Canada's Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History
ZeroHedge.com Apr 26, 2017 4:49 PM
Call it Canada's "New Century" moment.
We first introduced readers to the company we said was the "tip of the iceberg in Canada's magnificent housing bubble" nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada's largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices - most prominently noted short-seller Marc Cohodes - would constantly remind traders and investors about the threat posed by HCG.
Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.
As part of this inevitable outcome, one which presages the company's eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday. Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable Group Inc. fell 17 percent, Street Capital Group Inc. fell 13 percent, while First National Financial Corp. declined 7.6 percent. In short, the Canadian mortgage bubble has finally burst.
Some more details on HCG's emergency source of funding: Home Capital will pay 10% interest on outstanding balances and a non-refundable commitment fee of C$100 million, while standby fee on undrawn funds is 2.5%. The initial draw must be C$1 billion. The loan has an effective - and very much distressed - interest rate of 22.5% on the first C$1 billion, declining to 15% if fully utilized, according to a note from Jaeme Gloyn, an analyst at National Bank of Canada.
Home Capital said the credit line is intended to “mitigate” a sharp drop in Home Trust’s high-interest savings account balances, which sank by $591 million from March 28 to April 24, at which point the total balance was $1.4 billion. Home Capital warned on Wednesday that further outflows are anticipated.
Translated: what until last night was a depositor bank jog just became a sprint.
The loan will provide Home Capital with more than C$3.5 billion in total funding, more than twice the C$1.5 billion in liquid assets it held as at April 24. It also has C$200 million in securities available for sale, and high interest savings account balances fell about 25% to C$1.4 billion over the past month. Home Capital relies on deposits to fund their mortgage loans; following today's announcement the company's liquidity is certain to get even worse as all non-distressed sources of cash are pulled.
The Main Highlights In Trump's Sweeping Tax Reform Proposal
ZeroHedge.com Apr 26, 2017 3:45 PM
In brief, the tax reform was largely in line with what was leaked and what was expected. Small surprises: the tax bracket for high income earners was 2% more (at 35%) than what Trump campaigned on, and the standard deduction has been doubled so that no married couple pays tax on their first 24k earned, Citi notes.
As expected, no mention of border adjustment taxes. The plan also looks to repeal real estate taxes, alternative minimum tax and the death tax. Territorial taxes are also included. As we type, Mnuchin and Cohn are answering their last question.
Below is the actual tax from the White House:
2017 Tax Reform for Economic Growth and American Jobs
The Biggest Individual And Business Tax Cut in American History
Goals For Tax Reform
Throughout the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input and will continue working with the House and Senate to develop the details of a plan that provides massive tax relief, creates jobs, and makes America more competitive—and can pass both chambers.
A few additional observations from Citi:
What didn’t Mnuchin or Cohn tell us, in addition to the details noted above:
When asked by The Hill editor-in-chief as to whether or not he's reached out to any centrist Democrats for input on the plan, Mnuchin declined to comment on the "specifics." He "hopes Democrats won't get in way."
Ryan said several times Wednesday that Republicans plan to use reconciliation as a vehicle for tax reform. This point is very important but to illustrate this, one has to understand the reconciliation process.
The Center on Budget and Policy Priorities helps define it. Created by the Congressional Budget Act of 1974, reconciliation allows for expedited consideration of certain tax, spending, and debt limit legislation. In the Senate, reconciliation bills are approved with a simple majority of 51. To start the reconciliation process, the House and Senate must agree on a budget resolution that includes “reconciliation directives” for specified committees in the House and Senate. Those committees must report legislation by a certain date that does one or more of the following:
Republicans could pursue tax reform under the budget reconciliation process, meaning the Senate could pass bills related to the budget – but reconciliation requires the long-term savings. Post 10y, scoring has to indicate that the bill will be revenue neutral or revenue positive or it doesn’t work.
That looks to be exactly why Republicans wanted to prioritize healthcare reform: the Congressional Budget Office estimated the American Health Care Act would reduce federal deficits by USD337 billion over the next 10y. Given that tax reform estimates signal a revenue burden, various political analysts posit that Republicans have been looking to repeal Obamacare to pay for some parts of tax reform.
Without healthcare reform, Republicans could face challenges getting a revenue neutral, long-term tax reform.
