The latest edition of our finance and property news digest with a distinctively Australian flavour.
We look at the latest new lending stats in Australia and also the events in the USA as Jerome Powell jaw-bones the markets and a new rescue plan is mooted.
CONTENTS
0:00 Start 0:34 Introduction 1:06 New Lending For November 5:21 HIA On The Numbers 9:00 USA Economy 9:45 Biden’s Rescue Package 15:35 Jobless Claims Surged 21:40 Jerome Powell’s Jaw-boning 26:33 Conclusion 29:34 Ending
In part 2 of my discussion with Salvatore Babones we consider some of the policy implications of a Biden Presidency.
Salvatore Babones is Australia’s globalization expert. He is an associate professor at the University of Sydney, an adjunct scholar at the Centre for Independent Studies, a columnist for Foreign Policy and Quadrant, and a regular contributor to The National Interest. A proud American by birth and by habit, he has lived in Sydney since 2008.
In part 2 of my discussion with Salvatore Babones we consider some of the policy implications of a Biden Presidency.
Salvatore Babones is Australia’s globalization expert. He is an associate professor at the University of Sydney, an adjunct scholar at the Centre for Independent Studies, a columnist for Foreign Policy and Quadrant, and a regular contributor to The National Interest. A proud American by birth and by habit, he has lived in Sydney since 2008.
Salvatore Babones is Australia’s globalization expert. He is an associate professor at the University of Sydney, an adjunct scholar at the Centre for Independent Studies, a columnist for Foreign Policy and Quadrant, and a regular contributor to The National Interest. A proud American by birth and by habit, he has lived in Sydney since 2008.
We discuses the current state of play in the election and what is really going on.
Salvatore Babones, Associate Professor University of Sydney joins me to discuss the question of the China U.S relationship. He suggests it is not what is being reported.
The Senate unanimously passed a massive stimulus package late Wednesday night in an effort to jumpstart the US an economy. As reported in The Hill
The bill provides more than $2 trillion for workers, small business and industries impacted in recent weeks by the virus.
The bill marks an unprecedented attempt by the federal government to revive the economy and prevent a deep recession. The 2008 Troubled Asset Relief Program (TARP), by comparison, was $700 billion.
The Senate’s vote comes one week after they passed a $104 billion “phase two” coronavirus package.
The
wide-reaching bill includes a $1,200 one-time check for individuals who
make up to $75,000. That amount would scale down until it reached an
annual income threshold of $99,000, where it would phase out
altogether.
It also
provides $377 billion in small business aid, would defer federal student
loan payments through Sept. 30, 2020, and would prevent money given
under the bill to the Pentagon to be transferred to the border wall.
The bill also provides $100 billion for hospitals and $200 billion for other “domestic priorities,” including child care and assistance for seniors.
The unemployment provision includes four months of boosted unemployment benefits, including increasing the maximum unemployment benefit by $600.
The 700-plus page bill includes a $500 corporate liquidity fund to corporations; $25 billion would be set aside for U.S. airlines, $4 billion for air cargo carriers and $17 billion for other distressed companies related to critical national security.
The White House and Senate leaders reached a deal early Wednesday morning USA time on a massive stimulus package they hope will keep the nation from falling into a deep recession because of the coronavirus crisis, reports The Hill.
The agreement caps five days of intense negotiations that started Friday morning when Senate Majority Leader Mitch McConnell
(R-Ky.) convened Republican and Democratic colleagues, with talks
stretching late into the evening each of the following four days.
The
revamped Senate proposal will inject approximately $2 trillion into the
economy in the form of tax rebates, four months expanded unemployment
benefits and a slew of business tax-relief provisions. The deal includes
$500 billion for a major corporate loan program through the Federal
Reserve, a $367 billion small business rescue package, $130 billion for
hospitals and $200 billion for other “domestic priorities,” such as
transportation, veterans, child care and seniors.
The
bill will give a one-time check of $1,200 to Americans who make up to
$75,000. Individuals with no or little tax liability would receive the
same amount, unlike the initial GOP proposal that would have given them a
minimum of $600.
“At last we have a
deal. … the Senate has reached a bipartisan agreement,” McConnell
declared during a speech on the Senate floor after 1:30 a.m.
“We are going to pass this legislation later today,” he added.
Hundreds of billions of dollars
in buffer capital for the Treasury Department will allow the Fed to hand
out an additional $4 trillion in loans to distressed companies such as
U.S. airlines and Boeing, the nation’s leading airplane manufacturer.
Their stocks have been hit the hardest in the recent stock-market
selloff that had erased the gains made since President Trump took
office.
