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g duncan the chief economist of fannie mae said that his firm will be releasing within the next two weeks a study of the ability of first time homebuyers saddled with student loans to qualify for a mortgage he said we are worried about that 3 exacerbating the credit divide is the flattening of the yield curve that has been so successfully engineered by the fed banks have less incentive to lend when the spread is narrow the squeeze on their net interest margins depresses their net operating income for all fdic insured institutions that margin has dropped from a recent peak of 3 84 during q1 2010 to 3 52 during q1 2012 over this period their net interest income has been flat just north of 100 billion per quarter last week moody s downgraded 15 major banks that are the largest players in the global capital markets including five us based banks some of them reacted by charging that the downgrades were unwarranted and don t jibe with their improved liquidity and capital adequacy this weekend the wsj editors had fun asking wasn t dodd frank reform supposed to make the financial system stronger they suggested that such regulatory excesses might be making banks weaker rather than stronger i would add that the fed s monetary policy excesses aren t good for banks either today s morning briefing monetary ledge 1 timing is everything 2 operation twist ii ends when fiscal cliff starts 3 homeowners equity has already fallen off a cliff 4 flattening yield curve isn t good for banks and their borrowers 5 new greek finance minister is sick to his stomach 6 the ecb accepts sangria as collateral 7 unsettling headlines unsettle us economy 8 more weak global indicators 9 sector neutral still looks like the best bet for now more for subscribers posted by dr ed yardeni at 7 49 am no comments email this blogthis share to x share to facebook share to pinterest thursday june 21 2012 credit divide we all know about the dreaded fiscal cliff now there is also the credit divide in monday s wsj jon hilsenrath coined the phrase and explained in previous downturns the lowered interest rates triggered broad waves of mortgage refinancing and new borrowing the spending that resulted helped power the recoveries this time around many would be borrowers with lower incomes or blemished credit histories are finding it difficult and more costly or sometimes impossible to refinance their mortgages or get new loans let s review some of the developments in consumer finance that might account for the credit divide 1 mortgage activity indexes are mixed the good news is that record low mortgage rates are starting to boost the refinancing index compiled by the mortgage bankers association it rose during the week of june 15 to the highest reading since april 2009 the bad news is that the index of mortgage applications for new purchases has been stalled at the lowest level since the mid 1990s for the past three years overall home mortgage net lending continued to contract during the first quarter as it has been doing since q4 2008 2 negative home equity is a major cause of the credit divide households with negative equity can t refinance their mortgages to take advantage of record low rates the fed s flow of funds data show that owners equity in household real estate has been hovering around 6 trillion since late 2008 it is down a whopping 50 4 from its record high of 13 5 trillion during q1 2006 prior to q4 2007 homeowners equity exceeded outstanding mortgage loans since then households have collectively owed more than the equity in their homes prior to q4 2007 owners equity exceeded 50 of the value of household real estate it was down to 40 7 during q1 2012 3 consumer credit is expanding again revolving credit i e credit card debt is growing again but very slowly after falling by 177 billion from july 2008 through april 2011 since then it is up by 11 4 billion nonrevolving credit is expanding more rapidly auto loans are rising along with auto sales however the fastest growing component of consumer credit is student loans that s certainly contributing to the credit divide college graduates who are saddled with large tuition debts are less likely to qualify for auto and mortgage loans today s morning briefing credit divide 1 the fed s epiphany 2 running out of options 3 could the economics textbooks be wrong 4 the credit divide examined 5 refinancing activity is rebounding 6 mortgage lending isn t 7 homeowners equity has plunged 50 8 consumer credit led by student loans 9 fed s financial repression is depressing interest income 10 is the summer rally over already 11 germans and greeks more for subscribers posted by dr ed yardeni at 5 49 am no comments email this blogthis share to x share to facebook share to pinterest wednesday june 20 2012 s p 500 earnings another earnings season is starting and industry analysts are preparing for it by once again lowering their estimates and once again this may set the stage for lots of positive earnings