Investors Chase Risk in Junk Bonds at Fastest Pace Ever

by ilene - March 22nd, 2010 10:19 pm

Investors Chase Risk in Junk Bonds at Fastest Pace Ever

Courtesy of Mish

Inquiring minds are reading Junk Bonds Selling at Briskest Pace Since 2007.

Companies are selling high-yield, high-risk bonds at the fastest pace since credit markets seized up in 2007 amid signs the economic recovery is gaining momentum.

Renault SA, the second-largest French automaker, Pittsburgh-based U.S. Steel Corp. and other speculative-grade borrowers issued $24.2 billion of high-yield notes in March through last week, putting this month on course to be the busiest since June 2007, according to data compiled by Bloomberg. Sales are up from $16.2 billion in all of February.

“Investors are much more sanguine about risk than they were just a few months ago and are taking on more to get a higher yield,” said Paul Owens, a credit analyst at Liontrust Investment Services Ltd. in London, which had the equivalent of $1.8 billion under management as of Dec. 30. “Companies have reported decent results,” bolstering bond sales, he said.

Issuance of non-investment grade bonds is running at the highest since companies sold $34 billion of the debt in June 2007, after slowing last month amid concern that sovereign budget deficits would stifle growth. The securities are rated lower than BBB- by Standard & Poor’s and Baa3 by Moody’s Investors Service.

Investors are pouring cash into junk-bond funds at the fastest pace on record as corporate defaults decline, according to EPFR Global.

A Return To Normal?

The Bloomberg article said this is a sign markets are returning to normal.

Really?

Was chasing risk in summer of 2007 normal?
How well did it work out?

Let’s not confuse the willingness of the greater fool to finance global junk at the highest rate ever with "normal". Instead I would advise focusing on corporate real estate, credit card defaults, and especially housing starts. The latter typically leads normal recoveries.

Music Still Playing

Trident Unwraps Hundreds of Musical Chairs

But hey, everyone likes a party. Let’s party like it was summer of 2007 again.

I have the perfect quote to match. It’s from July 2007 - Quotes of the Day / Top Call

Chuck Prince: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".

The Music Stopped for Chuck Prince On November 2, 2007 when…

Tags: Chuck Prince, credit card defaults, Economy, housing starts, music stops, Real Estate, risk, Stock Market

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THOUGHTS ON THIS MORNING’S DATA

by ilene - January 20th, 2010 2:17 pm

THOUGHTS ON THIS MORNING’S DATA

Courtesy of The Pragmatic Capitalist

This morning’s shot across the bow came to us courtesy of China on reports that several Chinese banks have been told to curb their lending for the remainder of the month. There is a growing sense of concern about the Chinese markets. With property prices surging and a stimulus package that is still running hot, the Chinese might have added too much gas to their own fire. Market participants are very aware of the importance of the Chinese markets to the global recovery. Losing Chinese growth would certainly cause a massive relapse in the global economy. If China sneezes the world will catch a cold….

Low angle view of the Acropolis and Parthenon, Athens, Greece

Making matters worse is the growing concerns in Greece. As we mentioned earlier today the term structure in Greek sovereigns inverted – something we saw in Merrill and Lehman CDS just months before they went bust. This puts global leaders in quite a quandary. I view last nights vote in Massachusetts as a sign that bailout nation is over with. Any politician that votes for a bailout going forward will be tarred and feathered. While Greece is likely to receive some form of aid this growing negative mentality could create future problems should another U.S. corporation (or state) require assistance from the Federal government. We tried to kick the debt can down the road and it’s looking like we’re going to need to kick it again (or heaven forbid – deal with it!).

Earnings were a bit mixed this morning, but generally better than expected. Aside from misses at Coach and Bank of America, the numbers were fairly strong. The banks continue to report better credit trends, but a cautious tone has many analysts scratching their heads over the true strength of the bank balance sheets. I agree with Felix Zulauf who thinks the banks are dead money from here.

The Redbook and ICSC data were both robust again and showing signs that the consumer is willing to spend despite continued de-leveraging. ICSC reported a 2.6% climb in year over year sales while Redbook reported a 0.9% climb.

In other news, PPI came in fairly benign at 0.2% and housing starts disappointed to the downside. Neither were major market moving news as the headlines have been dominated by the Republican victory and the concerns in China.

