Friday, December 5, 2014

Is the Auto Loan Bubble Bursting? Delinquent Loans Jump 27% Year-Over-Year / Michael Krieger / Dec 5, 2014
I’ve covered the ever expanding subprime auto loan market on several occasions over the past couple of years, most recently in the post: Chinese Homebuilders Expand in America as U.S. Auto Loans Hit Record Levels. As they always do, it appears that the chickens are starting to come home to roost.
The New York Times reports the following:
An increasing number of borrowers are falling behind on their car payments, even as the total amount of outstanding debt reaches new heights, according to the latest report by Experian, the credit and research firm.
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5 Big Tech Stocks in Trouble: Amazon (AMZN), Yahoo! (YHOO), Twitter (TWTR), eBay (EBAY), Google (GOOG)

A surprise “no-QE” move by the European Central Bank on Thursday has stocks rolling lower in a way that hasn’t been seen since October. This comes just after the end of the most consistent run of the S&P 500 above its five-day moving average (29 days) amid a push in measures of investor sentiment and positioning to bullish extremes.

Sure, December is seasonality the strongest month of the year for stocks. And sure, the Bank of Japan and the People’s Bank of China have all recently unleashed monetary policy stimulus. And all the while, investors have been operating under the assumption that as long as the cheap money is flowing from somewhere, stocks will only go up. But bigger catalysts threaten future gains.

For one, the European Central Bank, which has been promising government bond purchases for years, is legally prohibited from doing so. Two, a tightening of the job market will keep pressure on the Federal Reserve to start its rate hike campaign in the first half of 2015. Three, we are on the cusp of another budget battle in Washington. (more)

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Are Yellow Diamonds An Investor’s Best Friend?

from Financial Survival Network
We talked with Tom Cloud today about precious metals price trends. Still more of the same with the slam down and rebound after the defeat of the Swiss gold referendum. If you remember, Tom had given us a heads up last month. Seems that Paypal was given orders to stop the flow of donations to the pro-gold supporters. Evidently that was their primary source of support and it hindered their efforts to get the word out. Nonetheless, gold rebounded very strongly after the defeat and we’re on to the next Black Swan. Tom also discussed the short supply of Yellow Diamonds. Seems like most other things of value, the Chinese are buying them like there’s no tomorrow.
Click Here to Listen to the Audio
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Could Falling Oil Prices Spark A Financial Crisis? / by Nick Cunningham via / on 12/04/2014 19:00
The oil and gas boom in the United States was made possible by the extensive credit afforded to drillers. Not only has financing come from company shareholders and traditional banks, but hundreds of billions of dollars have also come from junk-bond investors looking for high returns.
Junk-bond debt in energy has reached $210 billion, which is about 16 percent of the $1.3 trillion junk-bond market. That is a dramatic rise from just 4 percent that energy debt represented 10 years ago.
As is the nature of the junk-bond market, lots of money flowed to companies with much riskier drilling prospects than, say, the oil majors. Maybe drillers were venturing into an uncertain shale play; maybe they didn’t have a lot of cash on hand or were a small startup. Whatever the case may be, there is a reason that they couldn’t offer “investment grade” bonds. In order to tap the bond market, these companies had to pay a hefty interest rate.
For investors, this offers the opportunity for high yield, which is why hundreds of billions of dollars helped finance companies in disparate parts of the country looking to drill in shale. When oil prices were high and production was relentlessly climbing, energy related junk bonds looked highly profitable.
But junk bonds pay high yields because they are high risk, and with oil prices dipping below $70 per barrel, companies that offered junk bonds may not have the revenue to pay back bond holders, potentially leading to steep losses in the coming weeks and months.

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Dreadful Chart of Russian Ruble vs Probability of Default / by Wolf Richter / December 3, 2014
Traders have a way with words. These folks around the world – whoever they may be, from the stay-at-home dad trying to make a living in front of a bank of high-resolution screens to central banks trying manipulate the markets – actually don’t need to use words. They just buy and sell. But in doing so, they become very vocal.
And this is what they have decided: the plunge in the price of oil combined with the sanctions are ransacking the Russian economy and finances.
They have expressed their opinions by selling off the ruble over the last few months and particularly over the last few weeks. As I’m writing this, these traders are willing to exchange 53.5 rubles for a buck, down 37% since June. This also happens to be how much the price of oil has dropped over the same period.
And the folks who trade in credit default swaps have decided that Russian debt now has a 22.9% probability of default.
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