Home Sales in U.S. Poised to Surge With Spring: Mortgages – Bloomberg 03-30-14

Salient to Investors:

Dean Maki at Barclays said the housing’s spring selling season is getting a late start in 2014 because of bad weather but the next few months will make up for it.

The number of contracts signed with the intention of purchasing properties fell in February to the lowest since 2011 while applications for mortgages to purchase homes fell to the lowest since 1995

Fannie Mae said this year’s average 30-yr fixed mortgage rate will average 4.6% by the end of 2014.

Michael Hanson at Bank of America said we won’t see a normal real estate market until first-time buyers – those most affected when lenders tighten standards – are included. Hanson said housing, like the rest of the economy, is gradually recovering and expects the Spring market come to life in the next few months. 

Read the full article at http://www.bloomberg.com/news/2014-03-31/home-sales-in-u-s-poised-to-surge-with-spring-mortgages.html

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Jeremy Grantham: The Fed is killing the recovery – CNNMoney 03-24-14

Salient to Investors:

Jeremy Grantham at GMO said:

  • The slow recovery is due to the Fed’s actions. In the 1980s the US had an aggregate debt level of 1.3 times GDP versus 3.3 times debt now and yet GDP has been slowed – showing that more debt or QE does not create growth.
  • After WW I the economy came roaring back without intervention or bailouts. After the S&L crisis, we liquidated the bad banks and their bad real estate bets and the economy came roaring back. We did not liquidate the people who made the bad bets this time.
  • The Bernanke put – the belief that if anything goes bad the Fed will come to the rescue – has had a profound impact on people and how they act.
  • Without Fed intervention the crash may have been worse and the downturn sharper but by now the depths of that recession would have been forgotten and the US would have regained its growth.
  • Savers have become collateral damage of Bernanke’s policies. Lower interest rates have not spurred capital spending and there is no evidence that QE has boosted capital spending. Historically we have always come roaring back from recessions, even the Depression but we have never had such a limited recovery as this.
  • The Fed can manipulate stock prices, perhaps the only thing they can do, but why would we want to get an advantage from the wealth effect when we are going to have to give it all back when the Fed reverses course.
  • The Fed encourages steady increasing leverage and more asset bubbles with very cheap leverage on the upside, and bailouts on the downside. Only hedge fund managers have benefited from QE.
  • The market will go higher because the Fed won’t stop playing until we are in bubble territory and it bursts – usually at 2 standard deviations from the market’s mean, or 2,350 on the S&P 500.
  • Not investing in stocks because his 7-year prediction calls for negative market returns and won’t invest on the basis of speculation driven by the Fed’s misguided policies.
  • The next bust will be unparalleled because all the central banks have leveraged, which has never happened before. Assets are overpriced generally and will become cheap again. 

Read the full article at http://finance.fortune.cnn.com/2014/03/24/jeremy-grantham-federal-reserve/

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Activists Beat S&P 500 in 48 Percent Gain for Shareholders – Bloomberg 03-14-14

Salient to Investors:

  • Corporate activists including Carl Icahn, Bill Ackman and Nelson Peltz targeted 81 US companies with market values exceeding $1 billion between 1/2009 and 12/31/2013, generating a 48% average gain for long-term investors versus 31% for the  S&P 500.

Read the full article at http://www.bloomberg.com/infographics/2014-03-31/activists-beat-s-p-500-in-48-percent-gain-for-shareholders.html

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Dividend Stocks Fall on Rising Rate Forecast: EcoPulse – Bloomberg 03-14-14

Salient to Investors:

Shares of high-dividend-yielding companies are trading near the lowest level in almost 3 years relative to the market.

Jack Ablin at BMO Private Bank said the favorable investment backdrop of low interest rates is reversing and if the US economy stays on its current path, 10-yr Treasury rates could hit 4 percent in 2014 pushing high-yielding dividend stocks further out of favor.

William Dudley at the New York Fed said the harsh winter won’t harm the economy enough to prompt a fundamental change in the outlook for the Fed’s reduction in bond purchases.

The median economist expects the 10-yr Treasury yield to rise to 3.35 percent by the end of 2014, and GDP will grow 1.9 percent in Q1 and 3 percent by year-end.

Jeff Mortimer at BNY Mellon Wealth Mgmt said we are in a transition period to higher rates, indicated by the weakness in high-dividend-paying stocks – high dividend stocks track closely with 10-yr Treasuries, so over the next 12 months to 18 months stocks with a bond-like component will be weighed down by rising interest rates. Mortimer said rotation out of the group is underway, but recommends investors pair select high-dividend payers with high-growth stocks in industries such as technology, health care and biotechnology that don’t have as high a payout.

Jim Stellakis at Technical Alpha said the group has been trading in a series of declining peaks relative to the market, and indicates investors want progressively less exposure to high-dividend paying companies. Stellakis said the dividend index is trading near a big support level and if it trades below a March 2012 threshold in a decisive manner, would signal the appetite for these stocks has deteriorated much more.

Andrew Wilkinson at Interactive Brokers said 10-year Treasury rates could fall to 2.25 percent in 2014 because there is no sign of inflation and the consensus forecast calls for belief that the economic recovery will be sufficiently strong to withstand a rise in interest rates that won’t impact demand, particularly in housing.

William O’Donnell at RBS Securities forecasts the 10-yr T-yield will increase to 3.2 percent and Treasuries will become a better alternative to riskier assets like high-dividend-paying stocks – a larger portfolio adjustment won’t be triggered until interest rates breach at least this level.

