Category: Energy

Economics Update

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Scary Pic of the Day: Upcoming Mortgage Resets Courtesy of Dr. Housingbubble

ADP employment services has released its monthly report, and job cuts are way up with 697,000 jobs lost in February as compared to 614,000 jobs lost in January.

Note that the initial January figure was only 522,000, the the final February figures may very look even worse.

We also have the Institute for Supply Management February non-manufacturing numbers, and they are down from January’s already anemic figures, and the Federal Reserve’s business survey reporting “weaker conditions or declines” in 10 of the 12 regions.

In China, however, the purchasing managers’ index rose in February, to 49, which still shows contraction, but only barely, as 50 is neutral.

In real estate, we have mortgage demand falling last week, largely because borrowers are waiting to see what the Obama mortgage rescue plan is.

In commercial real estate, we have a secondary indicator, with office furniture sales falling sharply.

It’s no wonder that FDIC Chair Sheila Bair is warning that its insurance fund could be insolvent by years end.

Bank failures, ignoring the biggest ones, is on a pace to close 100 banks this year, as compared to the 27 in 2008 or the 3 in 2007.

We are seeing a spike in consumer bankruptcy filings, up 29% year over year in February.

The Chinese economic news drove oil higher, and bad economic news in Japan drove the dollar up.

Economics Update

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Yeah, I know, I don’t normally do the stock market indices, but the Dow fell to below 7000 today, and closed at 6,763.29, a 12 year low, and you can be sure that this spooks both the markets, and the regulators.

More significant is the fact that personal savings in the US are way up, and as the graph from Calculated Risk shows.

It’s been over a decade since personal savings were that high, and while generally this would be a good thing™, right now the fact that people are deleveraging means that the economy is driven even further down.

It makes sense personally, but in the aggregate, it makes things worse.

Interestingly enough, even with the increase in savings, consumer spending rose in January by 0.6%, which was unexpected, as did incomes, bu 0.4%, which was also a surprise.

I think that it is a one month thing, though it might be the “Obama Effect,” making people more willing to spend now that a Bush and His Evil Minions™ are no longer running things, but in either case the effect is small, and unless we see increases for the next few months, things won’t get better.

We also saw the Institute for Supply Management’s manufacturing index rise to 35.8 from 35.6, beating expectations of a fall to 33.8, but note that this means merely that it’s contracting slightly less implosively than it would otherwise: any number below 50 is a contraction, and this makes 13 straight months of contraction.

The full link to the ISM monthly report is here, and it should be noted that their employment index is at all time (since 1947) low.

In real estate, construction dropped to a 4½ year low.

Meanwhile, the AIG bailout, and the concerns that it raises has driven oil down on concerns of more turmoil in the banking system, and has driven the dollar up in a flight to safety.

Economics Update

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So, the new unemployment numbers are out, and once again, they are brutal, with adjusted initial claims hitting 667,000, up 36,000 from last week, and the less noisy 4-week moving average hit 639,000, up 19,000, while the continuing claims are at 5,112,000.

As Calculated Risk notes, the 4-week moving average is the highest since 1982, and the continuing claims are the highest ever recorded, though both are somewhat better when normalized against total workforce size. (Graph at CR)

We also saw durable goods orders fall to a 6 year low, and new-home sales fell in January, the lowest number since records started to be kept in 1963.

We also have banks cratering with the FDIC list of problem banks up 50% in Q4 of 2008.

BTW, it’s hitting the export driven economies of Asia even harder, with Singapore’s Q4 GDP falling at a 16.4% annual rate.

We also have oil down following the announcement of production cuts by the UAE, and the dollar is down, for reasons that are not entirely clear to me.

Economics Update

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More brutal numbers on home sales, with sales of existing homes falling to a 12 year low.

Note also that existing home sales are becoming a bigger part of home sales in general, as foreclosures and other distressed sales make up a bigger part of the market.

Of course this can’t compare to the financial putrescence that is AIG, which just failed on an asset sale.

It wanted to use the proceeds to pay down some of its debt to the US government, but could not because of a lack of bidders. No one wants their crap.

BTW, Ken Lewis’s gift keeps on giving to Bank of America, because Merrill-Lynch lost $15.84 billion in Q4, about $500 million more than predicted.

