There are thousands of banks in the U.S., but only a few “big banks.” These big banks are of such size and market share penetration that they have a dominant position in the markets in which they are active. Big banks tend to cover the entire nation, including an international presence. They also provide services in all areas of the financial industry, whereas a small bank might only cover a certain subset of services.
I have been saying this for a while: You can’t have a housing recovery unless actual home buyers are involved.
We are very far away from seeing the housing market reach its 2005 highs…and as time passes, it becomes clearer that this generation may never see them again.
How can I say that?
What we have seen in the housing market since then, but mostly since 2012, in my opinion, is nothing more than a dead-cat bounce scenario—an increase in prices after a massive decline. The chart below shows how far off we are from the housing prices of 2005.
One of the key indicators I follow in respect to the state of the housing market is mortgage originations. This data gives me an idea about demand for homes, as rising demand for mortgages means more people are buying homes. And as demand increases, prices should be increasing.
But the opposite is happening…
In the first quarter of 2014, mortgage originations at Citigroup Inc. (NYSE/C) declined 71% from the same period a year ago. The bank issued $5.2 billion in mortgages in the first quarter of 2014, compared to $8.3 billion in the previous quarter and $18.0 billion in the first quarter of 2013. (Source: Citigroup Inc. web site, last accessed April 14, 2014.)
Total mortgage origination volume at JPMorgan Chase & Co. (NYSE/JPM) declined by 68% in the first quarter of 2014 from the same period a year ago. At JPMorgan, in the first quarter of 2014, $17.0 billion worth of mortgages were issued, compared to $52.7 billion in the same period a year ago. … Read More
When it comes to love, we often hear the phrase, “Beauty is in the eye of the beholder.” Well, the same could be said for the stock market.
Many investors look for the companies that deliver consistent results and satisfy the number-crunchers on Wall Street. While I belong to that group, I also take alternative views and search for companies that are the so-called dogs of the stock market. However, as our theme suggests, choosing in the stock market based only on a company’s outer appearance doesn’t always produce the best outcome.
Think about it this way: Why always select the stocks that are in favor by the stock market? Often, you may be the last to the dance, so you end up chasing stocks that have already made major stock market moves—the upside is limited.
I like looking at distressed companies that are facing some hurdles but have enough upside potential to make these stocks a worthwhile trade in the stock market. These plays are often referred to as contrarian investments—companies that are out of favor but have enough potential to demand a closer look in the stock market. In this case, you are often buying a company at a low valuation and price, as the stock market has turned against them.
I like these contrarian situations, as the potential upside is significant if these companies can turn around their operations.
In the past, I have highlighted opportunities such as Groupon, Inc. (NASDAQ/GRPN) and Facebook, Inc. (NASDAQ/FB)—both of which made spectacular gains thereafter. (Read “Why Macy’s Is Such a ‘Good’ Retail Play.”)
Nokia Corporation (NYSE/NOK) was … Read More
To see where the U.S. housing market is headed, we really need to look at what real home buyers—those who are planning to stay in their home for the long term—are doing. Institutional investors, who came into the housing market in 2012 and bought massive amounts of homes, are speculators; they’ll quickly rush out of the housing market if they can get a profit or if they can get a better return on their money elsewhere.
Right now, real home buyers are not very active in the U.S. housing market, as they face challenges. In fact, it looks like the number of real home buyers in the housing market is declining.
Between January and December of 2013, the 30-year fixed mortgage rate tracked by Freddie Mac increased by 31%. The 30-year fixed mortgage rate stood at 3.41% in January, and it increased to 4.46% by December. (Source: Freddie Mac web site, last accessed January 15, 2014.) Higher interest costs are a real challenge for home buyers.
As we can see from the chart below, there was a sudden change in the direction of interest rates after the Federal Reserve hinted in the spring of 2013 that it would start to “taper” its quantitative easing (money printing) program. It is widely expected that the Fed will continue to taper throughout 2014 as it drastically pulls back on its massive money printing scheme.
Chart courtesy of www.StockCharts.com
Another challenge home buyers face is stagnant growth in their incomes. In 2013, average hourly earnings of production and nonsupervisory employees in the U.S. increased by only 1.85%—less than real inflation. (Source: Federal Reserve Bank … Read More
As I often harp on about in these pages; economic growth occurs when the general standard of living in a country gets better. You can’t say an economy is improving when a significant portion of the population is suffering. You can’t claim there’s economic growth when the poverty rate is increasing. You can’t say the economy is improving when personal incomes and savings are declining.
Looking at this a little closer…
Food stamps usage in the U.S. economy has increased 68% since 2008, with 47.66 million people, or more than 15% of the entire U.S. population, now using food stamps. Going back to 2008, there were 28.22 million Americans using some form of food stamps then. (Source: United States Department of Agriculture, November 8, 2013.)
From 2000 to 2012, the poverty rate in the U.S. economy increased from 12.2% to 15.9%—a hike in the poverty rate of more than 30% in just 12 years. In 2000, there were 33.3 million Americans living in poverty; this number grew to 48.8 million people in 2012. (Source: United States Census Bureau, September 2013.)
In 2008, the median household income in the U.S. economy was $53,644. In 2012, it was almost five percent lower at $51,017. (Source: Federal Reserve Bank of St. Louis web site, last accessed December 2, 2013.)
And because incomes have fallen and prices have risen, people have no choice but to save less.
Back in November of 2008, Americans saved an average of 6.1% of their disposable income, meaning they saved $6.10 for every $100.00 they earned after taxes. In August of this year, personal savings as a percentage of … Read More
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