Read the full article at http://www.bloomberg.com/news/2014-03-14/dividend-stocks-fall-on-rising-rate-forecast-ecopulse.html

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Half of U.S. Business Schools Might Be Gone by 2020 – BloombergBusinessweek 03-14-14

Salient to Investors:

Richard Lyons at Berkeley said:

  • Half of US business schools could be out of business in 5 to 10 years because more top MBA programs will start to offer degrees online. Lower-ranked business schools are the most vulnerable.
  • Education technology has the potential to make the proximity factor go away, taking some high-margin students with it.
  • The average full-time student at an elite school gets a 25 percent discount on tuition, while at part-time and EMBA programs, the average student pays closer to sticker.

Online education has mostly shed the stigma of association with such down market institutions as DeVry and University of Phoenix, and as its legitimacy grows, Wharton, Stanford et al are likely to offer online degrees.

Ash Soni at IndianaUniversity said online MBA programs are not yet siphoning choice students from campuses.

Robert Lytle at Parthenon said for-profit MBA programs have been the early losers as more traditional universities go online.

Read the full article at http://www.businessweek.com/articles/2014-03-14/online-programs-could-erase-half-of-u-dot-s-dot-business-schools-by-2020#r=rss

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Manhattan Apartment Tenants Get Relief as Rents Decline – Bloomberg 03-13-14

Salient to Investors:

Miller Samuel and Douglas Elliman Real Estate said:


  • The median monthly rent in Manhattan fell 2.8 percent in February from a year earlier for the sixth straight decline, and the vacancy rate rose to 1.87 percent.
  • Landlords offered concessions on 9 percent of all new Manhattan leases in February, versus 5.5 percent a year earlier, as tenants left apartments in search of better deals elsewhere.
  • In February the monthly median rent in Brooklyn rose to $2,890, $210 less than in Manhattan and the narrowest spread since data began in January 2008.
  • Improving employment will continue to support prices, but income is not growing at a pace that suggests any sharp increases in rents this year.


Read the full article at http://www.bloomberg.com/news/2014-03-13/manhattan-apartment-tenants-get-relief-as-rents-decline.html

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Blackstone’s Home Buying Binge Ends as Prices Surge: Mortgages – Bloomberg 03-13-14

Salient to Investors:

Jonathan Gray at Blackstone said:


  • The institutional buying wave has passed and Blackstone’s acquisition pace has declined 70 percent from its peak last year
  • Blackstone has narrowed most of its purchasing to Seattle, Atlanta, Miami, Orlando and Tampa.
  • Institutional buyers are tapering their buying and are in a relatively limited number of markets, yet home prices continue to rise strongly, even in markets where institutional buyers have not purchased a single home.
  • Institutional investors are not going away even though their size will remain a modest part of the market.


Private-equity firms, hedge funds, REITs et al have spent more than $20 billion to buy as many as 200,000 rental homes in the last 2 years.

American Homes 4 Rent and Colony American Homes have been scaling back as home prices have risen 24 percent since a post-bubble low in March 2012.

Jade Rahmani at Keefe, Bruyette & Woods said large investors are focusing on fewer locations as they gain experience and prices rise and account for at most 10 percent of the 2 million homes bought by investors in the last 2 years.

RealtyTrac said corporate investors bought 25 percent of homes sold in the Atlanta region, where prices are up 37 percent since the March 2012 trough.

Read the full article at http://www.bloomberg.com/news/2014-03-14/blackstone-s-home-buying-binge-ends-as-prices-surge-mortgages.html

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Happy Birthday, Bull Market! – Business Insider 03-06-14

Salient to Investors:

Sam Stovall  at S&P Capital IQ said there have been a limited number of 6-year bull markets and if this market becomes a six-year bull market and performs similar to the others it would rise 26% to beyond 2340. 

Read the full article at http://www.businessinsider.com/bull-market-birthday-2014-3?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Markets%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_030614

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CHART OF THE DAY: Happy Birthday, Bull Market!

Property ETFs Draw More Money Than in All of 2013: Mortgages – Bloomberg 03-06-14

Salient to Investors:

Inflows into real estate ETFs in 2014 are 43 percent more than all of 2013.

Bloomberg said in 2014, 31 percent of money going into US sector-focused ETFs was for real estate.

Jim Sullivan at Green Street Advisors said the bond market correctly indicates an OK environment for cost of capital, with enough economic growth to keep buildings full to allow landlords to push rents a little.

Gavin James at Western Asset Mortgage Capital said deep discounts coming into the beginning part of 2014 combined with dividends woke people up to the fact that these REITs were attractive.

The dividend yield on the Bloomberg REIT index is 3.6 percent, while single-tenant REITs yield 5 percent.

Rich Moore at RBC Capital Markets said the reaction on REITs to the rise in interest rate was way overdone, while a paucity of new construction is helping landlords.

Paul Curbo at Invesco said new construction is low by historical standards. 

Read the full article at http://www.bloomberg.com/news/2014-03-07/property-etfs-draw-more-money-than-in-all-of-2013-mortgages.html

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Australians priced out of housing, report says – BBC News 03-05-14

Salient to Investors:

Credit Suisse said:


  • Chinese buyers are pouring into the Australian residential market every year, pricing out a generation of Australians from the housing market, with many facing a lifetime of renting.
  • Over the past 5 years, Sydney prices have risen by 45% and Melbourne by more than a third, as they remain the most popular destinations for Chinese buyers, who are buying 18% of new housing in Sydney and 14% in Melbourne.
  • The Chinese will continue to invest and their buying will rise 30% by 2020.
  • Australian companies should benefit from the next stage of China’s economic development.


Read the full article at http://www.bbc.com/news/business-26445106

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