surprises however this time their downward revisions may reflect fundamental weakness in business for companies with exposure to europe in this case there might be fewer positive and more negative surprises the consensus forecast for s p 500 operating earnings during q2 fell to 25 45 per share during the week of june 14 that s down 0 70 from the end of the previous earnings season at the end of april the estimates for q3 and q4 have also been revised down over this period by 0 51 and 0 40 respectively as a result the estimate for all of 2012 is now down 1 24 since the end of april to a new low of 105 31 the 2013 estimate is also down to a new low of 118 18 that s still above the 110 number that joe and i are using for next year since rising to a new record high during the week of june 1 s p 500 forward earnings has stalled around 110 today s morning briefing lots of tight oil 1 central banks stand ready 2 ot2 or qe3 are the fed s lame choices 3 no jolt to jolts from previous fed easing 4 thrill or spill for stock prices 5 still expecting a romney rally this summer 6 analysts preparing for another earnings season by lowering their estimates 7 this time europe could bite 8 thinking like a saudi 9 squeezing more tight oil out of us shale 10 no vacation from the europeans who will soon be on vacation more for subscribers posted by dr ed yardeni at 7 48 am no comments email this blogthis share to x share to facebook share to pinterest tuesday june 19 2012 policymaking among the worst examples of policymaking in response to a financial crisis is japan which is working on its third lost decade the response to the collapse of the country s real estate boom in the early 1990s was lots of deficit financed government spending on roads and bridges to nowhere that nobody needed when such keynesian stimulus failed to work the bank of japan joined in with zero interest rates and quantitative easing the broken banking system was never properly fixed european leaders seem to be going down the same road they repeatedly meet in response to the latest flare up in their financial crisis and agree that something must be done the specifics are always vague and the implicit assumption seems to be that if all else fails the ecb will have no choice but to load up on the debt of debt challenged euro zone governments this morning s ft reports that the leaked draft of the communique of the latest meeting of the g20 boldly declares the euro area member states will take all necessary policy measures to safeguard the integrity and stability of the euro area including the functioning of financial markets and breaking the feedback loop between sovereigns and banks so don t worry they will do something meanwhile here in the us fed officials will start their two day meeting of the fomc today they are widely expected to do something too they might extend operating twist though they are running out of short term treasuries they might do qe3 though qe2 and operation twist didn t really work indeed in yesterday s wsj jon hilsenrath reports that fed officials have been frustrated in the past year that low interest rate policies haven t reached enough americans to spur stronger growth the way economics textbooks say low rates should could it be that they are starting to realize that monetary policy can t fix all of our problems the fed can t do much about the credit divide fed chairman ben bernanke has already warned that monetary policy can t offset the coming fiscal cliff so what is to be done simpson bowles this deficit reduction plan provides a supply side solution to our economic woes by slashing margin tax rates and corporate tax rates it does so by eliminating 1 trillion of tax loopholes which greatly simplifies the tax code it should generate enough revenues to meaningfully reduce the federal deficit it could happen after november 6 today s morning briefing then and now 1 policy paralysis or policy pandering 2 punch losing its punch 3 how to avoid a lost decade 4 austerians weren t popular during latin and asian debt crises either 5 partnering with the markets to resolve a crisis 6 brady bonds rtc sap and tlgp 7 how sheila bair saved the day 8 europeans could lose a decade 9 reality bites the fed 10 the us could leap over credit divide and fiscal cliff with simpson bowles more for subscribers posted by dr ed yardeni at 7 34 am no comments email this blogthis share to x share to facebook share to pinterest monday june 18 2012 euro mess last week bad news was good news indeed friday s wsj included a story titled bad news sparks blue chip rally this week starts off with mixed news out of europe as greek voters gave a very narrow victory to the pro bailout coalition i m putting a checkmark on my june 5 checklist for optimists in which i wrote that the greeks might stay in the euro zone after all the french voted for more socialists in parliament that might increase tensions with germany making it even harder to clean up the euro mess or it might allow french president françois