As China’s Banking System Freezes, SHIBOR Tumbles To Lowest In A Decade

One trading day after we reported that China was “Hit By “Significant Banking Stress” as SHIBOR (Shanghi Interbank Offered Rate) tumbled to recession levels, and less than a week after we warned that China’s interbank market was freezing up in the aftermath of the Baoshang Bank collapse and subsequent seizure, which led to a surge in interbank repo rates and a spike in Negotiable Certificates of Deposit (NCD) rates…

https://www.zerohedge.com/s3/files/inline-images/china%20repo%20rates.jpg?itok=IUQDoORO

… China’s banking stress has taken a turn for the worse, and on Monday, China’s overnight repurchase rate dropped to its lowest level in nearly 10 years, after the central bank’s repeated liquidity injections to ease credit concerns in small-to-medium banks: The rate fell as much as 11 basis points to 0.9861% on Monday, before being fixed at exactly 1.000%.

https://www.zerohedge.com/s3/files/inline-images/shibor%20on%206.24.jpg?itok=i2icegOc

Seeking to ease funding strains after the Baoshang collapse and to unfreeze the financial channels in the banking sector, the PBOC has been injecting cash into the financial system to soothe credit risk concerns in smaller banks following the seizure of Baoshang Bank, which sent shockwaves through China’s markets.

Also helping drive the rate lower is China’s move to allow brokerages to issue more debt, said ANZ Bank’s Zhaopeng Xing, quoted by Bloomberg. As a result, at least five brokerages had their short-term debt quotas increased by the People’s Bank of China in recent days, according to filings.

The improved access to shorter-term debt will cut costs for brokerages compared with alternative funding sources such as bond issuance. The flipside, of course, is that the lower overnight funding rates drop, the greater the investor skepticism that China’s massive, $40 trillion financial system is doing ok, especially since the last time overnight funding rates were this low, the near-collapse of the global financial system was still fresh and the S&P was trading in the triple-digits.

Commenting on the ongoing collapse in SHIBOR, Commodore Research wrote overnight that “low SHIBOR lending rates are supposed to be supportive and accommodative in nature — but rates are now at the lowest level seen this decade and  are very likely an indication that China is facing significant banking stress at the moment. It is extremely rare for the overnight SHIBOR lending rate to be set as low as 1.00%. This previously had not all been seen this decade, and the last time it occurred was during the financial crisis in 2008 – 2009.”

Meanwhile, as the world’s biggest financial time bomb ticks ever louder, traders and analysts are blissfully oblivious, focusing instead on central banks admitting that the recession is imminent and trying to spin how a world war with Iran would be bullish for stocks.

Source: ZeroHedge

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“On The Precipice”

Authored by Kevin Ludolph via Crescat Capital,

Dear Investors:

The US stock market is retesting its all-time highs at record valuations yet again. We strongly believe it is poised to fail. The problem for bullish late-cycle momentum investors trying to play a breakout to new highs here is the oncoming freight train of deteriorating macro-economic conditions.

US corporate profit growth, year-over-year, for the S&P 500 already fully evaporated in the first quarter of 2019 and is heading toward outright decline for the full year based on earnings estimate revision trends. Note the alligator jaws divergence in the chart below between the S&P 500 and its underlying expected earnings for 2019. Expected earnings for 2019 already trended down sharply in the first quarter and have started trending down again after the May trade war escalation.

Continue reading

Global Negative Yielding Debt Soars By $700 Billion In One Day To Record $13 Trillion

The “deflationary ice age” predicted by SocGen’s Albert Edwards some 25 years ago is upon us.

The one-two punch of a dovish Draghi and Powell unleashing the “deflationary spirits” has resulted not only in the S&P hitting a new all time high, but in an unprecedneted flight to safety as investors freak out that a recession may be imminent (judging by the forceful jawboning by central bankers hinting of imminent easing), pushing gold above $1,400 – its highest price since 2013 – and global yields to new all time lows.

As a result, the total notional amount of global debt trading with negative yields soared by $700 billion in just one day, and a whopping $1.2 trillion this week, the biggest weekly increase in at least three years.

https://www.zerohedge.com/s3/files/inline-images/weekly%20change%20in%20neg%20debt.jpg?itok=jz-AGpp9

This has pushed the amount of negative yielding debt to a new all time high of $13 trillion.

https://www.zerohedge.com/s3/files/inline-images/global%20neg%20yielding%20debt_0.jpg?itok=IY5FU-OA

Europe in particular is, for lack of a better word, a disaster.

https://www.zerohedge.com/s3/files/inline-images/european%20bonds.png?itok=NjhgsEAs

We won’t paraphrase everything else we said in the context of this very troubling observation (see our latest post from yesterday discussing the surge in (-) yielding debt), we’ll just repeat the big picture summary: such a collapse in yields is not bullish, or indicative of a new golden age for the global economy. Quite the contrary – it signifies that debt investors are more confident than ever that the global growth rate is collapsing and only central bank intervention may possibly delay (not prevent) the world sliding into recession. Worse, rates are set to only drop, because as Rabobank’s Michael Every wrote yesterday “if the Fed do cut ahead then yields fall, more so at the shorter end; but if they don’t cut then yields still fall, but more so at the longer end (now around 2.02%).”

