Off the Wires

Student-Loan Market Recalls Subprime Crisis for U.S. Treasury

November 6th, 2014  |  Source: Bloomberg

The Treasury Department is looking at the rise of American student-loan debt and seeing worrying similarities to the U.S. housing-market bubble.

Deputy Secretary Sarah Bloom Raskin today voiced concern that education-loan borrowers could turn to repayment scams resembling mortgage-payment schemes from 2009 and 2010. Her remarks come a day after a Treasury committee report drew parallels between student-loan default risks and the mortgage market before housing collapsed starting in 2006.

“Millions of student-loan borrowers are in default on their student loans; many more could face default in the near future,” Raskin said today in Tampa, Florida, during her third public speech on student debt since becoming the Treasury’s No. 2 official in March. “I worry about the emergence of a student loan ‘debt relief’ industry.”

High default rates and delinquencies have been a focus for Raskin, in part because they may damage Americans’ creditworthiness and curtail their ability to invest in homes and businesses. They also create uncertainty for the Treasury, which finances about $100 billion of new student loans each year.

“To the extent the government doesn’t get repaid, that boosts Treasury borrowing needs,” Nancy Vanden Houten, a senior government policy analyst at Stone & McCarthy Research in Skillman, New Jersey, said in an e-mail. That is “ultimately a cost to taxpayers.”

Default Rates

About $100 billion of federal student loans are in default, 9 percent of outstanding balances, according to a Treasury Borrowing Advisory Committee update on student lending trends released yesterday.

The balance of student loans outstanding in the U.S. -- also including private loans without government guarantees -- swelled to $1.3 trillion as of the second quarter 2014, based on data released by the Federal Reserve on Oct. 7.


The Senior Citizen Sweep

November 5th, 2014  |  Source: Bloomberg

The Barack Obama coalition stayed home.

The demographic mix of young, minority and women voters that twice helped elect Obama to the White House never was going to be as robust in a midterm election  Yet the fall-off from the level of support the president enjoyed just two years ago was a major factor in the Democratic loss of the Senate.

Even when compared to the last midterm election in 2010, the American electorate Tuesday was older, exit polls show.

Those 65 and older represented a quarter of the national electorate, up from 21 percent four years earlier. Democrats sought to turn out younger voters, but that didn't happen nationally. The share of those 29 and younger was identical to 2010. The proportion of the electorate represented by Hispanics–8 percent–was identical to 2010.  Turnout among black voters increased by a percentage point to 12 percent this year, and Asian voters increased by a single point as well, to 3 percent.

Obama was also clearly a drag on Democrats, with 55 percent of those voting telling exit pollsters that they either somewhat or strongly disapprove of the president's job performance. In the most closely watched states for Senate control, the exit polls provide the answers behind wins and losses.


Branson’s Virgin America pushes on with IPO

November 3rd, 2014  |  Source: FT

Sir Richard Branson sought to regain a semblance of normality on Monday as Virgin America, the US airline partially owned by the British billionaire, pressed ahead with plans to float in New York, just days after the crash of the Virgin Galactic test aircraft.

The airline, in which Sir Richard’s Virgin Group, has just under a 25 per cent stake, is seeking a valuation as high as $1bn as it looks to complete an initial public offering on Nasdaq before year’s end.


Economy in U.S. Grew 3.5% in Third Quarter, More Than Forecast

October 30th, 2014  |  Source: Bloomberg

The economy in the U.S. expanded more than forecast in the third quarter, capping its strongest six months in more than a decade, as gains in government spending and a shrinking trade deficit made up for a slowdown in household purchases.

Gross domestic product grew at a 3.5 percent annualized rate in the three months ended September after a 4.6 percent gain in the second quarter, Commerce Department figures showed today in Washington. It marked the strongest back-to-back readings since the last six months of 2003. The median forecast of 87 economists surveyed by Bloomberg called for a 3 percent advance.

Growing oil production is limiting imports and contributing to a pickup in manufacturing, allowing the economy to overcome slowing growth in overseas markets from Europe to China. At the same time, job gains and cheaper gasoline are giving American consumers the confidence and the means to spend, brightening the outlook for the holiday-shopping season and helping explain why the Federal Reserve ended its bond-buying program yesterday.

