Morning Report – US multinationals flocking to Europe to borrow money 12/30/14

Markets are lower this morning on overseas weakness. Bonds and MBS are up.

House prices rose .76% month-over-month in October (up 4.5%) year-over-year according to Case-Shiller. Prices are back to their Autumn 2004 levels.

Americans spent about 5% more on rent last year, driven by a 2% increase in the number of renters and a 3% increase in prices. Zillow is predicting that rents will increase by 3.5% next year, while housing prices will increase by 2.5%. Note that the homeownership rate fell to 64.4% in Q3, the lowest since the mid 1990s. Is this number simply a return to normalcy, or are we going to see the homeownership rate increase? Certainly, policy makes a difference, and the government is back in the business of encouraging home ownership. So don’t be surprised to start hearing talk about another secular uptrend in housing…

The prospect of QE has driven risk-free rates lower in Europe, which has lured US companies to issue Euro bonds. The spread between investment grade Euro notes and investment grade dollar notes is currently 211 basis points, an all-time high, and a big increase from 145 bp a year ago. Companies like Apple are issuing billion in euro bonds yielding something like 1.65%. If you wonder why the big S&P 500 companies seem to be doing great, in defiance of what we see around us, here you go. International exposure matters. The local muffler shop cannot borrow at 1.65% while multinationals like Apple can. While the economy is improving, the stock market is painting a non-representative picture of the US economy.

Delinquencies ticked up to 6% in November, according to Black Knight Financial Services. Foreclosure starts ticked down to 73,900. Note Black Knight Financial Services (formerly known as LPS or Lending Processor Services) has filed for an IPO.

6 Responses

  1. Uh…


  2. its the thought that counts


  3. Well worth reading the article and comments. Lots of interesting ideas about currency, sovereignty and debt.


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