His conclusion: “Either way US (and global) yields are going to fall – which tells its own sad story.

Source: ZeroHedge

Existing Home Sales Tumble YoY For 15th Month

After April’s disappointing drop in all segments of the home-sales data, existing home sales were expected to rebound (again) in May and surprised modestly to the upside.

Existing home sales rose 2.5% MoM to 5.34mm in May (and saw a modest upward revision in April)

https://www.zerohedge.com/s3/files/inline-images/bfmC6D2.jpg?itok=49wrqprZ

However, existing home sales have declined on a YoY basis for 15 straight months…

https://www.zerohedge.com/s3/files/inline-images/bfm6BCA.jpg?itok=eW00sCnZ

Home purchases advanced across all four regions, led by a 4.7% rise in the Northeast.

First time buyers accounted for 32% of sales nationally, unchanged from the prior month.

Finally, we note that the recent drop in existing home sales suggests a lagged response in mortgage purchase applications… even with rates collapsing…

https://www.zerohedge.com/s3/files/inline-images/bfmC79B.jpg?itok=uXDYJc0y

As lower rates have apparently sparked a surge in prices as median home prices to a new record $277,700 – with a 4.8% YoY surge – the biggest spike since Aug 2018.

https://www.zerohedge.com/s3/files/inline-images/bfmC628.jpg?itok=rB2F5FDh

“The purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding,” NAR Chief Economist Lawrence Yun said in a statement.

As Bloomberg notes, recent housing data have offered a mixed picture on the market, with housing starts falling from an April reading that was stronger than initially reported. Homebuilder sentiment deteriorated in June for the first time this year while permits gained, signaling a more robust pipeline of properties.

Source: ZeroHedge

CA Voters Not Happy With Free Medical For Illegals

Free health care for illegals may have Gov. Newsom and the Dems grinning as voters grimace…


(Authored by Sarah Cowgill via LibertyNation.com,)

As the California state legislature and Gov. Gavin Newsom dislocate their shoulders in the hearty backslapping of their self-congratulatory moment in American history, the rest of the nation is snarling and spitting over the lunacy of the left coast Democrats.  That is, according to the new Rasmussen Reports poll, which asked if illegal immigrants should receive free health care.

The answer was a resounding no.  No way, no how, nuh-uh, nada.

It was a brief two-question survey that spoke volumes: “Do you favor or oppose making health care benefits available to young low-income illegal immigrants in your state?  Is it offensive to refer to someone who has entered this country illegally as ‘an illegal immigrant?’”

Out of 1,000 online and telephone respondents, “31% of Likely U.S. Voters favor making health care benefits available to low-income illegal immigrants under the age of 26 in their state. Fifty-five percent (55%) are opposed, while 13% are not sure.”  One can only imagine the responses to question number two.

The only surprising statistic is that 13% had not yet picked a side in what might be the watershed issue for 2020 presidential candidates.

Force Fed Mandates Gag Americans

https://media.breitbart.com/media/2019/01/Border-Crossers-Released-640x480.jpg

Last week, Newsom’s quest for universal healthcare – including illegal residents – was passed by the legislature as part of a $215 billion budget.  He was self-assured and puffing in his peacock fashion, declaring, “We’re going to get it. We’re committed to universal health care. Universal health care means everybody…We will lead a massive expansion of health care, and that’s a major deviation from the past.’’

Laurel Lucia, health care program director at the University of California-Berkeley Labor Center, gushed excitement at expanding Medi-Cal to illegal immigrants while forcing taxpayers to foot the bill through individual-mandate penalties.  “The bigger reason to do this is about values,” says the woman who seems not to care about legal citizens in need of health care benefits.

And to boil it down in dollars, for those Californians who do not buy insurance, they will now be hit with a penalty of $695 or 2% of their household income, whichever figure is higher.

But Lucia went a tad over the top with “What kind of state do we want to live in?”

Funny you should ask. Many Californians – and other Americans, for that matter – are aghast that 130,000 plus people in the Golden State are homeless, living in undeniable squalor, and not only contracting highly contagious medieval diseases but spreading them to others. Perhaps the state should round up the unwashed American masses, clean them up, and give them free healthcare so the rest of the nation can avoid the Black Death.

Newsom’s Noose

https://media.breitbart.com/media/2017/05/Gavin-Newsom-Getty-640x480.jpg

Gov. Newsom campaigned in part on universal healthcare, and it’s no secret he has his sights on a national run in the future – perhaps president in 2024 depending on whether President Trump trumps the progressive left in the 2020 winner take all contest.  But protecting illegal aliens before addressing the most significant crisis his state faces – homelessness – is not going to help him avoid the political gallows.