“The fundamentals behind the consumer are improving as job growth gains traction,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “And withconsumer confidence rising, that is a clear indicator that consumers are feeling better about the economy.”

Forecasts in the Bloomberg survey of economists ranged from 2.1 percent to 4 percent. Today’s estimate is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.


Alibaba's Ma says open to working with Apple on payments

October 28th, 2014  |  Source: Reuters

Alibaba Group Holdings Ltd (BABA.N) executive chairman Jack Ma said he's open to working with Apple Inc (AAPL.O) on mobile payments, as China's richest person prepares to call on Hollywood this week in search of media partners.

Alibaba affiliate Alipay is China's largest payments service, while Apple just this month debuted its own version of a mobile wallet, letting iPhone 6 users make payments at retailers with their smartphones.

Ma told a Wall Street Journal Digital Live conference on Monday that he has tremendous respect for Apple CEO Tim Cook.

"I hope we can do something together," he said when asked if Alipay and Apple Pay might tie up.

Ma, who amassed a fortune estimated at $25 billion partly through his stake in recent market debutante Alibaba, is a frequent visitor to the United States. This week, he plans to visit a number of Hollywood studios, reportedly to strike up content deals.

"I want to come here looking for partners," he said, adding that China will eventually become the world's largest movie market.

Alibaba, which handles more e-commerce transactions than Amazon.com Inc (AMZN.O) and eBay Inc (EBAY.O) combined, does not have much of a presence among American retail customers and Ma said his focus for now was on serving his Chinese clientele.

Ma added that he wanted to work on selling American and European products to China, reversing the typical flow of goods over the past 10 to 15 years.

Alibaba has acquired some smaller American companies such as niche online retailer 11Main and Ma said he will continue to invest in the United States.


Corporate America starts to spend again

October 27th, 2014  |  Source: FT

US corporations are starting to run down their cash balances for the first time since the recession – a sign of returning confidence – but they remain reluctant to invest in new equipment.

More companies cut their cash holdings than increased them over the past year, the first time that has happened during the recovery, according to a new survey of corporate treasurers by the Association for Financial Professionals.

The willingness of companies to hold less cash is an important turning point in the recovery from the Great Recession. It is a sign of animal spirits returning to the US economy – but growth will not accelerate until the cash gets invested in new factories and machinery.


Defective air bags raise questions about automakers’ ability to handle gigantic recall

October 24th, 2014  |  Source: Washington Post

More than 30 million cars and trucks nationwide are equipped with dangerously defective air bags, congressional officials say, a number that raises questions about whether the U.S. auto industry can handle what could become the largest recall in history.

Federal safety authorities have recalled only 7.8 million vehicles over the defect in a few states, a limited action that lawmakers said Thursday was vastly insufficient to address what they deemed “a public safety threat.”

Two senators demanded a much broader recall that would cover every affected vehicle nationwide. But a recall of that magnitude — including best-selling models from Honda, Toyota, GM, Chrysler and six other companies spanning 2002 to 2007 — could prove far greater than the industry has ever managed.

Manufacturing that many replacement parts could take years and present a variety of logistical nightmares. Dealerships could quickly become overwhelmed by the demand, auto safety experts said. This year, GM recalled a total of 30 million vehicles for faulty ignition switches and other problems, and months later it is struggling to make the repairs.

The defective air bags, made by Japanese manufacturer Takata, can rupture and blast out metal shards, particularly in humid conditions, government officials have said. While the rate of reported incidents is low, linked to four deaths and more than 100 injuries so far, their grisly severity has spurred an urgent debate about the matter in Washington.


Mega harvest leaves U.S. farmers battling bugs in storage bins

October 22nd, 2014  |  Source: Reuters

With record harvests depressing prices, U.S. farmers are holding tight to their corn and soybeans and binging on chemicals that protect stored grain from critters or even leaving corn standing in fields over winter to avoid storage charges.

Still flush with cash after years of record income and with shipping rates near record highs, farmers have resources to store grain rather than sell into a down market.

"The last several years we have not held on very long," said Mike Brzon, who raises corn, soybeans and wheat on his farm in Courtland, Kansas. "This year we might be in a little different situation."