Some parting thoughts:: as Time's Zeke Miller notes this Trump tax plan is the same as the one released last fall. "If his team has been working on it for the last 6mos, we didn't see it 2day."
Additionally, while the proposed tax plan does not raise taxes on hedge fund managers, as Trump vowed during his campaign, courtesy of the cut in LLC tax rates, it will likely lower the taxes many if not all HF managers pay.
And, of course, with the state deduction gone, it means that for many Americans the net effect will be to raise, not lower the amount of tax owed.
* * *
Of course the crucial question is - with The White House targeting deductions to help pay for tax plan (but mortgage/charitable are protected), how does this not blow up deficit?
Perhaps the most concerning aspect is the apparent expectations management that is being undertaken this morning:
The White House's presentation will be "pretty broad in the principles," said Marc Short, Trump's director of legislative affairs.
In the coming weeks, Trump will solicit more ideas on how to improve it, Short said. The specifics should start to come this summer.
Short said the administration did not want to set a firm timeline, after demanding a quick House vote on a health care bill and watching it fail.
But, Short added, "I don't see this sliding into 2018."
The biggest question is - will this be enough to satisfy the market? For now the answer is no, because as Citi adds the market isn't jumping around on this but there is a bid in US fixed income, taking USDJPY down towards 111.25. All in all, a classic buy the rumor, sell the news on an under-delivered (but fairly presented as such) "big announcement" from the Trump Administration.
Where Do All Our Tax Dollars Go?
By Adam Michel and Justin Bogie CNSnews.com | April 19, 2017 | 9:21 AM EDT
When Americans file their taxes, it’s natural to wonder, “Where do my tax dollars go? What do they fund? And what don’t they fund?”
According to the latest Congressional Budget Office report on the distribution of federal taxes, Washington collects about $20,000 from the average household. Yet the 2016 deficit was a whopping $587 billion. The almost $3.3 trillion that the federal government taxes out of the economy each year isn’t enough to satiate its profligate spending.
So where do our tax dollars go?
Some believe most of it goes to welfare and foreign aid. Others believe defense and corporate welfare dominate the budget. In reality, health entitlements—Medicare, Medicaid, Obamacare—and Social Security are the largest programs. These entitlements and interest on the debt are set to consume every dollar of taxes paid in just over 20 years.
Social Security. The single largest federal program, Social Security accounts for roughly a quarter of all federal spending. Its trust funds are already paying out more than they take in, and as more people retire, the system will be under continued stress.
Without reform, the program’s trustees project benefits will need to be cut as much as 21 percent if nothing is done by 2034 (the Congressional Budget Office projects insolvency will come four years sooner).
Major health entitlements. Federal health programs such as Medicare and Medicaid and Obamacare subsidies are also growing at an unsustainable trajectory. Currently consuming 28 percent of the budget, health spending continues to grow faster than the economy.
Income security. Other income security programs—veterans’ benefits, unemployment compensation, food and housing assistance, federal employee retirement, and disability—are 18 percent of the budget, surpassing national defense spending.
Defense. The defense budget covers everything from military paychecks, to operations overseas, to the research, development, and acquisition of new technologies and equipment.
At 16 percent of the federal budget, defense spending is the last major category of federal spending and has been falling as a percent of the budget for the last decade.
And the rest?
Interest. Over the coming decade, U.S. debt held by the public is projected to balloon to 89 percent of gross domestic product—driven primarily by health and Social Security spending.
Deficit spending does not come cheap. As the debt increases, so does the cost of the interest we must pay to those who hold the debt, the unfortunate result of excessive government spending.
Currently, 6 percent of the budget is spent on interest—money that takes away from other priorities. Over the next 10 years, net interest on the debt is projected to rise to almost 12 percent of the budget, more than is projected to be spent on national defense.
Without reforming America’s massive and growing federal programs, Washington will have to continue to borrow increasing amounts of money, piling debt onto younger generations and putting the nation on an unsustainable economic course.
Growing government spending threatens higher taxes on current and future taxpayers. Increasing taxes is not an option. Washington already takes too much of the money that Americans work hard to earn.
Congress must rethink how it is spending the people’s money. The Heritage Foundation’s recently released “Blueprint for Balance” provides a workable guide for spending reform, listing $10 trillion of spending cuts that balance the budget in seven years.
