All about risk
Link:https://mishtalk.com/economics/in-absolute-and-percentage-terms-consumer-credit-jumps-the-most-ever
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The monthly credit increase of $39.99 billion was the biggest jump ever.
Revolving credit surged by $19.84 billion, the most ever.
The month-over-month percentages rose by the most ever.
New outstanding total in nonrevolving credit.
Author(s): Mike Shedlock
Publication Date: 8 Jan 2022
Publication Site: Mish Talk
Excerpt:
A U.S. judge on Wednesday narrowed but refused to dismiss a Securities and Exchange Commission lawsuit accusing Morningstar Inc. of letting analysts adjust credit rating models for about $30 billion of mortgage securities, resulting in lower payouts to investors.
U.S. District Judge Ronnie Abrams in Manhattan said the SEC plausibly alleged that Morningstar Credit Ratings failed to provide users with a general understanding of its methodology for rating commercial mortgage-backed securities and lacked effective internal controls over its ratings process.
Author(s): Reuters
Publication Date: 6 Jan 2022
Publication Site: Business Insurance
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The U.S. economy has made a solid recovery as COVID-19 vaccinations were made increasingly
available, social distancing began to ease, and businesses gradually reopened.
The International Monetary Fund (IMF), among other forecasters, expects the U.S. economy to
grow by about 6% in 2021, after contracting about 3.4% in 2020.
• Inflation reached a 39-year high of 6.8% in November following a strong rebound from the COVID19-induced recession.
• The ‘stronger for longer’ inflation rates prompted the Federal Reserve to accelerate the tapering
of its asset purchases and to suggest the likelihood of three rate hikes in 2022.
• The 10-year U.S. government bond yield has generally ranged between 1.3% and 1.7% in 2021,
increasing from less than 1% in 2020, due in part to fiscal stimulus aiding in economic recovery.
• Credit spreads have been muted in 2021 given robust global economic growth, favorable funding
conditions, and overall solid corporate performance despite higher costs and supply disruptions.
• Global stocks have achieved relatively high returns; in the U.S., the Standard & Poor’s (S&P) 500
posted seven record closing highs in November alone.
• The price of oil reached a seven-year high of $85 per barrel in 2021 as demand for oil normalized
while the global supply market tightened.
Author(s): : Jennifer Johnson and Michele Wong
Publication Date: 22 Dec 2021
Publication Site: NAIC Capital Markets Bureau Special Reports
Link:https://www.theepochtimes.com/new-jersey-taxpayers-on-the-hook-for-massive-debt-report_4139948.html
Excerpt:
New Jersey has amassed a huge, and possibly dangerous, level of debt, according to a new report that reviews the financial health of state governments across the country.
Each Garden State taxpayer owes tens of thousands of dollars and the state is a tax “sinkhole,” according to the nonprofit organization Truth in Accounting (TIA), because state lawmakers of both parties have overspent and used accounting “gimmicks” for decades. The organization defines “sinkholes” as states that lack the necessary funds to pay their bills.
….
The S&P report also gives New Jersey a low grade on debt practices.
“On our scale of ‘1.0’ to ‘4.0’, where ‘1.0’ is the strongest score and ‘4.0’ the weakest, we have assigned a composite score of ‘3.7’ to New Jersey’s debt and liability profile,” according to S&P.
Moody’s, in its July 14 report, gave New Jersey an A3 rating on its general obligation (GO) bonds, a low rating. But it praised recent efforts by Murphy to solve the problems of long-term debt.
….
Fitch Ratings, in its April 13 report, gives New Jersey an A- grade. It said its rating reflects New Jersey’s “adequate financial resilience.” But it also said that its condition isn’t as good as that of most states, and stirs up some troublesome ghosts.
