US Housing Market: The great divergence: U.S. COVID-19 economy has delivered luxury houses for some, evictions for others - by Michelle Conlin

Professionals like Kullman are thriving, thanks in part to pandemic-induced policies by the Federal Reserve that have buoyed the stock market and fueled industries such as real estate with record-low interest rates.

For many lower-wage workers, meanwhile, the crisis has delivered a cruel shove, toppling families like the McGees who were already living on the financial edge. Nationwide, millions of people including hotel workers, retail clerks, waiters, bartenders, airline employees and other service workers have lost jobs as COVID-19 fears crushed consumer demand.

Read more at: The great divergence: U.S. COVID-19 economy has delivered luxury houses for some, evictions for others | Reuters

US Economy: Anxiety mounts as U.S. economy limps into 2nd half

From manufacturing to job growth to consumer spending, the numbers have been grim, and economists are wondering whether they need to dial down forecasts for the remainder of the year. The US economy grew at a 1.9 percent annual pace in the first quarter and estimates for the April-June period are increasingly coming in around 1.5 percent.

"Our sense was that of a gradual improvement. Now the sense is of muddling along at a low level of activity," said Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago. "We went from seeing progress, though gradual and very uneven, to not seeing progress at all."


The housing market, where home sales and prices have trended higher in recent months, should offer some support as demand for furniture and other household items picks up. Construction activity is also strengthening, but homebuilding accounts for only about 2.3 percent of GDP.

Even more worrying for economists is the persistent service sector sluggishness. Services account for about 65 percent of consumer spending and around 45 percent of GDP.

Read more: Anxiety mounts as U.S. economy limps into 2nd half | Reuters

The US Economy still under stress despite rosy picture being painted

EU-Digest

Financial experts from a variety of disciplines are not finding much to cheer about following the more rosy reports coming out of Wall Street, the Banking Sector and the Government. They are saying that the value of key collateral on loans is still falling. That close to half of bank lending continues to be tied to real estate, which has shifted from boom to bust in many parts of the United States. Presently the typical home price is down more than 20 percent nationwide, and it has continued to fall by about 2 percent a month. The experts are saying that if that continues, it boosts both the likelihood of defaults by borrowers and the losses for banks when they resell those homes after foreclosure. In the meantime the FDIC reported that loans are going delinquent faster than banks are adding to reserves to cover those losses. This certainly will hit bank profits down the road.

Uncontrolled accounting methods may also be hiding key problems even though banks are saying that a shift away from so-called mark-to-market accounting is a more accurate reflection of the assets’ worth. Banks may be right. But the resulting values could also prove to be too rosy. Just take that pool of risky assets at Citigroup, which the bank is valuing at $101 billion. The more accurate mark-to-market accounting would put the actual value of risky assets at only $29 billion. Losses could therefore outweigh capital on hand.

Collectively, US banks have equity capital of $1.2 trillion, or about 10 percent of their loans, the FDIC says, but many economists including those at the International Monetary Fund (IMF) warn that "hidden" bank losses of those not yet recognized in charge-offs – are larger, possibly exceeding $2 trillion. This could wipe out their equity capital, says Peter Nigro, a former economist at the Office of the Comptroller of the Currency, now at Bryant University in Smithfield, R.I. If you put all that together, the negative forces make it very hard for banks to earn their way out of losses by relying on their interest-rate spreads. "So what the yield curve is doing now is mitigating those losses a little bit", says Mr. Lachman, who used to work for the IMF. Moreover, Lachman expects that European banks will see rising loan problems this year, with ripple effects that will hurt US banks as well.

For the US and European economies to stage a strong recovery, banks need enough capital to lend strongly, economists say. That’s especially true today, because other channels of credit that were strong before the recession, like debt securities funded by non-bank investors, have basically disappeared. The risk, they say, is that political pressures will prevent or delay an accurate assessment of bank losses and how big their write-downs should be and how much capital they need. Another issue that still has not been answered, what are these assets on the bank balance sheets actually worth? Overall it seems to indicate that the financial sector has not yet turned the corner, but instead still remains in a precarious situation.

The Earth Times: Dutch listed affiliate Carlyle may face cashflow trouble : by Alexandra Hudson

For the complete report from The EarthTimes click on this link

Dutch listed affiliate Carlyle may face cashflow trouble : by Alexandra Hudson

Private equity firm Carlyle Group's Dutch-listed affiliate said on Friday it may face cashflow problems after it received substantial additional margin calls and default notices. "In the past several days there has been a rapid and severe deterioration in the market for U.S. government agency AAA-rated residential mortgage-backed securities," Carlyle Capital Corporation (CCC) said. CCC had said earlier it received margin calls totaling more than $37 million on Wednesday and expected at least one more default notice. The Dutch market regulator (AFM) suspended trading in CCC after its shares closed on Thursday at $5, having lost more than half their value. Carlyle Group has a $150 million exposure to CCC through a credit facility.

Washington DC based The Carlyle Group has more than $75 billion under management and has attracted a string of high-profile advisers including President George Bush in the early 1990s and former British Prime Minister John Major. This week it said it had hired Olivier Sarkozy, half-brother of French President Nicolas Sarkozy, from investment bank UBS as it looks to "capitalize on the dislocation in the financial services sector."