There was an unexpected decline in gasoline stocks that drove oil higher today, while the poor housing news and the declines in the stock market have driven the dollar up as people look for safe havens.

Economics Update

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Well, the Conference Board’s consumer confidence report came out and it is starkly grim, dropping to a record low of 25, lower than had been predicted.

BTW, it’s not just us, German business confidence has fallen, and Standard & Poor’s lowered Latvia’s debt rating to junk.

This means that German businesses have no confidence in the new future, and no one has any confidence in Latvia.

Even the New York Stock Exchange is getting in the act, looking at temporarily suspending a requirement of a $1/share price in order to avoid delisting….I call it a Citi Special, though the two most prominent companies at risk of delisting right now are AIG and Ford.

The fact that the Case-Shiller numbers for the top 20 real estate markets show a price decline of 18.5% year over year, has a lot to do with that.

In currency, the dollar fell a bit, while in energy, oil rose.

Economics Update

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The Federal Reserve Bank of Chicago’s National Activity Index showed a small bump in January, though it should be noted that December was an absolut disaster, so I’m callijng dead cat bounce, particularly since the 3 month moving average is at a record low.

It also appears that the gift that keeps on giving, AIG, is looking for more welfare from the government.

The US government already owns 70% of the company. How about giving all of senior management the boot….TODAY.

BTW, it appears that the rising levels of derfault on commercial real estate are giving Atlanta Federal Reserve Bank President Dennis Lockhart the willies. He says that it is keeping him up at night.

Meanwhile, the go-go free market capital of the Arab world, Dubai, has just gotten a bailout from the United Arab Emirates following the failure of its bond offering.

Dubai has done its level best to cast itself as the banking sector of the Arab petro-states in the region, and now it looks like things are going bad there too.

Not only are there problems with bond offerings, but thousands of expats are fleeing the country, because they have lost their jobs, and under the law there, they face debtors prison.

Meanwhile, it appears that oil spiked above $40 on Friday, but it’s below $40/bbl again.

In currency, the dollar gained against both the Yen and Euro.

The Yen is down largely on concerns about declining exports will effect Japan’s export driven economy.

The concern with the Euro is that the former Warsaw Pact and Soviet States that were absorbed (too soon) in the optimism that followed the fall of the Berlin Wall are beginning to resemble Iceland, or Ireland, or Argentina.

I will be posting on Citi, and “stress testing”, later.

Economics Update

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Well, we have another Asian economy cratering in Q4 of 2008, with Taiwan’s GDP shrinking at an 8.36 annual rate. Unsurprisingly, they are now predicting a contraction for 2009.

This is “post Berlin Wall coming down shock-treatment elderly begging in streets” numbers.

In the US, producer prices posted a large gain, 0.8%, or about a 9½% inflation rate. I’m not certain if this is good or bad news, as the concern right now is deflation, but the impetus for the jump seems to be massive cash infusions from the Fed and the Treasury, which implies that we may be tiptoeing toward Zimbabwe.

Still, the jobless report was brutal, with initial claims remaining at 627,000, and continuing claims jumping to 4.99 million, the highest number ever.

I wouldn’t expect manufacturing or building to be a part of a recovery any time soon though, as the Philadelphia Fed’s Business Outlook Survey hit a record low, as did the Architecture Billings Index (ABI).

Note that the ABI typically presages construction activity 9-12 months ahead.

Additionally, I think that we are near seeing some of the non AIG insurance giants failing, with the first indicator being that Prudential Financial Inc. being excluded from the Federal Reserve’s commercial paper program, because Fitch Ratings downgraded them.

Note that Prudential Financial Inc. is the parent of Prudential Insurance, and that the insurance division can still use the “Commercial Paper Funding Facility,” for a while, at least.

The dollar fell a bit today, largely on reduced concerns about the smaller nations in the Euro zone going completely broke.

In energy, oil rose, though it is still well below $40/bbl, because of a surprise drop in inventory.

Economics Update

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Only a few bits of news, besides the auto bailout update, which I will cover later, but they are fairly significant.

