Wolf Richter with Jim Goddard on “This Week in Money“:
Are the current stock market highs related to the economy? Who gets crushed by the onslaught of online retail? How are Canadian mortgages riskier for homeowners and lenders than standard US mortgages? Are new vehicles overpriced? What are you bullish or bearish on for 2018…
Canadians, fasten your seat-belt. Here are the charts. Read… Whose Private-Sector Debt Will Implode Next: US, Canada, China, Eurozone, Japan?
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Wolf, this is OT but what are you seeing in the FB H4.1 balance-sheet data since last time you posted about it? I poked around in the last few weeks of data and I just cannot see that the QE unwind is really happening, or if it is, it seems that whatever unwind there is in USG and MBS bond holdings, some other kind of maneuvers appears to keep the total balance sheet pretty flat. Am I wrong?
Whatever the Fed does it relates to the legacy mortgages and since nothing about privatising the mortgage industry is ever decided , they are increasing hold of mortgages by subprime 2.0 ( clean game without Hank Paulson and PETE ROSE in opposite dugouts)? No TARP this time or European sugar mama ? Interest rates jump the shark as panic dollar selling out of ASIA beginning 2018 bursts the clout?
I’ll post on it after we have the final November balance sheet. They’re unwinding Treasuries all right, and have done so again in Nov (another $4 billion as of the last balance sheet and probably $2 billion more at the next one). With MBS so far in Nov, there is still no visible unwind, but MBS take a very long time to settle (months). They are letting them roll off without replacement, as they said they would, but they only book them after they settle. So my guess is that the first real decline in MBS will show up in December. I’ll have more info on that in my next article.
It’s always been my suspicion that MBS Fed purchases had a greater effect on asset bubbles than simple US debt purchases. MBS cash was high powered in that it went directly into the investment arena. US debt purchases went into interest rate management – especially long term debt rates, reserves, and whatever and probably resulted in low powered fungible cash asset inflows. If true, then the decline in MBS cash will be a decline in cash ultimately intended for asset price pumping / maintenance. Reductions in US debt reinvestment will result in long term rate normalization.
Thanks, Wolf. I have been having trouble decoding the H.4.1 data releases and make sense of it, but I think I have cracked the secret. For those who would like to follow the numbers each week, may I suggest the following:
Look at the following to see QE and QE/unwind progress over time. Use zoom to see recent changes.
The numbers for TREAST and MBST match the RIGHTMOST column of the H.4.1 data releases. That is,
The numbers in the graph match the snapshot on the wednesday each week in the last coloumn, NOT the average for the week that is in the first column. I think sometimes the graphs may lag the Thursday H.4.1 data releases by a few days, but tonight (Sunday) they seem to be up-to-date.
Fed managed to buy assets to 22nd November, so no wonder JNK bounced.
You need to look at its holdings of Treasury securities (down another $4 billion so far in Nov, after being down $6 billion in Oct, on target with the announcement); and MBS (no significant change since QE unwind began, but for now this is due to how long MBS take to settle).
What you failed to note is that, though, Canadians carry more mortgage debt than before the crisis the service charges at today’s rates take less of their incomes than before the crisis. So, unless rates rise substantially mortgage debt is not a problem for the majority.
Agreed that mortgages won’t be a problem for the “majority.” Actually I’d go a step further: adjustable-rate mortgages are not the problem for the least vulnerable 80%. They’re only a problem for the most vulnerable 20%. And if half of the most vulnerable default on their mortgages — so in this example 10% of all mortgages — it’s a major fiasco.
The only “unwind” I observe is the doves hightailin’ it out the window. The buyers most likely will be the Fed, since they printed the $$$$s to give to the commercials for reserves. It’s one big-ass Ponzi, and the “fiasco” may already have started with all the complaints to the SEC about the games in the silver, gold, and T-bond market. “Goldilocks” my ass–this is overt rigging….
I would call it a domino effect. RE now provides a major support for the economy that cannot be expressed by a fix number. How big? You just have to roll it forward to find out.
The default rate in the US at the very peak of the housing bust was 8%. That 8% was enough to bring down the global economy. That “the majority” of Canadian mortgage holders will be OK should be of no comfort whatsoever. It’s what happens at the margins that counts.
poked around in the last few weeks of data and I just cannot see that the QE unwind is really happening
Once more, with feeling: there’s no such thing as unwinding a Ponzi.
See my comment to Justme above. QE unwind of Treasuries is right on schedule. MBS take a long time to settle (months), and the Fed books them only after they settle. So there are no visible signs as of yet. Expect these signs in December.