The Fed loan program,
which Democrats bashed as a corporate bailout program and Mnuchin’s
“slush fund,” was one of the biggest sticking points during the late
rounds of the negotiations.
Republicans
argued the Treasury Department needed $500 billion to help the Fed
inject enough liquidity into the economy, while Democrats were enraged
over a provision they said would let Mnuchin provide loans and
guarantees and then wait six months before disclosing who got the
assistance.
The S&P 500 Futures was little changed after the news.
The US has an estimated $16 trillion dollar Market for Residential & Commercial Mortgage-Backed Securities .
The business model of a mortgage REIT is to buy long-term residential and/or commercial mortgage-backed securities and leverage them up by borrowing short-term, including in the repo market if they can, while posting the RMBS or CMBS as collateral. A mortgage REIT makes money off the spread between the borrowing rates and the yields of the mortgage bonds, and they multiply their profits through leverage.
As Wolf Street says, during the Good Times, it was like free money, and the mortgage REITs paid big-fat yields. But suddenly, the Good Times were up.
Everyone was trying to unload them, and their prices dropped, and therefore collateral values dropped, and financing counterparties sent out margin calls to get more cash or collateral to make up for the dropping collateral values. And then all heck broke loose.
On Monday, TPG RE Finance Trust — sponsored by private-equity giant TPG which had spun it off in an IPO in 2017 — announced
that it had still been able to meet margin calls by posting cash
collateral, but “if the requirements to post additional cash collateral
continue to be material,” there is “no certainty” it would be able to
meet future margin calls. To preserve liquidity, it would “delay” paying
its previously announced dividend.
TPG RE’s shares [TRTX] plunged 30% on Monday and 13% on Tuesday to $4.30 and are down nearly 80% from last glory-day February 20.
“The Company is engaging in active
discussions with its lenders and other potential sources of financing,
but it cannot predict whether it will be able to agree to terms with
such parties on an expedited basis,” it said.
And it’s going for a government bailout, it said: “The Company is also monitoring the potential availability of government programs.” Taxpayer to the fore.
On the same day, AG Mortgage Investment Trust, announced that it had not been able to meet margin calls “as a result of market disruptions created by the COVID-19 pandemic.” Shares [MITT] plunged another 24% today, to $2.14, having collapsed from over $16 on February 20.
“In recent weeks, due to the turmoil in
the financial markets resulting from the global pandemic of the COVID-19
virus, the Company and its subsidiaries have received an unusually high
number of margin calls from financing counterparties,” it said
It was able to meet margin calls until
Friday March 20, when it “missed the wire deadline” and notified the
financing counterparties that it would fulfill the margin calls on
Monday March 23 but would not be able to meet the anticipated future
margin calls.
AG Mortgage said that it’s trying to get the financing counterparties to enter into a forbearance agreement and not take ownership of its securities that back the margin loans.
On Tuesday, it was mortgage REIT Investco Mortgage Capital that issued an announcement that it had failed to meet margin calls on Monday, blaming “the turmoil in the financial markets resulting from the global pandemic”
The announcement caused the already beaten down shares of Investco Mortgage Capital [IVR] to crash another 53% to $2.52. Back on February 20, they were still over $18. Investco Mortgage Capital added:
Through Friday, March 20, 2020, the Company had timely met all margin calls received. However, on Monday afternoon, March 23, 2020, the Company notified its financing counterparties that it was not in a position to fund the margin calls that it received on March 23, 2020, and that the Company did not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic.
It said it is trying to get the counterparties to enter into a forbearance agreement and not take ownership of the securities that back the margin loans. And “to preserve liquidity,” it said it would also “delay” paying the already announced dividends on its common stock, and on its three series of preferred stock.
Also on Tuesday MFA Financial announced that it had received “an unusually high number of margin calls from financing counterparties,” and that by the close of business on Monday, it couldn’t meet those margin calls.
Its shares (MFA) had started out the day
in the positive at just under $3 and then plunged 87% during the day, to
$0.36. On February 20, before the market chaos started, shares were
still over $8 a share. MFA Financial blamed the repo-market where it
“had experienced higher funding costs,” and the mortgage market turmoil
triggered by COVID-19.
And MFA Financial said:
On March 23, 2020, the Company notified its financing counterparties that it does not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic.
If MFA fails to meet the margin calls, the
financing counterparties can take ownership of the securities that
secured the margin loan. The company is now trying to get its financing
counterparties to enter into forbearance agreements, where the
counterparties would refrain from exercising their rights and remedies
they have in case of default, but it could not “predict” whether these
talks would succeed.