First, the New York Fed’s Empire State Manufacturing Index hit another record low, though it has only been kept since July, 2001, so that’s not an enormously long time.

On the other side of the pond, though we have rumors that Ireland is on the brink of defaulting on its debt, which could make things very ugly very quickly.

It would likely also trigger events that would lead to defaults by other nations, the Baltic republics and Ukraine come to mind, as a rush for the doors starts.

Oil is down again, and the continued flight to safety has driven the dollar up.

Economics Update

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Japan’s economy contracted at an annual rate of 12.7% in the Q4 of 2008. Those are numbers more than a recession, they are near implosion, so I would take the Confederation of British Industry’s prediction that the UK economy will shrink 3.3% in 2009 with a grain of salt.

The UK is far more dependent on banking and investment than Japan is in its economy, the Japanese actually make stuff and sell it to people.

A further indicator of the likelihood of a brutal downturn is that the companies in the S&P 500 just turned their first ever aggregate quarterly loss ever, with something like 400 of the 500 companies declaring a loss.

However, today was not without good news, as junk bond sales hit a 6 month high, which implies that people are no longer fleeing so strongly to safe havens like US treasuries, though there is still enough uncertainty to push the dollar and the Yen higher.

Still, demand concerns are driving oil down, even as retail gasoline prices continue their march back towards $2.00 a gallon.

Economics Update

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Well, the obvious lede here is the weekly initial jobless claims, which dropped 8000 to 623,000, still well within OMFG territory, and the four-week moving average, which is to my mine a better and less noisy metric, jumped from 583,500 to 607,500, while continuing claims rose to 4.81 million…..Ouch.

We have some more numbers for the real estate bloodbath too, with the NAR reporting that median home prices declined in Q4 of 2008 by 12.4% as compared to Q4 of 2007.

Foreclosures fell in January, but this is largely because the GSEs have put a temporary moratorium.

More telling is the fact that foreclosures and short sales accounted for 45% of sales in Q4.

Mortgage rates are down this week to 5.16%, which is still above the 4 and change percent from last month, so I do not expect this to do much to the market.

We do have a bright spot, with , it was +1% over December as opposed to the expected -.8%, but look as the chart on the right shows, it’s still very grim.

It’s worth noting that some of the increase is because retail gasoline prices have been trending higher (bottom chart), which along with increased spending for food and for clothing, were largely responsible for the increase.

In currency, the Yen and the dollar strengthened as investors fled to their relative safety, and in energy, oil fell below $34/bbl on high inventories and low demand.

Economics Update

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I’m not going to be writing about Geithner’s bank bailout plan here, it needs it’s own post, but I have some graph pr0n, a little update from last night’s Pelosi scary employment graph courtesy of Justin Fox (top) and William Polley.

The first goes back 6 recessions, and the 2nd covers all of the recessions since WWII, which makes a bit busy, but they are at least as scary as last night’s graph.

On to the update:

It appears that the Asian economies are melt down down, with Japan’s economy is deteriorating in a way that has not been seen in 50 years, China’s exports falling by double digits, the Taiwan dollar and Malaysian Ringgit falling, and the IMF predicting a 4% contraction in the South Korean economy in 2009.

Meanwhile, there is a report that Russia is attempting to restructure its debts, which is a polite way of saying that they are threatening to default.

Meanwhile, Geithner’s plan, and the Senate’s approval of a stimulus, does appear to be having an effect on the markets, with oil falling, which indicates that the oil traders do not expect to see a rapid economic turn around, and the dollar rising, on the same information.

In this case it appears to be cross purposes, but I think that the reason that the dollar is up is because people realize that the bailout makes US investments more attractive, albeit at taxpayer expense, but that is another post.

Economics Update

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Well, in terms of the stuff I put here, there was very little today. My guess is that everyone is waiting on Timothy “Eddie Haskell” Geithner’s bank bailout plan.

We do have a rumor on the plan though, and it’s that Geithner has dropped the federally funded bad bank, and instead any disposal of the financial dioxin out there will be handled by encouraging private money to drain the cesspool, which, when I last checked, was paying about 35¢ on the dollar for the top tranches of this.

Good luck with that.

