Sea Of Liquidity: 3M Euribor Negative for First Time ($5.3 TRILLION In Negative Yield Gov’t Bonds)

Futures traders are betting the three-month Euribor (Euro Interbank Offered Rate) fixing will stay negative until September 2016 after a jump in excess liquidity pushed it below zero for the first time.


Given that Euro Credit Default Swaps (CDS) are maxing out (at least in Greece), something is not working.


And $5.3 Trillion of government bonds now have negative yields.

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Here is Mario Draghi and the European Central Bankers singing “Sea Of Liquidity.”


I hope it doesn’t end this way, with Leslie Nielsen.


Bad Juju? Plunging Lumber Futures Prices Bad News For Homebuilders (If Lack Of Demand Is Driving Lumber Futures Prices Down)

I will be speaking at 10:30 AM EST at the National Association of Realtors joint conference with the National Association of Homebuilders and the McGraw-Hill Financial Global Institute in Washington DC. While I mentioned yesterday that I will be talking about low wage growth and real median household income as a factor in the failure of the housing market to ignite (at least for the middle class), I will also mention …

Lumber futures prices, while volatile, do show a relationship with the NAHB Builder Confidence Index. However, lumber futures prices are falling while the NAHB index is rising.


We already know that mortgage purchase applications are lower than in 2007 while home prices continue to rise at 2x the wage growth rate. While mortgage purchase applications are higher than last year, bear in mind that last year was the worst year in many years.


Spurious correlation or bad juju?

Baron Samedi from the James Bond flick “Live and Let Die” agrees with me that plunging lumber futures prices are BAD JUJU for homebuilders!


Let’s see how this plays out.

China Moves to Stimulus Mode With Cut to Bank Reserve Ratio (Biggest Drop Since 2008)

Another one bites the dust!

China has joined other global Central Banks in financial stimulus by lowering their bank reserve ratio.

China’s leaders swung into stimulus mode, cutting the amount of cash lenders must set aside as reserves by the most since the global financial crisis just days after a report showed the slowest economic growth in six years.

The reserve-requirement ratio will be lowered 1 percentage point effective April 20, the People’s Bank of China said on its website Sunday, the second reduction this year and the largest since November 2008. The level will decline to 18.5 percent, still high by global standards, based on previous statements.


The move puts China more firmly in the easing camp with the European Central Bank and the Bank of Japan and follows a vow by Premier Li Keqiang last month to step in if the economy’s slowdown hurts jobs as well as PBOC Governor Zhou Xiaochuan’s weekend comment that China has room to act. The cut will allow banks to boost lending, unleashing about 1.2 trillion yuan ($194 billion), and may spur another leg higher in the nation’s booming stock market.

“This RRR cut is much bigger than the market anticipated and banks will be flooded with liquidity,” said Liu Li-Gang, chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong.

“It will also add fuel to the already red hot stock market.”

Yes, the Shanghai stock market is red-hot.


But China home prices are not.


China’s slumping economy and housing market are driving their Central Bank to prop up bubbles.

Even The Great Mall of China is for sale.


Caution! Ex-Freddie Mac Officials Settle SEC Suit Over Subprime Loans

Bloomberf: Three former Freddie Mac executives settled a lawsuit by regulators over whether they misled the market about the mortgage-finance company’s exposure to risky loans, in a deal that included about $300,000 in donations to a fund set up to reimburse investors.

The settlement marks a quiet end to a high-profile U.S. effort to hold individuals accountable for some of the shocks to the financial system after banks, ratings companies and others underplayed the risks of subprime mortgages.

Richard Syron, the former chief executive officer of Freddie Mac, and two other executives settled the Securities and Exchange Commission’s 2011 lawsuit without admitting liability. In 2007 and 2008, according to the SEC suit, the three executives had said exposure to subprime mortgage loans was from $2 billion to $6 billion, when it was actually as high as $244 billion.

“This was one of the big cases to come out of the financial crisis. They accused CEOs of lying,” said Peter Henning, a corporate law professor at Wayne State University in Detroit. “And now, it ends, with I guess you can say, a whimper.”

Weak Case
The unusual settlement likely reflects a weak case by the SEC, Henning said. The agency also sued executives of Fannie Mae, including former CEO Daniel Mudd, over similar claims of misrepresentations. Tuesday’s resolution with Freddie Mac executives will likely help Mudd and his former colleagues.

