UBS: Consumer Defaults Will Spread As Borrowers Simply Stop Paying
Over the past couple of months, the rising number of auto loan defaults has sparked concerns on Wall Street that another credit crisis is brewing. Steve Eisman, who famously predicted the 2008/09 financial crisis is just one of the high-profile figures warning of the dangers of consumer credit stress, and his warning should not be taken lightly.
Analysts at Swiss bank UBS have been paying close attention to US auto finance market over the past few years and were one of the first group of analysts to spot brewing problems in the market. Via the UBS Evidence Lab’s proprietary surveys, which are conducted on a quarterly basis, the bank’s analysts have been able to build an interesting and informative picture of the US credit consumer over the past few years, and it’s this data that has prompted the bank’s analysts to issue warnings about rising default levels.
The most recent survey, conducted during the first quarter of 2017, contains yet more troubling data. According to the responses (from 2,100 individuals across the age and wealth spectrum), 17% of all consumers are likely to default on a loan payment over the next year, down slightly from the fourth quarter reading of 18% but up from the third quarter 2016 reading of 12%. Further analysis of the figures shows that the majority of those borrowers planning to default fall into the lower ends of the middle and higher income categories ($50k to $74k and $100k to $149k respectively).
Interestingly, relative to the overall population, those consumers with higher default concerns report higher home ownership (77%), in-line utilization of a mortgage loan (47%), and much higher usage of home equity (28%) loans and lines of credit (14%). They also report a higher usage of adjustable rate (38% versus 8% for non-defaulters) and interest only (13% versus 0% for peers) mortgage loans. And while a solid minority report significant equity in their homes (33%), they report little (38%), no (20%), or negative (7%) equity – all figures that are worse than the overall population.
Fed’s George wants to keep raising interest rates despite economy’s ‘fits and starts’
The Federal Reserve should stick to its plans to continue to raise short-term interest rates despite the economy’s recent “fits and starts,” said Kansas City Fed President Esther George on Tuesday.
“The economy has these fits and starts and we’ve seen this over the last five years,” George said in an interview with Bloomberg Television. The first quarter does “looks soft” but the Fed should not start “over-interpreting what it means for the longer-term,” George said.
“For the year as a whole, I still see consumer spending in a way that should carry the economy forward,” she said. Earlier, in a speech to a conference at the Levy Economics Institute of Bard College, George said the economy was on “solid footing.”
“There is a sense that outcomes could actually be better than expected rather than worse,” she said. George is one of the most hawkish Fed regional bank president. She is not a voting member this year. The Fed has penciled in three rate hikes for the year but the market is starting to have doubts given the weak growth rate in the first quarter. Macroeconomic Advisers said they expect first-quarter GDP growth to decelerate to a 0.6% annual rate in the first quarter, down from a 2.1% rate in the fourth quarter.
CEO: ‘The Retail Bubble Has Now Burst’
On an earnings call with investors in March, Urban Outfitters CEO Richard Hayne admitted something his fellow retail barons have known all along but have been reluctant to say: their businesses are really struggling, overcapacity is to blame, and it could get a lot worse.
“Our industry, not unlike the housing industry, saw too much square footage capacity added in the 90’s and early 2000’s. Thousands of new doors opened and rents soared; this created a bubble, and like housing, that bubble has now burst. We are seeing the results; doors shuttering and rents retreating.
This trend will continue for the foreseeable future and may even accelerate…” Industry data supports Hayne’s claim that retail is in a downward spiral. Bank of America’s February 2017 report on credit & debit card spending showed that department store sales plummeted 15% y/y, a rate unseen since the last recession. And Credit Suisse predicted that the pace of store closures in 2017 will surpass anything in recent history, including the past two recessions.
Importantly, Haynes emphasized that the U.S. has several times as much retail space per capita than Europe or Japan. Record low interest rates have allowed companies to take on cheap debt to expand beyond their means, and all that extra square footage requires more employees and inventory. And all that debt needs to eventually be repaid.
Boeing to lay off hundreds more engineers
Trump: 'We're going to surprise you' with speed of tax reform
Donald Trump's top economic aides have recently walked back expectations for how quickly tax reform will happen, but on Tuesday, the president put the pressure back on.
"So we're in very good shape on tax reform. We have the concept of the plan. We're going to be announcing it very soon," Trump said at Snap-on headquarters in Wisconsin. "But health care, we have to get the health care taken care of, and as soon as health care takes care of we are going to march very quickly. You're going to watch. We're going to surprise you. Right, (Treasury Secretary) Steve Mnuchin? Right?"
Mnuchin — who initially set an August goal for passing a tax reform bill — told the Financial Times in an interview published Monday that that timeline is "highly aggressive to not realistic at this point." Chief economic advisor Gary Cohn also recently said he did not know if tax reform, a key policy hope for the investing community, could happen by August.
