Is There a Potential Problem Looming? Margin Debt and Margin Calls!

The Belkon Report called the 2000 market top, now they have published a report an institutional newsletter on asset allocation and they are warning about the levels of margin debt in the NYSE.

Margin debt is the loans in which banks and investment brokerages make to investors using their stock and bond holdings as collateral. In November 2016, the outstanding margins neared its all-time high of $507 Billion and have hovered close to that level since. Is it something that is hanging over the market and the market is addicted to debt?

There is precedent for a high level of margin debt foreshadowing a market collapse. It peaked in March 2000, congruent with the market’s March 24 decline of 49%. It also peaked in July 2007, a few months before the market topped off in October. Another coincidence?

Reset For Homeowners With Heloc’s

Many homeowners took out HELOC’s (Home Equity lines of Credit) during the housing boom. Now the typical 10-year term on these loans is expiring, and many homeowners will be surprised their monthly payments are about to go up and in some cases substantially.

HELOC’s provide the homeowner to get funds, when needed, over the term of the loan if the amounts stay below the loan limit set at the time of the original loan. This money can be sued for major expenses, such as home improvement, college tuition, pay off high interest rate credit cards or car loans. The loan is secured by a mortgage and the loan typically have a 10-year term and require interest only payments. After the initial 10-year period, the HELOC will reset and the principal becomes due. At that point the homeowner can chose to pay off the balance, refinance or make payments for principal and interest, typically for a 20-year term.

Per some banking executives, a typical $50,000 loan at a rate of 3.25%, the interest only portion of the loan payment would be $135.42 per month. At the end of the term, the loan would recast to a 20-year loan, with a new principal and interest payment (PI) of $283.60 per month.

The Neuro-Economics of Denial

Neuro Economics – the combination of economics, neuroscience, and psychology used to determine how individuals make economic decisions.

Neuro Science – any or all of the sciences, such as neurochemistry and experimental psychology, which deal with the structure or function of the nervous system and brain.

“Yes, It is clear, we as humans, have physical limitations to our minds. The consensus on short term memory is that most people are limited to retaining just seven items at once, or seven chunks of data- a physical limitation, hard wired into our brains. What if we were hard wired to effectively manage a limited number of personal relationships? If memory has a corresponding physical capacity why wouldn’t other functions of the brain?”

-Mars Sisson, “Are Humans Hard Wired for a Limited Social circle?”

Modern humans initially lived in tight knit groups of around 150 individuals, a random generalization.

Anthropologists have concluded based upon the physical basis of the coincidence, pre Human Tribes were limited to no more than 150 individuals which was determined by the size of the region. (Small Tribal Groups)

The Big Lie US Bureau of Labor Statistics

If you tell a lie big enough and keep repeating the lie, people will eventually come to believe it. The lie can be maintained only for such a time as the State can shield the people from the political, economic and or military consequences of the lie.

It thus becomes virtually important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.

–Joseph Goebbels, Nazi Minister of Propaganda

Federal Regulators Warn US Bankers about their CRE Lending and Relaxed Underwriting

Most Bankers are bullish and like what they see in CRE lending Prospects

US Bankers appear to have selective amnesia as it relates to their ballooning CRE loan portfolios. Recently the FDIC issued a “warning” to the CRE lending community “prepare to hit the brakes and slow down their commercial real estate lending originations should conditions be warranted”.

In the third quarter of 2015, US Banks had steadily increased total CRE loans outstanding to $1.8 Trillion, exceeding the previous lending peak at the end of the second quarter of 2007 by over $170 Billion.