He was supposed to release it today, but he put it off a day, which pushed the dollar down and it also pushed oil down, despite OPEC talking about more supply cuts.

I will post a bit about Nancy Pelosi’s scary graph.

Economics Update

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So we have the new, official jobs report, Oh My God!!!

The unemployment rate went up to 7.6%, and 598,000 jobs were cut, the most since 1974, and it happened across all sectors.

Barry Ritholtz looks at the number in more detail, and finds (excerpting):

  • Total job losses since the recession started in December 2007: 3.6 million;
  • Over the past 12 months, the number of unemployed persons has increased by 4.1 million;
  • For the first time since records began in 1939, there were three consecutive months of 500k + job losses;
  • Household survey showed a record 1.24 million job plunge (Since data began in 1950)
  • The employment-population ratio fell to 60.5%, down from 62.7% at the beginning of the recession, — the lowest rate since 1986.
  • Unemployment rate: 16-year high (1992);
  • The 3.5 million job loss since January 2008 is the largest 12-month decline since the government started compiling those figures in 1939;
  • U-6 Marginally attached and involuntary part-time workers: 13.9% last month — up almost five percent;
  • The employment-to-population ratio was the lowest since 1986.

Except for the jobs report, it’s a slow news day, which is kind of like saying, “Apart from that Mrs Lincoln, how did you enjoy the play?

Then again, I expect at least one bank closing shortly after I shut down for Shabbos, because Friday is bank regulator seizure day (cue Prince Spaghetti Day ad).

The good news is that it looks like the SEC and Treasury are denying any plans of suspending mark to market.

Going back to mark to model would be like pouring gasoline on a the bonfire of the fraudulent.

One odd thing here is that the Federal Reserve appears to be walking away from expanding its Term Asset-Backed Securities Lending Facility (TALF) program, a sh%$ pile for cash givaway lending program, to include consumer credit derived instruments.

Not sure what is going on here, but it would seem to me that this might be one of the better ways to throw money at the problem.

Meanwhile, oil fell on the jobs reports, and the dollar was mixed, up against the Yen, down vs the Euro, and flat vs. the Sterling.

Economics Update

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Our economy just had one of those days when you wonder why you get out of bet.

First, we have initial unemployment claims spiking to the highest number since October, 1982, 626,000. The consensus estimate had been 580,000.

The more reliable, and less noisy, 4 week moving average was up too, from 543,250 to 582,250, and continuing claims hit 4,788,000, another new record.

In manufacturing, December new factory orders fall 3.9%, well above the estimate of 3 %, and in rental real estate, the MIT commercial property price index posted a record drop, 10% in Q4 of 2008.

In international high finance, the Bank of England its benchmark rate by 50 basis points (½%), to 1%, which breaks last month’s record…..Considering that the BoE has been around since 1694, that’s a long record.

Across the channel in Euro land, the European Central Bank has left its benchmark unchanged, though I think that this is less from optimism than from the inflation-hawk nature of the ECB’s charter, and the fear of the zero rate destroying their ability to manage the economy with monetary means.

Meanwhile, mortgage interest rates have continued their increase, with the 30 year fixed being reported at 5.25%.

With the rate cuts in England, and the ECB still signaling future rate cuts, the dollar was up today.

The dismal job numbers drove oil down.

Economics Update

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Well, the ADP Monthly Survey estimates that 522,000 jobs were lost in January, and while the Institute of Supply Management’s non-manufacturing index rose, it’s still below 50, 42.9, which means more contraction on the way.

These aren’t official government figures, but those figures, due out Friday, are expected to be grim:

In its report on Friday, the Labor Department is expected to show 525,000 jobs were lost throughout the economy in January and the jobless rate is expected to rise to 7.5 percent.

Meanwhile, the dollar is up on expectation of further Euro zone rate cuts, and oil was down 46¢, continuing its love affair with the $40/bbl price.

Economics Update

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Consumer spending fell for the 6th straight month in December, and all of 2008 turned in just 3.6% increase, the worst year over year number since 1961.

The Institute for Supply Management’s factory index was better than expected, but still an anemic 35.6, but better than the consensus prediction of 32.5, but 50 is neutral, so anything under 50 signifies more contraction.