Even though the president sounded optimistic Tuesday, the Trump administration has set deadlines for tax policy before that have not come to pass. In late February, Trump said the tax plan was "very well finalized," only a day after press secretary Sean Spicer said it would be released "in the next couple weeks.
LA retirees lose last-ditch appeal for pensions at CalPERS
Retirees from a defunct job-training program in Los Angeles County appealed to save their pensions Tuesday, but did not persuade the CalPERS’ administrators to make up for benefits that their employer stopped paying.
The discussion reiterated a March decision by the California Public Employees’ Retirement System to slash pensions by as much as 63 percent for former worker of the East San Gabriel Valley Human Services Consortium because the program quit paying into the fund two years ago when it went out of business.
Retirees, some of whom worked for the program for more than 20 years, said they were blindsided by the cut to their pensions. The four cities that created the job training program in 1979 have refused to pick up the CalPERS bills that would allow the pensions to be fully funded.
“I feel like that passenger on United Airlines who was forcibly removed from his flight, and I feel that CalPERS will be faced with a similar PR nightmare if you can’t follow through on this request,” said Maureen Lynch, a 17-year employee of the job training program, referring to a viral video that embarrassed United Airlines last week.
Don't count on that government pension
Miillions of Americans are expecting to receive a pension from the city or state that employs them. Many will be in for a terrible surprise, according to the nonprofit organization Truth in Accounting.
It surveyed 237 municipal pension plans across the country, using newly required reporting data about pension underfunding. Although it has taken decades for many of these pension funds to get into such bad shape, only now are the details being revealed, says Sheila Weinberg, president of Truth in Accounting and a CPA who has dedicated her life to requiring full and useful disclosure of federal, state and local debt obligations.
This newly collected data should be frightening to those counting on a state or municipal pension. The report for each city and state includes the amount of pension plan assets, the amount of plan promises, and the dollar amount and percentage of pension underfunding. Every plan also receives a letter grade, from A to F.
Of the 237 cities studied, 29 received an "F" grade, reflecting a funding ratio of less than 35 percent. Those plans cover many thousands of workers who cannot possibly be paid their full promised pensions, absent a huge tax increase (which would also come out of their pockets as workers).
Factory Output Falls Sharply as Auto Production Sags
U.S. factory output fell unexpectedly in March, charting its biggest decline in seven months as auto production contracted in a check on the manufacturing sector's expansion.
The Federal Reserve said on Tuesday manufacturing production dropped 0.4 percent last month. February's output was revised down to show a 0.3 percent gain instead of the previously reported 0.5 percent increase.
Analysts had expected a 0.1 percent increase in factory output in March. Still, smoothing out monthly volatility, factory production rose at a 2.7 percent annual rate in the first quarter.
Despite the sharp decline in manufacturing output last month, overall industrial production rose 0.5 percent because of an 8.6 percent weather-driven surge in utilities generation. That was the largest increase in utilities output on record, which resulted from heating demand returning to seasonal norms after being suppressed by unusually warm weather in February, the Fed said.
United CEO says no one will be fired for dragging incident
United Airlines executives said Tuesday that it's too soon to know if last week's dragging of a man off a plane is hurting ticket sales. The chief executive said no one will be fired over the incident. CEO Oscar Munoz and other executives apologized again on Tuesday before discussing the airline's latest financial results with analysts and reporters.
Munoz said he takes full responsibility "for making this right" after the April 9 incident aboard a United Express plane at Chicago's O'Hare airport. He said the airline will have more to say later this month after it finishes a review of its policies on overbooked flights.
Munoz started the call with an apology to David Dao, the 69-year-old Kentucky physician who was dragged off the plane by Chicago airport officers who had been summoned by United, and to all other customers.
"You can and should expect more from us, and as CEO I take full responsibility for making this right," Munoz said. He and other executives vowed to treat customers with dignity, and said that what happened to Dao will never happen again. Munoz's early statements on the incident were widely criticized. He initially supported employees and blamed Dao, calling him "disruptive and belligerent." On Tuesday, he was asked if the company ever considered firing anyone.
As protests swell, Venezuela spirals into 'deep economic crisis'
Venezuela is diving deeper into crisis as citizens prepare for a mega march Wednesday against President Nicolas Maduro. The IMF didn't sugarcoat its updated economic outlook for Venezuela on Tuesday. "Venezuela remains mired in a deep economic crisis," IMF authors wrote in its World Economic Outlook.
Unemployment is set to surpass 25% this year, possibly on its way to 28% next year. It was at 7.4% in 2015. Venezuela's economy shrank a massive 18% last year -- its third year of recession and it's expected to be in the red this year, and next too.
The IMF's prediction for inflation in Venezuela is pretty bad, but better than previous expectations: It's expected to skyrocket 720% this year -- somehow only half of the previous forecast. But if Venezuela stays on its current path, the IMF predicts inflation will rise over 2000% in 2018. That's only the tip of the iceberg.