Author(s): Gregory Bresiger
Publication Date: 8 Dec 2021
Publication Site: Epoch Times
Excerpt:
At the height of the last big wave of Turkey’s ongoing crisis, in August 2018, the European Central Bank issued a warning about the potential impact the plummeting lira could have on Euro Area banks heavily exposed to Turkey’s economy via large amounts in loans — much of them in euros — through banks they acquired in Turkey. The central bank was worried that Turkish borrowers might not be hedged against the lira’s weakness and would begin to default on foreign currency loans, which accounted for 40% of the Turkish banking sector’s assets.
In the end, the contagion risks were largely contained. Many Turkish banks ended up agreeing to restructure the debts of their corporate clients, particularly the large ones. At the same time, the Erdogan government used state-owned lenders to bail out millions of cash-strapped consumers by restructuring their consumer loans, many of them foreign denominated, and credit card debt.
But concerns are once again on the rise about European banks’ exposure to Turkey. On Friday, as those concerns commingled with fears about the potential threat posed by the new omicron variant of Covid-19, Europe’s worst-affected stocks included the four banks most exposed to Turkey: Spain’s BBVA, whose shares fell 7.3% on the day, Italy’s Unicredit (-6.9%), France’s BNP Paribas (-5.9%) and the Dutch ING (-7.3%).
Author(s): Nick Corbishley
Publication Date: 30 Nov 2021
Publication Site: naked capitalism
Link:https://www.financialresearch.gov/annual-reports/2021-annual-report/
Full report link: https://www.financialresearch.gov/annual-reports/files/OFR-Annual-Report-2021.pdf
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Excerpt:
Office vacancy rates have
risen modestly to 18.3%
(see Figure 8). However,
actual office usage has
declined much more as the
work-from-home response
to the pandemic became
widespread. This decline
has had limited financial
impact to date because
office rentals are usually
held in multiyear leases
with credit-worthy tenants
(see Figure 9). However,
there is considerable uncertainty about whether and
how demand for office
space will change over the
long run.
Author(s): Office of Financial Research
Publication Date: 17 Nov 2021
Publication Site: Office of Financial Research, Treasury Department
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The rating-based mapping was partially altered in 2010, when the NAIC enacted a regulatory change that essentially allowed insurance companies to report CLO tranches that were purchased at a discount, or highly impaired, in a lower NAIC category than that implied by the rating-based mapping. The new capital regime for CLO investments likely increased insurance companies’ incentives to invest in higher-yielding CLO tranches.
The following chart presents some evidence consistent with reach-for-yield behavior, particularly since the regulatory reforms of 2010. The left panel shows the time series of insurers’ new CLO holdings falling into the NAIC 1 designation as a percentage of the total volume outstanding of these tranches based on percentiles of the distribution of CLOs yields for each year. As expected, there is a clear preference for the riskiest tranches within NAIC 1 (those with yields above the 66th percentile) throughout the sample period, with the exception of the financial crisis, when all yields are squeezed at their minimum levels. Interestingly, the market shares of CLO tranches with yields above the 33rd percentile experience a sharp increase in the two years following the 2010 regulatory reform, then register a significant drop in 2019, when the reform was repealed. We do not find similar evidence in insurance companies’ corporate bond investments (right panel).
Author(s): Fulvia Fringuellotti, João A. C. Santos
Publication Date: 13 Oct 2021
Publication Site: Federal Reserve Bank of New York
Link: https://mises.org/wire/yellen-wrong-us-government-doesnt-always-pay-its-debts
Excerpt:
In 1934, the United States defaulted on the fourth Liberty Bond. The contracts between debtor and creditor on these bonds was clear. The bonds were to be payable in gold. This presented a big problem for the US, which was facing big debts into the 1930s after the First World War.
….
So how did the US government deal with this? Chamberlain notes “Roosevelt decided to default on the whole of the domestically-held debt by refusing to redeem in gold to Americans.”
Moreover, with the Gold Reserve Act of 1934, Congress devalued the dollar from $20.67 per ounce to $35 per ounce—a reduction of 40 percent. Or, put another way, the amount of gold represented by a dollar was reduced to 59 percent of its former amount.