The tax code is also badly in need of an update to make it less of a burden on the American people, American businesses, and the economy. Pro-growth tax reforms can unleash private investment, encourage job creation, and fuel economic growth, increasing prosperity for all Americans.
The first step to putting the federal budget back on a sustainable path is fully accounting for how precious taxpayer dollars are being used. Are you getting your money’s worth?
Paying income tax or any other tax is a BOHICA moment! (Bend Over Here It Comes Again!)
America’s insomnia problem is even worse than before the Great Recession
Published: Apr 20, 2017 12:01 a.m. ET
This problem is keeping most Americans awake at night
By Kari Paul Market Watch.com
Most Americans can’t sleep — here’s why.
Americans are more stressed than ever — and for most of them, their bank accounts are to blame.
The majority of Americans (65%) are losing sleep over money issues, according to a new study from CreditCards.com — up from 56% in 2007. The most common stressor is health care or insurance bills at 38%, followed by saving for retirement at 37%. “What people worry about most changed quite a bit in the past year,” Matt Schulz, senior industry analyst at CreditCards.com said. “Health care has been such a hot button issue for so long, and whether it’s around the election or just about the cost of maintaining your own health care, we’ve seen a big jump in worrying about that.” (Health care was a factor for just 29% of respondents in 2016.)
In addition to health care and retirement, 34% worry the most over educational expenses, 26% about mortgage bills, and 22% due to credit-card debt. Shulz said the share of people who cited credit card debt as the most preoccupying has fallen in recent years, showing despite the fact that credit card debt is hitting record highs, it is the least of consumers’ worries. They may have cause for the lack of sleep: Credit-debt surged passed the $1 trillion mark, according to Federal Reserve data released earlier this month.
Generation-Xers and their younger millennial cohort are the most likely to lose sleep over financial issues, a finding backed up by another study last year by personal-finance site ValuePenguin. That study found that 3 in 4 millennials said the need to make student loan payments every month made them worry about their financial situation. Student loan debt currently stands at $1.4 trillion. “They are the ones bearing the biggest burden right now, in terms of cost of education,” Liz Weston, a personal finance columnist for NerdWallet said. “Everyone knows you need to go to college, or post-secondary training if you want to stay in the middle class now, but the cost keeps going up.”
These worries come as the gap between middle and upper classes widens in the U.S. — with wages stagnant for most employees the past four years as CEOs got richer. Schulz notes the best way for consumers to ease ongoing financial anxiety is to take action. Most people in the latest study are doing just that: 82% reported taking at least one step to improve their financial situations over the past year. “Even a small move like making a budget or selling something of value can help you sleep more peacefully at night because it makes you feel more empowered,” he said. After all, more people are working beyond the age of 65 and few, like this man, can afford to retire at 30.
Is The Deep State Creating Another "Crash Of 1929"?
ZeroHedge.com Apr 17, 2017 12:50 PM
Authored by Jeff Thomas via InternationalMan.com,
Regarding the Great Depression… we did it. We’re very sorry… We won’t do it again.
– Ben Bernanke
Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road--either too much inflation, financial instability, or both.
– Janet Yellen
In his speech above, future Federal Reserve Chairman Ben Bernanke acknowledged that, by raising interest rates, the Fed triggered the stock market crash of 1929, which heralded in the Great Depression. Yet, in her speech above, Fed Chair Janet Yellen announced that “it makes sense” for the Fed to raise interest rates “a few times a year.” This is a concern, as economic conditions are similar to those in 1929, and a rise in interest rates may have the same effect as it did then.
So let’s back up a bit and have a look at what happened in 1929. In the run-up to the 1929 crash, the Federal Reserve raised rates to 6%, ostensibly to “limit speculation in securities markets.” As history shows, this sent economic activity south rather quickly. Countless investors, large and small, who had bought stocks on margin, would be unable to pay increased interest rates and would be forced to default. (It’s important to understand that the actual default was not necessary to crash markets. The knowledge that investors would be in trouble was sufficient to send the markets into a tailspin.)