In inflation, the “Treasury Real Yield” is at a 16 month high.

The Treasury Real Yield is the spread between TIPS (Treasury Inflation Protected Securities) and regular treasuries, and is a measure of investor expectations of inflation….Which means that they are expecting more inflation…..Which is a good thing in this topsy-turvey economy.

Meanwhile in the Celtic kitten, Ireland is looking at injecting €8 billion into its troubled banks.

In Russia, and it looks like speculators are betting very heavily against the Ruble, which just hit a new low.

With Russia having already burnt through about 1/3 of its reserves in an unsuccessful attempt to maintain the currency, this could get very ugly.

Shrinking consumer demand has oil prices dropping again, and has pushed the dollar down against the Yen and Euro, though it improved against the sick man of Europe, the British Pound.

Economics Update

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The gross domestic product (GDP) fell at an annual rate of 3.8% in the 4th quarter of 2008, the biggest drop since the first quarter of 1982.

This is better than expected, but probably worse than it sounds.

First, the Fed Funds rate had peaked at almost 20% in 1981, and was still at 15% in early 1982. The Fed was trying to create a recession to short circuit inflation. (See graph pr0n)

Also, I agree with Barry Ritholtz of The Big Picture when he says, “The advance GDP data was released. I expect the revisions will make this even worse.”

Meanwhile, Calculated Risk’s Credit Crisis Indicators are showing improvement, most notably with treasury yields increasing, which implies that there is more competition for that money from other borrowers and lenders.

That being said, we are in a very weird place economically when an increase in interest rates is good news.

There are some dark spots in the indicators, the Chicago Purchasers’ January Index fell to 33.3, the lowest level since March, 1982….There it is again…..1982, and the Restaurant Performance Index (RPI) fell to a record low in December, which means that we aren’t seeing much buying on a wholesale or a retail level.

In energy, oil is up on concerns about the refinery strike, and in currency, the dollar is up on low Euro Zone inflation numbers, which suggest that the ECB might cut rates again.

Major Oil Refinery Strike Possible

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Talks between Royal Dutch Shell and the United Steelworkers do not appear to be going well, and a strike would idle about ½ the Gasoline refining in the United States.

The contract expires on Sunday, and if they go on strike, we can expect to see a significant spike in gasoline prices.

Needless to say, the ‘Phants would then be screaming for Obama to invoke Taft-Hartley, though I do not think that this would happen.

Economics Update

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Well, the FOMC meeting ended, and they relased statement saying that they will stay at zero interest rates for some time.

Additionally, they are looking at, “Unconventional Measures,” which appear to include buying longer term Treasuries.

It appears that one of those steps is that they will write down a significant of the mortgage backed securities that they picked up in the Bear and AIG bailouts, a sort of voluntary “cram down”.

Europe seems to have stabilized, at least for now, with consumer sentiment steadying.

Meanwhile, mortgage applications fell sharply, as interest rates have risen, from 4.88% at the beginning of the year to 5.22% now, in anticipation of ballooning deficits.

Of course, if reports that Moody’s is considering cutting GE’s triple-A credit rating, are true, we’re in for another big shock.

Both oil and the dollar inched up today.

Economics Update

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The lede on most business sections was good news, that home sales rose in December, as you can see on the top chart, but as the bottom chart clearly shows, home prices continue to fall.

Prices are down 15.3% year over year, and sales in 2008 are down 13% from 2007 sales.

The real question is how much of this is foreclosures and other REOs creating a market for bottom feeders, because the percentage of foreclosures relative to sales is way up.

Of course, interest rates have gone up a bit for mortgages, as they have in Treasuries, and this might further reduce home sales.

We also have the Conference Board’s index of leading economic indicators rising for the first time in 6 months, but it appears that this is entirely because of increasing money supply, as the Fed cranks up the presses.

The National Association of Business Economics’ (NABE) quarterly industry poll shows a far more pessimistic view of the path forward, with the worst numbers since they started the survey in 1982.

Israel’s central bank cut its benchmark rate by 75 basis points to 1%, on indications of a recession there.

In currency, the dollar fell, largely on good news on UK bank bailouts, and in energy oil was down about 6 bits, on reports of high inventories.