Knowing they could store their grain well into 2015, many farmers and grain elevators are pre-treating storage bins with insecticides capable of keeping grain bug-free for 18 months.

"We treat the bins before we ever put a kernel of grain in it," said Kent Moore, a farmer from Iuka, Kansas.

A record U.S. harvest of an estimated 14.5 billion bushels has corn trading recently around $3.50 a bushel, down 56 percent from record highs set in August 2012. Soybeans have fallen more than $8 per bushel, to around $9.65, on a record harvest of 3.9 billion bushels.

Paul Drache, regional manager at insecticide maker Central Life Sciences, said some are delaying the decision, planning to treat the grain later if need arises.

"In an environment where the commodity prices are down, they will typically try do a rescue rather than a preventative, because they don't want to spend the money now," Drache said.

Central Life's Centynal is applied to grain after it has been placed in storage. Increased sales could be a boon Central Garden & Pet Co, which owns Central Life, as well as DowAgroSciences, which is part of Dow Chemical Companies and sells another leading insect regulator, ProFume.

The applications of the pesticides are carefully calibrated to fall within government standards to keep the grain safe for human and animal use.

With grain stored in bins and on the ground, elevators and farmers need to prioritize which will move out first once prices are right. Grain stored in sausage-shaped polyethylene bags in lengths of 100 yards (91 meters) will be the first to go. The bags are believed susceptible to insect invasions. [ID:nL4N0PW3ME]

"That is the first thing that gets shipped," said Wes O'Bannon, chief operations officer at FarmWay Co-Op in Beloit, Kansas.

Some farmers are leaving their corn standing in fields, hoping higher spring prices will make it worth harvesting. They risk seeing winter storms destroy its value.

"Even though you are going to encounter some yield loss, it still might not end up being a bad economic play at the end of the day," said Tregg Cronin, a market analyst at Halo Commodities who also works on his family farm in Gettysburg, South Dakota.

"You can store it in the field for free," Cronin added.


Oil at $80 a Barrel Muffles Forecasts for U.S. Shale Boom

October 21st, 2014  |  Source: Bloomberg

The bear market in oil has analysts reassessing the U.S. shale boom after five years of historic growth.

The U.S. benchmark price dropped to $79.78 a barrel on Oct. 16, the lowest since June 2012. At that level, one-third of U.S. shale oil production would be uneconomic, analysts for New York-based Sanford C. Bernstein & Co. led by Bob Brackett said in a report yesterday. Drillers would add fewer barrels to domestic output than the previous year for the first time since 2010, according to Macquarie Group Ltd., ITG Investment Research and PKVerleger LLC.

Horizontal drilling through shale accounts for as much as 55 percent of U.S. production and just about all the growth, according to Bloomberg Intelligence. The Paris-based International Energy Agency predicted in November that the U.S. would pass Russia and Saudi Arabia to become the biggest producer in the world by 2015. Though some forecasts show oil rebounding or stabilizing, any slower increase in U.S. output would shake perceptions for the global market, said Vikas Dwivedi, an oil and gas economist in Houston for Sydney-based Macquarie.


Gain in Home Building Points to Sustained U.S. Growth

October 17th, 2014  |  Source: Bloomberg

Builders started work on more homes in September and American consumers this month were the most optimistic in seven years, signaling the U.S. economywill ride out a global slowdown.

Housing starts climbed 6.3 percent to a 1.02 million annualized rate from a 957,000 pace in August as multifamily and single-family projects advanced, the Commerce Department reported today inWashington. The Thomson Reuters/University of Michigan preliminary sentiment index for October increased to 86.4, the strongest since July 2007, another report showed.

Gains in residential construction will help underpin the economic expansion as the recent drop in mortgage rates lifts home sales and gives builders reason to take on more projects. Other figures showing factory production rebounded last month and claims for jobless benefits dropped last week to the lowest level in 14 years added to evidence the turbulence in global markets has yet to depress the world’s largest economy.

“The fundamentals continue to look solid,” said Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly projected an increase in homebuilding. “The turmoil in the market doesn’t reflect the underlying U.S. economic fundamentals.”

Stocks climbed, trimming this week’s decline, as earnings beat estimates (NHSPSTOT) and investors speculated that central banks will support economic growth with more stimulus. 




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