Tags: CHINA, Greece, housing starts, PPI

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Housing Data Split

by Chart School - January 20th, 2010 1:49 pm

Housing Data Split

Courtesy of Jake at Econompic Data

Bloomberg details:

Housing starts in the U.S. fell more than anticipated in December, while building permits unexpectedly jumped, signaling inclement weather may have kept builders away from worksites.

Work began on 557,000 houses at an annual rate, down 4 percent from November, figures from the Commerce Department showed today in Washington. Permits, a sign of future construction, climbed to the highest level in a year.

The government’s extension and expansion of a tax credit for first-time buyers may help underpin demand in the first half of 2010, giving builders reason to ramp up new projects. The gain in permits, which are less influenced by weather, indicates an unseasonably cold and wet December probably prevented some work from getting started last month, according to economists like Maury Harris.

Source: Census

Tags: building permits, housing numbers, housing starts

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Weaker Data and the “Nascent Recovery”

by ilene - November 22nd, 2009 2:31 pm

A "mirage" of recovery, dependent on government stimulus programs, is not exactly a recovery in the normal sense of the word. And publicizing incorrect numbers, only to revise them down later, appears to be good for public mood and the stock market. - Ilene

Weaker Data and the "Nascent Recovery"

recovery Courtesy of Mish

After spending $trillions one would have hoped to see something more than an expected GDP revision of 2.8%. Looking ahead MarketWatch is asking Do weaker data show recovery is stalling?

Last week, a "reality check" rippled through the markets following weak data on housing starts and industrial production, said Nigel Gault and Brian Bethune, U.S. economists for IHS Global Insight. They expect further "mixed and somewhat ambiguous" reports in the coming week, but, on whole, they say "the evidence is still positive and continues to point to a nascent recovery" that will need "strong policy support" for some time.

Housing

Even four years after the peak, the state of the housing market remains central to the medium-term outlook.

Construction, sales and prices picked up over recent months after hitting generational lows, boosted in part by federal policies and in part by improvement in some of the fundamentals. But the weakening in the October data ahead of the anticipated expiration of the federal home-buying subsidy has put the strength of those fundamentals to the test.

The home-buyer tax credit, of course, has now been extended and even expanded. But buyers and builders didn’t know that in October.

Last week, we found out that builders cut back on permits and starts on single-family homes in October, in anticipation that the tax credit would expire on Nov. 30.

GDP revisions

The other big story for the week could be the revision to third-quarter growth figures. Last month, the Commerce Department said real gross domestic product grew at a 3.5% annualized rate, the first gain in a year. On Tuesday, that figure is likely to be revised to about 2.8%.

The largest source of revisions will come from nonresidential construction spending and net exports. Spending on nonresidential structures was weaker than first thought, while imports were stronger than believed, suggesting that more of the gains from increased sales in the third quarter accrued to foreign producers, rather than domestic companies. Inventories will be revised lower.

"Despite the likely downward revision, we still believe that the third

…

Tags: Economy, GDP, GDP revision, government stimulus, housing starts, nascent recovery, revisions, unemployment, weak data

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Housing’s Still In The Woods

by ilene - November 19th, 2009 3:15 pm

Housing’s Still In The Woods

Courtesy of Tom Lindmark at But Then What

home prices

Anyway you slice it or try and put a happy face on it, the news on housing over the past few days has been pretty sobering. I don’t take the decline in housing starts as all that bad a development, the last thing the markets need is more supply, but the decline in mortgage applications is significant.

The industry flacks tried to tie it to the uncertainty over the renewal of the tax credit. If that’s the case then we got a glimpse of where housing is going to be when we take the training wheels away. Maybe more to the point, a survey by the National Association of Realtors no less indicates that only 6% of the buyers cited the tax credit as the primary reason for buying a home.

In my opinion, the recent spurt in buying has been driven by low rates and cheap prices. Two pretty good reasons for people to buy. But here’s the kicker. Most of the activity has been at the low end fueled by investors and first time buyers. Two thin markets and nothing upon which a boom is going to be built.

I’ll throw in one more thing that’s driving this market. Irresponsible lending. Yup, the same thing that fueled the last spurt. At least this time it appears as if some of the buyers might recognize that this road leads to lots of grief. Don’t buy the argument. Check out this and this. At least FHA appears to be running out of wiggle room fast so the bailout shouldn’t be too drastic.

Put that together with the employment figures and it’s really hard to see how this little spurt is anything more than a blip. My guess is that aside from the investors it’s comprised of a group of people that were shut out by higher prices and jumped into the market at an opportune time but their numbers are limited.