Protestors have taken to the streets in recent weeks after Maduro's administration barred opposition leader Henrique Capriles from holding any political office for the next 15 years. At least four people have been killed in violent protests since April 1. Another mega march is set for Wednesday, and Maduro has called the army to patrol the streets.
Chaos Coming To A Market Near You This Summer
This month the Fed is adding $23.4 billion in cash to Primary Dealer Trading Accounts in the period April 12-20. This is slightly more than the March addition of $21.9 billion, the smallest add since January 2016. It was a sharp decline from February’s $41.6 billion. You may have thought Quantitative Easing (QE) ended in late 2014, and it did, but the Federal Reserve has continued to add cash to the financial markets every month. It does so via the purchases of mortgage backed securities (MBS). It calls them “replacement purchases.”
The Fed is the bank for the banks, i.e. the central bank. It has resolved since 2009 to force trillions in excess cash into the banking system and make sure that that money stays in the system. It has also resolved to make sure that the amount of the cash in the system does not shrink. It does that each month via its program of MBS replacement purchases.
The Primary Dealers are selected by the Fed for the privilege of trading directly with the Fed in the execution of monetary policy. This is essentially the only means by which monetary policy is transmitted directly to the securities markets, and then indirectly into the US and world economies. The only means which the Fed uses in the transmission and execution of monetary policy is via securities trades with the Primary Dealers.
When the Fed buys MBS to replace those paid down from its balance sheet, it does so via trades with Primary Dealers. It buys MBS via forward purchase contracts which are typically settled in the next month or the following month. The Fed is only keeping the amount of its assets level. But it pumps billions in cash into the accounts of Primary Dealers each month as part of that process.
President Donald Trump: Vocational Schools Will Be A Big Factor In My Administration
Peter Schiff Warns This One Event Will Wipe Out Entire Generations of Retirees
In an interview with GoldSeek on April 14, outspoken economist Peter Schiff issued a dire warning to investors. According to Schiff, a new housing bubble, an overvalued stock market, and President Trump‘s proposed stimulus plan will send the U.S. into extreme panic at some point in the near future.
In fact, Schiff thinks these catalysts will combine to cause an “inflationary maelstrom” that will “wipe out entire generations of retirees” who have their nest eggs invested in the market.
This new housing bubble – coined an “echo bubble” by some economists – is something we’ve warned you about before. In the United States, there are at least six major cities – ones that recovered from the recession too fast – that meet the criterion for bubble status: Their housing markets are considered overvalued (above 0.5%), and their housing prices have skyrocketed well above 15% within the last five years… In fact, some have seen over a 50% increase since 2011.
A post-bubble rally that becomes another, smaller bubble. For example, after the technology bubble that occurred at the turn of the 21st century – one of the biggest bubbles of all time – people believed that another echo bubble was on the way.
'I Don't Think Now Is A Bad Time To Buy Gold'
With gold prices holding near five-month highs one gold analyst expects prices to continue to move higher and eventually retest last year’s highs. Even with gold up 12% since the start of the year, George Milling-Stanley head of gold investments at State Street Global Advisors, said prices still have room to move higher as ongoing global uncertainty supports the market.
“There is a strong undercurrent of uncertainty. A crisis may well dissipate quickly but the general atmosphere of uncertainty is going to remain with us,” he said in a recent interview with Kitco News. “I don’t think the rally we have seen so far this year is sustainable to in my opinion.”
The analyst's comments come as gold prices continue to hold near a five-month high, with June Comex gold futures last trading at $1,291.90 an ounce. While safe-haven demand could be the driving force behind gold’s latest push, Milling-Stanley said that he see broad-based demand for the yellow metal. He explained that he has heard from many fund managers who, after years of complacency, are now rebuilding strategic allocations in gold, to act as an insurance policy.
“The rally we have seen so far in gold is a lot more than just safe-haven buying,” he said. “This is all part of a much bigger pattern.” Milling-Stanley reiterated his call that he expects gold prices to reach last year’s highs around $1,375 with the possibility of reaching $1,400 an ounce. He added that it could take some time to break psychological resistance at $1,300 an ounce.
United Health Profits Up 35% After Cutting Participation in Obamacare Exchanges
United Health reported 35 percent higher profits in the first quarter as it cut participation in the Obamacare exchanges, the Associated Press reported.
Last year United Health announced it would cut participation on the Affordable Act Exchanges to 3 states after they had expanded to 34. They projected losses of more than $800 million. In the first quarter, while the major health insurer scaled back Obamacare participation, the company increased nearly every other sector of its business.
"The insurer also hiked its 2017 earnings forecast on Tuesday, and company shares started climbing shortly after it detailed results," the article said.