The state’s current crisis of reality — highest poverty rate in the country, no affordable housing, taxpayers fleeing to points east, and vicious identity politics ranking California much further left of the nation as a whole — are becoming serious millstones for this progressive governor.

Add to the list of Newsom’s liabilities, the boilerplate individual health plan in California starts with premiums of more than $5,000 a year and annual deductibles can skyrocket to several thousand dollars each year.  Which means folks are going to have to decide to pay thousands for private health plans or be taxed in penalty thousands to pay for illegal aliens.

Perhaps the good governor should take stock of what Americans think about his plan to give aid to illegals as his fellow countrymen suffer on his once gold-paved streets.  He may find his holier-than-thou ideology could soon blow up on him — and signing this budget might be the match he strikes and regrets.

Source: ZeroHedge

House-Flipping Trend Stalls As Hard Money Lenders Jump 40%

The American Association of Private Lenders says the number of hard money lenders is approximately 8,300, up 40% since 2016, reported Bloomberg.

A hard money loan is an asset-based loan financing through which a borrower receives capital secured by the property. The volume of these loans to house flippers last year rose to $20 billion. That’s up 37% from 2016 and about double the figure from 2014. ATTOM Data Solutions believes hard money is a significant source of lending for house flippers.

https://www.zerohedge.com/s3/files/inline-images/hard%20money%20lender.png?itok=uZ_5scig

“There’s a lot of activity. Every time I turn around there’s new entrants,” said Glen Weinberg of Fairview Commercial Lending in Evergreen, Colorado.

While Weinberg usually loans up to 60% of a property’s value, some newer lenders will go up to 90%, he said.

Blackstone Group LP and Goldman Sachs Group Inc. recently dove into the hard money lending space, drawn by interest rates of 8% to 12%.

About ten years from the real estate trough in 2009, the outlook is starting to seem worrisome for flippers and their hard money financiers.

ATTOM Data Solutions published a new report earlier this month called Q1 2019 US Home Flipping Report, which shows house-flipping volume rebounded across the country earlier this year as gross profits and return on investment fell.

https://www.zerohedge.com/s3/files/inline-images/2019-06-08_09-19-30_0.png?itok=vu1BImOq

In Atlanta, house flippers want to put up smaller down payments than ever before, said Michael Braswell, a broker who works with hard money lenders.

“I would say, probably more than half the deals that come across my desk are not viable deals,” Braswell said.

Nationwide, 49,000 homes flipped in 1Q19, represented 7.2% of all home sales last quarter, up from 5.9% MoM and up 6.7% YoY, the highest home flipping rate since 1Q10. While this could be interpreted as a sign of continued progress, it also may suggest that investors are unloading their homes while they still can, Attom’s Todd Teta told Bloomberg this month.

The West Coast has seen some of the most significant house flipping declines in the country.

Bloomberg said hard money lenders aren’t forecasting a downturn in the real estate market just yet, but as we have mentioned before, many have overlooked the economy cycling down into 2H19.

As Zerohedge readers would know, any disruption in hard money lending and or a downturn in the house flipping market would be a ‘canary in the coal mine’ that could suggest the overall housing market will continue to deteriorate into 2020.

Source: ZeroHedge

US Housing Starts (1-unit) Fall 6.4% In May Despite Plunging Mortgage Rates

Despite the hype of soaring mortgage applications (refis, not purchases) and homebuilder stocks, housing starts tumbled 0.9% MoM in May (drastically missing expectations for a 0.3% rise), and while permits rose a better than expected 0.3% MoM, it remains very flat for the last six months.

https://confoundedinterestnet.files.wordpress.com/2019/06/hsfed.png

Multi-family permits fell in May (to 820k) as single-family rose modestly (to 449k)…

https://www.zerohedge.com/s3/files/inline-images/2019-06-18%20%282%29.png?itok=c4P_ZwU9

The better than expected print for overall starts (at 1.294mm), was thanks to a massive spike in rental units…

https://www.zerohedge.com/s3/files/inline-images/2019-06-18_0.png?itok=efCiunLH

Breakdown

  • Housing Starts 1-Unit: -6.4%, from 876K, to 820K
  • Housing Starts Multi Unit: +13.8%, from 383K to 436K 

Not exactly a picture of health for the future of millennial homeownership as rental nation remains front and center, despite plunging mortgage rates.

https://www.zerohedge.com/s3/files/inline-images/bfmD66B.jpg?itok=9EFzUBMM

At least 1-unit starts got one surge from declining mortgage rates in January 2019.

Will The Fed’s Jay Powell come to the rescue? 

Go Jay Powell! Go Jay Powell!

https://confoundedinterestnet.files.wordpress.com/2019/06/jerome-powell-presser-1219-super-tease.jpg

Source: ZeroHedge & Confounded Interest