Mister Bernanke was quite clear in 2002 when he stated that the Fed would not make the same mistake again that it made in 1929, yet, then, as now, there’s been a surprise victory by a Republican candidate for president. Then, as now, a wealthy man who had never held elective office was unexpectedly in the catbird seat and had the potential to endanger the control of the political class, at a time when that political class had been complicit in damaging the system by creating massive debt.
Then, as now, conditions were ideal for the Deep State to create a solution to all problems: An economic crash was inevitable; therefore, create a trigger for it to occur and blame the collapse on the conservative political outsider. Demonstrate to all that the collapse was due to the greed of the outsider and those who were of like mind. Use that leverage to demonstrate to the hard-hit populace that what was needed was the opposite of what the outsider had proclaimed. Recommend far greater control by a new government that was staunchly liberal—a government that would change the political landscape in such a way that all those who suffered would be saved by a benevolent collectivist government.
And, of course, when it’s stated that way, it’s an easy sell. In 2017, it will be an even easier sell than it was in 1929, as the new president has already set himself up for a fall. In his inauguration speech, he focused on a single topic—the return of power to the people and away from Washington’s bureaucracy.
Beginning by decrying Washington for what it truly is, he stated that “for too long, a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost. Washington flourished—but the people did not share in its wealth.”
He then went on to describe that his presidency would bring about a metamorphosis:
I will never, ever let you down. America will start winning again, winning like never before. We will bring back our jobs. We will bring back our borders. We will bring back our wealth. And we will bring back our dreams. We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation. We will get our people off of welfare and back to work—rebuilding our country with American hands and American labor… We will reinforce old alliances and form new ones—and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth… We will not fail. Our country will thrive and prosper again.
Of course, new presidents are prone to making big promises when they first take office. However, Mister Trump has, in his brief speech, effectively declared himself the enemy of the Washington bureaucracy. In so doing, he’s left himself wide open to be the fall guy if the economy does not rebound, if the average American’s lot does not improve, and if the US does not dominate the world through an expanded military. In short, the Deep State and their cronies, who were instrumental in creating the economic, social, and political house of cards that now exists, have the perfect opportunity to bring on the collapse and blame the new president for it.
Were Mister Trump to have honestly stated that the US is effectively a house of cards and that he’ll begin the laborious job of trying to salvage what’s left of it and begin to rebuild it, he would have provided himself with a justifiable excuse when the house of cards does collapse. However, by making such lofty claims to “Make America Great Again,” he’s lost this opportunity.
In the last year, whenever I was asked who I hoped the Americans would elect as their president, I replied, “Bernie Sanders.” To those that were shocked by this answer, I would add, “An economic collapse is inevitable. No one, no matter how capable, can prevent it. The best that can happen is that the collapse occurs under a president who’s an avowed socialist. That would ensure an eventual return to smaller government and more conservative economics.”
As unfair as it may be, a nation’s people almost always blame whoever is on watch when a collapse occurs. It matters little who or what is actually at fault. People need a “face” to vilify for the disaster and the sitting leader is almost always spontaneously chosen by a nation as that face.
And, of course, the opposing party invariably makes the most of the situation. Just as in 1929 and for years thereafter Herbert Hoover received the lion’s share of the blame for a Wall Street crash and the subsequent Great Depression, even though he was not at fault, so too will the US come to blame the new president who made promises that were far beyond what he could deliver.
The die is cast. The patsy-in-chief is now installed. The media will do all they can to discredit Mister Trump and civil unrest will be funded by his opponents. The US economy is more debt-laden than any country in the history of the world and, historically, this has always resulted in economic collapse. At present, there are scores of triggers that could bring about collapse. Any one of these black swans could do the job, but it’s entirely possible that the Federal Reserve will serve once again as the trigger, as it did in 1929.
This is unquestionably the smart way to play the game. Rather than wait for a random occurrence, if a date is set for a controlled collapse, those connected to the Deep State will have a brief time to disconnect their wealth from the system, as was done in 1929.
The trigger would be pulled by the Fed and the US economy would go down in as controlled a fashion as Building Seven in the World Trade Center.
When is this likely to occur? Herbert Hoover was given just under eight months. The date for the next collapse could be earlier or later. But the question is not when that date might be, but whether we’ve prepared ourselves for the eventuality.