“If I were Mudd, I would see if I could get this deal,” Henning said.

James Wareham, Mudd’s attorney, declined to comment on the case.

Also settling the case in Manhattan federal court were Patricia Cook, a former Freddie Mac executive vice president, and Donald Bisenius, an ex-senior vice president.

Under the agreement, the three executives must donate money to the Freddie Mac Fair Fund, set up to reimburse investors, in amounts tied to their stock and option awards during fiscal years 2006 and 2007. Syron will pay $250,000; Cook, $50,000; and Bisenius, $10,000. The three agreed to cooperate with the SEC in any related proceeding.

“We’re delighted with the terms of the dismissal,” Bisenius’s lawyer, Daniel Beller, said. “Mr. Bisenius is not making any payment. Freddie Mac’s insurer will make a donation on his behalf.”
Steven Salky, Cook’s lawyer, said in a statement, “We are extremely pleased with this resolution.”

Syron said in an e-mailed statement Tuesday that “The agreement states that it is not in the interests of justice to continue to litigate this matter, and I wholeheartedly agree with that sentiment.”
‘Appropriate Resolution’

The three also agreed for limited periods not to violate anti-fraud and reporting provisions of U.S. securities laws or sign company reports filed with the agency. The SEC initially sought to ban them from serving as officers or directors of other companies.

“The settlement’s limitations on future activities and financial payments reflect an appropriate resolution of the matter,” Andrew Ceresney, the SEC’s director of the Division of Enforcement, said in an e-mail.

U.S. District Judge Richard Sullivan on Tuesday approved the agreement.

McLean, Virginia-based Freddie Mac and Washington-based Fannie Mae are government-sponsored enterprises that issued more than half of all mortgage-backed securities at the time of the financial crisis.
The case is SEC v. Syron, No. 11-cv-09201, U.S. District Court, Southern District of New York (Manhattan).

The case revolved around whether “Caution loans” were subprime loans or not. Caution loans are loans where Freddie Mac is supposed to exercise greater caution in their underwriting.

Were these loans “subprime” or “prime?” Freddie Mac is not permitted to purchase subprime loans. But the very mention of “caution” seems to indicate that these loans are more risky than their average loan, but perhaps less risky then “subprime” loans since Freddie Mac bought many of them.

In fact, caution loans had serious delinquency rates that were somewhere in between “subprime” and the conforming loans usually purchased by Freddie. Let’s call them A- loans. hpd_1302_gates

Here is Freddie’s Richard Syron singing “Alleluia” on the case being settled with the SEC.

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Industrial Production “Growth” MoM WORST Since End Of Great Recession

US Industrial Production numbers are out for March 2015 and they are ugly.

Industrial Production “growth” MoM fell more than expected to -0.6 percent.


Utility output fell 5.9 percent, leaving it 3.6 percent lower year over year. This is no surprise, given that the weather in March moderated from record cold temperatures in February (as it does EVERY YEAR).

Mining and mineral extraction fell 0.7 percent, as the recent declines in oil prices have caused the energy sector to trim back activity, although this represents a moderation from declines of 1.6 and 1.7 percent in February and January, respectively. Utilities are now 3.6 percent lower from a year ago.

Alarm! Dive, dive, dive!


Burnout! Mortgage Purchase Applications Fall 2 Percent WoW As Home Prices Keep Rising

And the hits just keep coming! Home prices continue to rise as mortgage purchase applications decline 2 percent week-over-week.

Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 10, 2015.


The seasonally unadjusted Purchase Index decreased 2.14 percent compared with the previous week and was 7.2 percent higher than the same week one year ago. Bear in mind that purchase applications peaked on May 2, 2015, so the peak may be close at hand.


The seasonally adjusted Purchase Index decreased 3.07 percent from one week earlier. Although home prices are rising again, wage growth remains slow to recover along with mortgage purchase applications.


The Refinance Index decreased 1.76 percent from the previous week. I wonder if we are near the “burnout” equilibrium for refis since mortgage rates are approaching their all-time low again and refi activity is lackluster.


The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.87 percent from 3.86 percent, with points increasing to 0.38 from 0.27 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

The good news? American consumers have less debt than in previous “recoveries.” The bad news? American consumers also have less income.


Despite the rhetoric from the affordable housing lobbying groups, the US is worse off than in 2001. Adjust your forecasts accordingly.