Tina until cash (treasury paper begets a fresh start, don’t look back mentality of suckers never learn) a risk free entry point (several thousand points lower) into markets people are too busy changing their petticoats to recognize? Soon all will be getting income from short term paper and TINA just stopped working!
I look for adjustments in rates to hit real estate good and hard? Panic on the Titanic.
I don’t know why we don’t add China’s GDP with US GDP and then divide by two.
The Chinese would prefer adding the US GDP to their GDP and skipping that ‘divide by two’ thing.
US corporations are all for it. They’ve made loads of money selling off the US economy to China. Of course, eventually they’ll run out of economy to sell off, but in the meantime short-term profits are excellent.
Yes, there’s zero loyalty to the U.S. by most U.S. corporations. I understand that, but still find it disappointing.
These statements don’t make sense. “Loyalty”? Seriously. Let’s call modern business by their real name, shall we. It’s basically war. Or as one character in Silicon Valley TV show observed: “it’s a war of everyone against everyone.”
The problem with Muricans is that they expect crazy things from something that’s not designed to do whatever it is that they are expecting. And then they all act surprised when the thing itself turns around and bites them.
The best things in life cost everything. That’s the real lesson.
But nah, it’s the Democrat’s fault or Trump’s etc, etc.
“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
― Napoléon Bonaparte
@Rates I am confident the U.S. economy has been more disrupted than any other major developed economy by the movement of jobs to India and China and elsewhere.
Some people might be intrigued by that difference. It’s not a sign that I’m a privileged “Murican” as you would have it that I find it interesting (and disappointing).
Trump’s voters found it disappointing and I don’t blame them.
Also, I wonder who is that calls Americans “Muricans”. What exactly is the point?
(I think I know. But it’s nasty to consider your fellow Americans so beneath you, so I wonder what other point there could be.)
@Ed, who exactly moved the jobs overseas? It’s the same arguments with guns etc i.e. in the end it’s Muricans killing Muricans. Who sells those opioids to “Fellow Americans”? Hint: the answer is not Chinese or Indian.
“Fellow Americans” is an oxymoron. If such a thing truly existed, we wouldn’t be here. My “Fellow Americans” can’t be trusted, hence Muricans.
Ed – the “Muricans” thing comes from how these “salt of the earth” or “flyover” people tend to pronounce themselves. “uh’MURicans”. The initial “uh” is very soft, so in the same way the word “weblog” became “blog”, we now have the word “Muricans”.
As in”…this is ‘Murica, dammit”!
Looser underwriting does seem to be increasing for mortgages. Very low down payments and lower FICO scores. It’s not crazy, yet. But getting upside down won’t take much of a correction for many mortgages made in the last few years. If CA leads the nation, other RE markets should start peaking in the next year or so? “Affordability” is quite different for various areas around the country.
Canadian Household Debt is much higher than US Household Debt. Assuming that the majority of mortgage holders can withstand higher interest rates without more than 10% going into default is to assume a best case scenario. Moreover, kicking the can down the road is no longer an option for the majority in CANADA IMHO.
I found all this info nice and well, thanks.
But, I learned that what you do with the information is more important.
Where do you invest your money?
Gold, stocks, real estate?
Give me a answer,
I want to know where to park my 3kk or soo at.
As a former pawnbroker, who for years dealt in gold, silver and diamonds…I put my money into machine tools…yeah, the means of production.
I really hate watching video. Any possiblity you can post the text of these appearances?
It would be better for archival purpose (I doubt the waybackmachine stores these kinds of videos).
Historians 100 years from now will no doubt be reading your site to figure out what went wrong.
Nearly all my stuff is in article format. Only occasionally do I post videos to give people break from reading. “This Week in Money” shows up once a month. Just skip it if you don’t like listening to stuff and read the articles instead, including the article I linked at the bottom.
“Historians 100 years from now will no doubt be reading your site to figure out what went wrong.”
Boy, that’s hopeful.
As an historian, I can say from a position of anxiety and despair that all this electronic information is going to be lost. We will know more about the thought processes and opinions of Metternich and Bismarck than we will of Reagan and Clinton. Letters don’t exist, emails are erased, and everything that is written down is for public consumption and hides or lies about more than it reveals. We’re looking at an informational black hole as computer systems are replaced and data on old platforms is lost or destroyed.
I know, your reference to historians in 100 years is a figure of speech, otherwise, I would be asking your advice about the medicines.
Just in case anyone missed that one.
On going talk of a Ponzi scheme indicates that the wall of worry and, therefore, the bull market both remain intact. Once again psychology is more important than fundamentals in what’s left of the markets’ pricing mechanism. Surprise!