June 1, 2017

If you were to read only one thing…

Business Insider – A likely shift in the mortgage market is creating ‘prisoners’ in housing – Akin Oyedele 5/29

  • “The housing market’s comeback after the financial crisis has turned out to be a mixed bag.”
  • “Prices have recovered to pre-housing-crisis levels. But with slow wage growth, that means there are fewer affordable houses available to buyers, especially in bigger cities.” 
  • “On the surface, the price trend ought to be good news for existing homeowners looking to sell. However, the likely rise in mortgage rates from historic lows means that there will be less incentive to move, according to Mark Fleming, the chief economist at First American.”
  • “‘You do become a prisoner in your home because of rates,’ he told Business Insider.” 
  • “‘There’s going to be a growing challenge of an increasing financial penalty caused by the rate lock-in effect over time.'”
  • “Since the 1980s, the long-term drop in interest rates created a built-in incentive to move, Fleming said. Even if a seller’s income was unchanged, it was possible to effectively move into a lower mortgage rate, and so be able to even afford a slightly bigger home.” 
  • “Now, the likelihood that rates will rise from historic lows has spurred the so-called rate lock-in effect: homeowners don’t sell because of the perceived or actual difference in their monthly mortgage payments if they swap their old rate for a new, higher one, Fleming said.”
  • “In a market with tight inventory, the decision to sell depends on whether homeowners want to risk selling and then not being able to find a new home.”
  • “‘The existing homeowner is trapped in this prisoner’s dilemma of the cooperative outcome,’ Fleming said. ‘If we all acted simultaneously, it would solve the problem. But we can’t take the risk of being the one that acts when everyone else doesn’t.'” 


FT – Central banks risk messy ‘market melt-up’ – Michael Mackenzie 5/26

Worthy Insights / Opinion Pieces / Advice

FT – The hidden dangers of passive investing – Renaud de Planta – 5/29

  • “At first glance, it’s a persuasive argument. Poorly performing and expensive active managers have lingered in the system for too long, eroding returns for investors.”
  • “Yet on deeper reflection, index-tracking products are no miracle remedy. They’re more like antibiotics: valuable when deployed in moderation, but likely to do more harm than good should their use become widespread.”
  • “Indeed, if passive equity funds were to continue their present growth trajectory, they would own all listed stocks by 2030. That could threaten the free-market economy.”
  • “Essentially, the industry is an oligopoly, dominated by just three giants of asset management, who between them control almost three quarters of all passively-managed investment in stocks.”
  • “As demand for index products grows, a greater proportion of the world’s listed companies will fall under the control of the three largest investment management groups. Already, these firms collectively own close to 20% of US large-cap companies.”
  • “Passive dominance won’t happen overnight. Yet, left unchecked, the growth of index-trackers has the potential to erode the market-based economy, one industry at a time.”
  • “There is also a geopolitical dimension. If the passive giants end up owning large swaths of the capital market, they will also have a big say on the composition of stock and bond indices. Effectively able to decide which country or company should be included or excluded from those benchmarks, they would wield enormous influence over international capital flows. Note BlackRock’s recent call for China to be included in MSCI’s global equity indices.”
  • “Some might see that as an excessive concentration of power.”
  • “None of this relieves the pressure on active managers to perform and offer better value to their clients. Nor does it deny the utility of passive investment. Index products offer benefits to investors. The problem is that if the majority of us embrace them, index-trackers threaten to sabotage the entire economic system. Much like antibiotics, if passive funds are overused, they will create more problems than they solve.”

WSJ – Going Out for Lunch Is a Dying Tradition – Julie Jargon 5/30

Markets / Economy

FT – Debt pile-up in US car market sparks subprime fear – Ben McLannahan 5/29

WSJ – Smoky Diesel Cloud Hangs Over Auto Industry Profits – Stephen Wilmot 5/30

  • The knock-on effect: diesel engine cars now have a bad taint to them making inventories of auto manufacturers with large diesel production less valuable and hurting the resale value of existing diesel vehicles.

Real Estate

WSJ – Why Banks Haven’t Been Burned by Retail’s Meltdown – Lillian Rizzo and Rachel Louise Ensign 5/28

WSJ – Dead Mall Space Could Spur Warehouse, E-Commerce Deals – Esther Fung 5/30

  • “Excess parking facilities and underused retail space could be redeveloped into small-scale last-mile delivery or pickup facilities, according to Fitch Ratings.”


WSJ – OPEC Oil Deal Sinks Tanker Industry – Spencer Jakab 5/30

FT – Oil prices slip further as traders seek bigger production cuts – Anjli Raval and Neil Hume 5/30

  • “Oil prices took a further hit on Tuesday, reflecting disappointment among traders that Opec and its allies agreed to only extend, but not deepen, production cuts to drain the market of excess inventories.”


Zero Hedge – “This Market Is Crazy”: Hedge Fund Returns Hundreds of Millions To Clients Citing Imminent “Calamity” – Tyler Durden

  • “…Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return ‘hundreds of millions’ of dollars to its clients according to the Sydney Morning Herald, citing an impending property market ‘calamity’ and the ‘overvalued and dangerous time in this cycle.'”

South America

FT – Venezuelan armed forces stay loyal to President Maduro – Gideon Long 5/29

  • Bottom line as Daniel Lansberg-Rodriguez, Latin American specialist at Northwestern University, puts it “[The government] has gone to great lengths to keep the military on its side through cash bonuses, wage hikes and the doling out of lucrative governorships and ministries,.”
  • “Having profited from ‘smuggling, arbitrage and narco-trafficking schemes,’ many within the military worry that if the president falls they will end up in court and then jail, he said.”

Other Links

WSJ – Daily Shot: FiveThirtyEight – Sleep Patterns by U.S. State 5/30

WSJ – Daily Shot: World Economic Forum – World’s Most Crowded Cities 5/30

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