I wouldn’t be at all surprised to see a lot of the recent investors throwing their purchases back on the market as rental rates have plummeted and the cash flow assumptions they used to justify their investments probably aren’t panning out. Prices for the low end have come back

…

Tags: delinquent borrowers, Economy, Employment, FHA, housing starts, Irresponsible lending, mortgage applications

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Housing Starts Green Shoots Wither On Vine

by ilene - November 18th, 2009 11:08 pm

Housing Starts Green Shoots Wither On Vine

Courtesy of Mish

After optimists talked up rising housing starts for several months as green shoots, improving conditions, etc., reality came knocking in full force with the New Residential Construction Report For October 2009.

BUILDING PERMITS

Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 552,000. This is 4.0 percent below the revised September rate of 575,000 and is 24.3 percent below the October 2008 estimate of 729,000.

Single-family authorizations in October were at a rate of 451,000; this is 0.2 percent below the revised September figure of 452,000. Authorizations of units in buildings with five units or more were at a rate of 85,000 in October.

HOUSING STARTS

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 529,000. This is 10.6 percent below the revised September estimate of 592,000 and is 30.7 percent below the October 2008 rate of 763,000.

Single-family housing starts in October were at a rate of 476,000; this is 6.8 percent below the revised September figure of 511,000. The October rate for units in buildings with five units or more was 48,000.

HOUSING COMPLETIONS

Privately-owned housing completions in October were at a seasonally adjusted annual rate of 740,000. This is 1.9 percent above the revised September estimate of 726,000, but is 29.9 percent below the October 2008 rate of 1,055,000.

Single-family housing completions in October were at a rate of 528,000; this is 10.7 percent above the revised September figure of 477,000. The October rate for units in buildings with five units or more was 200,000.

Total Privately Owned Housing Starts

[click on chart to enlarge]

Looking at the chart it is hard to make a case for optimism in the first place.

Before the housing numbers release this was the Bloomberg headline

Builders Probably Broke Ground on Most U.S. Houses in 11 Months

Builders in October probably broke ground on U.S. houses at the fastest pace in 11 months, and consumer prices held below the Federal Reserve’s long-range goal, economists said reports today may show.

Housing starts rose 1.7 percent to an annual rate of 600,000, the most since November 2008, according to the median forecast of 77 economists in a Bloomberg News survey.

Government tax credits and lower prices and

…

Tags: building permits, housing starts, new residential construction

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A Little Ray Of Sunshine In Housing Starts

by ilene - July 17th, 2009 3:51 pm

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A Little Ray Of Sunshine In Housing Starts

Courtesy of Tom Lindmark at But Then What

There were some reasonably positive numbers on housing this morning.

Overall, housing starts were up 3.6% to a SAAR of 582,000. Within that number single family starts were up 14.4% to a SAAR of 470,000, Starts for two to four unit properties were down 25.8% to 112,000 and starts on properties with five or more units were down 29.4%. Permits were up 8.7% for a SAAR of 563,000.

Regionally, starts were up 28.6% in the Northeast, up 33.3% in the Midwest, down 1.4% in the South and down 14.8% in the West.

Here is a sampling of economists’ take on the numbers from the WSJ Real Time Economics blog:

This report could be interpreted in two ways. On the optimistic side, it appears that residential construction activity may have stabilized, following three consecutive years of deep correction, and that housing activity could perhaps contribute favorably to U.S. economic activity in the second quarter. On the other hand, with sales continuing to lag behind the level of building activity by a factor of 200,000, this uptick in construction will likely mean that the inventory of unsold homes (which remains at historically high level) could continue to rise. As such, one could interpret this report as somewhat bitter-sweet. –Millan L. B. Mulraine, TD Securities
While starts have moved off of their cyclical bottom, we see limited upside potential over the months ahead. In the single family segment, continued weakness in the labor market and what will remain a steady stream of foreclosures will keep downward pressure on house prices and ensure that builders – in an increasingly broad geographic range of markets – see steady competition from low-priced foreclosures. –Richard F. Moody, Forward Capital
With the number of unsold homes for sales already extraordinarily high and set to ramp up further in coming months as foreclosures accelerate and the recent backup in mortgage rates potentially puts some pressure on sales, this recent spike in single-family housing starts certainly seems ill-advised and likely to worsen still massive imbalances in the housing market. Meanwhile, rising apartment vacancy rates, an even worse inventory situation in the condo market than for single-family homes, and the collapse of the commercial real

…

Tags: housing starts, regional differences

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