Financial Bubbles | timiacono.com

Stocks or Bonds: Which Has It Right?

Much has been made about the rather disturbing trend this year for the price of just about every asset class to go up. As shown below, stocks and bonds normally go in opposite directions over long stretches of time, however, that’s not been the case this year.

In fact, 2014 has, so far, proved to be quite the outlier in many respects for how stock and bond prices have moved for reasons that should be clear below.

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One More Thing to Worry About

The innocuous looking graphic below from this WSJ story ($) has more than a few people worrying a little more today than they did yesterday about what might go wrong in the financial system as we bear down on the worst two months of the year for equities.

According to the report,  the repo market is “a critical part of the plumbing that keeps money flowing”, enabling “hedge funds, investment banks and other financial firms to borrow and lend short-term funds, often overnight” and has recently seen some lenders pull back due to new regulations.

A less sanguine take can be found in this item at Quartz that characterizes repos thusly:

The bottom line is that repos are leverage. They are a way for banks to use borrowed money, instead of their own, to take positions in the market. When times are good this works pretty well. But in a crisis, things get bad quickly.

Just in case you needed it, that’s one more thing you can worry about.

Housing Market Now Clearly Rolling Over

Via the latest data from Corelogic as detailed in this item at the Wall Street Journal economics blog come more reasons to think that the 2012-2014 surge in home prices has about run its course. Any investor (a key driver in the housing market rebound) looking at the graphic below probably isn’t thinking that now is the time to buy.

It seems the important question is whether they think now is the time to sell.

There are a growing number of anecdotal reports about investors and “accidental landlords” (those who rented out property in recent years rather than selling at a loss) who are cashing in. A good example is this Denver Post story where investors are said to be “selling like crazy”, all of which will make for an interesting conclusion to the summer.

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Elizabeth Warren on Banks and Student Loans

From just last week, watch Senator Elizabeth Warren (D-MA) grill Consumer Bankers Association CEO Richard Hunt on the slow progress being made by commercial banks to allow the discharge of student loan debt that was co-signed by parents or grandparents of children or grandchildren whose lives were cut short.

You have to wonder how long it will take for the culture and practices of Washington D.C. to wear down Ms. Warren. Most of what she advocates is simply common sense, however, most of this common sense runs counter to the vested interests of powerful forces that remain firmly in control of what goes on in the nation’s capital.

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