Articles, June 2017
A small but growing group of hedge funds are positioning themselves to profit from the collapse of the real estate market. Sounds like 2007, right? It’s actually happening right now.
But this time, hedge funds (along with Deutsche Bank and Morgan Stanley) aren’t targeting subprime mortgages—they’re going after commercial real estate.
It’s no secret retailers and malls have been struggling for years, but it looks like the perfect storm is set to hit them in 2017.Read more.
The stock market’s 109 trading-day run without a 1% decline was finally broken last Tuesday.
The drop came following doubts about the Trump administration’s ability to pass healthcare reform, which prompted second thoughts about the ‘’Trump trade” among investors.
However, with inflation at its highest point since 2012 and wages rising, fundamentals look solid. As such, this recovery still has legs and the decline could be a classic ‘’buy-the-dip’’ opportunity for investors.
Here are three...Read more.
The S&P 500 and DJIA haven’t seen a 1% drop since October 2016. For some perspective, Hillary Clinton was the presidential frontrunner the last time markets fell 1%. This is the longest such streak for both indices in over 20 years.
In February, the DJIA recorded its longest “winning streak” since 1987. It closed 2,000 points above its 200-day moving average for the first time ever.
Also in February, the combined market cap of the S&P 500 topped $20 trillion for the first time. Its market cap...Read more.
In January, 19 US states raised their respective minimum wages. Washington was among the most generous, hiking by $1.53 (bringing it to $11 per hour). Arizona got an increase of $1.95—their “bottom rung” now sits at $10 per hour.
In all, 4.3 million workers are slated to receive a hike as they earn less than the new minimum wage in their respective states. Well, that’s what’s meant to happen. Judging by the fallout from recent hikes, it seems things aren’t going according to plan.... Read more.
Peer-to-peer lending (P2P lending) is a new method of debt financing that enables individuals to borrow and lend money without the use of a financial institution. Online P2P lending platforms connect borrowers to investors, adding ease and speed to the process.
What started as peer-to-peer has grown into a marketplace. The likes of JP Morgan and Citibank now account for over 65% of new capital. Goldman Sachs recently launched its own lending platform named Marcus. It will be the first major...Read more.
Combing through recent SEC filings for Stanley Druckenmiller’s Duquesne Capital, we found something interesting.
In Q4 2016, Duquesne opened a $134 million long position in the iShares Russell 2000 Index (IWM). IWM is an exchange traded fund (ETF) that tracks the price of the Russell 2000—the bellwether US small-cap index. This position is their largest single holding, representing 13% of the total portfolio.
Given small caps are up over 17% since November, are they something retail investors...Read more.
Globalization and immigration drummed up lots of interest during the presidential election, but healthcare may be the bigger issue facing America.
In 2016, healthcare spending totaled $3.35 trillion. That’s over $10,000 per capita. Of the total spending, government accounted for 29%, households for 28%, and businesses for 20%.
Since 2001, health insurance costs have shot up 114%. The average premium for a family now exceeds$18k per year. That’s up $1,300 since 2014. For most people, an...Read more.
While Trump’s tweets grab the headlines, Europe’s perils are becoming harder to ignore. Greece’s fiscal follies have surfaced once again, but that’s not the EU’s biggest threat at the moment. That award goes to Italy’s banks.
Currently, around 18% of Italian bank loans are nonperforming. For some context, nonperforming loans in the US only reached 7% at the height of the 2008 financial crisis. The same level of bad loans in the US banking system would equal $3.8 trillion.
Political will has...Read more.
In 1999, I was a partner in launching one of the world’s first pure online banks. At the time, the idea was controversial to say the least.
I remember sitting in an office at the Dallas OTC while our soon-to-be ex-lawyer tried to run up his fees by scaring the stone-faced bureaucrats.
“It’s a bank, but WITHOUT PHYSICAL BRANCHES!” he intoned, raising his voice and waving his arms dramatically to underscore each point. “There’s NO BUILDING THE CUSTOMERS CAN WALK INTO to see their bankers! Are...Read more.
As equity markets hit new highs and home prices continue their ascent, there is a renewed sense of optimism across America. This is no doubt positive for asset owners. But what really counts—real median wages—have only risen 9% since 1979.
Compare that to the 91% rise in real wages in the 25-years after the end of WWII.
So, what gives?Read more.
Secular stagnation may have kicked-off 2016, but 2017 has started with a reflationary revival. In January, the consumer price index (CPI) recorded 2.5% year-over-year (YoY) growth - Its highest reading since early-2012.
Inflation has been trending upward since 2015, but it’s ascent has only come to the forefront since the election.
Although the current inflation rate is low in a historical context, its return has widespread implications.Read more.
At the end of 2016, Goldman Sachs launched a new online lending platform called Marcus. The move into online lending by one of the most successful investment banks in the world is a telling move for two reasons.