The US offered to pay its creditors in paper dollars, but only in new, devalued dollars.1 This constituted default on these Liberty Bonds, since, as the Supreme Court noted in Perry v. United States, Congress had “regulated the value of money so as to invalidate the obligations which the Government had theretofore issued in the exercise of the power to borrow money on the credit of the United States.”
This was clearly not a case of the US making good on its debt obligations, and to claim this is not default requires the sort of hairsplitting that only the most credulous Beltway insider could embrace.
Author(s): Ryan McMaken
Publication Date: 28 Sept 2021
Publication Site: Mises Wire
Link: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2021Q2.pdf
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Aggregate household debt balances increased by $313 billion in the second quarter of 2021, a 2.1% rise from 2021Q1, and
now stand at $14.96 trillion. Balances are $812 billion higher than at the end of 2019 and $691 billion higher than 2020Q2. The 2.1%
increase in aggregate balances was the largest seen since 2013Q4 and marked the largest nominal increase in debt balances since
2007Q2.
Publication Date: August 2021
Publication Site: NY Fed
Link: https://www.newyorkfed.org/microeconomics/hhdc.html
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Total Household Debt Climbs Boosted by Growth in Mortgages and Auto Loans
According to the latest Quarterly Report on Household Debt and Credit, total household debt rose by $313 billion (2.1 percent) to reach $14.96 trillion in the second quarter of 2021. Mortgage balances—the largest component of household debt—rose by $282 billion and auto loans increased by $33 billion. Credit card balances ticked up by $17 billion while student loan debt decreased by $14 billion. Mortgage originations, which include mortgage refinances, reached $1.2 trillion, surpassing the volumes seen in the preceding three quarters. Auto loan originations, which include both loans and leases, reached a record $202 billion.
Publication Date: Accessed 22 Sept 2021
Publication Site: NY Fed
Link: https://mishtalk.com/economics/huge-credit-stress-starting-in-china-may-easily-rock-the-whole-world
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Excerpt:
“If funding stress signs don’t emerge, don’t conclude that there is no contagion. Contagion is playing out already if you know where to look.”
The mess in China does not stop with Evergrande.
…..
Everglade shows the theft of wealth and money in a giant Ponzi scheme, not to be confused with real savings (i.e. net tangible assets at true market value)!
There is no savings glut.
The alleged savings glut is nothing but a fiat Ponzi scheme where central banks have to keep money supply soaring to keep asset prices (based on debt) from imploding!
How much longer this setup can continue before it blows up in a currency crisis, war with China, or some other major economic disruption remains a key mystery.
Author(s): Mike Shedlock
Publication Date: 20 Sept 2021
Publication Site: MishTalk
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The party has ended. Years of aggressive borrowing have collided with Beijing’s crackdown on debt, leaving the developer on the brink of collapse. Construction of Evergrande’s projects in many cities has stopped. The company has faced a litany of complaints and protests from suppliers, small investors and home buyers who sank their savings into properties the company promised to deliver.
Cash is so short that this summer, the developer said it began paying bills to contractors and suppliers with unfinished apartments instead of actual money. A paint supplier based in the southeastern province of Fujian said Evergrande recently paid off the equivalent of $34 million in bills with three unfinished properties, which the supplier is trying to sell. At a construction firm in Wuhan, more than 200 employees have been forced to take pay cuts because some of Evergrande’s bills are past due, a manager at the firm said,
Former and current employees say layoffs are adding up, and free meals that Evergrande used to provide for staffers at its headquarters have been canceled. In central China’s Hubei province, Evergrande has asked the local government to take over homeowners’ funds held in escrow accounts so they can’t be seized in legal disputes with creditors, according to people familiar with the matter.
Evergrande didn’t respond to requests for comment. The company said on Sept. 14 that its apartment sales have slowed markedly since June, its asset-disposal plans haven’t materialized, and it has hired financial advisers — a move that brings it closer to a potential debt restructuring.
Author(s): Xie Yu and Elaine Yu
Publication Date: 18 Sept 2021
Publication Site: WSJ