen. YELP
In May, the CEO of the OpenTable restaurant booking service warned that one in four eateries won’t be able to reopen following the coronavirus pandemic, even as David Chang’s Momofuku restaurant group announced that two if its restaurants in Manhattan and Washington, D.C. were among the COVID-19 restaurant casualties. Indeed, total reservations and walk-ins on OpenTable were down 95% on May 14 from that date the year before, and they were down 100% throughout the month of April compared to the same time last year. And the National Restaurant Association estimates that the total shortfall in restaurant and food service sales from March through May has likely surprised $120 billion.
Black-owned businesses have been more devastated by the pandemic than any other demographic group, according to the National Bureau of Economic Research. The number of Black small business owners plummeted from 1.1 million in February to 640,000 in April, or a 41% drop.
One silver lining: Yelp reports that support for Black-owned businesses has skyrocketed on its site during the last few weeks of renewed activism for racial equality. In the three weeks since George Floyd was killed while in Minneapolis police custody, there were more than 222,000 Yelp searches for Black-owned businesses, compared to less than 9,000 the three weeks before. And user reviews highlighted Black ownership jumped by 426% since Floyd’s death on Memorial Day.
Every single state has shown an increase in searches for Black-owned business, with the highest number of searches appearing in Washington, D.C., Minnesota, Maryland, Michigan and Georgia.
It remains to be seen what economic recovery will look like, and which businesses will reopen and be able to remain open, as coronavirus cases continue to spike in southern and western states.
In the latest revision to the IMF’s economic outlook published this morning, the fund warns that the world is facing “a crisis like no other”, and now expects global growth to shrink -4.9% in 2020, 1.9% below the April 2020 forecast of -3.0%.
The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, the IMF said, adding that the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4% down from 5.8%, a number which will also be revised lower, with China’s expected 1.0% growth (down from 1.2%) the big wildcard.
As shown in the table below, the IMF has made the following GDP revisions for 2020:
US -8.0%, down from -6.1%
China 1.0%, down from -1.2%
Euro Area -10.2%, down from -7.5%
India: -4.5%, down from +1.9%
Japan -5.8%, down from -5.2%
Canada -8.4%, down from -6.2%
Latin America: -9.4%, down from -5.2%
India suffered the biggest downward GDP revision from the April forecasts, with a 4.5% contraction now expected, compared with a prior projection of a 1.9% expansion. Latin America has been hit by the virus due in part due to less developed health systems; its two biggest economies Brazil and Mexico are now forecast to contract 9.1% and 10.5%, respectively.
“With the relentless spread of the pandemic, prospects of long-lasting negative consequences for livelihoods, job security and inequality have grown more daunting,” the global emergency lender said in its update to the World Economic Outlook. The IMF conceded that as with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast, with the baseline projection resting on key assumptions about the fallout from the pandemic.
In economies with declining infection rates, the slower recovery path in the updated forecast reflects:
persistent social distancing into the second half of 2020;
greater scarring (damage to supply potential) from the larger-than-anticipated hit to activity during the lock down in the first and second quarters of 2020;
a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices.
The fund lowered its expectations for consumption in most economies based on a larger-than-expected disruption to domestic activity, demand shocks from social distancing and an increase in precautionary savings.
For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity. Moreover, the forecast assumes that financial conditions—which have eased following the release of theApril 2020 WEO—will remain broadly at current levels. Alternative outcomes to those in the baseline are clearly possible, and not just because of how the pandemic is evolving. The extent of the recent rebound in financial market sentiment appears disconnected from shifts in underlying economic prospects—as the June 2020 Global Financial Stability Report (GFSR) Update discusses—raising the possibility that financial conditions may tighten more than assumed in the baseline.
Overall, this would leave 2021 GDP some 6.5% percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.
More importantly, the IMF also warned that the rebound in “financial market sentiment appears disconnected from shifts in underlying economic prospects raising the possibility that financial conditions may tighten more than assumed in the baseline.”
Back to the surprisingly gloomy forecast, the IMF said that downside risks remain significant, as “outbreaks could recur in places that appear to have gone past peak infection, requiring the reimposition of at least some containment measures. A more prolonged decline in activity could lead to further scarring, including from wider firm closures, as surviving firms hesitate to hire jobseekers after extended unemployment spells, and as unemployed workers leave the labor force entirely.”
Furthermore, financial conditions may again tighten as in January–March, exposing vulnerabilities among borrowers. “This could tip some economies into debt crises and slow activity further.” Moreover, the sizable policy response following the initial sudden stop in activity may end up being prematurely withdrawn or improperly targeted due to design and implementation challenges, leading to misallocation and the dissolution of productive economic relationships.
The IMF warned of a collapse in global trade volume in goods and services, which is expected to tumble 11.9% in 2020.
Finally, the IMF warned that the pandemic’s impact may significantly increase inequality, with more than 90% of emerging-market and developing economies forecast to show declines in per capita income.
Oddly enough, it had nothing to say about the biggest source of global inequality for the past decade: central banks that have injected over $30 trillion in liquidity in the past ten years, and whose actions assure that the next crash may well be the last.
* * *
Looking ahead, The IMF presents two alternative scenarios: In one, there’s a second virus outbreak in early 2021, with disruptions to domestic economic activity about half the size of those assumed for this year. The scenario assumes emerging markets experience greater damage than advanced economies, given more limited space to support incomes. In that case, output would be 4.9% below the baseline for 2021 and would remain below the baseline in 2022. In the second scenario, with a faster-than-expected recovery, global output would be about a half percentage point better than the baseline this year and 3% above the baseline in 2021.