"Enrollment in Medicare Advantage plans and the state- and federally funded Medicaid coverage both swelled for UnitedHealth, which also continued to grow an Optum segment that sells several services outside the company's core health insurance," the article said.
H-1B Visa Applications Fall By 16 Percent
Companies pulled back on visa applications for skilled tech workers this year, possibly anticipating closer scrutiny of the H-1B program by the Trump administration. Employers seeking H-1B visas for 2018 submitted a total of 199,000 applications this year, about 16 percent less than the 236,000 last year, U.S. Citizenship and Immigration Services announced Monday.
The number of applications easily surpassed the 85,000 visa limit, but this was the first time in the last five years the number of requests declined, Bloomberg reported. It’s unclear if the drop in applications was due to speculation that President Donald Trump would push for changes to guest worker programs.
Tech firms view the H-1B visa program as a critical hiring tool. It is designed to allow U.S. companies to hire highly-skilled workers in technical jobs where there are a shortage of qualified domestic applicants. Opponents say it gives employers legal cover to import cheaper foreign labor and avoid paying higher wages to Americans.
Bruce Morrison, who created the H-1B program and now works as a lobbyist for tech-worker advocacy group IEEE-USA, told Bloomberg that a reduction in applications probably reflects a shift in strategy rather than slowing demand for visas. “I don’t think the demand is lower, either from outsourcers or from direct employers,” he said. “I don’t think there were ever 230,000 jobs that were going to be filled.”
The costly consequences of Dodd-Frank for community banks
Restaurant Workers’ Association Joins Lawsuit Against Donald Trump
A pair of plaintiffs — a nonprofit organization that stands up for restaurant workers' rights and a woman who books banquet halls for two Washington, D.C., hotels — joined a lawsuit alleging President Donald Trump violated the Constitution’s emoluments clause by repeatedly doing business with foreign governments at his hotels and restaurants.
Restaurant Opportunities Centers United (ROC) and Jill Phaneuf were added to the case as of Tuesday, according to a spokesperson from Citizens for Responsibility and Ethics in Washington (CREW), a D.C.-based watchdog group that initially filed the suit against Trump in federal court in January, the Washington Post reports.
The addition of ROC and Phaneuf is intended to bolster CREW's case, who legal experts said may not have grounds to sue due to a lack of impact directly affecting the organization, according to the Post. Now, ROC and Phaneuf reportedly plan to assert that their businesses stand to lose out on foreign clients, potentially in town to gain political favor with President Trump, as direct competitors to the Trump Organization's properties.
"It’s damage to our members, both employers’ bottom lines, and workers’ loss of income and tips," Saru Jayaraman, ROC co-director, said.
This Man’s 2-Mile Ambulance Ride Cost $2,700. Is That Normal?
Ideally, you’ll never need to ride in the back of an ambulance. But if it happens, here’s what you should know: Ambulance services are extremely expensive.
Rick Santoro learned that the hard way. After receiving a two-mile transport in February, Santoro experienced sticker shock: His ride added up to $2,691.50. Though insurance covered most of it, Santoro had to pay $770.30 out of pocket, and he wondered if that was right. The bulk of the bill resulted from the fact he hadn’t yet hit his annual deductible, but it still seemed pricey, he said, given the brief care he received. “I just want an answer,” Santoro said. “If I gotta pay the 700 bucks, I gotta pay … It will be a lesson learned for me.”
In early February, Santoro, 60, was at an orthopedist’s office for a small procedure, an injection in his knee. Afterward, he passed out, but once he regained consciousness, he continued to feel ill. His doctor suggested he go to the emergency room, and Santoro, uncertain why he was having issues, agreed. An ambulance took him two miles to the nearest hospital, and a few weeks later, the bill arrived. The short ride cost more than the subsequent emergency room visit, which he estimates lasted about two and a half hours. That bill was $200.
Santoro’s inquiry isn’t the first Credit.com has received about a pricey ambulance ride. As we’ve previously reported, there are many reasons medical transport services cost hundreds or thousands of dollars. It’s difficult to pin down an average amount for an ambulance bill, because costs vary so widely by location, services and contracts between providers and insurers. But the core expenses generally result from the same things.
Study: Taxpayers spend 17 hours on average preparing their returns
A new study from a conservative group says American taxpayers spend 17 hours on average completing their personal tax paperwork.
The study from the American Action Forum (AAF) was released on Tuesday, Tax Day.
"The individual income tax generates 2.6 billion hours of paperwork from roughly 150 million tax filers. This equates to 17 hours per response, or roughly two work-days dedicated to tax returns," according to Sam Batkins, director of regulatory policy at AAF.
The group also found that companies spend about 275 hours each preparing their taxes. The IRS says the cost of tax paperwork for businesses and individuals comes out to $86 billion, but AAF says their estimate puts it as high as $170 billion annually.