A 'Polite' History Of Government "Predictions"
ZeroHedge.com Apr 13, 2017 9:50 PM
Authored by Simon Black via SovereignMan.com,
Recently the Congressional Budget Office published a scathing report that the US government debt-to-GDP ratio will double over the next 30-years.
Few government agencies are as blunt as the Congressional Budget Office.
In fact the agency’s report plainly states that “the prospect of such large and growing debt poses substantial risks for the nation. . .”
Echoing this sentiment, a former director of the Congressional Budget Office called the US debt:
“a serial horror story in which the greatest economic power ever to grace the globe sails directly into self-inflicted crisis, suffering and decline.”
Nearly every major superpower over the last thousand years, from the French Bourbon monarchy to the Ottoman Empire, was eventually crushed under the weight of its debt.
The CBO has been sounding the alarm bells for years warning successive administrations that there will be serious, serious consequences in the future.
The irony is that the CBO is probably being overly optimistic.
I pulled some of their older projections from several years ago, and while they nailed the trend, they totally underestimated how severe the debt crisis would be.
In January 2007, for example, the CBO issued its annual budget and economic outlook in which they made 10-year projections about the national debt.
So, 10 years ago, the CBO estimated that by 2017, the “debt held by the public” would be $4.2 trillion, which they estimated would be 24.6% of GDP.
(Note that the CBO tends to focus on “debt held by the public”, but this number is only a portion of the total national debt.)
Now it really is 2017.
So how much is the actual debt held by the public today?
$14.35 trillion, or 76.5% of GDP… more than three times what the CBO projected back in 2007.
(Bear in mind that TOTAL government debt in the US is $20 trillion, around 106% of GDP.)
In other words, the CBO’s projection was wrong by $10 TRILLION.
That’s not to take anything away from the CBO; as the old saying goes, predictions are hard, especially about the future.
The agency is clearly doing its best to objectively highlight the obvious (and dangerous) trend of rising debt levels in the Land of the Free.
Their math just happens to be off by an order of magnitude.
It’s not just the CBO either.
As I frequently write to you, each year the Board of Trustees of the various Social Security trust funds releases a report detailing the dismal finances of that program.
In the Trustees’ 2005 report, for example, they projected that the trust funds would be “fully depleted,” i.e. completely run out of money, in the year 2043, nearly four decades later.
Eh, who really cared… 40 years was such a long time away.
The next year in the 2006 report, however, their estimated year of depletion changed to 2040… 34 years in the future.
By 2010, it had changed again to 2037… 27 years into the future.
And from last year’s 2016 report, the estimate changed yet again to 2034, just 18 years into the future.
Notice the trend? In a little more than a decade, the Trustees’ estimated date when the trust funds would be fully depleted has accelerated by 9 years.
In other words, the closer we get to the date, the more accurate their calculations become, and the faster they believe the trust funds will go bust.
Again, it’s hard to fault the trustees.
They have the right message: Social Security is going broke. They just happen to have been too optimistic in their timing.
It mystifies me how this is not front-page news on a daily basis.
I mean, the implications are enormous; the people who run the Social Security program are saying, flat out, that they’re running out of money and the program will have to curtail benefits.
And the guys within the government who watch over the budget are shouting from the rooftops that the national debt poses substantial risks.”
I imagine most people would probably agree that this stuff matters.
It just doesn’t matter to them today. Or tomorrow. Or next year.
It’s easy to put off obvious and dangerous consequences that won’t strike until several years into the future.
Such short-term thinking is in our nature as human beings.
It’s why we eat garbage foods that poison our bodies… because the life-threatening diabetes and heart disease won’t hit us for another couple of decades.
This is a dangerous gamble, especially considering that there are countless solutions to distance yourself from the impact of your government’s serial irresponsibility.
For example, there are plenty of options to establish a far more flexible, robust retirement structure like a self-directed SEP IRA or solo 401(k).
These plans allow you to save more money for retirement, cut your administrative costs, and realize far better returns in alternative asset classes.
As an example, instead of stuffing all of your retirement savings in an overpriced stock market, your IRA or 401(k) could own a profitable private business or royalty stream that consistently pays strong, healthy cash flow month after month.
This way, when Social Security does go broke, you won’t be affected one bit.
No one else can make this a priority in your life but you.
I’ll say it again: all it takes is the right education, and the will to act.
Do you have a Plan B?