hollande to be a more pragmatic socialist since he won t need any support from the ultra left for his policies the good news is that central banks are ready to provide more sangria and ouzo to keep the party going furthermore sunday s nyt reported that ecb president mario draghi is working with other european leaders on yet another grand plan to quickly quell the crisis last week started out with plenty of bad news when the market sold off sharply on monday as investors concluded that the bailout plan for spain s banks would worsen spain s sovereign debt crisis the news out of europe continued to worsen over the rest of the week and the spanish bond yield rose closer to 7 it is north of that level this morning at a new euro era high late wednesday moody s downgraded spanish government debt by three notches just above junk later in the week the news out of the us was also bad and it got worse in europe too 1 uk exports drop sharply on friday the uk reported that the goods and services trade deficit soared to 4 4 billion in april up from 3bn in march as exports to the euro zone plunged april s trade gap was the highest since august 2005 and the second widest since comparable records began in 1992 the increase was driven by an 8 6 drop in exports including a 6 8 fall in exports to the eu the uk s biggest trade partner however the decline in exports to non eu countries was even sharper with a 10 drop to 11 8bn as markets such as china the us and russia bought fewer cars and pharmaceuticals 2 merkel says nein again meanwhile european leaders seemed intent on blaming each other for the euro mess rather than on working together to clean it up on thursday german chancellor angela merkel stated that germany is the euro zone s anchor of stability and growth engine however in her speech before the german parliament she declared germany s resources are not unlimited she once again forcefully rejected the apparently simple ideas about mutualization of debt the german chancellor then publicly stated her concerns about the competitiveness of the french economy her finance minister wolfgang schäuble in an interview with an italian newspaper criticized french president françois hollande s decision to restore the right of some workers to retire at 60 at a time when most european countries were extending the retirement age 3 deposits pouring out of spain and italy may target2 data came out last week for several of the euro area countries they show that the debit balances of the central banks of spain and italy widened to 345bn and 275bn while the german bundesbank s credit balance rose to 699bn over the past 12 months through may the data suggest a total net deposit outflow of 584bn from spain and italy and a net inflow of 375bn into germany during may the implied outflow from spain and italy was 38bn while the net inflow into germany was 54bn april data for euro area monetary financial institutions released on thursday showed that loans to private sectors are down 103 6bn over the past seven months today s morning briefing more sangria and ouzo 1 greeks vote to grin and bear it 2 french vote for more socialists 3 germans don t want to pay for greeks and french to retire early 4 give them some schnapps 5 target2 showing depositors fleeing spain and italy 6 merkel s nein nein nein plan 7 extreme investing the riskier the better 8 central banks ready to provide more punch 9 draghi s grand plan 10 is the correction over already more for subscribers posted by dr ed yardeni at 7 12 am no comments email this blogthis share to x share to facebook share to pinterest thursday june 14 2012 flow of funds we ve updated our us flow of funds chart book with data for the first quarter i don t see all that much deleveraging going on most of it is happening in the financial sector rather than the nonfinancial sector the latter actually rose to a new record high of 38 6 trillion up 5 6 trillion since q1 2008 that was led entirely by the rise in us treasury debt to a record 10 9 trillion while the debt of the other nonfinancial sectors flattened out around 28 trillion there has been some modest deleveraging happening in the household sector where outstanding debt peaked at a record 13 8 trillion during q1 2008 it is now down to 12 9 trillion on the other hand nonfinancial business debt rose to a record 12 0 trillion during q1 nonfinancial corporations have taken advantage of record low interest rates to issue 400 0 billion in the bond market over the past four quarters some of these funds may be going into stock buybacks as suggested by the net decline of 477 5 billion in nonfinancial corporate equities outstanding over the past four quarters today s morning briefing déjà vu all over again 1 industry analysts have seen this movie before 2 triple dip for revenue estimates 3 yet revenues are expected to grow 4 business sales at record high in april 5 so far europe s recession hasn t hit s p 500 revenue forecasts 6 are we losing t...
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