First, it’s a good indicator of the post-financial crisis banking industry. Since Goldman Sachs turned into a bank holding company at the height of the financial crisis in 2008, the bank has been forced to navigate through greater regulatory oversight.
Second, rising compliance...Read more.
In Q4 2016, total outstanding student loans topped $1.4 trillion—that’s more than auto loans or credit card debt. The student loan debt market is now only second to the mortgage market in terms of size.
A major reason student debt has shot up is skyrocketing tuition costs. While the consumer price index climbed 44% since 2000, tuition has soared 151%. Students now graduate with an average of $33,000 in student loan debt.
Over 40 million Americans are burdened by student loans. Normally, this...Read more.
The 10-year Treasury yield—the bellwether for global yields—is up 45% from its July 2016 lows. While US debt looks relatively enticing, the recent upswing in inflation is squeezing real returns.
The consumer price index rose 2.2% (YoY) and hit a two-year high in December, narrowing the spread between it and the 10-year to less than 40 basis points.
The paltry gains offered by high-grade bonds since the financial crisis have caused investors to look elsewhere.Read more.
Since the financial crisis, monetary stimulus has been the main driver of economic growth. That led to nearly all assets moving higher in unison, but that is now changing.
With the monetary engine shifting down a few gears, growth will have to once again come from sector-specific channels like it did during the dot-com or housing booms.
This, coupled with Trump’s pro-growth policies, means 2017 will have clear winners and losers. This is good news for investors who can spot the new...Read more.
Peer-to-peer lending is a new method of debt financing that allows people to borrow and lend money without a financial institution. Harnessing technology and big data, P2P platforms connect borrowers to investors faster and cheaper than any bank.
P2P lending has grown rapidly in recent years and is a new source of fixed income for investors (download my special report on investing in P2P loans for more). Compared to stock markets, P2P investments have less volatility and a low correlation....Read more.
Peer-to-peer lending is gaining a momentum among investors. P2P loans have less volatility, a low correlation, and yield much higher returns compared to other fixed-yield investments. Median risk adjusted returns average 7% on a 36-month loan.
The sector is also very easy to enter. An investor can set up a profile in less than a day and invest as little as $25 per loan. Once invested in a loan, investors usually start receiving payments within 30 days.
However, the unsecured nature of the...Read more.
Thanks to the Fed’s zero interest rate policy, the inflation-adjusted yields banks offer on FDIC-insured certificates of deposit and savings accounts have been close to negative for years.
However, a quiet revolution has been going on for some time now that has the potential to fundamentally change this dynamic. The revolution that is upending the banking business is called Peer-to-Peer Lending.
Using processes and algorithms finely honed over the past decade, P2P platforms allow individuals...Read more.
As the US licks its wounds after one of the most divisive elections in history, the markets appear to anticipate a positive economic outcome.
On the election night, the overnight futures markets plummeted with the expectations of a Clinton victory. But it didn’t take long for a rebound. By morning, the markets returned back to normal.
Lower taxes and a less regulated environment are good for the economy. And I hope Trump pulls it off. However, I am worried that what we see now is just a...Read more.
Gold prices have dropped from $1,340 an ounce in September to as low as $1,250 late last week. This is largely due to forecasts of a rate hike by the US Federal Reserve. But the sharp drop in gold began to reverse on Monday. The price rose by more than $25 in just three trading days.
Most gold analysts say the main reason for the bounce is reaction to comments made by Yellen last Friday. Judging from what Fed Chair Janet Yellen said last week, gold is likely to move up no matter what the US...Read more.
There is a ticking time bomb in the heart of Europe. Deutsche Bank, the largest bank in Europe, needs to be recapitalized. But neither the German government nor the European Central Bank (ECB) wants to fund it. This is leading to an unsafe and unstable situation. It could even trigger another global financial crisis.
The US Department of Justice (DoJ) recently levied a fine on Deutsche Bank (DB) in the amount of $14 billion. But the bank does not have the money to pay the fine.Read more.
The pressure has been mounting for Deutsche Bank (DB) as the stock market continues to slump and the German government spurns the possibility of a bailout. To make matters worse, DB recently hit a record low.
The German titan has been trying to sell assets to raise money to pay the US Department of Justice its record $14 billion fine—although, there have been rumors that Berlin is applying pressure to get the huge fine reduced.
But financial analysts say any figure above $6 billion means DB...Read more.
I had an abnormal experience of my own this week. I had just left my apartment here in Auckland. Whilst walking to the gym, I passed by none other than US Vice President Joe Biden.
For someone who is pro-gun control, the 20+ man entourage sure did carry enough of them. I later saw the police closing off roads so the US convoy could reach its luxury hotel without interruption. The French aristocracy under Louis XV would have felt right at home.
Seeing these characters in person brings home the...Read more.